-----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, ForL3VRi9AUO8UYlEXYQ5F53E9HnpqidbhxvCwHvnzgd/dGEU/nFmI96rSx1FuLO wTGXU0NTShKvEHUJ9fomvg== 0000950134-96-006043.txt : 19961115 0000950134-96-006043.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950134-96-006043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAISYTEK INTERNATIONAL CORPORATION /DE/ CENTRAL INDEX KEY: 0000887403 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 752421746 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25400 FILM NUMBER: 96661036 BUSINESS ADDRESS: STREET 1: 500 N CENTRAL EXPRWY CITY: PLANO STATE: TX ZIP: 75074 BUSINESS PHONE: 2148814700 MAIL ADDRESS: STREET 1: 500 N CENTRAL EXPWY CITY: PLANO STATE: TX ZIP: 75074 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 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 0-25400 DAISYTEK INTERNATIONAL CORPORATION ------------------------------------------------------ (exact name of registrant as specified in its charter) DELAWARE 75-2421746 - ----------------------------------- -------------------------- (State of Incorporation) (I.R.S. Employer I.D. No.) 500 NORTH CENTRAL EXPRESSWAY, PLANO, TEXAS 75074 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 881-4700 ------------------- 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 ------ ------- At October 31, 1996 there were 6,465,751 shares of registrant's common stock outstanding. 2 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES FORM 10-Q SEPTEMBER 30, 1996 INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER ----------- Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 1996 (Unaudited) and March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 3 Unaudited Interim Consolidated Statements of Operations for the Three and Six Months Ended September 30, 1996 and 1995 . . . . 5 Unaudited Interim Consolidated Statements of Cash Flows for the Six Months Ended September 30, 1996 and 1995 . . . . . . . . . . . 6 Notes to Unaudited Interim Consolidated Financial Statements . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . 11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 15 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
September 30, March 31, 1996 1996 --------------- -------------- (Unaudited) CURRENT ASSETS Cash $ 351 $ 204 Trade accounts receivable, net of allowance for doubtful accounts of $1,259 and $1,283 at September 30, 1996 and March 31, 1996, respectively 71,385 69,169 Receivables from employees and related parties, net of allowance for doubtful accounts of $475 at September 30, 1996 and March 31, 1996 551 571 Inventories, net: Inventories, excluding Priority Fulfillment Services Division 39,398 44,358 Inventories, Priority Fulfillment Services Division 5,293 -- Prepaid expenses and other current assets 864 2,120 Deferred income tax asset 515 762 --------- --------- Total current assets 118,357 117,184 --------- --------- PROPERTY AND EQUIPMENT, at cost: Furniture, fixtures and equipment 18,495 15,325 Leasehold improvements 340 306 --------- --------- 18,835 15,631 Less - Accumulated depreciation and amortization (7,755) (6,136) --------- --------- Net property and equipment 11,080 9,495 EMPLOYEE RECEIVABLES 408 395 EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $492 and $468 at September 30, 1996 and March 31, 1996, respectively 1,503 1,527 --------- --------- Total assets $ 131,348 $ 128,601 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 4 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, March 31, 1996 1996 ------------- -------------- (Unaudited) CURRENT LIABILITIES Current portion of long-term debt $ 670 $ 650 Trade accounts payable 44,305 44,736 Accrued expenses 5,549 4,230 Income taxes payable 520 419 Other current liabilities 652 10,486 --------- --------- Total current liabilities 51,696 60,521 --------- --------- LONG-TERM DEBT, less current portion 20,644 16,419 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, $1.00 par value; 1,000,000 shares authorized at September 30, 1996 and March 31, 1996, none issued and outstanding -- -- Common stock, $0.01 par value; 20,000,000 and 10,000,000 shares authorized at September 30, 1996 and March 31, 1996, respectively; 6,460,564 and 6,342,753 shares issued and outstanding at September 30, 1996 and March 31, 1996, respectively 65 63 Additional paid-in capital 32,189 30,874 Retained earnings 27,732 21,736 Cumulative foreign currency translation adjustment (978) (1,012) --------- --------- Total shareholders' equity 59,008 51,661 --------- --------- Total liabilities and shareholders' equity $ 131,348 $ 128,601 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 4 5 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended September 30, September 30, ------------------- ------------------ 1996 1995 1996 1995 -------- -------- -------- -------- NET SALES $138,148 $105,421 $275,042 $210,387 COST OF SALES 124,559 94,086 247,783 188,418 -------- -------- -------- -------- Gross Profit 13,589 11,335 27,259 21,969 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,397 6,685 16,703 13,280 -------- -------- -------- -------- Income from operations 5,192 4,650 10,556 8,689 INTEREST EXPENSE 413 417 845 766 -------- -------- -------- -------- Income before income taxes 4,779 4,233 9,711 7,923 PROVISION FOR INCOME TAXES 1,824 1,617 3,715 3,039 -------- -------- -------- -------- NET INCOME $ 2,955 $ 2,616 $ 5,996 $ 4,884 ======== ======== ======== ======== NET INCOME PER COMMON SHARE $ 0.43 $ 0.39(a) $ 0.87 $ 0.73(a) ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 6,921 6,733 6,915 6,731 ======== ======== ======== ========
- ---------------------- (a) Includes approximately $0.05 per share related to certain one-time inventory purchase actions prior to manufacturer price increases. The accompanying notes are an integral part of these interim consolidated statements. 5 6 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Six Months Ended September 30, ------------------------------------ 1996 1995 --------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,996 $ 4,884 Adjustments to reconcile net income to net cash used in operating activities -- Depreciation and amortization 1,682 960 Provision for doubtful accounts 566 476 Deferred income tax provision (benefit) 247 (123) Changes in operating assets and liabilities -- Trade accounts receivable (2,775) (4,012) Receivables from related parties 52 27 Inventories, net (326) (6,383) Trade accounts payable and accrued expenses 869 3,557 Income taxes payable 107 (575) Prepaid expenses and other current assets 1,257 (742) ------- ------- Net cash provided by (used in) operating activities 7,675 (1,931) ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (3,240) (1,724) Advances to employees, net (44) (66) ------- ------- Net cash used in investing activities (3,284) (1,790) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving line of credit, net 4,560 5,993 Payments of other current liabilities, net (9,834) (2,543) Payments on capital leases and notes payable (315) (278) Net proceeds from exercise of stock options 1,317 308 ------- ------- Net cash provided by (used in) financing activities (4,272) 3,480 ------- ------- EFFECT OF EXCHANGE RATE ON CASH 28 (16) ------- ------- NET INCREASE (DECREASE) IN CASH 147 (257) CASH, beginning of period 204 448 ------- ------- CASH, end of period $ 351 $ 191 ======= =======
The accompanying notes are an integral part of these interim consolidated statements. 6 7 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATED TO THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED.) 1. ORGANIZATION AND NATURE OF BUSINESS: Daisytek International Corporation (a Delaware corporation) and subsidiaries (the "Company") is a wholesale distributor of computer and office automation supplies and accessories, whose primary products are laser toner, copier toner, inkjet cartridges, optical storage products, printer ribbons, diskettes, computer tape cartridges and accessories such as cleaning kits and media storage files. The Company, through its wholly owned subsidiaries in the U.S., Canada, and Mexico, sells products primarily in North America, as well as in Latin America, Europe, the Far East, Africa and Australia. The Company's customers include value added resellers, computer supplies dealers, office product dealers, computer and office product superstores and other retailers who resell the products to end-users. 2. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS: In the opinion of management, the Interim Unaudited Consolidated Financial Statements of the Company include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company's financial position as of September 30, 1996, its results of operations for the three and six months ended September 30, 1996 and 1995, and its results of cash flows for the six months ended September 30, 1996 and 1995. Results of the Company's operations for interim periods may not be indicative of results for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (the "SEC"). The Interim Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes of the Company for the fiscal years ended March 31, 1996 and 1995, and the three years ended March 31, 1996, included in the Company's Form 10-K (File Number 0-25400) as filed with the SEC on June 26, 1996 (the "Company's Form 10-K"). Accounting policies used in the preparation of the Interim Unaudited Consolidated Financial Statements are consistent in all material respects with the accounting policies described in the Notes to Consolidated Financial Statements in the Company's Form 10-K. 3. INVENTORIES: Inventories (merchandise held for resale, all of which is finished goods) are stated at the lower of weighted average cost or market. 7 8 4. DEBT: Debt as of September 30, 1996 and March 31, 1996, is as follows (dollars in thousands):
September 30, March 31, 1996 1996 ------------- --------- Revolving line of credit with commercial banks, interest (weighted average rate of 6.4% at September 30, 1996) at the Company's option at the prime rate of a bank (8.25% at September 30, 1996) or the Eurodollar rate plus 0.625% to 1.125% (6.301% at September 30, 1996), due May 22, 1998 $ 20,000 $ 15,440 Notes payable and obligations under capital leases for warehouse equipment, computer equipment, office furniture and fixtures, interest at varying rates ranging from 8% to 17%, with lease terms varying from five to seven years 1,314 1,629 -------- -------- 21,314 17,069 Less: Current portion of long-term debt (670) (650) -------- -------- $ 20,644 $ 16,419 ======== ========
In May 1995, the Company entered into an agreement with certain banks for a three-year unsecured revolving line of credit facility (the "facility"). Under the facility, the Company may borrow initially up to $25.0 million through April 1996 and up to $30.0 million thereafter until maturity. Availability under the facility is based upon amounts of eligible accounts receivable, as defined. Subsequent to September 30, 1996, the Company reached an agreement in principle with its lenders which will increase the borrowing availability under its facility to $50.0 million. The facility accrues interest, at the Company's option, at the prime rate of a bank or the eurodollar rate plus an adjustment ranging from 0.625% to 1.125% depending on the Company's financial performance. A commitment fee of 0.20% to 0.25% is charged on the unused portion of the facility. The facility contains various covenants including, among other things, the maintenance of certain financial ratios (minimum fixed charge ratio and minimum level of tangible net worth) and restrictions on certain activities of the Company, including loans and payments to related parties, incurring additional debt, acquisitions, investments and asset sales. As of September 30, 1996, $10.0 million was available under the facility for additional borrowings. This facility is part of the Company's integrated cash management system in which accounts receivable collections are used to pay down the facility and disbursements are paid from the facility. This system allows the Company to optimize its cash flow. At September 30, 1996 and March 31, 1996, the Company had checks and other items outstanding in excess of its cash balance of approximately $0.7 million and $10.5 million, respectively, which are included in other current liabilities. 8 9 5. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
Six Months Ended September 30, ------------------------ 1996 1995 ------ ------ Cash paid during the period for: Interest $ 838 $ 637 Income taxes $2,567 $3,777
6. STOCK OPTIONS: During the six month period ended September 30, 1996, the Company granted options to certain employees under its employee stock option plans (the "Plans"). These options were granted at the fair market value at the date of the grant. In addition to the options under the Plans, during the first quarter of fiscal year 1997 the Company granted options to a key executive to purchase 15,000 shares of common stock. These options were granted at the fair market value at the date of the grant. Such options become exercisable over a three year period starting with the date of grant, based on vesting percentages. The following table summarizes stock option activity for the six months ended September 30, 1996.
Shares Price per Share -------- ----------------- Outstanding, March 31, 1996 718,994 $ 1.28 - $19.50 Granted 299,114 $32.50 - $39.75 Exercised (117,811) $ 1.28 - $19.50 Canceled (5,902) $19.50 - $32.50 --------- Outstanding, September 30, 1996 894,395 $ 1.28 - $39.75 =========
During the second quarter of fiscal year 1997, shareholders approved the Company's Non-Employee Director Stock Option and Retainer Plan (the "Non-Employee Director Plan"). The Non-Employee Director Plan authorizes the Company to grant non-qualified common stock options to non-employee directors at the fair market value of the Company's common stock on the date of grant. The options vest over a three year period starting on the date of grant. The maximum number of shares which may be granted under the Non-Employee Director Plan is 50,000 shares, subject to adjustments for certain changes in the shares issued and outstanding as described in the plan. As of September 30, 1996, there were 3,000 options granted under the Non-Employee Director Plan. As of September 30, 1996, 381,759 options outstanding were exercisable. The remaining options will become exercisable over the next three years based on vesting percentages. In addition, 270,167 options remain available to be granted in the future under the Plans. 7. RECENTLY ISSUED ACCOUNTING STANDARD: The Company must adopt Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal year 1997. SFAS No. 121 requires companies to periodically evaluate long-lived assets and to record an impairment loss if the expected undiscounted future cash flows is less than the carrying value of those assets. Impairment losses resulting from the initial application of this statement shall be reported in the period in which the recognition criteria are first applied. The Company is currently evaluating the implementation of SFAS No. 121, the effects of which are unknown at this time. 9 10 8. SUBSEQUENT EVENT: Effective October 1, 1996, the Company acquired, with cash and common stock, substantially all of the assets and liabilities of Lasercharge Pty. Ltd. (Lasercharge). Lasercharge is an Australian wholesale distributor of computer and office automation supplies and accessories. The acquisition of Lasercharge will be accounted for using the purchase method of accounting, and, accordingly, the purchase price will be allocated to the assets and liabilities assumed based on the fair values at the date of acquisition. Pro forma results of operations have not been presented because the effects of the acquisition were not significant. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 Net Sales. Net sales for the three months ended September 30, 1996 were $138.1 million as compared to $105.4 million for the three months ended September 30, 1995, an increase of $32.7 million, or 31.0%, as the result of an increase in U.S. net sales of $27.4 million, or 30.7%, and an increase in international net sales of $5.3 million, or 33.0%. Net sales for the six months ended September 30, 1996 were $275.0 million as compared to $210.4 million for the six months ended September 30, 1995, an increase of $64.6 million, or 30.7%, as the result of an increase in U.S. net sales of $55.2 million, or 31.4%, and an increase in international net sales of $9.4 million, or 27.3%. The growth in U.S. and international net sales was primarily due to increased sales volume to large national accounts, computer and office product superstores, new customers and the Company's continued introduction of new products. Net sales to new customers for the six months ended September 30, 1996 were approximately $13 million, while net sales to existing customers increased by approximately $52 million during this period. Gross Profit. Gross profit for the three months ended September 30, 1996 was $13.6 million as compared to $11.3 million in the same period in 1995, an increase of $2.3 million, or 19.9%, primarily as the result of increased sales volume in fiscal year 1997. Gross profit for the six months ended September 30, 1996 was $27.3 million as compared to $22.0 million in the same period in 1995, an increase of $5.3 million, or 24.1%, primarily as the result of increased sales volume in fiscal year 1997. The Company's gross profit margin as a percent of net sales was 9.8% for the three months ended September 30, 1996 as compared to 10.8% for the corresponding period of the prior year. The Company's gross profit margin percentage was 9.9% for the six months ended September 30, 1996 as compared to 10.4% for the corresponding period of the prior year. Gross profit margin percentage declined during both the three and six months ended September 30, 1996 primarily because the prior year's results include the benefit of incremental margins earned on the sale of certain one-time inventory purchases by the Company prior to manufacturer price increases. Increased sales at lower gross profit margins to large national accounts and computer and office product superstores also contributed to the decline in gross profit margin percentages during both the three and six months ended September 30, 1996. The Company believes that the trend in sales to large national accounts and computer and office product superstores and the corresponding decline in gross profit margin percentage will continue during fiscal year 1997. SG&A Expenses. SG&A expenses for the three months ended September 30, 1996 were $8.4 million, or 6.1% of net sales, as compared to $6.7 million, or 6.3% of net sales, for the three months ended September 30, 1995. SG&A expenses for the six months ended September 30, 1996 were $16.7 million, or 6.1% of net sales, as compared to $13.3 million, or 6.3% of net sales, for the six months ended September 30, 1995. The increase in SG&A expenses was primarily a result of the increase in costs associated with the Company's increased sales volume. The decrease in SG&A expenses as a percentage of net sales was primarily due to improved operating efficiencies and staff productivity as a result of increased sales volume and continued technological enhancements implemented by the Company. Income from Operations. Income from operations for the three months ended September 30, 1996 was $5.2 million as compared to $4.7 million for the same period during 1995, an increase of $0.5 million, or 11.7%. Income from operations for the six months ended September 30, 1996 was $10.6 million as compared to $8.7 million for the same period during 1995, an increase of $1.9 million, or 21.5%. This increase was primarily due to increased sales volume, increased gross profit and improved operating efficiencies. Income from operations as a percentage of net sales was 3.8% for the three months ended September 30, 1996 as compared to 4.4% for the same period in fiscal year 1995, primarily as the result of a decrease in gross profit margin as a percentage of net sales which was somewhat offset by a decline in SG&A expenses as a percentage of net sales. Income from operations as a percentage of net sales was 3.8% for the six months ended September 30, 1996 as compared to 4.1% for the same period in fiscal year 1995, primarily as the result of a decrease in gross profit margin as a percentage of net sales which was somewhat offset by a decline in SG&A expenses as a percentage of net sales. Income from operations as a percentage of net sales for the three and six months ended September 30, 1996 remained relatively unchanged as compared to last year when the benefits of the one time inventory purchase actions are excluded from last year's results. 11 12 Interest Expense. Interest expense was $0.4 million during both the three months ended September 30, 1996 and September 30, 1995, and was $0.8 million during both the six months ended September 30, 1996 and September 30, 1995. Interest expense remained relatively unchanged during both periods as a result of an increase in the average line of credit which was partially offset by a reduction in interest rates during fiscal year 1997. The weighted average interest rate was 6.7% during the six months ended September 30, 1996 as compared to 7.9% for the corresponding period of 1995. Income Taxes. The Company's provision for income taxes was $1.8 million for the three months ended September 30, 1996 as compared to $1.6 million for the three months ended September 30, 1995. The Company's provision for income taxes was $3.7 million for the six months ended September 30, 1996 as compared to $3.0 million for the six months ended September 30, 1995. The increase was primarily due to increased pretax profits. The effective tax rates for the three and six months ended September 30, 1996 was 38.2% and 38.3%, respectively, as compared to the effective tax rates of 38.2% and 38.4% for the three and six months ended September 30, 1995, respectively. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's primary source of cash has been from financing activities. However, during the six months ended September 30, 1996, net cash of $4.3 million was used by financing activities, compared to net cash provided by financing activities of $3.5 million for the six months ended September 30, 1995. Net cash was provided by operating activities and used to reduce other current liabilities and finance capital expenditures during the six months ended September 30, 1996. However, financing activities should provide the Company's primary source of cash during the remainder of fiscal year 1997, primarily as a result of the Company's growth. During the six months ended September 30, 1995, proceeds from bank borrowings and lease financings, and from the exercise of common stock options were used to finance the Company's operations and expansion. Net cash provided by operating activities was $7.7 million during the six months ended September 30, 1996, while net cash used by operating activities was $1.9 million for the six months ended September 30, 1995. Net cash was provided by operating activities during the six months ended September 30, 1996 as a result of net income growth exceeding incremental operating working capital needed to support the Company's continued growth. The Company's net cash used in operations during the six months ended September 30, 1995, primarily related to increases in working capital requirements to support growth in the Company's business during the periods. The increased working capital requirements were partially funded by cash generated by the Company's operations. The Company's principal use of funds for investing activities was capital expenditures of $3.2 million and $1.7 million for the six months ended September 30, 1996 and 1995, respectively. These expenditures have consisted primarily of additions to upgrade the Company's management information systems, the Company's CD-ROM based catalog (SOLO) and other methods of electronic commerce, and its Memphis distribution facility. The Company anticipates that its total investment in upgrades and additions to facilities for fiscal 1997 will be approximately $5 to $6 million. Working capital increased to $66.7 million at September 30, 1996 from $56.7 million at March 31, 1996, an increase of $10.0 million which was primarily attributable to decreases in accounts payable and other current liabilities. During the six month periods ended September 30, 1996 and 1995, the Company generally maintained an accounts receivable balance of approximately 46 days of sales, and an inventory turnover rate of approximately 12 and 10 turns, respectively. Inventory turnover increased during the first six months of fiscal year 1997 compared to fiscal year 1996 primarily due to the increased inventory levels carried in fiscal year 1996 resulting from the one-time inventory purchases in advance of manufacturer price increases. In May 1995, the Company entered into an agreement with certain banks for a three-year unsecured revolving line of credit facility (the "facility"). Under the facility, the Company may borrow initially up to $25.0 million until April 1996, and up to $30.0 million thereafter until maturity. Availability under the facility is based upon amounts of eligible accounts receivable, as defined. Subsequent to September 30, 1996, the Company reached an agreement in principle with its lenders which will increase the borrowing availability under its facility to $50.0 million. 12 13 As of September 30, 1996, the Company had borrowed $20.0 million, leaving $10.0 million available under the facility for additional borrowings. The facility matures in May 1998 and accrues interest, at the Company's option, at the prime rate of a bank or a eurodollar rate plus an adjustment ranging from 0.625% to 1.125% depending on the Company's financial performance. A commitment fee of 0.20% to 0.25% is charged on the unused portion of the facility. The facility contains various covenants including, among other things, the maintenance of certain financial ratios including the achievement of a minimum fixed charge ratio and minimum level of tangible net worth, and restrictions on certain activities of the Company, including loans and payments to related parties, incurring additional debt, acquisitions, investments and asset sales. During the six months ended September 30, 1996, approximately $43.9 million, or 16.0%, of the Company's net sales were sold through the Company's Canadian, Mexican and U.S. export operations, including Latin America. The Company believes that international markets represent further opportunities for growth. The Company attempts to protect itself from foreign currency fluctuations by denominating substantially all of its non-Canadian international sales in U.S. dollars. In addition, in May 1995, the Company entered into a $4.3 million (U.S.) one-year forward exchange contract, which expired in May 1996. The Company incurred a loss of approximately $30,000, net of income taxes, related to this contract upon its expiration. In May 1996, the Company entered into a new $6.6 million (U.S.) one-year forward exchange contract to replace the contract which expired in May 1996. As of September 30, 1996, the Company had incurred a loss of approximately $27,000, net of income taxes, related to this contract. The Company may consider entering into other forward exchange contracts in order to hedge the Company's net investment in its Mexican and Canadian subsidiaries, although no assurance can be given that the Company will be able to do so on acceptable terms. Effective October 1, 1996, the Company acquired, with cash and common stock, substantially all of the assets and liabilities of Lasercharge Pty. Ltd. (Lasercharge). Lasercharge is an Australian wholesale distributor of computer and office automation supplies and accessories. The acquisition of Lasercharge will be accounted for using the purchase method of accounting, and, accordingly, the purchase price will be allocated to the assets and liabilities assumed based on the fair values at the date of acquisition. The Company believes that the acquisition and integration of Lasercharge into the Company's future business operations will not require significant working capital nor create significant other financing needs. The Company was recently appointed by a major manufacturer as the master distributor for a certain product line of consumable supplies throughout the United States, Canada, Mexico, the Caribbean and Latin America. The Company expects that this arrangement will result in incremental revenue growth, and similar to the Company's other business and revenue growth, will impose additional working capital needs upon the Company. The Company believes it will be able to satisfy its working capital needs for fiscal year 1997, including such additional working capital required by this arrangement as well as planned capital expenditures, through funds available under the facility, trade credit, lease financing, internally generated funds and by increasing the amount available under the facility. In addition, although the Company has no plans to do so, and depending on market conditions and the terms thereof, the Company may also consider obtaining additional funds through an additional line of credit, other debt financing or the sale of capital stock; however, no assurance can be given in such regard. INVENTORY MANAGEMENT The Company manages its inventories by maintaining sufficient quantities of product to achieve high order fill rates while at the same time maximizing inventory turnover rates. Inventory balances will fluctuate as the Company adds new product lines and makes large purchases from suppliers to take advantage of attractive terms. To reduce the risk of loss to the Company due to supplier price reductions and slow moving inventory, the Company's purchasing agreements with many of its suppliers, including most of its major suppliers, contain price protection and stock return privileges under which the Company receives credits against future purchases if the supplier lowers prices on previously purchased inventory or the Company can return slow moving inventory in exchange for other products. 13 14 SEASONALITY Although the Company historically has experienced its greatest sequential quarter revenue growth in its fourth fiscal quarter, management has not been able to determine the specific event, if any, of seasonal factors that may cause quarterly variability in operating results. Management believes, however, that factors that may influence quarterly variability include the overall growth in the non-paper computer supplies industry and shifts in demand for the Company's products due to a variety of factors, including sales increases resulting from the introduction of new computer supplies products. The Company generally experiences a relative slowness in sales during the summer months, which may adversely affect the Company's first and second fiscal quarter results in relation to sequential quarter performance. The Company believes that results of operations for a quarterly period may not be indicative of the results for any other quarter or for the full year. INFLATION Management believes that inflation has not had a material effect on the Company's operations. FORWARD-LOOKING INFORMATION The matters discussed in this Form 10-Q, other than historical information, and, in particular, information regarding future revenue, earnings and business plans and goals, consist of forward-looking information under the Private Securities Litigation Reform Act of 1995, and are subject to and involve risks and uncertainties which could cause actual results to differ materially from the forward-looking information. These risks and uncertainties include, but are not limited to, the "Risk Factors" set forth in the Company's prospectus dated January 25, 1996, which are incorporated by reference herein, as well as general economic conditions, industry trends, the loss of key suppliers or customers, the loss of strategic product shipping relationships, customer demand, product availability, competition (including pricing and availability), concentrations of credit risk, distribution efficiencies, capacity constraints, technological difficulties, exchange rate fluctuations, and the regulatory and trade environment (both domestic and foreign). IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD The Company must adopt Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal year 1997. SFAS No. 121 requires companies to periodically evaluate long-lived assets and to record an impairment loss if the expected undiscounted future cash flows is less than the carrying value of those assets. Impairment losses resulting from the initial application of this statement shall be reported in the period in which the recognition criteria are first applied. The Company is currently evaluating the implementation of SFAS No. 121, the effects of which are unknown at this time. 14 15 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Submissions of matters through the solicitation of proxies were provided to security holders during the three months ended September 30, 1996. These matters were voted on August 2, 1996, at the annual meeting of stockholders. The annual meeting involved the reelection of directors as follows:
NAME POSITION - ---- -------- Mark C. Layton President, Chief Operating Officer, Chief Financial Officer and Director Shares voted for: 5,590,069 Shares withheld: 16,125 Timothy M. Murray Director Shares voted for: 5,590,144 Shares withheld: 16,050
The amendment to the Company's Amended and Restated Certificate of Incorporation increasing the number of authorized shares of Common Stock from 10,000,000 to 20,000,000 was voted on at the annual meeting: For: 5,467,743 Against: 132,676 Abstain: 875 Broker No-Vote: 4,900 The Company's Non-Employee Director Stock Option and Retainer Plan was approved by a majority of votes cast as follows: For: 4,960,129 Against: 640,080 Abstain: 1,085 Broker No-Vote: 4,900 The ratification and approval of Arthur Andersen LLP as the Company's Independent Public Accountants for the fiscal year ending March 31, 1997 was also voted on at the stockholder's meeting: For: 5,604,994 Against: 550 Abstain: 650 15 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: EXHIBIT NO. DESCRIPTION OF EXHIBITS - ------- ----------------------- 10.1 Form of Option to Purchase Shares of Common Stock under the Daisytek Non-Employee Director Stock Option and Retainer Plan 11 Statement re: Computation of Earnings Per Share 27 Financial Data Schedule b) Reports on Form 8-K: Form 8-K filed on July 24, 1996 reporting Item 5. the Company's press release dated July 24, 1996 16 17 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 13, 1996 DAISYTEK INTERNATIONAL CORPORATION By: /s/ Mark C. Layton --------------------------------- Mark C. Layton President, Chief Operating Officer, Chief Financial Officer 17 18 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 10.1 Form of Option to Purchase Shares of Common Stock under the Daisytek Non-Employee Director Stock Option 19 and Retainer Plan 11 Statement re: Computation of Earnings Per Share 26 27 Financial Data Schedule 27
18 EX-10.1 2 FORM OF OFFER TO PURCHASE SHARES 1 EXHIBIT 10.1 OPTION TO PURCHASE SHARES OF COMMON STOCK THIS AGREEMENT is dated as of _______, and is made by and between DAISYTEK INTERNATIONAL CORPORATION, a Delaware corporation (hereinafter referred to as "COMPANY") and _______________ (hereinafter referred to as "DIRECTOR"): BACKGROUND 1. The Company has adopted a Non-Employee Director Stock Option and Retainer Plan (the "Plan"). The purposes of the Plan are as follows: (1) To further the growth, development and financial success of the Company by providing incentives to its non-employee directors by assisting them to become owners of the Company's Common Stock and thus to benefit directly from its growth, development and financial success. (2) To enable the Company to obtain and retain the services of qualified non-employee directors in order to contribute to the long-range success of the Company by providing and offering them an opportunity to become owners of the Company's Common Stock. 2. This Option is issued to the Director in accordance with the terms and provisions of the Plan and in consideration of the Director serving as a non-employee director of the Company. I. DEFINITIONS Except as otherwise defined herein, words and terms defined in the Plan shall have the same meaning when used herein. II. GRANT OF OPTION 2.1 GRANT OF OPTION. For good and valuable consideration, on the date hereof the Company irrevocably grants to the Director the option (the "OPTION") to purchase any part or all of ____________ shares of the Company's Common Stock, $.01 par value (the "COMMON STOCK"), subject to and upon the terms and conditions set forth in this Agreement. 2.2 PURCHASE PRICE. The purchase price of the shares of Common Stock covered by the Option shall be ____________________________ per share without commission or other charge. 2.3 ADJUSTMENTS IN OPTION. In the event that the outstanding shares of Common Stock subject to the Option are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split up, stock dividend or combination of shares, the Board shall make an 2 appropriate and equitable adjustment in the number and kind of shares as to which the Option, or portions thereof then unexercised, shall be exercisable. Such adjustment in the Option shall be made without change in the total price applicable to the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in the Option price per share. Any such adjustment made by the Board shall be final and binding upon the Director, the Company and all other interested persons. 2.4 OPTION SUBJECT TO PLAN. This Option is subject in all respects to the terms and provisions of the Plan, which are incorporated by reference herein. The Director acknowledges receipt and review of the Plan and agrees to be bound by the terms thereof. This Option shall be treated as a non-qualified option under the applicable provisions of the Code. III. PERIOD OF EXERCISABILITY 3.1 COMMENCEMENT OF EXERCISABILITY. (a) This Option may not be exercised in whole or in part during the six month period following the date hereof. (b) Subject to the provisions of paragraph (c) below, the Option granted hereunder shall be subject to the following cumulative vesting schedule: (i) Until the date which is one year from the date hereof, the Option shall not be vested and shall not be exercisable as to any of the shares subject hereto; (ii) From and after the date which is one year from the date hereof, the Option shall vest and be exercisable as to 15% of the original number of shares subject hereto; (iii) From and after the date which is two years from the date hereof, the Option shall vest and be exercisable as to 50% of the original number of shares subject hereto; and (iv) From and after the date which is three years from the date hereof, the Option shall be fully vested and be exercisable as to 100% of the number of shares subject hereto. (c) Upon the Termination of the Director, such portion of this Option which has not then vested and become exercisable shall automatically become fully vested and exercisable, provided, however, that such Termination shall not be less than one year from the date hereof. 3.2 DURATION OF EXERCISABILITY. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. -2- 3 3.3 EXPIRATION OF OPTION. This Option may not be exercised to any extent after the first to occur of the following events: (i) The expiration of ten years form the date hereof; or (ii) Except in the event the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of three months from the date of the Director's Termination for any reason other than the Director's death; or (iii) In the event the Director is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Director's Termination for any reason other than the Director's death unless the Director dies within said one-year period; or (iv) The expiration of one year from the date of the Director's death with respect to all Options held by the Director. IV. EXERCISE OF OPTION 4.1 PERSON ELIGIBLE TO EXERCISE. During the lifetime of the Director, only he may exercise the Option or any portion thereof; provided, however, that unless otherwise prohibited by Rule 16b-3, the Director may transfer all or any portion of this Option to his spouse or immediate family member of any trust for the benefit thereof. After the death of the Director, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his personal representative or by any person empowered to do so under the Director's will or under the then applicable laws of descent and distribution. 4.2 PARTIAL EXERCISE. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than one- hundred (100) shares (or the minimum installment set forth in Section 3.1, if a smaller number of shares) and shall be for whole shares only. 4.3 MANNER OF EXERCISE. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following (except as otherwise waived by such officer) prior to the time when the Option or such portion becomes unexercisable under Section 3.3: (a) Notice in writing signed by the Director or the other person then entitled to exercise the Option or portion, stating that the Option or portion is thereby exercised, such notice complying with all applicable rules established by the Committee; and (b) (i) Full payment (in cash or by check) for the shares with respect to which such Option or portion is exercised; or -3- 4 (ii) Subject to the timing requirements of Section 4.4, (A) shares of the Company's Common Stock owned by the Director duly endorsed for transfer to the Company or (B) shares of the Company's Common Stock issuable to the Director upon exercise of this Option, in each case, with a fair market value (as determined under Section 4.2(b) of the Plan) on the date of Option exercise equal to the aggregate Option price of the Shares with respect to which such Option or portion is thereby exercised; or (iii) Any combination of the consideration provided in the foregoing subsections (i) and (ii); and (c) The payment to the Company (or other employer corporation) of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option; provided, that subject to the timing requirements of Section 4.4, any combination of the following may be used to make all or part of such payment: (i) shares of the Company's Common Stock owned by the Director duly endorsed for transfer or (ii) shares of the Company's Common Stock issuable to the Director upon exercise of the Option, in each case, valued in accordance with Section 4.2(b) of the Plan, at the date of Option exercise; and (d) A bona fide written representation and agreement, in a form satisfactory to the Committee, signed by the Director or other person then entitled to exercise such Option or portion, stating that the shares of stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act and then applicable rules and regulations thereunder, and that the Director or other person then entitled to exercise such Option or portion will indemnify the Company against, and hold it free and harmless from, any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above. The Committee may, in its absolute discretion, take whatever additional actions it deems appropriate to insure the observance and performance of such representation and agreement and to effect compliance with the Securities Act and any other federal or state securities laws or regulations. Without limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired upon exercise of an Option does not violate the Securities Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of this subsection (d) and the agreements herein. The written representation and agreement referred to in the first sentence of this subsection (d) shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Securities Act, and such registration is then effective in respect of such shares; and (e) In the event the Option or portion shall be exercised pursuant to Section 4.1 by any person or persons other than the Director, appropriate proof of the right of such person or persons to exercise the Option. -4- 5 4.4 CERTAIN TIMING REQUIREMENTS. Shares of the Company's Common Stock issuable to the Director upon exercise of the Option may be used to satisfy the Option price or the tax withholding consequences of such exercise only (i) during the trading window period following the date of release of the quarterly or annual summary statement of sales and earnings of the Company as may be established by the Company for its senior executives from time to time or (ii) pursuant to an irrevocable written election by the Director to use Shares of the Company's Common Stock issuable to the Director upon exercise of the Option to pay all or part of the Option price or the withholding taxes made at least six months prior to the payment of such Option price or withholding taxes. 4.5 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The shares of stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions (except as otherwise waived by the Committee): (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts which, under federal, state or local tax law, it is required to withhold upon exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Board may from time to time establish for reasons of administrative convenience. 4.6 RIGHTS AS A SHAREHOLDER. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. V. OTHER PROVISIONS 5.1 ADMINISTRATION. The Committee shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application hereof as are -5- 6 consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon the Director, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to this Option. 5.2 OPTION NOT TRANSFERABLE. Except as otherwise set forth herein or in the Plan, neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Director or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment of any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution. 5.3 SHARES TO BE RESERVED. The Company shall at all times during the term of the Option reserve and keep available such number of shares of stock as will be sufficient to satisfy the requirements of this Agreement. 5.4 NOTICES. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Director shall be addressed to him or her at the address set forth in the Company's records. By a notice given pursuant to this Section 5.4, either party may hereafter designate a different address for notices to be given to such party. Any notice which is required to be given to the Director shall, if the Director is then deceased, be given to the Director's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.4. Any notice shall be deemed duly given upon receipt and shall be delivered by hand, reputable overnight courier or deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service. 5.5 TITLES. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. In Witness Whereof, the Company and the undersigned Director have executed and delivered this Option as of the day and year above written. ----------------------------------- (Director) -6- EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended September 30, September 30, ------------------ ---------------- 1996 1995 1996 1995 ------ ------ ------ ------ Net income $2,955 $2,616 $5,996 $4,884 ====== ====== ====== ====== Weighted average common shares outstanding 6,921 6,733 6,915 6,731 ====== ====== ====== ====== Net income per common share $ 0.43 $ 0.39 $ 0.87 $ 0.73 ====== ====== ====== ====== Calculation of weighted average common shares outstanding: Weighted average of common stock outstanding 6,454 6,294 6,435 6,282 Weighted average common stock options, utilizing the treasury stock method (1) 467 439 480 449 ------ ------ ------ ------ 6,921 6,733 6,915 6,731 ====== ====== ====== ======
(1) Utilizing the weighted average stock price of $40.17 and $40.01 per share for the three and six months ended September 30, 1996, respectively, and the weighted average stock price of $24.96 and $23.14 per share for the three and six months ended September 30, 1995, respectively. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-1997 SEP-30-1996 351 0 72,644 1,259 44,691 118,357 18,835 7,755 131,348 51,696 21,314 0 0 65 58,943 131,348 275,042 275,042 247,783 247,783 0 566 845 9,711 3,715 5,996 0 0 0 5,996 0.87 0
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