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
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FOR QUARTER ENDED, MARCH 31, 1997
COMMISSION FILE NUMBER 0-14358
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PARIS CORPORATION
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(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.)
5 RADNOR CORPORATE CENTER, 100 MATSONFORD ROAD, SUITE 105, RADNOR, PA 19087
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 609-387-7300
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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 MARCH 31, 1997
COMMON STOCK 3,937,517
PARIS CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited): PAGE
Consolidated Balance Sheets - March 31, 1997
and September 30, 1996 (audited)..............................3
Consolidated Statements of Income
Three months ended, March 31, 1997 and 1996
Six months ended, March 31, 1997 and 1996.....................4
Consolidated Statements of Cash Flows -
Six months ended, March 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 - 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
PARIS CORPORATION
CONSOLIDATED BALANCE SHEET
Unaudited
(in thousands)
ASSETS
3-31-97 9-30-96
(Audited)
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Current assets:
Cash and cash equivalents $ 2,358 $ 650
Marketable securities 3,598 5,036
Accounts receivable 6,277 6,696
Inventories 5,399 6,686
Recoverable income taxes 820 1,871
Prepaid expenses 356 314
Deferred income taxes 1,233 1,223
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Total current assets 20,031 22,476
Property, plant and equipment, net 5,621 6,107
Other assets 174 154
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Total Assets $ 25,826 $ 28,737
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, bank $ 3,927 $ 3,927
Accounts payable and accrued expenses 4,311 6,200
Accrued payroll and related expenses 303 309
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Total current liabilities 8,541 10,436
Deferred income taxes 1,125 1,125
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Total liabilities 9,666 11,561
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Commitments:
Shareholders' equity:
Common stock 16 16
Additional paid in capital 8,588 8,588
Retained earnings 9,287 10,282
Unrealized gain on marketable securities 24 16
Treasury stock (1,755) (1,726)
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Total shareholders' equity 16,160 17,176
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Total Liabilities and Shareholders' Equity $ 25,826 $ 28,737
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3
PARIS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(in thousands, except per share data)
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
3-31-97 3-31-96 3-31-97 3-31-96
--------- --------- --------- ---------
Net Sales $12,796 $13,500 $27,723 $30,103
Cost of products sold 12,437 13,634 26,338 29,401
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Gross profit 359 (134) 1,385 702
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Selling expenses 522 885 1,202 1,504
General and administrative expenses 788 953 1,672 1,613
Interest expense 79 94 160 234
Other (income) expense (133) 43 (141) (153)
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Loss before taxes (897) (2,109) (1,508) (2,496)
Income tax benefit (305) (717) (513) (849)
--------- --------- --------- ---------
Net Loss $ (592) $ (1,392) $ (995) $ (1,647)
========= ========= ========= =========
Weighted average common and 3,650,500 3,787,237 3,650,500 3,787,237
equivalent shares outstanding
Loss per share $ (0.16) $ (0.37) $ (0.27) $ (0.43)
========= ========= ========= =========
4
PARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(in thousands) SIX MONTHS SIX MONTHS
ENDED ENDED
3-31-97 3-31-96
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (996) $ (1,647)
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Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 560 553
(Gain) loss on sale of property, plant and equipment (45) (10)
(Gain) loss on sale of marketable securities (164) (199)
Decrease (increase) in deferred income taxes 0 382
Provision for losses on accounts receivable 120 (80)
Provision for equity in loss on investment in joint venture 0 195
Provision for inventory devaluation 0 1,000
(Increase) decrease in:
Accounts receivable 299 293
Inventories 1,287 7,441
Recoverable income taxes 1,139 (2,342)
Prepaid expenses (42) (73)
Other assets 24 (75)
Increase (decrease) in:
Accounts payable and accrued expenses (2,019) (5,021)
Accrued payroll and related expenses (6) (279)
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Total adjustments 1,153 1,125
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Net cash provided by (used in) operating activities 157 138
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture 0 (390)
Proceeds from sale of marketable securities 1,876 521
Purchase of marketable securities (266) (1,442)
Purchase of equipment (74) (208)
Proceeds from sale of equipment 45 0
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Net cash provided by (used in) investing activities 1,581 (1,519)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt 0 (1,650)
Issuance of treasury stock (30) 67
Repayments of working capital line of credit 0 (1,800)
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Net cash provided by (used in) financing activities (30) (3,383)
Net increase (decrease) in cash and cash equivalents 1,708 (4,764)
Cash and cash equivalents at beginning of period 650 5,227
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Cash and cash equivalents at end of period $ 2,358 $ 463
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest expense 160 234
Cash paid for income taxes $ 0 $ 1,086
5
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, 1996 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. Net loss for the six months ended March 31, 1996, previously reported at
($987M), is restated to a net loss of ($1647M) and loss per share was
restated from ($0.26) to ($0.43) due to a correction of an error in the
first quarter of fiscal year 1996.
3. 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 $690,000 as of September 30, 1996
related to these agreements and other potential liabilities. During the six
months ended March 31, 1997, management reduced the liability to $174,000,
reflecting lower obligations.
4. As of March 25, 1997, the Company established a new $7,500,000 revolving
credit facility with a new bank in order to refinance the previous line of
credit balance in the amount of $3,927,000 and to provide additional
working capital. The borrowing base under the new credit facility is
limited to 80% of eligible trade receivables and 40% of eligible
inventories. Borrowings on inventory are capped at $1,500,000. All trade
receivables, inventories and equipment are collateral on the note. Maturity
is December 31, 1998. Interest rate is 1/2% over prime on receivables
borrowings, and 1% over prime on inventory borrowings. As of March 31,
1997, the loan balance with the new bank was $3,927,000; availability on
the new credit facility was approximately $5,000,000.
5. In February, 1997, the FASB issued Statement No. 128, "Earnings per Share",
which requires the presentation of basic and fully diluted earnings per
share. The Company will adopt Statement No. 128 in the fourth quarter of
fiscal 1997 and, based on current circumstances, does not believe the
effect of the adoption will require the presentation of fully diluted
earnings per share due to the anti-dilutive effect.
6
PARIS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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MARCH 31, 1997
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- -------------------------------------------------------------------------------------------------------------------------
Three Months Six Months
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$ % $ %
1997 1996 Change Change 1997 1996 Change Change
- -------------------------------------------------------------------------------------------------------------------------
Net Sales $12,796 $13,500 ($704) -5% $27,723 $30,103 ($2,380) -8%
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Cost of sales 12,437 13,634 (1,197) -9% 26,338 29,401 (3,063) -10%
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Gross profit 359 (134) 493 -368% 1,385 702 683 97%
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Selling 522 885 (363) -41% 1,202 1,504 (302) -20%
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General and administrative expenses 788 953 (165) -17% 1,672 1,613 59 4%
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Interest expense 79 94 (15) -16% 160 234 (74) -32%
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Other (income) expense (133) 43 (176) -409% (141) (153) 12 -8%
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Pretax loss (897) (2,109) 1,212 -57% (1,508) (2,496) 988 -----
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Income taxes (305) (717) 412 -57% (513) (849) 336 -----
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Net loss ($ 592) ($1,392) $800 -57% ($ 995) ($1,647) $652 -----
- -------------------------------------------------------------------------------------------------------------------------
Gross Profit
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Three Months Comparison
Gross profit for the three months ended March 31, 1997 of $359M increased $493M
as compared to the same quarter in the prior year. Sales of $12796M decreased
$704M or 5% and cost of sales of $12437M decreased $1197M or 9%.
Sales factors
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Sales of stock continuous forms of $8892M decreased $433M or 5% due to a 22%
decline in average selling prices partially offset by unit volume improvement
of 21%.
Commodity cut sheet sales of $1224M decreased $442M or 27% due to
non-competitive pricing arrangements with the company's paper mill suppliers.
New product offerings resulted in sales of $1961M representing an increase of
$588M or 43%, particularly in the scanner product line.
Custom forms sales of $1529M decreased $416M or 27% due to the weakness in paper
prices.
Cost factors
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The cost of stock continuous forms sales of $7698M decreased $886M or 10%
compared to the same period last year, disproportionate to the sales decline of
5%. Excess inventory levels of raw paper at the end of the first quarter last
year immediately preceding a significant drop in pricing in the second quarter
last year resulted in smaller margins as the high priced inventories were sold
at falling selling prices. Unit costs in the current quarter were favorably
impacted by plant efficiencies and cost reduction efforts.
7
The cost of sales of commodity cut sheets, custom forms, and new product
offerings of $3691M were $311M lower, proportionate to the decrease in
product sales.
Six Months Comparison
Gross profit for the six months ended March 31, 1997 of $1385M represented a
decline of $317M or 19% as compared to the same period in the prior year. Sales
of $27723M decreased $2380M or 8% and cost of sales of $26338M decreased $2063M
or 7%.
Sales factors
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Sales of stock continuous forms of $18240M decreased $3357M or 16% despite an
increase in unit volume of 13% due to lower average selling prices of 26%. Paper
prices remained depressed industry-wide due to flat demand, high inventories and
over capacity.
Commodity cut sheet sales of $2262M decreased $925M or 29% and custom forms
sales decreased $631M or 16% due to lower pricing levels.
New product sales, especially scanner products, of $5320M were $3046M higher
than the previous year.
Sales returns, rebates and allowances were $509M higher than last year due to
the higher concentration of sales in the retail channel.
Cost factors
- ------------
The cost of stock continuous forms sales of $15679M decreased $4057M or 21%
disproportionate to the sales decline of 16% due to the same factors noted above
for the second quarter.
The cost of sales of commodity cut sheets, custom forms, and new product
offerings as a group of $9000M were $1148M higher, proportionate to the increase
in product sales.
Greater labor efficiencies and capacity utilization yielded a $500M decrease in
manufacturing variances to standard.
Freight and distribution costs were $346M higher than the same period last year
principally due to the increased sales volume in the retail channel.
Operating Expenses
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Three Months Comparison
Sales and marketing expenses decreased $363M or 42% due to the decision to
significantly reduce the costs associated with new product development and
sales. Personnel reductions, curtailment of catalog insertion fees, and cutbacks
in show expenses, direct mail, and advertising accounted for the savings in
sales and marketing.
General and administrative expenses decreased by $165M or 17% principally due to
personnel reductions and an accrual last year of $75M for a federal tax audit.
Six Months Comparison
Sales and marketing expenses declined $302M or 20% for the six month period for
the same reasons stated in the three month comparison.
General and administrative expenses increased $59M or 4% due to higher bad
debt reserves provided due to the higher proportion of receivables in the
retail channel.
8
LIQUIDITY AND CAPITAL RESOURCES:
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Working capital decreased $550M from $12.04 million to $11.49 million and cash
and cash equivalents increased $1.71 million during the six months ended March
31, 1997. Inventories were lowered $1.29 million from $6.7 million to $5.4
million during the six months ended March 31, 1997. Trade payables were reduced
$1.89 million from $6.2 million to $4.3 million. Trade receivables decreased
slightly from $6.6 million to $6.3 million for the six month period.
The Company has a new $7.5 million line of credit, based on trade receivables
and inventory, available through a commercial bank at prime plus one-half
percent effective April 1997 (Prime 8 1/2%). The current loan balance is
approximately $4 million with additional availability of approximately
$1 million.
INVESTMENTS
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In October 1995 the Company invested an additional $390,000 in Signature
Corporation, a joint venture corporation that markets office products through
the supermarket and drugstore retail chains. The Company's original investment
of $333,334 for 33% of the common stock of the joint venture in December, 1992
has been written off completely by the recognition of the Company's equity in
the operating losses of Signature of $129,334 and $204,000 in fiscal 1995 and
1994, respectively. With the additional capital investment, the Company has
increased its ownership to 44% of the common stock of Signature. During the six
months ended March 31, 1996, the Company wrote off $195,000 of the $390,000
investment due to the continuing operating losses of the joint venture. Due to
profitable operations of Signature during the six months ended March 31, 1997,
there has been no additional writedown of the investment.
PARIS CORPORATION
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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Effective January 1996, by stockholder approval at the Annual Meeting,
the Company changed its name from Paris Business Forms, Inc. to Paris
Corporation. The name change reflects the Company's commitment to
diversifying from its core business of stock and custom business forms
to new channels with a broader base of products including computer
products, office products, software and value added cut sheet paper
products.
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 3,650,000
=========
(b) Reports on Form 8-K
None.
9
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.
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Dominic P. Toscani, Sr.
President and Chairman of
the Board of Directors
/s/ John A. Whiteside
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John A. Whiteside
Chief Financial Officer
DATE: May 9, 1997
10