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, 1999
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.)
122 KISSEL ROAD, BURLINGTON, NEW JERSEY 08016
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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 JUNE 30, 1999
COMMON STOCK 3,937,517
PARIS CORPORATION
CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited): PAGE
Consolidated Balance Sheets - June 30, 1999
and September 30, 1998 (audited).............................................................. 3
Consolidated Statements of Income
Three months ended, June 30, 1999 and 1998
Nine months ended, June 30, 1999 and 1998..................................................... 4
Consolidated Statements of Cash Flows -
Nine months ended, June 30, 1999 and 1998..................................................... 5
Consolidated Statement of Changes in Stockholders' Equity -
September 30, 1998 and June 30, 1999.......................................................... 6
Notes to Consolidated Condensed
Financial Statements.......................................................................... 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 7 - 13
PART II. OTHER INFORMATION (Items 1 through 5 - not applicable)
ITEM 6. Exhibits and Reports on Form 8-K.............................................................. 13
Signatures of Registrant...................................................................... 14
2
PARIS CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
6-30-99 9-30-98
(Unaudited) (Audited)
----------- --------
Current assets:
Cash and cash equivalents $ 2,784 $ 4,073
Restricted cash 0 2,140
Investments:
Marketable securities 2,196 1,467
Other 1,700 2,904
Accounts receivable 4,186 3,664
Inventories 3,229 3,456
Prepaid expenses 248 225
Deferred income taxes 136 136
-------- --------
Total current assets 14,479 18,065
Property and equipment, net 1,967 1,561
Deferred tax asset 786 786
Other assets 175 158
-------- --------
Total Assets $ 17,407 $ 20,570
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable, bank $ 0 $ 2,459
Accounts payable and accrued expenses 1,948 2,302
Accrued payroll and related expenses 515 264
Income taxes payable 101 238
Deferred revenue 357 375
-------- --------
Total current liabilities 2,921 5,638
Deferred revenue, net of current portion 308 576
-------- --------
Total Liabilities 3,229 6,214
-------- --------
Commitments:
Shareholders' equity:
Common stock 16 16
Additional paid in capital 8,588 8,588
Retained earnings 7,655 7,797
Accumulated other comprehensive income (106) (163)
Treasury stock (1,975) (1,882)
-------- --------
Total shareholders' equity 14,178 14,356
-------- --------
Total Liabilities and Shareholders' Equity $ 17,407 $ 20,570
======== ========
See Accompanying Notes
3
PARIS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Unaudited
(in thousands, except per share data)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
6-30-99 6-30-98 6-30-99 6-30-98
---------- ---------- ---------- ----------
Net Sales $ 8,019 $ 9,178 $ 25,821 $ 26,810
Cost of products sold 7,189 8,429 22,725 24,588
---------- ---------- ---------- ----------
Gross profit 830 749 3,096 2,222
---------- ---------- ---------- ----------
Selling expenses 470 378 1,340 1,254
General and administrative expenses 291 488 1,342 1,633
Interest expense 0 72 58 233
Gain on sale of building (89) (49) (268) (49)
Other (income) expense (175) (128) (309) (394)
---------- ---------- ---------- ----------
Income (loss) before taxes 333 (12) 933 (455)
Provision (benefit) for income taxes 127 (4) 367 (155)
---------- ---------- ---------- ----------
Net Income (loss) $ 206 $ (8) $ 566 $ (300)
========== ========== ========== ==========
Weighted average common and 3,526,845 3,553,645 3,526,845 3,553,645
equivalent shares outstanding
Earnings (Loss) per share - basic $ 0.06 $ (0.002) $ 0.16 $ (0.08)
========== ========== ========== ==========
Earnings (Loss) per share - diluted $ 0.06 $ (0.002) $ 0.16 $ (0.08)
========== ========== ========== ==========
See Accompanying Notes
4
PARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
(in thousands) NINE MONTHS NINE MONTHS
ENDED ENDED
6-30-99 6-30-98
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 566 $ (300)
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 399 626
Gain on sale of property and equipment (264) (107)
(Gain) loss on sale of investments 66 (37)
Equity in limited partnership interests (212) (187)
Provision for bad debts 85 90
Deferred income tax benefit 0 (75)
(Increase) decrease in assets:
Accounts receivable (607) 1,143
Inventories 227 1,581
Recoverable income taxes 0 642
Prepaid expenses (23) (19)
Other assets (17) 42
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (637) (1,321)
Accrued payroll and related expenses 251 (56)
Income taxes payable (137) 0
-------- --------
Total adjustments (869) 2,322
-------- --------
Net cash provided by (used in) operating activities (303) 2,022
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 2,140 0
Proceeds from sale of investments 1,838 224
Purchase of investments (1,160) (760)
Purchase of property and equipment (553) (349)
Proceeds from sale of property and equipment 12 4,311
-------- --------
Net cash provided by (used in) investing activities 2,277 3,426
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of treasury stock 23 22
Purchase of treasury stock (116) (166)
Dividend Paid (711) 0
Repayments of note payable, bank (2,459) (2,294)
-------- --------
Net cash provided by (used in) financing activities (3,263) (2,438)
Net decrease in cash and cash equivalents (1,289) 3,010
Cash and cash equivalents, at beginning of period 4,073 2,742
-------- --------
Cash and cash equivalents, at end of period $ 2,784 $ 5,752
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest expense $ 58 $ 233
Cash paid for income taxes $ 506 $ 0
See Accompanying Note
5
PARIS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDRES' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND NINE MONTH ENDED JUNE 30, 1999
Common Stock Additional Retained
Shares Amount Paid in Capital Earnings
------ ------ --------------- --------
Balance at October 1, 1997 3,937,517 $15,751 $8,588,243 $7,812,962
COMPREHENSIVE INCOME:
Net loss (15,781)
Other comprehensive income,
Unrealized loss on securities,
net of reclassification adjustment
of gains included in net income
----------------------------------------------------------------
Comprehensive income
Purchase of 86,786 treasury shares
Sales of 12,000 treasury shares
Balance at September 30, 1998 3,937,517 $15,751 $8,588,243 $7,797,181
--------- ------- ---------- ----------
Net Income 566,357
Other comprehensive income,
Unrealized gain on securities, net of
reclassification adjustment of gains
included in net income
----------------------------------------------------------------
Comprehensive income
Purchase of 51,700 treasury shares
Sale of 11,400 treasury shares
Dividend Paid ( 708,825)
----------------------------------------------------------------
Balance at June 30, 1999 3,937,517 $15,751 $8,588,243 $7,654,713
Accumulated
Other
Comprehensive Treasury Stock
Income Shares Amount Total
------ ------ ------ -----
Balance at October 1, 1997 $ 24,070 (308,086) ($1,739,736) $14,701,290
COMPREHENSIVE INCOME:
Net loss (15,781)
Other comprehensive income,
Unrealized loss on securities,
net of reclassification adjustment
of gains included in net income (187,482) (187,482)
--------------------------------------------------------------
Comprehensive income (203,263)
--------
Purchase of 86,786 treasury shares (86,786) (166,501) (166,501)
Sales of 12,000 treasury shares 12,000 24,000 24,000
Balance at September 30, 1998 ($163,412) (382,872) ($1,882,237) $14,355,526
---------- -------- ----------- -----------
Net Income 566,357
Other comprehensive income,
Unrealized gain on securities, net of
reclassification adjustment of gains
included in net income 56,944 56,944
--------------------------------------------------------------
Comprehensive income 623,301
-----------
Purchase of 51,700 treasury shares (51,700) (116,448) (116,448)
Sale of 11,400 treasury shares 11,400 23,500 23,500
Dividend Paid (708,825)
--------------------------------------------------------------
Balance at June 30, 1999 ($106,468) (423,172) ($1,975,185) $14,177,054
6
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, 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 as of September 30, 1998
related to these agreements and other potential liabilities. During the
nine months ended June 30, 1999, management reduced the liability to
$36,000, 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. The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS no. 130"). SFAS No. 130 established
new standards for reporting and display of comprehensive income and its
components. Comprehensive income consists of net income and unrealized
gains and losses on certain investments in marketable debt and equity
securities and is presented in the statement of changes in stockholders'
equity. The adoption of SFAS No. 130 had no effect on the Company's net
income or equity.
5. Inventories consist of the following at June 30, 1999 and September 30,
1998:
6/30/99 9/30/98
------- -------
Raw Materials $ 979,680 $ 819,331
Work in Progress 54,549 47,594
Finished Goods 2,194,888 2,588,874
---------- ----------
$3,229,117 $3,455,799
========== ==========
7
PARIS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
JUNE 30, 1999
-------------
- ---------------------------------------------------------------------------------------------------------------
Three Months Nine Months
- ---------------------------------------------------------------------------------------------------------------
$ % $ %
1999 1998 Change Change 1999 1998 Change Change
- ---------------------------------------------------------------------------------------------------------------
Net Sales $8,019 $9,178 ($1,159) -13% $25,821 $26,810 ($989) -4%
- ---------------------------------------------------------------------------------------------------------------
Cost of sales 7,189 8,429 (1,240) -15% 22,725 24,588 (1,863) -8%
- ---------------------------------------------------------------------------------------------------------------
Gross profit 830 749 81 11% 3,096 2,222 874 39%
- ---------------------------------------------------------------------------------------------------------------
Selling 470 378 92 24% 1,340 1,254 86 7%
- ---------------------------------------------------------------------------------------------------------------
General and administrative 291 488 (197) -40% 1,342 1,633 (291) -18%
expenses
- ---------------------------------------------------------------------------------------------------------------
Interest expense 0 72 (72) -100% 58 233 (175) -75%
- ---------------------------------------------------------------------------------------------------------------
Other (income) expense (264) (177) (87) 49% (577) (443) (134) 30%
- ---------------------------------------------------------------------------------------------------------------
Pretax income (loss) 333 (12) 345 2875% 933 (455) 1,388 305%
- ---------------------------------------------------------------------------------------------------------------
Income taxes 127 (4) 131 3275% 367 (155) 522 337%
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $ 206 ($8) $ 214 2675% $ 566 ($300) $ 866 289%
- ---------------------------------------------------------------------------------------------------------------
Gross Profit
- ------------
Three Months Comparison
Gross profit for the three months ended June 30, 1999 of $830M increased $81 or
11% as compared to the same quarter in the prior year. Net sales of $8019
decreased $1159 or 13% and cost of sales of $7189 decreased $1240M or 15%.
Sales factors
- -------------
Sales of stock continuous forms of $2926M decreased $1340M or 31%. The decline
is consistent with the year to date trend and is indicative of the declining
market of this product line.
The retail product line, consisting of value added paper, continues to gain
strength. Sales increased $211M or 13% from the comparable quarter last year,
increasing from $1600M to $1811M.
The sales of mill dropped commodity cut sheets declined $185M or 16% from $1166M
to $978M. The revenue decline is a result of a 33% unit decline offset by an
increase in the average sell price. The sharp decline in revenue during the
quarter is not expected to be a trend. The trend in revenue for this product
line is anticipated to be flat to moderate growth.
Sales of the Company's Laser3, DocuGard and HCFA product lines continue to grow.
Revenue of $776 increased $239 or 44%. The increase is indicative of the
Company's focus on these product lines, including sales and marketing
promotions.
8
The sale of custom products decreased $62M or 3% from the same quarter last
year. Revenue from custom cutsheets increased $45M while custom forms declined
$107, consistent with the market trend.
Cost factors
- ------------
The cost of stock continuous form sales of $2515M decreased $1193M or 32%
consistent with the sales decline and the unit decline of 30%.
The cost of the value-added retail products decreased $23M despite the increased
sales volume of $211M representing a change in the product mix of higher margin
products.
The cost of sales for the mill dropped commodity cutsheets decreased $230K or
21%. The decline in cost is primarily a result of the sales decline of 16%.
The cost of sales for the Company's Laser3, DocuGard and HCFA product lines have
increased $136M or 35% slightly behind the sales volume increased of 44%.
The cost of custom forms declined $42M or 3% consistent with the decline in
revenue.
Freight and distribution costs increased $69M or 17% in the third quarter
compared to last year. The increase is due to the increased warehousing and
freight costs associated with the mill cut sheet product line.
Unfavorable labor and manufacturing variances increased the manufacturing costs
for the current period.
Nine Months Comparison
Gross profit for the nine months ended June 30, 1999 of $3096M represented an
increase of $874M or 39% as compared to the same period in the prior year.
Sales of $25821M decreased $989M or 4% and cost of sales of $22725M decreased
$1863M or 8%.
Sales factors
- -------------
Although sales decreased for the nine-month period, sales of higher margin
products increased 45% over the similar period of the prior year. These results
reflect the successful implementation of our strategy of selling higher margin
and higher growth cut sheet paper for non impact laser and ink jet printers,
such as Burlington retail ink jet papers, Laser3, DocuGard business papers and
custom cut sheet forms as opposed to low margin and negative growth continuous
form products such as stock computer paper and custom continuous forms. These
results are reflected below:
9
- -------------------------------------------------------------------------------------------------------------------
SALES OVERVIEW
Nine Months Ended
6/30/99
- -------------------------------------------------------------------------------------------------------------------
Sales YTD Sales YTD 99 vs 98 99 vs 98
- -------------------------------------------------------------------------------------------------------------------
FY99 FY99 YTD YTD
Change Change
- -------------------------------------------------------------------------------------------------------------------
Stock Computer Paper $ 9,700 $13,590 ($3,890) -29%
- -------------------------------------------------------------------------------------------------------------------
Custom Forms 2,128 2,476 (348) -14%
- -------------------------------------------------------------------------------------------------------------------
Custom Cut Sheets 2,561 2,186 375 17%
- -------------------------------------------------------------------------------------------------------------------
Laser3 1,523 985 538 55%
- -------------------------------------------------------------------------------------------------------------------
DocuGard 283 193 90 47%
- -------------------------------------------------------------------------------------------------------------------
Retail 5,726 3,630 2,096 58%
- -------------------------------------------------------------------------------------------------------------------
Mill Cut Sheets 3,400 3,523 (123) -3%
- -------------------------------------------------------------------------------------------------------------------
HCFA 387 222 165 74%
- -------------------------------------------------------------------------------------------------------------------
Other (including returns & allowances) 113 5 108 1783%
- -------------------------------------------------------------------------------------------------------------------
$25,821 $26,810 ($989) -4%
- -------------------------------------------------------------------------------------------------------------------
The change in the other category is a result of lower product returns during
fiscal 1999 due to the decision to exit the hardware business.
Cost Factors
- ------------
The cost of stock continuous forms sales decreased $6256M or 43%. The decline in
cost is a result of the sales decline of 29% in addition to lower paper costs
during the first half of the year.
The cost of the value-added retail products increased $1276M or 45%. The
increase in sales volume is at an accelerated pace in comparison to the cost due
to product mix as stated in the three-month comparison.
The cost of sales for Laser3, DocuGard and the HCFA product lines have increased
$401M or 37% as a result of the sales growth.
As stated in the three-month comparison, freight and distribution costs are
trending upward. The increase for the nine months ended June 30, 1999 was $141M
or 10%.
Poor efficiencies and reduced production have resulted in unfavorable labor and
manufacturing variances increasing production costs for the period.
Operating Expenses
- ------------------
Three Months Comparison
Operating expenses were reduced $105M or 12% on a quarter to quarter basis.
Sales and marketing expenses increased $92M. Salaries and benefits increased
$60M as the Company increased their manpower to meet the growth of the retail
market. In addition, marketing expenses increased $32M attributable directly to
the retail market.
10
General and Administrative expenses were reduced $197M or 40%. The Company
recognized $200M of income due to the reversal of an accrual related to a state
sales & use tax audit. The cancellation of the Notice of Determination was
received during the current quarter by the taxing authority.
Nine Months Comparison
Operating expenses were reduced $205M or 7% for the nine-month period. Sales
and Marketing expenses increased $86M for the reasons stated in the three-month
comparison.
General and Administrative expenses decreased $291M or 17%. In addition to the
income from the reversal of the sales tax accrual, salaries and benefits
decreased $107M, depreciation decreased $90M, offset by additional costs of $95M
related to the Y2K solution and other sundry expenses of $11M.
OTHER INCOME AND EXPENSES
-------------------------
Other income, net increased $158M for the three months ended June 30, 1999 and
$310M for the nine month period. The components consisted of the following.
----------------------------------------------------------------------------------------------------------
Three Months Nine Months
----------------------------------------------------------------------------------------------------------
Ended Ended Ended Ended
6/30/99 6/30/98 6/30/99 6/30/99
----------------------------------------------------------------------------------------------------------
Equity in limited partnership interests $158 $ 63 $212 $ 187
----------------------------------------------------------------------------------------------------------
Gain on sale property and equipment 85 49 264 107
----------------------------------------------------------------------------------------------------------
Working Capital Loan interest fees 0 (85) (65) (260)
----------------------------------------------------------------------------------------------------------
Other 21 79 108 175
----------------------------------------------------------------------------------------------------------
$264 $106 $519 $ 209
----------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES:
--------------------------------
Working capital decreased $869M from $12427M to $11558M and cash and cash
equivalents decreased $3429M during the nine months ended June 30, 1999.
Net cash used in operating activities was $303M. Accounts receivable increased
$607M due in part to special promotional terms extended to some retail
customers. Inventories decreased $227M comprised of a decrease in finished goods
of $394M offset by an increase in raw materials and work in progress of $167M.
Accounts payable and accrued expenses decreased $637M due in part to timing
differences.
Net cash provided by investing activities was $2277M due principally to the
decrease in restricted cash of $2140M. The cash is no longer restricted due to
the fact the Company paid down the bank loan relieving the bank of their
security interest. The Company had proceeds from the sale of investments of
$1838 due primarily to the liquidation of a Limited Partnership interest in the
amount of $1415M. The Company expended $553M for equipment related to the
purchase of a new sheeter press. The press will support the expansion of our
Custom
11
cut sheets and value-added retail papers. The press was delivered in late June
with installation and production starting in early July. The total machine and
installation cost will be approximately $700M.
Net cash used in financing activities was $3263M. The bank line of credit
expired on January 31, 1999 and the balance of $2459M was paid off. The Company
will meet future liquidity needs through operation and investing activities
while more cost efficient methods of financing are reviewed.
In January 1999, the Company paid a special dividend. The special dividend
resulted in a reduction of stockholders equity of $709M during the period.
In September 1998, the Company began a buy-back program of up to 100,00 shares
of its common stock at prevailing market prices. During the nine months ended
June 30, 1999, the Company purchased approximately 52,000 shares at $116M,
offset by the distribution of approximately 11,000 shares at $24M.
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 retooling.
2) Replacement of our Electronic Data Interchange application with "Year
20000" 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.
The Company has modified their current software application to be "Year 2000"
compliant. The cost for the modification was $40M. The software is in the
testing stage for compliance and will be completed during FY99.
The Company expects the conversion of the Electronic Data Interchange
application and the automated call processing/voice mail software will be
completed during FY99. The approximate cost will be $60M.
The Company has completed a "Year 2000" compliance survey of all vendors and
currently has yet to identify any exposure due to non "Year 2000" compliance.
12
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 3,526,845
=========
(b) Reports on Form 8-K None.
13
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.
Chairman of
the Board of Directors
/s/ William L. Lomanno
____________________________
William L. Lomanno
Chief Financial Officer
DATE: August 12, 1999
14