<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 DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-14358
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PARIS CORPORATION
-----------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
PENNSYLVANIA 23-1645493
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
122 KISSEL ROAD, BURLINGTON, NEW JERSEY 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 DECEMBER 31, 1997
COMMON STOCK 3,937,517
<PAGE>
PARIS CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited): PAGE
Consolidated Balance Sheets - December 31, 1997
and September 30, 1997 (audited) 3
Consolidated Statements of Income
Three months ended, December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Three months ended, December 31, 1997 and 1996 5
Notes to Consolidated Condensed
Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION (Items 1, 2, 3, & 5 - not applicable)
ITEM 4. Submission of Matters to a Vote of Security Holders 9
ITEM 6. Exhibits and Reports on Form 8-K 9
Signatures of Registrant 10
2
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PARIS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
12-31-97 9-30-97
(UNAUDITED) (AUDITED)
---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,663 $ 2,742
Marketable securities 3,703 3,476
Accounts receivable 4,667 4,774
Inventories 3,758 4,592
Recoverable income taxes 922 922
Prepaid expenses 345 267
Deferred income taxes 1,377 1,187
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Total current assets 17,435 17,960
Property, plant and equipment, net 5,023 5,098
Noncurrent deferred income taxes 201 201
Other assets 194 218
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Total Assets $ 22,853 $ 23,477
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, bank 4,452 3,932
Accounts payable and accrued expenses 2,680 3,360
Accrued payroll and related expenses 265 337
Current deferred income taxes 305 305
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Total current liabilities 7,702 7,934
Noncurrent deferred income taxes 875 842
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Total Liabilities 8,577 8,776
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Commitments:
Shareholders' equity:
Common stock 16 16
Additional paid in capital 8,588 8,588
Retained earnings 7,508 7,813
Unrealized gain on marketable securities 24 24
Treasury stock (1,860) (1,740)
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Total Shareholders' Equity 14,276 14,701
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Total Liabilities and Shareholders' Equity $22,853 $23,477
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
PARIS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
12-31-97 12-31-96
------------ ------------
<S> <C> <C>
Net sales $ 9,406 $ 14,928
Cost of products sold 8,852 13,902
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Gross profit 554 1,026
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Selling expenses 446 680
General and administrative expenses 583 884
Interest expense 84 81
Other income, net (97) (9)
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Loss before taxes (462) (610)
Income tax benefit (157) (207)
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Net loss $ (305) $ (403)
========== ==========
Weighted average common and
equivalent shares outstanding 3,567,460 3,636,459
Earnings per share - basic $ (0.09) $ (0.11)
========== ==========
Earnings per share - diluted $ (0.09) $ (0.11)
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS THREE MONTHS
ENDED ENDED
12-31-97 12-31-96
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (305) $ (403)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 244 276
Gain on sale of marketable securities (62) (25)
Provision for losses on accounts receivable 30 60
Deferred income tax credit (157) 0
(Increase) decrease in:
Accounts receivable 77 (612)
Inventories 834 1,315
Prepaid expenses (78) 16
Other assets 24 (90)
Increase (decrease) in:
Accounts payable and accrued expenses (680) (304)
Accrued payroll and related expenses (72) 200
Income taxes payable, current 0 (204)
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Total adjustments 160 632
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Net cash provided by (used in) operating activities (145) 229
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 66 904
Purchase of marketable securities (231) (266)
Purchase of property, plant and equipment (169) (51)
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Net cash provided by (used in) investing activities (334) 587
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CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (120) (30)
Proceeds of working capital line of credit 520 0
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Net cash provided by (used in) financing activities 400 (30)
Net increase (decrease) in cash and cash equivalents (79) 786
Cash and cash equivalents at beginning of period 2,742 650
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Cash and cash equivalents at end of period $ 2,663 $ 1,436
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest expense $ 84 $ 81
Cash paid for income taxes $ 0 $ 0
</TABLE>
See accompanying notes.
5
<PAGE>
PARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements for the three month
periods ended December 31, 1997 and December 31, 1996 are unaudited and
reflect all adjustments (consisting only of normal recurring accruals)
which the Company believes necessary for a fair presentation of the
financial position and operating results for the interim periods. The
Summary of Accounting Policies and Notes to the Consolidated Financial
Statements included in the September 30, 1997 Form 10-K should be read in
conjunction with the accompanying 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 at September 30, 1997
related to these agreements and other potential liabilities. During the
three months ended December 31, 1997 management has not changed the
estimated contingent liability.
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 December 31, 1997 and September 30,
1997:
<TABLE>
<CAPTION>
12/31/97 9/30/97
-------- -------
<S> <C> <C>
Raw materials $1,126,855 $1,690,741
Work in progress 59,164 91,721
Finished goods 2,572,006 2,809,372
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$3,758,025 $4,591,834
========== ==========
</TABLE>
6
<PAGE>
PARIS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS
- ------------------------------------------------------------------------------------------------------------------------
$ %
1997 1996 CHANGE CHANGE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $9,406 $14,928 $(5,521) -37%
- ------------------------------------------------------------------------------------------------------------------------
Cost of sales 8,852 13,902 (5,050) -36%
- ------------------------------------------------------------------------------------------------------------------------
Gross profit 554 1,026 (472) -46%
- ------------------------------------------------------------------------------------------------------------------------
Selling 446 680 (234) -34%
- ------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 583 884 (301) -34%
- ------------------------------------------------------------------------------------------------------------------------
Interest expense 84 81 3 4%
- ------------------------------------------------------------------------------------------------------------------------
Other (income) expense (97) (9) (88) 978%
- ------------------------------------------------------------------------------------------------------------------------
Pretax loss (462) (610) 148 -24%
- ------------------------------------------------------------------------------------------------------------------------
Income tax benefit (157) (207) 96 -46%
- ------------------------------------------------------------------------------------------------------------------------
Net loss $ (305) $ (403) $ 52 -13%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
GROSS PROFIT
- ------------
Gross profit for the three months ended December 31, 1997 of $554M decreased
$472M or 46% as compared to the same quarter in the prior year. Sales of $9406M
decreased $5521M or 37% and cost of sales of $8852M decreased $5050M or 36%.
Sales Factors
- -------------
Sales of stock continuous forms of $5203M decreased $4145M or 44% due
principally to a decline in unit volume. Over 60% of the unit volume shortfall
resulted from the loss of the Company's two largest customers. Competitive
pressure on stock form prices eased during the quarter with average sell prices
up 11% on a year to year basis.
During the quarter, the Company exited the computer hardware business with sales
declining to $82M compared to $1880M in the same quarter last year when one
large retail customer purchased a large quantity of computer scanners.
Custom forms sales of $1571M declined $140M from the same quarter last year.
Value-added cut sheet products distributed through the retail channel continued
to gain strength with a 44% increase in quarterly sales, growing from $738M to
$1066M, an increase of $328M.
Sales rebates, discounts and allowances of $187M decreased $343M from $530M last
year primarily due to the exit from the computer hardware business.
Cost factors
- ------------
Cost of stock continuous forms declined $3433M or 43% consistent with the same
rate of unit volume shortfall.
7
<PAGE>
Scanner product costs declined 95% or $1660M as sales volume declined at an
equal rate due to the abandonment of this product line.
Retail cut sheet costs accelerated at a faster pace than sell prices resulting
in an increase of cost of sales in the product group of 66% or $308M.
Freight costs declined $302M or 40% in the first quarter compared to last year
due to tighter management controls on both the cost of shipping and the pass-
through of freight cost to the customer.
Unfavorable capacity utilization and production efficiency variances accounted
for increased cost of $262M in the quarter.
OPERATING EXPENSES
- ------------------
The Company continued to pursue an aggressive cost reduction program to reduce
operating costs consistent with the decline in sales volume. As a result,
operating expenses were reduced 34% on a quarter to quarter basis from $1564M to
$1029M or $534M due to reductions in salaries and wages via reductions in force
of $198M, tighter travel and entertainment cost controls of $76M, elimination of
marketing costs for catalogs, shows, market development funds and samples of
$138M, telephone savings of $30M, and reductions in legal costs, professional
fees, office expenses, commissions, and other administrative costs aggregating
$100M.
OTHER INCOME AND EXPENSES
- -------------------------
Other income, net increased $88M due to 1) elimination of losses in a 44% joint
venture from the prior year of $32M; and 2) realized investment gains greater
than the prior year of $56M.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
Working capital decreased $293M from $10026M to $9733M and cash/cash equivalents
decreased $79M during the three months ended December 31, 1997. Inventories
were reduced by 18% or $834M due to the lower sales volume level. Accounts
payable and accrued expenses were also reduced in the amount of $680M.
The bank line of credit balance of $4452M at December 31, 1997 was not
representative of the average balance for the quarter of approximately $3800M
due to timing. The average loan balance was consistent with prior quarters.
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 $84M in the current quarter and $81M in the same quarter
last year.
Covenant violations of the loan agreement as of September 30, 1997 have not been
waived to date by the bank. Upon completion of additional collateral agreements
currently in process, such covenant violations will be waived.
The company expects delivery of new sheeting, sorting and wrapping equipment at
a cost of approximately $300M in February, 1998. The new equipment will lower
unit cost on various cut sheet products and provide additional capacity.
8
<PAGE>
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 3,567,460
=========
(b) Reports on Form 8-K
None.
9
<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
_____________________________
John A. Whiteside
Chief Financial Officer
DATE: January 31, 1998
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,662,731
<SECURITIES> 3,702,904
<RECEIVABLES> 5,580,004
<ALLOWANCES> 913,332
<INVENTORY> 3,758,025
<CURRENT-ASSETS> 17,435,000
<PP&E> 14,147,419
<DEPRECIATION> 9,124,155
<TOTAL-ASSETS> 22,853,000
<CURRENT-LIABILITIES> 7,702,000
<BONDS> 0
0
16,851
<COMMON> 0
<OTHER-SE> 14,259,350
<TOTAL-LIABILITY-AND-EQUITY> 22,853,000
<SALES> 9,406,000
<TOTAL-REVENUES> 9,406,000
<CGS> 8,852,000
<TOTAL-COSTS> 9,868,000
<OTHER-EXPENSES> (13,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,000
<INCOME-PRETAX> (462,000)
<INCOME-TAX> (157,000)
<INCOME-CONTINUING> (305,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (305,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
