<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
Commission File No. 333-51569
PARAGON CORPORATE HOLDINGS INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
Delaware 34-1845312
<S> <C>
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
CO-REGISTRANTS AND SUBSIDIARY GUARANTORS
<TABLE>
<S> <C> <C>
A.B. Dick Company Delaware 04-3892065
Curtis Industries, Inc. Delaware 13-3583725
Itek Graphix Corp. Delaware 04-2893064
Curtis Sub, Inc. Delaware 34-1737529
</TABLE>
<TABLE>
<S> <C> <C>
Paragon Corporate Holdings Inc. A.B. Dick Company Curtis Industries, Inc.
7400 Caldwell Avenue 7400 Caldwell Avenue 6140 Parkland Boulevard
Niles, Illinois 60714 Niles, Illinois 60714 Mayfield Heights, Ohio 44124
(847) 779-2500 (847) 779-1900 (440) 446-9700
</TABLE>
<TABLE>
<S> <C>
Itek Graphix Corp. Curtis Sub, Inc.
7400 Caldwell Avenue 6140 Parkland Boulevard
Niles, Illinois 60714 Mayfield Heights, Ohio 44124
(847) 779-1900 (440) 446-9700
</TABLE>
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
As of April 30, 1999, there were 1,000 shares of the registrant's Class A common
stock outstanding.
As of April 30, 1999, there were 19,000 shares of the registrant's Class B
common stock outstanding.
<PAGE> 2
INDEX
PARAGON CORPORATE HOLDINGS INC.
<TABLE>
<CAPTION>
Part I Financial Information Page Number
<S> <C> <C>
Item 1 Financial Statements (Unaudited)......................................... 1
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998..................................... 2
Condensed Consolidated Statements of Operations
Three Months ended March 31, 1999 and 1998............................... 3
Condensed Consolidated Statements of Cash Flows
Three Months ended March 31, 1999 and 1998............................... 4
Notes to Condensed Consolidated Financial Statements..................... 5-12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 13-16
Item 3 Quantitative and Qualitative Disclosures About Market Risk............... 16
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K......................................... 17
Signatures....................................................................... 18
</TABLE>
<PAGE> 3
Part I. Financial Information
Item I. Financial Statements (Unaudited)
1
<PAGE> 4
PARAGON CORPORATE HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
ASSETS:
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 6,273 $ 7,462
Short-term investments 20,365 21,534
Accounts receivable, net 37,511 40,579
Inventories 48,956 48,094
Other 2,593 2,458
--------- ---------
Total current assets 115,698 120,127
Property, plant and equipment, less
accumulated depreciation 19,630 18,700
Goodwill 31,568 31,861
Other assets 4,606 4,721
--------- ---------
$ 171,502 $ 175,409
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
Current liabilities:
Accounts payable $ 20,503 $ 23,471
Accrued compensation 5,635 8,302
Accrued other 18,830 16,362
Deferred service revenue 6,581 6,502
Due to GEC 1,824 1,724
Current portion of long-term debt 1,047 997
--------- ---------
Total current liabilities 54,420 57,358
Senior Notes 115,000 115,000
Long-term debt, less current portion 4,650 1,886
Retirement obligations 3,641 3,641
Other long-term liabilities 2,556 2,643
Stockholder's equity (deficit):
Common stock, no par value, Authorized 2,000 shares of Class A (voting) and
28,000 shares of Class B (non-voting); issued and outstanding 1,000 shares
of Class A and 19,000 shares of Class B, at stated value 1 1
Paid-in capital 47 47
Retained earnings (deficit) (7,734) (4,279)
Accumulated other comprehensive loss (1,079) (888)
--------- ---------
Total stockholder's equity (deficit) (8,765) (5,119)
--------- ---------
$ 171,502 $ 175,409
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
PARAGON CORPORATE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Net revenue $ 63,368 $ 63,948
Cost of revenue 40,039 37,973
-------- --------
Gross profit 23,329 25,975
COSTS AND EXPENSES
Sales and marketing expenses 10,643 10,958
General and administrative expenses 10,174 10,034
Research and development 781 761
Depreciation and amortization 1,671 1,231
Management fee 69 636
Relocation and severance costs 753 351
-------- --------
24,091 23,971
-------- --------
Operating income (loss) (762) 2,004
Interest expense, net (2,796) (1,617)
Other income (expense) 74 (102)
-------- --------
Income (loss) before income taxes (3,484) 285
Income taxes (benefit) (29) 215
-------- --------
Net income (loss) $ (3,455) $ 70
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
PARAGON CORPORATE HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) $(3,455) $ 70
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Provision for depreciation and amortization 1,671 1,231
Changes in operating assets and liabilities (1,038) (2,829)
------- -------
Net cash used in operating activities (2,822) (1,528)
Investing activities:
Purchases of property, plant and equipment (1,690) (1,672)
Payments of acquisition liabilities (69) (520)
Decrease in short-term investments 1,169 338
------- -------
Net cash used in investing activities (590) (1,854)
Financing activities:
Increase in amounts due to GEC and affiliates 100 96
Decrease in long-term borrowings (186) (1,441)
Borrowings on revolving credit lines 2,500 5,228
------- -------
Net cash provided by financing activities 2,414 3,883
Effect of exchange rate changes on cash (191) 155
------- -------
Increase (decrease) in cash and cash equivalents (1,189) 656
Cash and cash equivalents at beginning of period 7,462 3,283
------- -------
Cash and cash equivalents at end of period $ 6,273 $ 3,939
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
Paragon Corporate Holdings Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In Thousands)
A. ORGANIZATION
Paragon Corporate Holdings Inc. ("the Company") is a Delaware holding company
organized in September 1996. The Company has no independent operations or
investments other than its investments in its subsidiaries, except that the
Company has temporarily invested, at the holding company level, the residual
proceeds from the Senior Notes issued during 1998. NES Group, Inc. is the sole
stockholder of the Company.
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes of Paragon Corporate Holdings Inc. set forth
in the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
C. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
D. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for the three month periods ended
March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
------- -------
<S> <C> <C>
Net income (loss) $(3,455) $ 70
Foreign currency translation
adjustment (191) 155
------- -------
Comprehensive income (loss) $(3,646) $ 225
======= =======
</TABLE>
E. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, short-term investments, trade
receivables and payables approximates fair value because of the short maturity
of these instruments. The carrying amount of long-term debt exceeds its fair
value at March 31, 1999 by $26,400. The fair value has been determined using the
market price of the related securities at March 31, 1999.
5
<PAGE> 8
F. INVENTORIES
Domestic inventories, which represent approximately 80% of total consolidated
inventory, are determined on the last-in, first-out (LIFO) basis and foreign
inventories are determined on the first-in, first-out (FIFO) basis. Where
necessary, reserves are provided to value inventory at the lower of cost or
market.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials and work in process $ 7,001 $ 6,768
Finished goods 42,363 41,638
LIFO reserve (408) (312)
-------- --------
$ 48,956 $ 48,094
======== ========
</TABLE>
G. INCOME TAXES
The Company and its domestic subsidiaries have elected Subchapter S Corporation
status for United States income tax purposes. Accordingly, the Company's United
States operations are not subject to income taxes as separate entities. The
Company's United States income is included in the income tax returns of the
stockholder. Under the terms of the Tax Payment Agreement with the Stockholder,
the Company makes distributions to the stockholder for payment of income taxes
if required.
H. SEGMENT INFORMATION
The Company operates in two industry segments: Printing Equipment and Supplies
and Automotive and Industrial Supplies.
The Company's printing equipment and supplies business segment is a leading
manufacturer of printing products for the global quick print and small
commercial printing markets. This business has three product lines: (i)
pre-press, press and other related equipment, (ii) supplies, and (iii)
after-market repair service and replacement parts. The Company manufactures its
own products that are sold under the A. B. Dick(R) and Itek Graphix(R) brand
names, and distributes certain products manufactured by third parties. The
Company's printing equipment and supplies business segment sells its products
and services through a network of branches and independent distributors in the
United States, its subsidiaries in Canada, the United Kingdom, the Netherlands
and Belgium and independent distributors in other countries.
The Company's automotive and industrial supplies distribution business segment
supplies a wide range of products including (i) automotive security products,
key cutting equipment and key blanks, and non-model specific automotive parts
and (ii) maintenance, repair and operating supplies, including fasteners,
connectors, chemicals and tools. The Company generally markets its products
under its proprietary brand names, Curtis(R) and Mechanics Choice(R). Customers
of the Company's distribution business include independent auto dealerships and
industrial accounts throughout the U.S., Canada and the United Kingdom.
6
<PAGE> 9
H. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Three months ended
March 31
1999 1998
---- ----
<S> <C> <C>
Net revenues:
Printing equipment and supplies $ 42,944 $ 43,639
Automotive and industrial supplies 20,424 20,309
-------- --------
Total net revenue $ 63,368 $ 63,948
======== ========
Depreciation and amortization:
Printing equipment and supplies $ 561 $ 341
Automotive and industrial supplies 1,110 890
-------- --------
Total depreciation and amortization $ 1,671 $ 1,231
======== ========
Operating income (loss):
Printing equipment and supplies $ (1,467) $ 1,590
Automotive and industrial supplies 855 431
-------- --------
(612) 2,021
Corporate and other expense (76) (119)
Interest expense, net (2,796) (1,617)
-------- --------
Income (loss) before taxes $ (3,484) $ 285
======== ========
</TABLE>
7
<PAGE> 10
I. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's domestic subsidiaries, all of which are directly or indirectly
wholly owned, are the only guarantors of Senior Notes. The guarantees are full,
unconditional and joint and several. Separate financial statements of these
guarantor subsidiaries are not presented as management has determined that they
would not be material to investors.
The Company's foreign subsidiaries are not guarantors of the Senior Notes.
Summarized consolidating balance sheets as of March 31, 1999 and December 31,
1998 for the Company, the guarantor subsidiaries, and the non-guarantor, foreign
subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(MARCH 31, 1999):
Current assets:
Cash and cash equivalents $ 36 $ 4,749 $ 1,488 $ -- $ 6,273
Short-term investments 20,365 -- -- -- 20,365
Accounts receivable, net -- 27,441 10,070 -- 37,511
Inventories -- 39,001 10,151 (196) 48,956
Other 526 1,174 893 -- 2,593
--------- --------- --------- --------- ---------
Total current assets 20,927 72,365 22,602 (196) 115,698
Property, plant and
equipment, net -- 18,587 1,043 -- 19,630
Goodwill -- 31,510 58 -- 31,568
Investment in subsidiary 70,314 13,803 -- (84,117) --
Other assets 4,577 22 7 -- 4,606
Intercompany 18,517 -- -- (18,517) --
--------- --------- --------- --------- ---------
$ 114,335 $ 136,287 $ 23,710 $(102,830) $ 171,502
========= ========= ========= ========= =========
Current liabilities:
Accounts payable $ -- $ 17,816 $ 2,687 $ -- $ 20,503
Accrued expenses 5,600 16,371 2,497 (3) 24,465
Deferred service revenue -- 5,123 1,458 -- 6,581
Due to GEC -- 1,824 -- -- 1,824
Intercompany -- 15,663 3,889 (19,552) --
Current portion of long-
term debt -- 997 50 -- 1,047
--------- --------- --------- --------- ---------
Total current liabilities 5,600 57,794 10,581 (19,555) 54,420
Senior Notes 115,000 -- -- -- 115,000
Long-term debt, less
current portion 2,500 1,980 170 -- 4,650
Retirement obligations -- 3,601 40 -- 3,641
Other long-term liabilities -- 2,556 -- -- 2,556
Stockholder's equity (deficit) (8,765) 70,356 12,919 (83,275) (8,765)
--------- --------- --------- --------- ---------
$ 114,335 $ 136,287 $ 23,710 $(102,830) $ 171,502
========= ========= ========= ========= =========
</TABLE>
8
<PAGE> 11
I. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(DECEMBER 31, 1998):
Current assets:
Cash and cash equivalents $ 28 $ 4,174 $ 3,260 $ -- $ 7,462
Short-term investments 21,534 -- -- -- 21,534
Accounts receivable, net -- 29,736 10,843 -- 40,579
Inventories -- 38,688 9,610 (204) 48,094
Other 393 972 1,093 -- 2,458
--------- --------- --------- --------- ---------
Total current assets 21,955 73,570 24,806 (204) 120,127
Property, plant and
equipment, net -- 17,849 851 -- 18,700
Goodwill -- 31,801 60 -- 31,861
Investment in subsidiary 74,118 13,803 -- (87,921) --
Other Assets 4,709 4 8 -- 4,721
Intercompany 11,898 -- -- (11,898) --
--------- --------- --------- --------- ---------
$ 112,680 $ 137,027 $ 25,725 $(100,023) $ 175,409
========= ========= ========= ========= =========
Current liabilities:
Accounts payable $ -- $ 20,399 $ 3,072 $ -- $ 23,471
Accrued expenses 2,799 18,710 3,158 (3) 24,664
Deferred service revenue -- 5,237 1,265 -- 6,502
Due to GEC -- 1,724 -- -- 1,724
Current portion of
long-term debt -- 997 -- -- 997
Intercompany -- 8,016 4,917 (12,933) --
--------- --------- --------- --------- ---------
Total current liabilities 2,799 55,083 12,412 (12,936) 57,358
Senior notes 115,000 -- -- -- 115,000
Long-term debt,less
current portion -- 1,886 -- -- 1,886
Retirement obligations -- 3,627 14 -- 3,641
Other long-term liabilities -- 2,643 -- -- 2,643
Stockholder's equity (deficit) (5,119) 73,788 13,299 (87,087) (5,119)
--------- --------- --------- --------- ---------
$ 112,680 $ 137,027 $ 25,725 $(100,023) $ 175,409
========= ========= ========= ========= =========
</TABLE>
9
<PAGE> 12
I. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
Summarized consolidating statements of income for the three months ended March
31, 1999 and 1998, respectively, for the Company, the guarantor subsidiaries,
and the non-guarantor, foreign subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
(THREE MONTHS ENDED MARCH 31, 1999):
Net revenue $ -- $ 49,484 $ 13,965 $ (81) $ 63,368
Cost of revenue -- 30,479 9,650 (90) 40,039
-------- -------- -------- -------- --------
Gross profit -- 19,005 4,315 9 23,329
Total operating expenses 150 19,148 4,793 -- 24,091
-------- -------- -------- -------- --------
Operating income (loss) (150) (143) (478) 9 (762)
Interest income (expense) (2,459) (361) 24 -- (2,796)
Other income (expense) -- (2) 76 -- 74
-------- -------- -------- -------- --------
Income (loss) before income
taxes (benefit) (2,609) (506) (378) 9 (3,484)
Income taxes (benefit) -- 18 (47) -- (29)
-------- -------- -------- -------- --------
Net income (loss) $ (2,609) $ (524) $ (331) $ 9 $ (3,455)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
(THREE MONTHS ENDED MARCH 31, 1998):
Net revenue $ -- $ 49,284 $ 14,739 $ (75) $ 63,948
Cost of revenue -- 28,304 9,755 (86) 37,973
-------- -------- -------- -------- --------
Gross profit -- 20,980 4,984 11 25,975
Total operating expenses 17 19,376 4,578 -- 23,971
-------- -------- -------- -------- --------
Operating income (loss) (17) 1,604 406 11 2,004
Interest income (expense) (447) (1,225) 55 -- (1,617)
Other income (expense) -- (124) 22 -- (102)
-------- -------- -------- -------- --------
Income (loss) before
income taxes (464) 255 483 11 285
Income taxes -- -- 215 -- 215
-------- -------- -------- -------- --------
Net income (loss) $ (464) $ 255 $ 268 $ 11 $ 70
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 13
I. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
Summarized consolidating statements of cash flows for the three months ended
March 31, 1999 and 1998, respectively, for the Company, the guarantor
subsidiaries, and the non-guarantor, foreign subsidiaries are as follows (in
thousands):
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
(THREE MONTHS ENDED MARCH 31, 1999):
Net cash provided by (used in)
operating activities $ 191 $(2,971) $ (42) $-- $(2,822)
Investing activities:
Purchases of property, plant and
equipment -- (1,398) (292) -- (1,690)
Payment of acquisition liabilities -- (69) -- -- (69)
Decrease in short-term investments 1,169 -- -- -- 1,169
------- ------- ------- --- -------
Net cash provided by (used in)
investing activities 1,169 (1,467) (292) -- (590)
Financing activities:
Increase in amounts due to GEC
and affiliates -- 100 -- -- 100
Increase (decrease) in long-term
borrowings -- (406) 220 -- (186)
Borrowings on revolving credit lines 2,500 -- -- -- 2,500
Intercompany (3,852) 5,540 (1,688) -- --
------- ------- ------- --- -------
Net cash provided by (used in)
financing activities (1,352) 5,234 (1,468) -- 2,414
Effect of exchange rate changes on cash -- (221) 30 -- (191)
------- ------- ------- --- -------
Increase (decrease) in cash and cash
equivalents 8 575 (1,772) -- (1,189)
Cash and cash equivalents at beginning
of period 28 4,174 3,260 -- 7,462
------- ------- ------- --- -------
Cash and cash equivalents at end of
period $ 36 $ 4,749 $ 1,488 $-- $ 6,273
======= ======= ======= === =======
</TABLE>
11
<PAGE> 14
I. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
(THREE MONTHS ENDED MARCH 31, 1998):
Net cash provided by (used in)
operating activities $ 850 $(2,561) $ 183 $-- $(1,528)
Investing activities:
Investment in subsidiary -- (18) 18 -- --
Purchases of property, plant and
equipment -- (1,728) 56 -- (1,672)
Payment of acquisition liabilities -- (520) -- -- (520)
Decrease in short-term investments 338 -- -- -- 338
------- ------- ------- --- -------
Net cash provided by (used in)
investing activities 338 (2,266) 74 -- (1,854)
Financing activities:
Borrowings on revolving credit lines -- 5,228 -- -- 5,228
Increase in amounts due to GEC
and affiliates -- 96 -- -- 96
Decrease in long-term borrowings (1,000) (441) -- -- (1,441)
Intercompany -- 261 (261) -- --
------- ------- ------- --- -------
Net cash provided by (used in)
financing activities (1,000) 5,144 (261) -- 3,883
Effect of exchange rate changes on cash -- (16) 171 -- 155
------- ------- ------- --- -------
Increase in cash and cash equivalents 188 301 167 -- 656
Cash and cash equivalents at beginning
of period 28 1,173 2,082 -- 3,283
------- ------- ------- --- -------
Cash and cash equivalents at end of
period $ 216 $ 1,474 $ 2,249 $-- $ 3,939
======= ======= ======= === =======
</TABLE>
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For further information, refer to the consolidated financial statements and
footnotes of Paragon Corporate Holdings Inc. set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
GENERAL
The Company, through its two wholly-owned subsidiaries, Curtis Industries, Inc.
("Curtis") and A.B. Dick Company ("A.B. Dick") is engaged in (i) the
distribution of automotive and industrial supplies and (ii) the manufacture and
distribution of printing equipment and supplies. The Company's distribution
business supplies consumable, high margin, multiple-purpose products used in the
automotive and industrial markets, with an increasing focus on providing
value-added logistics services. The Company's printing equipment and supplies
business is a leading manufacturer and marketer of printing products for the
global quick print and small commercial graphics markets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998:
NET REVENUE
For the quarter ended March 31, 1999, net revenue decreased $ 0.6 million or
0.9% to $63.4 million from $64.0 million for the quarter ended March 31, 1998.
Automotive and industrial sales increased $0.1 million or 0.5% over the prior
year to $20.4 million primarily the result of an increase in domestic sales of
$0.3 million offset by a decrease in sales of $0.2 million in the United
Kingdom. Printing equipment sales were up $1.4 million or 10.1% over the prior
year to $15.3 million. The increase was primarily due to increased domestic
sales of press equipment of $1.1 million augmented by an international sales
increase of $0.3 million related primarily to increases in European markets.
Supplies sales were down $1.6 million or 8.2% to $17.7 million primarily due to
the impact of the discontinuance of certain domestic equipment lines and their
related supply stream and the introduction of a new plate product by a
competitor in the pre-press market. Repair Parts and Service revenues decreased
$0.5 million or 4.8% primarily due to the discontinuance of A.B. Dick's line
of Konica copier equipment and Ricoh digital duplicators.
GROSS PROFIT
Gross profit decreased $2.6 million or 10.2% for the quarter ended March 31,
1999 as compared to the same period a year earlier. Gross profit margin
percentage was 36.8% during the first quarter 1999 compared to 40.6% for the
same period last year. A.B. Dick's margins decreased by $2.8 million and gross
margin as a percent of revenue was reduced approximately 6.0%. The decrease is
primarily attributable to an increase in lower margin purchased press sales,
lower costs in 1998 associated with yen denominated purchases, an increase in
competitive pressures primarily in the pre-press plate business and higher costs
in specialty inks. Curtis' margins showed a modest increase of $0.2 million with
a corresponding increase of 0.5% in gross margin as a percent of revenue.
COSTS AND EXPENSES
Costs and expenses increased $0.1 million to $24.1 million for the quarter ended
March 31, 1999 from $24.0 million from the first quarter a year earlier. The
increase is attributable to expanded European distribution operation costs for
A.B. Dick as a result of a third quarter 1998 acquisition and increased
corporate administrative expenses.
13
<PAGE> 16
Additional contributing factors were non-recurring expenses of $0.8 million
related to relocation and severance costs. This was partially offset by a change
in the basis of the management fee calculation as well as the continuation of
cost reduction initiatives implemented during 1998.
OPERATING INCOME (LOSS)
Operating income (loss) was $(0.8) million and $2.0 million for the quarter
ended March 31, 1999 and 1998, respectively, a decrease of $2.8 million or
138.0%. The 1999 amount includes operating income from Curtis of $0.9 million
and operating loss from A.B. Dick of $(1.5) million. The primary factors
contributing to the decline in operating results from the same period a year
earlier are the decreases in revenue and gross profit for A.B. Dick.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has been addressing the Year 2000 issue since mid 1997 with internal
project teams and outside consultants. The plan to resolve the problems involves
four phases: assessment, remediation, testing and implementation. The plan was
further subdivided to review separately: computer hardware, software, facilities
and the supply chain.
The assessment phase in the computer hardware and software categories has been
completed. Due to the extensive modifications to the original version of the
financial and manufacturing systems in place at A.B. Dick and the planned
reorganization and relocation, it was determined that the most effective
remediation was to replace the software with a current version and upgrade the
hardware being used. The manufacturer of the new version of the integrated
financial and manufacturing software has provided assurances to A.B. Dick that
their software will process date logic and date handling according to the
standards established by A.B. Dick. The international operations for A. B. Dick
have performed similar assessment and remediation efforts. The remediation
efforts, testing and implementation are in process at the A.B. Dick locations
and are projected to be complete by June 1999. The Curtis financial and
distribution systems were modified to accommodate the four-date digit code,
which was completed in December 1998. During the first quarter of 1999, the
systems were tested and implemented and are operational in accordance with the
standards established by the Company. The majority of the Company's information
technology efforts have been focused on the Year 2000 issue which has delayed
implementation of certain other new or reused systems. However, the Company's
Year 2000 efforts have had a minimal impact on the normal operating systems of
the Company.
An assessment was performed on the hardware and software utilized in the
equipment used in the manufacturing process. Based on this assessment, the
Company believes that none of the systems in use had date sensitive functions,
which would be impacted by the millennium change.
The Company performed an evaluation of all domestic and international suppliers
to identify all mission critical vendors. These vendors have been contacted and
have been requested to submit written assurances that their operations will be
prepared for the millennium change and will provide an uninterrupted supply of
components and services. The Company anticipates that all vendors will respond
to the requests by the second quarter of 1999.
14
<PAGE> 17
While the Company continues to focus on solutions for Year 2000 issues, and
expects to complete its Year 2000 project in a timely manner, the Company is in
the process of identifying potential major business interruptions that could
reasonably result from Year 2000 issues and will develop contingency plans
designed to address such potential interruptions. The Company may also develop
contingency plans designed to generally help protect the Company from
unanticipated Year 2000 business interruptions. Contingency plans are
anticipated to include, for example, the identification of alternate suppliers
or service providers, increases in levels of raw material and finished goods
inventories and the development of alternate procedures. The Company's
contingency plans will be developed and modified over time as it receives better
information regarding the Year 2000 status of its systems and embedded
technology and third party readiness.
The most reasonable worst case scenario which could result from the failure of
the Company or its customers, vendors or other key third parties to adequately
address Year 2000 issues would include a temporary interruption or curtailment
in the Company's manufacturing or distribution operations at one or more of its
facilities. Such failures could also cause a delay or curtailment in the
processing of orders and invoices and the collection of revenues, as well as the
inability to maintain accurate accounting records, and lead to increased costs
and loss of sales. If these failures would occur depending upon their duration
and severity, they could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company's plans to complete the Year 2000 modifications are based on
management's best estimate, which were derived utilizing various assumptions of
future events including the continued availability of certain resources, and
other factors. Estimates on the status of completion and the expected completion
dates are based on the original plan and the estimated time required to complete
the remaining work. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
The information above contains certain forward-looking statements, including,
without limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, and adequate resources that are made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are advised that forward-looking statements about
the Year 2000 should be read in conjunction with the Company's disclosure under
the heading Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2.8 million and $1.5 million for the
three months ended March 31, 1999 and 1998, respectively. The net cash used in
operating activities in the first quarter of 1999 was principally the result of
the net loss of $3.5 million incurred. The net loss is mainly due to increased
interest costs as a result of the issuance of $115.0 million of senior notes on
April 1, 1998 and a decline in gross margin. Net cash used in operating
activities in 1998 was primarily attributable to an increase in net operating
assets and liabilities of $2.8 million offset by the provision for depreciation
and amortization of $1.2 million.
The net cash used in investing activities was $0.6 million and $1.9 million for
the three months ended March 31, 1999 and 1998, respectively. The 1999 amounts
include a decrease in short-term investments of $1.2 million and property, plant
and equipment purchases of $1.7 million. The primary components of the 1998
investing activities were $1.7 million for property, plant and equipment
purchases and $0.5 million for payment of acquisition related liabilities.
15
<PAGE> 18
Net cash provided by financing activities was $2.4 million and $3.9 million for
the three months ended March 31, 1999 and 1998, respectively. The net cash
provided by financing activities in 1999 is primarily the result of borrowings
on revolving credit lines of $2.5 million. The 1998 net cash from financing
activities was principally from increases in borrowings on the revolving lines
of credit partially offset by decreases in long-term borrowings.
The Company's primary capital requirements (excluding acquisitions) consist of
working capital, capital expenditures and debt service. The Company expects
current financial resources and funds from continuing operations to be adequate
to meet current cash requirements. At March 31, 1999 the Company had cash, cash
equivalents and short-term investments of $26.6 million and unused credit
facilities of $25.0 million available for its use.
CAUTIONARY STATEMENT FOR SAFE HARBOR PURPOSES
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) contains forward-looking statements within the meaning of the
federal securities laws. As a general matter, forward-looking statements are
those focused upon future plans, objectives, or performance as opposed to
historical items and include statements of anticipated events or trends and
expectations and beliefs relating to matters that are not historical in nature.
Such forward-looking statements include, without limitation, statements
regarding the Company's Year 2000 compliance program and future prospects of the
business. Such forward-looking statements are subject to uncertainties and
factors relating to the Company's operations and business environment, all of
which are difficult to predict and many of which are beyond the control of the
Company, that could cause actual results of the Company to differ materially
from those matters expressed in or implied by such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company assumed its securities that are available for sale are similar
enough to aggregate those securities for presentation purposes. Under the terms
of the bond indenture, the Company's short-term investments are limited to,
among others, securities issued by or insured by the full faith and credit of
the U.S. government, certificates of deposit or eurodollar time deposits or
commercial paper having the highest rating available from Moody's or Standard &
Poor's. Maturities can be between six months and one year from the date of
purchase, except that maturities in excess of six months cannot exceed 40% of
the total investments.
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. interest rates. In this regard, changes in the U.S.
interest rates affect interest earned on the Company's cash equivalents and
short-term investments as well as interest paid on a portion of its debt. To
mitigate the impact of fluctuations in U.S. interest rates, the Company
generally maintains the majority of its debt as fixed rate by borrowing on a
long-term basis.
The Company's earnings are also affected by fluctuations in the value of the
U.S. dollar as compared to foreign currencies, predominantly in European
countries. An additional risk relates to product shipped between the Company's
European subsidiaries. In addition to the impact on the intercompany balances,
changes in exchange rates also affect volume of sales or the foreign currency
sales price as competitors products become more or less attractive.
The carrying amount of cash and cash equivalents, short-term investments, trade
receivables and payables approximates fair value because of the short maturity
of these instruments. The carrying amount of long-term debt exceeds its fair
value at March 31, 1999 by $26,400. The fair value has been determined using the
market price of the related securities at March 31, 1999.
16
<PAGE> 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 4.5 - Amendment No. 1 to Credit and Security
Agreement, dated as of March 17, 1999 between Paragon
Corporate Holdings Inc. and Key Corporate Capital Inc.
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1999
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAGON CORPORATE HOLDINGS INC.
By: /s/ Edward J. Suchma
------------------------------
EDWARD J. SUCHMA
Chief Financial Officer (As duly authorized
representative and as Principal Financial and
Accounting Officer)
A.B. DICK COMPANY
By: /s/ Edward J. Suchma
------------------------------
EDWARD J. SUCHMA
President and Chief Executive Officer (As duly
authorized Officer)
CURTIS INDUSTRIES, INC.
By: /s/ James Waters
------------------------------
JAMES WATERS
Vice President of Finance (As duly authorized
representative and as Principal Financial and
Accounting Officer)
ITEK GRAPHIX CORP.
By: /s/ Edward Suchma
------------------------------
EDWARD J. SUCHMA
President and Chief Executive Officer (As duly
authorized Officer)
Date: May 17, 1999
18
<PAGE> 1
Exhibit 4.5
AMENDMENT NO. 1
TO
CREDIT AND SECURITY AGREEMENT
This AMENDMENT NO. 1 TO CREDIT AND SECURITY AGREEMENT (this
"Amendment"), made as of this 17th day of March, 1999, among PARAGON CORPORATE
HOLDINGS INC. ("Borrower"), certain financial institutions listed on the
signature pages hereto (the "Banks"), KEY CORPORATE CAPITAL INC., as Letter of
Credit Bank (the "Letter of Credit Bank"), and KEY CORPORATE CAPITAL INC. as
Agent for the Banks and the Letter of Credit Bank (the "Agent"),
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Letter of Credit Bank and the
Agent have entered into that certain Credit and Security Agreement, dated as of
April 1, 1998 (the "Credit Agreement"), pursuant to which the Agent, the Banks
and the Letter of Credit Bank have made certain loans and other financial
accommodations available to Borrower;
WHEREAS, the Borrower has failed to comply with certain covenants of
the Credit Agreement and desires that the Agent and the Banks waive such
noncompliance; and
WHEREAS, the Borrower, the Banks, the Letter of Credit Bank and the
Agent desire to amend the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Borrower, the Banks, the Letter
of Credit Bank and the Agent do hereby agree as follows:
1. DEFINED TERMS.
Each defined term used herein and not otherwise defined herein shall have the
meaning ascribed to such term in the Credit Agreement.
2. AMENDMENT TO THE CREDIT AGREEMENT.
2.1 AMENDMENT TO SECTION 8.4(b). Section 8.4(b) is amended to read as
follows:
(b) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. The Borrower
shall not at any time permit:
<PAGE> 2
(i) the Consolidated Fixed Charge Coverage Ratio of the
Borrower as at the end of any of the following Cumulative Four Fiscal
Quarter Periods of the Borrower to be less than the ratio set forth
opposite such Cumulative Four Fiscal Quarter Period:
<TABLE>
<CAPTION>
CUMULATIVE FOUR FISCAL QUARTER CONSOLIDATED FIXED CHARGE COVERAGE
PERIOD ENDING RATIO
------------------------------ -----------------------------------
<S> <C> <C>
March 31, 1999 1.00 to 1.0
June 30, 1999 1.00 to 1.0
September 30, 1999 1.00 to 1.0
December 31, 1999 1.10 to 1.0
March 31, 2000 1.10 to 1.0
June 30, 2000 1.10 to 1.0
September 30, 2000 1.10 to 1.0
December 31, 2000, and
each Cumulative Four
Fiscal Quarter
Period thereafter 1.20 to 1.0
</TABLE>
(ii) the Consolidated Fixed Charge Coverage Ratio of
Curtis as at the end of any Cumulative Four Fiscal Quarter
Period of the Borrower to be less than 1.20 to 1.0, or
(iii) the Consolidated Fixed Charge Coverage Ratio of
A.B. Dick as at the end of any Cumulative Four Fiscal Quarter
Period of the Borrower to be less than 1.20 to 1.0.
2.2 AMENDMENT TO ANNEX II. Annex II to the Credit Agreement is amended
by deleting the definitions of "Consolidated EBITDA" and "Consolidated Fixed
Charge Coverage Ratio" and replacing them with the following new definitions:
"CONSOLIDATED EBITDA" means, with respect to any Person and
for any cumulative fiscal period, the Consolidated Net Income of such
Person and its Subsidiaries for such period plus Consolidated Interest
Expense of such Person and its Subsidiaries for such period plus
federal, state and local taxes of such Person and its Subsidiaries for
such period plus depreciation of such Person and its Subsidiaries for
such period plus amortization of such Person and its Subsidiaries for
such period, plus nonrecurring expenses of A.B. Dick in 1998 associated
with the relocation of A.B. Dick's corporate headquarters and the early
extinguishment of certain Indebtedness of A.B. Dick for such period,
plus nonrecurring expenses of the Borrower in 1998 associated with the
early extinguishment of certain Indebtedness of the Borrower, plus
nonrecurring expenses associated with the termination of a compensation
agreement in
2
<PAGE> 3
connection with the acquisition by the Borrower of Curtis, each as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, for any
Cumulative Four Quarter Fiscal Period, the ratio of: (a) the sum of (i)
the Consolidated EBITDA less (ii) the Consolidated Capital Expenditures
(but not including Capital Expenditures of A.B. Dick in 1998 relating
to the relocation of the corporate headquarters of A.B. Dick) to (b)
the sum of (i) Consolidated Interest Expense plus , (ii) the scheduled
principal payments in respect of Consolidated Senior Debt and
Consolidated Subordinated Debt as at the Fiscal Quarter ending
immediately prior to the Cumulative Four Quarter Fiscal Period in
question, plus (iv) cash Distributions made by such Person to its
shareholders.
3. WAIVER OF NON-COMPLIANCE.
3.1 WAIVER. Subject to and conditioned on the effectiveness of this
Amendment, the Agent and each Bank hereby waives, as of the date of this
Amendment:
(a) solely to the extent disclosed to the Agent and the Banks
in writing prior to the date of this Amendment, Borrower's failure to
comply with the requirement set forth in Section 8.4(a)(ii) of the
Credit Agreement that Borrower not permit the Consolidated EBITDA of
A.B. Dick to be less than $10,250,000 for the Cumulative Four Fiscal
Quarter Period ending on December 31, 1998;
(b) solely to the extent disclosed to the Agent and the Banks
in writing prior to the date of this Amendment, Borrower's failure to
comply with the requirement set forth in Section 8.4(b)(i) of the
Credit Agreement that Borrower not permit the Consolidated Fixed Charge
Coverage Ratio of the Borrower to be less than 1.20 to 1.0 for the
Cumulative Four Fiscal Quarter Period ending on December 31, 1998; and
(c) solely with respect to defaults waived pursuant to
Sections 3.1(a) and 3.1(b) of this Amendment, any Event of Default
under Section 9.4 of the Financing Agreement.
3.2 LIMITATION ON WAIVERS. The waivers granted herein are limited
strictly to their terms, apply only to the specific waivers described herein, do
not extend to or affect any of the Borrower's other obligations contained in the
Credit Agreement or any other related documents and do not impair any rights
consequent thereon. Except as expressly set forth herein, nothing contained
herein will be deemed to be a waiver of, or will in any way impair or prejudice,
any rights of the Agent, the Banks or the Letter of Credit Bank under the Credit
Agreement. Neither the Agent nor any Bank has any obligation to issue any other
or further waiver with respect to the subject matter hereof or of any other
matter, and, except as expressly provided herein, the Credit Agreement and all
documents, instruments and agreements related thereto are ratified and confirmed
in all respects and will continue in full force and effect.
3
<PAGE> 4
4. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants as follows:
4.1 THE AMENDMENT. This Amendment has been duly and validly executed by
an authorized executive officer of Borrower and constitutes the legal, valid and
binding obligation of Borrower enforceable against Borrower in accordance with
its terms.
4.2 CLAIMS AND DEFENSES. As of the date of this Amendment, neither the
Borrower nor any of the Subsidiary Guarantors has any defenses, claims,
counterclaims or setoffs with respect to the Credit Agreement, the Loan
Documents or any Obligations thereunder or with respect to any actions of the
Agent, the Banks, the Letter of Credit Bank or any of their respective officers,
directors, shareholders, employees, agents or attorneys, and the Borrower
irrevocably and absolutely waives any such defenses, claims, counterclaims and
setoffs and releases the Agent, the Banks and the Letter of Credit Bank, and
each of their respective officers, directors, shareholders, employees, agents
and attorneys, from the same.
4.3 CREDIT AGREEMENT. The Credit Agreement, as previously amended and
as further amended by this Amendment, remains in full force and effect and
remains the valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms.
4.4 NONWAIVER. Except as set forth in Section 3 of this Amendment, the
execution, delivery, performance and effectiveness of this Amendment shall not
operate nor be deemed to be nor construed as a waiver (i) of any right, power or
remedy of the Agent, any Bank or the Letter of Credit Bank under the Credit
Agreement, nor (ii) of any term, provision, representation, warranty or covenant
contained in the Credit Agreement or any other documentation executed in
connection therewith. Further, except as set forth in Section 3 of this
Agreement, none of the provisions of this Amendment shall constitute, be deemed
to be or construed as, a waiver of any Event of Default under the Credit
Agreement as previously amended and as further amended by this Amendment.
4.5 REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein", or words of like import shall mean
and be a reference to the Credit Agreement, as previously amended and as further
amended hereby, and each reference to the Credit Agreement in any other
document, instrument or agreement executed and/or delivered in connection with
the Credit Agreement shall mean and be a reference to the Credit Agreement, as
previously amended and as further amended hereby.
5. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AMENDMENT NO. 1.
In addition to all of the other conditions and agreements set forth herein, the
effectiveness of this Amendment is subject to the fulfillment of each of the
following conditions precedent:
5.1 AMENDMENT NO. 1 TO CREDIT AND SECURITY AGREEMENT. The Agent and
each Bank shall have received an original counterpart of this Amendment No. 1 to
Credit and Security Agreement, executed and delivered by a duly authorized
officer of Borrower, the Agent, and each of the Banks.
4
<PAGE> 5
6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Amendment has been delivered and accepted at
and shall be deemed to have been made at Cleveland, Ohio. This Amendment shall
be interpreted and the rights and liabilities of the parties hereto determined
in accordance with the laws of the State of Ohio, without regard to principles
of conflict of law, and all other laws of mandatory application.
6.2 SEVERABILITY. Each provision of this Amendment shall be interpreted
in such manner as to be valid under applicable law, but if any provision hereof
shall be invalid under applicable law, such provision shall be ineffective to
the extent of such invalidity, without invalidating the remainder of such
provision or the remaining provisions hereof.
6.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which, when taken together, shall constitute but one and
the same agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, Borrower has caused this Amendment No. 1 to Credit
and Security Agreement to be duly executed and delivered by its duly authorized
officer as of the date first above written.
KEY CORPORATE CAPITAL INC., as Agent PARAGON CORPORATE HOLDINGS INC.
____________________________________ ___________________________________
By:_________________________________ By:________________________________
Its:________________________________ Its:_______________________________
KEY CORPORATE CAPITAL INC., as a Bank KEY CORPORATE CAPITAL INC., as a
Letter of Credit Bank
____________________________________ ___________________________________
By:_________________________________ By: _______________________________
Its:________________________________ Its:_______________________________
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements listed on pages 2 and 3 of this Form 10-Q and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001060513
<NAME> PARAGON CORPORATE HOLDINGS INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 6,273
<SECURITIES> 20,365
<RECEIVABLES> 38,981
<ALLOWANCES> 1,470
<INVENTORY> 48,956
<CURRENT-ASSETS> 115,698
<PP&E> 21,010
<DEPRECIATION> 1,380
<TOTAL-ASSETS> 171,502
<CURRENT-LIABILITIES> 54,420
<BONDS> 115,000
0
0
<COMMON> 1
<OTHER-SE> (8,766)
<TOTAL-LIABILITY-AND-EQUITY> 171,502
<SALES> 63,368
<TOTAL-REVENUES> 63,368
<CGS> 40,039
<TOTAL-COSTS> 63,308
<OTHER-EXPENSES> 748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,796
<INCOME-PRETAX> (3,484)
<INCOME-TAX> (29)
<INCOME-CONTINUING> (3,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,455)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
