10-Q 1 d10q.txt FORM 10-Q FOR PARIS CORPORATION 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, 2001 COMMISSION FILE NUMBER 0-14358 ------- 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, 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, 2001 COMMON STOCK 3,270,535 1 PARIS CORPORATION CONTENTS

PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited): PAGE Consolidated Balance Sheets - ~~June~~December 3031, 2001 and September 30, ~~2000~~2001 (audited)..................................................................... 3 Consolidated Statements of Income Three months ended, ~~June~~December 3031, 2001 and 2000 ~~Nine months ended, June 30, 2001 and 2000~~...................................................................... 4 Consolidated Statements of Cash Flows - ~~Nine~~Three months ended, ~~June~~December 3031, 2001 and 2000...................................................................... 5 Consolidated Statement of Changes in Stockholders' Equity - September 30, 2001, 2000 and ~~June~~Three 30Months Ended December 31, 2001 ...............................~~.......~~ 6 Notes to Consolidated Condensed Financial Statements...............................~~.......................~~ 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 8 - 109 PART II. OTHER INFORMATION (Items 1 through 5 - not applicable) ITEM 6. Exhibits and Reports on Form 8-K................................................... 1110 Signatures of Registrant........................................................... 1211

2 PARIS CORPORATION CONSOLIDATED BALANCE SHEET

(in thousands) ASSETS 612-3031-01 9-30-0001 (Unaudited) (Audited) ----------- --------- Current assets: Cash and cash equivalents $ 410,~~475~~035 $ 28,~~828~~011 Investments: Marketable ~~securities~~Securities 41,~~062~~602 32,~~937~~032 ~~Other 561 611~~ Accounts receivable 56,~~401~~520 5,~~422~~710 Inventories 3,~~842~~456 3,~~862~~635 Prepaid expenses ~~245~~64 ~~321~~40 Deferred income taxes ~~164~~437 ~~164~~437 --------- -------- Total current assets 1822,~~750~~114 1719,~~145~~865 Property and equipment, net 1,~~598~~675 1,~~590~~665 Deferred tax asset ~~129~~401 ~~129~~401 Other assets ~~444~~230 ~~414~~311 --------- -------- Total Assets $ 2024,~~921~~420 $ 1922,~~278~~242 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Working Capital $ 12,~~139~~364 $ 01,705 ~~Note~~Current ~~payable~~Maturities 0of 9obligations under capital leases 216 216 Accounts payable and accrued expenses 34,~~564~~253 42,~~148~~750 Accrued payroll and related expenses ~~289~~238 ~~297~~335 Income taxes payable ~~359~~26 95235 Deferred tax liability 7256 7256 ~~Deferred revenue 0 219~~ --------- -------- Total current liabilities 7,353 5,~~358~~497 4Long term debt Obligations under capital leases,~~775~~ net of current maturities 475 498 Total Liabilities 57,~~358~~828 45,~~775~~995 --------- -------- MINORITY INTEREST ~~225~~296 84321 --------- -------- Shareholders' equity: Common stock 16 16 Additional paid in capital 8,588 8,588 Retained earnings 910,~~343~~143 89,~~384~~773 Accumulated other comprehensive ~~loss~~income ~~(116)~~42 ~~(76)~~42 Treasury stock (2,493) (2,493) --------- -------- Total Shareholders' equity 1516,~~338~~296 1415,~~419~~926 --------- -------- Total Liabilities and Shareholders' Equity $ 2024,~~921~~420 $ 1922,~~278~~242 ========= ========

See Accompanying Notes 3 PARIS CORPORATION CONSOLIDATED STATEMENT OF INCOME Unaudited

~~THREE~~(in ~~THREE~~thousands, ~~NINE~~except ~~NINE~~per ~~MONTHS~~share ~~MONTHS~~data) THREE THREE MONTHS MONTHS ENDED ENDED ~~ENDED ENDED 6~~12-3031-01 612-3031-00 6-30-~~01 6~~-30-00 -----~~---~~ -------- -~~-------~~ ~~--------~~ Net Sales $ 1012,~~303~~356 $ 10,~~198~~943 ~~$ 32,278 $ 32,057~~ Cost of products sold 810,~~843~~765 9,~~096~~524 ~~27,887 28,665~~ -------- -------- ~~-------- --------~~ Gross profit 1,~~460~~591 1,~~102~~419 ~~4,391 3,392~~ -------- -------- ~~-------- --------~~ Selling expenses ~~523~~456 ~~506~~533 ~~1,517 1,421~~ General and administrative expenses ~~595~~574 ~~601~~574 ~~1,802 1,897~~ Interest expense 4136 150 ~~149 7~~ Gain on sale of building ~~(40)~~0 (89) ~~(219) (268)~~ Other (income) expense (~~109~~28) (~~114~~90) ~~(383) (404)~~ -------- -------- ~~-------- --------~~ Income before minority interest ~~450~~553 ~~197~~441 ~~1,525 739~~ Minority Interest (8024) (2715) ~~(141) 35~~ Provision for Income Taxes ~~(92)~~206 ~~(54)~~166 ~~(424)~~-------- ~~(317)~~-------- Net Income $ ~~278~~371 $ ~~116~~290 ~~$ 960 $ 457~~ ======== ======== ~~======== ========~~ Other comprehensive income Unrealized ~~gain (~~loss) on securities arising during 0 (146) the period, net of taxes of $1572,880 at ~~June~~December 3031, 2001 ~~18 (405) 13 (406)~~ Reclassification adjustment for (gains) losses included in net income ~~(43)~~0 ~~229~~26 ~~(38) 230~~ -------- -------- ~~-------- --------~~ Total other comprehensive income (25loss) ~~(176)~~0 (25120) ~~(176)~~ -------- -------- ~~-------- --------~~ Total comprehensive income $ ~~253~~0 $ 60170 ~~$ 935 $ 281~~ ======== ======== ~~======== ========~~ Basic earnings (loss) per share $ 0.0811 $ 0.0409 ~~$ 0.29 $ 0.14~~ ======== ======== ~~======== ========~~ Diluted earnings (loss) per share $ 0.0811 $ 0.0409 ~~$ 0.29 $ 0.14~~ ======== ======== ~~======== ========~~

See Accompanying Notes 4 PARIS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited

(in thousands) ~~NINE~~THREE MONTHS ~~NINE~~THREE MONTHS ENDED ENDED 612-3031-01 612-3031-00 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ ~~960~~371 $ ~~457~~290 ~~-------- --------~~ Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation ~~299~~117 ~~371~~134 Gain on sale of property, and equipment ~~(231)~~0 (~~268~~95) ~~(Gain)/~~Loss on sale of investments ~~(53)~~28 741 Equity in limited partnership interests 500 ~~(124)~~0 Provision for bad debts 9030 ~~114~~30 Deferred income tax (benefit) expense 0 (73) Minority interest ~~141~~(26) (3515) (Increase) decrease in assets: Accounts receivable (69840) ~~625~~(143) Inventories 20179 ~~(529)~~205 Recoverable income taxes 0 ~~190~~0 Prepaid expenses 76(24) 2(130) Other assets ~~(30)~~81 ~~181~~48 Increase (decrease) in liabilities: Accounts payable and accrued expenses ~~(354) (~~1,~~958~~503 (364) Accrued payroll and related expenses (897) 45(112) Income taxes payable ~~264~~(209) 82136 --------- --------- Total adjustments ~~195~~742 (~~1,297~~338) --------- --------- Net cash provided by (used in) operating activities 1,~~155~~113 (~~840~~48) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investments ~~1,973~~429 ~~487~~523 Purchase of investments (~~2,304~~27) (~~679~~605) Proceeds from the sale of property &and equipment 13 0 6 Purchase of property and equipment ~~320~~(127) (~~248~~12) --------- --------- Net cash provided by (used in) investing activities ~~(638)~~275 (~~440~~88) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Sales of treasury stock 0 4 Purchase of treasury stock 0 ~~(501) Dividend Paid~~ 0 ~~(339)~~ Proceeds of note payable, bank 1659 2,~~139~~600 0Proceeds lease payable 28 Repayments of note payable (951) (759) --------- --------- Net cash ~~provided by (~~used in) financing activities 1636 2,~~130~~591 ~~(911)~~ Net ~~increase~~increased (decrease) in cash and cash equivalents 12,~~647~~024 (2,~~191)~~455 Cash and cash equivalents, at beginning of period 8,011 2,828 ~~3,880~~ --------- --------- Cash and cash equivalents, at end of period $ 410,~~475~~035 $ 15,~~689~~283 ========= ========= Supplemental disclosures of cash flow information: Cash paid for interest expense $ ~~149~~36 $ 750 Cash paid for income taxes $ ~~153~~415 $ 4558

See Accompanying Notes 5 PARIS CORPORATION AND SUBSIDIARIES CONSOLIDATION STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 2001, 2000 AND THREE MONTHS ENDED DECEMBER 31, 2001 -------------------------------------------------------------------------------

Additional Accumulated Other Common Stock ~~Additional~~Paid - In Comprehensive Retained ~~Treasury Stock~~ Shares Amount ~~Paid-in~~ Capital Income (Loss) Earnings ~~Shares Amount Total~~ ------ ---~~---~~ -------~~--------~~ ---------- --- -------- ------ ------ --~~---~~ Balance, at September 30, ~~1998~~1999 3,937,517 15,751 8,588,243 (~~163~~66,~~412~~346) 78,~~797~~049,~~181~~086 ~~(382,872) ($1,882,237) 14,355,526~~ Purchase of 61237,~~800~~710 treasury shares - - - - - ~~(61,800) (141,454) (141,454)~~ Issuance of 114,~~400~~000 treasury shares - - - - - ~~11,400 23,500 23,500~~ Dividends paid ($0.2010 per share) - - - - (~~708~~328,~~825~~085) Net income - - ~~(708~~- - 662,~~825)~~867 ~~Net~~Other comprehensive income - - - (9,454) - ~~960,730~~-------------------------------- ----------- ------------- ~~960~~Balance,~~730~~ ~~Other~~September ~~comprehensive~~30, ~~income~~2000 -3,937,517 -15,751 -8,588,243 97(75,~~066~~800) -8,383,868 -Net -Income 971,~~066~~389,091 Other comprehensive loss 117,600 --------- ------- ---------------- ----------- ------------- Balance, September 30, 2001 3,937,517 15,751 8,588,243 41,800 9,772,959 Net Income 370,545 -------- ------------------------ ----------- ------------- Balance, atDecember ~~September 30~~31, ~~1999~~2001 3,937,517 $15,751 $8,588,243 ~~(66~~$ 41,~~346)~~800 8$ 10,~~049~~143,~~086~~504 =========== ======= ========== =========== ============= Treasury Stock Shares Amount Total ------- --------- ------- Balance, September 30, 1999 (433,272) (2,000,191) 14,586,543 Purchase of 237,710 treasury shares ~~- - - - -~~ (237,710) (501,081) (501,081) Issuance of 4,000 treasury shares ~~- - - - -~~ 4,000 8,250 8,250 Dividends paid ($0.10 per share) - - ~~- -~~ (328,085) ~~- - (328,085)~~ Net income ~~- - - -~~ 662,867 ~~- - 662,867~~ Other comprehensive ~~loss~~income - - - (9,454) - - - ~~(9,454)~~ --------- ------- ---------- --------- -~~---------~~ ~~-------- ------------ -----------~~ Balance, at September 30, 2000 ~~3,937,517 15,751 8,588,243~~ (~~75,800) 8,383,868 (~~666,982) (2,493,022) 14,419,040 Net Income ~~- - - - 959~~1,~~923 - - 959~~389,~~923~~091 Other comprehensive loss ~~- - - (40~~117,~~726)~~600 - - - ~~40,726~~ --------- ------- ---------- ---------- Balance, September 30, 2001 Net Income (666,982) (2,493,022) 15,925,731 370,545 ---------- -------- ------------ ----------- Balance, ~~June~~December 3031, 2001 ~~3,937,517 $15,751 $8,588,243 $~~(~~116,526) $9,343,791 (~~666,982) $ (2,493,022) $1516,~~338~~296,~~237~~276 ========= ==~~=====~~ ========== =~~========~~ ========== =~~======= ============ ===========~~

See notes to consolidated financial statements 6 PARIS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ACCOUNTING POLICIES: 1. The accompanying unaudited interim consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United Sates of America for complete financial statements. The Summary of Accounting Policies and Notes to Consolidated Financial Statements included in the September 30, 2001 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 $478,000 as of September 30, 2001 related to these agreements and other potential liabilities. During the three months ended December 31, 2001, management increased the liability to $753,000, reflecting higher 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 loses on certain investments in marketable debt and equity securities and its 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 December 31, 2001 and September 30, 2001: 12/31/01 9/30/01 ---------- ---------- Raw Materials $ 999,898 $ 810,378 Work in Progress 260,180 334,729 Finished Goods 2,196,317 2,489,745 ---------- ---------- $3,456,395 $3,634,852 ========== ========== 7 PARIS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- DECEMBER 31, 2001 ------------------

--------------------------------------------------------------------------------~~----------------------------------------------~~ Three Months ~~Nine Months~~ --------------------------------------------------------------------------------~~----------------------------------------------~~ $ % ~~$ %~~ 2001 2000 Change Change ~~2001 2000 Change Change~~ --------------------------------------------------------------------------------~~----------------------------------------------~~ Net Sales $1012,~~303~~356 $10,~~198~~943 $ ~~105~~ 1~~% $32~~,~~278~~413 ~~$32,057 $ 221 1~~13% --------------------------------------------------------------------------------~~----------------------------------------------~~ Cost of sales 810,~~843~~765 9,~~096~~524 ~~(253) -3% 27~~1,~~887~~241 ~~28,665 (778) -3~~13% --------------------------------------------------------------------------------~~----------------------------------------------~~ Gross profit 1,~~460~~591 1,~~102~~419 ~~358~~172 3212% ~~4,391 3,392 999 29%~~ --------------------------------------------------------------------------------~~----------------------------------------------~~ Selling ~~523~~456 ~~506~~533 17(77) 3-14% ~~1,517 1,421 96 7%~~ --------------------------------------------------------------------------------~~----------------------------------------------~~ General and administrative expenses ~~595~~574 ~~601~~574 ~~(6)~~0 -10% ~~1,802 1,897 (95)~~ -5% -------------------------------------------------------------------------------~~-----------------------------------------------~~ Interest expense 4136 150 40(14) ~~4000~~-28% ~~149 7 142 2029%~~ --------------------------------------------------------------------------------~~----------------------------------------------~~ Other (income) expense (6928) (~~176~~179) ~~107~~151 -6184% ~~(461) (707) 246~~ -~~35%~~ -------------------------------------------------------------------------------~~-----------------------------------------------~~ Pretax income (loss) ~~370~~553 ~~170~~441 ~~200~~112 ~~118~~25% ~~1,384 774 610 79%~~ -------------------------------------------------------------------------------- Minority interest (24) (15) (9) 60% ---------------------------------------------- ~~Income taxes 92 54 38 70% 424 317 107 34%~~ ---------------------------------- Income taxes 206 166 40 24% --------------------------------------------------------------------------------~~------------~~ Net income (loss) $ ~~278~~371 $ ~~116~~290 $ ~~162~~81 ~~140~~28% ~~$ 960 $ 457 $ 503 110%~~ --------------------------------------------------------------------------------~~----------------------------------------------~~

Gross Profit ------------ Three Months Comparison Gross Profit for the three months ended December 31, 2001 of $1,591M increased $172M or 12% as compared to the same quarter in the prior year. Net sales of $12,356M increased $1,413M or 13% and cost of sales increased $1,241M or 13%. Sales Factors and Cost Factors ------------------------------ Sales of stock computer paper $2,410 decreased $318M or 12%. The unit volume decreased 12% while the average sell price remained flat. The cost of sales for stock computer paper decreased $322M, which is slightly greater than the decline in sales due to favorable purchases of raw material. The sale of continuous custom products of $471M decreased $76M or 14% consistent with the unit volume decline of 14%. The cost of sales for custom continuous of $380M decreased $46M or 12% similar to the decline in revenue. The sale of custom cut sheet products of $843M decreased $139M or 14% while the unit volume declined 17%. The costs of sales for custom cut sheet products declined only 9% resulting in margin erosion. Sales of the Company's Laser3, DocuGard and HCFA product lines have decreased 7% on lower unit volume of 5%. The lower revenue is a timing issue and is not being interpreted as a trend for the product line. Cost of sales declined 11%, which is higher than the decline in sales leading to increased margin percentage. 8 The Consumer segment continues to trend upwards as sales increased from $5,396M to $7,624M resulting in increased sales of $2,228M or 41%. The Burlington value added products and Burlington cut sheets sales increased $172M while the Branded products were the primary contributor of the revenue increase. Cost of sales increased 40% consistent with the revenue increase. Freight expense increased $59M or 15% slightly higher then the revenue increase related to the higher freight cost associated with the Consumer segment. Operating Expenses ------------------ Three Months Comparison Operating expenses of $1,030M decreased $77M or 14%. Marketing expenses declined $59M and sales expenses declined $18M. The marketing decline can be attributed to the expense in FY01 of a joint marketing venture with a third party, which didn't exist in FY02. There was no change in the total General and Administrative expense on a year to year basis. OTHER INCOME AND EXPENSES ------------------------- Other income of $28M decreased $151M or 84%. The decrease is related to lower investment income during the three months ended December 31, 2001. Interest expense $36M declined $14M or 28% related to lower borrowings outstanding on the working capital line and lower interest rates. LIQUIDITY AND CAPITAL RESOURCES: -------------------------------- Working Capital increased $393M from $14,368M to $14,761M and cash and cash equivalents increased $2,024M during the three months ended December 31, 2001. Net cash provided by operating activities was $1,113M. Net income generated cash flow of $371M. Accounts payable and accrued expenses increased $1503M as trade payables increased due to the high volume of finished goods purchases towards the end of the quarter to meet customer demand. Accounts receivable increased $840M and inventories decreased $179M related to the higher sales volume. Net cash provided by investing activities was $275M related to the sale of investments of $429M and the purchase of equipment of $127M. Net cash provided by financing activities was $636M related to proceeds of $659M from a revolving line of credit. In October 2000, Paris Business Products, Inc. agreed to a revolving line-of-credit with a bank for $3,500M. Borrowings as of December 31, 2001 were $2,364M. The line bears interest at the prime rate (4.75% as of December 31, 2001) and expires March 31, 2002. The line contains financial covenants including minimum working capital requirements, debt to equity limitations, cash flow requirements and other covenants and is collateralized by all of the assets of Paris Business Products, Inc. The Company believes that it has sufficient resources to satisfy ongoing cash requirements. The Company will meet liquidity needs through the revolving line of credit, cash provided by operations and investing activities. 9 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 3,270,535 ========= (b) Reports on Form 8-K 10 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 and Principal Accounting Officer DATE: February 22, 2002 11

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