-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VP312BYSvVDNH6/vQWRed7jdU+ckih66DzyJZBTsgqngccG44qZxAuvJA0zmQHCf tGVL55MPReeiRztyQdl9bg== 0000950152-00-002586.txt : 20000510 0000950152-00-002586.hdr.sgml : 20000510 ACCESSION NUMBER: 0000950152-00-002586 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 DATE AS OF CHANGE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARAGON CORPORATE HOLDINGS INC CENTRAL INDEX KEY: 0001060513 STANDARD INDUSTRIAL CLASSIFICATION: 5010 IRS NUMBER: 341845312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-51569 FILM NUMBER: 589244 BUSINESS ADDRESS: STREET 1: 7400 CALDWELL AVE CITY: NILES STATE: IL ZIP: 60714 BUSINESS PHONE: 8477792500 MAIL ADDRESS: STREET 1: 7400 CALDWELL AVE CITY: NILES STATE: IL ZIP: 60714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DICK A B CO CENTRAL INDEX KEY: 0000028761 STANDARD INDUSTRIAL CLASSIFICATION: 5090 IRS NUMBER: 043892065 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-51569-01 FILM NUMBER: 589245 BUSINESS ADDRESS: STREET 1: 5700 WEST TOUHY AVENUE CITY: NILES STATE: IL ZIP: 60714 BUSINESS PHONE: 8477791900 MAIL ADDRESS: STREET 1: 5700 WEST TOUHY AVENUE CITY: NILES STATE: IL ZIP: 60714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CURTIS INDUSTRIES INC/NEW/ CENTRAL INDEX KEY: 0000868415 STANDARD INDUSTRIAL CLASSIFICATION: 5072 IRS NUMBER: 133583725 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-10627 FILM NUMBER: 589246 BUSINESS ADDRESS: STREET 1: 6140 PARKLAND BOULEVARD CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 BUSINESS PHONE: 4404469700 MAIL ADDRESS: STREET 1: 6140 PARKLAND BOULEVARD CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ITEK GRAPHIX CORP CENTRAL INDEX KEY: 0001060514 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 042893064 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-51569-03 FILM NUMBER: 589247 BUSINESS ADDRESS: STREET 1: 5700 WEST TOUHY AVNEUE CITY: NILES STATE: IL ZIP: 60714 BUSINESS PHONE: 8477792500 MAIL ADDRESS: STREET 1: 5700 WEST TOUHY AVENUE CITY: NILES STATE: IL ZIP: 60714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CURTIS SUB INC CENTRAL INDEX KEY: 0001060515 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 341737529 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-51569-04 FILM NUMBER: 589248 BUSINESS ADDRESS: STREET 1: 5700 WEST TOUHY AVNEUE CITY: NILES STATE: IL ZIP: 60714 BUSINESS PHONE: 8477792500 MAIL ADDRESS: STREET 1: 5700 WEST TOUHY AVENUE CITY: NILES STATE: IL ZIP: 60714 10-K405 1 PARAGON CORPORATE HOLDINGS INC. FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File No. 333-51569 PARAGON CORPORATE HOLDINGS INC. ------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 34-1845312 -------- ---------- (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) CO-REGISTRANTS AND SUBSIDIARY GUARANTORS A.B.Dick Company Delaware 04-3892065 Curtis Industries, Inc. Delaware 13-3583725 Itek Graphix Corp. Delaware 04-2893064 Curtis Sub, Inc. Delaware 34-1737529 Paragon Corporate Holdings Inc. A.B.Dick Company 7400 Caldwell Avenue 7400 Caldwell Avenue Niles, Illinois 60714 Niles, Illinois 60714 (847) 779-2500 (847) 779-1900 Curtis Industries, Inc. 6140 Parkland Boulevard Mayfield Heights, Ohio 44124 (440) 446-9700 Itek Graphix Corp. Curtis Sub, Inc. 7400 Caldwell Avenue 6140 Parkland Boulevard Niles, Illinois 60714 Mayfield Heights, Ohio 44124 (847) 779-1900 (440) 446-9700 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None 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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 15, 2000 was $-0-. Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practical date. As of March 15, 2000, there were 1,000 shares of the registrant's Class A common stock outstanding. As of March 15, 2000, there were 19,000 shares of the registrant's Class B common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE None 2 PARAGON CORPORATE HOLDINGS INC. 1999 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Item Page Number Number ------ ------ PART I 1 Business 1 2 Properties 3 3 Legal Proceedings 3 4 Submission of Matters to a Vote of Security Holders 4 PART II 5 Market for Registrant's Common Stock and 4 Related Stockholder Matters 6 Selected Financial Data 4 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 7a Quantitative and Qualitative Disclosures 11 about Market Risk 8 Financial Statements and Supplemental Data 12 9 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 36 PART III 10 Directors and Executive Officers of the Registrant 37 11 Executive Compensation 38 12 Security Ownership of Certain Beneficial Owners 40 and Management 13 Certain Relationships and Related Transactions 40 PART IV 14 Exhibits, Financial Statement Schedules and Reports 42 on Form 8-K 15 Signatures 43 16 Index of Exhibits 44 3 PART I ITEM 1. BUSINESS GENERAL Paragon Corporate Holdings Inc. (hereinafter referred to as the "Company") is a holding company organized in September 1996 under the Delaware General Corporation law. The Company conducts all of its business through its subsidiaries. The Company commenced operations on January 17, 1997 through the acquisition on that date of the common stock of A.B.Dick Company and its wholly owned subsidiaries (collectively "A.B.Dick"), from General Electric Company Ltd. ("GEC"). A.B.Dick is engaged in the manufacture, sale, distribution and service of offset presses, cameras and plate makers and related supplies for the graphic arts and printing industry. On December 5, 1997, the Company acquired all of the common stock of Curtis Industries, Inc. ("Curtis"), a national distributor of products to the automotive and industrial markets. The Company's printing equipment and supplies business segment is a leading manufacturer and distributor of printing products for the global quick print and small commercial printing markets. This business has three product lines: (i) pre-press, press and other related equipment, (ii) supplies, and (iii) after-market repair service and replacement parts. The Company manufactures its own products that are sold under the A.B.Dick(R) and Itek Graphix(R) brand names, and distributes certain products manufactured by third parties. The Company's printing equipment and supplies business segment sells its products and services through a network of branches and independent distributors in the United States, its subsidiaries in Canada, the United Kingdom, the Netherlands and Belgium and independent distributors in other countries. The Company's automotive and industrial supplies distribution business segment supplies a wide range of products including (i) automotive security products, key cutting equipment and key blanks, and non-model specific automotive parts and (ii) maintenance, repair and operating supplies, including fasteners, connectors, chemicals and tools. The Company generally markets its products under its proprietary brand names, Curtis(R) and Mechanics Choice(R). Customers of the Company's distribution business include independent auto dealerships and industrial accounts throughout the U.S., Canada and the United Kingdom. ACQUISITIONS The Company's acquisition strategy is to conclude acquisitions that will add complementary product lines, expand its technological capabilities, broaden its geographic reach or otherwise support its business strategy. There can be no assurance that the Company will be successful in consummating any acquisition on terms favorable to the Company, if at all. On September 29, 1999, the company entered into an agreement to acquire all the outstanding shares of Multigraphics, Inc. ("Multigraphics"), a provider of equipment, supplies and service to the graphic arts industry. The transaction was completed on January 27, 2000 and will be accounted for as a purchase. During 1998, the Company consummated two small transactions, which added complementary pre-press products and supplies and strengthened the company's foreign distribution of its printing equipment and supplies business. CUSTOMERS The Company's printing equipment and supplies products are marketed to commercial, franchise and independent print shops, in-plant print shops and governmental and educational institutions throughout the world. Customers for printing supplies include franchisees of national quick print chains, independent quick print shops and small commercial shops and check printers. The Company's automotive and industrial supplies distribution products are marketed to fleet operators, independent auto dealerships, selected retail outlets and industrial accounts throughout the world. The Company's printing products are sold to more than 12,000 customers and its automotive and industrial distribution products to more than 55,000 customers, with no one customer accounting 1 4 for more than 1.1% of the Company's 1999 net revenues. The Company believes this diversity in its client base minimizes its reliance on any one customer. COMPETITION The Company's printing equipment and supplies business competes, with respect to its manufactured products, against a number of other manufacturers of pre-press equipment and offset presses and with re-sellers of used presses, primarily on the basis of quality and price. Some of these competitors have significantly greater financial and other resources than the Company. The Company's pre-press and offset press equipment also competes, to a limited extent, with alternate technologies such as color laser printers, copiers and other duplicating equipment. In addition, in the markets for supplies, service and parts, the Company competes against a wide variety of national, regional and local distributors of graphic arts and printing supplies and related service, primarily on the basis of availability and service. The Company's distribution business competes with OEMs and other national distributors, as well as a large number of regional and local distributors. Because of the similarity of product types, competitive advantage among national distributors is determined primarily by sales representative performance and reliability, product presentation, product quality, order fill rate, breadth of product line, speed of delivery and, to a lesser extent, price. Regional and local distributors also compete with the Company on the basis of these factors, but price and delivery are more important factors at this level. SUPPLIERS All materials used by the Company's printing equipment and supplies business to manufacture products are readily available in the marketplace, and the Company is not dependent upon any single supplier for any materials essential to the manufacture of any of these products. The Company has been able to obtain an adequate supply of raw materials and no shortage of raw materials is currently anticipated. The Company's distribution business distributes products from a large and diverse supply base. In 1999, based on the Company's net revenues, no single supplier accounted for more than 8.3% of the Company's supply of products. BACKLOG Backlog at December 31, 1999 was $4.6 million, an increase of $1.3 million, or 40.5% from $3.3 million at December 31, 1998. The increase is primarily due to the timing of shipment of certain prepress components and presses acquired from third party manufacturers. The Company expects the majority of the backlog to ship during 2000. Since a majority of the orders in the automotive and industrial supplies distribution business are shipped within 24 hours of receipt of the order, no significant backlog exists for these products at December 31, 1999 or 1998. EMPLOYEES As of December 31, 1999, the Company had approximately 1,800 employees, approximately 1,350 of whom were located in the United States. The Company believes its relations with its employees are good. The Company's employees are not subject to collective bargaining agreements. ENVIRONMENTAL AND HEALTH SAFETY MATTERS The Company is subject to a variety of environmental standards imposed by federal, state, local and foreign environmental laws and regulations. The Company also is subject to the federal Occupational Health and Safety Act and similar foreign and state laws. The Company periodically reviews its procedures and policies for compliance with environmental and health and safety laws and regulations and believes that it is in substantial compliance with all such material laws and regulations applicable to its operations. Historically, the costs of 2 5 compliance with environmental, health and safety requirements have not been material to the results of operations or the financial position of the Company. ITEM 2. PROPERTIES. As of December 31, 1999 the Company conducts its operations through the following primary facilities: APPROX. PRINCIPAL OWNED/ LOCATION SQ.FOOTAGE FUNCTION LEASED UNITED STATES: Niles, Illinois 54,000 Headquarters; Administration Leased(1) Niles, Illinois 156,000 Manufacturing; warehouse Leased(2) Des Plaines, Illinois 87,000 Warehouse Leased(3) Rochester, New York 194,000 Manufacturing Leased(4) Shelbyville, Kentucky 100,000 Warehouse; packaging Owned Atlanta, Georgia 60,000 Warehouse Leased(5) Sparks, Nevada 50,000 Warehouse Owned Mayfield Heights, Ohio 34,000 Administrative Leased(6) CANADA: Rexdale, Ontario 67,000 Administration; warehouse Owned Mississauga, Ontario 38,000 Administration; warehouse Leased(7) UNITED KINGDOM: Brentford, 26,000 Administration; warehouse Leased(8) Andover 15,000 Administration; warehouse Leased(9) BELGIUM: Brussels 11,000 Administration; warehouse Leased(10) THE NETHERLANDS: Maarssen 25,000 Administration; warehouse Leased(11) - - ----------------- (1) Expires in July, 2008. (2) Expires in July, 2003. (3) Expires in August, 2003. (4) Expires in April, 2007. (5) Expires in February, 2003. (6) Expires in November, 2006. (7) Expires in August, 2001. (8) Expires in September, 2003. (9) Expires in November, 2012. (10) Expires in December, 2004. (11) Expires in March, 2003. The Company believes that all of its property and equipment is in a condition appropriate for its operations and that it has sufficient capacity to meet its current operational needs. ITEM 3. LEGAL PROCEEDINGS. On April 30, 1997, four former and current distributors of A.B.Dick filed a suit against A.B.Dick, the Predecessor Company, alleging, among other things, breach of distributorship contracts and unfair and deceptive trade practices. The plaintiffs allege that the former parent of A.B.Dick decided to exit the U.S. market for printing equipment and related supplies and services by the sale or closing of A.B.Dick and as part of such plan pursued strategies designed to eliminate or significantly weaken A.B.Dick distributors engaged under distributorship contracts during the four year period ended April 30, 1997. The Company intends to vigorously defend this case although there can be no assurance as to the eventual outcome. GEC Incorporated has agreed to fully indemnify the Company against all costs and liabilities in connection with any litigation that is pending or may be brought against A.B.Dick and arises out of events occurring prior to the closing of the A.B.Dick acquisition, including the case mentioned in the previous paragraph, for all amounts in excess of $250,000 up to an aggregate liability of $15,000,000. In addition, both A.B.Dick and Curtis are parties to routine litigation incidental to their businesses, some of which is covered by insurance. The Company does not believe that any such pending litigation will have a material adverse effect upon its results of operations or financial condition. 3 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. During the quarter ended December 31, 1999, NES Group, Inc., the Company's sole shareholder, by written consent, re-elected all members of the Company's Board of Directors. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company is a direct wholly-owned subsidiary of NES Group, Inc. There is no established public trading market for the Company's common stock. As of March 15, 2000, the Company had one shareholder. The Company paid no dividends in 1999, and a $10.0 million cash dividend in 1998. See Note G, "Financing Arrangements," to the Consolidated Financial Statements, Part II, Item 8, for limitations on dividends. ITEM 6. SELECTED FINANCIAL DATA The following table presents (i) consolidated financial data of the Company for the years ended December 31, 1999 and 1998 and for the period from January 17, 1997 through December 31, 1997, and (ii) consolidated financial data of A.B.Dick (Predecessor Company) for the period from April 1, 1996 through January 16, 1997 and for the year ended March 31, 1996, which have been derived from the audited consolidated financial statements of A.B.Dick. The Company believes that the financial data of A.B.Dick for the periods prior to January 17, 1997, the date on which A.B.Dick was acquired by the Company (the "Acquisition Date"), is not comparable in certain respects with the financial data of A.B.Dick subsequent to such date. Prior to the Acquisition Date, A.B.Dick maintained a defined benefit pension plan for its manufacturing employees. This plan was overfunded as of March 31, 1995 and, accordingly, pension credits of $5.1 million were recognized for the fiscal year ended March 31, 1996 and $7.0 million were recognized for the period from April 1, 1996 through January 16, 1997. In connection with the sale of A.B.Dick on January 16, 1997, GEC assumed all existing obligations under this plan. Prior to the Acquisition Date, A.B.Dick also provided post-retirement health care benefits to certain retirees. Net periodic post-retirement benefit costs of approximately $4.7 million for the fiscal year ended March 31, 1996 and approximately $3.5 million for the period April 1, 1996 through January 16, 1997 were allocated to A.B.Dick by GEC based upon actuarial valuations. In connection with the sale of A.B.Dick on January 16, 1997, GEC assumed all existing obligations under the post-retirement health care benefits plan. The information presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements as described elsewhere herein. 4 7
(Dollars in Thousands) A.B.DICK THE COMPANY (PREDECESSOR COMPANY) ----------------------------------------- --------------------------- Fiscal Year Fiscal Year Jan. 17, 1997 April 1, 1996 Fiscal Year Ended Ended Through Through Ended Dec. 31, Dec. 31, Dec. 31, Jan. 16, March 31, 1999 1998 1997 1997 1996 --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Net revenue $ 248,668 $ 268,624 $ 193,216 $ 157,414 $ 215,363 Gross profit 89,865 104,666 63,565 42,356 62,526 Acquisition, relocation and severance costs (1) 1,633 2,705 1,400 -- -- Operating income (loss) (3,962) 9,983 10,999 (617) (6,034) Interest expense 12,383 11,311 2,598 205 162 Net income (loss) (15,227) (1,883) 8,554 (1,106) (6,404) OTHER DATA: Cash provided by (used in) operating activities (10,594) 1,509 15,085 7,481 8,523 Cash provided by (used in) investing activities 9,328 (27,574) (28,684) (3,960) (5,528) Cash provided by (used in) financing activities 8,934 30,565 15,253 (26,479) (4,468) Depreciation and amortization 7,270 5,496 1,481 7,053 8,922 Capital expenditures 6,542 9,979 1,860 3,960 5,528 Ratio of earnings to fixed charges (2) -- 1.0x 3.8x -- --
THE COMPANY A.B.DICK ---------------------------------------------------- --------------- (Predecessor Company) As of December 31, Jan. 17, As of March 31, ------------------------------------ ------- --------------- 1999 1998 1997 1997 1996 BALANCE SHEET DATA: Cash, cash equivalents and short-term investments $ 18,951 $ 28,996 $ 7,459 $ 8,280 $ 25,912 Total assets 160,656 175,409 138,075 58,041 116,561 Long-term debt, including current portion 118,347 117,883 70,616 8,016 2,007 Stockholder's equity (deficit) (20,189) (5,119) 7,131 48 77,138
(1) For 1999, represents non-recurring charges related to A.B.Dick severance and reorganization costs. For 1997 and 1998, represents non-recurring charges related to compensation agreements with certain executives in connection with the Curtis acquisition. In addition, in 1998, represents costs incurred in connection with the relocation of A.B.Dick operations as required by the A.B.Dick purchase agreement. (2) Earnings consist of income before income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing costs and one-third of the rent expense from operating leases, which management believes is a reasonable approximation of an interest factor. Earnings were inadequate to cover fixed charges in the fiscal year ended December 31, 1999 and the period from April 1, 1996 through January 16, 1997 and the year ended March 31, 1996 by $15,391, $455, and $5,463, respectively. 5 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The consolidated financial statements of the Company include the operations of the acquired subsidiaries from their respective dates of acquisition. A.B.Dick was acquired on January 17, 1997 and Curtis was acquired on December 5, 1997. The 1997 statement of operations for the Company represents the 49-week period from January 17, 1997 through December 31, 1997. The following table sets forth, on a comparative basis, certain income statement data for the Company for the years ended December 31, 1999 and 1998 and the period from January 17, 1997 through December 31, 1997. The information has been derived from the audited consolidated financial statements of the Company .
PARAGON CORPORATE HOLDINGS INC. ------------------------------------------------------------------------- PERIOD FROM YEAR ENDED % OF YEAR ENDED % OF JAN. 17, 1997 % OF DEC. 31, NET DEC. 31, NET THROUGH NET 1999 REVENUE 1998 REVENUE DEC. 31, 1997 REVENUE -------- -------- -------- -------- -------- -------- Net revenue: Printing equipment and supplies $165,158 $187,488 $186,315 Automotive and industrial supplies 83,510 81,136 6,901 -------- -------- -------- Net revenue 248,668 100.0% 268,624 100.0% 193,216 100.0% Cost of revenue: Printing equipment and supplies 123,225 129,904 126,817 Automotive and industrial supplies 35,578 34,054 2,834 -------- -------- -------- Cost of revenue 158,803 163,958 129,651 -------- -------- -------- Gross profit 89,865 36.1% 104,666 39.0% 63,565 32.9% Sales and marketing expense 42,275 17.0% 44,383 16.5% 26,386 13.7% General and administrative expense 38,785 15.6% 37,630 14.0% 17,603 9.1% Research and development 3,631 1.5% 3,046 1.1% 3,755 1.9% Depreciation and amortization 7,270 2.9% 5,496 2.1% 1,481 0.8% Management fee 233 0.1% 1,423 0.5% 1,941 1.0% Acquisition, relocation and severance costs 1,633 0.6% 2,705 1.0% 1,400 0.7% -------- -------- -------- Total expenses 93,827 37.7% 94,683 35.2% 52,566 27.2% -------- -------- -------- Operating income (loss) $ (3,962) (1.6)% $ 9,983 3.8% $ 10,999 5.7% ======== ======== ========
6 9 YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998. NET REVENUE. Net revenue decreased $19.9 million or 7.4% from $268.6 in 1998 to $248.7 million in 1999. The decrease was principally due to lower printing equipment and supplies sales which declined by $22.3 million from the prior year. Printing equipment sales were down $11.1 million or 16.1% over the prior year to $57.9 million primarily due to weaker demand in domestic and most European markets as well as an expired distribution agreement in Canada. Printing supplies sales were down $7.3 million or 9.6% to $68.5 million in 1999 due to an expired distribution agreement in Canada, a decline in the supply stream on previously discontinued domestic equipment and lower optical equipment supplies sales, partially offset by increases in digital equipment supplies sales. Service and repair parts revenues decreased $3.9 million or 9.1% primarily due to the discontinuance of A.B.Dick's line of distributed copier equipment and digital duplicators. Automotive and industrial supplies revenue increased $2.4 million or 2.9% over the prior year, to $83.5 million primarily as result of an increase in U.S. National Account sales. GROSS PROFIT. Gross profit decreased $14.8 million or 14.1% to $89.9 million compared to $104.7 million from the prior year. Gross profit as a percent of sales was 36.1% in 1999 compared to 39.0% in 1998 primarily due to lower printing equipment and supplies margin. A.B.Dick's gross profit decreased $15.6 million and gross profit as a percent of sales decreased by 5.3 percentage points to 25.4%. The decrease in gross profit percent resulted mainly from lower cost in 1998 due to yen denominated purchases, increased costs in 1999 on manufactured equipment due to reduced volume, and increased freight costs. Service margins were lower due to decreased installations and service contracts on previously discontinued equipment. Curtis' gross profit increased $0.9 million or 1.8% from last year due to increased sales. COSTS AND EXPENSES. Costs and expenses decreased by $0.9 million to $93.8 million in 1999 from $94.7 million for 1998. Sales, marketing, general and administrative expense, and management fees reductions totaling $2.1 million were offset by increases in depreciation and amortization and research and development expense totaling $2.3 million. Acquisition, relocation and severance costs were $1.6 million in 1999 and consisted of $0.8 million of severance and pension costs associated with the reorganization of A.B.Dick's Belgium subsidiary, and $0.8 million in relocation and severance costs related to A.B.Dick. A majority of these costs were paid in 1999. In 1998, acquisitions, relocation and severance expenses were $2.7 million related primarily to costs associated with relocation of the A.B.Dick facilities and severance costs with certain executives. OPERATING INCOME. Operating income decreased $14.0 million from $10.0 million in 1998 to a loss of $4.0 million in 1999. The 1999 amount includes operating income from Curtis of $4.4 million and an operating loss from A.B.Dick of $7.7 million. The primary factors contributing to the decline in operating income when compared to the same period a year earlier are the decreases in revenues and gross profits, partially offset by lower operating costs, for A.B.Dick. 7 10 YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE PERIOD FROM JANUARY 17, 1997 THROUGH DECEMBER 31, 1997. NET REVENUE. Net revenue increased $75.4 million or 39.0% from $193.2 in 1997 to $268.6 million in 1998. The increase was principally due to the acquisition of Curtis, which accounted for $81.1 million in sales for the year ended December 31, 1998 compared to $6.9 million in 1997. Printing equipment sales were up $4.4 million or 6.8% over the prior year to $69.0 million primarily due to increases in the domestic sales of press equipment. Supplies sales were down $2.1 million or 2.7% to $75.8 million in 1998 compared to $77.9 million in 1997. The discontinuance of certain domestic equipment lines and the introduction of a new plate product by a competitor in the pre-press market were the principal reasons for the revenue decline. Service and repair parts revenues decreased by $1.1 million primarily due to the discontinuance of the Konica copier equipment line and a trend among customers to switch from preventive service contracts to purchased service calls. GROSS PROFIT. Gross profit was $104.7 million compared to $63.6 million from the prior year. The increase of $41.1 million or 64.6% was principally due to the acquisition of Curtis, which had a gross margin of $47.1 million in 1998 compared to $4.1 million in 1997. Gross profit margin percentage was 39.0% during 1998 compared to 32.9% for the same period last year. The addition of the Curtis busines accounted for the significant improvement in the gross margin as a percentage of revenues. The A.B.Dick margins decreased by $1.9 million or 1.2% as a percent of revenue primarily due to the change in the mix of sales of the various products and services. COSTS AND EXPENSES. Costs and expenses increased by $42.1 million to $94.7 million in 1998 from $52.6 million in 1997. The acquisition of Curtis contributed $39.4 million to the increase in costs and expenses. A.B.Dick sales, marketing, general and administrative expense increases were offset by reductions in research and development and management fee. Acquisition and relocation expenses were $2.7 million during 1998 compared to $1.4 million in 1997. This increase was primarily due to the costs associated with the relocation of the A.B.Dick facilities during the year and non-recurring charges related to compensation arrangements with certain executives. OPERATING INCOME. Operating income decreased $1.0 million or 9.1% from $11.0 million in 1997 to $10.0 million in 1998. In 1998 the amount includes an increase in operating income from Curtis of $4.2 million. The operating income generated in 1998 by A.B.Dick decreased $2.1 million due to the relocation of its facilities and approximately $2.7 million due to the change in the mix of product sales and services compared to 1997. Corporate administrative expenses increased by $0.4 in 1998 compared to 1997. EXTRAORDINARY ITEM. An extraordinary expense of $1.3 million was recorded during the second quarter of 1998 related to the write-off of deferred financing costs and fees associated with the early extinguishment of certain of the Company's debt. LIQUIDITY AND CAPITAL RESOURCES Net cash provided (used) by operating activities was ($10.6) million, $1.5 million and $15.1 million for the years ended December 31, 1999, 1998 and the period from January 17, 1997 through December 31, 1997, respectively. The decrease in net cash from operating activities in 1999 was principally the result of net losses incurred of $15.2 million. The net loss in 1999 is primarily due to A.B.Dick operating losses and increased interest costs as a result of the issuance of $115.0 million of senior notes on April 1, 1998. The decrease in net cash from operating activities in 1998 as compared to 1997 was principally the result of decreased net income. The decline in net income is mainly due to the increased interest costs on the $115.0 million of senior notes noted above. The net cash provided from operating activities 8 11 in 1997 is primarily due to net income of $8.6 million and the reduction of inventories of $6.0 million. Net cash provided by (used in) investing activities was $9.3 million, ($27.6) million and ($28.7) million for the years ended December 31, 1999, 1998 and the period from January 17, 1997 through December 31, 1997, respectively. Net cash provided by investing activities in 1999 includes liquidation of short-term investments of $17.9 million primarily used for debt service, a $2.0 million loan to Multigraphics, and to partially fund capital expenditures of $6.5 million. The net cash used in investing activities in 1998 includes increases in short-term investments of $17.4 million, and property, plant and equipment purchases of $10.0 million, approximately $5.8 million of which related to the relocation of the A.B.Dick facilities. The primary components of net cash used in investing activities in 1997 were $19.5 million for accounts receivable related to the A.B.Dick acquisition; $1.9 million for property, plant, and equipment purchases; $4.4 million for payment of acquisition-related liabilities, and $4.9 million related to the acquisition of Curtis. Net cash provided by financing activities was $8.9 million, $30.6 million and $15.3 million for the years ended December 31, 1999, 1998 and the period from January 17, 1997 through December 31, 1997, respectively. Net cash provided by financing in 1999 includes an increase in the revolving lines of credit of $10.2 million incurred primarily to fund A.B.Dick operating losses, borrowings of $0.6 million under a term note, offset by a reduction of $0.4 million in long-term borrowings and a decrease of $0.9 million in amount due to GEC and affiliates. The increase in 1998 is the result of the issuance of the $115.0 million of senior notes, offset by the reduction of long-term borrowings of $41.9 million and revolving lines of credit by $26.1 million, and a payment of bond issuance costs of $5.2 million and a dividend to the sole shareholder in the amount of $10.0 million. The increase in cash provided by financing activities for 1997 was principally due to increases in borrowings on revolving credit lines. The Company's primary capital requirements (excluding acquisitions) consist of working capital, capital expenditures and debt service. The company expects current financial resources and funds from operations to be adequate to meet current cash requirements. At December 31, 1999 the company had cash, cash equivalents and short-term investment of $19.0 million and unused credit facilities of $18.7 million available for its use. At December 31, 1999, the company was in violation of certain financial covenants under the terms of the revolving credit agreement. During March 2000, the Company received waivers of these convenants through June 29, 2000 and it also amended future covenant requirements to reflect the Company's current financial outlook and the acquisition of Multigraphics. INTERNATIONAL OPERATIONS The Company transacts business in a number of countries throughout the world and has facilities in the United States, Canada, the United Kingdom, The Netherlands, and Belgium. As a result, the Company is subject to business risks inherent in non-U.S. operations, including political and economic uncertainty, import and export limitations, exchange controls, and currency fluctuations. The Company believes that the risks related to its foreign operations are mitigated by the relative political and economic stability of the countries in which its largest foreign operations are located. As the U.S. dollar strengthens and weakens against foreign currencies in which the Company transacts business, its financial results will be affected. The principal foreign currencies in which the Company transacts business are the Canadian dollar, the British pound sterling, the Dutch guilder, and the Belgium franc. The fluctuation of the U.S. dollar versus other currencies resulted in increases (decreases) to stockholder's equity of approximately $0.2 million and $(0.3) million for the years ended December 31, 1999 and 1998, respectively. IMPACT OF THE YEAR 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 compliant. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company has experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expended approximately $3.4 million to upgrade its information systems which included achieving Year 2000 compliance. 9 12 The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or products and ervices of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. ENVIRONMENTAL MATTERS The Company is subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States and other countries. U.S. federal environmental legislation having particular impact on the Company includes the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act and the Comprehensive Environmental Response, Compensation and Liability Act (also known as Superfund). The Company also is subject to regulation by the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. The United States Environmental Protection Agency (EPA), OSHA and other federal agencies have the authority to promulgate regulations that have an impact on the Company's operations. In addition to these federal activities, various states have been delegated certain authority under the aforementioned federal statutes. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to federal requirements. State and federal authorities may seek fines and penalties for violation of these laws and regulations. As part of its continuing environmental program, the Company has been able to comply with such proceedings and orders without any materially adverse effect on its business. The Company is committed to a long-term environmental protection program that reduces emissions of hazardous materials into the environment, as well as to the remediation of identified existing environmental concerns. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which, as amended by FASB Statement 137, is required to be adopted no later than January 1, 2001. The Company does not anticipate that the adoption of this Statement will have a significant effect on its results of operations or financial position. IMPACT OF INFLATION Although inflation has slowed in recent years, it is still a factor in our economy and the Company continues to seek ways to mitigate its impact. To the extent permitted by competition, the Company passes increased costs on to its customers by increasing sales prices over time. The Company uses the last in-first out (LIFO) method of accounting for its domestic inventories. Under this method, the cost of products sold reported in the financial statements approximates current costs and thus provides a closer matching of revenue and expenses in periods of increasing costs. The Company's properties have been acquired over the past three years and have a useful life ranging from three years for equipment to forty years for buildings. Assets acquired in prior years will, of course, be replaced at higher costs but this will take place over many years. Again, these new assets will result in higher depreciation charges; but in many cases, due to technological improvements, there will be operating cost savings as well. The Company considers these matters in setting its pricing policies. SUBSEQUENT EVENT On January 27, 2000, the Company completed the acquisition of all of the outstanding common stock of Multigraphics, Inc. a supplier of high quality pre-press, press, and post-press equipment, 10 13 supplies, and technical services to the printing industry. Pursuant to the Merger Agreement, the Company paid $1.25 in cash per share, or $3.6 million, and assumed $7.4 million of outstanding debt of Multigraphics. In addition, the Company loaned $2.0 million to Multigraphics pursuant to a promissory note agreement executed by Multigraphics on September 29, 1999. The acquisition will be accounted for under the purchase method of accounting whereby the purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The purchase price allocation has not been completed as of March 30, 2000. For the fiscal year ended July 31, 1999, Multigraphics had net sales of approximately $107 million and operating income of approximately $1.8 million. In connection with the acquisition, the Company is formulating plans for the integration of Multigraphics operations into its printing and supplies business segment. As part of this integration, the Company anticipates that it will incur restructuring costs of approximately $1.5 million comprised primarily of employee termination and relocation costs which will be expensed during 2000. Employee termination costs and other costs pertaining to Multigraphics that qualify under EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, will be included in the purchase price allocation. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Forward-looking statements in this report, including without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) the Company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) the Company's plans and results of operations will be affected by the Company's ability to manage its growth and inventory and (iii) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK AND RISK MANAGEMENT POLICIES The following discussion provides information concerning the Company's financial instruments that are sensitive to changes in interest rates. The Company's available for sale securities of $3.6 million at December 31, 1999 are carried at fair value and invested primarily in United States corporate debt securities. Expected maturities range from one to ten years with rates of return averaging between 4.8% to 5.7%. Interest earned on these securities, which are similar enough to aggregate for presentation purposes, is not material to the results of operations of the Company. Substantially all of the Company's long-term debt consists of $115 million of series B Senior Notes due in April, 2008. The notes carry interest at a fixed rate of 9 5/8%, payable semi-annually. The notes are redeemable at the option of the Company, in whole or in part, any time on or after 2003, subject to certain call premiums. The carrying amount of the notes exceeded its fair value at December 31, 1999 and 1998 by $78,200 and $19,600, respectively. The fair value has been determined using the market price of the related securities at December 31, 1999 and 1998. The Company's $32 million credit agreement is fully revolving until its maturity in 2003. The credit agreement bears variable interest at an initial rate equal to either 1) the bank's prime rate plus 75 basis points or 2) LIBOR plus 275 basis points, at the option of the Company. The weighted average interest rate for borrowings under this facility was 8.9% in 1999. The Company's interest income and expense are most sensitive to changes in the U.S. interest rates, which impact interest earned on the Company's cash equivalents and available for sale securities as well as interest paid on borrowings under the revolving credit facility. The Company has mitigated the impact of interest rate fluctuations by issuing substantially all of its long term debt at fixed interest rates with a single maturity in 2008. The Company's earnings are also affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominantly in Japan, and to a lesser extent, European countries. An additional risk relates to product shipped between the Company's European subsidiaries. In addition to the impact on the intercompany balances, changes in exchange rates also affect volume of sales or the foreign currency sales price as competitors products become more or less attractive. 11 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The Report of Independent Auditors and the consolidated financial statements of Paragon Corporate Holdings Inc. for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997 are included herein. 15 PARAGON CORPORATE HOLDINGS INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---------- Report of Independent Auditors 14 Consolidated Balance Sheets 15 as of December 31, 1999 and 1998 Consolidated Statements of Operations 16 for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997 Consolidated Statements of Stockholder's Equity (Deficit) 17 for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997 Consolidated Statements of Cash Flows 18 for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997 Notes to Consolidated Financial Statements 19
13 16 REPORT OF INDEPENDENT AUDITORS To The Stockholder Paragon Corporate Holdings Inc. We have audited the accompanying consolidated balance sheets of Paragon Corporate Holdings Inc. as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Paragon Corporate Holdings Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997 in conformity with accounting principles generally accepted in the United States. /s/Ernst & Young LLP Cleveland, Ohio March 30, 2000 14 17 Paragon Corporate Holdings Inc. Consolidated Balance Sheets (Dollars in Thousands)
December 31, December 31, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 15,341 $ 7,462 Short-term investments 3,610 21,534 Accounts receivable, less allowances of $2,264 and $1,498 in 1999 and 1998, respectively 35,943 40,579 Inventories 45,924 48,094 Other current assets 1,923 2,458 -------- -------- Total current assets 102,741 120,127 Property, plant and equipment, net 20,363 18,700 Goodwill, net 30,692 31,861 Other assets 6,860 4,721 -------- -------- $160,656 $175,409 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Revolving credit facilities $ 10,219 $ - Accounts payable 18,813 23,471 Accrued compensation 6,034 8,302 Accrued other 14,701 16,362 Deferred service revenue 6,037 6,502 Due to GEC 852 1,724 Current portion of long-term debt and capital lease obligations 1,498 997 -------- -------- Total current liabilities 58,154 57,358 Senior Notes 115,000 115,000 Other long-term debt and capital lease obligations, less current portion 1,849 1,886 Retirement obligations 3,546 3,641 Other long-term liabilities 2,296 2,643 -------- -------- 180,845 180,528 Stockholder's equity (deficit): Common stock, no par value, Authorized 2,000 shares of Class A (voting) and 28,000 shares of Class B (non-voting); issued and outstanding 1,000 shares of Class A and 19,000 shares of Class B, at stated value 1 1 Paid-in capital 47 47 Retained earnings (deficit) (19,506) (4,279) Accumulated other comprehensive loss (731) (888) -------- -------- Total stockholder's equity (deficit) (20,189) (5,119) -------- -------- $160,656 $175,409 ======== ========
See notes to consolidated financial statements 15 18 Paragon Corporate Holdings Inc. Consolidated Statements of Operations (Dollars in Thousands)
Period From Jan. 17, 1997 Year Ended Year Ended through Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 --------------- --------------- --------------- Net revenue $248,668 $268,624 $193,216 Cost of revenue 158,803 163,958 129,651 -------- -------- -------- Gross profit 89,865 104,666 63,565 COSTS AND EXPENSES Sales and marketing expenses 42,275 44,383 26,386 General and administrative expenses 38,785 37,630 17,603 Research and development 3,631 3,046 3,755 Depreciation and amortization 7,270 5,496 1,481 Management fee 233 1,423 1,941 Acquisition, relocation and severance costs 1,633 2,705 1,400 -------- -------- -------- 93,827 94,683 52,566 -------- -------- -------- Operating income (loss) (3,962) 9,983 10,999 Interest income 1,044 1,728 789 Interest expense (12,383) (11,311) (2,598) Other income (expense) (90) (258) 139 -------- -------- -------- Income (loss) before foreign income taxes and extraordinary item (15,391) 142 9,329 Foreign income tax expense (benefit) (164) 745 775 -------- -------- -------- Income (loss) before extraordinary item (15,227) (603) 8,554 Extraordinary item -- (1,280) -- -------- -------- -------- Net income (loss) $(15,227) $ (1,883) $ 8,554 ======== ======== ========
See notes to consolidated financial statements. 16 19 Paragon Corporate Holdings Inc. Consolidated Statements of Stockholder's Equity (Deficit) (Dollars in Thousands)
Accumulated Retained Other Common Paid-In Earnings Comprehensive Stock Capital (Deficit) Income (Loss) Total ------ ------- -------- ------------- ----------- Balance at January 17, 1997 $1 $47 $ -- $ -- $ 48 Comprehensive income: Net income 8,554 8,554 Foreign currency translation adjustment (521) (521) -------- Total comprehensive income 8,033 Accrued dividend for stockholder's income taxes (950) (950) ---- --- -------- ----- ------- Balance at December 31, 1997 1 47 7,604 (521) 7,131 Comprehensive loss: Net loss (1,883) (1,883) Foreign currency translation adjustment (321) (321) Minimum pension liability (46) (46) -------- Total comprehensive loss (2,250) Dividend distribution to stockholder (10,000) (10,000) ---- --- -------- ----- -------- Balance at December 31, 1998 1 47 (4,279) (888) (5,119) Comprehensive loss: Net loss (15,227) (15,227) Foreign currency translation adjustment 165 165 Minimum pension liability 46 46 Unrealized losses on available-for-sale securities (54) (54) -------- Total comprehensive loss (15,070) ---- --- -------- ----- -------- Balance at December 31, 1999 $1 $47 $(19,506) $(731) $(20,189) ==== === ======== ===== ========
See notes to consolidated financial statements 17 20 Paragon Corporate Holdings Inc. Consolidated Statements of Cash Flows (Dollars in Thousands)
Period From Jan. 17, 1997 Year Ended Year Ended through Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 --------------- --------------- --------------- OPERATING ACTIVITIES: Net income (loss) $(15,227) $ (1,883) $ 8,554 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary item -- 1,280 -- Provision for depreciation and amortization 7,270 5,496 1,481 Gain on sale of equipment -- (845) -- Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 4,636 (2,758) (205) (Increase) decrease in inventory 1,830 (63) 6,029 Increase in other assets 44 (1,128) (877) Increase (decrease)in accounts payable (4,658) 9,328 1,193 (Decrease) in other liabilities (4,489) (7,918) (1,090) -------- -------- -------- Net cash provided by (used in) operating activities (10,594) 1,509 15,085 INVESTING ACTIVITIES: Accounts receivable used in connection with the acquisition of A.B.Dick Company -- -- (19,489) Loan to Multigraphics (2,000) -- -- Purchases of property, plant and equipment (6,542) (9,979) (1,860) Proceeds from the sale of equipment -- 858 -- (Increase) decrease in short-term investments 17,870 (17,358) 1,954 Payment of acquisition liabilities -- -- (4,379) Acquisition of businesses, less cash acquired -- (1,095) (4,910) -------- -------- -------- Net cash provided by (used in) investing activities 9,328 (27,574) (28,684) FINANCING ACTIVITIES: Borrowings (payments) on revolving credit facilities 10,219 (26,084) 18,603 Decrease in amounts due to GEC and affiliates (872) (1,221) (2,436) Proceeds from issuance of Senior Notes -- 115,000 -- Payment of bond issuance cost -- (5,241) -- Dividend distribution -- (10,000) -- Proceeds from long-term borrowings 808 -- -- Principal payments on long-term borrowings (1,221) (41,889) (914) -------- -------- -------- Net cash provided by financing activities 8,934 30,565 15,253 Effect of exchange rate changes on cash 211 (321) (521) -------- -------- -------- Increase in cash and cash equivalents 7,879 4,179 1,133 Cash and cash equivalents at beginning of period 7,462 3,283 2,150 -------- -------- -------- Cash and cash equivalents at end of period $ 15,341 $ 7,462 $ 3,283 ======== ======== ========
See notes to consolidated financial statements 18 21 PARAGON CORPORATE HOLDINGS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 (Dollars in Thousands) A. ORGANIZATION Paragon Corporate Holdings Inc. (hereinafter referred to as the "Company") is a Delaware holding company organized in September 1996. The Company has no independent operations or investments other than its investments in its subsidiaries, except that the Company has temporarily invested, at the holding company level, the residual proceeds from the Senior Notes issued during 1998. NES Group, Inc. is the sole stockholder of the Company. B. ACQUISITIONS The Company commenced operations on January 17, 1997 through the acquisition on that date of the common stock of A.B.Dick Company and its wholly owned subsidiaries (collectively "A.B.Dick"), from General Electric Company Ltd. ("GEC"). Under the terms of the stock purchase agreement, A.B.Dick transferred to GEC $19,489 of domestic accounts receivable (which were collected by A.B.Dick during 1997 and remitted to GEC) and the Niles manufacturing and headquarters facilities, which had a carrying amount of $3,500. GEC agreed to let the Company use these facilities until the Company moved to new manufacturing, headquarters and distribution facilities during 1998. GEC also agreed to fund up to $1,500 in severance costs incurred in 1997 and to reimburse the Company in 1998 for moving costs up to $2,000. These amounts have been reflected in the allocation of the purchase price. Restructuring reserves of $6,000 were included in the purchase price allocation in accordance with the Company's business plans to substantially reorganize the A.B.Dick operations. These reserves represented accruals for severance of administrative and operating employees and occupancy costs to be incurred in 1997 and 1998 for idle manufacturing and headquarters facilities prior to the relocation of operations in 1998. As of December 31, 1998, the Company expended all of the amounts provided for in the purchase price allocation. In the first quarter of 1999, the Company completed the physical relocation of its headquarters, distribution center and manufacturing activities. Since the fair value of the net assets acquired exceeded the purchase price by approximately $16,359, the historical book values of the acquired property, plant and equipment ($12,900) were recorded on the January 17, 1997 opening balance sheet at zero. The remaining excess ($3,459) of fair value of net assets acquired over purchase price is classified as other long-term liabilities and is being amortized into income over ten years. This transaction was accounted for under the purchase method of accounting. On December 5, 1997, the Company acquired all the common stock of Curtis Industries, Inc. ("Curtis"), a national distributor of products in the automotive and industrial markets, for a purchase price of $22,200 composed primarily of $6,500 in cash and $15,700 in seller notes. The acquisition was accounted for under the purchase method of accounting and, accordingly, the results of operations of Curtis are included in the consolidated financial statements since the date of acquisition. The following unaudited pro forma results of operations assume the acquisition of Curtis occurred on January 1, 1997. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on January 1, 1997: 19 22 Period from Jan. 17, 1997 through Dec. 31, 1997 -------------- Net revenues $267,419 Costs and expenses 250,295 Acquisition costs 1,400 Operating income 15,724 Net Income 8,700 During 1998, the Company acquired two businesses, which added complementary products and increased distribution for the Company's foreign printing equipment and supplies business. The cost of the acquisitions, net of cash acquired, was $1,095. The acquisitions have been accounted for as purchases with the acquired assets and liabilities recorded at estimated fair value at the date of acquisition. The acquired companies operating results have been included in the statement of operations since their respective date of acquisition. Proforma results of operations assuming the acquisitions occurred on January 1, 1997 have not been presented as the impact of these acquisitions was not material. On January 27, 2000, the Company completed the acquisition of all of the outstanding common stock of Multigraphics, Inc. ("Multigraphics"), a supplier of high quality pre-press, press, and post-press equipment, supplies, and technical services to the printing industry. Pursuant to the Merger Agreement, the Company paid $1.25 in cash per share, or $3.6 million, and assumed $7.4 million of outstanding debt of Multigraphics. In addition, the Company loaned $2.0 million to Multigraphics pursuant to a promissory note agreement executed by Multigraphics on September 29, 1999. The acquisition will be accounted for under the purchase method of accounting whereby the purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair values. The purchase price allocation has not been completed as of March 30, 2000. For the fiscal year ended July 31, 1999, Multigraphics had net sales of approximately $107 million and operating income of approximately $1.8 million. C. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Cash Equivalents and Investments The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company's available-for-sale securities are comprised primarily of corporate debt securities and commercial paper and have maturities ranging from less than one year to ten years. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in other comprehensive income. Interest, dividends, realized gains and losses, and declines in value judged to be other than temporary, are recognized in net income (loss). The cost of securities sold is based on the specific identification method. Accounts Receivable Provisions for credit losses were approximately $1,546, $760 and $1,124 for the years ended December 31, 1999 and 1998, and for the period from January 17, 1997 through December 31, 1997, respectively. Accounts written off were approximately $780, $1,173 and $124 for the years ended December 31, 1999 and 1998 and the period from January 17, 1997 through December 31, 1997, respectively. Inventories Domestic inventories, which represent approximately 75% and 80% of total consolidated inventory at December 31, 1999 and 1998, respectively, are determined on the last-in, first-out (LIFO) basis and foreign 20 23 inventories are determined on the first-in, first-out (FIFO) basis. Where necessary, reserves are provided to value inventory at the lower of cost or market. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, short-term investments, trade receivables and payables approximates fair value because of the short maturity of these instruments. The carrying amount of the revolving credit facility approximates fair value. The carrying amount of long-term debt exceeds its fair value at December 31, 1999 and 1998 by $78,200 and $19,600, respectively. The fair value has been determined using the market price of the related securities at December 31, 1999 and 1998. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and trade accounts receivable. The Company maintains cash and cash equivalents and short-term investments with financial institutions. The Company's policy is designed to limit exposure to any one investment type. The Company performs periodic evaluations of the relative credit standing of the various investments that are contained in the Company's investment portfolio. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base. The Company does not require collateral for trade accounts receivable. Property, Plant and Equipment Property, plant and equipment are stated at cost (See Note B). Depreciation is computed using the straight-line method based on the expected useful lives of the assets, which are as follows: Building and improvements 15 to 40 years Machinery and equipment 3 to 18 years Rental equipment 3 years Goodwill Goodwill is being amortized on a straight-line basis over 30 years. Accumulated amortization was $2,762 and $1,585 at December 31, 1999 and 1998, respectively. The ongoing value and remaining useful life of goodwill are subject to periodic evaluation and the Company currently expects the carrying amounts to be fully recoverable. Impairment of Long-lived Assets Impairment of long-lived assets and related goodwill is recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable and the Company's estimate of undiscounted cash flows over the assets remaining estimated useful life are less than the assets carrying value. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. No impairment has been recorded in the consolidated financial statements. Income Taxes The Company and its domestic subsidiaries, have elected Subchapter S Corporation status for United States income tax purposes. Accordingly, the Company's United States operations are not subject to income taxes as separate entities. The Company's United States income is included in the income tax returns of the stockholder. Under terms of the tax payment agreement with the stockholder, the Company makes distributions to the stockholder for payment of income taxes. No amount was accrued or paid for the years ended December 31, 1999 and 1998. At December 31, 1997, the Company accrued dividends totaling $950, for the payment of stockholder's income taxes, which was paid in 1998. On March 14, 2000, A.B.Dick elected C Corporation status for United States income tax purposes effective January 1, 2000. Pursuant to FASB 109, "Accounting For Income Taxes", A.B. Dick will recognize existing deferred income taxes of approximately $1 million in future periods. This recognition will have no impact on operating income or EBITDA of A.B. Dick Company. 21 24 The foreign subsidiaries of A.B.Dick and Curtis are subject to foreign income taxes. Accordingly, deferred taxes have been provided for the expected future tax consequences of temporary differences in the foreign subsidiaries between the carrying amount and tax basis of assets and liabilities. Where the Company has determined that it is more likely than not that deferred assets will not be realized, a valuation allowance has been established. For the years ended December 31, 1999 and 1998, and for the period January 17, 1997 through December 31, 1997, the Company paid foreign income taxes of $258, $557 and $824, respectively. Revenue Recognition For the majority of its operations, the Company recognizes revenues upon shipment of its equipment and products. A.B.Dick receives advance payments for service contracts and recognizes income on a straight line basis over the contract term as service is provided. Deferred revenues are recorded on the balance sheet related to these advance payments. Product Warranty A.B.Dick's products (pre-press, press and post-press equipment, copiers, repair parts and supplies) are subject to varying warranty periods. A reserve for estimated future warranty obligations is included in accrued expenses based on historical rates of warranty claims. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs for the years ended December 31, 1999 and 1998 and the period from January 17, 1997 through December 31, 1997 amounted to $2,376, $2,795 and $1,832, respectively. Management Fee Operations include management fees charged by Nesco, Inc., an affiliate of the stockholder of the Company, to provide management, legal, financial, strategic planning, business development and other services to the Company. Effective April 1, 1998, the Company and Nesco, Inc. entered into a new management agreement under which the Company has agreed to pay Nesco, Inc. fees for such services equal to 5% of earnings before interest, taxes, depreciation, amortization and other income and expense. Foreign Currency Translation The assets and liabilities of the Company's foreign subsidiaries are translated at current exchange rates, while revenue and expenses are translated at average rates prevailing during the period. The effects of exchange rate fluctuations have been reported in other comprehensive income. Gains and losses from foreign currency transactions are included in net income (loss). Foreign currency exchange gains (losses) for the years ended December 31, 1999, 1998 and the period from January 17, 1997 through December 31, 1997 were not material. Comprehensive Income (Loss) Accumulated other comprehensive loss at December 31, 1999 consists of $677 relating to foreign currency translation adjustments and $54 relating to unrealized losses on available-for-sale securities. Accumulated other comprehensive loss at December 31, 1998 consists of $842 relating to foreign currency translation adjustments and $46 relating to minimum pension liability adjustments. New Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which, as amended by FASB Statement 137, is required to be adopted no later than January 1, 2001. Since it is the Company's intent not to use derivatives, management believes that the adoption of the new Statement will not have a significant effect on the results of operations or financial position of the Company. Use of Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets or liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 22 25 Reclassifications Certain amounts from the prior year financial statements have been reclassified to conform to current year presentation. D. INVESTMENTS The following is a summary of available-for-sale securities: Unrealized Unrealized Estimated DECEMBER 31, 1999 Cost Gains Losses Fair Value ------ ----- ------ ---------- U.S. corporate debt securities $2,631 $-- $ 29 $2,602 Other debt securities 1,033 -- 25 1,008 ------ --- ------ ------ $3,664 -- $ 54 $3,610 ====== === ====== ====== Unrealized Unrealized Estimated DECEMBER 31, 1998 Cost Gains Losses Fair Value ------- ------- ------ ---------- U.S. corporate securities $ 2,999 $ -- $ -- $ 2,999 Commercial paper 18,535 -- -- 18,535 ------- ------- ------- ------- $21,534 $ -- $ -- $21,534 ======= ======= ======= ======= In 1999 and 1998, the gross realized gains on sales of available-for-sale securities totaled $1 and $195, respectively, and the gross realized losses totaled $73 and $198, respectively. The net adjustment to unrealized holding losses on available-for-sale securities, included as a component of comprehensive income totaled approximately $54 in 1999. The amortized cost and estimated fair value of debt securities at December 31, 1999, by contractual maturity, are shown below. Estimated Cost Fair Value ------ ---------- Due after one year through five years $2,663 $2,610 Due after five years through ten years 1,001 1,000 ------ ------ $3,664 $3,610 ====== ====== E. INVENTORIES Inventories are summarized as follows: December 31, December 31, 1999 1998 ------------ ------------ Raw materials and work in process $ 5,527 $ 6,768 Finished goods 37,290 38,111 LIFO reserve 3,107 3,215 ------- ------- $45,924 $48,094 ======= ======= 23 26 F. PROPERTY, PLANT AND EQUIPMENT Property and equipment (See Notes B and C) is summarized as follows: December 31, December 31, 1999 1998 ------------ ------------ Land $ 371 $ 371 Buildings and improvements 7,559 6,823 Machinery and equipment 15,144 11,018 Rental assets 7,254 4,836 ------- ------- 30,328 23,048 Less: accumulated depreciation 9,965 4,348 ------- ------- $20,363 $18,700 ======= ======= Depreciation expense for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997, was $6,101, $4,330, and $1,062, respectively. G. FINANCING ARRANGEMENTS Long-term debt included the following:
December 31, December 31, 1999 1998 ------------ ------------ PARAGON: 9 5/8% Series B Senior Notes, interest payable semi-annually, due April, 2008 $115,000 $115,000 CURTIS: Capital lease obligations 377 49 A.B.DICK: Term loan payable in monthly installments through February 2004; interest rate of 11% 499 -- Term loan payable in monthly installments through March 2004; interest rate of 8% 182 -- Capital lease obligations 2,289 2,834 -------- -------- Total debt 118,347 117,883 Less: current portion 1,498 997 -------- -------- Total long-term debt $116,849 $116,886 ======== ========
The aggregate maturities of the long-term debt for each of the five years subsequent to December 31, 1999 are as follows: Year Ending December 31: 2000 $ 1,498 2001 786 2002 514 2003 406 2004 124 Thereafter 115,019 The Revolving Credit Facility is classified as a current liability on the balance sheet to comply with the accounting requirements. However, the Revolving Credit Facility amount of $10,219 expires in 2003. On April 1, 1998, the Company issued $115 million of 9 5/8% Series A Senior Notes due 2008. On September 1, 1998, the Company completed an exchange of all of the 9 5/8% Series A Senior Notes for 9 5/8% Series B Senior Notes due 2008 ("Series B Notes" or "Senior Notes"). The Series B Senior Notes are registered under the Securities Act of 1933 and are redeemable at the option of the Company, in whole or in part, any time on or after 2003 subject to certain call premiums. Interest on the Senior Notes is payable semi-annually in arrears. The Senior Notes are unsecured obligations of the Company and are guaranteed by the domestic subsidiaries of the Company and contain various restrictive covenants that, among other things, place limitations on the sale of assets, 24 27 payment of dividends, incurring additional indebtedness and restrict transactions with affiliates. Debt issuance costs of $4,917 have been capitalized and are being amortized over the life of the Senior Notes. The proceeds of the Senior Notes were utilized as follows: Gross proceeds of Senior Notes $115,000 Repayment of term loans (39,649) Repayment of revolving credit (26,084) facilities Dividend paid to stockholder (10,000) Fees and expenses (5,241) -------- Excess cash from proceeds $ 34,026 ======== The Company and Key Corporate Capital Inc. ("Key") are parties to a credit facility and security agreement dated April 1, 1998 and amended as of December 31, 1998, pursuant to which Key has provided the Company a revolving line of credit equal to $32.0 million (the "Credit Agreement"). The availability under the Credit Agreement is equal to the sum of (i) 85% of the eligible Curtis accounts receivable, plus 80% of the eligible A.B.Dick accounts receivable, plus (ii) 60% of the eligible Curtis inventory (capped at $6.4 million), plus 60% of the eligible A.B.Dick inventory (capped at $9.6 million), less (iii) reserves and outstanding letters of credit. The Credit Agreement is guaranteed by Curtis and A.B.Dick pursuant to separate credit guaranty agreements with Key. The Credit Agreement is secured by liens on accounts receivable and inventory of Curtis and A.B.Dick, pursuant to separate security agreements between Key and each of Curtis and A.B.Dick. The Credit Agreement contains certain financial and other covenants which, among other things, establish minimum EBITDA and fixed charge ratios. These financial covenants were amended in March 2000 to reflect the Company's current financial outlook and the acquisition of Multigraphics. The Credit Agreement is fully revolving until its final maturity in 2003. The Credit Agreement bears interest at a rate determined according to a sliding scale under which the rate adjusts based upon the Company's performance. The Credit Agreement bears interest at an initial rate equal to (i) Key's prime rate plus 75 basis points, or (ii) LIBOR plus 275 basis points, at the option of the Company. At December 31, 1999, $10.2 million was outstanding under the Revolving Credit Facility. A fee of 3/8% per annum is charged on the unused portion of the Revolving Credit Facility. At December 31, 1999 and 1998 there were $3.1 million and $3.7 million of letters of credit outstanding, respectively. The weighted average interest rate for this facility was 8.9% in 1999. At December 31, 1999, the Company was in violation of the minimum EBITDA and fixed charge ratio covenants for which it received waivers through June 29, 2000. During the years ended December 31, 1999 and 1998 and the eleven-month and fifteen-day period ended December 31, 1997, the Company paid interest of $11,523 and $9,727 and $1,242, respectively. An extraordinary expense of $1,280 was recorded during the second quarter of 1998 related to the write-off of deferred financing costs and fees associated with the early extinguishment of certain of the Company's debt. H. LEASE COMMITMENTS The Company leases certain facilities and equipment which generally provide that the Company pay the insurance, maintenance and property taxes related to the leases. In the normal course of business, the Company expects that, as leases expire, they will be renewed or replaced by other leases. The leases generally provide for renewal options and various escalation clauses. 25 28 As of December 31, 1999, minimum lease payments under capitalized leases and non-cancelable operating leases are as follows: Capital Operating Leases Leases ------ ------ Year Ending December 31: 2000 $1,544 $ 5,254 2001 723 4,764 2002 403 4,357 2003 246 3,196 2004 118 1,836 Thereafter 20 4,080 ------ ------- Total minimum lease payments $3,054 $23,487 ======= Imputed interest 388 Present value of minimum ------ lease payments (including current portion of $1,346) $2,666 ====== The above lease commitments have not been reduced by aggregate minimum sublease rentals of $745 due in the future under non-cancelable subleases. The Company had $4,066, $4,682 and $2,226 of rental expense for the years ended December 31, 1999 and 1998, and for the period from January 17, 1997 through December 31, 1997, respectively. Assets held under capitalized leases and included in machinery and equipment were $2,107 and $2,074, net of accumulated amortization of $1,093 and $248 at December 31, 1999 and 1998, respectively. Amortization of these assets is included in depreciation expense in the statement of operations. During 1999 and 1998, the Company incurred capital lease obligations of $876 and $2,240, for the acquisition of property, plant and equipment. In connection with the relocation of its operations, A.B. Dick entered into a lease agreement during the first quarter of 1998 for new headquarters facilities with an affiliate of the Company. The lease has a term of 10 years and requires monthly rental payments of approximately $35, has one five-year renewal option and provides for rental increases of 3% per year commencing with the second lease year. In December 1996, Curtis entered into a lease agreement with an affiliate of the Company. The lease has a ten year term, requires monthly rental payments of $37, has two five-year renewal options and provides for rental increases in year four and year eight of the lease. I. SEGMENT INFORMATION The Company has two reportable segments: printing equipment and supplies and automotive and industrial supplies. The Company's printing equipment and supplies business consists of operating units that sell equipment, repair parts and supplies and provide maintenance and repair service support on equipment. These products are sold directly through a network of branches and independent distributors to the global quick print and small commercial printing customers in the United States, Canada, the United Kingdom, the Netherlands and Belgium, as well as other European countries. The Company's automotive and industrial supplies business distributes automotive security products, non-model specific automotive parts and maintenance, repair and operating supplies. Customers include independent auto dealerships and industrial accounts throughout North America and the United Kingdom. 26 29 The Company evaluates performance and allocates resources based on profit or loss from operations before interest, gains and losses on the Company's investment portfolio and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company's reportable segments are business units that offer different products and services. The reportable segments are each managed separately because they manufacture and distribute distinct products in distinct markets.
Period From Jan. 17, 1997 Year Ended Year Ended through Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 ------------- ------------- ------------- Net revenues: Printing equipment and supplies $165,158 $187,488 $186,315 Automotive and industrial supplies 83,510 81,136 6,901 -------- -------- -------- Total net revenues $248,668 $268,624 $193,216 ======== ======== ======== Depreciation and amortization: Printing equipment and supplies $ 2,705 $ 1,610 $ 1,210 Automotive and industrial supplies 4,565 3,886 271 -------- -------- -------- Total depreciation and amortization $ 7,270 $ 5,496 $ 1,481 ======== ======== ======== Operating income (loss): Printing equipment and supplies $ (7,728) $ 7,278 $ 12,104 Automotive and industrial supplies 4,352 3,126 328 -------- -------- -------- (3,376) 10,404 12,432 Corporate expenses (676) (679) (1,294) Interest income (expense), net (11,339) (9,583) (1,809) -------- -------- -------- Income (loss) before taxes and extraordinary item $(15,391) $ 142 $ 9,329 ======== ======== ======== Segment assets: Printing equipment and supplies $ 72,539 $ 79,448 $ 66,014 Automotive and industrial supplies 69,505 69,297 67,440 -------- -------- -------- 142,044 148,745 133,454 Corporate assets 49,866 38,562 4,621 Intersegment accounts receivable (31,254) (11,898) -- -------- -------- -------- Total assets $160,656 $175,409 $138,075 ======== ======== ======== Capital expenditures: Printing equipment and supplies $ 3,392 $ 6,853 $ 1,338 Automotive and industrial supplies 3,150 3,126 522 -------- -------- -------- Total capital expenditures $ 6,542 $ 9,979 $ 1,860 ======== ======== ========
The Company's principal operations are in the United States, but it also maintains operating subsidiaries in Belgium, the Netherlands, Canada and the United Kingdom. Net revenues are attributed to countries based on the location of the subsidiary where the sale occurs. Transfers between geographic areas are accounted for at market with appropriate adjustments made to inventory carrying values in consolidation. Identifiable assets represent long-lived assets that are used in the Company's operations in each geographic area at year end. 27 30 The Company's financial data by geographic area for the years ended December 31, 1999 and 1998 and the period from January 17, 1997 through December 31, 1997 is as follows:
Period From Jan. 17, 1997 Year Ended Year Ended through Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 ------------- ------------- ------------- Net revenues: Domestic $199,982 $208,551 $154,934 Foreign: Canada 22,278 28,072 21,397 Belgium 3,615 4,256 3,910 United Kingdom 21,462 23,967 17,157 Other 5,487 4,150 309 Elimination between geographic areas (4,156) (372) (4,491) -------- -------- -------- Total net revenues $248,668 $268,624 $193,216 ======== ======== ======== Operating income (loss): Domestic $ (544) $ 8,342 $ 8,863 Foreign: Canada (30) 1,024 1,402 Belgium (1,289) (245) (291) United Kingdom (1,276) 479 798 Other (831) 410 250 Elimination between geographic areas 8 (27) (23) -------- -------- -------- Total operating income (loss) $ (3,962) $ 9,983 $ 10,999 ======== ======== ======== Long-lived assets: Domestic $ 19,045 $ 17,849 $ 9,351 Foreign: Canada 437 983 369 Belgium 22 81 -- United Kingdom 545 686 91 Other 314 (899) 187 -------- -------- -------- Total long-lived assets $ 20,363 $ 18,700 $ 9,998 ======== ======== ========
J. CONTINGENCIES On April 30, 1997, four former and current distributors of A.B.Dick filed a suit against A.B.Dick, the Predecessor Company, alleging, among other things, breach of distributorship contracts and unfair and deceptive trade practices. The plaintiffs have requested that the case be given class action status with respect to all A.B.Dick distributors engaged under distributorship contracts during the four-year period ended on April 30, 1997. The Company intends to vigorously defend this case although there can be no assurance as to the eventual outcome. GEC has agreed to fully indemnify the Company against all costs and liabilities in connection with any litigation that is pending or may be brought against A.B.Dick arising out of events occurring prior to the closing of the A.B.Dick acquisition, including the case mentioned in the previous paragraph for all amounts in excess of $250 up to an aggregate liability of $15,000. In addition, both A.B.Dick and Curtis are parties to routine litigation incidental to their businesses, some of which is covered by insurance. The Company does not believe that any such pending litigation will have a material adverse effect upon its results of operations or financial condition. K. EMPLOYEE BENEFIT PLANS Effective March 1, 1997, the A.B.Dick established a defined contribution plan that includes an employee 401(k)-contribution provision covering certain employees of A.B.Dick. The plan provides for employee contributions ranging from 1%-15% of employee's compensation, subject to statutory limitation, as well as a matching Company contribution equal to 25% of the employee's contribution but limited to 6% of compensation. The 28 31 Company contribution for the years ended December 31, 1999 and 1998, and for the eleven-month and fifteen-day period ended December 31, 1997, was approximately $311, $314, and $600, respectively. Curtis has deferred compensation agreements with certain former executives, which provide for payments of a fixed level of compensation on a monthly basis from retirement until death. Curtis also maintains a Supplemental Executive Retirement Plan in which one former executive participates. Expense recognized for the executive deferred compensation and Supplemental Executive Retirement Plans for 1999, 1998 and 1997 were $73, $161 and $5, respectively. Additionally, Curtis has a deferred compensation plan for the benefit of sales representatives attaining specified sales goals. Curtis credits eligible participant's accounts with a percentage of their annual earnings. The annual amount credited to participant accounts vests at the rate of 5% per annum. Eligible participants over the age of 55 vest at an accelerated rate. Expense under this plan was $161 in 1999, $222 in 1998 and $17 in 1997. Curtis also maintains a 401(k) retirement savings plan covering substantially all employees. Contributions to the 401(k) plan are based upon a percentage of each participant's compensation. The plan provides for employee contributions ranging from 1% - 15% of employee's compensation, subject to statutory limitation as well as a matching company contribution which is based on a formula defined in the plan document. The expense for the plan in 1999, 1998 and 1997 were $270, $250 and $22 respectively. Liabilities recorded for the outstanding contributions to these Plans at December 31, 1999 were $2,239 and $2,150 at December 31, 1998. Curtis maintains a defined benefit pension plan and a postretirement benefit plan for certain former UAW manufacturing employees. The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheet as of December 31, 1999 and 1998:
Post-retirement Pension Benefits Benefits ------------------------- ------------------------- 1999 1998 1999 1998 ------- ------- ------- ------- Change in benefit obligation: Beginning balance $2,387 $2,428 $ 1,433 $ 1,406 Interest cost 138 141 95 100 Actuarial (gain) loss (246) 22 348 40 Benefits paid (199) (204) (135) (113) ------ ------ ------- ------- Ending balance $2,080 $2,387 $ 1,741 $ 1,433 Change in plan assets: Beginning balance $1,992 $2,081 $ -- $ -- Actual return on plan assets 95 115 -- -- Employer contributions 10 -- 135 113 Benefits paid (199) (204) (135) (113) ------ ------ ------- ------- Ending balance $1,898 $1,992 $ -- $ -- ------ ------ ------- ------- Projected benefit obligation in excess of plan assets $ (182) $ (395) $(1,741) $(1,433) Unrecognized net actuarial (gain) loss (162) 0 388 40 Minimum pension liability adjustment -- 46 -- -- ------ ------ ------- ------- Accrued benefit cost (balance sheet) $ (344) $ (349) $(1,353) $(1,393) ====== ====== ======= =======
29 32 Assumptions used in the accounting for the employee benefit plans are shown in the following table as weighted-averages: 1999 1998 ---- ---- Pension benefits: Discount rate 7.25% 6.0% Expected return on plan assets 7.0 % 7.0% Postretirement benefits: Discount rate 7.5 % 7.5% For measurement purposes, a 9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000. The rate was assumed to decrease to 5.5% by 2007.
Post-retirement Pension Benefits Benefits -------------------- ------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Components of net periodic benefit cost: Interest cost $ 138 $ 141 $95 $100 Expected return on plan assets (133) (139) -- -- ----- ----- --- ---- Net periodic benefit cost $ 5 $ 2 $95 $100 ===== ===== === ====
Assumed health care cost trend rates have a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would change the accumulated postretirement benefit obligation as of December 31, 1999 by approximately $100. The effect on this change on the interest expense component of the net postretirement benefit expense for 1999 would be an increase or decrease of approximately $5. L. GUARANTOR AND NON-GUARANTOR SUBSIDIARY INFORMATION The Company's domestic subsidiaries, all of which are directly or indirectly wholly owned, are the only guarantors of the Senior Notes. The guarantees are full, unconditional and joint and several. Separate financial statements of these guarantor subsidiaries are not presented as management has determined that they would not be material to investors. The Company's foreign subsidiaries are not guarantors of the Senior Notes. Summarized condensed, consolidating financial statements for the Company, the guarantor subsidiaries and the non-guarantor, foreign subsidiaries are as follows: 30 33
Combined Combined The Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Total ------- ------------ ------------ ------------ ----- BALANCE SHEET DATA (DECEMBER 31, 1999): Current assets: Cash and cash equivalents $ 7,760 $ 5,396 $ 2,185 $ -- $ 15,341 Short-term investments 3,610 -- -- -- 3,610 Accounts receivable, net 31,254 26,155 9,788 (31,254) 35,943 Inventories -- 35,880 10,238 (194) 45,924 Other 398 889 636 -- 1,923 -------- -------- ------- --------- -------- Total current assets 43,022 68,320 22,847 (31,448) 102,741 Property, plant and equipment, net 5 19,040 1,318 -- 20,363 Goodwill -- 30,637 55 -- 30,692 Investment in subsidiaries 58,488 15,028 -- (73,516) -- Other assets 6,839 17 4 -- 6,860 Intercompany -- -- -- -- -- -------- -------- ------- --------- -------- Total Assets $108,354 $133,042 $24,224 $(104,964) $160,656 ======== ======== ======= ========= ======== Current liabilities: Revolving credit facility $ 10,219 $ -- $ -- $ -- $ 10,219 Accounts payable -- 16,167 2,646 -- 18,813 Accrued expenses 3,324 13,968 3,443 -- 20,735 Deferred service revenue -- 4,942 1,095 -- 6,037 Due to GEC -- 852 -- -- 852 Current portion of long-term debt -- 1,448 50 -- 1,498 and capital lease obligations Intercompany -- 27,123 5,163 (32,286) -- -------- -------- ------- --------- -------- Total current liabilities 13,543 64,500 12,397 (32,286) 58,154 Senior notes 115,000 -- -- -- 115,000 Other long-term debt and capital lease obligations, less current portion -- 1,717 132 -- 1,849 Retirement obligations -- 3,539 7 -- 3,546 Other long-term liabilities -- 2,296 -- -- 2,296 Stockholder's equity (deficit) (20,189) 60,990 11,688 (72,678) (20,189) -------- -------- ------- --------- -------- Total liabilities and stockholder's equity $108,354 $133,042 $24,224 $(104,964) $160,656 ======== ======== ======= ========= ========
31 34
Combined Combined The Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ----- INCOME STATEMENT DATA (YEAR ENDED DECEMBER 31, 1999): Net revenue $ -- $199,982 $52,842 $(4,156) $248,668 Cost of revenue -- 126,147 36,820 (4,164) 158,803 -------- -------- ------- ----- -------- Gross profit -- 73,835 16,022 8 89,865 Total operating expenses 586 73,794 19,447 -- 93,827 -------- -------- ------- ----- -------- Operating income (loss) (586) 41 (3,425) 8 (3,962) Interest income (expense), net (9,871) (1,536) 68 -- (11,339) Other income (expense) -- (81) (9) -- (90) -------- -------- ------- ----- -------- Income (loss) before foreign income taxes (10,457) (1,576) (3,366) 8 (15,391) Foreign income taxes -- 49 (213) -- (164) -------- -------- ------- ----- -------- Net income (loss) $(10,457) $ (1,625) $(3,153) $ 8 $(15,227) ======== ======== ======= ===== ======== CASH FLOW DATA (YEAR ENDED DECEMBER 31, 1999): Net cash provided by (used in) operating activities $(10,069) $ 1,079 $(1,604) $ -- $(10,594) Investing activities: Loan to Multigraphics (2,000) -- -- -- (2,000) Purchases of property, plant and equipment -- (5,682) (860) -- (6,542) Decrease in short-term investments 17,870 -- -- -- 17,870 Acquisition of businesses, less cash acquired -- -- -- -- -- -------- -------- ------- ----- -------- Net cash used in investing activities 15,870 (5,682) (860) -- 9,328 Financing activities: Borrowings made on revolving credit facility 10,219 -- -- -- 10,219 Intercompany (8,288) 7,444 844 -- -- Decrease in amounts due to GEC and affiliates -- (872) -- -- (872) Proceeds from long-term borrowings -- 588 220 -- 808 Principal payments long-term borrowings -- (1,183) (38) -- (1,221) -------- -------- ------- ----- -------- Net cash provided by financing activities 1,931 5,977 1,026 -- 8,934 Effect of exchange rate on cash -- (152) 363 -- 211 -------- -------- ------- ----- -------- Increase in cash and cash equivalents 7,732 1,222 (1,075) -- 7,879 Cash and cash equivalents at beginning of period 28 4,174 3,260 -- 7,462 -------- -------- ------- ----- -------- Cash and cash equivalents at end of period $ 7,760 $ 5,396 $ 2,185 $ -- $ 15,341 ======== ======== ======= ===== ========
32 35
Combined Combined The Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ----- BALANCE SHEET DATA (DECEMBER 31, 1998): Current assets: Cash and cash equivalents $ 28 $ 4,174 $ 3,260 $ -- $ 7,462 Short-term investments 21,534 -- -- -- 21,534 Accounts receivable, net -- 29,736 10,843 -- 40,579 Inventories -- 38,688 9,610 (204) 48,094 Other 393 972 1,093 -- 2,458 -------- -------- ------- --------- -------- Total current assets 21,955 73,570 24,806 (204) 120,127 Property, plant and equipment, net -- 17,849 851 -- 18,700 Goodwill -- 31,801 60 -- 31,861 Investment in subsidiaries 74,118 13,803 -- (87,921) -- Other assets 4,709 4 8 -- 4,721 Intercompany 11,898 -- -- (11,898) -- -------- -------- ------- --------- -------- Total Assets $112,680 $137,027 $25,725 $(100,023) $175,409 ======== ======== ======= ========= ======== Current liabilities: Accounts payable $ -- $ 20,399 $ 3,072 $ -- $ 23,471 Accrued expenses 2,799 18,710 3,158 (3) 24,664 Deferred service revenue -- 5,237 1,265 -- 6,502 Due to GEC -- 1,724 -- -- 1,724 Current portion of long-term debt -- 997 -- -- 997 Intercompany -- 8,016 4,917 (12,933) -- -------- -------- ------- --------- -------- Total current liabilities 2,799 55,083 12,412 (12,936) 57,358 Senior notes 115,000 -- -- -- 115,000 Long-term debt, less current portion -- 1,886 -- -- 1,886 Retirement obligations -- 3,627 14 -- 3,641 Other long-term liabilities -- 2,643 -- -- 2,643 Stockholder's equity (deficit) (5,119) 73,788 13,299 (87,087) (5,119) -------- -------- ------- --------- -------- Total liabilities and stockholder's equity $112,680 $137,027 $25,725 $(100,023) $175,409 ======== ======== ======= ========= ========
33 36
Combined Combined The Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ----- INCOME STATEMENT DATA (YEAR ENDED DECEMBER 31, 1998): Net revenue $ -- $208,551 $60,445 $(372) $268,624 Cost of revenue -- 124,041 40,262 (345) 163,958 -------- -------- ------- ----- -------- Gross profit -- 84,510 20,183 (27) 104,666 Total operating expenses 421 75,747 18,515 -- 94,683 -------- -------- ------- ----- -------- Operating income (loss) (421) 8,763 1,668 (27) 9,983 Interest income (expense), net (7,741) (2,006) 164 -- (9,583) Other income (expense) -- (518) 260 -- (258) -------- -------- ------- ----- -------- Income (loss) before foreign income taxes and extraordinary item (8,162) 6,239 2,092 (27) 142 Foreign income taxes -- 51 694 -- 745 -------- -------- ------- ----- -------- Income (loss) before extraordinary item (8,162) 6,188 1,398 (27) (603) Extraordinary item (170) (1,110) -- -- (1,280) -------- -------- ------- ----- -------- Net income (loss) $ (8,332) $ 5,078 $ 1,398 $ (27) $ (1,883) ======== ======== ======= ===== ======== CASH FLOW DATA (YEAR ENDED DECEMBER 31, 1998): Net cash provided by (used in) operating activities $ (8,204) $ 9,429 $ 284 $ -- $ 1,509 Investing activities: Purchases of property, plant and equipment -- (9,434) (545) -- (9,979) Proceeds from the sale of equipment -- 858 -- -- 858 Increase in short-term investments (17,358) -- -- -- (17,358) Acquisition of businesses, less cash acquired -- (233) (862) -- (1,095) -------- -------- ------- ----- -------- Net cash used in investing activities (17,358) (8,809) (1,407) -- (27,574) Financing activities: Payments on revolving credit lines -- (26,084) -- -- (26,084) Intercompany (52,497) 49,785 2,712 -- -- Proceeds from bond offering 115,000 -- -- -- 115,000 Payment of bond issue cost (5,241) -- -- -- (5,241) Decrease in amounts due to GEC and affiliates -- (1,221) -- -- (1,221) Dividend distribution (10,000) -- -- -- (10,000) Decrease in long-term borrowings (21,700) (20,189) -- -- (41,889) -------- -------- ------- ----- -------- Net cash provided by financing activities 25,562 2,291 2,712 -- 30,565 Effect of exchange rate on cash -- 90 (411) -- (321) -------- -------- ------- ----- -------- Increase in cash and cash equivalents -- 3,001 1,178 -- 4,179 Cash and cash equivalents at beginning of period 28 1,173 2,082 -- 3,283 -------- -------- ------- ----- -------- Cash and cash equivalents at end of period $ 28 $ 4,174 $ 3,260 $ -- $ 7,462 ======== ======== ======= ===== ========
34 37
Combined Combined The Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ----- BALANCE SHEET DATA (DECEMBER 31, 1997): Current assets: Cash and cash equivalents $ 28 $ 1,173 $ 2,082 $ -- $ 3,283 Short-term investments 4,176 -- -- -- 4,176 Accounts receivable, net -- 29,230 8,778 (187) 37,821 Inventories -- 39,494 8,496 78 48,068 Other -- 900 635 -- 1,535 ------- -------- ------- -------- -------- Total current assets 4,204 70,797 19,991 (109) 94,883 Property, plant and equipment, net -- 9,351 647 -- 9,998 Goodwill -- 32,008 64 -- 32,072 Investment in subsidiaries 31,437 11,581 -- (43,018) -- Other assets 417 698 7 -- 1,122 Intercompany -- 4,000 -- (4,000) -- ------- -------- ------- -------- -------- Total assets $36,058 $128,435 $20,709 $(47,127) $138,075 ======= ======== ======= ======== ======== Current liabilities: Accounts payable $ -- $ 11,475 $ 2,668 $ -- $ 14,143 Accrued expenses 3,227 22,345 2,430 597 28,599 Deferred service revenue -- 5,903 1,057 -- 6,960 Due to GEC -- 945 -- -- 945 Restructuring and severance reserves -- 3,121 -- -- 3,121 Current portion of long-term debt 1,000 2,495 -- -- 3,495 Intercompany 4,000 -- -- (4,000) -- ------- -------- ------- -------- -------- Total current liabilities 8,227 46,284 6,155 (3,403) 57,263 Long-term debt, less current portion 20,700 46,421 -- -- 67,121 Retirement obligations -- 3,414 37 -- 3,451 Other long-term liabilities -- -- -- 3,109 3,109 Intercompany -- (1,155) 2,190 (1,035) -- Stockholder's equity 7,131 33,471 12,327 (45,798) 7,131 ------- -------- ------- -------- -------- Total liabilities and stockholder's equity $36,058 $128,435 $20,709 $(47,127) $138,075 ======= ======== ======= ======== ========
35 38
Combined Combined The Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ----- INCOME STATEMENT DATA (JANUARY 17, 1997 THROUGH DECEMBER 31, 1997): Net revenue $ -- $154,934 $42,773 $(4,491) $193,216 Cost of revenue -- 104,150 29,969 (4,468) 129,651 ------- -------- ------- ------- -------- Gross profit -- 50,784 12,804 (23) 63,565 Total operating expenses 33 41,888 10,645 -- 52,566 ------- -------- ------- ------- -------- Operating income (loss) (33) 8,896 2,159 (23) 10,999 Interest income (expense), net 146 (2,079) 124 -- (1,809) Other income (expense) -- (36) 175 -- 139 ------- -------- ------- ------- -------- Income (loss) before foreign income taxes 113 6,781 2,458 (23) 9,329 Foreign income taxes -- -- 775 -- 775 ------- -------- ------- ------- -------- Net income (loss) $ 113 $ 6,781 $ 1,683 $ (23) $ 8,554 ======= ======== ======= ======= ======== CASH FLOW DATA (JANUARY 17, 1997 THROUGH DECEMBER 31, 1997): Net cash provided by operating activities: $ 563 $ 12,668 $ 1,854 $ -- $ 15,085 Investing activities: Accounts receivable used in connection with acquisition of A. B. Dick -- (19,489) -- -- (19,489) Acquisition of businesses, less of cash acquired (2,589) (3,076) 755 -- (4,910) Purchases of property, plant and equipment -- (1,405) (455) -- (1,860) Payments of acquisition liabilities -- (4,379) -- -- (4,379) Decrease in short-term investments 1,954 -- -- -- 1,954 ------- -------- ------- ------- -------- Net cash provided by (used in) investing activities (635) (28,349) 300 -- (28,684) Financing activities: Borrowings on revolving credit lines -- 18,603 -- -- 18,603 Intercompany -- -- -- -- -- Increase in amounts due to GEC and affiliates -- (2,436) -- -- (2,436) Decrease in long-term borrowings -- (914) -- -- (914) ------- -------- ------- ------- -------- Net cash provided by financing activities -- 15,253 -- -- 15,253 Effect of exchange rate on cash -- -- (521) -- (521) ------- -------- ------- ------- -------- Increase (decrease) in cash and cash equivalents (72) (428) 1,633 -- 1,133 Cash and cash equivalents at beginning of period 100 1,601 449 -- 2,150 ------- -------- ------- ------- -------- Cash and cash equivalents at end of period $ 28 $ 1,173 $ 2,082 $ -- $ 3,283 ======= ======== ======= ======= ========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 36 39 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the directors and executive officers of the Company. Name Age Position with the Company - - ---- --- ------------------------- Frank D. Zaffino 59 President and Chief Executive Officer and Director A. Keith Drewett 53 Vice President Gregory T. Knipp 44 Acting Chief Financial Officer John H. Fountain 36 Chairman of the Board Donald F. Hastings 71 Director John J. Kahl, Jr. 58 Director John R. Tomsich 33 Director Robert J. Tomsich 69 Director James W. Wert 53 Director Set forth below is a brief description of the business experience of each director and executive officer of the Company. MR. ZAFFINO has served as President and Chief Executive Officer of the Company since December 1999. Mr. Zaffino previously served as General Manager, Global Equipment Manufacturing, and Vice President of the Eastman Kodak Company based in Rochester, New York, from 1985 to 1999. Mr. Zaffino served in various capacities within Kodak including Manager of Manufacturing and Materials Management; Superintendent of Parts Manufacturing and Department Head of Instant Camera Assembly. MR. DREWETT has served as Vice President of the Company since March 1998. Mr. Drewett has served as President and Chief Executive Officer of Curtis since July 1998. Mr. Drewett previously served as President-Automotive and Industrial Division of Curtis from May 1992 and Senior Vice President of Curtis from May 1997 to July 1998. MR. KNIPP has served as the Acting Chief Financial Officer of the Company and Chief Financial Officer of A.B. Dick Company since February 2000. Mr. Knipp served as the Chief Financial Officer of Multigraphics, Inc from May 1997 to February 2000. Mr. Knipp previously served Multigraphics, Inc. as Treasurer from 1995 to 1997 and Assistant Treasurer from 1994 to 1995. From 1981 to 1987, Mr. Knipp was the Cash Manager of Woodland Services Co., a spin-off company of Masonite Corporation. Prior to 1981, Mr. Knipp was an auditor with Peat Marwick Mitchell & Co. MR. FOUNTAIN has served as Chairman of the Board of Directors of the Company since March 1998 and a member of the Board's Executive Committee since May 1998. Mr. Fountain served as Secretary and Treasurer of the Company since its inception in September 1996 through March 1998, as Vice President from November 1996 to present, and as director since January 1997. Mr. Fountain has been a Vice President of Nesco, Inc. since 1993. Mr. Fountain is the son-in-law of Mr. Robert Tomsich. MR. HASTINGS has served as a Director of the Company since March 1998. Mr. Hastings served as Chairman of Lincoln Electric Company, a welding products manufacturer, from 1992 through 1997, and Chief Executive Officer of Lincoln Electric Company from 1992 through 1996. Mr. Hastings also serves as a director of Continental Global Group, Inc. MR. KAHL, JR. has served as a Director of the Company since March 1998. Mr. Kahl is Chairman and Chief Executive Officer of Manco, Inc., a manufacturer of pressure sensitive tapes for household and automotive repairs, mailing and shipping supplies, weatherstripping and related home energy products and labels. Mr. Kahl also serves as a director of Applied Industrial Technologies Inc. and Royal Appliance Mfg. Co. 37 40 MR. JOHN TOMSICH has served as a Director of the Company since January 1997 and served as a Vice President of the Company since its inception through March 1998. In addition, Mr. John Tomsich has served as Vice President of Nesco, Inc. since 1995 and in various other management positions with Nesco, Inc. since 1990. Mr. John Tomsich also serves as director of Continental Global Group, Inc. Mr. John Tomsich is the son of Mr. Robert Tomsich. MR. ROBERT TOMSICH has served as a Director of the Company since its inception and served as President of the Company from its inception to March 1998. In addition, Mr. Robert Tomsich has served as President and a Director of Nesco, Inc. (including predecessors of Nesco, Inc.) since 1956. Mr. Robert Tomsich also serves as director of Continental Global Group, Inc. Mr. Robert Tomsich is the father of Mr. John Tomsich and the father-in-law of Mr. John Fountain. MR. WERT has served as a Director of the Company from January to April 1997 and since March 1998 and as Chair of the Board's Executive Committee since May 1998. Prior to his service with the Company, Mr. Wert held a variety of executive management positions with KeyCorp, a financial services company based in Cleveland, Ohio, and KeyCorp's predecessor, Society Corporation. Mr. Wert served as Senior Executive Vice President and Chief Investment Officer of KeyCorp from 1995 to 1996. Prior to that time, he served as Senior Executive Vice President and Chief Financial Officer of KeyCorp. for two years and Vice Chairman, Director and Chief Financial Officer of Society Corporation for four years. Mr. Wert also serves as a director of Continental Global Group, Inc. and as Chairman of the Executive and Compensation Committees of the Board of Directors, of Park-Ohio Industries, Inc. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation of the Company's Chief Executive Officer and the other most highly compensated officers of the Company having total annual salary and bonus in excess of $100,000.
ANNUAL COMPENSATION NAME AND -------------------- OTHER ANNUAL PRINCIPAL POSITION PERIOD ENDED SALARY BONUS COMPENSATION(1) ------------------ ------------ ------ ----- --------------- Gerald J. McConnell, December 31, 1999 $ 81,442(2) $ --- $247,040 President and December 31, 1998 300,390 --- 8,410 Chief Executive Officer December 31, 1997 259,135(3) 125,000 18,952 A. Keith Drewett, December 31, 1999 $214,583 $157,500 $ 28,844 Vice President December 31, 1998 183,500 84,000 374,541 December 31, 1997 160,000 42,560 12,472 Frank D. Zaffino December 31, 1999 $ -- -- -- President and December 31, 1998 -- -- -- Chief Executive Officer December 31, 1997 -- -- -- Edward J. Suchma, December 31, 1999 $207,692(4) $ -- $ 23,482 Vice President and December 31, 1997 20,193 -- -- Chief Financial Officer(4) December 31, 1996 -- -- --
(1) Amounts shown for the year and period ended December 31, 1999 reflect contributions made by A.B.Dick or Curtis on behalf of the named executives under the applicable 401(k) plan, life insurance premiums paid, car payments and miscellaneous payments made on behalf of the named executives, as follows: 38 41
Mr. McConnell Mr. Drewett Mr. Suchma 401(k) Plan $ 2,500 $ 2,923 $ -- Life Insurance Premiums 675 3,999 675 Car Payments and Miscellaneous 22,809 21,922 22,807 Severance 221,056 -- --
(2) Mr. McConnell resigned his position effective April 7, 1999. (3) Reflects 49-week period from January 17, 1997 to December 31, 1997 at annual salary of $275,000. (4) Mr. Suchma resigned his positions with A.B.Dick effective February 11, 2000. DIRECTOR COMPENSATION Each director of the Company not employed by the Company or any entity affiliated with the Company is entitled to receive $25,000 per year for serving as a director of the Company. The director of the Executive Committee receives an additional $25,000 per year for his services. In addition, the Company will reimburse such directors for their travel and other expenses incurred in connection with attending meetings of the Board of Directors. EMPLOYMENT, SEVERANCE AND BONUS AGREEMENTS On November 10, 1995, A.B.Dick entered into a letter agreement with Gerald J. McConnell providing for Mr. McConnell's employment as President and Chief Executive Officer of A.B.Dick. Mr. McConnell resigned his position with A.B.Dick effective April 7, 1999 and, in accordance with the agreement, he will receive continued salary payments (at a rate of $302,500 per year) for the period of April 7, 1999 through April 7, 2000, and continued participation in all employee benefit plans until April 7, 2000 (having an estimated value of $26,000), or until he receives equivalent coverage and benefits from a subsequent employer, if earlier. Thus, the maximum aggregate benefits payable to Mr. McConnell under the agreement are approximately $328,500. Under the agreement, Mr. McConnell is not permitted to compete against A.B.Dick or any of its subsidiaries for a period of twelve months following the termination or expiration of the agreement. On July 2, 1998, Curtis entered into a letter agreement with A. Keith Drewett providing for Mr. Drewett's employment as President and Chief Executive Officer of Curtis. The agreement provides for an initial base salary at the rate of $200,000 per year. Mr. Drewett is eligible to participate in the bonus compensation plan available to executive officers of Curtis, under which bonuses are determined in the discretion of the Curtis Board of Directors. If Mr. Drewett's employment is terminated for any reason other than for cause, or if Mr. Drewett ceases to be employed by Curtis on account of death or permanent disability, or if Mr. Drewett voluntarily ceases his employment with Curtis for any reason on or after December 6, 1998, then Curtis will be required to pay Mr. Drewett severance payments calculated upon his base salary for twenty-four months, to pay bonuses earned prior to such termination or cessation of employment, and to continue his participation in all employee benefit plans for such twenty-four month period or until he receives substantially comparable coverage and benefits from a subsequent employer, if earlier. The agreement precludes Mr. Drewett from competing with Curtis, the Company or its subsidiaries, or from soliciting or employing any employee, officer or agent of Curtis, the Company or its subsidiaries, for twelve months following cessation of employment with Curtis. If Mr. Drewett were to separate from Curtis under the circumstances described above, at his current 39 42 annual salary of $225,000, the maximum aggregate benefits payable to him under the agreement (including assumed continuation of employee benefit plan participation for twenty-four months at an estimated value of $26,500) would be approximately $476,500, plus bonuses earned, if any, prior to his cessation of employment. In connection with the Curtis Acquisition, Mr. Drewett and Curtis also entered into a Bonus Award Agreement on December 6, 1997. The agreement requires Curtis to pay Mr. Drewett quarterly payments of $5,915 through September 3, 1999, followed by a payment of $343,915 on December 3, 1999. The Company guaranteed the payment of all amounts payable to Mr. Drewett under the Bonus Award Agreement. In March 1998, Curtis paid all amounts due or that would become due in the future under the Bonus Award Agreement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of the outstanding equity securities of the Company as of March 15, 2000: NUMBER OF SHARES TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER 1,000 Class A, Common NES Group, Inc. (1) Stock, no par value 6140 Parkland Blvd. Mayfield Hts., OH 44124 19,000 Class B, Common NES Group, Inc. (1) Stock, no par value 6140 Parkland Blvd. Mayfield Hts., OH 44124 (1) All of the Company's issued and outstanding capital stock is owned by NES Group, Inc. which is 100% owned by Mr. Robert J. Tomsich. Mr. Tomsich may be deemed to be the beneficial owner of the Company's capital stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS COMMON OWNERSHIP The Company is a Delaware corporation formed in September, 1996. All of the outstanding capital stock of the Company is beneficially owned by NES Group, Inc., which is beneficially owned by Robert J. Tomsich. Mr. Tomsich also beneficially owns all the outstanding capital stock of Nesco, Inc., which has entered into a management agreement with the Company as described below. In 1998, the Company used a portion of the proceeds of the Series A Notes Offering to fund a dividend. As the Company's sole stockholder, NES Group, Inc. was the recipient of such dividend. TAX PAYMENT AGREEMENT The Company and the Subsidiary Guarantors have entered into a tax payment agreement with NES Group, Inc. providing for monthly payments by each entity to NES Group, Inc. in an amount equal to the greater of (i) the total federal, state, local and, under certain circumstances, foreign income tax liability attributable to such entity's operations for the monthly period, determined on an annualized basis, and (ii) one-twelfth the total federal, state, local and foreign income tax rates imposed by Section 1 of the Internal Revenue Code of 1986, as amended, and by the equivalent provisions of state, local and foreign income tax laws. These tax payments will not recognize any future carry-forward or carry-back tax benefits to the Company and the Subsidiary 40 43 Guarantors. Future direct and indirect Subsidiaries of the Company also will become parties to the tax payment agreement. MANAGEMENT AGREEMENT The Company and Nesco, Inc. have entered into a management agreement (the "Management Agreement"), the material terms of which are summarized below. Under the Management Agreement, Nesco, Inc. has agreed to provide general management oversight services on a regular basis for the benefit of the Company, in regard to business activities involving financial results, legal issues and long-term planning relative to current operations and acquisitions. Business development services will include assistance in identifying and acquiring potential acquisition candidates, including negotiations and contractual preparations in connection therewith. Financial planning will include assistance in developing banking relationships and monitoring cash investments through professional money management accounts. Under the terms of the Management Agreement, the Company has agreed to pay Nesco, Inc. a management fee for such services equal to 5% of the Company's earnings before interest and estimated taxes, depreciation, amortization and other expense (income). Prior to entering into the Management Agreement, the management fee was 1.0% of net revenue. The management fee will be payable in monthly installments. The Management Agreement will remain in effect until terminated by either party upon not less than 60 days' written notice prior to an anniversary date of the Management Agreement. The Company believes there are efficiency benefits from having these management services provided by Nesco, Inc. and believes that the terms of the management agreement are reasonable. Due to the specialized nature of these services and the efficiencies associated with provision of such services by Nesco, Inc., the Company has not undertaken to determine whether more favorable terms could be obtained from an unrelated third party. The Company will also separately employ, as required, independent auditors, outside legal counsel and other consulting services. Such services will be paid directly by the Company. CURTIS OFFICE LEASE Lander Enterprises Co. L.P., an affiliate of the Company ("Lander"), and Curtis have entered into a lease agreement (the "Lease") for Curtis' headquarters in Mayfield Heights, Ohio. The initial term of the Lease expires on November 22, 2006, and Curtis has the option to renew for two additional five-year terms. Curtis is obligated to pay Lander monthly rent of $37,333 during the first three years of the Lease term, $44,800 during the years four through seven and $53,200 during years eight through ten. Rent for any renewal term shall be equal to 95% of fair market rent at the time of renewal. Curtis has a right of first refusal on any additional space that becomes available for lease in the building during the Lease terms and has an option to lease additional space in the building commencing in the sixth year of the Lease. At the end of the fifth year of the Lease, Curtis will receive a credit of $5.00 per square foot to complete any refurbishing Curtis deems necessary or desirable. Lander has furnished Curtis with a cash allowance of $0.5 million to fund build-out costs, repayable in 120 equal monthly installments of $6,552. The Company believes this transaction is on terms that are no less favorable than those that would have been obtained in a comparable transaction with an unrelated person. The remaining balance of the promissory note evidencing the cash allowance was discharged with the proceeds of the Series A Notes Offering. A.B.DICK OFFICE LEASE Par Realty Ltd., L.P., an affiliate of the Company ("Par"), and A.B.Dick have entered into a lease agreement (the "A.B.Dick Lease") for A.B.Dick's new headquarters in Niles, Illinois. The initial term of the A.B.Dick Lease extends for ten years from the date A.B.Dick takes possession of the premises, which took place on July 1, 1998. A.B.Dick has the option to extend the term for one additional five-year period at the expiration of the initial term. The monthly rent payable by A.B.Dick to Par under the A.B.Dick Lease is approximately $35,000, which will increase 3% per year commencing with the second lease year. The Company believes this transaction is on terms that are no less favorable than those that would have been obtained in a comparable transaction with an unrelated person. 41 44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) Documents filed as part of this report: 1. Consolidated Financial Statements (included in Item 8). Report of Independent Auditors dated March 30, 2000 Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997 Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997. Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and for the eleven-month and fifteen-day period ended December 31, 1997. Notes to Consolidated Financial Statements 2. Financial Statement Schedules Financial statement schedules have been omitted because they are either not applicable or the required information has been disclosed in the consolidated financial statements or the related footnotes. 3. Exhibits Required to be filed by Item 601 of Regulation S-K. The information required by this paragraph is contained in the Index of Exhibits to this report which is incorporated herein by reference. (B) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this report. 42 45 ITEM 15. SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) the Securities Act of 1994, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of March, 2000. PARAGON CORPORATE HOLDINGS INC. By: /s/ Frank D. Zaffino -------------------------------------- Name: Frank D. Zaffino Title: President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE /s/ Frank D. Zaffino President and Chief Executive Officer and Director March 30, 2000 - - ------------------------------------ (Principal Executive Officer) Frank D. Zaffino /s/ A. Keith Drewett Vice President March 30, 2000 - - ------------------------------------ A.Keith Drewett /s/ Gregory T. Knipp Acting Chief Financial Officer March 30, 2000 - - ------------------------------------ (Principal Financial and Accounting Officer) Gregory T. Knipp /s/ John H. Fountain Director March 30, 2000 - - ------------------------------------ John H. Fountain /s/ Donald F. Hastings Director March 30, 2000 - - ------------------------------------ Donald F. Hastings /s/ John J. Kahl, Jr. Director March 30, 2000 - - ------------------------------------ John J. Kahl, Jr. /s/ John R. Tomsich Director March 30, 2000 - - ------------------------------------ John R. Tomsich /s/ Robert J. Tomsich Director March 30, 2000 - - ------------------------------------ Robert J. Tomsich /s/ James W. Wert Director March 30, 2000 - - ------------------------------------ James W. Wert
Supplemental Information to be furnished with reports filed pursuant to Section 15(d) of the Act by Registrants which have not registered securities pursuant to Section 12 of the Act. No annual report to security holders covering the registrant's last fiscal year and no proxy statement, form or proxy or other soliciting material with respect to any annual or other meeting of security holders has been or will be sent to security holders. 43 46 PARAGON CORPORATE HOLDINGS INC. FORM 10-K INDEX OF EXHIBITS
Exhibit Number Description of Exhibit ------- ---------------------- 3.1 Certificate of Incorporation of Paragon Corporate Holdings Inc., as currently in effect. * 3.2 By-Laws of Paragon Corporate Holdings Inc. as currently in effect * 3.3 Certificate of Incorporation of A.B.Dick Company, as currently in effect * 3.4 By-Laws of A.B.Dick Company, as currently in effect. * 3.5 Certificate of Incorporation of Curtis Industries, Inc. as currently in effect. * 3.6 By-Laws of Curtis Industries, Inc. as currently in effect. * 3.7 Certificate of Incorporation of Itek Graphix Corp., as currently in effect. * 3.8 By-Laws of Itek Graphix Corp., as currently in effect. * 3.9 Certificate of Incorporation of Curtis Sub, Inc., as currently in effect. * 3.10 By-Laws of Curtis Sub, Inc., as currently in effect. * 4.1 Indenture, dated as of April 1, 1998, among Paragon Corporate Holdings Inc., A.B.Dick * Company, Curtis Industries, Inc., Itek Graphix Corp., Curtis Sub, Inc and Norwest Bank Minnesota, National Association, as Trustee (containing, as exhibits, specimens of the Series A Notes and the Series B Notes). 4.4 (a) Credit and Security Agreement, dated as of April 1, 1998 amended by Amendment * I, between Paragon Corporate Holdings Inc. and Key Corporate Capital Inc. (b) Amendment I, dated as of March 17, 1999, to the Credit and Security Agreement, * dated as of April 1, 1998 between Paragon Corporate Holdings Inc. and Key Corporate Capital Inc. (c) Waiver and Amendment to the Credit and Security Agreement dated March 29, 2000 between Paragon Corporate Holdings Inc. and Key Corporate Capital Inc. 10.1 Agreement and Plan of Merger, dated as of November 6, 1997, among Paragon Corporate * Holdings Inc., Curtis Industries, Inc. and Curtis Acquisition Group. 10.2 Stock Purchase Agreement, dated as of December 19, 1996, between Paragon Corporate * Holdings Inc. and GEC Incorporated. 10.3 Management Agreement, dated as of April 1, 1998, between Paragon Corporate Holdings Inc. * and NESCO, Inc. 10.4 Tax Payment Agreement, dated as of April 1, 1998, among Paragon Corporate Holdings Inc., * A.B.Dick Company, Curtis Industries, Inc., Itek Graphix Corp., Curtis Sub, Inc. and NES Group, Inc. 10.5 Agreement dated November 10, 1995 between A.B.Dick Company and Gerald J McConnell. * 10.6 Severance and Non-Competition Agreement dated February 28, 1996 between Curtis * Industries, Inc. and A. Keith Drewett. 10.7 Agreement dated July 2, 1998 among Curtis Industries, Inc., Paragon Holdings Inc. and ** A. Keith Drewett. 10.8 Agreement and plan of merger, dated September 29, 1999 between Multi Acquisition Corp., *** a wholly-owned subsidiary of Paragon Corporate Holdings Inc., and Multigraphics, Inc. 12 Statement regarding computation of ratios of earnings to fixed charges 21 Subsidiaries of registrant 27 Financial Data Schedule
* Incorporated by reference from Form S-4 Registration Number 333-51569 filed under the Securities Act of 1933, as amended ** Incorporated by reference from Amendment No. 2 to Form S-4 Registration Number 333-51569 filed July 17, 1998 under the Securities Act of 1933, as amended *** Incorporated by reference from Appendix A of Schedule 14A filed December 6, 1999 by Multigraphics, Inc. 44 EX-4.4.C 2 EXHIBIT 4.4(C) 1 Exhibit 4.4(c) [KEY LOGO] KEYBANK 127 Public Square Cleveland, OH 44114-1306 March 28, 2000 Mr. Gregory T. Knipp Paragon Corporate Holdings, Inc. 7400 Caldwell Avenue Niles, Il 60714 RE: Paragon Corporate Holdings, Inc./A.B. Dick Company Covenant Waivers Dear Greg: Reference is hereby made to that certain Credit and Security Agreement ("Agreement") dated as of April 1, 1998 as amended on March 17, 1999, between Paragon Corporate Holdings, Inc. ("Paragon") and Key Corporate Capital Inc. ("KCCI"). Unless otherwise defined herein, each of the capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed such term in the Agreement. Pursuant to recent discussions, Paragon has notified KCCI of certain covenant violations under Section 8.4(a) and 8.4(b) of the Agreement for the period ended December 31, 1999 and March 31, 2000. Section 8.4(a) states that the Consolidated EBITDA of A.B. Dick as at the end of any Cumulative Four Fiscal Quarter Period ending after the Closing Date shall not be less than $10,250,000. Section 8.4(b) states that the Consolidated Fixed Charge Coverage Ratio for Paragon and AB Dick as at the end of any Cumulative Four Fiscal Quarter Period shall not be less than 1.20 to 1.0. In response to your request, KCCI hereby waives any remedies it may have with respect to the specific covenant violations existing under the aforementioned sections of the Agreement for the period ended December 31, 1999 and March 31, 2000. This waiver shall not apply to any other Covenant violation or Event of Default except for the specifically aforementioned covenant violations. Nothing herein shall be construed or implied that KCCI will grant a waiver of the covenant violations of these or any other provisions of the Agreement in the future. The violated covenants will be amended as follows: - - -------------------------------------------------------------------------------- Amended Covenant Requirement - - -------------------------------------------------------------------------------- A.B. Dick: $2,050M for the six-month period ending Section 8.4(a) June 30, 2000 Min. Consolidated EBITDA $5,700M for the nine-month period ending September 30, 2000 $11,000M for the twelve-month period ending December 31, 2000 and each rolling four quarters thereafter 2 March 28, 2000 - Paragon Corporate Holdings, Inc. Covenant Waivers A.B. DICK: Greater than or equal to 0.50 for the six-month period ending June, 30 2000 Section 8.4(b) Greater than or equal to 1.20 for the nine-month period ending September 30, 2000 Fixed Charge Coverage Greater than or equal to 1.20 for the twelve-month period ending December 31, 2000 and each rolling four quarters thereafter PARAGON CORP. HOLDINGS: No covenant for the six-month period ending June 30, 2000 (CONSOLIDATED): Greater than or equal to 0.25 for the nine-month period ending September 30, 2000 Section 8.4(b) Greater than or equal to 0.50 for the twelve-month period ending December 31, 2000 Fixed Charge Coverage Greater than or equal to 1.20 for the three-month period ending March 31, 2001 and each quarter thereafter calculated on a cumulative basis through the twelve-month period ending December 31, 2001 Greater than or equal to 1.20 for each rolling four quarters thereafter
The execution of this letter shall serve as acknowledgement that the foregoing waiver shall not affect the continued legality, validity, and binding effects of the Agreement in its entirety and that the Agreement and each of the loan documents continue to be freely enforceable in accordance with their terms and are hereby ratified and confirmed by Paragon. If the foregoing is acceptable to you, kindly acknowledge your agreement thereto by executing and returning this letter to my attention. Very truly yours, /s/ Christine A. Schoaf Christine A. Schoaf Assistant Vice President Structured Finance Please execute in the space below to acknowledge the waivers for the specific covenant violations mentioned above as well as the continued legality and validity of the Agreement in its entirety. ACCEPTED AND AGREED TO AS OF THIS 29TH DAY OF MARCH, 2000 PARAGON CORPORATE HOLDINGS, INC. BY: /s/ Frank D. Zaffino ITS: President and CEO EX-12 3 EXHIBIT 12 1 EXHIBIT 12 PARAGON CORPORATE HOLDINGS INC. COMPUTATION of RATIO of EARNINGS to FIXED CHARGES (In thousands, except for ratios)
THE COMPANY A.B.DICK ---------------------------------------------------------- --------------------- Period from Period from (Predecessor Company) Year Ended Year Ended Jan. 17, 1997 April 1, 1996 Fiscal Year Dec. 31, Dec. 31, through through Ended March 31, 1999 1998 Dec. 31, 1997 Jan. 16, 1997 1996 ---------- ---------- ------------- ------------- --------------------- Computation of earnings: Income (loss) before foreign income taxes and extraordinary item $(15,391) $ 142 $ 9,329 $(455) $(5,463) Amortization of deferred financing costs 526 365 214 -- -- Interest expense 12,383 10,946 2,384 205 162 Portion of rent expense representative of an interest factor 1,352 1,530 742 765 728 -------- ------- ------- ----- ------- Earnings $ (1,130) $12,983 $12,669 $ 515 $(4,573) ======== ======= ======= ===== ======= Computation of Fixed Charges: Amortization of deferred financing costs $ 526 $ 365 $ 214 $ -- $ -- Interest expense 12,383 10,946 2,384 205 162 Portion of rent expense representative of an interest factor 1,352 1,530 742 765 728 -------- ------- ------- ----- ------- Fixed Charges $ 14,261 $12,841 $ 3,340 $ 970 $ 890 ======== ======= ======= ===== ======= Ratio of Earnings to Fixed Charges (1) 1.01 3.79 (1) (1) ======== ======= ======= ===== =======
(1) Earnings were inadequate to cover fixed charges 45 EX-21 4 EXHIBIT 21 1 EXHIBIT 21 PARAGON CORPORATE HOLDINGS INC. SUBSIDIARIES of the REGISTRANT at MARCH 15, 2000
Jursidiction of Incorporation Subsidiaries (1) or Organization Parent Company - - ---------------------------------------- --------------------- ------------------------------------ A. B. Dick Company Delaware Paragon Corporate Holdings Inc. A. B. Dick Company of Canada, Ltd. Canada A. B. Dick Company A. B. Dick N.V. Belgium A. B. Dick Company A. B. Dick Netherlands B.V. Netherlands A. B. Dick Company A. B. Dick B.V. Netherlands A. B. Dick Company A. B. Dick U.K. Limited United Kingdom A. B. Dick Company Itek Graphix Corp. Delaware A. B. Dick Company Curtis Industries, Inc. Delaware Paragon Corporate Holdings Inc. Curtis Industries of Canada, Ltd. Canada Curtis Industries, Inc. Curtis Industries (U.K.), Ltd. United Kingdom Curtis Industries, Inc. Curtis Sub., Inc. Delaware Curtis Industries, Inc.
(1) Each of the subsidiaries listed is 100% owned by its parent company. 46 EX-27 5 EXHIBIT 27 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary finacial information extracted from the financial statements listed on pages 17 and 18 of this Form 10-k and is qualified in its entirety by reference to such financial statements. 0001060513 PARAGON CORPORATE HOLDINGS INC. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 15,341 3,610 38,208 2,265 45,924 102,741 30,328 9,965 160,656 58,154 115,000 0 0 1 (19,459) 160,656 248,668 248,668 158,803 158,803 1,866 0 12,838 (164) (15,227) 0 0 0 (15,227) 0 0
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