-----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, M81zYK6izo+aAJ3zKwBTxUBEK0eRyfER2uPPJqeNqdfjnzNeeuoitI8puPlOkEWT Cx61jTfjIWsaZ76U572DsA== 0001047469-97-006385.txt : 19971202 0001047469-97-006385.hdr.sgml : 19971202 ACCESSION NUMBER: 0001047469-97-006385 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970926 FILED AS OF DATE: 19971201 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NU KOTE HOLDING INC /DE/ CENTRAL INDEX KEY: 0000812423 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 161296153 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-20287 FILM NUMBER: 97730477 BUSINESS ADDRESS: STREET 1: 17950 PRESTON RD STE 690 CITY: DALLAS STATE: TX ZIP: 75252 BUSINESS PHONE: 2142502785 MAIL ADDRESS: STREET 1: 17950 PRESTON ROAD SUITE 690 CITY: DALLAS STATE: TX ZIP: 75252 10-Q/A 1 10-Q/A FORM 10-Q (Amendment No. 1) SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended SEPTEMBER 26, 1997 - -------------------------------------------------------------------------------- Commission file number 0-20287 - -------------------------------------------------------------------------------- NU-KOTE HOLDING, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 16-1296153 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 17950 PRESTON ROAD, SUITE 690, DALLAS, TEXAS 75252 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (972) 250-2785 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 --- --- Number of shares of common stock of registrant outstanding at November 5, 1997: Class Outstanding ----- ----------- Class A common stock $.01 par value 21,775,302 1 NU-KOTE HOLDING, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- PART I - FINANCIAL INFORMATION Consolidated Balance Sheets as of September 26, 1997 and March 31, 1997 3 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Three Month Periods Ended September 26, 1997 and September 27, 1996 4 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) for the Six Month Periods Ended September 26, 1997 and September 27, 1996 5 Consolidated Statements of Cash Flows for the Six Month Periods Ended September 26, 1997 and September 27, 1996 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II - OTHER INFORMATION Other Information 21 Signature Page 23 2 NU-KOTE HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) September 26, March 31, 1997 1997 ------------- --------- ASSETS Current assets: Cash and cash equivalents $ 5,346 $ 12,275 Accounts receivable, net 66,964 71,024 Receivables from related party 3,030 3,694 Inventories, net 92,878 93,770 Prepaid expenses 8,327 10,452 Deferred income taxes 3,048 1,573 -------- -------- Total current assets 179,593 192,788 Property, plant, and equipment, net 72,332 75,683 Other assets and deferred charges 7,631 4,386 Assets held for sale 4,482 4,482 Intangibles, net 18,744 19,698 -------- -------- Total assets $282,782 $297,037 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank loans and current portion of long-term debt $ 857 $ 1,135 Accounts payable 41,968 51,035 Compensation related liabilities 5,936 6,500 Other accrued liabilities 45,644 37,726 -------- -------- Total current liabilities 94,405 96,396 Long-term debt, net of current maturities 138,395 134,677 Other liabilities 11,206 9,995 Deferred income taxes 6,592 6,541 -------- -------- Total liabilities 250,598 247,609 -------- -------- Shareholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued Class A common stock, $.01 par value, 40,000,000 shares authorized; 22,325,302 shares issued 223 223 Class B common stock, $.01 par value, 15,000,000 shares authorized; none issued Additional paid-in capital 92,610 91,605 Accumulated deficit (53,150) (36,610) Foreign currency translation adjustment (7,273) (5,564) Treasury stock, at cost, 550,000 shares (226) (226) -------- -------- Total shareholders' equity 32,184 49,428 -------- -------- Total liabilities and shareholders' equity $282,782 $297,037 -------- -------- -------- -------- The accompanying notes are an integral part of the consolidated financial statements. 3 NU-KOTE HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT) FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) September 26, September 27, 1997 1996 ------------- ------------- Net sales $ 72,688 $ 86,241 Cost of sales 60,140 65,533 ----------- ----------- Gross margin 12,548 20,708 Selling, general and administrative expenses 14,084 15,656 Research and development expenses 1,830 2,571 Restructuring expense 1,194 4,635 ----------- ----------- Operating loss (4,560) (2,154) Interest expense 3,612 2,156 Other income items, net (496) (382) ----------- ----------- Loss before income taxes and extraordinary item (7,676) (3,928) Provision (benefit) for income taxes 342 (1,596) ----------- ----------- Loss before extraordinary item (8,018) (2,332) Extraordinary loss arising from early extinguishment of indebtedness 2,550 ----------- ----------- Net loss (10,568) (2,332) ----------- ----------- Retained earnings (accumulated deficit) - Beginning of period (42,582) 14,837 ----------- ----------- Retained earnings (accumulated deficit) - End of period $ (53,150) $ 12,505 ----------- ----------- ----------- ----------- Net loss per share of common stock: Loss before extraordinary item $ (.37) $ (.11) Extraordinary loss (.12) ----------- ----------- Net loss $ (.49) $ (.11) ----------- ----------- ----------- ----------- Weighted average shares outstanding 21,775,302 21,775,302 ----------- ----------- ----------- ----------- The accompanying notes are an integral part of the consolidated financial statements. 4 NU-KOTE HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT) FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) September 26, September 27, 1997 1996 ------------ ------------ Net sales $ 152,415 $ 173,698 Cost of sales 124,084 127,763 ---------- ---------- Gross margin 28,331 45,935 Selling, general and administrative expenses 28,774 33,026 Research and development expenses 3,618 5,131 Restructuring expense 2,817 5,780 ---------- ---------- Operating income (loss) (6,878) 1,998 Interest expense 6,577 4,024 Other (income) expense items, net 193 (1,093) ---------- ---------- Loss before income taxes and extraordinary item (13,648) (933) Provision (benefit) for income taxes 342 (396) ---------- ---------- Loss before extraordinary item (13,990) (537) Extraordinary loss arising from early extinguishment of indebtedness 2,550 ---------- ---------- Net loss (16,540) (537) ---------- ---------- Retained earnings (accumulated deficit) - Beginning of period (36,610) 13,042 ---------- ---------- Retained earnings (accumulated deficit) - End of period $ (53,150) $ 12,505 ---------- ---------- ---------- ---------- Net loss per share of common stock: Loss before extraordinary item $ (.64) $ (.02) Extraordinary loss (.12) ---------- ---------- Net loss $ (.76) $ (.02) ---------- ---------- ---------- ---------- Weighted average shares outstanding 21,775,302 21,759,921 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of the consolidated financial statements. 5 NU-KOTE HOLDING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (Unaudited) -------------------------------- September 26, September 27, 1997 1996 ------------- ------------- Cash flows from operating activities: Net loss $ (16,540) $ (537) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Extraordinary loss from early extinguishment of debt 2,550 Exchange (gains) losses 203 (1,066) Depreciation and amortization 7,009 6,671 Deferred income taxes (1,369) (537) Tax benefit from exercise of stock options 75 Other (56) (1,762) Changes in working capital: Accounts receivable 4,724 9,043 Inventories 892 (1,936) Prepaid expenses 2,125 (3,262) Accounts payable (9,173) (6,531) Compensation related liabilities (564) (331) Other accrued liabilities 9,261 2,908 Cash paid for restructuring (2,882) (3,373) --------- ---------- Net cash used in operating activities (3,820) (638) --------- ---------- Cash flows from investing activities: Purchase of property, plant and equipment (2,817) (6,145) Sale of property, plant and equipment 50 556 --------- ---------- Net cash used in investing activities (2,767) (5,589) --------- ---------- Cash flows from financing activities: Borrowings on long-term debt and other loans 15,463 50,651 Payments on long-term debt and other loans (11,483) (43,863) Payments of financing costs (2,559) Exercise of stock options 337 --------- ---------- Net cash provided by financing activities 1,421 7,125 --------- ---------- Effect of exchange rate changes on cash (1,763) (2,182) --------- ---------- Net decrease in cash (6,929) (1,284) Cash and cash equivalents at beginning of period 12,275 6,540 --------- ---------- Cash and cash equivalents at end of period $ 5,346 $ 5,256 --------- ---------- --------- ---------- Excluded from the consolidated statements of cash flows was the effect of non-cash financing activities related to the issuance of stock warrants $ 1,005 --------- --------- The accompanying notes are an integral part of the consolidated financial statements. 6 NU-KOTE HOLDING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 1. THE COMPANY Nu-kote Holding, Inc. ("Nu-kote") and its wholly-owned subsidiaries are referred to collectively as the "Company". The Company is one of the leading independent manufacturers and distributors of impact and non-impact imaging supplies for office and home printing devices, including the manufacture and distribution of a full line of typewriter and printer ribbons, thermal fax ribbons, cartridges and toners for laser printers, facsimile machines and copiers, cartridges and ink for ink jet printers, specialty papers, calculator ink rolls, and carbon paper. The Company sells products primarily in the United States and Europe, directly to wholesale and retail markets, and also to original equipment manufacturers and distributors for resale under their brand names or private labels. The Company distributes through virtually all major office supply marketing channels, including wholesale distributors, office products dealers, direct mail catalogs, office supply "super stores", warehouse clubs, information processing specialists, value added resellers, and mass market retailers. The consolidated balance sheet as of September 26, 1997 and the related consolidated statements of operations and retained earnings (accumulated deficit) for the three and six month periods and consolidated statements of cash flows for the six month periods ended September 26, 1997 and September 27, 1996 are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of such financial statements have been included. Interim results are not necessarily indicative of results for a full year. The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Company's annual financial statements and notes. 2. NET LOSS PER SHARE OF COMMON STOCK Net loss per share of common stock for the three and six month periods ended September 26, 1997 and September 27, 1996 is based on the weighted average number of common shares outstanding during the period and the effect of considering common stock equivalents (stock options and warrants) under the treasury stock method. Primary and fully diluted net loss per share of common stock are the same and, therefore, are not shown separately. 7 3. ACCOUNTS RECEIVABLE Accounts receivable are reflected net of allowances for doubtful accounts of $4,153 and $3,741 at September 26, 1997 and March 31, 1997, respectively. 4. INVENTORIES Inventories consist of the following: September 26, March 31, 1997 1997 ------------- --------- Raw materials $39,162 $36,847 Work-in-process 14,149 12,354 Finished goods 39,567 44,569 ------- ------- Total $92,878 $93,770 ------- ------- ------- ------- Since physical inventories taken during the year do not necessarily coincide with the end of a quarter, management has estimated the composition of inventories with respect to raw materials, work-in-process and finished goods. It is management's opinion that this estimate represents a reasonable approximation of the inventory levels at September 26, 1997. The amounts at March 31, 1997 are based upon the audited balance sheet at that date. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost and consists of the following components: September 26, March 31, 1997 1997 ------------- --------- Land $ 4,477 $ 4,477 Buildings and improvements 19,417 19,417 Machinery and equipment 82,156 80,490 -------- -------- 106,050 104,384 Less accumulated depreciation (33,718) (28,701) -------- -------- Total $ 72,332 $ 75,683 -------- -------- -------- -------- Depreciation expense amounted to $2,584 and $2,859 for the three month periods and $5,429 and $5,170 for the six month periods ended September 26, 1997 and September 27, 1996, respectively. 8 6. INTANGIBLE ASSETS Intangible assets consist of amounts allocated as a result of purchases of existing businesses and are summarized as follows: Amortization September 26, March 31, Period 1997 1997 ------------ ------------- --------- Goodwill 20 years $ 9,880 $ 9,880 Covenants-not-to-compete 3-5 years 5,636 5,636 Trademark 40 years 9,269 9,269 Technology license 8 years 1,272 1,272 ------- ------- 26,057 26,057 Less accumulated amortization (7,313) (6,359) ------- ------- Total $18,744 $19,698 ------- ------- ------- ------- Covenant-not-to-compete agreements have been recorded at their net present value using estimated discount rates of 7% and 16%. The trademark has been recorded at its estimated value based upon royalty rates charged for its use, discounted at an estimated rate of return of 35%. The technology license has been recorded at its estimated fair value based on forecasted discounted cash flows using a 16% discount rate. 7. LINE OF CREDIT The Company has a line of credit in Colombia in the amount of $1,450. Borrowings against the line of credit amounted to $454 and $603 at September 26, 1997 and March 31, 1997, respectively. The line bears interest at the prevailing Colombia interest rate plus 2 percentage points. Average interest rates at September 26, 1997 and March 31, 1997 were 16.7% and 17.5%, respectively. 8. LONG-TERM DEBT Long-term debt of the Company consists of the following: September 26, March 31, 1997 1997 ------------- --------- Revolving lines of credit $137,635 $133,917 Other items 1,163 1,292 -------- -------- 138,798 135,209 Less current portion (403) (532) -------- -------- Long-term debt, net of current portion $138,395 $134,677 -------- -------- -------- -------- 9 9. INCOME TAXES Following are the approximate effective blended tax rates for significant jurisdictions: North America 40 % Switzerland 22 % Germany 64 % United Kingdom 33 % The above resulted in a worldwide effective blended tax rate of 41% and 42% for the three and six month periods ended September 27, 1996, respectively. For the six months ended and quarter ended September 26, 1997, no tax benefit has been provided with respect to any jurisdiction as it is currently not considered more likely than not that resulting deferred tax assets will be realized. Additionally, a provision has been made in the amount of $342 for income taxes in certain foreign jurisdictions. 10. CONTINGENCIES Three original equipment manufacturers filed lawsuits against Nu-kote International, Inc. ("NII") alleging that certain NII ink jet replacement cartridges, refill inks and packaging infringe their trademarks, trade dress and patents and alleging, among other things, unfair competition and misleading representations. The plaintiffs are seeking injunctive relief, monetary damages, court costs and attorney's fees. The complaint in one of the cases has been amended to name Nu-kote and Pelikan Produktions A.G. as defendants. All of the lawsuits are in the discovery stage, and in management's opinion the potential losses related to these cases are not reasonably estimable. All of the cases are being vigorously contested, and in each case the Company or NII has asserted affirmative defenses and counterclaims and has requested damages and affirmative injunctive relief. In one of these cases NII's Motion for Summary Judgment of the unenforceability of four of the plaintiff's utility patents was granted although a Motion for reconsideration with respect to the ruling is pending before the court that granted the motion. On May 9, 1997 Daniel M. Kerrane, a former officer and director of the Company, filed suit against the Company in Texas State District Court. He alleges that his Supplemental Employment Agreement with the Company entitled him to terminate his employment and receive a lump sum severance payment because the Company "substantially reduced" his authorities, powers and duties in April, 1997. Mr. Kerrane is seeking damages of $8,000 and injunctive relief. The Company is vigorously defending this lawsuit. In addition, the Company is involved in various routine legal matters. In the opinion of management, all matters discussed above are covered by insurance or are without merit or the disposition is not anticipated to have a material effect on the Company's financial position; however, one or more of these matters could have a material effect on future quarterly or annual results of operations or cash flow when resolved. 10 In connection with Nu-kote's acquisition of the Office Supplies Division and the International Business Forms Division of Unisys Corporation ("Unisys"), Unisys agreed to retain all liabilities resulting from or arising out of any environmental conditions existing on or before January 16, 1987 at the Company's Rochester, Macedon and Bardstown facilities and, additionally, to indemnify the Company for such. State environmental agencies have alleged that environmental contamination exists at all three sites. To date Unisys has handled all remediation efforts related to these properties. In connection with Nu-kote's acquisition of the worldwide hardcopy supplies business of Pelikan, Pelikan agreed to indemnify Nu-kote for certain pre-closing environmental liabilities. The Company has found environmental contamination at former Pelikan facilities in Derry, Pennsylvania and Franklin, Tennessee, and has asserted a claim for indemnification. As a result of the indemnification's from Unisys and Pelikan, in the opinion of management, the ultimate cost to resolve these environmental matters will not have a material adverse effect on the Company's financial position, results of future operations or liquidity. This note contains various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, which represent the Company's expectations or beliefs concerning the possible outcome of the various litigation matters described herein and estimates of the Company's liabilities associated with identified environmental matters. The Company cautions that the actual outcome of the various litigation matters could be affected by a number of factors beyond its control, including, without limitation, judicial interpretations of applicable laws, rules and regulations, the uncertainties and risks inherent in any litigation, particularly a jury trial, the nature and extent of any counter claims, and the scope of insurance coverage, and that the final resolution of such matters could differ materially from the Company's current evaluation of such matters. The Company further cautions that the statements regarding identified environmental matters are qualified by important factors that could cause the Company's actual liabilities to differ materially from those in the forward looking statements, including, without limitation, the following: (i) the actual nature and extent of contamination, if any; (ii) the remedial action selected; (iii) the actual cleanup level required; (iv) changes in regulatory requirements; (v) the ability of other responsible parties, if any, to pay their respective shares; and (vi) any insurance recoveries. 11 11. RESTRUCTURING EXPENSE Restructuring activities commenced during fiscal 1997 (the "1997 Restructuring") related primarily to the consolidation of impact product production into Scotland, Mexico and China; centralization of distribution primarily into Franklin, Tennessee and Duren, Germany; and the closure of one toner facility, and consolidation of toner manufacturing into Connellsville, Pennsylvania and Egg, Switzerland. Activity related to accrued restructuring costs for the 1997 Restructuring during the three and six month periods ended September 26, 1997 are as follows: Amount Amount Accrued at Amount Accrued at Description of Beginning of Paid in Additional End of Restructuring Expense Period Period Provision Period --------------------- ------------ ------- ---------- ---------- Three Months Ended September 26, 1997: Severance $ 1,426 $ 737 $ 464 $ 1,153 Lease cancellations 430 430 Facility maintenance and other 233 730 730 233 ------- ------- ------- ------- $ 2,089 $ 1,467 $ 1,194 $ 1,816 ------- ------- ------- ------- ------- ------- ------- ------- Amount Amount Accrued at Amount Accrued at Description of Beginning of Paid in Additional End of Restructuring Expense Period Period Provision Period --------------------- ------------ ------- ---------- ---------- Six Months Ended September 26, 1997: Severance $ 1,204 $ 1,455 $ 1,404 $ 1,153 Lease cancellations 430 430 Facility maintenance and other 247 1,427 $ 1,413 233 ------- ------- ------- ------- $ 1,881 $ 2,882 $ 2,817 $ 1,816 ------- ------- ------- ------- ------- ------- ------- ------- The Company estimates that an additional $2,200 of restructuring expenses will be recognized in the remainder of fiscal 1998. Most of this amount relates to expected severance and relocation costs related to continuing consolidation efforts. Management currently anticipates completion in fiscal 1998. During fiscal 1996, the Company substantially completed the merger of its operations with those of the Pelikan Hardcopy Division, which was acquired in February 1995. That plan included, among other things, the closure of the Company's manufacturing, distribution and administration facility in Bardstown, Kentucky and merger of its operations into the Pelikan Hardcopy Division's facility in Franklin, Tennessee; the termination of contract manufacturing and other contracts; closure of the Company's manufacturing facility in 12 Deeside, Wales and merger of its operations with the Pelikan Hardcopy Division's operations is Scotland; consolidation of certain toner manufacturing operations of ICMI's Connellsville, Pennsylvania facility and the Pelikan Hardcopy Division's Derry, Pennsylvania facility; and consolidation of sales and administrative organizations of the two companies. The Company completed the merger activities in fiscal 1997. Activity related to accrued restructuring costs for the Pelikan merger during the three and six month periods ended September 27, 1996 are as follows: Amount Amount Accrued at Amount Accrued at Description of Beginning of Paid in Additional End of Restructuring Expense Period Period Provision Period --------------------- ------------ ------- ---------- ---------- Three Months Ended September 27, 1996: Severance $ 0 $ $ 2,693 $ 2,693 Lease cancellations 425 40 385 Facility maintenance and other 287 78 209 ----- ----- ------- ------- $ 712 $ 118 $ 2,693 $ 3,287 ----- ----- ------- ------- ----- ----- ------- ------- Amount Amount Accrued at Amount Accrued at Description of Beginning of Paid in Additional End of Restructuring Expense Period Period Provision Period --------------------- ------------ ------- ---------- ---------- Six Months Ended September 27, 1996: Severance $ 71 $ 71 $ 2,693 $ 2,693 Lease cancellations 425 40 385 Facility maintenance and other 384 175 209 ----- ----- ------- ------- $ 880 $ 286 $ 2,693 $ 3,287 ----- ----- ------- ------- ----- ----- ------- ------- 13 12. NEW ACCOUNTING STANDARDS During March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which establishes standards for computing and presenting earnings per share. The disclosure requirements of SFAS No. 128 will be effective for the Company's financial statements in periods after December 15, 1997. The Company's analysis of this new standard indicates that the standard will not have a material impact on the Company's calculation of fully diluted earnings per share. During March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure", which establishes standards for disclosing information about an entity's capital structure. The disclosure requirements of SFAS No. 129 will be effective for the Company's financial statements in periods ending after December 15, 1997. During June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information". Preliminary analysis of these new standards by the Company indicates that the standards will not have a material impact on the Company. the standards are effective for financial statements for fiscal years beginning after December 15, 1997. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 26, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 27, 1996 Net sales for the quarter ended September 26, 1997 were $72.7 million, a decline of $13.6 million (15.7%) over the quarter ended September 27, 1996. For the quarter ended September 26, 1997, sales by North American entities were $39.4 million, a decline of $5.3 million or 11.9%, as compared to sales in the previous year period. Sales by European entities declined $8.4 million, or 20.6%, as compared to the previous year period and were $32.4 million. Nearly all of the decline in sales by North American entities was due to the $4.4 million, or 49.4%, decline in sales of ink jet products which resulted from an across the board decline in sales of ink jet products combined with the fact that current quarter sales are sales of units with a lower average sell price versus sales in the previous year period. Approximately $0.6 million of the decline in sales in Europe was due to exchange rate fluctuations. The balance of the decline in sales in Europe was due largely to the continuing decline in sales of impact products of $7.5 million and a slight across the board decline in sales of non-impact products, principally in the German market place, of $0.3 million over the previous year period. Worldwide sales of non-impact supplies accounted for approximately 61% of total sales for the quarter ended September 26, 1997, compared to 57% of total sales in the quarter ended September 27, 1996. Sales of non-impact products as a percentage of worldwide sales increased largely because sales of impact products declined by $9.0 million (24.3%). In North America, sales of non-impact supplies amounted to $21.5 million in the quarter ended September 26, 1997, down $4.1 million or 16% as compared to the previous year period, and represented 55% of total North American sales. As previously noted, all of this decline was attributed to a decline in sales of ink jet products. Sales of non-impact supplies in Europe were $23.1 million in the quarter ended September 26, 1997 as compared to $23.6 million in the previous year period. Cost of sales were $60.1 million (82.7% of net sales) for the quarter ended September 26, 1997, compared to $65.5 million (76.0% of net sales) in the previous year period. Included in cost of sales for the quarter ended September 26, 1997 were $1.7 million (2.4% of net sales) of expenses incurred because the Company had not completed the transition of impact product production from the Company's German facility to the Company's facilities in Scotland, Mexico or China. In addition, gross margin was adversely impacted during the quarter by $1.0 million (1.4% of net sales), associated with increased customer allowances and customer rebates in both North America and Europe. 15 For the quarter ended September 26, 1997, research and development expenses amounted to $1.8 million, (2.5% of net sales), as compared to $2.6 million (3.0% of net sales) in the previous year period. All of the decline in this expense category occurred in Europe where the Company has implemented an expense reduction program to maintain research and development expenses at approximately 2% of net sales. Selling, general and administrative expenses were $14.1 million in the quarter ended September 26, 1997 as compared to $15.6 million in the previous year period. All of the reduction in these expenses resulted from the Company's implementation of worldwide expense reduction programs. Restructuring expenses amounted to $1.2 million in the current period and were in line with previous projections. These expenses related primarily to: (1) consolidating impact product production into Scotland, Mexico and China; (2) centralizing distribution primarily into Franklin, Tennessee and Duren, Germany; and (3) closing one toner facility and consolidating toner manufacturing into Connellsville, Pennsylvania and Egg, Switzerland. Interest expense for the current fiscal quarter was $3.6 million, compared to $2.2 million for the previous year period. The increase is the result of higher outstanding borrowings and higher interest rates. For the quarter ended September 26, 1997, the Company increased its tax valuation allowance by approximately $4.1 million for certain deferred tax assets generated during the quarter. Under the provisions of SFAS 109, the Company will recognize an income tax benefit when the deferred tax assets are actually realized or at such time as it is determined that realization of the deferred tax assets is more likely than not. The Company reported tax benefit of $1.6 million in the previous year period. For the quarter ended September 26, 1997, the Company recognized a net loss of $10.6 million compared to a net loss of $2.3 million in the previous year period. The increase in net loss is directly attributable to: (1) the recognition of an extraordinary charge resulting from the early extinguishment of debt of $2.6 million; (2) the decrease in sales and the increased cost of goods sold as a percentage of sales; and (3) the restructuring charges, higher interest expense and income tax valuation allowances discussed above. SIX MONTHS ENDED SEPTEMBER 26, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 27, 1996 Net sales for the six months ended September 26, 1997 were $152.4 million, a decline of $21.3 million (12.3%) over the six months ended September 27, 1996. For the six months ended September 26, 1997, sales by North American entities were $81.4 million, a decline of $5.0 million or 5.8%, as compared to sales in the previous year period. Sales by European entities declined $16.5 million, or 19.3%, as compared to the previous year period and were $69.2 million. Sales of ink jet products in North America declined $4.1 16 million or 28.7% as a result of an across the board decline in sales of ink jet products combined with the fact that current period sales were sales of units with a lower average sell price versus sales in the previous year period. Sales of impact products, toners and laser cartridges and components in North America were down slightly as compared to the previous year period. Approximately $1.5 million of the decline in sales in Europe was due to exchange rate fluctuations. The balance of the decline in sales in Europe was due largely to the continuing decline in sales of impact products of $12.4 million and a slight across the board decline in sales of non-impact products, principally in the German market place, of $2.6 million over the previous year period. Worldwide sales of non-impact supplies accounted for approximately 60% of total sales for the six months ended September 26, 1997, compared to 57% of total sales in the six months ended September 27, 1996. Sales of non- impact products as a percentage of worldwide sales increased largely because sales of impact products declined by $14.0 million (18.7%). In North America, sales of non-impact supplies amounted to $45.6 million in the six months ended September 26, 1997, down $4.1 million or 8.2% as compared to the previous year period, and represented 56% of total North American sales. Sales of non-impact supplies in Europe were $46.1 million in the six months ended September 26, 1997 as compared to $49.4 million in the previous year period. All of the decline in sales of non-impact products in Europe was due to exchange rate fluctuations. Cost of sales were $124.1 million (81.4% of net sales) for the six months ended September 26, 1997, compared to $127.8 million (73.6% of net sales) in the previous year period. Included in cost of sales for the six months ended September 26, 1997 were $3.2 million (2.1% of net sales) of expenses incurred because the Company had not completed the transition of impact product production from the Company's German facility to the Company's facilities in Scotland, Mexico or China. In addition, gross margin was adversely impacted during the current period by $2.8 million (1.8% of net sales), associated with increased customer allowances, rebates and outbound freight, principally in North America. For the six months ended September 26, 1997, research and development expenses amounted to $3.6 million, (2.4% of net sales), as compared to $5.1 million (3.0% of net sales) in the previous year period. All of the decline in this expense category occurred in Europe where the Company has implemented an expense reduction program to maintain research and development expenses at approximately 2% of net sales. Selling, general and administrative expenses were $28.8 million in the six months ended September 26, 1997 as compared to $33.0 million in the previous year period. All of the reduction in these expenses resulted from the Company's implementation of worldwide expense reduction programs. Restructuring expenses amounted to $2.8 million in the current period and were in line with previous projections. These expenses related primarily to: (1) consolidating impact 17 product production into Scotland, Mexico and China; (2) centralizing distribution primarily into Franklin, Tennessee and Duren, Germany; and (3) closing one toner facility and consolidating toner manufacturing into Connellsville, Pennsylvania and Egg, Switzerland. Interest expense for the current fiscal period was $6.6 million, compared to $4.0 million for the previous year period. The increase is the result of higher outstanding borrowings and higher interest rates. For the six months ended September 26, 1997, the Company increased its tax valuation allowance by approximately $6.5 million for certain deferred tax assets generated during the period. Under the provisions of SFAS 109, the Company will recognize an income tax benefit when the deferred tax assets are actually realized or at such time as it is determined that realization of the deferred tax assets is more likely than not. The Company reported tax benefit of $0.4 million in the previous year period. For the six months ended September 26, 1997, the Company recognized a net loss of $16.5 million compared to a net loss of $0.5 million in the previous year period. The increase in net loss is directly attributable to: (1) the recognition of an extraordinary charge resulting from the early extinguishment of debt of $2.6 million; (2) the decrease in sales and the increased cost of goods sold as a percentage of sales; and (3) the restructuring charges, higher interest expense and income tax valuation allowances discussed above. EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT Because the Company conducts business in many countries, fluctuations in foreign currency exchange rates affect the Company's financial position and results of operations. It is the Company's policy to monitor currency exposures and enter into hedging arrangements to manage the Company's exposure to currency fluctuations. As a result, the Company reported $0.2 million in exchange losses and $1.1 million in exchange gains in the six months ended September 26, 1997 and September 27, 1996, respectively. LIQUIDITY AND CASH FLOW For the six months ended September 26, 1997, the Company used $3.8 million in cash for operations, primarily to fund reductions of accounts payable and restructuring expenses plus $6.0 for interest payments and $2.8 million for capital expenditures. As of November 4, 1997, borrowings outstanding under the Company's credit facilities amounted to $141.6 million, up $7.7 million from March 31, 1997. As of November 4, 1997, the Company had approximately $2.0 million available for future borrowings under the credit facilities. The Company's sources of liquidity and capital include cash provided by operating activities and borrowings under the Company's credit facility. The Company has 18 experienced declining revenues and this has negatively impacted the cash from operations. As a result, management believes that the Company may not have adequate sources of cash to meet its near term obligations. The Company has engaged BT Alex Brown Incorporated to evaluate its strategic alternatives; to assist the Company in evaluating potential divestitures, candidates for business combinations; and to assist the Company in raising new equity capital. Additionally, the Company is continuing its efforts to sell non-essential assets and reduce inventories. There can be no assurance that any of these options will provide the Company with adequate cash to meet its near term obligations. NEW ACCOUNTING STANDARDS During March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which establishes standards for computing and presenting earnings per share. The disclosure requirements of SFAS No. 128 will be effective for the Company's financial statements in periods after December 15, 1997. The Company's analysis of this new standard indicates that the standard will not have a material impact on the Company's calculation of fully diluted earnings per share. During March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure", which establishes standards for disclosing information about an entity's capital structure. The disclosure requirements of SFAS No. 129 will be effective for the Company's financial statements in periods ending after December 15, 1997. During June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information". Preliminary analysis of these new standards by the Company indicates that the standards will not have a material impact on the Company. the standards are effective for financial statements for fiscal years beginning after December 15, 1997. CAUTIONARY STATEMENT The foregoing "Management's Discussion and Analysis of Financial Condition and Results of Operations" section contains various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, which represent the Company's expectations or beliefs concerning, among other things, future operating results and various components thereof and the adequacy of future operations to provide sufficient liquidity. The Company cautions that such matters necessarily involve significant risks and uncertainties that could cause actual operating results and liquidity needs to differ materially from such statements, including, 19 without limitation, general economic conditions, product demand and industry capacity, competitive products and pricing, manufacturing efficiencies, new product development, availability of raw materials and critical manufacturing equipment, new plant startups and the regulatory and trade environment. 20 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS See Item 3 - Legal Proceedings in the registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 and Note 10 of Notes to Consolidated Financial Statements for the three and six month periods ended September 26, 1997 and September 27, 1996 included elsewhere in this report. ITEMS 2 - 3 INAPPLICABLE ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The registrant's annual meeting of shareholders was held on September 25, 1997 (the "Annual Meeting"). (b) See item (c) below. (c) The following matters were considered at the Annual Meeting and approved by the votes indicated: (i) Each of the following nominees was elected to the Board of Directors of the registrant: Votes For Votes Withheld --------- -------------- Donald A. Bolke 13,903,560 98,705 David F. Brigante 11,372,760 2,629,505 Brian D. Finn 13,907,460 94,805 Patrick E. Howard 13,909,360 92,905 John P. Rochon 13,909,560 92,705 (ii) The appointment of Coopers & Lybrand L.L.P. as the registrant's independent auditors for the fiscal year ending March 31, 1998 was ratified at the Annual Meeting by a vote of 11,427,377shares "For", 47,525 shares "Against" and 2,527,363 shares "Abstain". (d) Inapplicable. ITEM 5- INAPPLICABLE 21 PART II - OTHER INFORMATION (CONTINUED) ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 11.1 - Statement regarding computation of per share earnings. Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K. The registrant filed no reports on Form 8-K during the quarterly period ended September 26, 1997. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date December 1, 1997 /s/ Patrick E. Howard --------------------------- ---------------------------- Patrick E. Howard Chief Executive Officer Date December 1, 1997 /s/ Anthony G. Schmeck --------------------------- ---------------------------- Anthony G. Schmeck Senior Vice President, Finance Corporate Controller and Secretary 23 EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 NU-KOTE HOLDING, INC. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) FOR THE THREE MONTHS ENDED ----------------------------- SEPTEMBER 26, SEPTEMBER 27, 1997 1996 ------------- ------------- PRIMARY Shares outstanding: Weighted average number of shares outstanding 21,775 21,775 Net effect of dilutive stock options and warrants (1) -------- ------- 21,775 21,775 -------- ------- -------- ------- Loss before extraordinary item $ (8,018) $(2,332) Extraordinary loss (2,550) -------- ------- Net loss $(10,568) $(2,332) -------- ------- -------- ------- Loss per common share before extraordinary item $ (0.37) $ (0.11) Extraordinary loss per common share (0.12) -------- ------- Net loss per common share $ (0.49) $ (0.11) -------- ------- -------- ------- FULLY DILUTED Shares outstanding: Weighted average number of shares outstanding 21,775 21,775 Net effect of dilutive stock options and warrants (1) -------- ------- 21,775 21,775 -------- ------- -------- ------- Loss before extraordinary item $ (8,018) $(2,332) Extraordinary loss (2,550) -------- ------- Net loss $(10,568) $(2,332) -------- ------- -------- ------- Loss per common share before extraordinary item $ (0.37) $ (0.11) Extraordinary loss per common share (0.12) -------- ------- Net loss per common share $ (0.49) $ (0.11) -------- ------- -------- -------
EXHIBIT 11.1 (CONTINUED) NU-KOTE HOLDING, INC. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) FOR THE SIX MONTHS ENDED ----------------------------- SEPTEMBER 26, SEPTEMBER 27, 1997 1996 ------------- ------------- PRIMARY Shares outstanding: Weighted average number of shares outstanding 21,775 21,760 Net effect of dilutive stock options and warrants (1) -------- ------- 21,775 21,760 -------- ------- -------- ------- Loss before extraordinary item $(13,990) $ (537) Extraordinary loss (2,550) -------- ------- Net loss $(16,540) $ (537) -------- ------- -------- ------- Loss per common share before extraordinary item $ (0.64) $ (0.02) Extraordinary loss per common share (0.12) -------- ------- Net loss per common share $ (0.76) $ (0.02) -------- ------- -------- ------- FULLY DILUTED Shares outstanding: Weighted average number of shares outstanding 21,775 21,760 Net effect of dilutive stock options and warrants (1) -------- ------- 21,775 21,760 -------- ------- -------- ------- Loss before extraordinary item $(13,990) $ (537) Extraordinary loss (2,550) -------- ------- Net loss $(16,540) $ (537) -------- ------- -------- ------- Loss per common share before extraordinary item $ (0.64) $ (0.02) Extraordinary loss per common share (0.12) -------- ------- Net loss per common share $ (0.76) $ (0.02) -------- ------- -------- -------
- ------------------- (1) For the three and six month periods ended September 26, 1997 and September 27, 1996, respectively, stock options and warrants are not considered as those periods resulted in net losses, making the stock options and warrants anti-dilutive. EX-27 3 EXHIBIT 27
5 1,000 6-MOS MAR-31-1998 APR-01-1997 SEP-26-1997 5,346 0 71,117 4,153 92,878 179,593 106,050 33,718 282,782 94,405 138,395 0 0 223 31,961 282,782 152,415 152,415 124,084 124,084 35,402 0 6,577 (13,648) 342 (13,990) 0 (2,550) 0 (16,540) (0.76) (0.76)
-----END PRIVACY-ENHANCED MESSAGE-----