<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 JUNE 30, 1998
COMMISSION FILE NUMBER 0-14358
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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, NJ 08016
--------------------------------------
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
NUMBER OF SHARES OUTSTANDING AS OF JUNE 30, 1998
COMMON STOCK 3,937,517
<PAGE>
PARIS CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited): PAGE
Consolidated Balance Sheets - June 30, 1998
and September 30, 1997 (audited).................. 3
Consolidated Statements of Income
Three months ended June 30, 1998 and 1997
Nine months ended June 30, 1998 and 1997.......... 4
Consolidated Statements of Cash Flows -
Nine months ended June 30, 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..................... 11
Signatures of Registrant............................. 12
<PAGE>
PARIS CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(in thousands)
ASSETS
6/30/98 9/30/97
(UNAUDITED) (Audited)
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,752 $ 2,742
Marketable securities 4,236 3,476
Accounts receivable 3,541 4,774
Inventories 3,011 4,592
Recoverable income taxes 280 922
Prepaid expenses 286 267
Deferred income taxes 1,151 1,187
------------- -------------
Total current assets 18,257 17,960
Property, plant and equipment, net 1,639 5,098
Noncurrent deferred income taxes 230 201
Other assets 176 218
------------- -------------
Total Assets $ 20,302 $ 23,477
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, bank $ 1,638 $ 3,932
Accounts payable and accrued expenses 3,062 3,360
Accrued payroll and related expenses 281 337
Current deferred income taxes 245 305
------------- -------------
Total current liabilities 5,226 7,934
Noncurrent deferred income taxes 820 842
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Total liabilities 6,046 8,776
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Commitments:
Shareholders' equity:
Common stock 16 16
Additional paid in capital 8,588 8,588
Retained earnings 7,512 7,813
Unrealized gain on marketable securities 24 24
Treasury stock (1,884) (1,740)
------------- -------------
Total shareholders' equity 14,256 14,701
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Total Liabilities and Shareholders' Equity $ 20,302 $ 23,477
============= =============
</TABLE>
See accompanying notes
<PAGE>
PARIS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
(in thousands, except per share data)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
6/30/98 6/30/97 6/30/98 6/30/97
---------------- ---------------- -----------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 9,178 $ 12,468 $ 26,810 $ 40,192
Cost of products sold 8,429 12,006 24,588 38,345
---------------- ---------------- -----------------------------------
Gross profit 749 462 2,222 1,847
---------------- ---------------- -----------------------------------
Selling expenses 378 469 1,254 1,671
General and administrative expenses 488 826 1,633 2,498
Interest expense 72 70 233 230
Other (income) expense (177) 17 (443) (124)
---------------- ---------------- -----------------------------------
Loss before taxes (12) (920) (455) (2,428)
Income tax benefit (4) (302) (155) (815)
---------------- ---------------- -----------------------------------
Net loss $ (8) $ (618) $ (300) $ (1,613)
================ ================ ===================================
Weighted average common and 3,553,645 3,650,000 3,553,645 3,650,000
Equivalent shares outstanding
Earnings (loss) per share basic $(0.002) $(0.17) $(0.08) $(0.44)
================ ================ ===================================
Earnings (loss) per share diluted $(0.002) $(0.17) $(0.08) $(0.44)
================ ================ ===================================
</TABLE>
See accompanying notes
<PAGE>
PARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(IN THOUSANDS) Nine NINE
MONTHS MONTHS
ENDED ENDED
6-30-98 6-30-97
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (300) $ (1,613)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 626 832
Gain on sale of property, plant and equipment (107) (71)
Gain on sale of marketable securities (224) (41)
Provision for losses on accounts receivable 90 180
Increase in deferred income taxes (75) (412)
(Increase) decrease in:
Accounts receivable 1,143 494
Inventories 1,581 1,007
Recoverable income taxes 642 992
Prepaid expenses (19) 1
Other assets 42 91
Increase (decrease) in:
Accounts payable and accrued expenses (1,321) (939)
Accrued payroll and related expenses (56) 37
--------------- --------------
Total adjustments 2,322 2,171
--------------- --------------
Net cash provided by (used in) operating activities 2,022 558
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 224 2,057
Purchase of marketable securities (760) (582)
Purchase of property, plant and equipment (349) 85
Proceeds from sale of property, plant and equipment 4,311 (91)
--------------- --------------
Net cash provided by (used in) investing activities 3,426 1,469
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (144) (30)
Repayments of working capital line of credit (2,294) (894)
--------------- --------------
Net cash provided by (used in) financing activities (2,438) (924)
Net increase in cash and cash equivalents 3,010 1,103
Cash and cash equivalents at beginning of period 2,742 650
--------------- --------------
Cash and cash equivalents at end of period $ 5,752 $ 1,753
=============== ==============
Supplemental disclosures of cash flow information:
Cash paid for interest expense $ 233 $ 230
Cash paid for income taxes $ 0 $ 1,086
</TABLE>
See accompanying notes
<PAGE>
PARIS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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 nine
months ended June 30, 1998, management reduced the liability to $45,000,
reflecting lower obligations.
3. The company has adopted FASB #128, "Earnings Per Share" as required. Due to
the anti-dilutive effect of the 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 June 30, 1998 and September 30, 1997:
<TABLE>
<CAPTION>
6/30/98 9/30/97
---------- ----------
<S> <C> <C>
Raw Materials $ 836,409 $1,690,741
Work in Progress 93,413 91,721
Finished Goods 2,081,386 2,809,372
---------- ----------
$3,011,208 $4,591,834
========== ==========
</TABLE>
<PAGE>
PARIS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
JUNE 30, 1998
-------------
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
- -------------------------------------------------------------------------------------------------------------------------
$ % $ %
1998 1997 CHANGE CHANGE 1998 1997 CHANGE CHANGE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $9,178 $12,468 ($3,290) (26%) $26,810 $ 40,192 ($13,382) (33%)
- -------------------------------------------------------------------------------------------------------------------------
Cost of sales 8,429 12,006 (3,577) (30%) 24,588 38,345 (13,757) (36%)
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 749 462 287 62% 2,222 1,847 375 20%
- -------------------------------------------------------------------------------------------------------------------------
Selling 378 469 (91) (19%) 1,254 1,671 (417) (25%)
- -------------------------------------------------------------------------------------------------------------------------
General and administrative
expenses 488 826 (338) (41%) 1,633 2,498 (865) (35%)
- -------------------------------------------------------------------------------------------------------------------------
Interest expense 72 70 2 3% 233 230 3 1%
- -------------------------------------------------------------------------------------------------------------------------
Other (income) expense (177) 17 (194) (1,141%) (443) (124) (319) 257%
- -------------------------------------------------------------------------------------------------------------------------
Pretax loss (12) (920) 908 (99%) (455) (2,428) 1,973 (81%)
- -------------------------------------------------------------------------------------------------------------------------
Income taxes (4) (302) 298 (99%) (155) (815) 660 (81%)
- -------------------------------------------------------------------------------------------------------------------------
Net loss ($8) ($618) $ 610 (99%) ($300) ($1,613) $ 1,313 (81%)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross Profit
- ------------
THREE MONTHS COMPARISON
Gross profit for the three months ended June 30, 1998 of $749M increased $287M
or 62% as compared to the same quarter in the prior year. Sales of $9178M
decreased $3290M or 26% and cost of sales of $8429M decreased $3577M or 30%.
Sales factors
- -------------
Sales of stock continuous forms of $4352M decreased $4830M or 52% due
principally to a decline in unit volume of 56% offset by a slight 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 $13M compared to $175M in the same quarter last
year.
Value-added cut sheet products distributed through the retail channel increased
207% from the comparable quarter last year, growing from $521M to $1600M, an
increase of $1079M.
Custom forms sales of $1566M increased 10% from $1421 for the same quarter last
year.
Sales rebates, discounts and allowances of $181M decreased $541M from $722M 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.
<PAGE>
Cost factors
- ------------
The cost of stock continuous form sales of $3782M decreased $4009M or 51%
compared to the same period last year, proportionate to the sales decline.
Computer hardware costs declined 90% or $163M as sales volume declined at the
equal rate due to the abandonment of this product line.
The cost of sales of commodity cut sheets of $1076 decreased $42M or 3% due to
favorable mill pricing.
Value-added cut sheet costs increased $961M, disproportionate to the increase in
sales due to competitive price pressures.
Freight costs and distribution costs declined $347M or 46% in the third quarter
compared to last year due to the decreased sales volume. Also contributing to
the decrease was tighter management controls on both the costs of shipping and
the pass-through of freight cost to the customer.
NINE MONTHS COMPARISON
Gross profit for the nine months ended June 30, 1998 of $2222M represented an
increase of $375M or 20% as compared to the same period in the prior year.
Sales of $26810M decreased $13382M or 33% and cost of sales of $24588M decreased
$13757M or 36%.
Sales factors
- -------------
Sales of stock continuous forms of $13812M decreased $13474M or 49% due to a
decline in unit volume of 54% partially offset by an increase in average sell
price.
Hardware sales of $103M declined $2722M or 96% resulting from the Company's
decision to discontinue this business during the nine month period ended June
30, 1998.
Value-added cut sheet sales were $3647M as compared to $1659M last year
representing an increase of $1988M or 119% due to continued strong demand from
ink jet/laser printer users in conjunction with an increased customer base among
prominent retail stores.
Custom forms sales of $4628M increased $12M from $4616M from the prior year.
Sales rebates, discounts and allowances decreased $1390M.
Cost factors
- ------------
The cost of stock continuous forms of $12155M decreased $14649M or 54%
proportionate to the sales decline.
The cost of hardware sales decreased $2607 or 91% proportionate to the decrease
in sales volume.
The cost of value-added cut sheet sales for FY98 were $2822M as compared to
$1384M last year representing an increase of 103%.
Freight and distribution costs of $1395M were $1254 lower than last year for the
same reasons stated in the three month comparison.
Greater labor efficiencies and capacity utilization yielded a $84M decrease in
manufacturing costs for the current period.
<PAGE>
OPERATING EXPENSES
- ------------------
THREE MONTH COMPARISON
Operating expenses were reduced $429M or 33% 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 $91M or 19% due to decreased salaries and travel
expenses resulting from head count reductions.
General and Administrative expenses were reduced $338M or 40% due to cost
savings in salary and benefits of $169M, professional fees of $32M, depreciation
of $44M, bad debt reserves of $30M reflecting the decline in sales, telephone
expense of $16M, and other sundry expenses of $47M.
SIX MONTH COMPARISON
Operating expenses were reduced $1282 or 30% for the nine month period. Sales
and Marketing expenses were reduced $417M or 24% and general and administrative
expenses decreased $865M or 35% for the same reasons stated in the three month
comparison.
OTHER INCOME AND EXPENSE
- -------------------------
Other income, net increased $194M for the three months ended June 30, 1998 and
$319M for the nine month period. The increase is due to an expense of $150M in
the third quarter of FY97 for the settlement in the termination of a warehouse
agreement. Greater realized investment income during FY98 also contributed to
the increase in other income.
Interest expense remained constant increasing $2M to $72M during the three
months ended June 30, 1998, and increasing $3M to $233M during the nine month
period.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
Working capital increased $3005M from $10.03 million to $13.03 million and cash
and cash equivalents increased $3010M during the nine months ended June 30,
1998. Inventories were reduced $1581M or 34% from $4.6 million to $3.0 million
due to the lower sales volume. Accounts payable and accrued expenses were
reduced $298M. Trade receivables decreased from $4.8 million to $3.5 million
for the nine month period.
The bank line of credit balance was $1638M at June 30, 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 $233M for the nine months ended June 30, 1998 and
$230M in the comparable period last year.
The Company sold the land and building of their corporate headquarters and
manufacturing facility located in Burlington, NJ in a sales-lease back
transaction in May of 1998. The lease term is three years.
The net sales proceeds were $4253M and the gain realized was $1071M. The gain
will be recognized over the three year term of the lease. The gain recognized
during the nine months ended June 30, 1998 was $49M and was included in other
income.
The Company purchased new sheeting, sorting and wrapping equipment at a cost of
$356M during the nine months ending June 30, 1998. The new equipment will lower
unit cost on various cut sheet products and provide additional capacity.
<PAGE>
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 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 an 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 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 3,553,645
=========
(b) Reports on Form 8-K
None.
<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
/s/ Dominic P. Toscani, Sr.
___________________________
Dominic P. Toscani, Sr.
President and Chairman of
the Board of Directors
/s/ William L. Lomanno
____________________________
William L. Lomanno
Chief Financial Officer
DATE: August 12, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,752,377
<SECURITIES> 4,235,743
<RECEIVABLES> 4,366,838
<ALLOWANCES> 825,912
<INVENTORY> 3,011,208
<CURRENT-ASSETS> 18,257,000
<PP&E> 8,677,049
<DEPRECIATION> 7,037,774
<TOTAL-ASSETS> 20,302,000
<CURRENT-LIABILITIES> 5,226,000
<BONDS> 0
16,851
0
<COMMON> 0
<OTHER-SE> 14,239,524
<TOTAL-LIABILITY-AND-EQUITY> 20,302,000
<SALES> 9,178,000
<TOTAL-REVENUES> 9,178,000
<CGS> 8,429,000
<TOTAL-COSTS> 9,190,000
<OTHER-EXPENSES> (177,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,000
<INCOME-PRETAX> (12,000)
<INCOME-TAX> (4,000)
<INCOME-CONTINUING> (8,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,000)
<EPS-PRIMARY> (.002)
<EPS-DILUTED> (.002)
</TABLE>
