<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
---------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 333-51569
PARAGON CORPORATE HOLDINGS INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-1845312
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
CO-REGISTRANTS AND SUBSIDIARY GUARANTORS
<TABLE>
<CAPTION>
<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
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
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)
Securities registered pursuant to Section 12(b) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (sec. 229.405 of this chapter) 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)
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1999 was $-0-.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
As of March 15, 1999, there were 1,000 shares of the registrant's Class A common
stock outstanding.
As of March 15, 1999, there were 19,000 shares of the registrant's Class B
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PARAGON CORPORATE HOLDINGS INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
------ ------
PART I
<S> <C>
1 BUSINESS 3
2 PROPERTIES 5
3 LEGAL PROCEEDINGS 5
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 6
PART II
5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS 6
6 SELECTED FINANCIAL DATA 6
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
8 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA 14
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 37
PART III
10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 37
11 EXECUTIVE COMPENSATION 38
12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 40
13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 40
PART IV
14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 43
15 SIGNATURES 44
16 INDEX OF EXHIBITS 45
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Paragon Corporate Holdings Inc. (hereinafter referred to as the "Company") is a
holding company organized in September 1996 under the Delaware General
Corporation law. The Company conducts all of its business through its
subsidiaries.
The Company commenced operations on January 17, 1997 through the acquisition on
that date of the common stock of A.B. Dick Company and its wholly owned
subsidiaries (collectively "A.B. Dick"), from General Electric Company Ltd.
("GEC"). A.B. Dick is engaged in the manufacture, sale, distribution and service
of offset presses, cameras and plate makers and related supplies for the graphic
arts and printing industry. On December 5, 1997, the Company acquired all of the
common stock of Curtis Industries, Inc. ("Curtis"), a national distributor of
products to the automotive and industrial markets.
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.
ACQUISITIONS
The Company's acquisition strategy is to conclude acquisitions that will add
complementary product lines, expand its technological capabilities, broaden its
geographic reach or otherwise support its business strategy. There can be no
assurance that the Company will be successful in consummating any acquisition on
terms favorable to the Company, if at all. During 1998, the Company consummated
two small transactions which added complementary pre-press products and supplies
and strengthened the Company's foreign distribution of its printing equipment
and supplies business.
CUSTOMERS
The Company's printing equipment and supplies products are marketed to
commercial, franchise and independent print shops, in-plant print shops and
governmental and educational institutions throughout the world. Customers for
printing supplies include franchisees of national quick print chains,
independent quick print shops and small commercial shops and check printers. The
Company's automotive and industrial supplies distribution products are marketed
to fleet operators, independent auto dealerships, selected retail outlets and
industrial accounts throughout the world. The Company's printing products are
sold to more than 10,000 customers and its automotive and industrial
distribution products to more than 55,000 customers, with no one customer
accounting for more than 1.6% of the Company's 1998 net revenues. The Company
believes this diversity in its client base minimizes its reliance on any one
customer.
3
<PAGE> 4
COMPETITION
The Company's printing equipment and supplies business competes, with respect to
its manufactured products, against a number of other manufacturers of pre-press
equipment and offset presses and with re-sellers of used presses, primarily on
the basis of quality and price. Some of these competitors have significantly
greater financial and other resources than the Company. The Company's pre-press
and offset press equipment also competes, to a limited extent, with alternate
technologies such as color laser printers, copiers and other duplicating
equipment. In addition, in the markets for supplies, service and parts, the
Company competes against a wide variety of national, regional and local
distributors of graphic arts and printing supplies and related service,
primarily on the basis of availability and service.
The Company's distribution business competes with OEMs and other national
distributors, as well as a large number of regional and local distributors.
Because of the similarity of product types, competitive advantage among national
distributors is determined primarily by sales representative performance and
reliability, product presentation, product quality, order fill rate, breadth of
product line, speed of delivery and, to a lesser extent, price. Regional and
local distributors also compete with the Company on the basis of these factors,
but price and delivery are more important factors at this level.
SUPPLIERS
All materials used by the Company's printing equipment and supplies business to
manufacture products are readily available in the marketplace, and the Company
is not dependent upon any single supplier for any materials essential to the
manufacture of any of these products. The Company has been able to obtain an
adequate supply of raw materials and no shortage of raw materials is currently
anticipated.
The Company's distribution business distributes products from a large and
diverse supply base. In 1998, based on the Company's net revenues, no single
supplier accounted for more than 5.6% of the Company's supply of products.
BACKLOG
Backlog at December 31, 1998 was $3.3 million, an increase of $0.6 million, or
22.2% from $2.7 million at December 31, 1997. The increase is primarily due to
the timing of shipment of certain presses acquired from a third party
manufacturer. The Company expects the majority of the backlog to ship during
1999. Since a majority of the orders in the automotive and industrial supplies
distribution business are shipped within 24 hours of receipt of the order, no
significant backlog exists for these products at December 31, 1998 or 1997.
EMPLOYEES
As of December 31, 1998, the Company had approximately 1,900 employees,
approximately 1,370 of whom were located in the United States. The Company
believes its relations with its employees are good. The Company's employees are
not subject to collective bargaining agreements.
ENVIRONMENTAL AND HEALTH SAFETY MATTERS
The Company is subject to a variety of environmental standards imposed by
federal, state, local and foreign environmental laws and regulations. The
Company also is subject to the federal Occupational Health and Safety Act and
similar foreign and state laws. The Company periodically reviews its procedures
and policies for compliance with environmental and health and safety laws and
regulations and believes that it is in substantial compliance with all such
material laws and regulations applicable to its operations. Historically, the
costs of compliance with environmental, health and safety requirements have not
been material to the Company's Subsidiaries.
4
<PAGE> 5
ITEM 2. PROPERTIES.
The Company conducts its operations through the following primary facilities:
<TABLE>
<CAPTION>
APPROX. PRINCIPAL OWNED/
LOCATION SQ. FOOTAGE FUNCTION LEASED
<S> <C> <C> <C>
UNITED STATES:
Niles, Illinois 54,000 Headquarters; Administration Leased(1)
Niles, Illinois 156,000 Manufacturing; warehouse Leased (2)
Des Plaines, Illinois 87,000 Warehouse Leased (3)
Rochester, New York 194,000 Manufacturing Leased (4)
Shelbyville, Kentucky 100,000 Warehouse; packaging plant Owned
Atlanta, Georgia 60,000 Warehouse Leased (5)
Sparks, Nevada 50,000 Warehouse Owned
Mayfield Heights, Ohio 34,000 Administration Leased (6)
CANADA:
Rexdale, Ontario 67,000 Administration; warehouse Owned
Mississauga, Ontario 38,000 Administration; warehouse Leased (7)
UNITED KINGDOM:
Brentford, 26,000 Administration; warehouse Leased (8)
Andover 15,000 Administration; warehouse Leased (9)
BELGIUM:
Brussels 11,000 Administration; warehouse Leased (10)
THE NETHERLANDS:
Maarssen 25,000 Administration; warehouse Leased (11)
</TABLE>
- -----------------
(1) Expires in July, 2008.
(2) Expires in July, 2008.
(3) Expires in August, 2003.
(4) Expires in April, 2007.
(5) Expires in February, 2000.
(6) Expires in November, 2006.
(7) Expires in August, 2001.
(8) Expires in September, 2003.
(9) Expires in November, 2012.
(10) Expires in December, 2004.
(11) Expires in April, 2003.
The Company believes that all of its property and equipment is in a condition
appropriate for its operations and that it has sufficient capacity to meet its
current operational needs.
ITEM 3. LEGAL PROCEEDINGS.
On April 30, 1997, four former and current distributors of A. B. Dick filed a
suit against A.B. Dick alleging, among other things, breach of distributorship
contracts and unfair and deceptive trade practices. The plaintiffs allege that
the former parent of A.B. Dick decided to exit the U.S. market for printing
equipment and related supplies and services by the sale or closing of A.B. Dick
and as part of such plan pursued strategies designed to eliminate or
significantly weaken A.B. Dick distributors engaged under distributorship
contracts during the four year period ended April 30, 1997. The Company intends
to vigorously defend this case although there can be no assurance as to the
eventual outcome.
GEC Incorporated has agreed to fully indemnify the Company against all costs and
liabilities in connection with any litigation that is pending or may be brought
against A.B. Dick and arises out of events occurring prior to the closing of the
A.B. Dick acquisition, including the case mentioned in the previous paragraph,
for all amounts in excess of $250,000 up to an aggregate liability of
$15,000,000.
In addition, both A.B. Dick and Curtis are parties to routine litigation
incidental to their businesses, some of which is covered by insurance. The
Company does not believe that any such pending litigation will have a material
adverse effect upon its results of operations or financial condition.
5
<PAGE> 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the quarter ended December 31, 1998, NES Group, Inc., the Company's sole
shareholder, by written consent, re-elected all members of the Company's Board
of Directors.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company is a direct wholly-owned subsidiary of NES Group, Inc. There is no
established public trading market for the Company's common stock. As of March
15, 1999, the Company had one shareholder. The Company paid a cash dividend
during fiscal 1998 in the amount of $10.0 million. The Company paid no dividends
in 1997. See Note F, "Financing Agreements," to the Consolidated Financial
Statements, Part II, Item 8, for limitations on dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents (i) consolidated financial data of the Company for
the year ended December 31, 1998 and for the period from January 17, 1997
through December 31, 1997 (ii) consolidated financial data of A.B. Dick for the
period from April 1, 1996 through January 16, 1997 and for the year ended March
31, 1996, which have been derived from the audited consolidated financial
statements of A.B. Dick; and (iii) unaudited consolidated financial data of A.B.
Dick for the year ended March 31, 1995 which was derived from the unaudited
consolidated financial statements of A.B. Dick. In the opinion of management,
the unaudited financial data of A.B. Dick for the year ended March 31, 1995
includes all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of such data. The Company believes that the financial
data of A. B. Dick for the periods prior to January 17, 1997, the date on which
A. B. Dick was acquired by the Company (the "Acquisition Date"), is not
comparable in certain respects with the financial data of A. B. Dick subsequent
to such date. Prior to the Acquisition Date, A. B. Dick maintained a defined
benefit pension plan for its manufacturing employees. This plan was overfunded
as of March 31, 1995 and, therefore, in accordance with FASB Statement No. 87,
"Employers' Accounting for Pensions," pension credits of $5.1 million were
recognized for the fiscal year ended March 31, 1996 and $7.0 million were
recognized for the period from April 1, 1996 through January 16, 1997. In
connection with the sale of A. B. Dick on January 16, 1997, GEC assumed all
existing obligations under this plan. Prior to the Acquisition Date, A. B. Dick
also provided post-retirement health care benefits to certain retirees. Net
periodic post-retirement benefit costs of approximately $4.7 million for the
fiscal year ended March 31, 1996 and approximately $3.5 million for the period
April 1, 1996 through January 16, 1997 were allocated to A. B. Dick by GEC based
upon actuarial valuations in accordance with FASB statement No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions." In connection with
the sale of A. B. Dick on January 16, 1997, GEC Incorporated assumed all
existing obligations under the post-retirement health care benefits plan. The
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements as described elsewhere herein.
6
<PAGE> 7
TABLE 1
<TABLE>
<CAPTION>
THE COMPANY A. B. DICK (PREDECESSOR COMPANY)
-------------------------------- -------------------------------------------------
Fiscal Year Jan. 17, 1997 April 1, 1996
Ended Through Through Fiscal Year
Dec. 31, Dec. 31, Jan. 16, Ended March 31,
-------------------------------
1998 1997 1997 1996 1995
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue $ 268,624 $193,216 $157,414 $215,363 $245,755
Gross profit 104,666 63,565 42,356 62,526 71,742
Acquisition and relocation costs (1) 2,705 1,400 - - -
Operating income (loss) 9,983 10,999 (617) (6,034) 2,033
Interest expense 11,311 2,598 205 162 134
Net income (loss) (1,883) 8,554 (1,106) (6,404) 2,064
OTHER DATA:
Cash provided by operating activities 4,759 15,085 7,481 8,523 N/A
Cash used in investing activities (33,064) (28,684) (3,960) (5,528) N/A
Cash provided by (used in) financing
activities 32,805 15,253 (26,479) (4,468) N/A
Depreciation and amortization 5,511 1,481 7,053 8,922 7,856
Capital expenditures 9,979 1,860 3,960 5,528 3,277
Ratio of earnings to fixed charges (2) 1.0x 3.8x - - 3.2x
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY A. B. DICK
---------------------------------------------------- -------------------------------
(Predecessor Company)
As of December 31, Jan. 17, As of March 31,
---------------------------------------------------- -------------------------------
1998 1997 1997 1996 1995
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short
term investments $ 28,996 $ 7,459 $ 8,280 $ 25,912 $ 27,039
Total assets 175,409 138,075 58,041 116,561 132,837
Long-term debt, including current
portion 117,883 70,616 8,016 2,007 2,298
Stockholder's equity (deficit) (5,119) 7,131 48 77,138 90,151
</TABLE>
(1) For 1997 and 1998, represents non-recurring charges related to compensation
agreements with certain executives in connection with the Curtis
acquisition. In addition, in 1998, represents costs incurred in connection
with the relocation of A. B. Dick operations as required by A. B. Dick
purchase agreement.
(2) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs and one-third of the rent expense from operating leases, which
management believes is a reasonable approximation of an interest factor.
Earnings were inadequate to cover fixed charges in the fiscal year ended
March 31, 1996 and the period from April 1, 1996 through January 16, 1997
by $5,463 and $455, respectively.
7
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The financial statements presented in this document for the Company include
comparative financial statements for the Company and A. B. Dick, the predecessor
company. The 1998 comparative financial statements include the operations of the
Company and its subsidiaries for the year ended December 31, 1998. The 1997
comparative financial statements of the Company include the operations of the
acquired subsidiaries from their respective date of acquisition. A. B. Dick was
acquired on January 17, 1997 and Curtis was acquired on December 5, 1997. The
1997 income statement for the Company refers to the 49-week period from January
17, 1997 through December 31, 1997. The income statement for A. B. Dick, the
predecessor company, refers to the 42-week period from April 1, 1996 through
January 16, 1997.
The following table sets forth, on a comparative basis, certain income statement
data for the Company for the year ended December 31, 1998 and the period from
January 17, 1997 through December 31, 1997 and for A.B. Dick (Predecessor
Company) for the period from April 1, 1996 through January 16, 1997. The
information has been derived from the audited financial statements of the
Company and A.B. Dick.
<TABLE>
<CAPTION>
TABLE 2
PARAGON CORPORATE HOLDINGS INC. A. B. DICK
--------------------------------------------- ----------------
PERIOD FROM PERIOD FROM
YEAR ENDED % OF JAN. 17, 1997 % OF APRIL 1, 1996 % OF
DECEMBER 31, NET THROUGH NET THROUGH NET
1998 REVENUE DEC. 31, 1997 REVENUE JAN. 16, 1997 REVENUE
---------------- ----------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
Printing equipment and supplies $ 187,488 $ 186,315 $ 157,414
Automotive and industrial supplies 81,136 6,901 -
---------------- ---------------- ----------------
Net revenue 268,624 100.0% 193,216 100.0% 157,414 100.0%
Cost of revenue:
Printing equipment and supplies 129,904 126,817 115,058
Automotive and industrial supplies 34,054 2,834 -
---------------- ---------------- ----------------
Cost of revenue 163,958 129,651 115,058
---------------- ---------------- ----------------
Gross profit 104,666 39.0% 63,565 32.9% 42,356 26.9%
Sales and marketing expense 44,383 16.5% 26,386 13.7% 23,574 15.0%
General and administrative
expense 37,630 14.0% 17,603 9.1% 15,248 9.7%
Pension credit - 0.0% - 0.0% (7,013) -4.5%
Research and development 3,046 1.1% 3,755 1.9% 4,111 2.6%
Depreciation and amortization 5,496 2.1% 1,481 0.8% 7,053 4.5%
Management fee 1,423 0.5% 1,941 1.0% - 0.0%
Acquisition and relocation costs 2,705 1.0% 1,400 0.7% - 0.0%
---------------- ----------- ---------------- ---------- ---------------- ----------
Total expenses 94,683 35.2% 52,566 27.2% 42,973 27.3%
---------------- ----------- ---------------- ---------- ---------------- ----------
Operating income (loss) $ 9,983 3.8% $ 10,999 5.7% $ (617) -0.4%
================ =========== ================ ========== ================ ==========
</TABLE>
8
<PAGE> 9
YEAR ENDED DECEMBER 31, 1998, COMPARED TO THE PERIOD FROM JANUARY 17, 1997
THROUGH DECEMBER 31, 1997
NET REVENUE. Net revenue increased $75.4 million or 39.0% from $193.2 in 1997 to
$268.6 million in 1998. The increase was principally due to the acquisition of
Curtis, which accounted for $81.1 million in sales for the year ended December
31, 1998 compared to $6.9 million in 1997. Printing equipment sales were up $4.4
million or 6.8% over the prior year to $69.0 million primarily due to increases
in the domestic sales of press equipment. Supplies sales were down $2.1 million
or 2.7% to $75.8 million in 1998 compared to $77.9 million in 1997. The
discontinuance of certain domestic equipment lines and the introduction of a new
plate product by a competitor in the pre-press market are the principal reasons
for the revenue decline. Service revenues decreased by $1.7 million primarily
due to the discontinuance of the Konica copier equipment line and a trend among
customers to switch from preventive service contracts to purchased service
calls. Repair parts sales increased by $0.6 million.
GROSS PROFIT. Gross profit was $104.7 million compared to $63.6 million from the
prior year. The increase of $41.1 million or 64.6% was principally due to the
acquisition of Curtis, which had a gross margin of $47.1 million for the year
ended December 31, 1998 compared to $4.1 million for the period ended December
31, 1997. Gross profit margin percentage was 39.0% during 1998 compared to 32.9%
for the same period last year. The addition of the Curtis business accounted for
the significant improvement in the gross margin as a percentage of revenues. The
A. B. Dick margins decreased by $1.9 million or 1.2% as a percent of revenue
primarily due to the change in the mix of sales of the various products and
services.
COSTS AND EXPENSES. Costs and expenses increased by $42.1 million to $94.7
million in 1998 from $52.6 million for the period January 17, 1997 through
December 31, 1997. The acquisition of Curtis contributed $39.4 million to the
increase in costs and expenses. A.B. Dick sales, marketing, general and
administrative expense increases were offset by reductions in research and
development, and management fee. Acquisition and relocation expenses were $2.7
million during 1998 compared to $1.4 million in 1997. This increase was
primarily due to the costs associated with the relocation of the A.B Dick
facilities during the year and non-recurring charges related to compensation
arrangements with certain executives.
OPERATING INCOME. Operating income decreased $1.0 million or 9.1% from $11.0
million in 1997 to $10.0 million in 1998. In 1998 the amount includes an
increase in operating income from Curtis of $4.2 million. The operating income
generated in 1998 by A. B. Dick decreased $2.1 million due to the relocation of
its facilities and approximately $2.7 million due to the change in the mix of
product sales and services compared to the period January 17, 1997 to December
31, 1997. Corporate administrative expenses increased by $0.4 in 1998 compared
to 1997.
EXTRAORDINARY ITEM. An extraordinary expense of $1.3 million was recorded during
the second quarter of 1998 related to the write-off of deferred financing costs
and fees associated with the early extinguishment of certain of the Company's
debt.
THE COMPANY'S PERIOD FROM JANUARY 17, 1997 THROUGH DECEMBER 31, 1997 VERSUS
A.B. DICK'S PERIOD FROM APRIL 1, 1996 THROUGH JANUARY 16, 1997.
NET REVENUE. Net revenue increased $35.8 million, or 22.7%, to $193.2 million
for the 49 weeks ended December 31, 1997, from $157.4 million for the 42 weeks
ended January 16, 1997. The $35.8 million increase in net revenue includes
approximately $26.2 million related to the difference in the reporting period
for the Company and A. B. Dick and $6.9 million representing one month's revenue
for Curtis.
Excluding the difference in reporting periods and excluding the results of
Curtis, net revenue increased $2.7 million, or 1.5%, primarily due to an
increase of $1.4 million, or 2.2%, in equipment sales to $64.6 in 1997 from the
introduction of new digital pre-press and post-press products, partially offset
by a decline in sales of optical pre-press equipment and a loss of market share
in the digital duplicator market. In addition, 1997
9
<PAGE> 10
service revenue decreased $2.8 million or 9.1%, to $27.8, due to the impact of
the discontinuation of the Company's line of Konica copier equipment and a trend
among customers to switch from preventative maintenance service contracts to
purchased service calls. Repair parts revenue increased $1.2 million, or 8.1%,
primarily due to an increase in repair parts sales on such purchased service
calls. Supplies revenue in 1997 was $77.9, an increase of $2.8 million, or 3.8%,
primarily due to management's increased focus on the supplies business,
including special promotions and an incentive program for supplies sales.
GROSS PROFIT. Gross profit increased $21.2 million, or 50.0%, to $63.6 million
for the 49 weeks ended December 31, 1997, from $42.4 million for the 42 weeks
ended January 16, 1997. This increase includes $7.1 million related to the
difference in the reporting period for the Company and A. B. Dick and $4.1
million relating to one month's operation of Curtis. The gross profit as a
percent of sales improved to 32.9% for the 49 weeks ended December 31, 1997
compared to 26.9% for the 42 weeks ended January 16, 1997.
Excluding the reporting period differences and the impact of Curtis, gross
profit improved to 31.9% of net revenue in 1997 from 26.9% in 1996. This
improvement was attributable to an improvement in gross margins on equipment
sales to 27.9% in 1997 from 17.8% in 1996, primarily due to enhanced efficiency
in manufacturing, head count reductions, the strength of the United States
dollar relative to the Japanese yen and changes in product mix. Gross margins on
service improved to 25.9% in 1997 from 17.1% in 1996 primarily due to the
elimination of personnel. Gross margins on repair parts and supplies as a
percent of net revenue were relatively constant between periods.
TOTAL EXPENSES. Total expenses increased $9.6 million, or 22.3%, to $52.6
million for the 49 weeks ended December 31, 1997, from $43.0 million for the 42
weeks ended January 16, 1997. This $9.6 million increase was attributable to the
elimination of a $7.0 million pension plan credit, the inclusion of $3.7 million
of expenses relating to one month's operations of Curtis, a $1.9 million
management fee, $1.4 million of expenses relating to the Company's acquisition
of Curtis and an increase of $1.4 million in general operating expenses,
partially offset by a decrease in depreciation and amortization of $5.6 million.
Excluding the difference in reporting periods and Curtis, expenses decreased to
25.4% of net revenue in 1997 from 27.3% in 1996. This decrease was attributable
primarily to reductions of $2.1 million in administrative head count, $1.5
million of facility costs and $4.7 million in retiree medical benefits, offset
by elimination of a pension credit in the amount of $8.2 million. Expenses in
1997 include a management fee of $1.9 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.8 million, $15.1 million and
$7.5 million for the year ended December 31, 1998, the period from January 17,
1997 through December 31, 1997 and the period from April 1, 1996 through January
16, 1997, respectively. The decrease in net cash from operating activities in
1998 was principally the result of decreased net income. The decline in net
income is mainly due to increased interest costs as a result of the issuance of
$115.0 million of senior notes on April 1, 1998. The increase in net cash
provided from operating activities for the period ended December 31, 1997 from
the period ended January 16, 1997 is primarily due to the increase in net income
of $9.7 million and the reduction of inventories of $6.0 million.
Net cash used in investing activities was $30.8 million, $28.7 million and $4.0
million for the year ended December 31, 1998, the period from January 17, 1997
through December 31, 1997 and the period from April 1, 1996 through January 16,
1997, respectively. The increase in 1998 includes increases in short-term
investments of $17.4 million, property, plant and equipment purchases of $10.0
million and payments on acquisition related liabilities of $3.3 million.
Approximately $5.8 million of the expenditures for property, plant and equipment
during the year ended December 31, 1998 related to the relocation of the A. B.
Dick facilities. The primary components of the increase for the period ended
December 31, 1997 from the period ended January 16, 1997 were $19.5 million for
accounts receivable related to the A. B. Dick acquisition, $1.9 million for
property, plant and equipment purchases, $4.4 million for payment of acquisition
related liabilities and $4.9 million related to the acquisition of Curtis.
10
<PAGE> 11
Net cash provided by (used in) financing activities was $30.6 million, $15.3
million and ($26.5) million for the year ended December 31, 1998, the period
from January 17, 1997 through December 31, 1997 and the period from April 1,
1996 through January 16, 1997, respectively. The increase in 1998 is the result
of the issuance of the $115.0 million of senior notes, offset by the reduction
of long-term borrowings of $41.9 million and reduction of revolving lines of
credit by $26.1 million. The bond issuance costs paid were $5.2 million and the
Company paid a dividend to its sole shareholder in the amount of $10.0 million.
The increase in the cash provided by financing activities for the period ended
December 31, 1997 from the period ended January 16, 1997 was principally due to
increases in borrowings on revolving credit lines.
The Company's primary capital requirements (excluding acquisitions) consist of
capital expenditures and debt service. The Company expects current financial
resources and funds from operations to be adequate to meet its cash requirements
in 1999. In 1999, the Company anticipates capital expenditures of approximately
$4.5 million for new and replacement equipment. At December 31, 1998, the
Company had cash, cash equivalents and short-term investments of $29.0 million
and unused credit facilities of $28.3 million available for its use.
IMPACT OF THE YEAR 2000
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 the Company that
their software will process date logic and date handling according to the
standards established by the Company. 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 cost for the Company's Year 2000 assessment, remediation, testing and
implementation is estimated to be approximately $3.5 million, of which
approximately $3.1 million has been expended through December 31, 1998.
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
11
<PAGE> 12
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.
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.
ENVIRONMENTAL MATTERS
The Company is subject to various laws and governmental regulations concerning
environmental matters and employee safety and health in the United States and
other countries. U.S. federal environmental legislation having particular impact
on the Company includes the Toxic Substances Control Act, the Resource
Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Safe
Drinking Water Act and the Comprehensive Environmental Response, Compensation
and Liability Act (also known as Superfund). The Company also is subject to
regulation by the Occupational Safety and Health Administration (OSHA)
concerning employee safety and health matters. The United States Environmental
Protection Agency (EPA), OSHA and other federal agencies have the authority to
promulgate regulations that have an impact on the Company's operations.
In addition to these federal activities, various states have been delegated
certain authority under the aforementioned federal statutes. Many state and
local governments have adopted environmental and
12
<PAGE> 13
employee safety and health laws and regulations, some of which are similar to
federal requirements. State and federal authorities may seek fines and penalties
for violation of these laws and regulations. As part of its continuing
environmental program, the Company has been able to comply with such proceedings
and orders without any materially adverse effect on its business.
The Company is committed to a long-term environmental protection program that
reduces emissions of hazardous materials into the environment, as well as to the
remediation of identified existing environmental concerns.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. The Company expects to adopt the new Statement
effective January 1, 2000. The Company does not anticipate that the adoption of
this Statement will have a significant effect on its results of operations or
financial position.
IMPACT OF INFLATION
Although inflation has slowed in recent years, it is still a factor in our
economy and the Company continues to seek ways to mitigate its impact. To the
extent permitted by competition, the Company passes increased costs on to its
customers by increasing sales prices over time.
The Company uses the last in-first out (LIFO) method of accounting for its
domestic inventories. Under this method, the cost of products sold reported in
the financial statements approximates current costs and thus provides a closer
matching of revenue and expenses in periods of increasing costs. The charges to
operations for depreciation represent the allocation of historical costs
incurred over past years and are significantly less than if they were based on
the current cost of productive capacity being consumed.
The Company's properties have been acquired over the past two years (See Note B
to the Consolidated Financial Statements) and have a remaining useful life
ranging from three years for equipment to forty years for buildings. Assets
acquired in prior years will, of course, be replaced at higher costs but this
will take place over many years. Again, these new assets will result in higher
depreciation charges; but in many cases, due to technological improvements,
there will be operating cost savings as well. The Company considers these
matters in setting its pricing policies.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth and inventory and (iii) other risks and uncertainties indicated from time
to time in the Company's filings with the Securities and Exchange Commission.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK AND RISK MANAGEMENT POLICIES
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and weighted average interest rates by expected maturity
dates for investment securities and debt obligations. Additionally, the Company
has
13
<PAGE> 14
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. At December 31, 1998, all of the investments held by the Company
have maturities within six months or less.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
(in $ millions)
---------------
<TABLE>
<CAPTION>
Fair
value
1999 2000 2001 2002 2003 Thereafter Total Dec.
---- ---- ---- ---- ---- ---------- ----- ----
31,
----
1998
----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Available for sale $ 21.9 $ 21.9 $ 21.5
Securities
Average interest rate 5.680%
Liabilities
Long-term debt, including
current portion
Fixed rate $ 1.0 $ 1.1 $ 0.4 $ 0.2 $ 0.1 $ 115.1 $117.9 $ 98.2
Average interest rate 9.625% 9.625% 9.625% 9.625% 9.625% 9.625%
</TABLE>
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Report of Independent Auditors and the consolidated financial statements of
Paragon Corporate Holdings Inc. for the year ended December 31, 1998 and for the
eleven month and fifteen day period ended December 31, 1997 and A. B. Dick
Company (the Predecessor Company) for the nine month and sixteen day period
ended January 16, 1997 are included herein.
14
<PAGE> 15
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARAGON CORPORATE HOLDINGS INC. AND A.B. DICK COMPANY
(THE PREDECESSOR COMPANY)
Report of Independent Auditors 16
Consolidated Balance Sheets of Paragon Corporate Holdings Inc. as of
December 31, 1998 and 1997 17
Consolidated Statements of Operations for Paragon Corporate Holdings
Inc. for the year ended December 31, 1998 and the eleven-month and fifteen-day period
ended December 31, 1997 and for A.B. Dick Company for the nine-month
and sixteen-day period ended January 16, 1997 18
Consolidated Statements of Stockholder's Equity for Paragon Corporate Holdings Inc.
for the year ended December 31, 1998 and for the eleven-month and fifteen-day period
ended December 31, 1997 and for A.B. Dick Company for the nine-month and sixteen
day period ended January 16, 1997 19
Consolidated Statements of Cash Flows for Paragon Corporate Holdings Inc. for the year
ended December 31, 1998 and for the eleven-month and fifteen-day period ended
December 31, 1997 and A.B. Dick Company for the nine-month and sixteen-day period
ended January 16, 1997 20
Notes to Consolidated Financial Statements 21
</TABLE>
15
<PAGE> 16
REPORT OF INDEPENDENT AUDITORS
To The Stockholder
Paragon Corporate Holdings Inc.
We have audited the accompanying consolidated balance sheets of Paragon
Corporate Holdings Inc. (see Note A) as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholder's equity (deficit)
and cash flows for Paragon Corporate Holdings Inc. for the year ended December
31, 1998 and for the eleven-month and fifteen-day period ended December 31, 1997
and for A.B. Dick Company (the Predecessor Company) for the nine-month and
sixteen-day period ended January 16, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Paragon Corporate
Holdings Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and cash flows for the year ended December 31, 1998 and for the
eleven-month and fifteen-day period ended December 31, 1997 and for A.B. Dick
Company (the Predecessor Company) for the nine-month and sixteen-day period
ended January 16. 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 19, 1999
16
<PAGE> 17
Paragon Corporate Holdings Inc.
Consolidated Balance Sheets
(Dollars In thousands)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,462 $ 3,283
Short-term investments 21,534 4,176
Accounts receivable, less allowance for doubtful
accounts of $1,498 and $1,911 in 1998 and 1997,
respectively 40,579 37,821
Inventories 48,094 48,068
Other 2,458 1,535
-------------------- ---------------------
Total current assets 120,127 94,883
Property, plant and equipment, less
accumulated depreciation 18,700 9,998
Goodwill 31,861 32,072
Other assets 4,721 1,122
-------------------- ---------------------
$ 175,409 $ 138,075
==================== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 23,471 $ 14,143
Accrued compensation 8,302 8,403
Accrued other 16,362 23,317
Deferred service revenue 6,502 6,960
Due to GEC 1,724 945
Current portion of long-term debt 997 3,495
-------------------- ---------------------
Total current liabilities 57,358 57,263
Senior Notes 115,000 -
Other long-term debt, less current portion 1,886 67,121
Retirement obligations 3,641 3,451
Other long-term liabilities 2,643 3,109
-------------------- ---------------------
180,528 130,944
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) (4,279) 7,604
Accumulated other comprehensive loss (888) (521)
-------------------- ---------------------
Total stockholder's equity (deficit) (5,119) 7,131
-------------------- ---------------------
$ 175,409 $ 138,075
==================== =====================
</TABLE>
See notes to consolidated financial statements. 17
<PAGE> 18
Paragon Corporate Holdings Inc. and
A. B. Dick Company
(The Predecessor Company)
Consolidated Statements of Operations
(Dollars In thousands)
<TABLE>
<CAPTION>
PARAGON CORPORATE HOLDINGS INC. A. B. DICK COMPANY
Period From Period From
Jan. 17, 1997 April 1, 1996
Year Ended through through
Dec. 31, 1998 Dec. 31, 1997 Jan. 16, 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
Net revenue $ 268,624 $ 193,216 $ 157,414
Cost of revenue 163,958 129,651 115,058
---------------- ---------------- ----------------
Gross profit 104,666 63,565 42,356
COSTS AND EXPENSES
Sales and marketing expenses 44,383 26,386 23,574
General and administrative expenses 37,630 17,603 15,248
Pension credit - - (7,013)
Research and development 3,046 3,755 4,111
Depreciation and amortization 5,496 1,481 7,053
Management fee 1,423 1,941 -
Acquisition, relocation and severance costs 2,705 1,400 -
---------------- -------------- ----------------
94,683 52,566 42,973
---------------- -------------- ----------------
Operating income (loss) 9,983 10,999 (617)
Interest income 1,728 789 998
Interest expense (11,311) (2,598) (205)
Other income (expense) (258) 139 (631)
---------------- -------------- ----------------
Income (loss) before foreign income
taxes and extraordinary item 142 9,329 (455)
Foreign income taxes 745 775 651
---------------- -------------- ----------------
Income (loss) before extraordinary item (603) 8,554 (1,106)
Extraordinary item (1,280) - -
---------------- -------------- ----------------
Net income (loss) $ (1,883) $ 8,554 $ (1,106)
================ ============== ================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
Paragon Corporate Holdings Inc. and
A. B. Dick Company
(The Predecessor Company)
Consolidated Statements of Stockholder's Equity (Deficit)
(Dollars In thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid - In Retained Comprehensive
Stock Capital Earnings (Deficit) Income (Loss) Total
---------- ----------- ------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
A. B. DICK COMPANY
(THE PREDECESSOR COMPANY)
Balance at March 31, 1996 $ 1 $ - $ 75,443 $ 1,694 $ 77,138
Comprehensive loss:
Net loss (1,106) (1,106)
Currency translation adjustment (903) (903)
------------
Total comprehensive loss (2,009)
Cash distributions to GEC
and affiliates (26,307) (26,307)
Accounts receivable and other
assets distributed to GEC (28,245) (28,245)
---------- ----------- ----------------- --------------- ------------
Balance at January 16, 1997 $ 1 $ - $ 19,785 $ 791 $ 20,577
========== =========== ================= =============== ============
PARAGON CORPORATE HOLDINGS INC.
Opening balance at January 17, 1997 $ 1 $ 47 $ - $ - $ 48
Comprehensive income:
Net income 8,554 8,554
Currency translation adjustment (521) (521)
------------
Total comprehensive income 8,033
Accrued dividend for stockholder's
income taxes (950) (950)
---------- ----------- ----------------- --------------- ------------
Balance at December 31, 1997 1 47 7,604 (521) 7,131
Comprehensive loss:
Net loss (1,883) (1,883)
Currency translation adjustment (321) (321)
Minimum pension liability (46) (46)
------------
Total comprehensive loss (2,250)
Dividend distribution to stockholder (10,000) (10,000)
---------- ----------- ----------------- --------------- ------------
Balance at December 31, 1998 $ 1 $ 47 $ (4,279) $ (888) $ (5,119)
========== =========== ================= =============== ============
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
Paragon Corporate Holdings Inc. and
A. B. Dick Company
(The Predecessor Company)
Consolidated Statements of Cash Flows
(Dollars In Thousands)
<TABLE>
<CAPTION>
PARAGON CORPORATE HOLDINGS INC. A. B. DICK COMPANY
Period From Period From
Jan. 17, 1997 April 1, 1996
Year Ended through through
Dec. 31, 1998 Dec. 31, 1997 Jan. 16, 1997
---------------- --------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (1,883) $ 8,554 $ (1,106)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Extraordinary item 1,280 - -
Provision for depreciation and amortization 5,511 1,481 7,053
Gain on sale of equipment (845) - -
Pension credit - - (7,013)
Retirement expense - - 1,577
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,758) (205) 4,857
(Increase) decrease in inventory (63) 6,029 (1,045)
Increase in other assets (1,128) (877) (383)
Increase in accounts payable 9,328 1,193 1,460
Increase (decrease) in other liabilities (4,683) (1,090) 2,081
---------------- --------------- -----------------
Net cash provided by operating activities 4,759 15,085 7,481
INVESTING ACTIVITIES:
Accounts receivable used in connection with the
acquisition of A. B. Dick Company - (19,489) -
Purchases of property, plant and equipment (9,979) (1,860) (3,960)
Proceeds from the sale of equipment 858 - -
Payment of acquisition liabilities (3,250) (4,379) -
(Increase) decrease in short-term investments (17,358) 1,954 -
Acquisition of businesses, less cash acquired (1,095) (4,910) -
---------------- --------------- -----------------
Net cash used in investing activities (30,824) (28,684) (3,960)
FINANCING ACTIVITIES:
Borrowings on revolving credit facilities - 18,603 -
Decrease in amounts due to GEC
and affiliates (1,221) (2,436) (26,307)
Proceeds from issuance of Senior Notes 115,000 - -
Payment of bond issuance cost (5,241) - -
Payment on revolving credit facilities (26,084) - -
Dividend distribution (10,000) - -
Decrease in long-term borrowings (41,889) (914) (172)
---------------- --------------- -----------------
Net cash provided by (used in) financing activities (30,565) 15,253 (26,479)
Effect of exchange rate changes on cash (321) (521) (903)
---------------- --------------- -----------------
Increase (decrease) in cash and cash equivalents 4,179 1,133 (23,861)
Cash and cash equivalents at beginning of period 3,283 2,150 25,912
---------------- --------------- -----------------
Cash and cash equivalents at end of period $ 7,462 $ 3,283 $ 2,051
================ =============== =================
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
PARAGON CORPORATE HOLDINGS INC. AND
A.B. DICK COMPANY (THE PREDECESSOR COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
A. ORGANIZATION
Paragon Corporate Holdings Inc. (hereinafter referred to as 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. ACQUISITIONS
The Company commenced operations on January 17, 1997 through the acquisition on
that date of the common stock of A.B. Dick Company and its wholly owned
subsidiaries (collectively "A.B. Dick"), from General Electric Company Ltd.
("GEC ).
Under the terms of the stock purchase agreement, A.B. Dick transferred to GEC
$19,489 of domestic accounts receivable (which were collected by A.B. Dick
during 1997 and remitted to GEC) and the Niles manufacturing and headquarters
facilities, which had a carrying amount of $3,500. GEC agreed to let the Company
use these facilities until the Company moved to new manufacturing, headquarters
and distribution facilities during 1998. GEC also agreed to fund up to $1,500 in
severance costs incurred in 1997 and to reimburse the Company in 1998 for moving
costs up to $2,000. These amounts have been reflected in the allocation of the
purchase price.
Restructuring reserves of $6,000 were included in the purchase price allocation
in accordance with the Company's business plans to substantially reorganize the
A.B. Dick operations. These reserves represented accruals for severance of
administrative and operating employees and occupancy costs to be incurred in
1997 and 1998 for idle manufacturing and headquarters facilities prior to the
relocation of operations in 1998. Through December 31, 1998, the Company has
expended all of the amounts provided for in the purchase price allocation. The
Company has completed the physical relocation of its headquarters, distribution
center and manufacturing activities, except for the press room chemical
manufacturing which will be finalized during the first quarter of 1999. The
remaining estimated relocation expenses to be incurred in 1999 are not material
and will be expensed as incurred.
Since the fair value of the net assets acquired exceeded the purchase price by
approximately $16,359, the historical book values of the acquired property,
plant and equipment ($12,900) have been recorded on the January 17, 1997 opening
balance sheet at zero. The remaining excess ($3,459) of fair value of net assets
acquired over purchase price has been classified as other long-term liabilities
and is being amortized into income over ten years. This transaction was
accounted for under the purchase method of accounting.
On December 5, 1997, the Company acquired all the common stock of Curtis
Industries, Inc. ("Curtis"), a national distributor of products in the
automotive and industrial markets, for a purchase price of $22,200 composed
primarily of $6,500 in cash and $15,700 in seller notes. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
results of operations of Curtis are included in the consolidated financial
statements since the date of acquisition.
The following unaudited pro forma results of operations assume the acquisition
of Curtis occurred on January 1, 1997. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had the acquisition
occurred on January 1, 1997:
21
<PAGE> 22
Period from
January 17, 1997
Through
December 31, 1997
-----------------
Net revenues $267,419
Costs and expenses 250,295
Acquisition costs 1,400
Operating income 15,724
Net Income 8,700
During 1998, the Company acquired two businesses which added complementary
products and increased distribution for the Company's foreign printing equipment
and supplies business. The cost of the acquisitions, net of cash acquired, was
$1,095. The acquisitions have been accounted for as purchases with the acquired
assets and liabilities recorded at estimated fair value at the date of
acquisition. The acquired companies operating results have been included in the
statement of operations since their respective date of acquisition. Proforma
results of operations assuming the acquisitions occurred on January 1, 1997 have
not been presented as the impact of these acquisitions was not material.
C. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Consolidated statements of operations,
stockholder's equity and cash flows for the nine-month and sixteen-day period
ended January 17, 1997 have been presented for A.B. Dick, the Predecessor
Company. All significant intercompany accounts and transactions have been
eliminated.
Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents. The Company's short-term
investments are comprised primarily of certificates of deposit and have
maturities within six months.
Accounts Receivable
As set forth in the stock purchase agreement (See Note B), immediately prior to
closing, A.B. Dick transferred all accounts receivable from its operations in
the United States to GEC; therefore, the trade accounts receivable balance on
the January 17, 1997 opening balance sheet relates solely to the operations of
the wholly owned, foreign subsidiaries of A.B. Dick.
Provisions for credit losses were approximately $760, $1,124 and $7 for the year
ended December 31, 1998, the period from January 17, 1997 through December 31,
1997, and the period from April 1, 1996 through January 16, 1997, respectively.
Accounts written off were approximately $1,173, $124 and $393 for the year ended
December 31, 1998, the period from January 17, 1997 through December 31, 1997,
and the period from April 1, 1996 through January 16, 1997, respectively.
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.
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 December 31, 1998 by $19,600. The fair value has been determined using
the market price of the related securities at December 31, 1998.
22
<PAGE> 23
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
The Company maintains cash and cash equivalents and short-term investments with
financial institutions. The Company's policy is designed to limit exposure to
any one investment type. The Company performs periodic evaluations of the
relative credit standing of the various investments that are contained in the
Company's investment portfolio.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base. The Company does not require collateral for trade accounts receivable.
Property, Plant and Equipment
Property, plant and equipment are stated at cost (See Note B). Depreciation is
computed using the straight-line method based on the expected useful lives of
the assets, which are as follows:
Building and improvements 15 to 40 years
Machinery and equipment 3 to 18 years
Rental equipment 3 years
Goodwill
Goodwill is being amortized on a straight-line basis over 30 years. Accumulated
amortization was $1,585 and $419 at December 31, 1998 and 1997, respectively.
The ongoing value and remaining useful life of goodwill are subject to periodic
evaluation and the Company currently expects the carrying amounts to be fully
recoverable.
Impairment of Long-lived Assets
When conditions are present that indicate a potential impairment in the value of
a long-lived asset, the Company evaluates such potential impairment by comparing
the aggregate of the estimated undiscounted future net cash flows (including any
salvage values) to be generated by an asset with the asset's carrying value. No
impairment has been recorded in the consolidated financial statements.
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 terms of the tax payment agreement with the stockholder, the
Company makes distributions to the stockholder for payment of income taxes. At
December 31, 1997, the Company accrued dividends totaling $950, for the payment
of stockholder's income taxes, which was paid in 1998. No amount was accrued or
paid for the year ended December 31, 1998.
Prior to its acquisition by the Company, the operations of A.B. Dick were
subject to United States income taxes and included in the income tax returns of
its U.S. Parent. For financial reporting purposes, U.S. income tax expense was
allocated to A.B. Dick by its U.S. Parent on a separate return basis giving
effect to permanent differences which were not taxable or deductible for federal
income tax purposes. All deferred income taxes were recorded by the U.S. Parent,
as it was the U.S. Parent's policy not to allocate deferred income taxes to its
subsidiaries.
The foreign subsidiaries of A.B. Dick and Curtis are subject to foreign income
taxes. Accordingly, deferred taxes have been provided for the expected future
tax consequences of temporary differences in the foreign subsidiaries between
the carrying amount and tax basis of assets and liabilities. Where the Company
has determined that it is more likely than not that deferred assets will not be
realized, a valuation allowance has been established. At December 31, 1998 and
1997, the Company paid taxes of $557 and $824, respectively.
23
<PAGE> 24
Revenue Recognition
For the majority of its operations, the Company recognizes revenues upon
shipment of its equipment and products. A.B. Dick receives advance payments for
service contracts and recognizes income evenly over the contract term as service
is provided. Deferred revenues are recorded on the balance sheet related to
these advance payments.
Product Warranty
A.B. Dick's products (pre-press, press and post-press equipment, copiers, repair
parts and supplies) are subject to varying warranty periods. A reserve for
estimated future warranty obligations is included in accrued expenses based on
historical rates of warranty claims.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs for the
year ended December 31, 1998, the period from January 17, 1997 through December
31, 1997 and the period from April 1, 1996 through January 16, 1997 amounted to
$2,795, $1,832 and $3,024, respectively.
Management Fee
Operations include management fees charged by Nesco, Inc., an affiliate of the
stockholder of the Company, to provide management, legal, financial, strategic
planning, business development and other services to the Company. Effective
April 1, 1998, the Company and Nesco, Inc. entered into a new management
agreement under which the Company has agreed to pay Nesco, Inc. fees for such
services equal to 5% of earnings before interest, taxes, depreciation,
amortization and other income and expense.
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiaries are translated
at the current exchange rates, while revenue and expenses are translated at
average rates prevailing during the year. The effects of exchange rate
fluctuations have been reported as a separate component of stockholder's equity.
Gains and losses from foreign currency transactions are included in net income.
Comprehensive Income (Loss)
Accumulated other comprehensive loss at December 31, 1998 consists of $842
relating to foreign currency translation adjustments and $46 relating to minimum
pension liability adjustments. Accumulated other comprehensive loss at December
31, 1997 and January 16, 1997 consisted entirely of foreign currency translation
adjustments.
Derivative Instruments
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in the year
2000. Since it is the Company's intent not to use derivatives, management
believes that the adoption of the new Statement will not have a significant
effect on the earnings or financial position of the Company.
Use of Estimates
The presentation 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 any
contingent assets or 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 amounts from the prior year financial statements have been reclassified
to conform to current year presentation.
24
<PAGE> 25
D. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Raw materials and work in $ 6,768 $ 9,295
process
Finished goods 41,638 39,363
LIFO reserve (312) (590)
------ -----
$48,094 $48,068
======= =======
</TABLE>
E. PROPERTY, PLANT AND EQUIPMENT
Property and equipment (See Notes B and C) is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Land $ 371 $ 330
Buildings and improvements 6,823 2,721
Machinery and equipment 11,018 4,773
Rental assets 4,836 2,484
----- -----
23,048 10,308
Less: accumulated depreciation 4,348 310
----- ---
$18,700 $9,998
======= ======
</TABLE>
F. FINANCING ARRANGEMENTS
Long-term debt included the following:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
PARAGON:
9 5/8% Series B Senior Notes, interest payable
semi-annually, due April, 2008 $115,000 $ ---
Note payable to GEC --- 6,000
Notes payable to former Curtis shareholders --- 15,700
CURTIS: ---
Term loan --- 12,000
Revolving credit agreement --- 12,085
Subordinated debentures --- 9,189
Note payable --- 460
Capital lease obligations 49 75
A. B. DICK:
Revolving credit agreements --- 14,000
Capital lease obligations 2,834 1,107
----- -----
Total debt 117,883 70,616
Less: current portion 997 3,495
--- -----
Total long-term debt $116,886 $67,121
======== =======
</TABLE>
The aggregate maturities of the long-term debt for each of the five years
subsequent to December 31, 1998 are as follows:
Year Ending December 31:
1999 $ 997
2000 1,118
2001 409
2002 158
2003 130
Thereafter 115,071
On April 1, 1998, the Company issued $115 million of 9 5/8% Series A Senior
Notes due 2008. On September 1, 1998, the Company completed an exchange of all
of the 9 5/8% Series A Senior Notes for
25
<PAGE> 26
9 5/8% Series B Senior Notes due 2008 ("Series B Notes" or "Senior Notes"). The
Series B Senior Notes are registered under the Securities Act of 1933 and are
redeemable at the option of the Company, in whole or in part, any time on or
after 2003 subject to certain call premiums. Interest on the Senior Notes is
payable semi-annually in arrears. The Senior Notes are unsecured obligations of
the Company and are guaranteed by the domestic subsidiaries of the Company and
contain various restrictive covenants that, among other things, place
limitations on the sale of assets, payment of dividends, incurring additional
indebtedness and restrict transactions with affiliates. Debt issuance costs of
$4,917 have been capitalized and are being amortized over the life of the Senior
Notes. The proceeds of the Senior Notes were utilized as follows:
Gross proceeds of Senior Notes $115,000
Repayment of term loans (39,649)
Repayment of revolving credit facilities (26,084)
Dividend paid to stockholder (10,000)
Fees and expenses (5,241)
-------
Excess cash from proceeds $ 34,026
========
The Company and Key Corporate Capital Inc. ("Key") are parties to a credit
facility and security agreement dated April 1, 1998 and amended as of December
31, 1998, pursuant to which Key has provided the Company a revolving line of
credit equal to $32.0 million (the "Credit Agreement"). The availability under
the Credit Agreement is equal to the sum of (i) 85% of the eligible Curtis
accounts receivable, plus 80% of the eligible A. B. Dick accounts receivable,
plus (ii) 60% of the eligible Curtis inventory (capped at $6.4 million), plus
60% of the eligible A.B. Dick inventory (capped at $9.6 million), less (iii)
reserves and outstanding letters of credit. The Credit Agreement is guaranteed
by Curtis and A. B. Dick pursuant to separate credit guaranty agreements with
Key. The Credit Agreement is secured by liens on accounts receivable and
inventory of Curtis and A. B. Dick, pursuant to separate security agreements
between Key and each of Curtis and A. B. Dick. The Credit Agreement contains
certain financial and other covenants which, among other things, establish
minimum EBITDA and fixed charge ratios. The Credit Agreement is fully revolving
until its final maturity in 2003. The Credit Agreement bears interest at a rate
determined according to a sliding scale under which the rate adjusts based upon
the Company's performance. The Credit Agreement bears interest at an initial
rate equal to (i) Key's prime rate plus 75 basis points, or (ii) LIBOR plus 275
basis points, at the option of the Company. At December 31, 1998, there were no
outstanding borrowings under the Revolving Credit Facility. A fee of 3/8% per
annum is charged on the unused portion of the Revolving Credit Facility. At
December 31, 1998, there were $3.7 million of letters of credit outstanding.
During the year ended December 31, 1998, the eleven-month and fifteen-day period
ended December 31, 1997, and the period from April 1, 1996 through January 16,
1997, the Company paid interest of $9,727 and $1,242 and $205, respectively.
An extraordinary expense of $1,280 was recorded during the second quarter of
1998 related to the write-off of deferred financing costs and fees associated
with the early extinguishment of certain of the Company's debt.
G. LEASE COMMITMENTS
The Company leases certain facilities and equipment which generally provide that
the Company pay the insurance, maintenance and property taxes related to the
leases. In the normal course of business, the Company expects that, as leases
expire, they will be renewed or replaced by other leases. The leases generally
provide for renewal options and various escalation clauses.
26
<PAGE> 27
As of December 31, 1998, minimum lease payments under capitalized leases and
non-cancelable operating leases are as follows:
Capital Operating
Leases Leases
------ ------
Year Ending December 31:
1999 $1,325 $4,082
2000 1,296 3,357
2001 452 2,909
2002 141 2,659
2003 68 2,035
Thereafter 0 5,152
------ -------
Total minimum lease payments $3,282 $20,194
=======
Imputed interest 399
------
Present value of minimum
lease payments $2,883
======
The above lease commitments have not been reduced by aggregate minimum sublease
rentals of $1,123 due in the future under non-cancelable subleases.
The Company had $4,682, $2,226 and $2,296 of rental expense for the year ended
December 31, 1998, the period from January 17, 1997 through December 31, 1997
and the period from April 1, 1996 through January 16, 1997, respectively.
Assets held under capitalized leases and included in machinery and equipment
were $2,074, net of accumulated amortization of $248 at December 31, 1998.
During 1998 the Company incurred capital lease obligations of $2,240 for the
acquisition of property, plant and equipment.
In connection with the relocation of its operations, A. B. Dick entered into a
lease agreement during the first quarter of 1998 for new headquarters facilities
with an affiliate of the Company. The lease has a term of 10 years and requires
monthly rental payments of approximately $29, has one five-year renewal option
and provides for rental increases of 3% per year commencing with the second
lease year.
In December 1996, Curtis entered into a lease agreement with an affiliate of the
Company. The lease has a ten year term, requires monthly rental payments of $37,
has two five-year renewal options and provides for rental increases in year four
and year eight of the lease.
H. SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information.
The Company has two reportable segments: printing equipment and supplies and
automotive and industrial supplies. The Company's printing equipment and
supplies business consists of operating units that sell equipment, repair parts
and supplies and provide maintenance and repair service support on equipment.
These products are sold directly through a network of branches and independent
distributors to the global quick print and small commercial printing customers
in the United States, Canada, the United Kingdom, the Netherlands and Belgium,
as well as other European countries. The Company's automotive and industrial
supplies business distributes automotive security products, non-model specific
automotive parts and maintenance, repair and operating supplies. Customers
include independent auto dealerships and industrial accounts throughout North
America and the United Kingdom.
The Company evaluates performance and allocates resources based on profit or
loss from operations before interest, gains and losses on the Company's
investment portfolio and income taxes. The accounting policies
27
<PAGE> 28
of the reportable segments are the same as those described in the summary of
significant accounting policies. The Company's reportable segments are business
units that offer different products and services. The reportable segments are
each managed separately because they manufacture and distribute distinct
products in distinct markets.
TABLE 3
<TABLE>
<CAPTION>
PARAGON CORPORATE HOLDINGS INC. A.B. DICK COMPANY
Period From Period From
Jan. 17, 1997 April 1, 1996
Year Ended through through
Dec. 31, 1998 Dec. 31, 1997 Jan. 16, 1997
------------------- ---------------------- --------------------
<S> <C> <C> <C>
Net revenues:
Printing equipment and supplies $ 187,488 $ 186,315 $ 157,414
Automotive and industrial supplies 81,136 6,901 -
------------------- ---------------------- --------------------
Total net revenues $ 268,624 $ 193,216 $ 157,414
=================== ====================== ====================
Depreciation and amortization:
Printing equipment and supplies $ 1,610 $ 1,210 $ 7,053
Automotive and industrial supplies 3,886 271 -
------------------- ---------------------- --------------------
Total depreciation and amortization $ 5,496 $ 1,481 $ 7,053
=================== ====================== ====================
Operating income (loss):
Printing equipment and supplies $ 7,278 $ 12,104 $ (617)
Automotive and industrial supplies 3,126 (1,072) -
------------------- ---------------------- --------------------
10,404 11,032 (617)
Corporate income (expense) (679) 106 (631)
Interest income (expense), net (9,583) (1,809) 793
------------------- ---------------------- --------------------
Income (loss) before taxes and
extraordinary item $ 142 $ 9,329 $ (455)
=================== ====================== ====================
Segment assets:
Printing equipment and supplies $ 79,448 $ 66,014 $ 51,811
Automotive and industrial supplies 69,297 67,440 -
------------------- ---------------------- --------------------
148,475 133,454 51,811
Corporate assets 38,562 4,621 6,230
Intersegment accounts receivable (11,898) - -
------------------- ---------------------- --------------------
Total assets $ 175,409 $ 138,075 $ 58,041
=================== ====================== ====================
Capital expenditures:
Printing equipment and supplies $ 6,853 $ 1,338 $ 3,960
Automotive and industrial supplies 3,126 522 -
------------------- ---------------------- --------------------
Total capital expenditures $ 9,979 $ 1,860 $ 3,960
=================== ====================== ====================
</TABLE>
The Company's principal operations are in the United States, but it also
maintains operating subsidiaries in Belgium, the Netherlands, Canada and the
United Kingdom.
Net revenues are attributed to countries based on the location of the subsidiary
where the sale occurs. Transfers between geographic areas are accounted for at
market with appropriate adjustments made to inventory carrying values in
consolidation. Identifiable assets represent long-lived assets that are used in
the Company's operations in each geographic area at year end.
The Company's and its Predecessor's financial data by geographic area for the
year ended December 31, 1998, January 17, 1997 through December 31, 1997 and the
period from April 1, 1996 through January 16, 1997 is as follows:
TABLE 4
<TABLE>
<CAPTION>
PARAGON CORPORATE HOLDINGS INC. A. B. DICK COMPANY
Period From Period From
Jan. 17, 1997 April 1, 1996
Year Ended through through
Dec. 31, 1998 Dec. 31, 1997 Jan. 16, 1997
------------------- ------------------ ----------------------
<S> <C> <C> <C>
Net revenues:
Domestic $ 208,551 $ 154,934 $ 128,732
Foreign:
Canada 28,072 21,397 16,311
Other 32,373 21,376 16,322
Elimination between geographic areas (372) (4,491) (3,951)
------------------- ------------------ ----------------------
Total net revenues $ 268,624 $ 193,216 $ 157,414
=================== ================== ======================
Operating income (loss):
Domestic $ 8,342 $ 8,863 $ (1,211)
Foreign:
Canada 1,024 1,402 924
Other 644 757 (330)
Elimination between geographic areas (27) (23) -
------------------- ------------------ ----------------------
Total operating income (loss) $ 9,983 $ 10,999 $ (617)
=================== ================== ======================
Long-lived assets:
Domestic $ 17,849 $ 9,351 $ 10,867
Foreign:
Canada 408 369 1,001
Other 443 278 1,093
------------------- ------------------ ----------------------
Total long-lived assets $ 18,700 $ 9,998 $ 12,961
=================== ================== ======================
</TABLE>
I. CONTINGENCIES
On April 30, 1997, four former and current distributors of A.B. Dick filed a
suit against A.B. Dick, the Predecessor Company, alleging, among other things,
breach of distributorship contracts and unfair and deceptive trade practices.
The plaintiffs have requested that the case be given class action status with
respect to all A.B. Dick distributors engaged under distributorship contracts
during the four-year period ended on April 30, 1997. The Company intends to
vigorously defend this case although there can be no assurance as to the
eventual outcome.
GEC has agreed to fully indemnify the Company against all costs and liabilities
in connection with any litigation that is pending or may be brought against A.B.
Dick arising out of events occurring prior to the closing of the A.B. Dick
acquisition, including the case mentioned in the previous paragraph. In
addition, both A.B. Dick and Curtis are parties to routine litigation incidental
to their businesses, some of which is covered by insurance. The Company does not
believe that any such pending litigation will have a material adverse effect
upon its results of operations or financial condition.
28
<PAGE> 29
J. EMPLOYEE BENEFIT PLANS
Effective March 1, 1997, the Company established a defined contribution plan
that includes an employee 401(k) contribution provision covering certain
employees of A.B. Dick. The plan provides for employee contributions ranging
from 1%-15% of employee's compensation, subject to statutory limitation, as well
as a matching Company contribution equal to 25% of the employee's contribution
but limited to 6% of compensation. The Company contribution for the year ended
December 31, 1998 and the eleven-month and fifteen day period ended December 31,
1997 was approximately $314 and $600, respectively.
The Predecessor Company maintained a defined benefit pension plan for its
manufacturing employees. The plan was overfunded at April 1, 1996 and a pension
credit of $7,013 for period from April 1, 1996 through January 16, 1997 was
allocated to the Predecessor Company by GEC based upon actuarial valuations in
accordance with FASB Statement No. 87, "Employers' Accounting for Pensions,"
consisting of the following:
Service Cost $3,039
Interest cost on projected benefit obligation 9,245
Actual return on plan assets (16,075)
Net amortization and deferral (3,222)
-----
Net pension (income) $(7,013)
=======
In connection with the sale of the Predecessor Company on January 16, 1997, GEC
assumed all existing obligations relating to such benefits.
The Predecessor Company also provided postretirement health care benefits to
certain retirees. Net periodic benefit costs of $3,455 for the period from April
1, 1996 through January 16, 1997, was allocated to the Predecessor Company by
GEC based on actuarial valuations in accordance with FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
consisted of the following:
Service cost $539
Interest cost 3,704
Amortization (788)
-----
$3,455
======
In connection with the sale of the Predecessor Company on January 16, 1997, GEC
assumed all obligations existing under the plan.
Curtis has deferred compensation agreements with certain former executives which
provide for payments of a fixed level of compensation on a monthly basis from
retirement until death. Curtis also maintains a Supplemental Executive
Retirement Plan in which one former executive participates. Expense recognized
for the executive deferred compensation and Supplemental Executive Retirement
Plans for 1998 and 1997 was $161 and $5, respectively.
Additionally, Curtis has a deferred compensation plan for the benefit of sales
representatives attaining specified sales goals. Curtis credits eligible
participant's accounts with a percentage of their annual earnings. The annual
amount credited to participant accounts vests at the rate of 5% per annum.
Eligible participants over the age of 55 vest at an accelerated rate. Expense
under this plan was $222 in 1998 and $17 in 1997.
Curtis also maintains a 401(k) retirement savings plan covering substantially
all employees. Contributions to the 401(k) plan are based upon a percentage of
each participant's compensation. The plan provides for employee contributions
ranging from 1% - 15% of employee's compensation, subject to statutory
limitation as well as a matching company contribution which is based on a
formula defined in the plan document. The expense for this plan was $250 and $22
in 1998 and 1997, respectively.
Liabilities recorded for the outstanding contributions to these Plans at
December 31, 1998 was $2,044 and $1,943 at December 31, 1997.
29
<PAGE> 30
The Company maintains a defined benefit pension plan and a postretirement
benefit plan for certain former UAW manufacturing employees. The following table
sets forth the plans' funded status and amounts recognized in the Company's
balance sheet as of December 31, 1998:
Post-
Pension retirement
Benefits Benefits
-------- --------
Change in benefit obligation:
Beginning balance $ 2,428 $ 1,406
Interest cost 141 100
Actuarial loss 22 40
Benefits paid (204) (113)
--------- ---------
Ending balance $ 2,387 $ 1,433
---------- ---------
Change in plan assets:
Beginning balance $ 2,081 $ --
Actual return on plan assets 115 --
Employer contributions -- 113
Benefits paid (204) (113)
--------- ---------
Ending balance $ 1, 992 $ --
--------- ---------
Projected benefit obligation in
excess of plan assets $ (395) $ (1,433)
Minimum pension
liability adjustment 46 --
Unrecognized net
Actuarial loss -- 40
--------- ----------
Accrued benefit cost $ (349) $ (1,393)
========= ==========
Amounts recognized in the consolidated balance sheet consist of:
Accrued benefit liability $ (395) $ (1,393)
Accumulated other comprehensive income 46 --
--------- ---------
Net amount recognized $ (349) $ (1,393)
========= =========
Assumptions used in the accounting for the employee benefit plans are shown in
the following table as weighted-averages:
Pension benefits:
Discount rate 6.0%
Expected return on plan assets 7.0%
Postretirement benefits:
Discount rate 7.5%
For measurement purposes, a 6% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 1999. The rate was assumed to
decrease to 5.5% for 2000 and remain at that level thereafter.
<TABLE>
<CAPTION>
Post-
Pension Retirement
Benefits Benefits
-------- --------
<S> <C> <C>
Components of net periodic benefit cost:
Interest cost $ 141 $ 100
Expected return on plan assets (139) --
------- -------
Net periodic benefit cost $ 2 $ 100
======= =======
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported. A one-percentage-point change in assumed health care cost trend rates
would change the accumulated postretirement benefit
30
<PAGE> 31
obligation as of December 31, 1998 by $6. The effect on this change on the
interest expense component of the net postretirement benefit expense for 1998
would be an increase or decrease of $5.
K. GUARANTOR AND NON-GUARANTOR SUBSIDIARY INFORMATION
The Company's domestic subsidiaries, all of which are directly or indirectly
wholly owned, are the only guarantors of the 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 financial information for the Company, the guarantor
subsidiaries and the non-guarantor, foreign subsidiaries is as follows:
31
<PAGE> 32
<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 subsidiaries 74,118 13,803 - (87,921) -
Other assets 4,709 4 8 - 4,721
Intercompany 11,898 - - (11,898) -
----------- ------------- ---------------- ------------- -----------
Total Assets $ 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)
----------- ------------- ---------------- ------------- -----------
Total liabilities and stockholder's equity $ 112,680 $ 137,027 $ 25,725 $ (100,023) $ 175,409
=========== ============= ================ ============= ===========
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
----------- ------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(YEAR ENDED DECEMBER 31, 1998):
Net revenue $ - $ 208,551 $ 60,445 $ (372) $ 268,624
Cost of revenue - 124,041 40,262 (345) 163,958
----------- ------------- ---------------- ------------- -----------
Gross profit - 84,510 20,183 (27) 104,666
Total operating expenses 421 75,747 18,515 - 94,683
----------- ------------- ---------------- ------------- -----------
Operating income (loss) (421) 8,763 1,668 (27) 9,983
Interest income (expense), net (7,741) (2,006) 164 - (9,583)
Other income (expense) - (518) 260 - (258)
----------- ------------- ---------------- ------------- -----------
Income (loss) before foreign income taxes
and extraordinary item (8,162) 6,239 2,092 (27) 142
Foreign income taxes - 51 694 - 745
----------- ------------- ---------------- ------------- -----------
Income (loss) before extraordinary item (8,162) 6,188 1,398 (27) (603)
Extraordinary item (170) (1,110) - - (1,280)
----------- ------------- ---------------- ------------- -----------
Net income (loss) $ (8,332) $ 5,078 $ 1,398 $ (27) $ (1,883)
=========== ============= ================ ============= ===========
CASH FLOW DATA
(YEAR ENDED DECEMBER 31, 1998):
Net cash provided by (used in)
operating activities $ (8,204) $ 12,679 $ 284 $ - $ 4,759
Investing activities:
Purchases of property, plant and equipment - (9,434) (545) - (9,979)
Proceeds from the sale of equipment - 858 - - 858
Payment of acquisition liabilities - (3,250) - - (3,250)
Increase in short-term investments (17,358) - - - (17,358)
Acquisition of businesses, less cash acquired - (233) (862) - (1,095)
----------- ------------- ---------------- ------------- -----------
Net cash used in investing activities (17,358) (12,059) (1,407) - (30,824)
Financing activities:
Payments on revolving credit lines - (26,084) - - (26,084)
Intercompany (52,497) 49,785 2,712 - -
Proceeds from bond offering 115,000 - - - 115,000
Payment of bond issue cost (5,241) - - - (5,241)
Decrease in amounts due to GEC and
affiliates - (1,221) - - (1,221)
Dividend distribution (10,000) - - - (10,000)
Decrease in long-term borrowings (21,700) (20,189) - - (41,889)
----------- ------------- ---------------- ------------- -----------
Net cash provided by financing activities 25,562 2,291 2,712 - 30,565
Effect of exchange rate on cash - 90 (411) - (321)
----------- ------------- ---------------- ------------- -----------
Increase in cash and cash equivalents - 3,001 1,178 - 4,179
Cash and cash equivalents at beginning
of period 28 1,173 2,082 - 3,283
----------- ------------- ---------------- ------------- -----------
Cash and cash equivalents at end of period $ 28 $ 4,174 $ 3,260 $ - $ 7,462
=========== ============= ================ ============= ===========
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
----------- ------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(DECEMBER 31, 1997):
Current assets:
Cash and cash equivalents $ 28 $ 1,173 $ 2,082 $ - $ 3,283
Short-term investments 4,176 - - - 4,176
Accounts receivable, net - 29,230 8,778 (187) 37,821
Inventories - 39,494 8,496 78 48,068
Other - 900 635 - 1,535
----------- ------------- ---------------- ------------- -----------
Total current assets 4,204 70,797 19,991 (109) 94,883
Property, plant and equipment, net - 9,351 647 - 9,998
Goodwill - 32,008 64 - 32,072
Investment in subsidiaries 31,437 11,581 - (43,018) -
Other assets 417 698 7 - 1,122
Intercompany - 4,000 - (4,000) -
----------- ------------- ---------------- ------------- -----------
Total assets $ 36,058 $ 128,435 $ 20,709 $ (47,127) $ 138,075
=========== ============= ================ ============= ===========
Current liabilities:
Accounts payable $ - $ 11,475 $ 2,668 $ - $ 14,143
Accrued expenses 3,227 25,466 2,430 597 31,720
Deferred service revenue - 5,903 1,057 - 6,960
Due to GEC - 945 - - 945
Current portion of long-term debt 1,000 2,495 - - 3,495
Intercompany 4,000 - - (4,000) -
----------- ------------- ---------------- ------------- -----------
Total current liabilities 8,227 46,284 6,155 (3,403) 57,263
Long-term debt, less current portion 20,700 46,421 - - 67,121
Retirement obligations - 3,414 37 - 3,451
Other long-term liabilities - - - 3,109 3,109
Intercompany - (1,155) 2,190 (1,035) -
Stockholder's equity 7,131 33,471 12,327 (45,798) 7,131
----------- ------------- ---------------- ------------- -----------
Total liabilities and stockholder's equity $ 36,058 $ 128,435 $ 20,709 $ (47,127) $ 138,075
=========== ============= ================ ============= ===========
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
----------- ------------- ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(JANUARY 17, 1997 THROUGH DECEMBER 31, 1997):
Net revenue $ - $ 154,934 $ 42,773 $ (4,491) $ 193,216
Cost of revenue - 104,150 29,969 (4,468) 129,651
----------- ------------- ---------------- ------------- -----------
Gross profit - 50,784 12,804 (23) 63,565
Total operating expenses 33 41,888 10,645 - 52,566
----------- ------------- ---------------- ------------- -----------
Operating income (loss) (33) 8,896 2,159 (23) 10,999
Interest income (expense), net 146 (2,079) 124 - (1,809)
Other income (expense) - (36) 175 - 139
----------- ------------- ---------------- ------------- -----------
Income (loss) before foreign income taxes 113 6,781 2,458 (23) 9,329
Foreign income taxes - - 775 - 775
----------- ------------- ---------------- ------------- -----------
Net income (loss) $ 113 $ 6,781 $ 1,683 $ (23) $ 8,554
=========== ============= ================ ============= ===========
CASH FLOW DATA
(JANUARY 17, 1997 THROUGH DECEMBER 31, 1997):
Net cash provided by operating activities: $ 563 $ 12,668 $ 1,854 $ - $ 15,085
Investing activities:
Accounts receivable used in connection with
acquisition of A. B. Dick - (19,489) - - (19,489)
Acquisition of businesses, less of cash acquired (2,589) (3,076) 755 - (4,910)
Purchases of property, plant and equipment - (1,405) (455) - (1,860)
Payments of acquisition liabilities - (4,379) - - (4,379)
Decrease in short-term investments 1,954 - - - 1,954
----------- ------------- ---------------- ------------- -----------
Net cash provided by (used in)
investing activities (635) (28,349) 300 - (28,684)
Financing activities:
Borrowings on revolving credit lines - 18,603 - - 18,603
Intercompany - - - - -
Increase in amounts due to GEC and affiliates - (2,436) - - (2,436)
Decrease in long-term borrowings - (914) - - (914)
----------- ------------- ---------------- ------------- -----------
Net cash provided by financing activities - 15,253 - - 15,253
Effect of exchange rate on cash (521) (521)
----------- ------------- ---------------- ------------- -----------
Increase (decrease) in cash and cash equivalents (72) (428) 1,633 - 1,133
Cash and cash equivalents at beginning of period 100 1,601 449 - 2,150
----------- ------------- ---------------- ------------- -----------
Cash and cash equivalents at end of period $ 28 $ 1,173 $ 2,082 $ - $ 3,283
=========== ============= ================ ============= ===========
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
A. B. DICK
(THE PREDECESSOR COMPANY)
-------------------------------
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Total
------------------------------ ---------------- -------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
(APRIL 1, 1996 THROUGH JANUARY 16, 1997):
Net revenue $128,732 $ 32,633 $ (3,951) $ 157,414
Cost of revenue 95,948 23,061 (3,951) 115,058
----------- ------------- ---------------- -------------
Gross profit 32,784 9,572 - 42,356
Total operating expenses 33,995 8,978 - 42,973
----------- ------------- ---------------- -------------
Operating income (loss) (1,211) 594 - (617)
Interest income (expense), net 196 597 - 793
Other income (expense) (793) 162 - (631)
----------- ------------- ---------------- -------------
Income (loss) before foreign income taxes (1,808) 1,353 - (455)
Foreign income taxes - 651 - 651
----------- ------------- ---------------- -------------
Net income (loss) $ (1,808) $ 702 $ - $ (1,106)
=========== ============= ================ =============
CASH FLOW DATA
(APRIL 1, 1996 THROUGH JANUARY 16, 1997):
Net cash provided by (used in) operating activities:$ 8,342 $ (861) $ - $ 7,481
Investing activities:
Purchases of property, plant and equipment (3,561) (399) - (3,960)
----------- ------------- ---------------- -------------
Financing activities:
Decrease in amounts due to GEC and affiliates (8,834) (17,473) - (26,307)
Decrease in long-term borrowings (172) - - (172)
----------- ------------- ---------------- -------------
Net cash used in financing activities (9,006) (17,473) - (26,479)
Effect of exchange rate on cash - (903) - (903)
----------- ------------- ---------------- -------------
Decrease in cash and cash equivalents (4,225) (19,636) - (23,861)
Cash and cash equivalents at beginning of period 5,827 20,085 - 25,912
----------- ------------- ---------------- -------------
Cash and cash equivalents at end of period $ 1,602 $ 449 $ - $ 2,051
=========== ============= ================ =============
</TABLE>
36
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors and
executive officers of the Company.
Name Age Position with the Company
Gerald J. McConnell 57 President and Chief Executive Officer
A. Keith Drewett 52 Vice President
Edward J. Suchma 55 Vice President and Chief Financial Officer
John H. Fountain 35 Chairman of the Board
Donald F. Hastings 70 Director
John J. Kahl, Jr. 58 Director
John R. Tomsich 32 Director
Robert J. Tomsich 68 Director
James W. Wert 52 Director
Set forth below is a brief description of the business experience of each
director and executive officer of the Company.
MR. MCCONNELL has served as President and Chief Executive Officer of the Company
since March 1998. Mr. McConnell has served as President and Chief Executive
Officer of A. B. Dick since 1995. Prior to joining A. B. Dick, Mr. McConnell
served as President and Chief Executive Officer of American Paper Group, Inc., a
specialty envelope manufacturing company, from March 1995 to December 1995, and
as Chief Executive Officer of MAN Roland Inc., a printing press manufacturer,
from 1990 to 1995.
MR. DREWETT has served as Vice President of the Company since March 1998. Mr.
Drewett has served as President and Chief Executive Officer of Curtis since July
1998. Mr. Drewett previously served as President-Automotive and Industrial
Division of Curtis from May 1992 and Senior Vice President of Curtis from May
1997 to July 1998.
MR. SUCHMA has served as Vice President and Chief Financial Officer of the
Company since November 1998. He has also served as Vice President and Chief
Financial Officer of A. B. Dick since November 1998. Mr. Suchma previously
served as Chief Financial Officer and Advisor to the Chairman of LaserMaster
Technologies, Inc., a hardware and software solutions provider to the printing
industry from 1996 to 1997. Prior to joining LaserMaster, Mr. Suchma was with
Rockwell Graphic Systems from 1986 through 1996, most recently as its Executive
Vice President.
MR. FOUNTAIN has served as Chairman of the Board of Directors of the Company
since March 1998 and a member of the Board's Executive Committee since May 1998.
Mr. Fountain served as Secretary and Treasurer of the Company since its
inception in September 1996 through March 1998, as Vice President from November
1996 to present, and as director since January 1997. Mr. Fountain has been a
Vice President of Nesco, Inc. since 1993. Mr. Fountain is the son-in-law of Mr.
Robert Tomsich.
MR. HASTINGS has served as a Director of the Company since March 1998. Mr.
Hastings served as Chairman of Lincoln Electric Company, a welding products
manufacturer, from 1992 through 1997, and Chief Executive Officer of Lincoln
Electric Company from 1992 through 1996. Mr. Hastings also serves as a director
of Continental Global Group, Inc.
37
<PAGE> 38
MR. KAHL, JR. has served as a Director of the Company since March 1998. Mr. Kahl
is Chairman and Chief Executive Officer of Manco, Inc., a manufacturer of
pressure sensitive tapes for household and automotive repairs, mailing and
shipping supplies, weatherstripping and related home energy products and labels.
Mr. Kahl also serves as a director of Applied Industrial Technologies Inc. and
Royal Appliance Mfg. Co.
MR. JOHN TOMSICH has served as a Director of the Company since January 1997 and
served as a Vice President of the Company since its inception through March
1998. In addition, Mr. John Tomsich has served as Vice President of Nesco, Inc.
since 1995 and in various other management positions with Nesco, Inc. since
1990. Mr. John Tomsich also serves as director of Continental Global Group, Inc.
Mr. John Tomsich is the son of Mr. Robert Tomsich.
MR. ROBERT TOMSICH has served as a Director of the Company since its inception
and served as President of the Company from its inception to March 1998. In
addition, Mr. Robert Tomsich has served as President and a Director of Nesco,
Inc. (including predecessors of Nesco, Inc.) since 1956. Mr. Robert Tomsich also
serves as director of Continental Global Group, Inc. Mr. Robert Tomsich is the
father of Mr. John Tomsich and the father-in-law of Mr. John Fountain.
MR. WERT has served as a Director of the Company from January to April 1997 and
since March 1998 and as Chair of the Board's Executive Committee since May 1998.
Prior to his service with the Company, Mr. Wert held a variety of executive
management positions with KeyCorp, a financial services company based in
Cleveland, Ohio, and KeyCorp's predecessor, Society Corporation. Mr. Wert served
as Senior Executive Vice President and Chief Investment Officer of KeyCorp from
1995 to 1996. Prior to that time, he served as Senior Executive Vice President
and Chief Financial Officer of KeyCorp. for two years and Vice Chairman,
Director and Chief Financial Officer of Society Corporation for four years. Mr.
Wert also serves as a director of Continental Global Group, Inc. and as Chairman
of the Executive and Compensation Committees of the Board of Directors, of
Park-Ohio Industries, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation of
the Company's Chief Executive Officer and the other most highly compensated
officers of the Company having total annual salary and bonus in excess of
$100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL OTHER ANNUAL
POSITION PERIOD ENDED SALARY BONUS COMPENSATION (1)
-------- ------------ ------ ----- ------------------
<S> <C> <C> <C> <C>
Gerald J. McConnell, December 31, 1998 $300,390 $ -- $ 8,410
President and Chief December 31, 1997 259,135(2) 125,000 18,952
Executive Officer January 17, 1997 222,115(3) -- 140,011(4)
A. Keith Drewett, December 31, 1998 $183,500 $ 84,000 $ 374,541
Vice President December 31, 1997 160,000 42,560 12,472
December 31, 1996 160,000 32,480 11,361
Edward J. Suchma, December 31, 1998 $ 20,193 $ -- $ --
Vice President and Chief December 31, 1997 -- -- --
Financial Officer December 31, 1996 -- -- --
Maurice P. Andrien, Jr. (5) December 31, 1998 $102,083 $ -- $ 813,096
President and Chief December 31, 1997 245,000 93,100 10,811
Executive Officer of Curtis December 31, 1996 245,000 105,350 10,482
</TABLE>
38
<PAGE> 39
(1) Amounts shown for the year and period ended December 31, 1998 reflect
contributions made by A. B. Dick or Curtis on behalf of the named
executives under the applicable 401(k) plan, life insurance premiums paid,
car payments and miscellaneous payments made on behalf of the named
executives, as follows:
<TABLE>
<CAPTION>
Mr. McConnell Mr. Drewett Mr. Suchma Mr. Andrien
<S> <C> <C> <C> <C>
401(k) Plan 2,500 2,908 --- ---
Life Insurance Premiums --- 2,893 --- ---
Car Payments and Miscellaneous 5,910 7,500 908 3,274
Severance --- --- --- 142,917
Payment under an agreement (6) --- 361,240 --- 666,905
</TABLE>
(2) Reflects 49-week period from January 17, 1997 to December 31, 1997 at annual
salary of $275,000.
(3) Reflects 42-week period from April 1, 1996 to January 16, 1997 at annual
salary of $275,000.
(4) Includes $125,000 payment made on behalf of A. B. Dick, GEC Incorporated and
General Electric Company, p.l.c. for the settlement and release of certain
compensation claims relating to the sale of A. B. Dick to the Company.
(5) Mr. Andrien resigned his positions with Curtis effective May 31, 1998.
(6) In connection with the Curtis acquisition, Mr. Drewett and Mr. Andrien
entered into an agreement dated December 6, 1997. All amounts due and
payable under the agreement were paid in March 1998.
DIRECTOR COMPENSATION
Each director of the Company not employed by the Company or any entity
affiliated with the Company is entitled to receive $25,000 per year for serving
as a director of the Company. In addition, the Company will reimburse such
directors for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors.
EMPLOYMENT, SEVERANCE AND BONUS AGREEMENTS
On November 10, 1995, A. B. Dick entered into a letter agreement with Gerald J.
McConnell providing for Mr. McConnell's employment as President and Chief
Executive Officer of A. B. Dick. The agreement is for a five-year term ending on
December 3, 2000 and provides for an annual base salary of not less than
$275,000. Mr. McConnell's current base salary is $302,500. The agreement also
provides for an annual bonus of up to 25% of Mr. McConnell's salary if the
Company achieves certain financial performance goals. If Mr. McConnell's
employment is terminated for any reason other than for cause or as result of
permanent total disability, A. B. Dick is required to pay Mr. McConnell his base
salary for twelve months from the date of termination and Mr. McConnell has no
duty to mitigate by seeking other employment. Under the agreement, Mr. McConnell
is not permitted to compete against A. B. Dick or any of its subsidiaries for a
period of twelve months following the termination or expiration of the
agreement.
On February 28, 1996, Curtis entered into a Severance and Non-Competition
Agreement with Maurice P. Andrien, Jr., which was amended April 21, 1998. Mr.
Andrien resigned his positions with Curtis effective May 31, 1998 and, in
accordance with the Agreement as amended, he will receive continued salary
payments (at a rate of $245,000 per year) for the period of June 1, 1998,
through May 31, 2000, and continued participation in all employee benefit plans
until May 31, 2000 (having an estimated value of $29,800), or until he receives
equivalent coverage and benefits from a subsequent employer, if earlier. Thus,
the maximum aggregate benefits payable to Mr. Andrien under the amended
Agreement are approximately $519,800. The Agreement precludes Mr. Andrien from
competing with Curtis or soliciting or employing any employee, officer, or agent
of Curtis for twelve months following termination of employment with Curtis.
On July 2, 1998, Curtis entered into a letter agreement with A. Keith Drewett
providing for Mr. Drewett's employment as President and Chief Executive Officer
of Curtis. The agreement provides for an initial base salary at the rate of
$200,000 per year. Mr. Drewett is eligible to participate in the bonus
compensation plan available to executive officers of Curtis, under which bonuses
are determined in the discretion of the Curtis Board of Directors. If Mr.
Drewett's employment is terminated for any reason other than for cause, or if
Mr. Drewett ceases to be employed by Curtis on account of death or permanent
disability, or if Mr. Drewett voluntarily ceases his employment with Curtis for
any reason on or after December 6, 1998, then Curtis will be required to pay Mr.
Drewett severance payments calculated upon his base salary for twenty-
39
<PAGE> 40
four months, to pay bonuses earned prior to such termination or cessation of
employment, and to continue his participation in all employee benefit plans for
such twenty-four month period or until he receives substantially comparable
coverage and benefits from a subsequent employer, if earlier. The agreement
precludes Mr. Drewett from competing with Curtis, the Company or its
subsidiaries, or from soliciting or employing any employee, officer or agent of
Curtis, the Company or its subsidiaries, for twelve months following cessation
of employment with Curtis. If Mr. Drewett were to separate from Curtis under the
circumstances described above, at his current annual salary of $200,000, the
maximum aggregate benefits payable to him under the agreement (including assumed
continuation of employee benefit plan participation for twenty-four months at an
estimated value of $21,400) would be approximately $421,400, plus bonuses
earned, if any, prior to his cessation of employment.
In connection with the Curtis Acquisition, Mr. Andrien and Curtis also entered
into a Bonus Award Agreement on December 6, 1997. The agreement requires Curtis
to pay Mr. Andrien quarterly payments of $10,920 through September 3, 1999,
followed by a payment of $634,920 on December 3, 1999. The Company guaranteed
the payment of all amounts payable to Mr. Andrien under the Bonus Award
Agreement. In March 1998, Curtis paid all amounts due or that would become due
in the future under the Bonus Award Agreement.
In connection with the Curtis Acquisition, Mr. Drewett and Curtis also entered
into a Bonus Award Agreement on December 6, 1997. The agreement requires Curtis
to pay Mr. Drewett quarterly payments of $5,915 through September 3, 1999,
followed by a payment of $343,915 on December 3, 1999. The Company guaranteed
the payment of all amounts payable to Mr. Drewett under the Bonus Award
Agreement. In March 1998, Curtis paid all amounts due or that would become due
in the future under the Bonus Award Agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of the outstanding
equity securities of the Company as of March 15, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES TITLE OF CLASS NAME AND ADDRESS
OF BENEFICIAL OWNER
<S> <C> <C>
1,000 Class A, Common NES Group, Inc. (1)
Stock, no par value 6140 Parkland Blvd.
Mayfield Hts., OH 44124
19,000 Class B, Common NES Group, Inc. (1)
Stock, no par value 6140 Parkland Blvd.
Mayfield Hts., OH 44124
</TABLE>
(1) All of the Company's issued and outstanding capital stock is owned by NES
Group, Inc. which is 100% owned by Mr. Robert J. Tomsich. Mr. Tomsich may be
deemed to be the beneficial owner of the Company's capital stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMMON OWNERSHIP
The Company is a Delaware corporation formed in September, 1996. All of the
outstanding capital stock of the Company is beneficially owned by NES Group,
Inc., which is beneficially owned by Robert J. Tomsich. Mr. Tomsich also
beneficially owns all the outstanding capital stock of Nesco, Inc., which has
entered into a management agreement with the Company as described below.
The Company used a portion of the proceeds of the Series A Notes Offering to
fund a dividend. As the Company's sole stockholder, NES Group, Inc. was the
recipient of such dividend.
40
<PAGE> 41
TAX PAYMENT AGREEMENT
The Company and the Subsidiary Guarantors have entered into a tax payment
agreement with NES Group, Inc. providing for monthly payments by each entity to
NES Group, Inc. in an amount equal to the greater of (i) the total federal,
state, local and, under certain circumstances, foreign income tax liability
attributable to such entity's operations for the monthly period, determined on
an annualized basis, and (ii) one-twelfth the total federal, state, local and
foreign income tax rates imposed by Section 1 of the Internal Revenue Code of
1986, as amended, and by the equivalent provisions of state, local and foreign
income tax laws. These tax payments will not recognize any future carry-forward
or carry-back tax benefits to the Company and the Subsidiary Guarantors. Future
direct and indirect Subsidiaries of the Company also will become parties to the
tax payment agreement.
MANAGEMENT AGREEMENT
The Company and Nesco, Inc. have entered into a management agreement (the
"Management Agreement"), the material terms of which are summarized below. Under
the Management Agreement, Nesco, Inc. has agreed to provide general management
oversight services on a regular basis for the benefit of the Company, in regard
to business activities involving financial results, legal issues and long-term
planning relative to current operations and acquisitions. Business development
services will include assistance in identifying and acquiring potential
acquisition candidates, including negotiations and contractual preparations in
connection therewith. Financial planning will include assistance in developing
banking relationships and monitoring cash investments through professional money
management accounts. Under the terms of the Management Agreement, the Company
has agreed to pay Nesco, Inc. a management fee for such services equal to 5% of
the Company's earnings before interest and estimated taxes, depreciation,
amortization and other expense (income) (which fee would have been $1.2 million
on a pro forma basis for 1997). Prior to entering into the Management Agreement,
the management fee was 1.0% of net revenue. The management fee will be payable
in monthly installments. The Management Agreement will remain in effect until
terminated by either party upon not less than 60 days' written notice prior to
an anniversary date of the Management Agreement. The Company believes there are
efficiency benefits from having these management services provided by Nesco,
Inc. and believes that the terms of the management agreement are reasonable. Due
to the specialized nature of these services and the efficiencies associated with
provision of such services by Nesco, Inc., the Company has not undertaken to
determine whether more favorable terms could be obtained from an unrelated third
party.
The Company will also separately employ, as required, independent auditors,
outside legal counsel and other consulting services. Such services will be paid
directly by the Company.
CURTIS OFFICE LEASE
Lander Enterprises Co. L.P., an affiliate of the Company ("Lander"), and Curtis
have entered into a lease agreement (the "Lease") for Curtis' headquarters in
Mayfield Heights, Ohio. The initial term of the Lease expires on September 22,
2006, and Curtis has the option to renew for two additional five-year terms.
Curtis is obligated to pay Lander monthly rent of $37,333 during the first three
years of the Lease term, $44,800 during the years four through seven and $53,200
during years eight through ten. Rent for any renewal term shall be equal to 95%
of fair market rent at the time of renewal. Curtis has a right of first refusal
on any additional space that becomes available for lease in the building during
the Lease terms and has an option to lease additional space in the building
commencing in the sixth year of the Lease. At the end of the fifth year of the
Lease, Curtis will receive a credit of $5.00 per square foot to complete any
refurbishing Curtis deems necessary or desirable. Lander has furnished Curtis
with a cash allowance of $0.5 million to fund build-out costs, repayable in 120
equal monthly installments of $6,552. The Company believes this transaction is
on terms that are no less favorable than those that would have been obtained in
a comparable transaction with an unrelated person. The remaining balance of the
promissory note evidencing the cash allowance was discharged with the proceeds
of the Series A Notes Offering.
41
<PAGE> 42
A. B. DICK OFFICE LEASE
Par Realty Ltd., L.P., an affiliate of the Company ("Par"), and A. B. Dick have
entered into a lease agreement (the "A. B. Dick Lease") for A. B. Dick's new
headquarters in Niles, Illinois. The initial term of the A. B. Dick Lease
extends for ten years from the date A. B. Dick takes possession of the premises,
which took place on September 1, 1998. A. B. Dick has the option to extend the
term for one additional five-year period at the expiration of the initial term.
The monthly rent payable by A. B. Dick to Par under the A. B. Dick Lease is
approximately $29,000, which will increase 3% per year commencing with the
second lease year. The Company believes this transaction is on terms that are no
less favorable than those that would have been obtained in a comparable
transaction with an unrelated person.
42
<PAGE> 43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) Documents filed as part of this report:
1. Consolidated Financial Statements.
The consolidated financial statements listed below together
with the report thereon of the independent auditors dated
March 19, 1999 are included in Item 8.
Report of Independent Auditors
Consolidated Balance Sheets of Paragon Corporate Holdings Inc.
as of December 31, 1998 and 1997
Consolidated Statements of Operations for Paragon Corporate
Holdings Inc. for the year ended December 31, 1998 and for the
eleven-month and fifteen-day period ended December 31, 1997,
and A.B. Dick Company (the Predecessor Company) for the
nine-month and sixteen-day period ended January 16, 1997
Consolidated Statements of Stockholder's Equity for Paragon
Corporate Holdings Inc. for the year ended December 31, 1998
and for the eleven-month and fifteen-day period ended December
31, 1997, and for A.B. Dick Company (the Predecessor Company)
for the nine-month and sixteen day period ended January 16,
1997
Consolidated Statements of Cash Flows for Paragon Corporate
Holdings Inc. for the year ended December 31, 1998 and for the
eleven-month and fifteen-day period ended December 31, 1997,
and for A.B. Dick Company (the Predecessor Company) for the
nine-month and sixteen-day period ended January 16, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Financial statement schedules for Paragon Corporate Holdings
Inc. and it subsidiaries have been omitted because they are
either not applicable or the required information has been
disclosed in the consolidated financial statements or the
related footnotes.
3. Exhibits Required to be filed by Item 601 of Regulation S-K.
The information required by this paragraph is contained in the
Index of Exhibits to this report which is incorporated herein
by reference.
(B) Reports on Form 8-K.
None
43
<PAGE> 44
ITEM 15. SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) the Securities Act of 1994,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 29th day of March, 1999.
. PARAGON CORPORATE HOLDINGS INC.
By: /s/ Gerald J. McConnell
-----------------------
Name: Gerald J. McConnell
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Gerald J. McConnell President and Chief Executive Officer March 29, 1999
- ------------------------------------ (Principal Executive Officer)
Gerald J. McConnell
/s/ A. Keith Drewett Vice President March 29, 1999
- ------------------------------------
A.Keith Drewett
/s/ Edward J. Suchma Vice President and Chief Financial Officer March 29, 1999
- ------------------------------------ (Principal Financial Officer and Principal
Edward J. Suchma Accounting Officer)
/s/ John H. Fountain Director March 29, 1999
- ------------------------------------
John H. Fountain
/s/ Donald F. Hastings Director March 29, 1999
- ------------------------------------
Donald F. Hastings
/s/ John J. Kahl, Jr. Director March 29, 1999
- ------------------------------------
John J. Kahl, Jr.
/s/ John R. Tomsich Director March 29, 1999
- ------------------------------------
John R. Tomsich
/s/ Robert J. Tomsich Director March 29, 1999
- ------------------------------------
Robert J. Tomsich
/s/ James W. Wert Director March 29, 1999
- ------------------------------------
James W. Wert
</TABLE>
Supplemental Information to be furnished with reports filed pursuant to Section
15(d) of the Act by Registrants which have not registered securities pursuant to
Section 12 of the Act.
No annual report to security holders covering the registrant's last fiscal year
and no proxy statement, form or proxy or other soliciting material with respect
to any annual or other meeting of security holders has been or will be sent to
security holders.
44
<PAGE> 45
PARAGON CORPORATE HOLDINGS INC.
FORM 10-K
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C> <C>
3.1 Certificate of Incorporation of Paragon Corporate Holdings Inc., *
as currently in effect.
3.2 By-Laws of Paragon Corporate Holdings Inc. as currently in effect *
3.3 Certificate of Incorporation of A.B. Dick Company, as currently in *
effect
3.4 By-Laws of A.B. Dick Company, as currently in effect. *
3.5 Certificate of Incorporation of Curtis Industries, Inc. as *
currently in effect.
3.6 By-Laws of Curtis Industries, Inc. as currently in effect. *
3.7 Certificate of Incorporation of Itek Graphix Corp. , as currently *
in effect.
3.8 By-Laws of Itek Graphix Corp., as currently in effect. *
3.9 Certificate of Incorporation of Curtis Sub, Inc., as currently in *
effect.
3.10 By-Laws of Curtis Sub, Inc., as currently in effect. *
4.1 Indenture, dated as of April 1, 1998, among Paragon Corporate *
Holdings Inc., A.B. Dick Company, Curtis Industries, Inc., Itek
Graphix Corp., Curtis Sub, Inc and Norwest Bank Minnesota,
National Association, as Trustee (containing, as exhibits,
specimens of the Series A Notes and the Series B Notes).
4.4 Credit and Security Agreement, dated as of April 1, 1998 between *
Paragon Corporate Holdings Inc. and Key Corporate Capital Inc.
10.1 Agreement and Plan of Merger, dated as of November 6, 1997, among *
Paragon Corporate Holdings Inc., Curtis Industries, Inc. and
Curtis Acquisition Group.
10.2 Stock Purchase Agreement, dated as of December 19, 1996, between *
Paragon Corporate Holdings Inc. and GEC Incorporated.
10.3 Management Agreement, dated as of April 1, 1998, between Paragon *
Corporate Holdings Inc. and NESCO, Inc.
10.4 Tax Payment Agreement, dated as of April 1, 1998, among Paragon *
Corporate Holdings Inc., A.B. Dick Company, Curtis Industries,
Inc., Itek Graphix Corp., Curtis Sub, Inc. and NES Group, Inc.
10.5 Agreement dated November 10, 1995 between A.B. Dick Company and *
Gerald J McConnell.
10.6 Severance and Non-Competition Agreement dated February 28, 1996 *
between Curtis Industries, Inc. and A. Keith Drewett.
10.7 Severance and Non-Competition Agreement dated February 28, 1996 *
between Curtis Industries, Inc. and Maurice P. Andrien, Jr. as
amended April 22, 1998.
10.8 Agreement dated July 2, 1998 among Curtis Industries, Inc., **
Paragon Holdings Inc. and A. Keith Drewett.
12 Statement regarding computation of ratios of earnings to fixed
charges
21 Subsidiaries of registrant
27 Financial Data Schedule
</TABLE>
* Incorporated by reference from Form S-4 Registration Number 333-51569 filed
under the Securities Act of 1933, as amended
** Incorporated by reference from Amendment No. 2 to Form S-4 Registration
Number 333-51569 filed July 17, 1998 under the Securities Act of 1933, as
amended
45
<PAGE> 1
Exhibit 12
Paragon Corporate Holding Inc.
Computation of Ratio of Earnings to Fixed Charges
(In thousands, except for ratios)
<TABLE>
<CAPTION>
THE COMPANY A. B. DICK
------------------------------------------------------- ----------------------------
Period from Period from (Predecessor Company)
Year Ended Jan. 17, 1997 April 1, 1996 Fiscal Year
Dec. 31, through through Ended March 31,
1998 Dec. 31, 1997 Jan. 16, 1997 1996 1995
--------------- ------------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Computation of earnings:
Income (loss) before foreign
income taxes and extraordinary item $ 142 $ 9,329 $ (455) $ (5,463) $ 2,677
Amortization of deferred financing costs 365 214 - - -
Interest expense 10,946 2,384 205 162 134
Portion of rent expense representative
of an interest factor 1,530 742 765 728 1,103
--------------- ------------------- ---------------- ------------- -------------
Earnings $ 12,983 $ 12,669 $ 515 $ (4,573) $ 3,914
=============== =================== ================ ============= =============
Computation of Fixed Charges:
Amortization of deferred financing costs $ 365 $ 214 $ - $ - $ -
Interest expense 10,946 2,384 205 162 134
Portion of rent expense representative
of an interest factor 1,530 742 765 728 1,103
--------------- ------------------- ---------------- ------------- -------------
Fixed Charges $ 12,841 $ 3,340 $ 970 $ 890 $ 1,237
=============== =================== ================ ============= =============
Ratio of Earnings to Fixed Charges 1.01 3.79 0.53 (5.14) 3.16
=============== =================== ================ ============= =============
</TABLE>
<PAGE> 1
Exhibit 21
Paragon Corporate Holdings Inc.
Subsidiaries of the Registrant At March 15, 1999
<TABLE>
<CAPTION>
Jursidiction
of Incorporation
Subsidiaries (1) or Organization Parent Company
- ---------------------------------------- --------------------- ------------------------------------
<S> <C> <C>
A. B. Dick Company Delaware Paragon Corporate Holdings Inc.
A. B. Dick Company of Canada, Ltd. Canada A. B. Dick Company
A. B. Dick S.A. Belgium A. B. Dick Company
A. B. Dick B.V. Netherlands A. B. Dick Company
A. B. Dick Netherlands B.V. Netherlands A. B. Dick Company
A. B. Dick - Itek Ltd. United Kingdom A. B. Dick Company
Itek Graphix Corp. Delaware A. B. Dick Company
Curtis Industries, Inc. Delaware Paragon Corporate Holdings Inc.
Curtis Industries of Canada, Ltd. Canada Curtis Industries, Inc.
Curtis Industries, Ltd. United Kingdom Curtis Industries, Inc.
Curtis Sub., Inc. Delaware Curtis Industries, Inc.
</TABLE>
(1) Each of the subsidiaries listed is 100% owned by its parent company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements listed on pages 17 and 18 of this Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001060513
<NAME> PARAGON CORPORATE HOLDINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,462
<SECURITIES> 21,534
<RECEIVABLES> 42,077
<ALLOWANCES> 1,498
<INVENTORY> 48,094
<CURRENT-ASSETS> 120,127
<PP&E> 22,995
<DEPRECIATION> 4,295
<TOTAL-ASSETS> 175,409
<CURRENT-LIABILITIES> 57,358
<BONDS> 115,000
0
1
<COMMON> 0
<OTHER-SE> (5,120)
<TOTAL-LIABILITY-AND-EQUITY> 175,409
<SALES> 268,624
<TOTAL-REVENUES> 268,624
<CGS> 163,958
<TOTAL-COSTS> 163,958
<OTHER-EXPENSES> 4,128
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,311
<INCOME-PRETAX> 142
<INCOME-TAX> 745
<INCOME-CONTINUING> (603)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,280)
<CHANGES> 0
<NET-INCOME> (1,883)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
