<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
___________________________________________
FOR QUARTER ENDED, MARCH 31,1998
COMMISSION FILE NUMBER 0-14358
-------
PARIS CORPORATION
-----------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
PENNSYLVANIA 23-1645493
------------ ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
122 KISSEL ROAD, BURLINGTON, NEW JERSEY 08016
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 609-387-7300
------------
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
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NUMBER OF SHARES OUTSTANDING AS OF MARCH 31,1998
COMMON STOCK 3,937,517
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PARIS CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. Financial Statements (Unaudited):
Consolidated Balance Sheets - March 31, 1998
and September 30, 1997 (audited).................. 3
Consolidated Statements of Income
Three months ended, March 31, 1998 and 1997
Six months ended, March 31, 1998 and 1997........ 4
Consolidated Statements of Cash Flows -
Six months ended, March 31, 1998 and 1997........ 5
Notes to Consolidated Condensed
Financial Statements............................. 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 7 - 10
PART II. OTHER INFORMATION (Items 1 through 5 - not applicable)
ITEM 6. Exhibits and Reports on Form 8-K................. 10
Signatures of Registrant......................... 11
2
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PARIS CORPORATION
CONSOLIDATED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
(IN THOUSANDS)
ASSETS
3-31-98 9-30-97
(AUDITED)
------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,101 $ 2,742
Marketable securities 4,161 3,476
Accounts receivable 3,849 4,774
Inventories 3,794 4,592
Recoverable income taxes 1,153 922
Prepaid expenses 266 267
Deferred income taxes 1,001 1,187
-------- --------
Total current assets 16,325 17,960
Property, plant and equipment, net 4,927 5,098
Noncurrent deferred income taxes 230 201
Other assets 184 218
-------- --------
Total Assets $ 21,666 $ 23,477
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, bank $ 3,134 $ 3,932
Accounts payable and accrued expenses 2,899 3,360
Accrued payroll and related expenses 306 337
Current deferred income taxes 245 305
-------- --------
Total current liabilities 6,584 7,934
Noncurrent deferred income taxes 820 842
-------- --------
Total liabilities 7,404 8,776
-------- --------
Commitments:
Shareholders' equity:
Common stock 16 16
Additional paid in capital 8,588 8,588
Retained earnings 7,520 7,813
Unrealized gain on marketable securities 24 24
Treasury stock (1,886) (1,740)
-------- --------
Total shareholders' equity 14,262 14,701
-------- --------
Total Liabilities and Shareholders' Equity $ 21,666 $ 23,477
======== ========
</TABLE>
3
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PARIS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
3-31-98 3-31-97 3-31-98 3-31-97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 8,227 $ 12,796 $ 17,632 $ 27,723
Cost of products sold 7,308 12,437 16,159 26,338
-------- -------- -------- --------
Gross profit 919 359 1,473 1,385
-------- -------- -------- --------
Selling expenses 430 522 875 1,202
General and administrative expenses 561 788 1,145 1,672
Interest expense 77 79 161 160
Other (income) expense (167) (133) (264) (141)
-------- -------- -------- --------
Income (loss) before taxes 18 (897) (444) (1,508)
Provision (benefit) for income taxes 6 (305) (151) (513)
-------- -------- -------- --------
Net Income (loss) $ 12 $ (592) $ (293) $ (995)
======== ======== ======== ========
Weighted average common and 3,552,645 3,650,500 3,552,645 3,650,500
equivalent shares outstanding
Earnings (Loss) per share - basic $ 0.003 $ (0.16) $ (0.08) $ (0.27)
======== ========= ======== ========
Earnings (Loss) per share - diluted $ 0.003 $ (0.16) $ (0.08) $ (0.27)
======== ========= ======== ========
</TABLE>
4
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PARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(in thousands) SIX MONTHS SIX MONTHS
ENDED ENDED
3-31-98 3-31-97
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (293) $ (996)
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 455 560
Gain on sale of property, plant and equipment (58) (45)
Gain on sale of marketable securities (124) (164)
Provision for losses on accounts receivable 50 120
Deferred income tax credit 75 0
(Increase) decrease in:
Accounts receivable 875 299
Inventories 798 1,287
Recoverable income taxes (232) 1,139
Prepaid expenses 1 (42)
Other assets 34 24
Increase (decrease) in:
Accounts payable and accrued expenses (449) (2,019)
Accrued payroll and related expenses (31) (6)
-------- --------
Total adjustments 1,394 1,153
-------- --------
Net cash provided by (used in) operating activities 1,101 157
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 121 1,876
Purchase of marketable securities (682) (266)
Purchase of equipment (295) (74)
Proceeds from sale of equipment 58 45
-------- --------
Net cash provided by (used in) investing activities (798) 1,581
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of treasury stock (146) (30)
Repayments of working capital line of credit (798) 0
-------- --------
Net cash provided by (used in) financing activities (944) (30)
Net decrease in cash and cash equivalents (641) 1,708
Cash and cash equivalents at beginning of period 2,742 650
-------- --------
Cash and cash equivalents at end of period $ 2,101 $ 2,358
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest expense $ 161 $ 160
Cash paid for income taxes $ 0 $ 0
</TABLE>
5
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PARIS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ACCOUNTING POLICIES:
1. The accompanying unaudited interim consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The Summary of Accounting Policies and Notes to
Consolidated Financial Statements included in the September 30, 1997 Form 10-K
should be read in conjunction with the accompanying statements. These
statements include all adjustments (consisting only of normal recurring
accruals) which the Company believes necessary for a fair presentation of the
statements. The interim operating results are not necessarily indicative of the
results for a full year.
2. The Company has agreements with certain customers and vendors which include
potential rebates, commissions, and other liabilities upon the fulfillment of
certain terms and conditions. Management had estimated and recorded contingent
liabilities of approximately $145,000 as of September 30, 1997 related to these
agreements and other potential liabilities. During the six months ended March
31, 1998, management reduced the liability to $63,000, reflecting lower
obligations.
3. The Company has adopted FASB #128, "Earnings Per Share" as required. Due
to the anti-dilutive effect of employee stock options outstanding in the
computation of earnings per share, basic and fully diluted earnings per share
are identical.
4. Inventories consist of the following at March 31, 1998 and September 30,
1997:
3/31/98 9/30/97
---------- ----------
Raw Materials $1,170,807 $1,690,741
Work in Progress 2,912 91,721
Finished Goods 2,620,315 2,809,372
---------- ----------
$3,794,034 $4,591,834
========== ==========
6
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PARIS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
MARCH 31, 1998
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<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
- ------------------------------------------------------------------------------------------------------------------
$ % $ %
1998 1997 CHANGE CHANGE 1998 1997 CHANGE CHANGE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $8,227 $12,796 ($4,569) -36% $17,632 $27,723 ($10,091) -36%
- -------------------------------------------------------------------------------------------------------------
Cost of sales 7,308 12,437 (5,129) -41% 16,159 26,338 (10,179) -39%
- -------------------------------------------------------------------------------------------------------------
Gross profit 919 359 560 156% 1,473 1,385 88 6%
- -------------------------------------------------------------------------------------------------------------
Selling 430 522 (92) -18% 875 1,202 (327) -27%
- -------------------------------------------------------------------------------------------------------------
General and administrative 561 788 (227) -29% 1,145 1,672 (527) -32%
expenses
- -------------------------------------------------------------------------------------------------------------
Interest expense 77 79 (2) -3% 161 160 1 1%
- -------------------------------------------------------------------------------------------------------------
Other (income) expense (167) (133) (34) -26% (264) (141) (123) -87%
- -------------------------------------------------------------------------------------------------------------
Pretax loss 18 (897) 915 102% (444) (1,508) 1,064 71%
- -------------------------------------------------------------------------------------------------------------
Income taxes 6 (305) 311 102% (151) (513) 362 71%
- -------------------------------------------------------------------------------------------------------------
Net loss $ 12 ($592) $ 604 102% ($293) ($995) $ 702 71%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
GROSS PROFIT
- ------------
Three Months Comparison
Gross profit for the three months ended March 31, 1998 of $919M increased $560M
as compared to the same quarter in the prior year. Sales of $8227M decreased
$4569M or 36% and cost of sales of $7308M decreased $5129M or 41%.
Sales factors
- -------------
Sales of stock continuous forms of $4326M decreased $4503M or 51% due
principally to a decline in unit volume of 57% offset by an increase in the
average sell price. The unit volume decline resulted from the loss of the
Company's two largest customers.
During the first quarter of FY98, the Company exited the computer hardware
business with sales declining to $27M compared to $822M in the same quarter last
year.
Custom form sales of $1505M remained flat in comparison to the same quarter last
year.
Value-added cut sheet products distributed through the retail channel increased
125% from the comparable quarter last year, growing from $436M to $982, an
increase of $546M.
Sales rebates, discounts and allowances of $290M decreased $534M from $824 last
year due to the exit from the computer hardware business and the lack of a unit
volume rebate on stock computer paper due to the loss of the two customers
mentioned above.
7
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Cost factors
- ------------
The cost of stock continuous form sales of $3845M decreased $3966M or 50%
compared to the same period last year, proportionate to the sales decline.
Computer hardware costs declined 96% or $753M as sales volume declined at an
equal rate due to the abandonment of this product line.
Value-added cut sheet costs increased $369M or 108% consistent with the increase
in product sales.
Freight costs declined $444M or 52% in the second quarter compared to last year
due to the decreased sales volume. Also contributing to the decrease was
tighter management controls on both the cost of shipping and the pass-through of
freight cost to the customer.
Increased capacity utilization and production efficiency variances accounted for
decreased costs during the quarter.
SIX MONTHS COMPARISON
Gross profit for the six months ended March 31, 1998 of $1473M represented an
increase of $88M or 6% as compared to the same period in the prior year. Sales
of $17632M decreased $10091M or 36% and cost of sales of $16159M decreased
$10179M or 39%.
Sales factors
- -------------
Sales of stock continuous forms decreased $8643M or 48% from $18103M to $9460M
consistent with the decline in unit volume.
Computer hardware sales declined $2560M from $2649M to $89M resulting from the
Company's decision to discontinue this business during the six month period
ended March 31, 1998.
Value-added cut sheet sales were $2048M as compared to $1138M last year
representing an increase of $910M due to continued strong demand from
inkjet/laser printer users.
Custom forms sales of $3073 decreased $122M or 4% due to a slight decrease in
unit volume.
Sales rebate, discounts and allowances decreased $849M.
Cost factors
- ------------
The cost of stock continuous forms of $8374M decreased $7665M or 48%
proportionate to the sales decline.
The cost of hardware sales decreased $2113M or 90% proportionate to the decrease
in sales volume.
The cost of value-added cut sheet sales for 1998 were $1482M as compared to
$811M last year representing an increase of $671M or 83%.
Freight and distribution costs of $949M were $826M lower than last year for the
same reasons stated in the three month comparison.
Greater labor efficiencies and capacity utilization yielded a $69M decrease in
manufacturing costs for the current period.
8
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OPERATING EXPENSES
- ------------------
THREE MONTHS COMPARISON
Operating expenses were reduced $319M or 24% on a quarter-to-quarter basis. The
decrease resulted from continual cost reduction efforts in order to reduce
operating expenses proportionate with the decline in sales volume. Sales and
Marketing expenses were reduced $92M or 18% due to decreased salaries and travel
expenses resulting from head count reductions.
General and Administrative expenses were reduced $227M or 29% due to cost
savings in salary and wages of $69M, professional fees of $35M, depreciation of
$34M, bad debt reserves of $30M reflecting the decline in sales, T&E expense of
$24M, and other sundry expenses of $35M.
SIX MONTHS COMPARISON
Operating expenses were reduced $854M or 29% for the six month period. Sales
and Marketing expenses were reduced $327 or 27% for the same reasons stated in
the three month comparison in conjunction with the elimination of marketing
costs for catalogs, shows, market development funds and samples.
General and administrative expenses decreased $527 or 32% as a result of the
following cost savings: 1) salary and wages $214M; 2) bad debt reserve $60M; 3)
travel & entertainment $50K; 4) professional fees $42M; 5) depreciation $38M; 6)
telephone $32M; and 7) other sundry expenses of $91M.
OTHER INCOME AND EXPENSES
-------------------------
Other income, net increased $34M for the three months ended March 31, 1998 and
$123M for the six month period. The increase is due to the elimination of
losses in a 44% joint venture from the prior year and greater realized
investment income.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
Working capital decreased $285M from $10.03 million to $9.74 million and cash
and cash equivalents decreased $641M during the six months ended March 31, 1998.
Inventories were reduced 17% or $798M from $4.6 million to $3.8 million due to
the lower sales volume level. Accounts payable and accrued expenses were
reduced $461M. Trade receivables decreased from $4.8 million to $3.9 million
for the six month period.
The bank line of credit balance was $3134M at March 31, 1998. The line of
credit expires December 31, 1998 and is secured by accounts receivable and
inventory. The Company can borrow up to $7500M at prime plus 1% on inventory
advances and at prime plus 1/2% on receivable advances. Related interest
expense was $161M for the six months ended March 31, 1998 and $160M in the
comparable period last year.
The Company purchased new sheeting, sorting and wrapping equipment at a cost of
$295M during the six month period ending March 31, 1998. The Company
anticipates an additional investment of $50M in order to maximize the efficiency
of this equipment. The new equipment will lower unit cost on various cut sheet
products and provide additional capacity.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Company's programs that have
time-sensitive
9
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software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and
converting to new software, the Year 2000 program will not pose significant
operational problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not completed
timely, the Year 2000 problem may have a material impact on the operations of
the Company.
PARIS CORPORATION
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Computation of Primary Earnings Per Share
Average Number of Common Shares
Outstanding During the Period 3,552,645
=========
(b) Reports on Form 8-K
None.
10
<PAGE>
PARIS CORPORATION
SIGNATURES OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARIS CORPORATION
___________________________
Dominic P. Toscani, Sr.
President and Chairman of
the Board of Directors
____________________________
William L. Lomanno
Chief Financial Officer
DATE: May 6, 1998
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,100,549
<SECURITIES> 4,160,692
<RECEIVABLES> 4,767,204
<ALLOWANCES> 917,817
<INVENTORY> 3,794,034
<CURRENT-ASSETS> 16,324,079
<PP&E> 14,067,984
<DEPRECIATION> 9,140,954
<TOTAL-ASSETS> 21,665,301
<CURRENT-LIABILITIES> 6,584,000
<BONDS> 0
16,851
0
<COMMON> 0
<OTHER-SE> 14,245,152
<TOTAL-LIABILITY-AND-EQUITY> 14,262,003
<SALES> 8,226,594
<TOTAL-REVENUES> 8,226,594
<CGS> 7,307,310
<TOTAL-COSTS> 8,298,289
<OTHER-EXPENSES> (167,863)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,628
<INCOME-PRETAX> 18,540
<INCOME-TAX> 6,304
<INCOME-CONTINUING> 12,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,235
<EPS-PRIMARY> .003
<EPS-DILUTED> .003
</TABLE>
