<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, 1998
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, 1998
COMMON STOCK 3,937,517
<PAGE>
PARIS CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited): PAGE
Consolidated Balance Sheets - December 31, 1998
and September 30, 1998 (audited) 3
Consolidated Statements of Income
Three months ended December 31, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Three months ended December 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 7-9
PART II. OTHER INFORMATION (Items 1 through 5 - not applicable)
ITEM 6. Exhibits and Reports on Form 8-K 9
Signatures of Registrant 10
2
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PARIS CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(IN THOUSANDS)
ASSETS
12-31-98 9-30-98
(Unaudited) (AUDITED)
---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,553 $ 4,073
Restricted cash 2,168 2,140
Investments:
Marketable securities 1,526 1,467
Other 2,937 2,904
Accounts receivable 5,182 3,664
Inventories 3,611 3,456
Prepaid expenses 256 225
Deferred tax asset 136 136
--------- --------
Total current assets 19,369 18,065
Property and equipment, net 1,546 1,561
Deferred tax asset 786 786
Other assets 180 158
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Total Assets $ 21,881 $ 20,570
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, bank 3,665 2,459
Accounts payable and accrued expenses 3,361 2,302
Accrued payroll and related expenses 186 264
Income taxes payable 51 238
Deferred revenue 364 375
--------- --------
Total current liabilities 7,627 5,638
Deferred revenue, net of current portion 487 576
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Total Liabilities 8,114 6,214
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Commitments:
Shareholders' equity:
Common stock 16 16
Additional paid in capital 8,588 8,588
Retained earnings 7,187 7,797
Unrealized loss on marketable securities (106) (163)
Treasury stock (1,918) (1,882)
--------- --------
Total Shareholders' Equity 13,767 14,356
--------- --------
Total Liabilities and Shareholders' Equity $ 21,881 $ 20,570
========= ========
</TABLE>
See accompanying notes.
3
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PARIS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
12-31-98 12-31-97
------------ ------------
<S> <C> <C>
Net sales $ 7,987 $ 9,406
Cost of products sold 7,029 8,852
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Gross profit 958 554
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Selling expenses 440 446
General and administrative expenses 496 583
Interest expense 43 84
Gain on Sale of Building (89) 0
Other (income) expense (86) (97)
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Income (loss) before taxes 154 (462)
Provision (benefit) for income taxes 52 (157)
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Net Income (loss) $ 102 $ (305)
========== ==========
Weighted average common and
equivalent shares outstanding 3,538,645 3,567,460
Earnings (loss) per share - basic $0.03 $(0.09)
========== ==========
Earnings (loss) per share - diluted $0.03 $(0.09)
========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
(in thousands) THREE MONTHS THREE MONTHS
ENDED ENDED
12-31-98 12-31-97
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 102 $ (305)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 141 244
Gain on sale of property and equipment (89) 0
(Gain) loss on sale of investments 27 (13)
Equity in limited partnership interests (34) (49)
Provision for bad debts 30 30
Deferred income tax (benefit) expense 0 (157)
(Increase) decrease in assets:
Accounts receivable (1,548) 77
Inventories (155) 834
Prepaid expenses (31) (78)
Other assets (22) 24
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 958 (680)
Accrued payroll and related expenses (78) (72)
Income taxes payable (187) 0
--------- ---------
Total adjustments (988) 160
--------- ---------
Net cash provided by (used in) operating activities (886) (145)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (28) 0
Proceeds from sale of investments 313 66
Purchase of investments (341) (231)
Purchase of property and equipment (37) (169)
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Net cash provided by (used in) investing activities (93) (334)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of treasury stock 1 0
Purchase of treasury stock (37) (120)
Dividend Payable (711) 0
Proceeds of note payable, bank 1,206 520
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Net cash provided by (used in) financing activities 459 400
Net decrease in cash and cash equivalents (520) (79)
Cash and cash equivalents, at beginning of period 4,073 2,742
--------- ---------
Cash and cash equivalents, at end of period $ 3,553 $ 2,663
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest expense $ 43 $ 84
Cash paid for income taxes $ 241 $ 0
</TABLE>
See accompanying notes.
5
<PAGE>
PARIS CORPORATION
NOTES TO CONSOLIDATED 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, 1998 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 $54,000 at September 30, 1998 related to these
agreements and other potential liabilities. During the three months ended
December 31, 1998 management reduced the liability to $35,000, 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 December 31, 1998 and
September 30, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
12/31/98 9/30/98
---------- ----------
Raw materials $1,134,417 $ 819,331
Work in progress 43,361 47,594
Finished goods 2,433,380 2,588,874
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$3,611,158 $3,455,799
========== ==========
</TABLE>
6
<PAGE>
PARIS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
DECEMBER 31, 1998
-----------------
<TABLE>
<CAPTION>
THREE MONTHS
- - --------------------------------------------------------------------------------------------------------------------------
$ %
1998 1997 CHANGE CHANGE
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $7,987 $9,406 $(1,419) -15%
- - --------------------------------------------------------------------------------------------------------------------------
Cost of sales 7,029 8,852 (1,823) -21%
- - --------------------------------------------------------------------------------------------------------------------------
Gross profit 958 554 404 73%
- - --------------------------------------------------------------------------------------------------------------------------
Selling 440 446 (6) -1%
- - --------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 496 583 (87) -15%
- - --------------------------------------------------------------------------------------------------------------------------
Interest expense 43 84 (41) -49%
- - --------------------------------------------------------------------------------------------------------------------------
Other (income) expense (175) (97) (78) 80%
- - --------------------------------------------------------------------------------------------------------------------------
Pretax income (loss) 154 (462) 616 -133%
- - --------------------------------------------------------------------------------------------------------------------------
Income taxes 52 (157) 209 -133%
- - --------------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ 102 $ (305) $ 407 -133%
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
GROSS PROFIT
- - ------------
Gross Profit for the three months ended December 31, 1998 of $958M increased
$404M or 73% as compared to the same quarter in the prior year. Sales of $7987M
decreased $1419M or 15% and cost of sales of $7029M decreased $1823M or 21%.
Sales Factors
- - -------------
Sales of stock continuous forms of $3424M decreased $1639M or 32%, consistent
with the decline in unit volume. During the three months ended December 31,
1997, the Company was winding down shipments to the Company's two largest stock
forms customers. The loss of these two customers resulted in the unit volume
decline.
Value-added cut sheet products distributed through the retail channel continued
to gain strength with a 31% increase in sales dollars for comparable quarters.
Sales increased from $1048M to $1373M, and increase of $325M. The increase can
be attributed to higher unit volumes in addition to higher average sell prices
due to product mix.
Sales of the Company's Laser3, DocuGard and HCFA product lines have increased
$229M or 53%. This higher sales volume can be attributed to the Company's
increased focus on these product lines.
The sales of Custom products declined $29M or 1% from the same quarter last
year. Custom forms declined $194M but was offset by an increase in Custom cut
sheets of $165M.
The sales of commodity cut sheets declined $174M or 15%, from $1181M to $1007M.
Sales of miscellaneous products declined $186M or 76%, from $243M to $57M. The
decline can be attributed to the exit from the hardware business and strategy to
focus on other product lines such as Laser3, DocuGard and HCFA.
Sales rebates, discounts and allowances of $122M decreased $68M, or 35%.
7
<PAGE>
Cost factors
- - ------------
The cost of stock continuous form sales of $2987M decreased $1499M or 33%
compared to the same period last year, proportionate to the sales decline.
Value-added cut sheet costs increased $187M or 24%. The difference between the
sales increase of 31% versus the cost increase of 24% can be attributed to the
sale of higher margin products.
The cost of sales for the Company's Laser3, DocuGard and HCFA product lines of
$442M increased $101M or 29%, disproportionate with the sales dollar increase of
53%. The variance represents a reduction of material costs at a greater rate
than the reduction of sales price.
The cost of custom products of $1194M decreased $73M or 5%. The cost of sales
decrease at a percentage higher than the decline in sales can be attributed to
lower material costs.
Manufacturing and overhead variances increased costs $137M on a quarter-to-
quarter basis. The primary factors were the rent expense for the New Jersey
facility and labor inefficiencies.
Freight and distribution costs declined $112M or 19% in the first quarter
compared to last year due to the decreased sales volume.
OPERATING EXPENSES
- - ------------------
Operating expenses were reduced $93M or 9% on a quarter-to-quarter basis.
Selling and marketing expenses remained relatively flat, decreasing $6M from
$446M to $440M.
General Administrative expenses were reduced $87M, or 15%. The decrease results
primarily from a reduction in salary and benefits of $67M and other
miscellaneous expenses aggregating $20M.
OTHER INCOME AND EXPENSES
- - -------------------------
Other income, net, increased $78M due to the amortization of the gain on the
sale of the New Jersey facility of $89M, offset by a decrease in investment
related income of $11M.
Interest expense decreased $41M for the three months ended December 31, 1998 as
compared to the same quarter in the prior year, as a result of lower borrowings
against the working capital line of credit.
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
Working capital decreased $685M from $12427M to $11742M and cash/cash
equivalents decreased $520M during the three months ended December 31, 1998.
Accounts receivable increased $1518M, or 41% due to special promotional terms
with the Company's largest customer and the addition of a large retail account.
Inventories were increased by $155M, or 4%. Accounts payable and accrued
expenses were also increased in the amount of $1059M.
The bank line of credit balance of $3665M at December 31, 1998 was not
representative of the average balance for the quarter of approximately $2500M
due to timing. The line of credit expired on December 31, 1998 and the Company
extended the agreement until January 31, 1999. The Company plans to pay off the
loan balance and seek more cost efficient methods of financing during fiscal
year 1999.
8
<PAGE>
During the three months ended December 31, 1998, the Company declared a special
dividend to be payable in January of 1999. The special dividend resulted in a
reduction of stockholders' equity in the amount of $711M during the quarter
ended December 31, 1998.
The Company has conducted a comprehensive review of their computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed an implementation plan to resolve the issues. Items that are being
addressed under the Company's "Year 2000" compliance program are as follows:
1) Replacement of the main business application software and hardware with "Year
2000" compliant hardware and software.
2) Replacement of our Electronic Data Interchange application with "Year 2000"
compliant software.
3) The upgrade of our automated call-processing and voice-mail software to a
"Year 2000" compliant release.
We believe all other manufacturing, computer systems and communications
equipment are "Year 2000" compliant.
In October of 1998, the Company reached an agreement with a software vendor for
the purchase of the replacement of the main business application software. The
Company had the software installed and on site during January 1999 for the
commencement of the employee training program. The estimated cost of the
conversion project is $250M. Included in this estimate is $60M in training and
travel expenses, which will be charged against income in FY99. In addition to
the conversion expense for the business software, the Company will expend an
estimated $45M for the upgrade of our automated call-processing and voice-mail
software. The Company expects that the conversion of all non-compliant systems
will be completed during FY99.
The company will complete a "Year 2000" compliance survey of all vendors by June
30, 1999, at which time alternative vendors will be identified if there is
exposure due to non "Year 2000" compliance. The Company is in the process of
assessing their risk and developing a contingency plan if they do not achieve
"Year 2000" compliance before the new millennium.
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 3,538,645
=========
(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
____________________________
William L. Lomanno
Chief Financial Officer
DATE: February 10, 1999
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,553,746
<SECURITIES> 4,463,348
<RECEIVABLES> 5,559,636
<ALLOWANCES> 377,253
<INVENTORY> 3,611,158
<CURRENT-ASSETS> 19,369,000
<PP&E> 8,829,459
<DEPRECIATION> 7,283,555
<TOTAL-ASSETS> 21,881,000
<CURRENT-LIABILITIES> 7,627,000
<BONDS> 0
0
0
<COMMON> 16,000
<OTHER-SE> 13,751,000
<TOTAL-LIABILITY-AND-EQUITY> 21,881,000
<SALES> 7,987,000
<TOTAL-REVENUES> 7,987,000
<CGS> 7,029,000
<TOTAL-COSTS> 7,965,000
<OTHER-EXPENSES> (132,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,000
<INCOME-PRETAX> 154,000
<INCOME-TAX> 52,000
<INCOME-CONTINUING> 154,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,000
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
