UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Ended December 31, 1998
Commission File No. 0-3026
PARADISE, INC.
INCORPORATED IN FLORIDA
IRS IDENTIFICATION NO. 59-1007583
1200 DR. MARTIN LUTHER KING, JR., BLVD.
PLANT CITY, FLORIDA 33566
TELEPHONE NO. 813-752-1155
Securities Registered Under Section 12 (b) of the Exchange Act:
None
Securities Registered Under Section 12 (g) of the Exchange Act:
Name of Each Exchange
Title of Each Class On Which Registered
Common Stock,
$.30 Par Value 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 12 months, and
(2) has been subject to such filing requirements for the past
90 days. Yes x No___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will 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-KSB or any amendment to
this Form 10-KSB. Yes x No___
Issuer's revenues for its most recent fiscal year: $21,967,814
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant, $5,018,077 (as of January 31,
1999, bid price $17.00)
Class Outstanding at December 31, 1998
Common Stock,
$.30 Par Value 519,170 Shares
PARADISE, INC.
1998 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Description of Business I-1 - I-5
Item 2. Description of Property I-5 - I-6
Item 3. Legal Proceedings I - 6
Item 4. Submission of Matters to a Vote of
Security Holders I - 6
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters II-1 - II-2
Item 6. Management's Discussion and Analysis or
Plan of Operation II-3 - II-7
Item 7. Financial Statements II-8 - II-29
Item 8. Changes In and Disagreements with Accountants
On Accounting and Financial Disclosure II - 30
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons, Compliance with Section 16(a) of
The Exchange Act III-1 - III-2
Item 10. Executive Compensation III-2 - III-4
Item 11. Security Ownership of Certain Beneficial Owners
And Management III-4 - III-5
Item 12. Certain Relationships and Related Transactions III - 6
Item 13. Exhibits and Reports on Form 8-K III-6 - III-7
SIGNATURES
PART I
Item 1. Description of Business
(a) Business Development
Paradise, Inc., was incorporated under the laws of the State of
Florida in September, 1961 as Canaveral Utilities and Development
Corporation. After the acquisition and merger of several other
assets, the Corporation was renamed Paradise Fruit Company,Inc. in
February, 1964, and the corporate name was changed again to
Paradise, Inc. during July, 1993. During 1998, the Company sold
its Real Estate Investment asset in a transaction further described
in "Management's Discussion and Analysis" in PART II, Item 6 of
this Annual Report. There have been no bankruptcies, receiverships
, or similar proceedings during the corporation's history. There
have been no material reclassifications, mergers, consolidations,
purchases or sales of a significant amount of assets not in the
ordinary course of business during the past three years, except as
reported above.
(b) The Company's operations are conducted through two business
segments. These segments, and the primary operations of each, are
as follows:
BUSINESS SEGMENT OPERATION
Candied Fruit Production of candied fruit, a basic
fruitcake ingredient, sold to
manufacturing bakers, institutional
users, and retailers for use in home
baking. Also, the processing of
frozen strawberry products, for
sale to commercial and
institutional users such as
preservers, dairies, drink
manufacturers, etc., and the
repackaging and sale of edible nuts.
Molded Plastics Production of plastic containers,
for the Company's products, and
other molded plastics for sale to
unaffiliated customers.
I-1
Item 1. Description of Business (Continued)
The Company knows of no other manufacturer in the Western
Hemisphere whose sales of glace' (candied) fruit is equal to those
of Paradise, Inc. While there are no industry statistics published
, from the generally reliable sources available, management
believes that Company brands account for 75-80% of all candied
fruit sold in supermarkets and other grocery outlets in the USA.
This position in the market was reinforced by the acquisition,
during 1994, of exclusive use of the customer lists, trademark and
rights for the sale of "Pennant Brand" candied fruit products at
the supermarket retail level. Through a wholly-owned subsidiary,
these rights added $2.9 million to Company net sales during 1998.
"Pennant Brand" glace' fruit products were formerly manufactured
and sold by a competitor, who maintained rights for the sale of
these products at the institutional level, and who has a preeminent
market share in the sale of both candied and maraschino cherries.
Total cost for these "Pennant" rights was a payment of 20% in
royalties on the net sales of that brand during 1994, and payment
of 5% in royalties of brand net sales during the following four
years, and the agreement is renewable at the option of the
Company for twenty years thereafter.
In terms of candied fruit dollar sales, during 1998, approximately
23% were shipped to manufacturing bakers and other institutional
users, with the balance being sold through supermarkets and other
retail outlets for ultimate use in the home.
Sales to retail outlets are usually generated through registered
food brokers operating in exclusively franchised territories. This
method of distribution is widely accepted in the food industry
because of its efficiency and economy. Other fruit sales, and
almost all plastics sales, are made directly by the Company's own
personnel.
The principal raw materials used by the Company are fruits, fruit
peels, corn syrups, nuts, both raw and roasted and salted, and
plastic resins. Most of these materials are readily accessible
from a number of competitive suppliers. The supply and prices may
fluctuate with growing and crop conditions, factors common to all
agricultural products. Edible nut pricing is particularly volatile
, and subject to typical commodity fluctuations based on supply,
demand, and future expectations. Feed stocks for some plastic
resins are petroleum related and may be subject to supply and demand
fluctuations in this market.
The trademarks "Paradise", "Dixie", "Mor-Fruit" and "Sun-Ripe" are
registered with the appropriate Federal and State authorities for
use on the Company's candied fruit. These registrations are kept
current, as required, and have a value in terms of customer
recognition. The Company is also licensed to use the trademarks
"White Swan", "Queen Anne", "Palm Beach", "Golden Crown," and
"Pennant" in the sale of candied fruit.
I-2
Item 1. Description of Business (Continued)
The demand for fruit cake materials is highly seasonal, with over
86% of sales in these items occurring during the months of
September, October and November. However, in order to meet
delivery requirements during this relatively short period, the
Company must process candied fruit and peels for approximately ten
months during the year. Also, the Company must acquire the fruits
used as raw materials during their seasonal growing periods. These
factors result in large inventories, which require financing to
meet relatively large short-term working capital needs.
The packaging and sale of edible nuts began during 1993. The
Company's marketing strategy for these new products was to sell
edible nuts, particularly those used in home baking, in the same
type of packaging, and together with, candied fruit. It is
customary for most supermarkets to display all items related to
holiday baking in close proximity to one another. Net sales in
this category declined to $9,805 during 1998, and will probably be
abandoned during ensuing years.
Also during 1993, and through another wholly owned subsidiary, the
Company launched an enterprise for the growing and selling of
strawberries, both fresh and frozen. Plant City, Florida, the
location of the Company's manufacturing facilities and main office,
styles itself as the "The Winter Strawberry Capital" because of the
relatively large volume of fruit that is grown and harvested
locally, mostly from December through April of each season.
However, once competing fresh berries from the West Coast of the
USA begin finding their way to market, the price of Florida fruit
begins to diminish, and local growers had no other market for their
product.
Originally, management discerned a market niche to be exploited,
both for the Company and for local growers, by beginning to freeze
strawberries no longer competitive in the fresh fruit market, and
offer them for sale to commercial and institutional consumers in
the eastern U.S., where a distinct freight cost advantage existed.
After a modest start during 1993, sales aggregated more than $1.6
million during 1994. However, a number of market conditions
changed, including the NAFTA international trade agreement. This
increased the volatility and the exposure to risk, so, during 1995,
the Company produced only that for which they had firm purchase
commitments, and sales declined to almost $667,000 during the year.
During 1996 and 1997, there existed an industry-wide excess
carryover inventory of frozen product, which materially depressed
selling prices. Therefore, the Company elected to neither grow or
process strawberries during those years, and sell only that
inventory of frozen products which had been carried over from the
prior season. Sales totaled $71,000, during 1997. There were no
sales of frozen products in 1998.
I-3
Item 1. Description of Business (Continued)
Some molded plastics container demand is seasonal, by virtue of the
fact that a substantial portion of sales are made to packers of
food items and horticultural interests, with well defined growing
and/or harvest seasons.
In the opinion of management, the seasonal nature of some plastics
sales does not have a significant impact upon the working capital
requirements of the Company.
During the first three months of the year, the Company contracts
with certain commercial bakers for future delivery of quantities
representing a substantial portion of the sales of fruit cake
materials to institutional users. Deliveries against these
contracts are completed prior to the close of the fiscal year
ending December 31.
Many of the commercial bakers and other institutional accounts face
the same seasonal demands as the Company, and must contend with
similar short-term working capital needs. The Company accommodates
some of these customers with extended payment terms of up to ninety
days.
By the same token, many suppliers offer similar extended payment
terms to the Company.
It is a trade practice to allow some supermarket chains to return
candied fruit products that remain unsold at year-end, an option
for which they normally pay an up-charge. A provision for the
estimated losses on retail returns is included in the Company's
financial statements, for the year during which the sales are made,
under accrued expenses.
During 1998, the Company derived more than 11% of its consolidated
revenues from sales to the affiliated companies, Wal-Mart Stores,
Inc. and Sam's Club. These affiliated companies are not related to
Paradise, Inc. Sales to each of these affiliates were made
separately, and each is shipped a different brand of fruit products
, and is invoiced by a separate Paradise subsidiary. In addition,
slightly more than 5% of consolidated revenues were sales to
various divisions of Winn-Dixie Stores, Inc. In this case, also,
sales of a specific subsidiary brand to each of the divisions were
made individually, and shipments were made and invoiced accordingly.
While there is no industry-wide data available, management
estimates that the Company sold approximately 60-70% of all candied
fruits and peels consumed in the U.S. during 1998. The Company
knows of two major competitors; however, it estimates that none of
these has as large a share of the market as the Company's.
I-4
Item 1. Description of Business (Continued)
The molded plastics industry is very large and diverse, and
management has no reasonable estimate of its total size.
Many products produced by the Company are materials for its own use
in the packaging of candied fruits for sale at the retail level.
Outside sales represent approximately 70% of the Company's total
plastics production at cost, and, in terms of the overall market,
are insignificant.
In the above business segments, it is the opinion of management
that price, which is to include the cost of delivery, is the
largest single competitive factor, followed by product quality and
customer service.
Given the above competitive criteria, it is the opinion of
management, that the Company is in a favorable position.
During recent years, the Company has made capital investments of
over $1 million in order to comply with the growing body of
environmental regulations. These have included the building of
screening and pretreatment facilities for water effluent,
installation of devices for controlling the quality of air
emissions, and removing underground fuel storage tanks to approved
above ground locations. All of these facilities are permitted by
governmental authorities at various levels, and are subjected
to periodic testing as a condition of permit maintenance and
renewal. All required permitting is currently in effect, and the
Company is in full compliance with all terms and conditions stated
therein.
By local ordinance, it is required that all water effluent is
metered, tested and discharged into a municipal industrial waste
treatment plant. During 1998, costs for this discharge exceeded
$330,000, and management estimates that all expenses directly
related to compliance with environmental regulations total well
over $400,000 annually.
The Company employs between 140 and 275 people, depending upon the
season.
The Company conducts operations principally within the United
States. Foreign activities are not material.
Item 2. Description of Property
(a) Built in 1961, the plant is located in a modern industrial
subdivision at Plant City, Florida, approximately 20 miles east of
the City of Tampa. It is served by three railroad sidings, and has
paved road access to three major state and national highways.
It has productive and warehouse facilities of nearly 350,000 sq. ft.
I-5
Item 2. Description of Property (Continued)
During 1985, the Company acquired approximately 5.2 acres
immediately adjacent to, and to the West of, its main plant
building. Several buildings and a truck weight scale existed on
the property. Some of these facilities have been significantly
updated, remodeled, and/or rebuilt and are used for the strawberry
processing and some plastics molding operations. Other facilities,
in excess of the Company's current needs, are leased to others.
The Company owns its plant facilities and other properties subject
to a secured note and real estate mortgages.
Because of the unique processing methods employed for candied
fruit, much of the equipment used by the Company is designed,
built and assembled by the Company's employees. The Company
considers its plant one of the most modern, automated plants in the
industry. The equipment consists of vats, dehydrators, tanks, giant
evaporators, carbon filter presses, syrup pumps and other
scientifically designed processing equipment. Finished retail
packages are stored in air-conditioned warehouses, if required.
Regarding molded plastic manufacturing, most equipment is normally
available from a number of competitive sources. The molds used for
specialized plastic products must be individually designed and
manufactured, requiring substantial investment, and are considered
proprietary.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None
I-6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On August 22, 1997 the Securities and Exchange Commission issued
new listing requirements for companies listed on the NASDAQ Small
Cap Market. The new requirements became effective on February 23,
1998. As of March 1999, the Company had not met the listing criteria.
(a) The following table shows the range of closing bid prices for the
Company's Common Stock in the over-the-counter market for the
calendar quarters indicated. The quotations represent prices in
the over-the-counter market between dealers in securities, do not
include retail mark-up, mark-down, or commissions and do not
necessarily represent actual transactions.
BID PRICES
High Low
1998
First Quarter 19 13 1/4
Second Quarter 18 15
Third Quarter 18 15 1/4
Fourth Quarter 18 15 1/4
1997
First Quarter 9 1/2 7 1/2
Second Quarter 9 1/2 8 3/4
Third Quarter 11 1/4 9 1/2
Fourth Quarter 14 1/2 10 1/4
(b) Approximate Number of Equity Security Holders
As of December 31, 1998, the approximate number of holders of
record of each class of equity securities of the Registrant were:
NUMBER OF
TITLE OF CLASS HOLDERS OF RECORD
Common Stock, $.30 Par Value 310
II-1
Item 5. Market for Common Equity and Related Stockholder Matters (Continued)
(c) Dividend History and Policy
The Company has declared dividends of $.45 (1998) and $.25 (1997)
and $.10 (1996). Dividends have been declared and paid annually,
only when warranted by profitability and permitted by lending
agreements.
The Company does not have a standard policy in regards to the
declaration and payment of dividends. Each year dividend payments,
if any, are determined upon consideration of the current
profitability, cash flow requirements, investment outlook and other
pertinent factors.
According to the covenants of a loan agreement, dated May 29, 1986,
amended several times thereafter, and in effect until June 8, 1995,
the declaration of dividends was specifically limited by certain
financial parameters. That agreement was modified in 1995, and
while still requiring the attainment of certain balance sheet
ratios, specific references to dividends were omitted.
II-2
Item 6. Management's Discussion and Analysis or Plan of Operation
Summary
The following tables set forth for the periods indicated (I)
percentages which certain items in the financial data bear to net
sales of the Company and (ii) percentage increase of such item as
compared to the indicated prior period.
RELATIONSHIP TO PERIOD TO PERIOD
TOTAL REVENUE INCREASE (DECREASE)
YEAR ENDED DECEMBER 31, YEARS ENDED
1998 1997 1996 1998-97 1997-96
NET SALES:
Candied Fruit and Nuts 86.8% 86.7% 85.9% -0.1% 9.0%
Molded Plastics 13.2 13.3 14.1 -0.8 1.9
100.0 100.0 100.0 -0.2 8.0
Cost of Sales 71.9 71.2 69.0 1.0 3.2
Selling, General and
Administrative Expense 21.1 22.3 20.0 -5.4 11.6
Depreciation and Amorti-
zation 4.5 4.6 4.6 -2.0 0.6
Interest Expense 2.7 2.8 3.4 -3.3 -17.8
Earnings - Operations 9.9 9.5 5.2 5.2 80.5
Material Infrequent Items:
Contribution of Land -4.2 0.0 0.0
Gain on Sale of Real
Estate Investment 3.1 0.0 0.0
Gain on Contribution 3.6 0.0 0.0
Other Income 0.5 0.3 0.9 61.6 -68.6
Earnings Before Pro-
vision for Income
Taxes 12.9 9.8 6.2 32.2 58.1
Provision for Income
Taxes 2.8 3.7 2.4 -24.9 54.0
Net Earnings 10.1% 6.0% 3.8% 67.3% 60.8%
(1) Liquidity
Management is not aware of any demands, commitments, events or
uncertainties that will result in, or are reasonable likely to
result in, a material increase or decrease in the Company's
liquidity. One trend to be noted is the Company's ability over the
past three years to materially decrease its short-term debt
position while maintaining a consistent level of inventory. As
discussed in footnote 4 of the Company's financial statements, a
line of credit is available to the Company to finance short-term
working capital needs.
II-3
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
(2) Capital Resources
The Company does not have any material outstanding commitments for
capital expenditures. Management is not aware of any material
trends either favorable or unfavorable in the Company's capital
resources.
(3) Results of Operations
1998 Compared to 1997
The principal material difference in Company operations between 1998
and the prior year was the sale of the Real Estate Investment asset.
This item, previously carried on the balance sheet at its cost of
$261,848, was one of the original assets at the time of the
Company's incorporation during 1961. The property, located in
Brevard County, Florida, consisted of both highlands and wet lands,
both of which were environmentally sensitive. While originally
intended for residential development, the voluminous environmental
laws and regulations promulgated since its acquisition rendered the
land virtually developmentally useless, and with value only as an
environmental preserve.
Therefore, after several years of litigation and negotiation, the
property was transferred to the St. John's River Water Management
District (Fl.) in a transaction which included both the sale of
several parcels, and the contribution of others. As disclosed on
the income statements included herein, the net effect on pre-tax
earnings aggregated $492,502, in addition to certain income tax
benefits, both during the current year and up to four ensuing years.
The notes to the financial statements offer further specific
information.
It should also be noted that inventories increased by $2.1 million.
This merchandise was acquired and/or produced in anticipation of a
significantly delayed start-up of 1999 processing, caused by major
remodeling of part of the production facilities, now underway, and
which includes improvements to mandated air emission quality controls.
Perhaps one of the most widely discussed issues in business today is
the "Y2K Question". In that regard, all Paradise electronic data
programs have been audited by an independent information systems
specialist, and those requiring correction were modified. Management
considers the Company now to be Y2K compliant, but, of course, the
ultimate tests will take place when these systems are interfaced with
those modifications made by our suppliers and customers.
II-4
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
(3) Results of Operations (Continued)
1998 Compared to 1997
The Company could also be adversely affected if other entities, such
as suppliers and customers, fail to remediate their own Y2K issues.
Management cannot reasonably estimate the impact of unforseen or
unresolved Y2K issues in advance of their occurrence, nor provide
assurance that Y2K issues will not have a material adverse affect
on the Company's business, results of operations and financial
condition. Management is currently evaluating the need to develop
a contingency plan.
There were no great changes in the Company's normal, every day
operations. Total sales were relatively flat, with a very small
reduction (less than .002). In the candied fruit segment of business,
some important new customers were added, but industry-wide sales were
adversely affected by the unusually warm holiday season, which
always seems to inhibit home baking of fruit cakes and other
confections.
In the plastics molding segment, sales were also flat, although
there were encouraging signs that projects under development earlier
in the year began to reach fruition during the fourth quarter.
Costs of goods increased by about 1%, with the most significant
factors being factory labor and governmentally mandated treatment of
water effluent and other wastes. There were also minimal increases
in most other expenses in this category.
Other expenses declined: selling, general and administrative
expenses by 5.4%, with most accounts reported therein aggregating
moderate decreases as compared to the prior year. Depreciation
and amortization expenses were reduced by about 2%, as depreciable
assets were slightly reduced; and net interest expense declined by
3.3%, due to favorable rates throughout the year.
The result of these savings in operating expenses was an approximate
5% increase in pre-tax earnings from operations. Despite higher
earnings, income taxes were reduced, primarily as a benefit of the
real estate contribution, outlined above.
The combined, net after-tax consequence of all of the above was an
increase in earnings to $3.88 per share of Paradise common stock,
versus $2.32 per share during the prior year.
1997 Compared to 1996
Operating results improved materially from 1996 to 1997, continuing
an upward trend begun in 1994, and validating the Company's change
in focus, from the pursuit of increased sales to the concentration
on cost containment, profitability, and improving the balance sheet.
II-5
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
(3) Results of Operations (Continued)
1997 Compared to 1996 (Continued)
During 1996 and 1995, this shift in emphasis led to little growth,
and, in some cases, a decline in total sales, as the Company
trimmed unprofitable items and customers.
However, in the year just ended, total net sales increased by more
than $1.6 Million, or 8%. Over 95% of these increases took place
in the candied fruit segment of business, and were due mostly to
the addition of two major U.S. supermarket chains to the Company's
customer list. Sales in the molded plastics segment increased by 2%.
In addition, the plastics segment produced nearly $1 Million, as cost,
in packaging for the fruit segment, significantly contributing to
the profitability of those products.
Compared to the prior year, Costs of Sales were reduced to 64.5%
from 67.5% of net sales, reflecting lowered costs for corn
sweeteners, some fruit raw materials, casualty insurance, and
plastics resins. Some of these savings in purchases costs were
offset, however, by material increases in factory labor expenses,
mandated by the Federal minimum wage legislation, and other wage
increases generated by this mandate.
Also expressed as a percentage of sales, Selling, General and
Administrative expenses increased slightly (0.7%), reflecting costs
directly related to increased sales, as well as higher wages and
other costs related thereto. Depreciation and amortization
continued a downward trend, as the value of assets being
depreciated declined more than the value of newly acquired assets
increased.
Interest expense declined by nearly 18% as a result of favorable
prime rates, a modified agreement with the Company's principal
lender, and smaller interim working capital borrowings.
The operations, outlined briefly above, resulted in a 54% increase
in after-tax per share earnings, to $2.51 from $1.63, satisfied all
of the restrictive covenants of the existing loan agreement, and
led the directors to declare a dividend of $0.25 per share, as
compared to $0.10 during the prior year.
1996 Compared to 1995
Operating results during 1996 further validated changes in policy
and business strategies initiated during 1994, and in which focus
was shifted to concentration on core products, increasing net cash
flow, and aversion of risk in growth and expansion efforts.
II-6
Item 6. Management's Discussion and Analysis or Plan of Operation (Continued)
(3) Results of Operations (Continued)
1996 Compared to 1995 (Continued)
These shifts in emphasis, while leading to greater profitability
and balance sheet stability, have also resulted in a slow growth,
and in some cases, a decline in total sales. However this slow
growth results from the continuation of the management mandated
reductions and/or eliminations in the sale of low profit or profit
eroding line items.
During 1996, total sales in all business segments grew
approximately 2%. Sales in the Plastics segment grew by more than
20%, as newly acquired machinery and equipment was put into
production, and despite the elimination of some high volume,but net
loss, line items.
Sales in the Fruit segment of business declined nearly 1%, but this
does not reflect a reduction in sales of the Company's core product
line of glace' (candied) fruit sold through supermarkets. It was,
rather, a reduction of more than 50% in the sales of strawberry
products. Since there continued to be an industry wide oversupply
of frozen strawberry inventory carried over from the prior year,
the Company elected not to enter production during 1996, thereby
materially limiting product available for sale. Sales in the edible
nut category remained relatively unchanged.
Expressed as a percentage of sales, cost of sales increased by less
than 1%. This was due to a general inflation of the costs in several
categories, the reduction of costs in others, but none of these were
of a really significant nature. Again as a percentage of sales,
General and Administrative expenses declined slightly, also as a
result of increases and decreases in a variety of expense line
items, none of which would be considered noteworthy. Interest
expense was reduced by about 10%, reflecting both improved rates
granted by principal lender, and lower average short-term monthly
borrowings and a reduction of term debt.
Depreciation and amortization likewise decreased slightly, as the
value of expiring schedules exceeded the value of additions to
fixed assets.
The above operating results more than satisfied all of the
covenants of the loan agreement with the Company's major lender,
increased earnings by 17%, to $1.63 from $1.39 per share, and were
followed by a Director's resolution to pay a dividend of $0.10 per
share.
II-7
Item 7. Financial Statements
INDEPENDENT AUDITORS' REPORT
March 12, 1999
To The Board of Directors
and Shareholders of
Paradise, Inc.
Plant City, FL 33566
We have audited the accompanying consolidated balance sheets of Paradise,
Inc., and subsidiaries as of December 3l, l998, 1997, and l996, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for the years then ended. 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 Paradise,
Inc., and subsidiaries as of December 3l, l998, 1997, and l996, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Respectfully submitted,
BELLA, HERMIDA, GILLMAN, HANCOCK & MUELLER
Certified Public Accountants
Plant City, Florida
II-8
PARADISE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
1998 1997 1996
CURRENT ASSETS:
Cash $ 2,728,646 $ 2,816,008 $ 2,426,929
Accounts Receivable,
Net of Allowance
for Doubtful Accounts
of $ -0- 753,472 1,981,515 1,507,965
Inventories 5,664,905 3,515,513 4,039,846
Prepaid Expenses
and Other Current Assets 278,378 246,547 340,035
Deferred Income Tax Asset 517,084 239,453 264,006
Income Tax Refund 290,989 1,318 832
Total Current Assets 10,233,474 8,800,354 8,579,613
INVESTMENTS:
Real Estate, at Cost 261,848 261,848
PROPERTY, PLANT AND EQUIPMENT:
Net of Accumulated
Depreciation of $13,384,647
(1998), $12,808,973 (1997),
and $12,145,174 (1996) 5,406,282 5,476,764 5,432,539
OTHER ASSETS 670,823 687,677 758,041
TOTAL ASSETS $ 16,310,579 $ 15,226,643 $ 15,032,041
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements
II-9
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31,
1998 1997 1996
CURRENT LIABILITIES:
Short-Term Debt $ 212,578 $ 155,802 $ 257,500
Accounts Payable 876,362 369,719 667,606
Accrued Expenses 1,733,572 1,858,164 1,597,752
Dividends Payable 238,772 134,864 56,572
Accrued Taxes on Income 178,051 324,694
Current Portion of
Long-Term Debt 1,032,756 1,019,412 931,748
Total Current Liabilities 4,094,040 3,716,012 3,835,872
LONG-TERM DEBT,
NET OF CURRENT PORTION 757,551 1,790,307 2,536,163
DEFERRED INCOME
TAX LIABILITY 451,689 493,656 507,722
Total Liabilities 5,303,280 5,999,975 6,879,757
STOCKHOLDERS' EQUITY:
Common Stock, $.30 Par Value,
2,000,000 Shares Authorized,
582,721 Shares Issued, 519,170
Shares Outstanding 174,816 174,816 174,816
Capital in Excess of
Par Value 1,288,793 1,288,793 1,288,793
Retained Earnings 9,817,895 8,037,264 6,962,880
Less: Common Stock in Treasury,
at Cost, 63,551 Shares ( 274,205 ) ( 274,205 ) ( 274,205 )
Total Stockholders'
Equity 11,007,299 9,226,668 8,152,284
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY $ 16,310,579 $ 15,226,643 $ 15,032,041
PARADISE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
NET SALES $ 21,967,814 $ 22,008,437 $ 20,377,066
COSTS AND EXPENSES:
Cost of Goods Sold 14,340,730 14,201,307 13,735,235
Loss on Write-Down of
Inventory to Market 24,175
Selling, General and
Administrative Exp. 4,214,796 4,455,909 3,994,378
Depreciation and
Amortization 895,936 914,332 908,688
Interest Expense 532,169 550,431 669,468
Total Costs and Exp. 19,983,631 20,121,979 19,331,944
EARNINGS FROM
OPERATIONS 1,984,183 1,886,458 1,045,122
Contribution of Land ( 840,000 )
Gain on Sale of Real
Estate Investment 621,128
Gain on Contribution 711,373
Other Income (Net) 93,859 58,076 184,779
EARNINGS BEFORE PROVISION
FOR INCOME TAXES 2,570,543 1,944,534 1,229,901
PROVISION FOR
INCOME TAXES 556,118 740,264 480,857
NET EARNINGS $ 2,014,425 $ 1,204,270 $ 749,044
EARNINGS PER SHARE:
Basic $ 3.88 $ 2.31 $ 1.44
Diluted $ 3.88 $ 2.31 $ 1.44
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements
PARADISE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CAPITAL IN
COMMON EXCESS OF RETAINED TREASURY
STOCK PAR VALUE EARNINGS STOCK TOTAL
Balance, December 31,
1995, as Previously
Reported $ 174,816 $1,288,793 $ 5,887,643 $( 274,205) $7,077,047
Prior Period
Adjustment 378,147 378,147
Adjusted Balance of
Stockholders' Equity at
December 31, 1995 174,816 1,288,793 6,265,790 ( 274,205) 7,455,194
Cash Dividends
Declared,
$.10 per Share ( 51,954) ( 51,954)
Net Earnings 749,044 749,044
Balance, December 31,
1996 174,816 1,288,793 6,962,880 ( 274,205) 8,152,284
Cash Dividends
Declared,
$.25 per Share ( 129,886) ( 129,886)
Net Earnings 1,204,270 1,204,270
Balance, December 31,
1997 174,816 1,288,793 8,037,264 ( 274,205) 9,226,668
Cash Dividends
Declared,
$.45 per Share ( 233,794) ( 233,794)
Net Earnings 2,014,425 2,014,425
Balance, December 31,
1998 $ 174,816 $ 1,288,793 $ 9,817,895 $( 274,205) $11,007,299
The accompanying notes are an integral part of these Cosolidated Financial
Statements
PARADISE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 3l,
1998 l997 l996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 2,014,425 $ 1,204,270 $ 749,044
Adjustments to Reconcile
Net Earnings to Net Cash
Provided by Operating
Activities:
Increase (Decrease) in Net
Deferred Income Tax Liability ( 319,598) 10,487 ( 94,966)
Depreciation and Amortization 895,936 914,332 908,688
Loss (Gain) on Sale of Assets (1,449,807) 233 ( 6,935)
Charitable Contribution 840,000
Decrease (Increase) in:
Accounts Receivable 1,228,043 ( 473,550) ( 375,648)
Inventories ( 2,149,392) 524,333 65,651
Prepaid Expenses ( 31,831) 93,488 141,745
Refund Receivable ( 289,671) ( 486) 8,050
Other Assets ( 149,286) ( 95,678) ( 118,007)
Increase (Decrease) in:
Accounts Payable 506,741 ( 297,887) ( 81,392)
Accrued Expenses ( 124,592) 260,412 ( 36,735)
Accrued Taxes on Income ( 178,051) ( 146,643) 31,957
Net Cash Provided by
Operating Activities 792,917 1,993,311 1,191,452
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property,
Plant and Equipment ( 654,024) ( 441,494) ( 409,286)
Proceeds From Sale of Assets 887,517 68,600 17,000
Net Cash Used in
Investing Activities 233,493 ( 372,894) ( 392,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds (Repayments)
of Short-term Debt 56,776 ( 101,698) ( 130,806)
Principal Payments
on Long-term Debt ( 1,019,412) ( 1,056,796) ( 891,670)
Dividends ( 129,886) ( 51,594) ( 51,954)
Increase in Other Assets ( 21,250) ( 21,250) ( 21,250)
Net Cash Used in
Financing Activities ( 1,113,772) ( 1,231,338) ( 1,095,680)
Net Increase (Decrease) in Cash ( 87,362) 389,079 ( 296,514)
CASH, at Beginning of Year 2,816,008 2,426,929 2,723,443
CASH, at End of Year $ 2,728,646 $ 2,816,008 $ 2,426,929
PARADISE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
1998 l997 l996
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash Paid During the Year for:
Interest $ 528,739 $ 573,379 $ 664,680
Income Taxes $ 1,103,545 $ 865,703 $ 535,914
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Long-Term Debt Issued:
Equipment Purchases $ 0 $ 398,604 $ 497,022
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE l: PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, after elimination of all
material intercompany transactions and profits.
NOTE 2: INVENTORIES
1998 1997 l996
Supplies $ 190,065 $ 154,175 $ 104,448
Raw Materials 795,304 804,213 799,289
Work in Progress 252,661 323,272 224,031
Finished Goods 4,426,875 2,233,853 2,912,078
TOTAL $ 5,664,905 $ 3,515,513 $ 4,039,846
Inventories are valued at the lower of cost (first-in, first-out)
or market. Cost includes material,labor and factory overhead.
Substantially all inventories are pledged as collateral for certain
short-term obligations.
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
1998 l997 l996
Land and Improvements $ 856,040 $ 848,256 $ 830,806
Buildings and Improvements 4,899,991 4,745,587 4,599,861
Machinery and Equipment 13,034,898 12,691,894 12,147,046
Total 18,790,929 18,285,737 17,577,713
Less: Accumulated
Depreciation 13,384,647 12,808,973 12,145,174
NET $ 5,406,282 $ 5,476,764 $ 5,432,539
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 3: PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Property, plant and equipment are stated at cost. Generally, the
straight-line method is used in computing depreciation. Estimated
useful lives of plant and equipment are:
Years
Buildings and Improvements 10-30
Machinery and Equipment 3-10
Expenditures which significantly increase values or extend useful
lives are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred. Upon sale or retirement of property
, plant and equipment, the cost and related accumulated depreciation
are eliminated from the respective accounts and the resulting gain
or loss is included in the current earnings. Amortization is also
computed using the straight-line method over the estimated life of
the asset.
All of the real property and machinery and equipment are pledged as
collateral for certain short-term and long-term obligations.
NOTE 4: SHORT-TERM DEBT
1998 l997 1996
Trade acceptances, letters of credit
and other short-term debt. $ 212,578 $ 155,802 $ 257,500
TOTAL $ 212,578 $ 155,802 $ 257,500
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 4: SHORT-TERM DEBT (CONTINUED)
The average monthly borrowings and weighted average interest rates
were determined by month-end balances. Non-interest bearing letters
of credit were included in the aggregate figures.
WEIGHTED AVERAGE
1998 AMOUNT INTEREST RATE
Average bank short-term borrowings
(monthly) $ 1,925,000 8.09%
Average aggregate short-term
borrowings (monthly) $ 4,064,576 5.92%
Maximum aggregate short-term
borrowings (at any month-end) $ 10,020,449
WEIGHTED AVERAGE
l997 AMOUNT INTEREST RATE
Average bank short-term borrowings
(monthly) $ 1,882,082 9.00%
Average aggregate short-term
borrowings (monthly) $ 3,649,960 6.38%
Maximum aggregate short-term
borrowings (at any month-end) $ 9,295,974
WEIGHTED AVERAGE
l996 AMOUNT INTEREST RATE
Average bank short-term borrowings
(monthly) $ 2,070,833 9.49%
Average aggregate short-term
borrowings (monthly) $ 3,938,713 7.34%
Maximum aggregate short-term
borrowings (at any month-end) $ 9,136,852
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
NOTE 4: SHORT-TERM DEBT (CONTINUED)
Pursuant to a loan agreement, a bank has agreed to advance the Company
80% of the Company's eligible receivables and 50% of the Company's
eligible inventory. Interest is payable monthly and is computed at
prime plus 1/2%. Principal is due the earlier of on demand or May 31,
1999.
This agreement is subject to certain conditions which must be met for
the Company to continue borrowing including debt service coverage and
debt to equity ratios, a resting period provision, and other financial
covenants.
The amount available to be drawn down based on the available
collateral at December 31, 1998 was $3,218,216, at December 31, 1997
was $2,831,732, and at December 31, 1996 was $2,848,732.
NOTE 5: LONG-TERM DEBT
1998 1997 1996
Prime plus 1% note, collateralized by
accounts receivable, inventories and
equipment. Monthly payments of
$70,000 plus interest. $ 1,260,000 $ 2,100,000 $ 3,010,000
Obligations under capital leases.
Monthly payments totaling
$19,722 including interest at
rates ranging from 6.40% to 9.75%
, collateralized by equipment
and vehicles. 530,307 709,719 457,911
Total Debt 1,790,307 2,809,719 3,467,911
Less Current Portion 1,032,756 1,019,412 931,748
LONG-TERM DEBT $ 757,551 $ 1,790,307 $ 2,536,163
The aggregate principal amounts maturing in each of the subsequent
years are:
1999 $ 1,032,756
2000 618,056
2001 111,316
2002 28,178
Total $ 1,790,306
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 6: LEASES
The Company has certain equipment leases which are classified as
capital leases. At December 3l, l998, 1997, and 1996, the amount
capitalized was $964,894, $960,566 and $519,551, respectively, and
the accumulated amortization was $334,254 (1998), $213,643 (1997)
and $62,229 (1996). The amount recognized as an obligation was
$530,307, $709,719 and $457,911, respectively, which has been
included in long-term debt shown in Note 5. Amortization expense is
included in depreciation.
The Company leases automobiles under operating leases ranging in
length from thirty to sixty months. Lease payments charged to
operations amounted to $61,592 (1998), $61,273 (1997), and $56,645
(1996).
At December 31, 1998, future minimum payments required under leases
with terms greater than one year, and the present value of minimum
capital lease payments, were as follows:
OPERATING
YEARS ENDING DECEMBER 3l, CAPITAL LEASES LEASES
1999 $ 231,022 $ 50,784
2000 219,635 18,433
2001 117,293 2,744
2002 27,193
Total Minimum Lease Payments 595,143 $ 71,961
Less Amount Representing
Interest 257,593
PRESENT VALUE OF FUTURE MINIMUM
CAPITAL LEASE PAYMENTS $ 337,550
NOTE 7: ACCRUED EXPENSES
1998 l997 l996
Accrued Payroll and Bonuses $ 383,285 $ 451,285 $ 321,719
Accrued Brokerage Payable 323,895 303,398 319,720
Accrued Pension Cost (Note 8) 105,789 149,290 128,074
Provision for Unrealized Profit
on Retail Returns 512,000 419,000 435,000
Accrued Royalties and Other 42,007 200,768 95,999
Accrued Credit Due to Customer 265,715 258,852 180,030
Accrued Insurance Payable 100,881 75,571 117,210
TOTAL $ 1,733,572 $ 1,858,164 $ 1,634,487
As a part of its normal sales policy, the Company allows some
customers to return unsold, retail packed, candied fruit after the
holiday season. A provision for the unrealized profit on these
estimated returns is shown above under "provision for unrealized
profit on retail returns".
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 8: RETIREMENT PLAN
The Company and its subsidiaries have a defined benefit pension plan
covering all employees who become eligible for participation in the
plan on the semiannual date following one year of service (l,000
hours worked) and the attainment of age 21. The total pension cost
for l998, 1997 and l996 was $46,491, $21,216 and $17,846,
respectively, which includes amortization of past service cost over
10 years. The Company makes annual contributions to fund the plan
equal to the amounts deductible for Federal Income Tax purposes.
The benefit formula being used is known as the frozen initial
liability cost method. The plan's assets consist of both fixed
income assets and whole life insurance contracts. The plan has no
significant nonbenefit liabilities.
Net pension cost for 1998, 1997 and 1996 included the following
components:
1998 1997 1996
Service Cost - Benefits Earned
During the Period $ 100,633 $ 76,933 $ 87,319
Interest Cost on Projected
Benefit Obligation 169,447 154,144 188,549
Actual Return on Plan Assets ( 208,356 ) ( 282,076 ) ( 253,416 )
Net Amortization and Deferra ( 15,233 ) 72,215 ( 4,606 )
Net Periodic Pension Cost $ 46,491 $ 21,216 $ 17,846
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated financial statements at
December 31, 1998, 1997 and 1996:
Actuarial present value of benefit obligations:
1998 1997 1996
Accumulated Benefit Obligation,
Including Vested Benefits of
$2,438,906, $2,006,620, and
$1,675,359, respectively $ 2,561,094 $ 2,115,197 $ 1,770,738
Projected Benefit Obligation for
Service Rendered to Date $( 3,107,332)$( 2,611,957)$( 2,129,059 )
Plan Assets at Fair Value 2,787,022 2,650,088 2,509,894
Plan Assets in Excess of Projected
Benefit Obligation 320,310 38,131 380,835
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 8: RETIREMENT PLAN (CONTINUED)
Unrecognized Net (Gain) Loss From
Past Experience Different From
That Assumed and Effects of
Changes in Assumptions 495,626 115,523 ( 184,126 )
Prior Service Cost ( 326,854) ( 363,642) ( 400,430 )
Unrecognized Net Obligation at
October 1, 1987, Amortized Over
15 Years, Net of Amortization 45,749 60,698 75,647
Accrued Pension Cost Included
in Accrued Expenses $( 105,789) $(149,290) $( 128,074)
The following economic assumptions are used:
1998 1997 1996
Weighted Average Discount Rate 5.50% 6.50% 7.25%
Rate of Increase in Future Compensation 4.05% 4.58% 4.66%
Expected Long-Term Rate of Return 8.00% 7.50% 7.50%
In amortizing prior service costs, a straight-line amortization of the
cost over the average remaining service period of employees expected
to receive benefits under the plan is used. A settlement took place
during 1996 as a result of a lump-sum cash payment. The resulting
recognized gain was $78,274.
NOTE 9: PROVISION FOR FEDERAL AND STATE INCOME TAXES
The provisions for income taxes are comprised of the following
amounts:
1998 1997 1996
CURRENT:
Federal $ 722,181 $ 614,930 $ 484,688
State 153,535 114,848 91,135
875,716 729,778 575,823
DEFERRED:
Federal ( 272,886) 8,953 ( 81,086)
State ( 46,712) 1,533 ( 13,880)
( 319,598) 10,486 ( 94,966)
TOTAL PROVISION FOR
INCOME TAXES $ 556,118 $ 740,264 $ 480,857
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 9: PROVISION FOR FEDERAL AND STATE INCOME TAXES (CONTINUED)
A reconciliation of the differences between the effective income tax
rate and the statutory Federal income tax rate follows:
1998 1997 1996
Income Taxes Computed at Statutory
Rate $ 491,020 $ 664,115 $ 418,166
State Income Tax,
Net of Federal
Income Tax Benefit 70,503 76,812 50,987
Other, Net ( 5,405 ) ( 663 ) 11,704
PROVISION FOR INCOME TAXES $ 556,118 $ 740,264 $ 480,857
EFFECTIVE TAX RATE 27.1% 37.6% 38.5%
NOTE l0: EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share are based on the weighted
average number of shares outstanding and assumed to be outstanding
during the year (519,170 shares in 1998, 1997 and l996 for basic) and
(519,170 shares in 1998, 1997 and 1996 for diluted).
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 11: BUSINESS SEGMENT DATA
The Company's operations are conducted through two business segments.
These segments, and the primary operations of each, are as follows:
BUSINESS SEGMENT OPERATION
Candied Fruit Production of candied fruit, a
basic fruitcake ingredient, sold
to manufacturing bakers,
institutional users, and
retailers for use in home baking.
Molded Plastics Production of plastic containers
and other molded molded plastics
for sale to various food
processors and others.
YEAR YEAR YEAR
ENDED ENDED ENDED
NET SALES IN EACH SEGMENT 1998 l997 l996
Candied Fruit:
Sales to Unaffiliated Customers $ 19,070,109 $ 19,087,836 $ 17,511,519
Molded Plastics:
Sales to Unaffiliated Customers 2,897,705 2,920,601 2,865,547
NET SALES $ 21,967,814 $ 22,008,437 $ 20,377,066
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 11: BUSINESS SEGMENT DATA (CONTINUED)
YEAR YEAR YEAR
ENDED ENDED ENDED
1998 l997 l996
THE OPERATING PROFIT OF
EACH SEGMENT IS LISTED BELOW
Candied Fruit $ 6,276,920 $ 6,563,879 $ 5,307,124
Molded Plastics 732,690 420,505 516,733
OPERATING PROFIT OF
SEGMENTS 7,009,610 6,984,384 5,823,857
General Corporate
Expenses, Net ( 5,333,258) ( 4,547,494)( 4,109,267)
Interest Expense ( 532,169) ( 550,431)( 669,468)
Other Income 1,426,360 58,075 184,779
EARNINGS BEFORE PROVISION
FOR INCOME TAXES $ 2,570,543 $ 1,944,534 $ 1,229,901
Operating profit is composed of net sales, less direct costs and
overhead costs associated with each segment. Due to the high degree
of integration between the segments of the Company, it is not
practical to allocate general corporate expenses, interest, and other
income between the various segments.
YEAR YEAR YEAR
IDENTIFIABLE ASSETS OF EACH ENDED ENDED ENDED
SEGMENT ARE LISTED BELOW 1998 l997 l996
Candied Fruit $ 8,358,923 $ 7,801,873 $ 7,398,905
Molded Plastics 2,313,932 2,284,080 2,871,027
Identifiable Assets 10,672,855 10,085,953 10,269,932
General Corporate
Assets 5,637,726 5,140,690 4,762,109
TOTAL ASSETS $ 16,310,579 $15,226,643 $15,032,041
II-24
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
NOTE 11: BUSINESS SEGMENT DATA (CONTINUED)
Identifiable assets by segment are those assets that are principally
used in the operations of each segment. General corporate assets
are principally cash, land and building, and investments.
DEPRECIATION AND AMORT- YEAR YEAR YEAR
ZATION EXPENSE OF EACH ENDED ENDED ENDED
SEGMENT IS LISTED BELOW 1998 l997 l996
Candied Fruit $ 559,846 $ 531,789 $ 533,198
Molded Plastics 272,188 290,958 297,644
Segment Depreciation and
Amortization Expense 832,034 822,747 830,842
General Corporate Depreciation
and Amortization Expense 63,902 91,585 77,846
TOTAL DEPRECIATION AND
AMORTIZATION EXPENSE $ 895,936 $ 914,332 $ 908,688
CAPITAL EXPENDITURES YEAR YEAR YEAR
OF EACH SEGMENT ARE ENDED ENDED ENDED
LISTED BELOW 1998 l997 l996
Candied Fruit $ 496,133 $ 342,256 $ 278,409
Molded Plastics 116,285 229,108 592,328
Segment Capital
Expenditures 612,418 571,364 870,737
General Corporate Capital
Expenditures 41,606 122,712 42,974
TOTAL CAPITAL
EXPENDITURES $ 654,024 $ 694,076 $ 913,711
The Company conducts operations only within the United States.
Foreign sales are insignificant; primarily all sales are to domestic
companies.
II-25
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 12: MAJOR CUSTOMER
The Company derives more than 11% of its consolidated revenues from
sales to the affiliated companies Wal-Mart Stores, Inc. and Sam's
Club. These affiliated companies are not related to Paradise, Inc.
in any way. Sales to each of these affiliates are made separately,
and each is shipped a different brand of fruit products and invoiced
by a separate Paradise, Inc. subsidiary. The loss of sales to
either or both of these affiliated companies could have a material
adverse effect on operating earnings. In addition, slightly more
than 5% of consolidated revenues were sales to various divisions of
Winn-Dixie Stores, Inc. In this case, also, sales of a specific
subsidiary brand to each of the divisions were made individually,
and shipments were made and invoiced accordingly.
NOTE 13: CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash equivalents
and unsecured trade receivables. The Company's cash equivalents are
maintained with several financial institutions located in Florida.
Accounts at each institution are secured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances aggregate
to $2,628,646 at December 31, 1998. The Company grants credit to
customers, substantially all of whom are located in the United
States. The Company's ability to collect these receivables is
dependent upon economic conditions in the United States and the
financial condition of its customers.
NOTE 14: DEFERRED INCOME TAXES
The Company recognizes deferred tax assets and liabilities for
future tax consequences of events that have been previously
recognized in the Company's financial statements or tax returns.
The measurement of deferred tax assets and liabilities is based on
provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated.
II-26
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 14: DEFERRED INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1998, 1997 and 1996 were:
1998 1997 1996
Deferred Tax Assets resulting from:
Inventory Valuation $ 114,212 $ 81,783 $ 100,315
Book Provision for
Loss of Profits 192,666 157,670 163,691
Contribution Carryforward 210,206
Total Deferred Tax Assets 517,084 239,453 264,006
Deferred Tax Liabilities resulting from:
Tax over Book Depreciation 451,689 493,656 507,722
Total Deferred Tax Liabilities 451,689 493,656 507,722
Net Deferred Tax Liability $( 65,395 ) $ 254,203 $ 243,716
The Net Deferred Tax Liability is
Reflected in the Balance Sheet Under
These Captions:
Deferred Income Tax Asset $( 517,084 ) $( 239,453 ) $( 264,006 )
Deferred Income Tax Liability 451,689 493,656 507,722
$( 65,395 ) $ 254,203 $ 243,716
NOTE 15: PRIOR PERIOD ADJUSTMENT
The Company has recorded a prior period adjustment for changes in
earnings and provision for taxes resulting from an Internal Revenue
Service examination of the Company's 1994 Federal Income tax return.
The amount recorded represents an increase in income of $707,959 and
tax of $230,487 for 1994 and a decrease in income of $150,403 and
tax of $51,708 for 1995.
The years presented in the financial statements are also affected by
the results of the examination, and have been restated for 1997 and
1996. Earnings decreased $150,403 and taxes decreased $51,137 for
1997 and 1996 with a decrease in earnings per share of $.20 and
$.19, respectively.
II-27
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 3l, l998, 1997, AND 1996
NOTE 16: UNUSUAL MATERIAL EVENT
During 1998, the Company sold its investment real estate to the St.
John's River Water Management District in a transaction involving
both a cash sale and a charitable donation. In accordance with
generally accepted accounting principles, the Company has recorded
a gain on the sale of the land, a gain resulting from the
contribution and the contribution at fair market value of the
donated property. Fair market value was established by an
independent qualified appraisal.
II-28
PARADISE, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data is summarized as follows:
QUARTER ENDED
1998 March 31 June 30 September 30 December 31
NET SALES $ 1,326,374 $ 988,517 $13,162,570 $6,490,353
GROSS PROFIT 499,154 408,021 5,532,424 1,237,485
NET EARNINGS
(LOSS) ( 310,799) (145,675) 1,858,856 612,043
EARNINGS (LOSS)
PER COMMON
SHARE $(0.60) $(0.28) $3.58 $1.18
QUARTER ENDED
1997 March 31 June 30 September 30 December 31
NET SALES $ 1,403,244 $ 1,481,243 $9,332,654 $9,791,296
GROSS PROFIT 266,670 350,409 4,149,237 3,040,814
NET EARNINGS
(LOSS ( 552,545) ( 616,396) 1,931,725 441,486
EARNINGS (LOSS)
PER COMMON
SHARE $(1.06) $(1.19) $3.71 $0.85
QUARTER ENDED
1996 March 31 June 30 September 30 December 31
NET SALES $ 1,175,051 $ 981,179 $9,163,889 $9,056,947
GROSS PROFIT 390,577 ( 346,115) 3,783,203 2,814,166
NET EARNINGS
(LOSS) ( 409,191) ( 1,259,892) 1,973,795 444,332
EARNINGS (LOSS)
PER COMMON
SHARE $( .79) $(2.43) $3.79 $0.86
II-29
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
II-30
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16 (a) of the Exchange Act
(a) Directors of the Registrant
Melvin S. Gordon - President of the Registrant, 65 years old. Term
of office will expire at next stockholders'
meeting. Officer with Registrant past 34 years.
Eugene L. Weiner - Director and Executive Vice-President, Secretary
and Treasurer of the Registrant, 67 years old.
Term of office will expire at next stockholders'
meeting. Officer with Registrant past 33 years.
Randy S. Gordon - Vice President for Plastics Sales of the
Registrant, 43 years old. Term of office will
expire at next stockholders' meeting. Employee
of Registrant past 20 years.
Tracy W. Schulis - Vice President for Fruit Sales of the Registrant,
42 years old. Term of office will expire at next
stockholders'meeting. Employee of Registrant
past 19 years.
Mark H. Gordon - Vice President, Manager of Fruit Manufacturing,
36 years old. Term of office will expire at next
stockholders' meeting. Employee of Registrant
past 13 years.
(a) Executive Officers of the Registrant
Melvin S. Gordon - President, 65 years old. Term of office will
expire at next annual directors' meeting.
Officer with Registrant past 34 years.
Eugene L. Weiner - Executive Vice-President, Secretary, Treasurer,
67 years old. In charge of operations. Term of
office will expire at next annual directors'
meeting. Officer with Registrant past 33 years.
III-1
Item 9. Directors and Executive Officers of the Registrant (Continued)
(b) Not Applicable
(c) Family Relationships
Melvin S. Gordon is first cousin by marriage to Eugene L. Weiner.
Melvin S. Gordon is the father of Randy S. Gordon and Mark H. Gordon
and the father-in-law of Tracy W. Schulis.
(d) Not Applicable
Item 10. Executive Compensation
(a) and (b) The following information is set forth with
respect to all remuneration paid or accrued
by the Company and its subsidiaries during the
year ended December 31, 1998 to its officers and
directors as a group. Pursuant to regulation S-B
Item 402 (a)(2)(I) and (ii) the Company's five
most highly paid executive officers or directors,
included in the group total, whose total
remuneration exceeds $100,000 are separately
listed.
III-2
Item 10. Executive Compensation (Continued)
COMPENSATION
SALARIES, FEES,
NAME OF INDIVIDUAL DIRECTORS' FEES, ESTIMATED
PROJECTED
AND CAPACITY COMMISSIONS AND ANNUAL BENEFITS
IN WHICH SERVED BONUSES (1) PAYABLE (3) (4)
All Directors and
Officers as a Group
(5 Persons)
Melvin S. Gordon,
President and
Director $ 419,835 (2) $66,966
Eugene L. Weiner,
Executive Vice-
President and
Director $ 377,300 (2) (5)
Randy S. Gordon,
Vice-President
and Director $ 195,354 $55,714
Tracy W. Schulis,
Vice-President
and Director $ 195,357 $61,198
Mark H. Gordon,
Vice-President
and Director $ 192,742 $50,571
NOTES TO THE ABOVE TABLE
1. Personal benefits consist of charges for the
personal use of Company automobiles and PS-58 Costs.
2. A deferred compensation plan was approved by The
Board of Directors during 1995 to be funded
beginning in 1996..
III-3
Item 10. Executive Compensation (Continued)
3. These amounts are computed actuarially according
to the Retirement Plan of the Company assuming
certain facts as follows: a) that the participant
remains in the service of the Company until his
normal retirement date at age 65; b) that the
participant's earnings increase 4.50% annually
during the remainder of his service until
retirement age subject to the maximum annual
compensation limits established by law; and
c) that the plan be continued without substantial
modification.
4. As of the latest available actuarial valuation date.
5. Received a lump-sum distribution in 1996.
S.D. Fuller, who resigned for health reasons in June, 1995, in
recognition of his 30 years of service, was awarded an annual
stipend of $10,000 for five years, or until his demise.
C (d) Options, Warrants, or Rights
Not applicable
(e) Long-Term Incentive Plan Awards Table
Not Applicable
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) The following table sets forth as of December 31, 1998, information
concerning the beneficial ownership of the common stock of the Company
by the persons who own, are known by the company to own, or who the
Company has been advised have filed with the S.E.C. declarations of
beneficial ownership, of more than 5% of the outstanding common
stock.
III-4
Item 11. Security Ownership of Certain Beneficial Owners and Management
(Continued)
AMOUNT & NATURE
NAME AND ADDRESS OF TITLE OF OF BENEFICIAL PERCENT
BENEFICIAL OWNER CLASS OWNERSHIP (1) OF CLASS
Estate of
Frank A. Weaner Common
c/o Melvin Gordon
2611 Bayshore Blvd.
Tampa, Florida Stock 129,060 24.8%
Melvin S. Gordon Common
2611 Bayshore Blvd.
Tampa, Florida Stock 60,892 11.7
TOTAL 189,952 36.5%
(b) Beneficial ownership of common stock held by all directors and
officers of the Company as a group:
AMOUNT AND NATURE
TITLE OF OF BENEFICIAL PERCENT
CLASS OWNERSHIP (1) OF CLASS
Directors and
Officers
As a Group Common 223,989 43.1
Estate of
Frank A. Weaner Common 129,060 24.8
Melvin S. Gordon Common 60,892 11.7
Eugene L. Weiner Common 19,300 3.7
Randy S. Gordon Common 6,104 1.2
Tracy W. Schulis Common 4,571 .9
Mark H. Gordon Common 4,062 .8
(1) The nature of the beneficial ownership for all shares is sole
voting and investment power.
C The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
III-5
Item 12. Certain Relationships and Related Transactions
None
Item 13. Exhibits and Reports on Form 8-K
PAGE
(a) Exhibit (3) - Articles of Incorporation and By-Laws Incorporated
By Reference
Exhibit (11) - Statement Re: Computation of Per
Share Earnings II - 22
Exhibit (21) - Subsidiaries of the Small Business
Issuer III - 7
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
year ended December 31, 1998.
III-6
Item 13. Exhibit 21 - Subsidiaries of the Small Business Issuer
STATE OF
INCORPORATION
Fruit Traders, Inc. Florida
White Swan Products, Inc. Florida
Sun-Ripe Fruit Products, Inc. Florida
F.T. Properties, Inc. Florida
Paradise Growers, Inc. Florida
Pennant Fruit Products, Inc. Florida
Mor-Fruit Products, Inc. Florida
III-7
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
March 27, 1999 PARADISE, INC.
Date
s/Melvin S. Gordon
Melvin S. Gordon
President
In accordance with the Exchange Act this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the
dates indicated.
s/ Melvin S. Gordon President and Director March 27, 1999
Melvin S. Gordon Date
s/ Eugene L. Weiner Executive Vice President
Eugene L. Weiner and Director-Principal
Financial and Account-
ing Officer March 27, 1999
Date
s/ Randy S. Gordon Vice President and
Randy S. Gordon Director March 27, 1999
Date
s/ Tracy W. Schulis Vice President and
Tracy W. Schulis Director March 27 ,1999
Date
s/ Mark H. Gordon Vice President and
Mark H. Gordon Director March 27, 1999
Date
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
March 27, 1999 PARADISE, INC.
Date
Melvin S. Gordon
President
In accordance with the Exchange Act this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the
dates indicated.
President and Director March 27, 1999
Melvin S. Gordon Date
Executive Vice President
Eugene L. Weiner and Director-Principal
Financial and Account-
ing Officer March 27, 1999
Date
Vice President and
Randy S. Gordon Director March 27, 1999
Date
Vice President and
Tracy W. Schulis Director March 27 ,1999
Date
Vice President and
Mark H. Gordon Director March 27, 1999
Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> $2,728,646 $2,816,008
<SECURITIES> $0 $0
<RECEIVABLES> $753,472 $1,981,515
<ALLOWANCES> $0 $0
<INVENTORY> $5,664,905 $3,515,513
<CURRENT-ASSETS> $10,233,474 $8,800,354
<PP&E> $18,790,929 $18,285,737
<DEPRECIATION> $13,384,647 $12,808,973
<TOTAL-ASSETS> $16,310,579 $15,226,643
<CURRENT-LIABILITIES> $4,094,040 $3,716,012
<BONDS> $1,790,307 $2,809,719
<COMMON> $174,816 $174,816
$0 $0
$0 $0
<OTHER-SE> $10,832,483 $9,051,852
<TOTAL-LIABILITY-AND-EQUITY> $16,310,579 $15,226,643
<SALES> $21,967,814 $22,008,437
<TOTAL-REVENUES> $23,394,174 $22,066,513
<CGS> $14,340,730 $14,201,307
<TOTAL-COSTS> $14,340,730 $14,201,307
<OTHER-EXPENSES> $895,936 $914,332
<LOSS-PROVISION> $0 $0
<INTEREST-EXPENSE> $532,169 $550,431
<INCOME-PRETAX> $2,570,543 $1,944,534
<INCOME-TAX> $556,118 $740,264
<INCOME-CONTINUING> $2,014,425 $1,204,270
<DISCONTINUED> $0 $0
<EXTRAORDINARY> $0 $0
<CHANGES> $0 $0
<NET-INCOME> $2,014,425 $1,204,270
<EPS-PRIMARY> $3.88 $2.31
<EPS-DILUTED> $3.88 $2.31
</TABLE>
