-----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, NR7/aRkIfgKOdLdfmvFc0mxCwuVuBN4HCJLfXnliX8MBMNJIwAhlNV5KsxONuory BGtNgshTSnqNmaYvX5+ZqQ== 0000853102-99-000087.txt : 19991117 0000853102-99-000087.hdr.sgml : 19991117 ACCESSION NUMBER: 0000853102-99-000087 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAY RUNNER INC CENTRAL INDEX KEY: 0000853102 STANDARD INDUSTRIAL CLASSIFICATION: BLANKBOOKS, LOOSELEAF BINDERS & BOOKBINDING & RELATED WORK [2780] IRS NUMBER: 953624280 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19835 FILM NUMBER: 99753518 BUSINESS ADDRESS: STREET 1: 15295 ALTON PARKWAY CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7146803500 MAIL ADDRESS: STREET 1: 15295 ALTON PARKWAY CITY: IRVINE STATE: CA ZIP: 92718 10-Q 1 FORM 10-Q FOR PERIOD ENDING 09/30/99 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 0-19835 DAY RUNNER, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-3624280 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 15295 ALTON PARKWAY IRVINE, CALIFORNIA 92618 (Address and zip code of principal executive offices) (714) 680-3500 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 the number of shares outstanding of each of the registrant's classes of Common Stock, as of the latest practicable date: Number of Shares Outstanding at Class November 12, 1999 - ------------------------------ -------------------------------- Common Stock, $0.001 par value 11,900,736
DAY RUNNER, INC. INDEX Page Reference COVER PAGE....................................................................................... 1 INDEX ........................................................................................ 2 PART I -- FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets September 30, 1999 and June 30, 1999...................................... 3 Consolidated Statements of Income Three Months Ended September 30, 1999 and 1998............................ 4 Consolidated Statements of Cash Flows Three Months Ended September 30, 1999 and 1998............................ 5 Notes to Consolidated Financial Statements.................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 12 PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................................ 20 SIGNATURES....................................................................................... 21
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS SEPTEMBER 30, JUNE 30, 1999 1999 -------------- --------- Current assets: Cash and cash equivalents...................................................... $ 9,327 $ 9,132 Accounts receivable (less allowance for doubtful accounts and sales returns and other allowances of $10,150 and $11,481 at September 30, 1999 and June 30, 1999, respectively)................................................ 46,692 43,215 Inventories.................................................................... 45,009 42,361 Prepaid expenses and other current assets...................................... 5,136 4,506 Income taxes receivable........................................................ 434 Deferred income taxes.......................................................... 11,189 11,189 --------- -------- Total current assets........................................................ 117,353 110,837 Property and equipment, net ................................................... 17,320 17,851 Goodwill and other intangible assets (net of accumulated amortization of $2,556 and $1,934 at September 30, 1999 and June 30, 1999, respectively)........... 85,170 85,830 Other assets (net of accumulated amortization of $494 and $410 at September 30, 1999 and June 30, 1999, respectively).................................. 2,196 1,793 --------- --------- TOTAL ............................................................................ $ 222,039 $ 216,311 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................... $ 17,447 $ 18,722 Accrued expenses............................................................... 21,878 19,547 Income taxes payable........................................................... 2,638 Loan notes..................................................................... 2,077 --------- -------- Total current liabilities................................................... 41,963 40,346 --------- -------- Long-term liabilities: Line of credit................................................................. 109,438 105,317 Loan notes..................................................................... 262 251 --------- -------- Total long-term liabilities................................................. 109,700 105,568 --------- -------- Commitments and contingencies Stockholders' equity: Preferred stock (1,000,000 shares authorized; $0.001 par value; no shares issued or outstanding)...................................................... Common stock (29,000,000 shares authorized; $0.001 par value; 13,718,524 shares issued and 11,900,736 shares outstanding at September 30, 1999 and June 30, 1999).............................................................. 14 14 Additional paid-in capital..................................................... 21,709 21,709 Retained earnings.............................................................. 61,678 61,078 Accumulated other comprehensive income......................................... 333 954 Treasury stock - At cost (787,858 shares at September 30, 1999 and June 30, 1999)................................................................ (13,358) (13,358) --------- -------- Total stockholders' equity.................................................. 70,376 70,397 --------- --------- TOTAL ............................................................................ $222,039 $216,311 ========= ========= See accompanying notes to consolidated financial statements.
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Three Months Ended September 30, 1999 1998 Net sales............................................................................... $ 51,853 $ 47,731 Cost of goods sold...................................................................... 25,971 24,860 --------- --------- Gross profit............................................................................ 25,882 22,871 --------- --------- Operating expenses: Selling, marketing and distribution................................................ 15,670 12,265 General and administrative......................................................... 6,935 4,657 --------- --------- Total operating expenses......................................................... 22,605 16,922 --------- --------- Income from operations.................................................................. 3,277 5,949 Net interest expense.................................................................... 2,144 33 --------- --------- Income before provision for income taxes................................................ 1,133 5,916 Provision for income taxes.............................................................. 533 2,247 --------- --------- Net income.............................................................................. $ 600 $ 3,669 ========= ========= Earnings per common share: Basic.............................................................................. $ 0.05 $ 0.31 ========= ========= Diluted............................................................................ $ 0.05 $ 0.29 ========= ========= Weighted-average number of common shares outstanding: Basic.............................................................................. 11,901 11,931 ========= ========= Diluted............................................................................ 12,132 12,656 ========= ========= See accompanying notes to consolidated financial statements.
DAY RUNNER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) Three Months Ended September 30, 1999 1998 ---- ---- Cash flows from operating activities: Net income.................................................................... $ 600 $ 3,669 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.............................................. 3,081 1,733 Provision for doubtful accounts and sales returns and other allowances..... 5,619 316 Loss on disposal of property and equipment................................. 3 Changes in operating assets and liabilities: Accounts receivable..................................................... (8,526) (2,213) Inventories............................................................. (2,234) (2,017) Prepaid expenses and other current assets............................... (732) (1,748) Income taxes receivable................................................. 1,667 2,021 Accounts payable........................................................ (1,499) 2,255 Accrued expenses........................................................ 1,850 (50) Income taxes payable.................................................... 1,278 110 --------- --------- Net cash provided by operating activities......................................... 1,107 4,076 --------- --------- Cash flows from investing activities: Acquisition of property and equipment......................................... (1,144) (3,656) Other assets.................................................................. (564) --------- --------- Net cash used in investing activities.................................... (1,708) (3,656) --------- --------- Cash flows from financing activities: Net borrowings (repayments) under lines of credit............................. 2,954 (708) Repayment of loan notes....................................................... (2,184) Repayment of capital lease obligations........................................ (56) Net proceeds from issuance of common stock.................................... 3 Repurchase of common stock.................................................... (1,274) --------- ---------- Net cash provided by (used in) financing activities...................... 770 (2,035) --------- --------- Effect of exchange rate changes in cash........................................... 26 141 --------- --------- Net increase (decrease) in cash and cash equivalents.............................. 195 (1,474) Cash and cash equivalents at beginning of period.................................. 9,132 2,923 --------- --------- Cash and cash equivalents at end of period........................................ $ 9,327 $ 1,449 ========= ======== See accompanying notes to consolidated financial statements.
DAY RUNNER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998) 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES The accompanying consolidated balance sheet as of September 30, 1999, consolidated statements of income and cash flows for the three-month periods ended September 30, 1999 and 1998 are unaudited but, in the opinion of management, include all adjustments consisting of normal, recurring accruals necessary for a fair presentation of the financial position and the results of operations for such periods. Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been omitted pursuant to the requirements of the Securities and Exchange Commission, although the Company believes that the disclosures included in the financial statements included herein are adequate to make the information therein not misleading. The financial statements included herein should be read in conjunction with the Company's audited consolidated financial statements for the year ended June 30, 1999, and the notes thereto, which are included in the Company's Annual Report on Form 10-K. The results of operations for the three months ended September 30, 1999 and 1998 are not necessarily indicative of the results for a full year. The seasonality of the Company's financial results and the unpredictability of the factors affecting such seasonality make the Company's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. 2. INVENTORIES Inventories consist of the following (in thousands): September 30, June 30, 1999 1999 ---- ---- Raw materials................... $ 11,149 $ 12,026 Work in process................. 2,858 2,138 Finished goods.................. 31,002 28,197 ---------- ---------- Total.................. $ 45,009 $ 42,361 ========== ========== 3. FINANCIAL INSTRUMENT On September 29, 1998, the Company entered into a call option in order to limit its foreign exchange risk on the purchase of Filofax shares, which were paid in pounds Sterling. The Company's objective was to protect itself from the risk that the purchase price of the Filofax shares would be adversely affected by changes in exchange rates. At September 30, 1998, the Company had $775,000 in a call option which was included in prepaid expenses and other current assets in the consolidated financial statements. The Company does not trade in financial instruments nor does it enter into such contracts for speculative purposes. 4. LINES OF CREDIT On September 23, 1998, the Company entered into a $160,000,000 Revolving Loan Agreement (the "Loan Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"). Effective November 24, 1998, this amount was voluntarily reduced to $145,000,000, and unamortized financing fees of approximately $84,000 were charged to interest expense. The loan facility was syndicated with a group of banks in December 1998. Borrowings bore interest either at floating rates based on the higher of Wells Fargo's prime rate and the Federal Funds Rate published by the Federal Reserve Bank of New York or at fixed rates calculated by reference to the interest rates at which Wells Fargo offers deposits in U.S. dollars in amounts approximately equal to the amount of the relevant loan and for a period of time comparable to the number of days the relevant loan remains outstanding, together with a margin. During the quarter ended September 30, 1999, the weighted-average interest rate was 8.25%. Under the terms of the Loan Agreement, the Company paid Wells Fargo a financing fee of $1,200,000. At September 30, 1999, the Company had $109,438,000 outstanding under this Loan Agreement and had outstanding letters of credit totaling approximately $40,000. On June 29, 1999, the Company obtained from the banks a waiver of the fixed charge coverage ratio and the funded debt ratio covenants for the quarter ended June 30, 1999. The waiver was subsequently extended through October 15, 1999. On October 12, 1999, the Company and the banks amended the Loan Agreement (the "Amended and Restated Loan Agreement"). The Amended and Restated Loan Agreement converts the entire outstanding revolving loan balance into a term loan portion of $90,400,000 and a revolving credit loan portion of $29,600,000. The term loan matures on September 30, 2001, and the revolving credit loan facility matures on October 9, 2000. The maturity date of the revolving credit loan facility will be automatically extended through September 30, 2001, provided that the Company achieves as of September 30, 2000 a minimum EBITDA, a minimum fixed charge coverage ratio and a maximum senior funded debt ratio, as defined in the amended agreement. As a result, unamortized financing fees due under the Loan Agreement of approximately $955,000 will be charged to interest expense in October 1999. The Amended and Restated Loan Agreement is secured by the Company's assets and includes, among other things, financial covenants requiring the maintenance of a minimum fixed charge coverage ratio, EBITDA, stockholders' equity and current ratio, and a maximum senior funded debt coverage ratio and operating expenses to net sales ratio, as defined in the amended agreement. The Amended and Restated Loan Agreement also limits, among other things, the incurrence of liens and other indebtedness, mergers, consolidations, the sale of assets, annual capital expenditures, advances, investments and loans by the Company and its subsidiaries, dividends, stock repurchases and certain transactions with affiliates. It permits up to $10,000,000 of secured debt for currency hedging purposes and up to $1,500,000 of unsecured overdraft borrowings for foreign subsidiaries. The outstanding balances bear interest at the Company's election at either (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to 200.00 basis points, or (ii) the applicable eurodollar rate plus an interest rate margin ranging from 112.50 to 300.00 basis points, depending on the level of the funded debt ratio at the end of each fiscal quarter. Under the Amended and Restated Loan Agreement, the Company is obligated to pay certain fees, including an unused revolving loan commitment fee ranging from 37.50 to 67.50 basis points, which varies with the level of the funded debt ratio at the end of each fiscal quarter, payable quarterly in arrears; letter of credit fees ranging from 112.50 to 300.00 basis points which vary with the level of the funded debt ratio at the time the letter of credit is issued; and amendment and other standard fees which are currently estimated at approximately $1,500,000. 5. LOAN NOTES Loan Notes in the amount of (pound)1,477,000 (US $2,437,000) were issued in connection with the Filofax acquisition, are unsecured obligations of the Company's U.K. subsidiary and bear interest at LIBOR (6.035% at September 30, 1999) less 1%. Interest on the Loan Notes is paid annually in arrears beginning September 30, 1999. The Loan Notes are redeemable, in whole or in part, at the holder's option on each interest payment date. Unless they have previously been redeemed, all Loan Notes will be redeemed on September 30, 2003. During the three months ended September 30, 1999, (pound)1,318,000 (US $2,175,000) of the Loan Notes were redeemed. 6. EARNINGS PER SHARE Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities. The following reconciles the numerator and denominator of the basic and diluted per share computations for net income (in thousands, except per share amounts): THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ------------- ------------- NET INCOME $ 600 $ 3,669 BASIC WEIGHTED-AVERAGE SHARES Weighted average number of common shares outstanding 11,901 11,931 EFFECT OF DILUTIVE SECURITIES Additional shares from the assumed exercise of options and warrants 1,311 2,866 Shares assumed to be repurchased under the treasury stock method (1,080) (2,141) ----------- ---------- DILUTED WEIGHTED-AVERAGE SHARES Weighted average number of common shares outstanding and common share equivalents 12,132 12,656 =========== ========== EARNINGS PER SHARE: Basic $ 0.05 $ 0.31 =========== ========== Diluted $ 0.05 $ 0.29 =========== ========== 7. COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME. The statement establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is summarized as follows (in thousands): THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ------------ ------------ Net income $ 600 $ 3,669 Foreign currency translation adjustment (621) 274 -------- -------- Comprehensive income $ (21) $ 3,943 -------------------- -------- -------- 8. SEGMENT INFORMATION The Company's operating segments have similar economic characteristics and, as such, the Company has aggregated six operating segments into a single reportable segment in conformity with SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The business activities of the Company's operating segment are the development, manufacturing and marketing of paper-based organizers for the retail market. In addition, the Company also develops, manufactures and markets a number of related organizing products including telephone/address books, business accessories, products for students and organizing and other wallboards. The Company groups its products into three categories: organizers and planners; their refills, which include calendars, other pages and accessories; and related organizing products. The following table sets forth, for the periods indicated, approximate Day Runner sales by product category and as a percentage of total net sales (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ------------------- ------------------ Organizers and planners...................... $ 21,180 $ 17,068 Refills...................................... 18,480 17,048 Related organizing products.................. 12,193 13,615 ---------- --------- Total..................................... $ 51,853 $ 47,731 ========== =========
9. OPERATIONS IN FOREIGN COUNTRIES The following is a summary of the financial activity of the Company by geographical area (in thousands):
THREE MONTHS ENDED SEPTEMBER 30, 1999 UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL ------------- ------ ----- ------------ ----- Net sales to unaffiliated entities $ 33,094 $ 13,325 $ 5,434 $ 51,853 Transfers between geographic areas 863 355 $ (1,218) ---------- -------- ------- --------- --------- Net sales $ 33,957 $ 13,325 $ 5,789 $ (1,218) $ 51,853 ========== ======== ======= ========= ========= Income from operations $ 1,652 $ 2,872 $ 332 $ (1,579) $ 3,277 ========== ======== ======= ========= ========= Long-lived assets $ 89,004 $170,550 $ 6,593 $(161,461) $ 104,686 ========== ======== ======= ========= ========= THREE MONTHS ENDED SEPTEMBER 30, 1998 UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL ------------- ------ ----- ------------ ----- Net sales to unaffiliated entities $ 43,472 $ 610 $ 3,649 $ 47,731 Transfers between geographic areas 1,441 715 (2,156) ---------- -------- ------- --------- --------- Net sales $ 44,913 $ 610 $ 4,364 $ (2,156) $ 47,731 ========== ======= ======= ========= ========= Income from operations $ 8,238 $ (155) $ 165 (2,299) $ 5,949 ========== ======= ======= ====== ========= Long-lived assets $ 18,214 $ 110 $ 3,479 $ (3,120) $ 18,683 ========== ======= ======= ========= =========
10. CONTINGENCIES In September 1999, two, and in October 1999, one additional, purported securities class action lawsuits were filed in the United States District Court for the Central District California against the Company and certain of its officers and directors. The Complaints allege that the Company violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder through the misstatement of the Company's financial results of operations for the first through third quarters of fiscal 1999. These alleged misstatements purportedly consisted of improper accounting for manufacturing variances and other costs. The plaintiffs in all these actions purport to represent a class consisting of all purchasers of the Company's Common Stock between October 20, 1998 and August 31, 1999. The plaintiffs are seeking unspecified compensatory damages. The Company expects that these actions will be consolidated into a single action, that a lead plaintiff will be appointed, and that a consolidated amended complaint will be filed. To the Company's knowledge, none of these events has yet taken place. There has been no discovery in any of the actions. Based on the allegations and the issues raised by the current complaint, the Company believes it has meritorious defenses to the actions and intends to defend them vigorously. The Company is not a party to any other litigation that, in the opinion of management, would reasonably be expected to have a materially adverse effect on the consolidated financial statements. 11. STATEMENTS OF CASH FLOW Supplemental disclosure of cash flow information (in thousands): THREE MONTHS ENDED SEPTEMBER 30, 1999 1998 ---------- ----------- Cash paid during the period for: Interest $ 1,857 $ 36 Income taxes, net of refunds received $(1,984) $ 44 Supplemental disclosure of noncash investing and financing activities: As of September 30, 1998, the Company had purchased 1,400,000 shares of Filofax stock for approximately (pound)2,821,000 (approximately US $4,794,000). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY BY, THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS QUARTERLY REPORT. HISTORICAL RESULTS AND PERCENTAGE RELATIONSHIPS AMONG ANY AMOUNTS INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS ARE NOT NECESSARILY INDICATIVE OF TRENDS IN OPERATING RESULTS FOR ANY FUTURE PERIOD. Since the Company's introduction of the first Day Runner System organizer in 1982, the Company's revenues have been generated by sales primarily of organizers and planners and secondarily of refills. Since fiscal 1995, a majority of the Company's growth has resulted from sales of related organizing products. For a number of years, the Company focused the great majority of its product development, sales and marketing efforts on the U.S. office products channel and the U.S. mass market channel. With the October 30, 1998 acquisition of Filofax, the Company substantially increased its emphasis on markets outside the U.S. The office products channel and the mass market channel and sales to foreign customers accounted for 38.5%, 21.9% and 35.9%, respectively, of net sales for the three months ended September 30, 1999. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentages that income statement items bear to net sales and the percentage change in the dollar amounts of such items.
Percentage Percentage Change of Sales Three Three Months Ended Months Ended September 30, September 30, 1998 1999 to 1999 --------------------- ------------- Net sales.............................................................. 100.0% 100.0% 8.6% Cost of goods sold..................................................... 50.1 52.1 4.5 ----- ----- Gross profit........................................................... 49.9 47.9 4.1 ----- ----- Operating expenses: Selling, marketing and distribution................................ 30.2 25.7 27.8 General and administrative......................................... 13.4 9.7 48.9 Total operating expenses........................................ 43.6 35.4 33.6 ----- ----- Income from operations................................................. 6.3 12.5 (44.9) Net interest expense................................................... 4.1 0.1 6397.0 ---- ---- Income before provision for income taxes............................... 2.2 12.4 (80.8) Provision for income taxes............................................. 1.0 4.7 (76.3) ---- ---- Net income............................................................. 1.2% 7.7% (83.6) ==== ====
The following tables set forth, for the periods indicated, the Company's approximate net sales by product category and distribution channel and as a percentage of total sales. Three Months Ended September 30, ----------------------------------------------- PRODUCT CATEGORY: 1999 1998 - ----------------- ---- ---- (unaudited; dollars in thousands) Organizers and planners.............................. $ 21,180 40.9% $ 17,068 35.8% Refills.............................................. 18,480 35.6 17,048 35.7 Related organizing products.......................... 12,193 23.5 13,615 28.5 -------- ----- --------- ---- Total............................................ $ 51,853 100.0% $ 47,731 100.0% ======== ===== ========= ===== Three Months Ended September 30, ----------------------------------------------- DISTRIBUTION CATEGORY: 1999 1998 - --------------------- ---- ---- Office products...................................... $ 19,968 38.5% $ 21,660 45.4% Mass market.......................................... 11,346 21.9 19,648 41.1 Foreign customers.................................... 18,590 35.8 4,232 8.9 Other................................................ 1,949 3.8 2,191 4.6 ---------- ---- --------- ---- Total............................................ $ 51,853 100.0% $ 47,731 100.0% ========== ===== ========= =====
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1998 NET SALES. Net sales ("sales") consist of revenues from gross product shipments net of allowances for returns, rebates and credits. In the first quarter of fiscal 2000, sales increased by $4,122,000, or 8.6%, compared with the first quarter of fiscal 1999 because of the Filofax acquisition but were negatively affected by the ongoing impact of U.S. retailers' inventory tightening, which constrained U.S. sales and increased product returns. In the quarter ended September 30, 1999, sales were primarily to the office products channel and secondarily to foreign customers. Sales to foreign customers increased by $14,358,000, or 339.3%; sales to mass market customers decreased by $8,302,000, or 42.3%; sales to the office products channel decreased by $1,692,000, or 7.8%; and sales to miscellaneous customers grouped together as "other," decreased by $242,000, or 11.0%. Sales of organizers and planners increased by $4,112,000, or 24.1%; sales of refills increased by $1,432,000, or 8.4%; and sales of related organizing products decreased by $1,422,000, or 10.4%. GROSS PROFIT. Gross profit is sales less cost of goods sold, which is comprised of materials, labor and manufacturing overhead. Gross profit may be affected by, among other things, product mix, production levels, changes in vendor and customer prices and discounts, sales volume and growth rate, sales returns and other allowances, purchasing and manufacturing efficiencies, tariffs, duties and inventory carrying costs. Gross profit as a percentage of sales increased from 47.9% in the first quarter of fiscal 1999 to 49.9% in the first quarter of fiscal 2000 primarily because of the higher gross margin earned by sales of Filofax brand products. OPERATING EXPENSES. Total operating expenses increased by $5,683,000, or 33.6%, in the first quarter of fiscal 2000 compared with the first quarter of fiscal 1999 and increased as a percentage of sales from 35.4% to 43.6%. Selling, marketing and distribution expenses increased by $3,405,000 primarily because of the addition of Filofax's expenses during the quarter and increased from 25.7% to 30.2% as a percentage of sales due to the Company's decreased ability to absorb expenses as a result of the decline in U.S. sales. General and administrative expenses increased by $2,278,000, and from 9.7% to 13.4% as a percentage of sales primarily because of the addition of Filofax's expenses. NET INTEREST EXPENSE. Because of an increase in the Company's long-term debt, which was incurred to finance the acquisition of Filofax in the second quarter of fiscal 1999, net interest expense for the first quarter of fiscal 2000 was $2,144,000 compared with $33,000 for the first quarter of fiscal 1999. INCOME TAXES. Due primarily to the Company's inability to fully utilize its foreign tax credits, the Company's first quarter fiscal 2000 effective tax rate was 47.0%, compared with 38.0% for the first quarter of fiscal 1999. SEASONAL FLUCTUATIONS The Company has historically experienced and expects to continue to experience significant seasonal fluctuations in its sales and other financial results that it believes have resulted and will continue to result primarily from its customers' and users' buying patterns. These buying patterns have typically adversely affected orders for the Company's products in the third quarter of each fiscal year. Although it is difficult to predict the future seasonality of sales, the Company believes that future seasonality should be influenced at least in part by customer and user buying patterns substantially similar to those that have historically affected the Company. Quarterly financial results are also affected by new product introductions and line extensions, the timing of large orders, changes in product sales or customer mix, vendor and customer pricing, production levels, supply and manufacturing delays, large customers' inventory management and general industry and economic conditions. The seasonality of the Company's financial results and the unpredictability of the factors affecting such seasonality make the Company's quarterly and yearly financial results difficult to predict and subject to significant fluctuation. LIQUIDITY AND CAPITAL RESOURCES GENERAL. The Company's cash and cash equivalents at September 30, 1999 increased to $9,327,000 from $9,132,000 at June 30, 1999. During the quarter ended September 30, 1999, net cash of $1,107,000 and $770,000 provided by operating activities and financing activities, respectively, was offset by net cash of $1,708,000 used in investing activities. Of the $1,107,000 net amount provided by the Company's operating activities, $600,000 was provided by net income, $5,619,000 was provided by the provision for doubtful accounts and sales returns and other allowances, $3,081,000 was provided by depreciation and amortization, $1,850,000 was provided by an increase in accrued expenses and $1,667,000 was provided by a decrease in income taxes receivable. These amounts were partially offset by an increase of $8,526,000 in accounts receivable, an increase of $2,234,000 in inventories and a decrease of $1,499,000 in accounts payable. Accounts receivable (net) at September 30, 1999 increased by 8.0% from the fiscal 1999 year-end amount and by 35.8% from the September 30, 1998 amount primarily because of the continued lengthening of the average collection period of accounts receivable related to increased chargebacks on the part of certain of the Company's large customers that have been intensifying their focus on inventory management and secondarily because of the increase in sales. Inventories at September 30, 1999 increased by 6.3% from the fiscal 1999 year-end amount primarily because of a planned inventory build-up done in preparation for the Company's calendar year-end busy season. Compared with the September 30, 1998 amount, inventories increased by 14.0% primarily because of the inventories of Filofax; however, this increase was partially offset by a decrease in the Company's domestic inventories. The $1,708,000 net amount used in the Company's investing activities was used to acquire primarily machinery and equipment and secondarily data processing equipment and software. Of the $770,000 net amount used in the Company's financing activities, $2,954,000 was provided by borrowings under the line of credit, which amount was partially offset by $2,184,000 used to repay loan notes. BANK LOAN. On September 23, 1998, the Company entered into a $160,000,000 Revolving Loan Agreement (the "Loan Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"). Effective November 24, 1998, this amount was voluntarily reduced to $145,000,000, and unamortized financing fees of approximately $84,000 were charged to interest expense. The loan facility was syndicated with a group of banks in December 1998. Borrowings bore interest either at floating rates based on the higher of Wells Fargo's prime rate and the Federal Funds Rate published by the Federal Reserve Bank of New York or at fixed rates calculated by reference to the interest rates at which Wells Fargo offers deposits in U.S. dollars in amounts approximately equal to the amount of the relevant loan and for a period of time comparable to the number of days the relevant loan remains outstanding, together with a margin. During the year ended June 30, 1999, the weighted-average interest rate was 8.25%. Under the terms of the Loan Agreement, the Company paid Wells Fargo a financing fee of $1,200,000. At September 30, 1999, the Company had $109,438,000 outstanding under this Loan Agreement and had outstanding letters of credit totaling approximately $40,000. On June 29, 1999, the Company obtained from the banks a waiver of the fixed charge coverage ratio and the funded debt ratio covenants for the quarter ended June 30, 1999. The waiver was subsequently extended through October 15, 1999. On October 12, 1999, the Company and the banks amended the Loan Agreement (the "Amended and Restated Loan Agreement"). The Amended and Restated Loan Agreement converts the entire outstanding revolving loan balance into a term loan portion of $90,400,000 and a revolving credit loan portion of $29,600,000. The term loan matures on September 30, 2001, and the revolving credit loan facility matures on October 9, 2000. The maturity date of the revolving credit loan facility will be automatically extended through September 30, 2001, provided that the Company achieves as of September 30, 2000 a minimum EBITDA, a minimum fixed charge coverage ratio and a maximum senior funded debt ratio, as defined in the amended agreement. As a result, unamortized financing fees due under the Loan Agreement of approximately $955,000 will be charged to interest expense in October 1999. The Amended and Restated Loan Agreement is secured by the Company's assets and includes, among other things, financial covenants requiring the maintenance of a minimum fixed charge coverage ratio, EBITDA, stockholders' equity and current ratio, and a maximum senior funded debt coverage ratio and operating expenses to net sales ratio, as defined in the amended agreement. The Amended and Restated Loan Agreement also limits, among other things, the incurrence of liens and other indebtedness, mergers, consolidations, the sale of assets, annual capital expenditures, advances, investments and loans by the Company and its subsidiaries, dividends, stock repurchases and certain transactions with affiliates. It permits up to $10,000,000 of secured debt for currency hedging purposes and up to $1,500,000 of unsecured overdraft borrowings for foreign subsidiaries. The outstanding balances bear interest at the Company's election at either (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to 200.00 basis points, or (ii) the applicable eurodollar rate plus an interest rate margin ranging from 112.50 to 300.00 basis points, depending on the level of the funded debt ratio at the end of each fiscal quarter. Under the Amended and Restated Loan Agreement, the Company is obligated to pay certain fees, including an unused revolving loan commitment fee ranging from 37.50 to 67.50 basis points, which varies with the level of the funded debt ratio at the end of each fiscal quarter, payable quarterly in arrears; letter of credit fees ranging from 112.50 to 300.00 basis points which vary with the level of the funded debt ratio at the time the letter of credit is issued; and amendment and other standard fees which are currently estimated at approximately $1,500,000. FOREIGN CURRENCY. The Company has not incurred significant gains or losses from foreign currency exchange rate fluctuations. The continuing expansion of the Company's international operations could, however, result in larger gains or losses as a result of fluctuations in foreign currency exchange rates as those subsidiaries conduct business in whole or in part in foreign currencies. The Company's exposure to the impact of interest changes and foreign currency fluctuations has increased as a result of its acquisition of Filofax because the acquisition has significantly expanded the Company's international operations and because a portion of the debt incurred to fund the acquisition is in pounds Sterling. In September 1998, the Company entered into a call option with respect to the purchase of Filofax shares in the tender offer to limit the effect of exchange rate fluctuations. The Company does not trade in financial instruments nor does it enter into such contracts for speculative purposes. A single currency called the euro was introduced in certain countries in Europe on January 1, 1999, but will not, at least for the foreseeable future, be introduced in the United Kingdom. The use of a single currency may affect the ability of Day Runner and other companies to price their products differently in various European markets. The Company is evaluating the impact of the single currency in these markets. ADEQUACY OF CAPITAL. The Company believes that cash flow from operations, vendor credit, its existing working capital and its term and revolving credit loans will be sufficient to satisfy the Company's anticipated cash requirements at least through fiscal 2000. Nonetheless, the Company may seek additional sources of capital as necessary or appropriate to finance acquisitions or to otherwise finance the Company's growth or operations; however, there can be no assurance that such funds if needed will be available on favorable terms, if at all. YEAR 2000 The year 2000 issue refers to the inability of certain computer systems, as well as certain hardware and equipment containing date-sensitive data, to recognize accurately dates commencing on or after January 1, 2000, and even possibly certain dates in 1999. This has the potential to affect the operation of these systems adversely and materially. The Company has identified four phases in its year 2000 compliance efforts: discovery; assessment; remediation; and applicable testing and verification. The Company has completed the discovery and assessment phases for its own systems and applications and has substantially completed the remediation phase for all its major business systems. The Company expects the remediation, applicable testing and verification phases to be complete by November 30, 1999. The Company believes that its modification of existing software and conversions to new software for certain tasks will prevent the year 2000 transition from posing significant internal operational problems. The Company currently estimates that total costs related to the year 2000 issue will be approximately $2,000,000 to $2,500,000, of which approximately $1,957,000 had been incurred as of September 30, 1999. The Company does not anticipate that the costs of these modifications and conversions will be material to its financial position or results of operations. Expenditures will be expensed or capitalized as appropriate. Although the Company believes its internal systems are year 2000 compliant, there can be no guarantee that any or all of the Company's systems are or will be year 2000 compliant, that the ultimate costs required to address the year 2000 issue will not exceed the amounts indicated above, or that the impact of any failure to achieve substantial year 2000 compliance will not have a materially adverse effect on the Company's financial condition. The Company has been surveying its vendors, customers and others on whom it relies to assess their state of year 2000 readiness. As of October 1, 1999, the Company has: defined Day Runner's year 2000 compliance definition; sent year 2000 questionnaires; advised critical suppliers and customers as to Day Runner's year 2000 readiness; and received responses from a portion of these parties. There can be no assurance, however, that the systems of any outside party on which the Company's systems rely will also be compliant or that any failure to be compliant in this area by one or more of these parties will not have an adverse effect on the Company's systems. SUPPLIERS OF RAW MATERIALS, PRODUCT COMPONENTS AND FINISHED GOODS. The Company has been assessing the year 2000 readiness of its significant suppliers. A large portion have responded that their year 2000 readiness plans are complete or that they plan to be year 2000 compliant prior to December 31, 1999. POTENTIAL MATERIALLY ADVERSE IMPACT AND CONTINGENCY PLANS. The failure of multiple significant suppliers to supply raw materials, product components, finished goods and ancillary goods for a prolonged period could substantially impair the Company's ability to ship product to its customers in a timely and reliable manner and could, thus, have a materially adverse effect on the Company's business. The Company does not have a basis at this time to determine whether such a scenario is likely to occur. The Company is therefore continuing to develop contingency plans to cope with potential year 2000 failure on the part of its significant suppliers. The contingency plans include, where appropriate, (1) placing orders for the receipt of products prior to potential business disruptions; (2) defining alternate sources for suppliers who are determined to be at a high risk of noncompliance or business disruption; and (3) defining manual work processes. SUPPLIERS OF OTHER GOODS AND SERVICES. In addition, the Company has identified and has been contacting its suppliers of business-critical goods and services and has received responses from a large portion of these parties. POTENTIAL MATERIALLY ADVERSE IMPACT AND CONTINGENCY PLANS. The failure in one or more geographic regions of third-party systems over which the Company has no control and for which the Company has no ready substitute, such as, but not limited to, power and telecommunications service could make it necessary for the Company to temporarily close facilities in the affected geographic areas and have additional materially adverse effects on the Company's business. The Company is developing appropriate contingency plans for any business-critical supplier that does not provide an adequate response to the Company concerning its year 2000 readiness on a timely basis and has in place a business resumption plan that addresses recovery from various types of disasters, including significant interruptions to data flows and to distribution capabilities at the Company's major U.S. distribution centers. The Company has made the necessary preparations for the execution of this contingency plan. However, there can be no assurance that the Company will be able to complete its contingency preparations on that schedule. FORWARD LOOKING STATEMENTS With the exception of actual reported financial results and other historical information, the statements contained in this Quarterly Report on Form 10-Q ("Quarterly Report") constitute "forward-looking statements" within the meaning of the federal securities laws and involve a number of risks and uncertainties. Such statements are indicated by words or phrases such as "anticipate," "estimate," "project," "expect," "believes," "intends" and similar words or phrases. These forward looking statements are based on management's expectations as of the date set forth on the signature page of this document, and the Company does not undertake any obligation to update any of these statements. There can be no assurance that the Company's actual future performance will meet its expectations. The Company is subject to a number of risks, and its future operating results are difficult to predict and subject to significant fluctuations. These include but are not limited to: (1) the Company's efforts to controls costs may not prove sufficient to prevent future increases in operating expenses in dollars or as a percentage of sales; (2) the Company may not be able to counteract the effects of large customers' inventory tightening in any significant way and inventory tightening may continue beyond the end of calendar 1999 and well into the year 2000 and beyond, which may result in lower than expected sales and/or higher than expected product returns; and (3) the Company may not correctly anticipate the product mix of retailers' "just-in-time" inventory demands, resulting in the temporary unavailability of the products in demand by retailers and lower sales. Additional factors that may cause future results to differ materially from the Company's current expectations include, among others: the timing and size of orders from large customers; timing and size of orders for new products; competition, especially for retail shelf space; general economic conditions, especially the sustainability of the current economic expansion; the health of the retail environment; foreign exchange rate fluctuations; supply and manufacturing constraints; supplier performance; the Company's ability to meet its cash requirements to finance its operations and growth; changes in the Company's effective tax rate; and the potential disruptions to the Company's business from any lack of Year 2000 compliance on the part of the Company's customer and vendors. Among the effects of these factors may be: lower than anticipated sales; higher than anticipated product returns and/or excess inventory; negative effects on consumer purchases; lower than anticipated gross profit; higher than anticipated operating expenses; and lower than anticipated net income. For additional risks and more detailed explanations of factors that may cause the Company's results of operations to vary materially from current expectations, see the Company's Form 10-K for the year ended June 30, 1999 filed with the SEC. ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The primary risk inherent in the Company's market sensitive instruments is the risk of loss resulting from interest rate fluctuations. The Company's term and revolving credit loans bear interest either at the Company's election at (i) the higher of the Agent Bank's prime rate or the Federal Funds Rate plus 50.00 basis points, plus an interest rate margin ranging from 12.50 to 200.00 basis points, or (ii) the applicable eurodollar rate plus an interest rate margin ranging from 112.50 to 300.00 basis points, depending on the level of the funded debt ratio at the end of each fiscal quarter. The table below provides information as of September 30, 1999 about the Company's long-term liability obligations that are sensitive to changes in interest rates, including principal cash flows by scheduled maturity, weighted-average interest rate and estimated fair value. The weighted-average interest rates presented are the actual rates as of September 30, 1999 as calculated under the terms of the Amended and Restated Loan Agreement.
PRINCIPAL MATURING IN FISCAL YEAR FAIR 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE ---- ---- ---- ---- ---- ---------- ----- ----- (Dollars in thousands) Term and revolving credit loans $109,438 $109,438 $109,438 Average interest rate 8.20% Other debt: Loan notes $ 2,175 $262 $ 2,437 $ 2,437 Average interest rate 4.80%
The Company's future earnings and cash flows relating to market sensitive instruments are primarily dependent upon prevailing market interest rate. Based upon the Company's borrowing mix as of September 30, 1999, a 1% increase or decrease in the interest rates would increase or decrease pretax earnings and cash flow by approximately $1,100,000. FOREIGN CURRENCY EXPOSURE The Company's reporting currency is the U.S. dollar, and interest and principal payments on its long-term debts will be in U.S. dollars and pounds Sterling. A portion of revenues and operating costs are derived from sales and operations outside the United States and are incurred in a number of different currencies. Accordingly, fluctuations in currency exchange rates may have a significant effect on the Company's results of operations and balance sheet data. The Company has no significant exposure from financial instruments which would require quantitative disclosure. PART II --OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Certificate of Incorporation of the Registrant, as amended(1) 3.2 Bylaws of the Registrant(2) 10.2 Amended and Restated Loan Agreement dated as of September 30, 1999 among the Registrant, Day Runner UK plc, Filofax Limited, the Lenders named therein and Wells Fargo Bank, National Association, including Revolving and Term Loan Notes(3) 10.3 Fiscal 2000 Officer Bonus Plan 10.4 Amendment No. 1 to Day Runner Restated 401(k) Plan and Trust Agreement, effective as of October 1, 1999 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1999. (1) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 0-19835) filed with the Commission on May 15, 1998. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K (File No. 0-19835) filed with the Commission on August 5, 1993. (3) Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 0-19835) filed with the Commission on October 14, 1999. 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: November 15, 1999 DAY RUNNER, INC. By: /s/ JAMES E. FREEMAN JR. -------------------------- James E. Freeman, Jr. Chief Executive Officer By: /s/ DENNIS K. MARQUARDT -------------------------- Dennis K. Marquardt Executive Vice President, Finance & Administration and Chief Financial Officer EX-10.3 2 OFFICER BONUS PLAN
Day Runner, Inc. Fiscal Year 2000 Officer Bonus Schedule (1) ------------------------------------------------------------------ Group I - Bonus Factor 1.21% ------------------------------------------------------------------ --------------------- --------------------- Chairman of the Board Chief Executive Officer --------------------- --------------------- --------------------- --------------------- Base Salary Base Salary - --------------------------- Base N/I (2) = $ 5,985 $ 330,000 $ 300,000 Total - --------------------------- --------------------- --------------------- --------------------- Net Income Net Income Percent of Bonus Percent of Bonus Percent of Bonus Growth Rate Target Salary Amount Salary Amount Salary Amount - ---------------------------------------------------------------------------------------------- 15.00% $ 6,883 15.00% $ 49,500 15.00% $ 45,000 15.00% $ 94,500 16.00% $ 6,943 16.21% $ 53,507 16.21% $ 48,643 16.21% $ 102,150 17.00% $ 7,002 17.43% $ 57,514 17.43% $ 52,286 17.43% $ 109,800 18.00% $ 7,062 18.64% $ 61,521 18.64% $ 55,929 18.64% $ 117,450 19.00% $ 7,122 19.86% $ 65,529 19.86% $ 59,571 19.86% $ 125,100 - --------------------------- --------------------- --------------------- --------------------- 20.00% $ 7,182 21.07% $ 69,536 21.07% $ 63,214 21.07% $ 132,750 21.00% $ 7,242 22.29% $ 73,543 22.29% $ 66,857 22.29% $ 140,400 22.00% $ 7,302 23.50% $ 77,550 23.50% $ 70,500 23.50% $ 148,050 23.00% $ 7,362 24.71% $ 81,557 24.71% $ 74,143 24.71% $ 155,700 24.00% $ 7,421 25.93% $ 85,564 25.93% $ 77,786 25.93% $ 163,350 - --------------------------- --------------------- --------------------- --------------------- 25.00% $ 7,481 27.14% $ 89,571 27.14% $ 81,429 27.14% $ 171,000 26.00% $ 7,541 28.36% $ 93,579 28.36% $ 85,071 28.36% $ 178,650 27.00% $ 7,601 29.57% $ 97,586 29.57% $ 88,714 29.57% $ 186,300 28.00% $ 7,661 30.79% $ 101,593 30.79% $ 92,357 30.79% $ 193,950 29.00% $ 7,721 32.00% $ 105,600 32.00% $ 96,000 32.00% $ 201,600 - --------------------------- --------------------- --------------------- --------------------- 30.00% $ 7,781 33.21% $ 109,607 33.21% $ 99,643 33.21% $ 209,250 31.00% $ 7,840 34.43% $ 113,614 34.43% $ 103,286 34.43% $ 216,900 32.00% $ 7,900 35.64% $ 117,621 35.64% $ 106,929 35.64% $ 224,550 33.00% $ 7,960 36.86% $ 121,629 36.86% $ 110,571 36.86% $ 232,200 34.00% $ 8,020 38.07% $ 125,636 38.07% $ 114,214 38.07% $ 239,850 - --------------------------- --------------------- --------------------- --------------------- 35.00% $ 8,080 39.29% $ 129,643 39.29% $ 117,857 39.29% $ 247,500 36.00% $ 8,140 40.50% $ 133,650 40.50% $ 121,500 40.50% $ 255,150 37.00% $ 8,199 41.71% $ 137,657 41.71% $ 125,143 41.71% $ 262,800 38.00% $ 8,259 42.93% $ 141,664 42.93% $ 128,786 42.93% $ 270,450 39.00% $ 8,319 44.14% $ 145,671 44.14% $ 132,429 44.14% $ 278,100 - --------------------------- --------------------- --------------------- --------------------- 40.00% $ 8,379 45.36% $ 149,679 45.36% $ 136,071 45.36% $ 285,750 41.00% $ 8,439 46.57% $ 153,686 46.57% $ 139,714 46.57% $ 293,400 42.00% $ 8,499 47.79% $ 157,693 47.79% $ 143,357 47.79% $ 301,050 43.00% $ 8,559 49.00% $ 161,700 49.00% $ 147,000 49.00% $ 308,700 44.00% $ 8,618 50.21% $ 165,707 50.21% $ 150,643 50.21% $ 316,350 - --------------------------- --------------------- --------------------- --------------------- 45.00% $ 8,678 51.43% $ 169,714 51.43% $ 154,286 51.43% $ 324,000 46.00% $ 8,738 52.64% $ 173,721 52.64% $ 157,929 52.64% $ 331,650 47.00% $ 8,798 53.86% $ 177,729 53.86% $ 161,571 53.86% $ 339,300 48.00% $ 8,858 55.07% $ 181,736 55.07% $ 165,214 55.07% $ 346,950 49.00% $ 8,918 56.29% $ 185,743 56.29% $ 168,857 56.29% $ 354,600 - --------------------------- --------------------- --------------------- --------------------- 50.00% $ 8,978 57.50% $ 189,750 57.50% $ 172,500 57.50% $ 362,250 - --------------------------- --------------------- --------------------- --------------------- Group II - Bonus Factor 1.07% ---------------------------------------------------------------------------------------- --------------------- -------------------- --------------------- Chief Operating EVP - Product Chief Officer Development Financial Officer --------------------- -------------------- --------------------- --------------------- -------------------- --------------------- Base Salary Base Salary Base Salary - --------------------------- Base N/I (2) = $ 5,985 $ 225,000 $ 200,000 $ 180,000 Total - --------------------------- --------------------- -------------------- -------------------- ------------------- Net Income Net Income Percent of Bonus Percent of Bonus Percent of Bonus Percent of Bonus Growth Rate Target Salary Amount Salary Amount Salary Amount Salary Amount - ----------------------------------------------------------------------------------------------------------------- 15.00% $ 6,883 15.00% $ 33,750 15.00% $ 30,000 15.00% $ 27,000 15.00% $ 90,750 16.00% $ 6,943 16.07% $ 36,161 16.07% $ 32,143 16.07% $ 28,929 16.07% $ 97,232 17.00% $ 7,002 17.14% $ 38,571 17.14% $ 34,286 17.14% $ 30,857 17.14% $ 103,714 18.00% $ 7,062 18.21% $ 40,982 18.21% $ 36,429 18.21% $ 32,786 18.21% $ 110,196 19.00% $ 7,122 19.29% $ 43,393 19.29% $ 38,571 19.29% $ 34,714 19.29% $ 116,679 - --------------------------- --------------------- -------------------- ----------------------------------------- 20.00% $ 7,182 20.36% $ 45,804 20.36% $ 40,714 20.36% $ 36,643 20.36% $ 123,161 21.00% $ 7,242 21.43% $ 48,214 21.43% $ 42,857 21.43% $ 38,571 21.43% $ 129,643 22.00% $ 7,302 22.50% $ 50,625 22.50% $ 45,000 22.50% $ 40,500 22.50% $ 136,125 23.00% $ 7,362 23.57% $ 53,036 23.57% $ 47,143 23.57% $ 42,429 23.57% $ 142,607 24.00% $ 7,421 24.64% $ 55,446 24.64% $ 49,286 24.64% $ 44,357 24.64% $ 149,089 - --------------------------- --------------------- -------------------- ----------------------------------------- 25.00% $ 7,481 25.71% $ 57,857 25.71% $ 51,429 25.71% $ 46,286 25.71% $ 155,571 26.00% $ 7,541 26.79% $ 60,268 26.79% $ 53,571 26.79% $ 48,214 26.79% $ 162,054 27.00% $ 7,601 27.86% $ 62,679 27.86% $ 55,714 27.86% $ 50,143 27.86% $ 168,536 28.00% $ 7,661 28.93% $ 65,089 28.93% $ 57,857 28.93% $ 52,071 28.93% $ 175,018 29.00% $ 7,721 30.00% $ 67,500 30.00% $ 60,000 30.00% $ 54,000 30.00% $ 181,500 - --------------------------- --------------------- -------------------- ----------------------------------------- 30.00% $ 7,781 31.07% $ 69,911 31.07% $ 62,143 31.07% $ 55,929 31.07% $ 187,982 31.00% $ 7,840 32.14% $ 72,321 32.14% $ 64,286 32.14% $ 57,857 32.14% $ 194,464 32.00% $ 7,900 33.21% $ 74,732 33.21% $ 66,429 33.21% $ 59,786 33.21% $ 200,946 33.00% $ 7,960 34.29% $ 77,143 34.29% $ 68,571 34.29% $ 61,714 34.29% $ 207,429 34.00% $ 8,020 35.36% $ 79,554 35.36% $ 70,714 35.36% $ 63,643 35.36% $ 213,911 - --------------------------- --------------------- -------------------- ----------------------------------------- 35.00% $ 8,080 36.43% $ 81,964 36.43% $ 72,857 36.43% $ 65,571 36.43% $ 220,393 36.00% $ 8,140 37.50% $ 84,375 37.50% $ 75,000 37.50% $ 67,500 37.50% $ 226,875 37.00% $ 8,199 38.57% $ 86,786 38.57% $ 77,143 38.57% $ 69,429 38.57% $ 233,357 38.00% $ 8,259 39.64% $ 89,196 39.64% $ 79,286 39.64% $ 71,357 39.64% $ 239,839 39.00% $ 8,319 40.71% $ 91,607 40.71% $ 81,429 40.71% $ 73,286 40.71% $ 246,321 - --------------------------- --------------------- -------------------- ----------------------------------------- 40.00% $ 8,379 41.79% $ 94,018 41.79% $ 83,571 41.79% $ 75,214 41.79% $ 252,804 41.00% $ 8,439 42.86% $ 96,429 42.86% $ 85,714 42.86% $ 77,143 42.86% $ 259,286 42.00% $ 8,499 43.93% $ 98,839 43.93% $ 87,857 43.93% $ 79,071 43.93% $ 265,768 43.00% $ 8,559 45.00% $ 101,250 45.00% $ 90,000 45.00% $ 81,000 45.00% $ 272,250 44.00% $ 8,618 46.07% $ 103,661 46.07% $ 92,143 46.07% $ 82,929 46.07% $ 278,732 - --------------------------- --------------------- -------------------- ----------------------------------------- 45.00% $ 8,678 47.14% $ 106,071 47.14% $ 94,286 47.14% $ 84,857 47.14% $ 285,214 46.00% $ 8,738 48.21% $ 108,482 48.21% $ 96,429 48.21% $ 86,786 48.21% $ 291,696 47.00% $ 8,798 49.29% $ 110,893 49.29% $ 98,571 49.29% $ 88,714 49.29% $ 298,179 48.00% $ 8,858 50.36% $ 113,304 50.36% $ 100,714 50.36% $ 90,643 50.36% $ 304,661 49.00% $ 8,918 51.43% $ 115,714 51.43% $ 102,857 51.43% $ 92,571 51.43% $ 311,143 - --------------------------- --------------------- -------------------- ----------------------------------------- 50.00% $ 8,978 52.50% $ 118,125 52.50% $ 105,000 52.50% $ 94,500 52.50% $ 317,625 - --------------------------- --------------------- -------------------- ----------------------------------------- Group III - Bonus Factor 0.64% ------------------------------------------------------------------------------------ --------------------- -------------------- --------------------- ------------------ VP - VP - General Counsel VP - VP - Information Services and Human Resources BusinesscDevelopment International --------------------- -------------------- --------------------- ------------------ --------------------- -------------------- --------------------- ------------------ Base Salary Base Salary Base Salary Base Salary - --------------------------- Base N/I (2) = $ 5,985 $ 155,000 $ 155,000 $ 140,000 $ 125,000 - --------------------------- --------------------- -------------------- --------------------- ------------------ Net Income Net Income Percent of Bonus Percent of Bonus Percent of Bonus Percent of Bonus Growth Rate Target Salary Amount Salary Amount Salary Amount Salary Amount - ------------------------------------------------------------------------------------------------------------- 15.00% $ 6,883 15.00% $ 23,250 15.00% $ 23,250 15.00% $ 21,000 15.00% $ 18,750 16.00% $ 6,943 15.64% $ 24,246 15.64% $ 24,246 15.64% $ 21,900 15.64% $ 19,554 17.00% $ 7,002 16.29% $ 25,243 16.29% $ 25,243 16.29% $ 22,800 16.29% $ 20,357 18.00% $ 7,062 16.93% $ 26,239 16.93% $ 26,239 16.93% $ 23,700 16.93% $ 21,161 19.00% $ 7,122 17.57% $ 27,236 17.57% $ 27,236 17.57% $ 24,600 17.57% $ 21,964 - ------------------------ --------------------- -------------------- --------------------- --------------------- 20.00% $ 7,182 18.21% $ 28,232 18.21% $ 28,232 18.21% $ 25,500 18.21% $ 22,768 21.00% $ 7,242 18.86% $ 29,229 18.86% $ 29,229 18.86% $ 26,400 18.86% $ 23,571 22.00% $ 7,302 19.50% $ 30,225 19.50% $ 30,225 19.50% $ 27,300 19.50% $ 24,375 23.00% $ 7,362 20.14% $ 31,221 20.14% $ 31,221 20.14% $ 28,200 20.14% $ 25,179 24.00% $ 7,421 20.79% $ 32,218 20.79% $ 32,218 20.79% $ 29,100 20.79% $ 25,982 - ------------------------ --------------------- -------------------- --------------------- --------------------- 25.00% $ 7,481 21.43% $ 33,214 21.43% $ 33,214 21.43% $ 30,000 21.43% $ 26,786 26.00% $ 7,541 22.07% $ 34,211 22.07% $ 34,211 22.07% $ 30,900 22.07% $ 27,589 27.00% $ 7,601 22.71% $ 35,207 22.71% $ 35,207 22.71% $ 31,800 22.71% $ 28,393 28.00% $ 7,661 23.36% $ 36,204 23.36% $ 36,204 23.36% $ 32,700 23.36% $ 29,196 29.00% $ 7,721 24.00% $ 37,200 24.00% $ 37,200 24.00% $ 33,600 24.00% $ 30,000 - ------------------------ --------------------- -------------------- --------------------- --------------------- 30.00% $ 7,781 24.64% $ 38,196 24.64% $ 38,196 24.64% $ 34,500 24.64% $ 30,804 31.00% $ 7,840 25.29% $ 39,193 25.29% $ 39,193 25.29% $ 35,400 25.29% $ 31,607 32.00% $ 7,900 25.93% $ 40,189 25.93% $ 40,189 25.93% $ 36,300 25.93% $ 32,411 33.00% $ 7,960 26.57% $ 41,186 26.57% $ 41,186 26.57% $ 37,200 26.57% $ 33,214 34.00% $ 8,020 27.21% $ 42,182 27.21% $ 42,182 27.21% $ 38,100 27.21% $ 34,018 - ------------------------ --------------------- -------------------- --------------------- --------------------- 35.00% $ 8,080 27.86% $ 43,179 27.86% $ 43,179 27.86% $ 39,000 27.86% $ 34,821 36.00% $ 8,140 28.50% $ 44,175 28.50% $ 44,175 28.50% $ 39,900 28.50% $ 35,625 37.00% $ 8,199 29.14% $ 45,171 29.14% $ 45,171 29.14% $ 40,800 29.14% $ 36,429 38.00% $ 8,259 29.79% $ 46,168 29.79% $ 46,168 29.79% $ 41,700 29.79% $ 37,232 39.00% $ 8,319 30.43% $ 47,164 30.43% $ 47,164 30.43% $ 42,600 30.43% $ 38,036 - ------------------------ --------------------- -------------------- --------------------- --------------------- 40.00% $ 8,379 31.07% $ 48,161 31.07% $ 48,161 31.07% $ 43,500 31.07% $ 38,839 41.00% $ 8,439 31.71% $ 49,157 31.71% $ 49,157 31.71% $ 44,400 31.71% $ 39,643 42.00% $ 8,499 32.36% $ 50,154 32.36% $ 50,154 32.36% $ 45,300 32.36% $ 40,446 43.00% $ 8,559 33.00% $ 51,150 33.00% $ 51,150 33.00% $ 46,200 33.00% $ 41,250 44.00% $ 8,618 33.64% $ 52,146 33.64% $ 52,146 33.64% $ 47,100 33.64% $ 42,054 - ------------------------ --------------------- -------------------- --------------------- --------------------- 45.00% $ 8,678 34.29% $ 53,143 34.29% $ 53,143 34.29% $ 48,000 34.29% $ 42,857 46.00% $ 8,738 34.93% $ 54,139 34.93% $ 54,139 34.93% $ 48,900 34.93% $ 43,661 47.00% $ 8,798 35.57% $ 55,136 35.57% $ 55,136 35.57% $ 49,800 35.57% $ 44,464 48.00% $ 8,858 36.21% $ 56,132 36.21% $ 56,132 36.21% $ 50,700 36.21% $ 45,268 49.00% $ 8,918 36.86% $ 57,129 36.86% $ 57,129 36.86% $ 51,600 36.86% $ 46,071 - ------------------------ --------------------- -------------------- --------------------- --------------------- 50.00% $ 8,978 37.50% $ 58,125 37.50% $ 58,125 37.50% $ 52,500 37.50% $ 46,875 - ------------------------ --------------------- -------------------- --------------------- --------------------- VP - Operations North America - --------------- - --------------- Base Salary $ 125,000 Total - ------------------------------------------ Percent of Bonus Percent of Bonus Salary Amount Salary Amount - ------------------------------------------ 15.00% $ 18,750 15.00% $ 105,000 15.64% $ 19,554 15.64% $ 109,500 16.29% $ 20,357 16.29% $ 114,000 16.93% $ 21,161 16.93% $ 118,500 17.57% $ 21,964 17.57% $ 123,000 - --------------------- -------------------- 18.21% $ 22,768 18.21% $ 127,500 18.86% $ 23,571 18.86% $ 132,000 19.50% $ 24,375 19.50% $ 136,500 20.14% $ 25,179 20.14% $ 141,000 20.79% $ 25,982 20.79% $ 145,500 - --------------------- -------------------- 21.43% $ 26,786 21.43% $ 150,000 22.07% $ 27,589 22.07% $ 154,500 22.71% $ 28,393 22.71% $ 159,000 23.36% $ 29,196 23.36% $ 163,500 24.00% $ 30,000 24.00% $ 168,000 - --------------------- -------------------- 24.64% $ 30,804 24.64% $ 172,500 25.29% $ 31,607 25.29% $ 177,000 25.93% $ 32,411 25.93% $ 181,500 26.57% $ 33,214 26.57% $ 186,000 27.21% $ 34,018 27.21% $ 190,500 - --------------------- -------------------- 27.86% $ 34,821 27.86% $ 195,000 28.50% $ 35,625 28.50% $ 199,500 29.14% $ 36,429 29.14% $ 204,000 29.79% $ 37,232 29.79% $ 208,500 30.43% $ 38,036 30.43% $ 213,000 - --------------------- -------------------- 31.07% $ 38,839 31.07% $ 217,500 31.71% $ 39,643 31.71% $ 222,000 32.36% $ 40,446 32.36% $ 226,500 33.00% $ 41,250 33.00% $ 231,000 33.64% $ 42,054 33.64% $ 235,500 - --------------------- -------------------- 34.29% $ 42,857 34.29% $ 240,000 34.93% $ 43,661 34.93% $ 244,500 35.57% $ 44,464 35.57% $ 249,000 36.21% $ 45,268 36.21% $ 253,500 36.86% $ 46,071 36.86% $ 258,000 - --------------------- -------------------- 37.50% $ 46,875 37.50% $ 262,500 - --------------------- -------------------- (1) The officer's bonus amount is calculated by multiplying the officer's base salary times a percent of salary at various targeted net income levels. Additionally, this is only a partial schedule. (2) Net income amounts are in thousands.
EX-10.4 3 AMENDMENT NO. 1 TO 401K PLAN AMENDMENT NO. 1 TO DAY RUNNER RESTATED 401(k) PLAN AND TRUST AGREEMENT WHEREAS, Day Runner, Inc. (the "Employer") heretofore adopted the Day Runner, Inc. 401(k) Plan (the "Plan"); and WHEREAS, the Employer reserved the right to amend the Plan; and WHEREAS, the Employer desires to amend the Plan to add direct enrollment; NOW, THEREFORE, the Plan is hereby amended, effective as of October 1, 1999, as follows: 1. Section 4.1(a) of the Plan is hereby amended by adding the following paragraph to the end of said section: "Notwithstanding the foregoing, any Employee, upon first becoming eligible to participate in the Plan pursuant to Section 3.1, who fails to affirmatively make any deferral election (including an election to contribute zero percent (0%) of his Compensation to the Plan) within the time prescribed by the Administrator, shall be deemed to have elected to contribute three percent (3%) ("deemed elective deferral) of his Compensation on a pre-tax basis to the Plan. The Administrator shall provide to each Employee a notice of his right to receive the amount of the deemed elective deferral in cash and his right to increase or decrease the elective deferral. The Administrator shall also provide each such Employee a reasonable period to exercise such rights before the date on which the cash is currently available." 2. Except as hereinabove amended, the provisions of the Plan shall continue in full force and effect. IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has caused this Amendment to be executed on the 30th day of August, 1999. DAY RUNNER, INC. By: /s/ JAMES E. FREEMAN, Jr. EX-27 4 FDS --
5 This schedule contains summary financial information extracted from the consolidated balance sheet and the consolidated statement of income filed as part of the quarterly report on Form 10-Q and is qualified in its entirety by reference to such quarterly report on form 10-Q. 0000853102 Day Runner, Inc. 1,000 3-mos Jun-30-2000 Jul-01-1999 Sep-30-1999 9,327 0 56,842 10,150 45,009 117,353 45,657 28,337 222,039 41,963 0 0 0 14 70,362 222,039 51,853 51,853 25,971 25,971 22,605 0 2,144 1,133 533 600 0 0 0 600 0.05 0.05
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