UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For the year ended December 31, 1999 Commission file Number 000-21750
PRIMESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1430030
- ------------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350 Haddonfield Road, Suite 222, Pennsauken, N.J. 08109
- -------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(856)488-4888
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Registrant's Telephone Number
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock $.01 par value per share Nasdaq
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
As of March 27, 2000 the aggregate market value of the voting stock held by
nonaffiliates was approximately $36.4 million.
As of March 27, 2000 there were 6,486,212 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (Item 10- Directors Only, and Items 11, 12 and
13 of Part III). The index of exhibits is located on page 33 of this document.
PART I.
Certain statements contained in this annual 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, the
impact of year 2000 issues and other risks and uncertainties as set forth in the
Company's periodic reports and other filings with the Securities and Exchange
Commission.
ITEM I. BUSINESS
PrimeSource Corporation (the "Company") is a major national distributor serving
the printing and publishing industry. For approximately 135 years, the Company
or its unincorporated predecessor has been servicing this industry. The Company,
which was incorporated under the laws of the Commonwealth of Pennsylvania in
1954, was acquired as a wholly-owned subsidiary of Tasty Baking Company ("TBC"),
Philadelphia, Pennsylvania in 1965. On August 1, 1993, TBC spun-off 100% of the
ownership of the Company in a dividend distribution of the Company common stock
to the shareholders of TBC. As a result, the Company became an independent
publicly-owned company whose shares are traded on the Nasdaq National Market.
Since becoming a public company, the Company has had three significant business
combinations. In 1994, Momentum Corporation with sales of approximately $165
million merged into the Company. In 1996, the Company acquired five of VGC
Corporation's branch operations with sales of approximately $55 million. In
1998, the Company acquired the graphic imaging group of Bell Industries, Inc.
with sales of approximately $135 million. With these acquisitions, the Company
has a significant presence in all of the major regions in the United States. The
Company believes there will be a continuing consolidation of distributors in the
industry and the Company's business strategy will continue to include pursuing
such acquisitions which will either expand the Company's presence in key markets
and/or offer new products and services to the printing and publishing industry.
The Company is headquartered in Pennsauken, New Jersey. The operations are
divided into three geographic regions. The Company maintains a decentralized
management structure that allows the operating regions broad discretion in the
conduct of their respective businesses, including responsibility for management
of their suppliers, customers and employees. Management is evaluated against
their financial and non-financial goals which are established on an annual
basis. The Company emphasizes sales growth as well as return on sales and net
assets. The Company believes it must strive to maximize its long-term return on
capital employed by quantifying this objective and applying it at the operating
level. Management believes that the concept of fostering and perpetuating the
entrepreneurial drive of operating management will continue to be a key factor
in the Company's future success.
The Company presently represents over 500 suppliers, provides more than 200,000
line items and has a customer base in excess of 30,000. No customer accounted
for more than 5% of the Company's net sales in 1999.
The Company offers consumables, such as films, plates, blankets, papers and
chemistries; scanners, servers, work stations, image setters, computer-to-plate
devices and other digital electronic equipment and the applicable software; and
press, bindery and other finishing machinery. The Company is the U.S.
distributor for Xeikon, which manufacturers on-demand and variable data digital
color printing systems and supplies. With the product range and in-house
expertise, the Company feels it is a premiere provider of printing solutions.
The printing industry has transitioned and continues to move through a period of
rapid technological change. Accordingly, the Company's product mix continues to
evolve, however, it remains positioned through both product and process
knowledge to fully service this market.
In addition, there has been and continues to be a consolidation of the customer
base. Many printing and imaging customers want a single source for design,
pre-press preparation, and printing. Consolidation eliminates duplicate overhead
costs and creates larger entities capable of supporting more sophisticated
management techniques, from strategic planning through actual production.
Management expects to continue to see this consolidation of customers into
larger operations offering more services to their customers.
While the Company sells primarily the same products as its competitors,
generally at similar prices, the Company attempts to differentiate itself by
providing a value-added approach with products and training and technical
support that can make its customers more efficient and effective. In addition,
the Company's broad geographic presence provides an advantage in servicing
regional and national customers.
There are over 300 independent dealers in the United States competing in this
industry with no dealer accounting for more than 15% of the total industry
sales. The Company believes it is one of the largest dealers in the United
States in terms of annual sales and covers a broader range of geographical
markets in the United States than any of its competitors. The Company has
minimal foreign sales or income.
The Company owns several trademarks and tradenames. To the extent trademarks,
tradenames, or patents are significant to the Company's business, they are owned
by the manufacturers the Company represents.
The Company has minimal backlog. The nature of its business is such that it
maintains substantial inventories in order to supply its customers immediately
upon receipt of an order. Approximately 30% of the Company's inventories are
consigned at various customer locations. Usage of consigned inventories is
monitored at least monthly through a physical inventory taken by Company
personnel.
Company management does not believe that compliance with federal, state or local
laws relating to the protection of the environment will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company employed 730 employees at December 31, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
BUSINESS EXPERIENCE POSITION HELD
NAME AGE LAST FIVE YEARS SINCE
- ------------------------ ------ ---------------------------- ----------------------
James F. Mullan 60 President and Chief Executive 1991-Present
President and Officer of Registrant
Chief Executive Officer
John H. Goddard, Jr. 52 Executive Vice President September, 1994-
Executive Vice President of Registrant Present
William A. DeMarco 54 Vice President and Chief Financial Officer September, 1994-
Vice President and of Registrant Present
Chief Financial Officer
Barry C. Maulding 54 Vice President, General Counsel September, 1994-
Vice President, and Corporate Secretary Present
General Counsel and of Registrant
Corporate Secretary
ITEM 2. PROPERTIES
The locations and primary use of the physical properties of the Company are as
follows:
Approximate
Square
Location Footage
- ---------------------------- -----------
Corporate Headquarters
Pennsauken, NJ 8,500
Distribution/Sales Facilities
Atlanta, GA (Norcross) 23,200
Birmingham, AL 37,000
Boston, MA (Hingham) 13,800
Chicago, IL (Itasca) 49,600
Cincinnati, OH 35,000
Dallas, TX 17,500
Denver, CO 10,000
Des Moines, IA (Ankeny) 14,000
Houston, TX (Bellaire) 10,300
Jackson, MS (Richland) 1,500
Kalamazoo, MI 14,700
Kansas City, KS 16,800
Lancaster, PA (Lititz) 14,300
Las Vegas, NV 6,200
Los Angeles, CA 44,900
Miami, FL (Miramar) 14,700
Milwaukee, WI (New Berlin) 23,300
Minneapolis, MN (Roseville) 76,800
Mobile, AL 8,000
Nashville, TN 16,000
New Orleans, LA (Harahan) 8,800
Omaha, NE 15,000
Orlando, FL 14,400
Pennsauken, NJ 19,500
Phoenix, AZ 11,500
Pittsburgh, PA 15,800
Portland, OR (Wilsonville) 8,800
Sacramento, CA 7,600
St. Louis, MO 22,000
San Diego, CA 10,600
San Jose, CA 21,300
Seattle, WA (Auburn) 8,300
All of the properties are held under operating leases, except for the
Birmingham, Des Moines, St. Louis and Seattle facilities which are owned.
Management believes that the Company's properties are generally well maintained
and adequate for current operations and foreseeable expansion. The inability of
the Company to renew any short-term real property lease would not have a
material effect on the Company's results of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management believes that none of the litigation in
which the Company is currently involved would, individually or in the aggregate,
have a material effect on the Company's consolidated financial position or
results of operations and cash flows when resolved in a future period.
The Company, along with many other parties, is a defendant in a contribution
action to determine the liability for the state ordered clean up of a landfill.
The Company believes its insurance will cover any costs incurred in this matter.
The Company is also, in general, subject to possible loss contingencies pursuant
to federal or state environmental laws and regulations. Although these
contingencies could result in future expenses or judgments, such expenses or
judgments are not expected to have a material effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the year.
PART II.
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market under the symbol
PSRC.
The following quarterly stock price and dividend information is provided for
1999 and 1998.
Stock Price
---------------------------- Cash Dividends
High Low Per Share
- --------------------------------------------------------------------------------
1999
- ----
First Quarter $ 7.06 $ 5.25 $ .045
Second Quarter 8.12 4.84 .045
Third Quarter 8.00 4.50 .045
Fourth Quarter 6.50 4.00 .045
1998
- ----
First Quarter $ 11.50 $ 9.37 $ .045
Second Quarter 11.50 8.25 .045
Third Quarter 9.75 7.87 .045
Fourth Quarter 8.06 6.25 .045
In the first quarter of 2000, the Company increased the quarterly cash dividend
to $.0475 per share. The payment of future cash dividends will depend on the
level and growth of the Company's earnings and the Company's needs for cash.
There were approximately 3,100 shareholders of record as of December 31, 1999.
For purposes of computing the aggregate market value of the voting stock of the
Company held by nonaffiliates, as shown on the cover page of this report, it has
assumed that all the outstanding shares were held by nonaffiliates except for
the shares held by directors and officers of the Company. However, this should
not be deemed to constitute an admission that all directors and officers of the
Company are, in fact, affiliates of the Company, or that there are not other
persons who may be deemed to be affiliates of the Company. Further information
concerning shareholdings of officers, directors and principal shareholders is
included in the Company's definitive proxy statement filed with the Securities
and Exchange Commission by April 30, 2000.
ITEM 6. SELECTED FINANCIAL DATA
This information should be read in conjunction with the Company's consolidated
financial statements and notes to such statements included herein.
Years Ended December 31,
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(in thousands, except per share amounts) 1999 1998(1) 1997(2) 1996 1995 (3)
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Statement of Income Data
Net sales .............................. $ 545,273 $ 453,047 $ 414,867 $ 366,657 $ 357,077
Cost of sales .......................... 452,396 369,844 343,116 301,428 293,790
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Gross profit ........................... 92,877 83,203 71,751 65,229 63,287
Operating expenses ..................... 78,699 72,820 63,257 57,033 58,615
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Income from operations ................. 14,178 10,383 8,494 8,196 4,672
Interest expense ....................... (5,484) (3,605) (2,913) (1,915) (2,235)
Gain on sale of capital lease .......... 3,658
Loss on business divestiture ........... (401)
Other income-net ....................... 78 297 515 421 441
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Income before provision for income taxes 8,772 7,075 9,353 6,702 2,878
Provision for income taxes ............. 3,663 2,975 3,862 2,788 1,232
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Net income ............................. $ 5,109 $ 4,100 $ 5,491 $ 3,914 $ 1,646
========================================================================================================
Per Share Data
Net income per basic share ............. $ .78 $ .63 $ .84 $ .60 $ .25
Net income per diluted share ........... .78 .62 .83 .60 .25
Cash dividends per share ............... .18 .18 .18 .18 .38
========================================================================================================
Balance Sheet Data
Working capital ........................ $ 94,236 $ 100,602 $ 69,151 $ 67,040 $ 65,168
Total assets ........................... 196,807 190,697 138,491 134,175 119,804
Total long-term obligations ............ 62,500 75,205 32,788 36,250 32,202
Shareholders' equity ................... 59,545 55,611 52,548 48,183 45,572
========================================================================================================
<FN>
(1) Income for 1998, includes a one-time restructure and other expense of
$1,050,000 ($634,000 after tax) relating to the reorganization of the
Company into three regions and the integration of an acquisition.
(2) Income for 1997, includes a charge to cost of sales for $2,300,000
($1,381,000 after tax) for the write-down of electronic equipment
inventory, a $3,658,000 ($2,183,000 after tax) gain on the sale of a
capital lease and a $401,000 ($241,000 after tax) loss on a business
divestiture.
(3) Income for 1995, includes a one-time restructure expense of $1,315,000
($794,000 after tax) relating to the consolidation of five distribution
centers, the realignment of two others, and the centralization of certain
financial and information services.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth for the years indicated certain items from the
accompanying Consolidated Statements of Income expressed as a percentage of net
sales.
Years Ended December 31,
--------------------------
1999 1998 1997
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Net sales .................................. 100.0% 100.0% 100.0%
Cost of sales .............................. 83.0 81.6 82.7
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Gross profit ............................... 17.0 18.4 17.3
Selling, general and administrative expenses 13.6 15.2 14.5
Depreciation and amortization .............. .6 .6 .6
Provision for doubtful accounts ............ .2 .1 .2
Restructure and other ...................... .2
- --------------------------------------------------------------------------
Income from operations ..................... 2.6 2.3 2.0
Interest expense ........................... (1.0) (.8) (.7)
Gain on sale of capital lease .............. .9
Loss on business divestiture ............... (.1)
Other income-net ........................... .1 .1
- --------------------------------------------------------------------------
Income before provision for income taxes ... 1.6 1.6 2.2
Provision for income taxes ................. .7 .7 .9
- --------------------------------------------------------------------------
Net income ................................. .9% .9% 1.3%
==========================================================================
COMPARISON OF 1999 TO 1998
Net income for 1999 was $5,109,000, or $.78 per diluted share, compared to
$4,100,000, or $.62 per diluted share, in 1998. Excluding a one-time pre-tax
restructure and other charge of $1.05 million in 1998, the net income in 1998
was $4,734,000, or $.71 per diluted share.
This increase in net income for 1999 was the result of improved income from
operations. During the year, the Company was able to successfully integrate the
acquisition of Bell Industries' Graphic Imaging Group ("Bell acquisition") and
complete the reorganization of the Company into three regions. Excluding the
1998 one-time charge, income from operations increased 24% in 1999 from
$11,433,000 in 1998 to $14,178,000 in 1999, the highest level in the Company's
history. Including the one-time charge, 1998 income from operations was
$10,383,000.
Sales for 1999 were $545,273,000, a 20% increase over 1998 sales of
$453,047,000. This sales increase is primarily the result of the Bell
acquisition, increased national account sales and over a 200% increase in
digital press sales.
Gross profit as a percent of sales was 17% in 1999 compared to 18.4% in 1998.
This decrease is primarily the result of changes in product and customer mix and
lower manufacturer rebates.
Selling, general and administrative expenses as a percent of sales decreased
from 15.2% in 1998 to 13.6% in 1999. In 1998, the Company incurred a restructure
and other charge of $1.05 million related to reorganizing the Company into three
regions and integrating the Bell operations. This percentage decrease in
selling, general and administrative expenses reflects the successful
implementation of this reorganization and integration program.
Depreciation and amortization expense increased from $2,507,000 in 1998 to
$3,096,000 in 1999. This increase is due to additional goodwill amortization as
a result of the Bell acquisition.
The provision for doubtful accounts increased from $440,000 in 1998 to
$1,186,000 in 1999. This increase is due to increased sales in 1999, plus,
losses that occurred in transitioning accounts acquired in the Bell acquisition.
Interest expense increased from $3,605,000 in 1998 to $5,484,000 in 1999. This
increase is attributable to the debt associated with the Bell acquisition.
The effective income tax rate remained relatively constant between the two years
at 41.8% in 1999 and 42% in 1998. The difference between the effective tax rates
and the federal statutory rate of 34% is primarily attributable to the effect of
state income taxes and non-deductible expenses.
For the year 2000, the Company expects to continue to see strong sales growth in
national accounts and digital press sales. The Company continues to review the
substantial technological changes occurring, and the Company's existing
operating structure, to determine what changes can be made to better serve
customers, improve efficiencies and/or reduce costs. In addition, assuming the
printing industry and the economy remain stable, the Company expects to also
lower its bad debt expense.
COMPARISON OF 1998 TO 1997
Net income for 1998 was $4,100,000, or $.62 per diluted share compared to
$5,491,000, or $.83 per diluted share in 1997. Included in the 1998 income is a
restructure and other charge of $1.05 million for aligning the Company into
three regions and integrating the Bell acquisition. Included in the 1997 income
is a $3.7 million gain on the sale of a capital lease, a $2.3 million electronic
equipment inventory write-down and a $0.4 million loss on a business
divestiture. Excluding these one-time items for both years, net income for 1998
was $4,734,000 or $.71 per diluted share compared to $4,930,000 or $.74 per
diluted share for 1997.
Sales in 1998 were $453,047,000 compared to $414,867,000 in 1997, an increase of
9%. This sales increase is primarily the result of the Bell acquisition.
Excluding the effect of the Bell acquisition, sales of digital presses had
strong growth and consumable sales increased slightly. Sales of electronic
prepress systems decreased, which tended to offset most of the overall internal
sales growth.
Gross profit as a percent of sales was 18.4% in 1998 compared to 17.8% in 1997,
before including the effect of the $2.3 million electronic equipment inventory
write-down in 1997. The improvement in 1998 is primarily the result of stronger
margins from systems sales, increased digital press sales with higher margins
and higher margins from the Bell business. Including the inventory write-down,
the gross profit percentage in 1997 was 17.3%.
Selling, general and administrative expenses as a percent of sales increased
from 14.5% in 1997 to 15.2% in 1998. This increase is primarily due to
additional personnel costs associated with electronic prepress sales. In
addition, the benefits of integrating the Bell acquisition did not occur until
1999.
In the fourth quarter of 1998, the Company incurred a restructure and other
charge of $1.05 million related to reorganizing the Company into three regions
and integrating the Bell operations. The costs incurred were for employee
severances and closure of duplicate facilities. The Company anticipates the
savings from this reorganization will bring the percentage of selling, general
and administrative expenses to sales to levels consistent with or lower than
preceding years.
In 1998, the provision for doubtful accounts decreased to $440,000 from $694,000
in 1997. The Company has benefited from effective credit policies and the strong
economy.
Interest expense increased from $2,913,000 in 1997 to $3,605,000 in 1998. This
increase is attributable to the debt associated with the Bell acquisition.
In 1997, the Company sold a capital lease for a gain of $3.7 million and
disposed of a business operation for a loss of $0.4 million. In 1998, there were
no similar disposals.
The effective income tax rate increased from 41.3% in 1997 to 42% in 1998. The
higher rate in 1998 is primarily due to non-deductible expenses being a higher
percent of income in 1998 compared to 1997. The difference between the effective
tax rates and the federal statutory rate of 34% for both years is primarily
attributable to the effect of state income taxes and non-deductible expenses.
Financial Condition and Liquidity
Cash provided by operating activities was $10,196,000 in 1999 and cash used in
operating activities was $2,302,000 and $1,795,000 in 1998 and 1997,
respectively. The improvement between 1999 and 1998 is primarily attributable to
changes in working capital levels. Changes in assets and liabilities resulted in
a $1.4 million inflow of cash in 1999 compared to an outflow of $10 million in
1998. Excluding the impact of changes in assets and liabilities, the cash flow
was $8.8 million in 1999, a 15% increase over the $7.7 million in 1998. In 1997,
the cash flow before the effect of changes in assets and liabilities was $4.9
million.
Cash flow used by investing activities was $487,000 and $45,618,000 in 1999 and
1998, compared to cash provided by investing activities of $3,650,000 in 1997.
The large outflow in 1998 was primarily due to the Bell acquisition and the
inflow in 1997 was primarily the result of the proceeds from the sale of a
capital lease. In the three years, property and equipment expenditures ranged
between $1.5 and $1.9 million. The Company had no material capital expenditure
commitments at December 31, 1999 and expects capital expenditures for 2000 to be
approximately $2 million.
Cash flows from financing activities were $9,709,000 used in 1999, $47,920,000
provided in 1998, and $1,855,000 used in 1997. The cash used in 1999 was
primarily the result of reducing debt with cash provided from operations. The
cash provided in 1998 was primarily from additional debt and was used for
acquisitions. The cash used in 1997 was primarily for the repayment of debt and
was primarily provided from the proceeds from the sale of the capital lease and
the business divestiture.
The Company's primary source of debt financing is a revolving credit agreement
with a commitment of $75 million and $62.5 million outstanding at December 31,
1999. In addition, the Company has $7.5 million available under short-term lines
with $1.0 million outstanding at December 31, 1999. The Company believes these
sources of borrowing, combined with cash from operations, is sufficient to
support the current capital requirements of the Company.
Year 2000 Issues
The Company's business system required program modifications prior to the year
2000 for what is commonly referred to as the "Year 2000 Issue." Similar to other
systems, the Company's system had to be modified to change the date for years
from an abbreviated two-digit number to a four-digit number. Without this
modification, the abbreviated two-digit number would have caused many of the
functions within the system to operate improperly or malfunction in the year
2000.
The above modification was part of an extensive system enhancement. The cost for
the complete enhancement was approximately $300,000. No other significant
information system additions have been postponed as a result of this project.
To date, the Company has not identified any Year 2000 problems. The Company has
not incurred any problems with its business system. There have been no
significant problems with suppliers or customers, or services to Company
facilities such as telecommunication or power.
The Company realizes problems could arise during the year, and will continually
be reviewing its system during the year to identify potential problems. With
regard to future readiness of suppliers, customers and service providers, based
on the lack of problems incurred in January, 2000, the Company does not 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.
The Company has not been notified by any current or former customers of any Year
2000 problems with equipment sold to them by the Company. If claims related to
this equipment 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 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.
Market Sensitive Instruments and Risk Management
The Company utilizes derivative financial instruments to reduce interest rate
risks. The Company does not hold or issue financial instruments for trading or
speculative purposes. The counterparty is a major commercial bank. At December
31, 1999, the Company had one derivative financial instrument, an interest rate
swap agreement with a notional amount of $17 million. This swap agreement
effectively fixes the interest rate on a like amount of the Company's floating
rate debt at 6.16% plus the Company's LIBOR spread in effect at the time. The
effective rate was 7.86% at December 31, 1999. The swap expires on November 6,
2001. A 100 basis point downward parallel shift in the yield curve would not
have a material effect on the Company's results of operations, liquidity or
financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PRIMESOURCE CORPORATION
Consolidated Statements of Income
Years Ended December 31,
-----------------------------------
(Thousands of dollars, except per share amounts) 1999 1998 1997
- -----------------------------------------------------------------------------------
Net sales ................................... $ 545,273 $ 453,047 $ 414,867
Cost of sales ............................... 452,396 369,844 343,116
- -----------------------------------------------------------------------------------
Gross profit ................................ 92,877 83,203 71,751
Selling, general, and administrative expenses 74,417 68,823 60,151
Depreciation and amortization ............... 3,096 2,507 2,412
Provision for doubtful accounts ............. 1,186 440 694
Restructure and other ....................... 1,050
- -----------------------------------------------------------------------------------
Income from operations ...................... 14,178 10,383 8,494
Interest expense ............................ (5,484) (3,605) (2,913)
Gain on sale of capital lease ............... 3,658
Loss on business divestiture ................ (401)
Other income-net ............................ 78 297 515
- -----------------------------------------------------------------------------------
Income before provision for income taxes .... 8,772 7,075 9,353
Provision for income taxes .................. 3,663 2,975 3,862
- -----------------------------------------------------------------------------------
Net income .................................. $ 5,109 $ 4,100 $ 5,491
===================================================================================
Net income per share
Basic ....................................... $ .78 $ .63 $ .84
Diluted ..................................... .78 .62 .83
===================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
PRIMESOURCE CORPORATION
Consolidated Balance Sheets
December 31,
--------------------
(Thousands of dollars, except share information) 1999 1998
- -------------------------------------------------------------------------------------------
Assets
Current Assets
Trade receivables, less allowances of $3,127 and $3,419, respectively $ 83,012 $ 73,602
Other receivables ................................................... 10,683 9,973
Inventories ......................................................... 68,379 69,111
Deferred income taxes ............................................... 3,228 2,852
Other ............................................................... 843 962
- -------------------------------------------------------------------------------------------
Total Current Assets ................................................ 166,145 156,500
Property and equipment, net ......................................... 12,063 12,773
Excess of cost over net assets of businesses acquired,
net of accumulated amortization of $3,043 and $1,958, respectively 16,427 17,526
Deferred income taxes ............................................... 977 1,567
Long-term receivables ............................................... 585 697
Other assets ........................................................ 610 1,634
- -------------------------------------------------------------------------------------------
Total Assets ........................................................ $196,807 $190,697
===========================================================================================
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term obligations ............................ $ 104 $ 1,128
Notes payable ....................................................... 953 3,500
Accounts payable .................................................... 45,766 33,745
Book overdraft ...................................................... 16,937 9,195
Accrued payroll and benefits ........................................ 4,241 3,745
Other accrued liabilities ........................................... 3,908 4,585
- -------------------------------------------------------------------------------------------
Total Current Liabilities ........................................... 71,909 55,898
Long-term obligations, net of current portion ....................... 62,500 75,205
Accrued pension and other liabilities ............................... 1,068 2,070
Postretirement benefits other than pension .......................... 1,785 1,913
- -------------------------------------------------------------------------------------------
Total Liabilities ................................................... 137,262 135,086
- -------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Equity
Common stock, $.01 par value, 24,000,000 shares authorized
6,536,212 and 6,536,018 issued and outstanding, respectively ........ 65 65
Additional paid-in capital .......................................... 25,725 25,724
Retained earnings ................................................... 33,755 29,822
- -------------------------------------------------------------------------------------------
Total Shareholders' Equity .......................................... 59,545 55,611
- -------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity .......................... $196,807 $190,697
===========================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
PRIMESOURCE CORPORATION
Consolidated Statements of Cash Flows
Years Ended December 31,
------------------------------
(Thousands of dollars) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
Operating Activities
Net income ............................................. $ 5,109 $ 4,100 $ 5,491
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ........................................ 2,003 1,957 1,980
Amortization ........................................ 1,093 550 432
Provision for doubtful accounts ..................... 1,186 440 694
Pension benefit ..................................... (959) (218) (190)
Gain on sale of capital lease ....................... (3,658)
Loss on business divestiture ........................ 401
Restructure and other expense ....................... 996
Other ............................................... 406 (112) (201)
Changes in assets and liabilities, net of
effects from business combinations/divestitures:
Receivables ......................................... (11,306) (1,075) (574)
Inventories ......................................... 732 2,388 (7,754)
Other current assets ................................ 119 278 (484)
Income taxes ........................................ 843 (668) 100
Accounts payable and other accrued liabilities ...... 11,303 (10,803) 2,255
Pension and other postretirement benefits ........... (333) (135) (287)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities .... 10,196 (2,302) (1,795)
Investing Activities
Proceeds from sales of property and equipment .......... 67 163 565
Proceeds from sale of capital lease .................... 3,151
Purchase of property and equipment ..................... (1,452) (1,743) (1,918)
Proceeds from business divestitures .................... 2,388
Payments for business acquisitions, net of cash acquired (100) (43,946)
Decrease in long-term receivables ...................... 112 127 71
Decrease (increase) in other assets ................... 1,017 (185) (254)
Other, net ............................................. (131) (34) (353)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities .... (487) (45,618) 3,650
Financing Activities
Net increase (decrease) in short-term borrowings ....... (2,547) 3,500
Proceeds from long-term obligations .................... 92,600 144,300 74,600
Repayment of long-term obligations ..................... (106,329) (102,429) (77,048)
Increase in book overdraft ............................. 7,742 3,586 1,762
Dividends paid ......................................... (1,176) (1,175) (1,172)
Purchase of common stock ............................... (106)
Proceeds from exercise of stock options ................ 1 138 109
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities .... (9,709) 47,920 (1,855)
- ----------------------------------------------------------------------------------------------
Net change in cash ..................................... -- -- --
Cash at beginning of year .............................. -- -- --
- ----------------------------------------------------------------------------------------------
Cash at end of year .................................... $ -- $ -- $ --
==============================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
PRIMESOURCE CORPORATION
Consolidated Statements of Shareholders' Equity
Common Stock Unamortized
($.01 Par Value) Additional Restricted
(Thousands of dollars, ------------------------ Paid-in Retained Stock
except share information) Shares Amount Capital Earnings Awards Total
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1997 ........... 6,514,795 $ 65 $ 25,533 $ 22,628 $ (43) $ 48,183
Net income ......................... 5,491 5,491
Cash dividends paid to
shareholders ($.18 per share) ... (1,172) (1,172)
Stock options exercised and related
tax benefit, net of shares
received as payment upon exercise 15,837 109 109
Amortization of restricted
stock awards .................... 43 43
Purchase and retirement
of common stock ................. (14,012) (56) (50) (106)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 ......... 6,516,620 65 25,586 26,897 -- 52,548
Net income ......................... 4,100 4,100
Cash dividends paid to
shareholders ($.18 per share) ... (1,175) (1,175)
Stock options exercised and related
tax benefit, net of shares
received as payment upon exercise 19,398 138 138
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 ......... 6,536,018 65 25,724 29,822 -- 55,611
Net income ......................... 5,109 5,109
Cash dividends paid to
shareholders ($.18 per share) ... (1,176) (1,176)
Stock options exercised ............ 200 1 1
Purchase and retirement
of common stock ................. (6)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 ......... 6,536,212 $ 65 $ 25,725 $ 33,755 $ -- $ 59,545
=======================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
PRIMESOURCE CORPORATION
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Consolidation
PrimeSource Corporation (the "Company") is a national distributor
serving the printing and publishing industries. The consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments
purchased with a maturity of three months or less to be cash
equivalents. The Company's cash management program utilizes zero
balance accounts. Accordingly, in general, the Company has none or
minimal cash balances. Book overdraft balances have been reclassified
to a current liability in the accompanying Consolidated Balance Sheets.
Inventory Valuation
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
(FIFO) methods.
Property and Equipment
Property and equipment are carried at cost or assigned values as a
result of acquisitions. Costs of major additions, replacements and
betterments are capitalized, and maintenance and repairs which do not
extend the life of the respective assets are expensed as incurred. When
property is retired or otherwise disposed, the cost of the property and
the related accumulated depreciation are removed from the accounts, and
any resulting gains or losses are reflected in current operations.
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets which range from three to ten years for
machinery and equipment and ten to forty years for buildings and
improvements.
Capital leases are included under property and equipment with the
corresponding amortization included in depreciation. The related
financial obligations under the capital leases are included in
long-term obligations. Capital leases are amortized over the useful
lives of the respective assets.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying value of the asset.
Excess of Cost Over Net Assets of Businesses Acquired
The excess of the total acquisition cost over the fair value of net
tangible assets acquired (the "goodwill acquired") is being amortized
by the straight-line method over periods ranging from fifteen to forty
years. The Company's policy is to record an impairment loss against the
goodwill acquired in the period when it is determined the carrying
amount of the net assets may not be recoverable. The Company performs
this evaluation on a quarterly basis. This determination includes
evaluation of factors such as current market value, future asset
utilization, business climate and future net cash flows (undiscounted
and without interest) expected to result from the use of the net
assets.
Revenue Recognition
Revenue is generally recognized when products are shipped and title is
passed to the customer.
Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce
interest rate risks. The Company does not hold or issue financial
instruments for trading or speculative purposes. The counterparty is a
major commercial bank. Management believes losses related to credit
risk are remote. The instruments are accounted for on an accrual basis.
The net cash amounts paid or received under such agreements are accrued
and recognized as an adjustment to interest expense.
Fair Value of Financial Instruments
The carrying value of the Company's short-term financial instruments,
such as receivables and notes and accounts payable, approximate their
fair values, based on the short-term maturities of these instruments.
The carrying value of long-term investments, consisting primarily of
long-term notes receivable, and long-term debt obligations, consisting
primarily of revolving credit debt with interest rates based on current
short-term market rates, approximates the market value based on the
estimated discounted value of future cash flows at December 31, 1999
and 1998. The fair value of derivative financial instruments is based
on the quoted settlement cost on the balance sheet date.
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are
limited due to a large customer base and its geographic dispersion.
Ongoing credit evaluations of customers' financial condition are
performed and, generally, no collateral is required.
Stock-Based Compensation
The Company applies the intrinsic value based method prescribed in
Accounting Principles Board Opinion No. 25 to account for options
granted to employees to purchase common shares. Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" requires that companies electing to continue using the
intrinsic value method must make pro forma disclosures of net income
and net income per share as if the fair-value-based method of
accounting had been applied.
Income Taxes
Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis of assets
and liabilities and their reported amounts.
Net Income Per Common Share
Basic net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period.
Diluted net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period
adjusted for the number of shares that would have been outstanding if
the dilutive potential common shares had been issued.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
Certain reclassifications of prior years' amounts have been made to
conform to the current year's presentation.
2. Business Acquisitions
In September 1998, the Company acquired the net assets of Bell
Industries' Graphic Imaging Group ("Bell acquisition") with thirteen
locations in the West, Southwest and Midwest for approximately $42.5
million. The excess of the acquisition costs over the net tangible
assets acquired is included in the Consolidated Balance Sheets and is
being amortized on a straight-line basis over 20 years. Assuming the
acquisition had occurred at the beginning of the year, unaudited
pro-forma sales and net income for the year ended December 31, 1998,
would have been approximately $552.7 million and $4.8 million ($.73 per
basic share and $.72 per diluted share), respectively. For the year
ended December 31, 1997, unaudited pro-forma sales and net income,
would have been approximately $571.2 million and $5.9 million ($.90 per
basic share and $.88 per diluted share), respectively. The sales
decrease between 1997 and 1998 reflects reduced sales in the Bell
business.
In April 1998, the Company acquired the assets of Joseph Genstein,
Inc., a graphics distributor in the Pittsburgh area, for approximately
$1.5 million. In 1999, an additional $100,000 was paid in accordance
with a contingent incentive provision under the purchase agreement for
obtaining a specified sales level after the acquisition. The excess of
the acquisition costs over the net tangible assets acquired for this
acquisition is included in the Consolidated Balance Sheets and is being
amortized on a straight-line basis over 15 years. The pro-forma results
of this acquisition would not have had a significant impact on the
Company's consolidated results of operations.
These acquisitions have been accounted for as purchases and,
accordingly, are included in operations from their respective
acquisition dates.
3. 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 in 1998, the Company incurred $1,050,000 in
restructure and other expenses composed of $600,000 for employee
severance compensation for 36 employees, $350,000 in the write-down of
a building to net realizable value, and $100,000 for lease costs on
vacated leased facilities. At December 31, 1998, $54,000 of the
severance compensation had been paid. In 1999, several of the vacated
leased facilities were subleased resulting in a $20,000 reduction in
this anticipated loss. In February 2000, the building was sold
resulting in an additional loss of $80,000. This net $60,000 additional
expense was recognized in the Consolidated Statements of Income in
1999. The following table sets forth the components at December 31,
1998 and the activity during 1999.
Balance Balance
December 31, Cash Income December 31,
(Thousands of dollars) 1998 Expenditures Adjustments 1999
-----------------------------------------------------------------------------------------------------
Employee severance $ 546 $ (546) $ --- $ ---
Lease obligations 100 (80) (20) ---
Asset write-downs 350 80 430
----------------------------------------------------------------------------------------------------
Total ............ $ 996 $ (626) $ 60 $ 430
=====================================================================================================
The asset write-downs are included as a reduction in property and
equipment on the Consolidated Balance Sheets.
4. Sale of Capital Lease
In 1997, the Company sold its rights to a building lease in the Los
Angeles California area for $3,151,000. The lease had been accounted
for as a capital lease. The pretax gain on the sale, after eliminating
the associated net financial basis of the lease assets of $695,000 and
the liability for future lease payments of $1,202,000, was $3,658,000.
Subsequent to the sale, the Company's operations previously located in
the facility were moved to a new leased facility in the area.
5. Business Divestitures
In 1997, the Company completed the sale of a pressroom material
converting operation. The pretax loss on the sale was $401,000. In
conjunction with the sale, the Company entered into a supplier
agreement with the buyer. In 1996, the Company sold substantially all
of the assets of its Rochester, New York subsidiary, Onandaga Litho
Supply, Co., Inc. There was no gain or loss on this sale.
6. Cash Flow Information
Cash payments for interest and income taxes (net of refunds) for the
years ended December 31, consisted of:
(Thousands of dollars) 1999 1998 1997
--------------------------------------------------------
Interest ... $5,687 $3,368 $2,742
Income taxes 2,750 3,760 3,878
========================================================
Excluded from the accompanying Consolidated Statements of Cash Flows
for the year ended December 31, 1998 are the fair value of the assets
acquired in the Bell acquisition of $55,314,000 and the liabilities
assumed or created in the same acquisition of $11,368,000.
7. Inventories
Inventories, which are primarily finished goods, at December 31,
consisted of:
(Thousands of dollars) 1999 1998
------------------------------------------------------
Last-in, first-out (LIFO) $32,400 $33,631
First-in, first-out (FIFO) 35,979 35,480
------------------------------------------------------
Total inventories ....... $68,379 $69,111
======================================================
The current replacement costs of inventories exceeds LIFO values by
approximately $5,785,000 and $5,660,000 at December 31, 1999 and 1998,
respectively.
In 1997, the Company expensed $2.3 million to write-down electronic
equipment inventory to current market value. This amount has been
recorded in cost of sales in the Consolidated Income Statements.
8. Property and Equipment
Property and equipment, net, at December 31, consisted of:
(Thousands of dollars) 1999 1998
------------------------------------------------------------------------
Land ......................................... $ 1,354 $ 1,354
Buildings and improvements ................... 7,300 7,381
Leased property .............................. 399 399
Machinery, equipment and other ............... 13,707 14,623
------------------------------------------------------------------------
22,760 23,757
Less accumulated depreciation and amortization (10,697) (10,984)
------------------------------------------------------------------------
Property and equipment, net .................... $ 12,063 $ 12,773
========================================================================
9. Notes Payable and Long-Term Obligations
The long-term obligations of the Company at December 31, consisted of:
(Thousands of dollars) 1999 1998
------------------------------------------------------------------------
Revolving credit agreement ..................... $ 62,500 $ 74,800
Term loan (interest rate of 6.03%), principal
payments of $167 plus interest due quarterly . 667
Term loan (interest rate of 6.03%), principal
payments of, $134 plus interest due quarterly 535
Other miscellaneous obligations ................ 104 331
-----------------------------------------------------------------------
62,604 76,333
Less current portion ........................... (104) (1,128)
-----------------------------------------------------------------------
Net long-term obligations ...................... $ 62,500 $ 75,205
=======================================================================
Maturities of long-term obligations are $104,000 in 2000, $62,500,000
in 2001 and none thereafter.
The Company has an uncollateralized $75 million revolving credit
agreement that expires in May 2001. Under the terms of the agreement,
which includes three banks, the Company can borrow at the prime rate or
the London Interbank Offered Rate (LIBOR) plus between .50% to 1.70%
depending on certain specified performance levels.
The Company has two short-term bank lines of credit for $5 million
each. One is a committed line established in 1999 with a bank
commitment through June 30, 2000 and an interest rate of prime less
1.5%. The outstanding balance under this line was $953,000 at December
31, 1999 and the weighted average interest rate for 1999 was 6.9%. The
second line is an uncommitted discretionary line that was for $10
million in 1998, and was decreased to $5 million in 1999 in conjunction
with the issuance of the committed line. The outstanding balance under
this line was none and $3,500,000 at December 31, 1999 and 1998,
respectively. The interest rate on this line is based on an internal
rate established by the bank. The weighted average interest rate was
7.2% and 7% for 1999 and 1998, respectively. Under the revolving credit
agreement, the total outstanding balances under these lines cannot
exceed $7.5 million at any given point.
The loan agreements provide, among other terms, various requirements
for tangible net worth and leverage and fixed charge coverage ratios.
At December 31, 1999, the Company was in compliance with these
requirements.
In 1997, the Company entered into an interest rate swap agreement with
a notional amount of $17 million. This swap agreement effectively fixes
the interest rate on a like amount of the Company's floating rate debt
at 6.16% plus the Company's LIBOR spread in effect at the time. The
effective rate was 7.86% at December 31, 1999. The swap expires on
November 6, 2001. The fair value of the swap agreement, based on the
quoted settlement cost to close the contract at December 31, 1999, is a
liability of $139,000. The fair value of the swap agreement is not
recognized in the consolidated financial statements since it is
accounted for as a hedge.
10. Provision for Income Taxes
The income tax provision for the years ended December 31, consisted of:
(Thousands of dollars) 1999 1998 1997
-----------------------------------------------------------
Current:
Federal .................. $ 2,762 $ 2,450 $ 3,349
State .................... 754 644 791
-----------------------------------------------------------
3,516 3,094 4,140
Deferred:
Federal .................. 115 (93) (229)
State .................... 32 (26) (49)
-----------------------------------------------------------
147 (119) (278)
-----------------------------------------------------------
Provision for income taxes $ 3,663 $ 2,975 $ 3,862
===========================================================
Reconciliation of the provision for income taxes computed at the
federal statutory rate of 34% to the actual provision for income taxes
for the years ended December 31, consisted of:
(Thousands of dollars) 1999 1998 1997
--------------------------------------------------------------------------------------
Statutory tax provision ............................. $ 2,982 $ 2,406 $ 3,180
State income taxes, net of federal income tax benefit 519 408 490
Expenses for which there are no tax benefits ........ 179 190 172
Other, net .......................................... (17) (29) 20
-------------------------------------------------------------------------------------
Provision for income taxes .......................... $ 3,663 $ 2,975 $ 3,862
=====================================================================================
Deferred income taxes represent the future tax consequences of
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. Significant components of
the Company's deferred tax assets (liabilities) at December 31,
consisted of:
(Thousands of dollars) 1999 1998
-----------------------------------------------------------------
Provision for doubtful accounts ........... $ 1,238 $ 764
Inventory reserves ........................ 857 712
Postretirement benefits other than pensions 707 758
Vacation accrual .......................... 424 434
Pension and employee benefit costs ........ 385 774
Goodwill .................................. 277 313
Depreciation .............................. (495) (422)
Other, net ................................ 812 1,086
-----------------------------------------------------------------
Total deferred tax assets ................. $ 4,205 $ 4,419
=================================================================
11. Net Income Per Share
The following is a reconciliation of the average shares of common stock
used to compute basic net income per share to the shares used to
compute diluted net income per share as shown on the Consolidated
Statements of Income for the years ended December 31:
1999 1998 1997
--------------------------------------------------------------------------------
Average shares of common stock outstanding
used to compute basic net income per share . 6,536,098 6,526,805 6,509,083
Dilutive effect of stock options ........... 12,842 122,611 126,751
---------------------------------------------------------------------------------
Average shares of common stock outstanding
used to compute diluted net income per share 6,548,940 6,649,416 6,635,834
---------------------------------------------------------------------------------
Net income per share:
Basic ...................................... $.78 $.63 $.84
Diluted .................................... .78 .62 .83
================================================================================
At December 31, 1999, there were outstanding options to purchase
589,492 shares of common stock at a range of prices between $5.75 and
$11.18. The dilutive effect of stock options is based on the treasury
method that computes the equivalent dilutive shares as the difference
between the option shares and the amount of assumed common shares that
could be purchased from the proceeds from the exercise of the stock
options at the then current market price. To the extent the option
price exceeds the current common stock price, the options are
excluded, as the effect of including these options would be
anti-dilutive, reducing the number of shares. The calculation for a
year is based on the weighted-average dilutive shares during the year
reflecting both changes in outstanding options during the year and
changes in the common stock's market price. At December 31, 1999, the
option prices were above the common stock's market price, thus none of
the option shares were included in the calculation.
12. Defined Benefit Pension Plans
The Company has a defined benefit pension plan that covers
substantially all of the Company's employees. In general, an employee
becomes vested after completing five years of service, and the benefit
is based on the employee's years of service and compensation during the
ten years preceding retirement. Contributions to the plan are based on
funding standards established by the Employee Retirement Income
Security Act of 1974. In addition, the Company has a supplemental
executive retirement plan for certain Company executives that provides
certain additional benefits.
The components of the net periodic pension benefit for the years ended
December 31, were:
(Thousands of dollars) 1999 1998 1997
---------------------------------------------------------------------
Service cost ..................... $ 995 $ 982 $ 728
Interest cost .................... 1,874 1,872 1,734
Expected return on plan assets ... (3,538) (2,980) (2,524)
Amortization of prior service cost (9) (9) (9)
Transition cost amortization ..... 5 5 5
Recognized net actuarial gain .... (286) (88) (124)
--------------------------------------------------------------------
Net periodic pension benefit ..... $ (959) $ (218) $ (190)
====================================================================
Assumptions:
Discount rate .................... 7.50% 6.50% 7.00%
Expected return on plan assets ... 10.00% 10.00% 10.00%
Rate of compensation increase .... 4.00% 4.00% 4.00%
====================================================================
The change in the financial status of the plans and amounts recognized
in the Company's Consolidated Balance Sheets at December 31, were:
(Thousands of dollars) 1999 1998
----------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year ...... $ 30,805 $ 26,689
Service cost ................................. 995 982
Interest cost ................................ 1,874 1,872
Actuarial loss (gain) ........................ (4,811) 2,627
Benefits paid ................................ (1,579) (1,365)
---------------------------------------------------------------------
Benefit obligation at end of year ............ $ 27,284 $ 30,805
---------------------------------------------------------------------
Change in Plan assets:
Fair value of plan assets at beginning of year $ 36,111 $ 30,507
Actual return on plan assets ................. 3,937 6,953
Employer contributions ....................... 57 16
Benefits paid ................................ (1,579) (1,365)
---------------------------------------------------------------------
Fair value of plan assets at end of year ..... $ 38,526 $ 36,111
---------------------------------------------------------------------
Reconciliation of funded status:
Funded status ................................ $ 11,242 $ 5,306
Unrecognized net actuarial gain .............. (11,279) (6,354)
Unrecognized prior service cost .............. (200) (209)
Unrecognized transition obligation ........... 9 14
---------------------------------------------------------------------
Accrued pension liability .................... $ (228) $ (1,243)
=====================================================================
The plans' assets are invested in undivided interests in several funds
structured to duplicate the performance of various stock and bond
indexes. The accrued pension liability is included in accrued pension
and other liabilities on the Consolidated Balance Sheets.
13. Defined Contribution Pension Plans
The Company sponsors a number of defined contribution pension plans in
the form of IRC 401(k) plans. Participation in one of these plans is
available to substantially all employees. Company contributions to
these plans are based on a percentage of the employee contributions not
to exceed certain maximum levels. The cost of these plans was $275,000,
$290,000 and $296,000 for the years 1999, 1998, and 1997, respectively.
14. Postretirement Benefits Other Than Pensions
The Company has two retiree health benefit plans, the Phillips & Jacobs
Retiree Health Plan (the "P/J Retiree Plan") that primarily covers
retirees and employees who previously participated in theTasty Baking
Company's Retiree Medical Plan prior to the Company's spin-off from
Tasty Baking Company in 1993, and the Momentum Retiree Medical Plan
(the "Momentum Retiree Plan"), that primarily covers retirees and
employees who were previously employed by Momentum Corporation prior to
the merger with the Company in 1994. Both plans provide health care
benefits through a health care administrator and contracts with health
service providers. In addition, the P/J Retiree Plan provides life
insurance benefits through an insurance company. The Company life
insurance premium contribution is limited to $20,000 of coverage per
retiree, with the retiree paying the premium for any coverage beyond
the $20,000. The Company's policy is to fund the plans as benefits are
paid.
The plans are contributory with ceilings on the Company's contribution.
In addition, under the Momentum Retiree Plan, employees who were under
the age of 55 on December 31, 1992 receive no contribution from the
Company under the plan.
Net periodic postretirement benefit expense for the years ended
December 31, included the following components:
(Thousands of dollars) 1999 1998 1997
----------------------------------------------------------------------
Service cost .............................. $ 20 $ 20 $ 16
Interest cost ............................. 98 80 89
Recognized net actuarial gain ............. (31) (76) (103)
---------------------------------------------------------------------
Net periodic postretirement benefit expense $ 87 $ 24 $ 2
======================================================================
The change in the financial status of the plans and amounts recognized
in the Company's Consolidated Balance Sheets at December 31, were:
(Thousands of dollars) 1999 1998
----------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year .. $ 1,526 $ 1,160
Service cost ............................. 20 20
Interest cost ............................ 98 80
Actuarial loss (gain) .................... (9) 325
Benefits paid ............................ (216) (59)
----------------------------------------------------------------
Benefit obligation at end of year ........ $ 1,419 $ 1,526
----------------------------------------------------------------
Fair value of plan assets ................ -- --
----------------------------------------------------------------
Reconciliation of funded status:
Funded Status ............................ $(1,419) $(1,526)
Unrecognized net actuarial gain .......... (366) (387)
---------------------------------------------------------------
Postretirement benefits other than pension $(1,785) $(1,913)
===============================================================
Assumptions:
Discount rate
1999 7.50%
1998 6.50%
1997 7.00%
Medical Trend
Indemnity Plan 6.78% in 1999 grading to 5% in 2003
HMO 6.64% in 1999 grading to 5% in 2005
Due to the ceilings on Company contributions, the effect of increases
in health care cost trend rates do not have a material effect on the
liability or expense.
15. Stock Compensation
Stock Options
The Company's stock incentive plans provide for the awarding of stock
options to directors, officers and other key employees. All granted
options, which vest over a four year period, lapse at the earlier of
the expiration of the option term (not more than ten years from the
grant date) or within three months following the date on which
employment with the Company terminates.
Changes in options outstanding for the three years ended December 31,
1999 are:
Option Prices
--------------------------
Weighted
Options Average Range
----------------------------------------------------------------------
Outstanding at January 1, 1997 . 464,849 $6.34 $6.11- 8.06
----------------------------------------------------------------------
Granted ........................ 56,500 11.18 11.18
Exercised ...................... (15,853) 6.15 6.11- 6.97
Canceled ....................... (7,115) 6.15 6.11- 6.97
----------------------------------------------------------------------
Outstanding at December 31, 1997 498,381 6.89 6.11-11.18
----------------------------------------------------------------------
Granted ........................ 101,500 7.41 6.81-11.18
Exercised ...................... (20,194) 6.25 6.11- 6.97
Canceled ....................... (16,085) 7.58 6.11-11.18
----------------------------------------------------------------------
Outstanding at December 31, 1998 563,602 6.99 6.11-11.18
----------------------------------------------------------------------
Granted ........................ 75,000 5.75 5.75
Exercised ...................... (200) 6.11 6.11
Canceled ....................... (48,910) 6.46 6.11-11.18
----------------------------------------------------------------------
Outstanding at December 31, 1999 589,492 $6.88 $5.75-11.18
----------------------------------------------------------------------
At December 31, 1999, there were 349,074 options exercisable with a
weighted-average option price of $6.79 and a range from $6.11 to $11.18
and 9,300 options available for grant. The weighted-average remaining
contractual life of outstanding options at December 31, 1999 and 1998
was 6.8 and 7.3 years, respectively.
The Company has not recognized compensation expense in connection with
stock option grants. Had compensation expense been determined based on
the fair value on the grant date of options granted after December 31,
1994, the Company's net income and net income per share on a pro forma
basis would have been reduced for the years ended December 31, as
follows:
(Thousands of dollars,
except per share data) 1999 1998 1997
--------------------------------------------------------
Net Income:
As reported $5,109 $4,100 $5,491
Pro forma .. 4,906 3,917 5,360
========================================================
Net Income Per Share:
As reported
Basic .... $ .78 $ .63 $ .84
Diluted .. .78 .62 .83
Pro forma
Basic .... .75 .60 .82
Diluted .. .75 .59 .81
========================================================
The weighted-average fair value per share for options granted was
$1.62, $2.50 and $5.23 for 1999, 1998 and 1997, respectively. The fair
value was estimated using the Black-Scholes option-pricing model. For
options granted in 1999, a dividend yield rate of 3.1%, expected stock
volatility of 25% and risk-free interest rate of 6.7% were used in
estimating the value. For options granted in 1998, a dividend yield
rate of 2.5%, expected stock volatility of 32% and risk-free interest
rate of 5.4% were used. For options granted in 1997, a dividend yield
rate of 1.6%, expected stock volatility of 45% and risk-free interest
rate of 5.8% were used. For all years, an expected option life of seven
years was used. Restricted Stock Awards The Company's stock incentive
plans provide for the awarding of restricted stock to officers and key
employees. The fair market value of the stock at the date of grant
establishes the compensation amount that is amortized to operations
over the restriction period. At December 31, 1999, all awards were
fully amortized and an additional 61,280 shares were available for
future awards.
16. Leases
The Company leases certain distribution and office facilities,
machinery and equipment, and automotive equipment under various
noncancelable lease agreements. The Company expects that in the normal
course of business, leases that expire will be renewed or replaced by
other leases.
Minimum annual rentals payable under noncancelable operating leases
with a remaining term of more than one year from December 31, 1999 are
as follows:
Years Ending December 31,
(Thousands of dollars)
--------------------------------------------
2000 $ 2,317
2001 2,243
2002 1,728
2003 1,248
2004 780
Thereafter 5,725
--------------------------------------------
Total minimum lease payments $14,041
============================================
Rent expense, net of noncancelable sublease income of $24,000, $10,000
and none in 1999, 1998, and 1997, respectively, was $3,203,000,
$2,851,000 and $2,219,000 for 1999, 1998, and 1997, respectively.
17. New Accounting Standards
In 1999, the Financial Accounting Standards Board issued 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.
18. Commitments and Contingencies
The Company is subject to various legal proceedings and claims which
have arisen in the ordinary course of its business. The Company does
not believe that the ultimate resolution of such matters will have a
material effect on the Company's consolidated financial position or
results of operations.
The Company, along with many other parties, is a defendant in a
contribution action to determine the liability for the state ordered
clean up of a landfill. The Company believes its insurance will cover
any costs incurred in this matter. The Company is also, in general,
subject to possible loss contingencies pursuant to federal or state
environmental laws and regulations. Although these contingencies could
result in future expenses or judgments, such expenses or judgments are
not expected to have a material effect on the Company's consolidated
financial position or results of operations.
19. Quarterly Financial Information (unaudited)
Summarized unaudited quarterly financial data for the years ended
December 31, 1999 and 1998 are:
(Thousands of dollars
except per share data) First Second Third Fourth Total
-----------------------------------------------------------------------------
Year Ended December 31, 1999
Net sales ...................... $139,434 $133,355 $132,537 $139,947 $545,273
Gross profit ................... 23,472 23,304 22,527 23,574 92,877
Net income ..................... 1,235 1,295 1,170 1,409 5,109
Net income per share (1)
Basic ....................... $ .19 $ .20 $ .18 $ .22 $ .78
Diluted ...................... .19 .20 .18 .22 .78
Year Ended December 31, 1998 (2)
Net sales ...................... $101,528 $104,846 $109,486 $137,187 $453,047
Gross profit ................... 18,452 19,578 19,608 25,565 83,203
Net income ..................... 1,112 1,270 1,002 716 4,100
Net income per share (1)
Basic ........................ $ .17 $ .19 $ .15 $ .11 $ .63
Diluted ...................... .17 .19 .15 .11 .62
<FN>
(1) Due to changes in the weighted average number of basic and diluted
shares during the periods and rounding, the sum of the quarterly
net incomes per share will not necessarily be equal to the full
years' income per share.
(2) The operations of the Bell acquisition are included from the
September 14, 1998 acquisition date. Income for the quarter and
year ended December 31, 1998 includes a restructure and other
expense of $1,050,000 ($634,000 after tax) for the reorganizing of
the operations into three divisions and the integration of the
Bell locations.
</FN>
Report of Independent Accountants
To the Shareholders and the Board of Directors of PrimeSource Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under item 14(a)(1) present fairly, in all material respects, the
financial position of PrimeSource Corporation and its subsidiaries (the
"Company") at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedule
listed in the index appearing under item 14(a)(2) present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 22, 2000
PART III.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the definitive proxy statement to be filed with
the Securities and Exchange Commission by April 30, 2000, except information
regarding executive officers which appears under Part I.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 2000.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements have been included as part of this
report:
Form 10-K
Page
---------
Consolidated Statements of Income ................... 13
Consolidated Balance Sheets ......................... 14
Consolidated Statements of Cash Flows ............... 15
Consolidated Statements of Shareholders' Equity ..... 16
Notes to Consolidated Financial Statements .......... 17
Report of Independent Accountants ................... 28
(a)(2) Financial Statement Schedule
(a) The following financial statement schedule is submitted herewith:
-Schedule II Valuation of Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(a)(3) Exhibits
The required exhibits are included at the back of this Form 10-K and
are described in the Exhibit Index immediately preceding the first
exhibit.
(b) Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the quarter
ended December 31, 1999. .
PRIMESOURCE CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
- --------------------------------- ----------- -------------------------- ------------ ------------
Classification Balance at Charged to Balance
Beginning Charged to Other Deductions at End
(thousands of dollars) of Period Expenses Accounts Write-offs of Period
- ----------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1999
Allowance for doubtful accounts .............. $ 3,419 $ 1,186 $(1,478) (A) $3,127
Amortization of goodwill ..................... 1,958 1,085 3,043
Inventory reserves ........................... 5,414 352 (2,477) (B) 3,289
- -----------------------------------------------------------------------------------------------------------------------
$10,791 $ 2,623 $(3,955) $ 9,459
- -----------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1998
Allowance for doubtful accounts .............. $ 1,913 $ 440 $1,295 (C) $ (229) (A) $ 3,419
Amortization of goodwill ..................... 1,435 523 1,958
Inventory reserves ........................... 4,664 233 2,000 (C) (1,483) (B) 5,414
- -----------------------------------------------------------------------------------------------------------------------
$ 8,012 $ 1,196 $ 3,295 $(1,712) $10,791
- -----------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1997
Allowance for doubtful accounts .............. $ 1,787 $ 694 $(568) (A) $1,913
Amortization of goodwill ..................... 1,102 333 1,435
Inventory reserves ........................... 3,172 2,602 $ (137) (D) (973) (B) 4,664
- -----------------------------------------------------------------------------------------------------------------------
$ 6,061 $ 3,629 $ (137) $(1,541) $ 8,012
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(A) Doubtful accounts written off, net of any recoveries.
(B) The disposal of obsolete inventory, net of any recoveries.
(C) Related to the acquisition of Bell Industries' Graphic Imaging Group.
(D) Reserve disposed of with the sale of the pressroom material converting
operation.
</FN>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated March 27, 2000
/s/ James F. Mullan
-------------------
James F. Mullan
President and
Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on the behalf of the registrant
and in the capacity and on the date indicated.
Dated March 27, 2000
/s/ William A. DeMarco
----------------------
William A. DeMarco
Vice President, Chief Financial Officer
(principal financial and accounting officer)
DIRECTORS
Richard E. Engebrecht} /s/ William A. DeMarco
Fred C. Aldridge, Jr.} -----------------------
Philip J. Baur, Jr.} William A. DeMarco
John H. Goddard, Jr.} Attorney in fact
Gary MacLeod} Power of Attorney
James F. Mullan} dated February 29, 2000
Klaus D. Oebel}
Edward N. Patrone} Date March 27, 2000
John M. Pettine}
Exhibit Index
Exhibit Number and Description
The following Exhibit Numbers refer to Regulation S-K, Item 601. All other
exhibits are omitted because they are inapplicable.
2.1 Agreement and Plan of Reorganization dated as of May 27, 1994 by and
between MOMENTUM CORPORATION and PHILLIPS & JACOBS, INCORPORATED
(filed as Annex A to the Proxy/Prospectus included within registration
statement No. 33-54913 on Form S-4 filed by the Registrant on August
4, 1994)
2.2 Form of Plan of Merger (filed as Annex B to the Proxy/Prospectus
included within registration statement No. 33-54913 on Form S-4 filed
by the Registrant on August 4, 1994)
2.3 Asset Purchase Agreement By And Among VGC Corp., VGC Holding USA,
Inc., NV Koninklijke KNP BT and PrimeSource dated November 1, 1996,
for the purchase of the operating assets (excluding accounts
receivable) of VGC Corporation's branch operations in Minneapolis,
Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa; and Omaha,
Nebraska. (filed as exhibit 2 to Form 8-K dated November 13, 1996,
File No. 0-21750)
2.4 Asset Purchase Agreement By And Among Momentum Corporation And TK
Gray, Inc. And Its Shareholders dated April 15, 1994, for the purchase
of substantially all of the assets and certain of the liabilities of
TK Gray, Inc. (filed as exhibit 2(i) to Form 8-K dated May 2, 1994,
File No. 0-18112)
2.5 Asset Purchase Agreement between PrimeSource Corporation and Bell
Industries, Inc. dated August 28, 1998 for the purchase of
substantially all the assets and certain liabilities of the Graphic
Imaging Group of Bell Industries, Inc. (filed as exhibit 2 to Form 8-K
dated September 28, 1998, File No. 000-21750)
3.1 Amended and Restated Articles of Incorporation of the Registrant
(filed as Annex C to the Proxy/Prospectus included within registration
statement No. 33-54913 on Form S-4 filed by the Registrant on August
4, 1994)
3.2 Restated By-laws of the Registrant effective March 2, 1999
4.1 Form of Common Stock Certificate (filed with Form 10 filed by
Registrant on May 12, 1993, (File No. 0-21750 and as subsequently
amended on Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993
and Form 8 filed on July 13, 1993)
4.2 Form of Common Stock Certificate, effective September 1, 1994 (filed
as Exhibit 4.2 to Form 10-K, File No. 0-21750, dated March 30, 1995)
10.1 Form of Phillips & Jacobs, Inc. 1993 Long Term Incentive Plan (filed
as Exhibit 10.1 to Form 10-K, File No. 0-21750, dated March 30, 1995)
10.2 Form of Phillips & Jacobs, Incorporated Indemnification Agreement
(filed with Form 10 filed by Registrant on May 12, 1993, (File No.
0-21750) and as subsequently amended on Form 8 filed on May 28, 1993,
Form 8 filed on July 6, 1993 and Form 8 filed on July 13, 1993)*
10.3 PrimeSource Corporation 401(k) Savings Plan (Amended and Restated
Effective January 1, 1997)*
10.4 Employment Agreement between the Registrant and W.A. DeMarco dated
December 31, 1996 (filed as Exhibit 10.5 to Form 10-K, File No.
0-21750, dated March 28, 1997)*
10.5 Employment Agreement between the Registrant and J.F. Mullan dated
December 31, 1996 (filed as Exhibit 10.6 to Form 10-K, File No.
0-21750, dated March 28, 1997)*
10.6 Form of Tax Matters Agreement (filed with Form 10 filed by Registrant
on May 12, 1993, (File No. 0-21750) and as subsequently amended on
Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993 and Form 8
filed on July 13, 1993)
10.7 Amendment No. 1 to Agreement among Employers Participating in Certain
Qualified Plans (filed as Exhibit 10.14 to the Proxy/Prospectus
included within registration statement No. 33-54913 on Form S-4 filed
by the Registrant on August 4, 1994)*
10.8 1993 Replacement Option Plan (P&J Spin-off) for Directors (filed as
Annex I to the Proxy/Prospectus included within registration statement
No. 33-54913 on Form S-4 filed by the Registrant on August 4, 1994)*
10.9 Restated Momentum Distribution Inc. Supplemental Benefits Plan,
effective April 22, 1991 (filed as Exhibit 10.13 to Form 10-K, File
No. 0-18112 dated March 30 1993)*
10.10 Employment Agreement between the Registrant and John H. Goddard, Jr.
dated December 24, 1996 (filed as Exhibit 10.14 to Form 10-K, File No.
0-21750 dated March 25, 1998)*
10.11 Form of Indemnification Agreement for Directors and certain officers
effective September 1, 1994 and executed in January, 1996 (filed as
Exhibit 10.22 to Form 10-K, File No. 0-21750, dated March 26, 1996)*
10.12 PrimeSource Corporation Pension Plan (filed as Exhibit 10.23 to Form
10-K, File No. 0-21750, dated March 26, 1996)*
10.13 Credit Agreement dated as of November 1, 1996 by and among PrimeSource
Corporation, Dixie Type & Supply Company, Inc., Onondaga Litho Supply
Co., Inc. and The Banks Party Hereto and PNC Bank, National
Association, As Agent (filed as Exhibit 10.18 to Form 10-K, File No.
0-21750, dated March 28, 1997)
10.14 Employment Agreement between the Registrant and Edward Padley dated
December 31, 1997 (filed as Exhibit 10.19 to Form 10-K, File No.
0-21750 dated March 25, 1998)*
10.15 Employment Agreement between the Registrant and D. James Purcell dated
December 31, 1997(filed as Exhibit 10.20 to Form 10-K, File No.
0-21750 dated March 25, 1998)*
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP, Independent Accountants
27 Financial Data Schedule for the year ended December 31, 1999
99.1 Undertakings
*Management contracts and/or compensatory plans, contracts or
arrangements in which a director and/or a named executive officer
participates.