SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported):
May 7, 2002
Daisytek International Corporation
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-25400 75-2421746
---------- ----------- ------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1025 Central Expressway South, Suite 200
Allen, Texas 75013
(Address of Principal Executive Offices, including zip code)
(972) 881-4700
(Registrant's Telephone Number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
On May 22, 2002, Daisytek International Corporation ("Daisytek") filed a Form
8-K dated May 7, 2002 (the "Form 8-K") to report that it had acquired control of
ISA International plc ("ISA") effective as of May 7, 2002. On July 22, 2002,
Daisytek filed an Amendment to the Form 8-K to provide historical financial
statements related to the acquisition of ISA and pro forma financial information
giving effect to the acquisition of ISA by Daisytek UK Limited, a wholly-owned
subsidiary of Daisytek. This Amendment No. 2 to the Form 8-K (as amended on July
22, 2002) is submitted principally for the purpose of providing historical
financial statements of ISA for the year ended December 31, 2000, including an
audited reconciliation to US GAAP, that meet the requirements of Form 8-K and
Regulation S-X.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of businesses acquired.
Financial statements of ISA International plc as of and for
the years ended December 31, 2001 and 2000, in accordance with
UK GAAP, with a reconciliation to US GAAP, audited by Ernst &
Young LLP in accordance with US GAAS are filed herewith
beginning on page F-1.
(b) Pro forma financial information.
Pro forma financial information required pursuant to Article
11 of Regulation S-X as of March 31, 2002 and for Daisytek's
fiscal year ended March 31, 2002 are filed herewith beginning
on page P-1.
(c) Exhibits.
23.1 Consent of Ernst & Young LLP.
99.1 Recommended Offer by Robert W. Baird Limited on
behalf of Daisytek UK Limited, a wholly-owned
subsidiary of Daisytek International Corporation, for
ISA International plc (incorporated by reference from
Exhibit 99.2 to Current Report on Form 8-K dated May
24, 2002 (File No. 000-25400)).
SIGNATURE
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 hereunto duly authorized.
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ RALPH MITCHELL
---------------------------------------
Ralph Mitchell
Chief Financial Officer,
Executive Vice President - Finance
Dated: September 19, 2002
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma financial information of Daisytek International
Corporation (together with its subsidiaries, "Daisytek" or the "Company") gives
effect to the acquisition of ISA International plc ("ISA"), a pan-European
distributor of computer supplies, which indirectly owns 47% of Kingfield Heath
Ltd., a U.K.-based wholesaler of office products. The unaudited pro forma
balance sheet data at March 31, 2002 presents adjustments for the ISA
acquisition as if the transaction was completed on March 31, 2002. The unaudited
pro forma statement of operations data for the fiscal year ended March 31, 2002
presents adjustments for the ISA acquisition as if the transaction had been
completed on April 1, 2001. Amounts included for ISA are based on U.S. GAAP.
British pounds balances are translated at the average exchange rates for the
related period of operations and for balance sheet amounts at the exchange rate
at March 31, 2002.
The purchase method of accounting has been used in the preparation of the
unaudited pro forma financial information. Therefore, the estimated aggregate
purchase price is allocated to assets acquired and liabilities assumed based on
their estimated fair values. For purposes of the unaudited pro forma financial
information, the purchase prices of the assets acquired have been allocated
based on preliminary estimates of fair value which are still being finalized.
The information presented herein may differ from the final purchase price
allocation; however, such allocations are not expected to differ materially from
the preliminary amounts.
The unaudited pro forma financial information should be read in conjunction with
the historical consolidated financial statements and the related notes thereto
of Daisytek which have previously been reported. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
acquisition of ISA had been consummated at the dates indicated, nor is it
indicative of future operating results or financial position.
P-1
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT MARCH 31, 2002
(IN THOUSANDS)
<Table>
<Caption>
PURCHASE
COMPANY ISA ACCOUNTING COMPANY
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
-------------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents .................... $ 4,147 $ 6,083 $ -- $ 10,230
Accounts receivable, prepaid expenses and
other current assets ........................ 189,180 82,273 -- 271,453
Inventories, net ............................. 115,377 32,498 -- 147,875
-------------- -------------- -------------- --------------
Total current assets .................. 308,704 120,854 -- 429,558
-------------- -------------- -------------- --------------
Property and equipment, net .................... 20,806 8,411 -- 29,217
Other assets ................................... 30,010 1,252 (28,082) (a) 11,145
7,965 (b)
Goodwill, net .................................. 54,870 36,993 (36,993) (c) 81,793
26,923 (d)
-------------- -------------- -------------- --------------
Total assets .......................... $ 414,390 $ 167,510 $ (30,187) $ 551,713
============== ============== ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............ $ 7,069 $ 54,437 -- $ 61,506
Trade accounts payable, accrued expenses
and other current liabilities ............... 98,293 74,147 (1,956) (e) 170,484
-------------- -------------- -------------- --------------
Total current liabilities ............. 105,362 128,584 (1,956) 231,990
Long-term debt, less current portion ........... 111,343 5,974 8,147 (f) 119,666
(5,798) (g)
Other liabilities .............................. 1,665 144 -- 1,809
Commitments and contingencies
Redeemable preferred stock ..................... -- 10,043 (10,043) (h) --
Shareholders' equity:
Preferred stock .............................. -- -- -- --
Common stock ................................. 197 5,444 (5,444) (i) 198
1 (j)
Additional paid-in capital ................... 117,946 26,629 (26,629) (i) 120,173
2,227 (j)
Retained earnings ............................ 103,268 (9,308) 9,308 (i) 103,268
Accumulated other comprehensive loss ......... (13,699) -- -- (13,699)
Treasury stock at cost ....................... (11,692) -- -- (11,692)
-------------- -------------- -------------- --------------
Total shareholders' equity ............ 196,020 22,765 (20,537) 198,248
-------------- -------------- -------------- --------------
Total liabilities and shareholders' equity ..... $ 414,390 $ 167,510 $ (30,187) $ 551,713
============== ============== ============== ==============
</Table>
See accompanying notes to Unaudited Pro Forma Financial Information.
P-2
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 2002
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
COMPANY ISA PRO FORMA COMPANY
HISTORICAL HISTORICAL (k) ADJUSTMENTS PRO FORMA
------------ -------------- ------------ ------------
Net revenues ......................................... $ 1,185,030 $ 521,111 $ (5,639) (l) $ 1,700,502
Cost of revenues ..................................... 1,059,539 444,403 (5,453) (l) 1,498,489
------------ ------------ ------------ ------------
Gross profit ................................. 125,491 76,708 (186) 202,013
Selling, general and administrative expenses ......... 90,710 77,041 (1,619) (m) 166,132
Restructuring and nonrecurring costs ................. 8,556 2,584 -- 11,140
------------ ------------ ------------ ------------
Income from operations ....................... 26,225 (2,917) 1,433 24,741
Interest expense, net ................................ 7,221 4,129 473 (n) 11,823
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes ......................... 19,004 (7,046) 960 12,918
Provision for income taxes ........................... 7,066 251 336 (o) 7,653
------------ ------------ ------------ ------------
Income from continuing operations before
equity in net loss of affiliate ............. 11,938 (7,297) 624 5,265
Equity in net loss of affiliate ...................... -- (6,801) 1,173 (m) (5,628)
------------ ------------ ------------ ------------
Income from continuing operations ............ $ 11,938 $ (14,098) $ 1,797 $ (363)
============ ============ ============ ============
Net income per common share:
Basic ......................................... $ 0.75 $ (0.02)
Diluted ....................................... $ 0.69 $ (0.02)
Weighted average common and common share
equivalents outstanding:
Basic ......................................... 15,963 140 16,103
Diluted ....................................... 17,396 140 17,536
</Table>
See accompanying notes to Unaudited Pro Forma Financial Information.
P-3
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 1. PURCHASE PRICE
On May 23, 2002, the Company mailed a recommended offer to shareholders of ISA
which included a cash offer of 7.5 pence (approximately $0.11) in cash for each
ordinary share, with a share alternative of .914 shares of unregistered Daisytek
common stock for each share 100 shares of ISA common stock. Acceptances from
shareholders owning approximately 15.3 million ISA ordinary shares have selected
the alternative offer to receive unregistered Daisytek common shares instead of
cash, representing share consideration of 140,042 Daisytek common shares. For
purposes of the unaudited pro forma condensed combined financial statements, it
is assumed that the remainder of ISA shareholders will elect the cash offer. The
fair market value of common stock is calculated by using $15.91 per share which
is based on the market price of Daisytek common stock on March 31, 2002. The
estimated aggregate purchase price is summarized below (in thousands):
<Table>
Estimated cash purchase price......................................... $ 4,647
Estimated fair value of Daisytek common stock (140,042 shares at
$15.91 per share).................................................. 2,228
Prior investment in ISA............................................... 28,082
Estimated transaction costs........................................... 3,500
-------------
Estimated aggregate purchase price.................................... $ 38,457
=============
</Table>
NOTE 2. ALLOCATION OF PURCHASE PRICE
<Table>
(in thousands)
Cash............................................................... $ 6,083
Accounts receivable, prepaid expenses and other current assets..... 82,273
Inventories........................................................ 32,498
Property and equipment............................................. 8,411
Other assets....................................................... 9,217
Goodwill........................................................... 26,923
Current portion of long-term debt.................................. (54,437)
Trade accounts payable, accrued expenses and other current
liabilities...................................................... (72,191)
Long-term debt, less current portion............................... (176)
Other liabilities.................................................. (144)
-------------
Aggregate purchase price.............................................. $ 38,457
=============
</Table>
NOTE 3. PRO FORMA ADJUSTMENTS
The following are descriptions for the pro forma purchase accounting and other
merger-related adjustments, labeled (a) through (o), which have been reflected
in the accompanying Unaudited Pro Forma Combined Condensed Balance Sheet and the
Unaudited Pro Forma Combined Condensed Statement of Operations:
(a) Represents Daisytek's prior investment in ISA. Daisytek's
investment in ISA, including applicable acquisition costs, is
included in historical other assets in the Unaudited Pro Forma
Combined Condensed Balance Sheet at March 31, 2002 and has
been included in the determination of the total aggregate
purchase price of ISA detailed in Note 1. During September
2001, Daisytek invested 8.0 million British pounds, or
approximately $11.4 million, in preference shares of ISA
convertible into 50% plus one share of ISA at Daisytek's
option at any time over a period of five years. In addition to
the preference share investment, as of March 31, 2002, the
Company has advanced funds to ISA of approximately 11.7
million British pounds, or approximately $16.7 million,
including 3.1 million British pounds, or approximately $4.4
million, for pro-rata participation in a shareholder rights
issue by Kingfield Heath, and approximately 8.6 million
British pounds, or approximately $12.3 million, for working
capital purposes.
P-4
(b) Adjustment to record a deferred tax asset for ISA net
operating loss carryforwards of approximately $8.0 million.
(c) Adjustment to eliminate the existing goodwill on ISA's
historical balance sheet.
(d) Adjustment to record goodwill allocated to ISA in the purchase
accounting allocation detailed in Note 2.
(e) Adjustment to eliminate trade accounts payable to Daisytek of
approximately $2.0 million reflected in ISA's historical
balance sheet.
(f) Reflects additional bank borrowings of approximately $8.1
million required to finance the cash portion of the purchase
price and estimated transaction costs of the ISA acquisition
(see Note 1).
(g) Adjustment to eliminate long-term debt payable to Daisytek of
approximately $5.8 million reflected in ISA's historical
balance sheet.
(h) Adjustment to eliminate the redeemable preferred stock of
approximately $10.0 million on ISA's historical balance sheet,
which represents the investment made by Daisytek in redeemable
preferred stock of ISA in September 2001.
(i) Reflects the elimination of historical ISA equity amounts.
(j) Reflects the issuance of 140,042 shares of Daisytek common
stock, par value $0.01, with an estimated fair value of $15.91
per share (see Note 1).
(k) Represents historical ISA results of operations for ISA's
fiscal year ended December 31, 2001 after adjustments to
reconcile U.K. GAAP to U.S. GAAP and conversion from British
pounds to U.S. dollars at the average exchange rate for the
period.
(l) Reflects the elimination of transactions between the Company
and ISA. During fiscal year 2002, the Company recorded sales
to ISA of approximately $5.0 million and purchases from ISA of
approximately $0.6 million. The intercompany transactions
included gross profit of approximately $0.2 million.
(m) The Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, effective April 1, 2001. Under SFAS No.
142, goodwill is no longer amortized but reviewed for
impairment annually, or more frequently if certain indicators
arise. Adjustment eliminates goodwill amortization as included
in ISA's historical results of operations.
(n) Reflects the adjustment to record interest expense on cash
acquisition costs of approximately $8.1 million, including
estimated additional bank borrowings related to estimated
legal, accounting and other professional fees incurred by
Daisytek.
(o) Reflects the tax effects of the pro forma adjustments.
P-5
ISA INTERNATIONAL PLC
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Directors of ISA International plc
We have audited the accompanying consolidated balance sheet of ISA International
plc as of 31st December 2001 and 2000, and the related consolidated profit and
loss account, and consolidated statements of total recognised gains and losses
and cash flows for each of the two years in the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United Kingdom auditing standards and
United States generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ISA
International plc as of 31st December 2001 and 2000 and the consolidated results
of its operations and its consolidated cash flows for each of the two years in
the period then ended in conformity with accounting principles generally
accepted in the United Kingdom which differ in certain respects from those
followed in the United States (see Note 31 of Notes to the Financial
Statements).
ERNST & YOUNG LLP
Leeds, England
18 September 2002
F-1
ISA International plc
Consolidated Profit and Loss Account
- --------------------------------------------------------------------------------
for the years ended 31st December, 2001 and 2000
<Table>
<Caption>
Notes 2001 2000
L.000 L.000
TURNOVER 2, 3 361,554 296,803
COST OF SALES (308,333) (251,752)
------------ ------------
GROSS PROFIT 53,221 45,051
------------ ------------
OPERATING EXPENSES
Distribution costs (31,540) (30,473)
Administrative expenses (22,010) (22,878)
------------ ------------
OPERATING LOSS 4 (329) (8,300)
Share of associates' normal operating profit 5 1,001 1,527
Share of associates' exceptional operating items 5 (2,636) (1,245)
Amortisation of goodwill arising on associates 15 (814) (799)
Loss on disposal of associate (71) --
------------ ------------
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAXATION (2,849) (8,817)
Interest receivable 6 128 115
Interest payable and similar charges 7 (4,069) (3,199)
------------ ------------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (6,790) (11,901)
Tax on loss on ordinary activities 11 (631) (449)
------------ ------------
LOSS FOR THE FINANCIAL YEAR 24 (7,421) (12,350)
Dividends - Non-equity 12 (208) --
------------ ------------
TRANSFER FROM RESERVES (7,629) (12,350)
------------ ------------
LOSSES PER ORDINARY SHARE 13
Basic (13.0)p (21.4)p
Before exceptional items (6.1)p (5.9)p
Diluted (13.0)p (21.0)p
------------ ------------
</Table>
A summary of the significant adjustments to the loss for the financial year that
would be required if United States generally accepted accounting principles were
to be applied instead of those generally accepted in the United Kingdom is set
forth in Note 31 to the Financial Statements.
The accompanying notes form an integral part of these Financial Statements.
F-2
ISA INTERNATIONAL PLC
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
at 31st December 2001 and 2000
<Table>
<Caption>
Notes 2001 2000
L.000 L.000
FIXED ASSETS
Tangible assets 14 5,777 6,085
Investments 15 16,262 17,602
----------- -----------
22,039 23,687
----------- -----------
CURRENT ASSETS
Stocks 16 22,320 18,488
Debtors 17 56,116 46,268
Cash at bank and in hand 4,178 4,153
----------- -----------
82,614 68,909
CREDITORS DUE WITHIN ONE YEAR 18 (88,521) (79,233)
----------- -----------
NET CURRENT LIABILITIES (5,907) (10,324)
----------- -----------
TOTAL ASSETS LESS CURRENT LIABILITIES 16,132 13,363
CREDITORS DUE AFTER MORE THAN ONE YEAR 19 (4,202) (544)
PROVISIONS FOR LIABILITIES AND CHARGES 21 -- (81)
----------- -----------
NET ASSETS 11,930 12,738
----------- -----------
CAPITAL AND RESERVES
Called up share capital 22 3,739 2,939
Share premium account 23 7,154 1,041
Merger reserve 23 5,069 5,069
Profit and loss account 23 (4,032) 3,689
----------- -----------
11,930 12,738
----------- -----------
Equity shareholders' funds 5,017 12,738
Non-equity shareholders' funds 6,913 --
----------- -----------
TOTAL SHAREHOLDERS' FUNDS 11,930 12,738
----------- -----------
</Table>
A summary of the significant adjustments to shareholders' funds that would be
required if United States generally accepted accounting principles were to be
applied instead of those generally accepted in the United Kingdom is set forth
in Note 31 to the Financial Statements.
The accompanying notes form an integral part of these Financial Statements.
F-3
ISA International plc
Consolidated Cash Flow Statement
- --------------------------------------------------------------------------------
for the years ended 31st December, 2001 and 2000
<Table>
<Caption>
2001 2000
Notes L.000 L.000
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 26a (9,159) 2,427
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 26c (3,147) (1,639)
TAXATION 26c (915) (55)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 26c (1,812) (2,983)
ACQUISITIONS AND DISPOSALS 26c (3,285) (161)
----------- ----------
CASH OUTFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND
FINANCING (18,318) (2,411)
FINANCING 26c 10,537 (434)
----------- ----------
DECREASE IN CASH IN THE YEAR (7,781) (2,845)
----------- ----------
</Table>
The significant differences between the cash flow statement presented above and
that required under United States generally accepted accounting principles are
set forth in Note 31 to the Financial Statements.
Consolidated Statement of Total
Recognised Gains and Losses
- --------------------------------------------------------------------------------
for the years ended 31st December, 2001 and 2000
<Table>
<Caption>
2001 2000
L.000 L.000
LOSS FOR THE FINANCIAL YEAR (7,421) (12,350)
TRANSLATION DIFFERENCES ON FOREIGN CURRENCY NET INVESTMENTS (92) (808)
ADJUSTMENT TO UNREALISED GAIN ON DISPOSAL OF SUBSIDIARY -- (182)
----------- ----------
TOTAL GAINS AND LOSSES RECOGNISED SINCE THE LAST ANNUAL REPORT (7,513) (13,340)
----------- ----------
</Table>
A summary of the significant adjustments to comprehensive income that would be
required if United States generally accepted accounting principles were to be
applied instead of those generally accepted in the United Kingdom is set forth
in Note 31 to the Financial Statements.
The accompanying notes form an integral part of these Financial Statements.
F-4
ISA INTERNATIONAL PLC
Notes to the Financial Statements
- --------------------------------------------------------------------------------
for the years ended 31st December, 2001 and 2000
1 ACCOUNTING POLICIES
The principal accounting policies are summarised below. They have all
been applied consistently throughout the two years ended 31st December
2001.
a) BASIS OF ACCOUNTING
The Financial Statements are prepared under the historical cost
convention and in accordance with applicable United Kingdom
accounting standards.
The Financial Statements have been prepared on a going concern
basis which the Directors believe to be appropriate for the
reasons summarised below.
On 27th June, 2002 the acquisition by Daisytek of the entire
share capital of the Company, was completed.
The directors have prepared cash flow forecasts for the period up
to 31st December 2003, which show that the Group requires further
funding in order to be able to continue as a going concern.
Daisytek has agreed to provide the necessary financial support to
enable the Group to meet its liabilities as they fall due.
In addition, Daisytek has confirmed that it will not require
payment of preference dividends until such time as funds are
available and that its entitlement to a Special Dividend (as
defined in the Company's Articles of Association) has been
waived.
b) BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial
statements of the Company and all its subsidiary undertakings,
all of which are made up to 31st December.
The results of subsidiary undertakings acquired or disposed of
are included from, or to, the date that control passes to, or
from, the Group.
c) GOODWILL
Goodwill arising on acquisitions, representing the excess of the
purchase consideration, including related costs, over the fair
value of the net assets acquired, is capitalised and written off
on a straight line basis over its useful economic life, normally
20 years.
Goodwill that arose from acquisitions prior to 31st December,
1997 was written off to reserves in accordance with the
accounting standards then applicable. As permitted by Financial
Reporting Standard 10, goodwill previously written off to
reserves has not been re-instated in the balance sheet.
On the subsequent disposal or termination of a business any
goodwill arising on acquisition that was written off directly to
reserves or that has not been amortised through the profit and
loss account is taken into account in determining the profit or
loss on sale or closure.
d) TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided on all fixed assets
calculated at rates to write off the cost, less estimated
residual value, of such assets evenly over their expected useful
lives. The estimated useful lives used for this purpose are:
<Table>
Freehold buildings 40 years
Leasehold improvements Shorter of 10 years or remaining life of lease
Plant and machinery 2 to 10 years
Fixtures and fittings 4 to 7 years
</Table>
e) LEASE AND HIRE PURCHASE COMMITMENTS
Assets held under hire purchase or finance lease contracts that
transfer substantially all the risks and rewards of ownership to
the Group are capitalised and depreciated over their useful
lives.
F-5
ISA INTERNATIONAL PLC
Notes to the Financial Statements
- --------------------------------------------------------------------------------
for the years ended 31st December, 2001 and 2000
1 ACCOUNTING POLICIES (continued)
e) LEASE AND HIRE PURCHASE COMMITMENTS (continued)
The capital element of the related liability is included in
creditors. The interest element is charged to the profit and loss
account so as to produce a constant periodic rate of charge on
the capital outstanding. Rentals in respect of all operating
leases are charged to the profit and loss account on a straight
line basis over the term of the lease.
f) INVESTMENTS
Fixed asset investments are shown at cost less provision for
permanent diminution in value where appropriate.
g) ASSOCIATED UNDERTAKINGS
The consolidated profit and loss account includes the Group's
share of the results of its associated undertakings, where there
is substantial holding in the equity and participation in
financial and operating policy decisions. Investments in
associated undertakings are included in the consolidated balance
sheet at cost, plus the Group's share of post-acquisition
retained reserves under the equity method.
h) STOCKS
Stocks are stated at the lower of cost and net realisable value.
Cost is taken as the average purchase price plus carriage and
freight costs. Net realisable value is the price at which stocks
can be sold in the normal course of business after allowing for
costs of realisation. Provision is made for slow moving and
defective stocks where appropriate.
i) TAXATION
Corporation tax is provided at amounts expected to be paid (or
recovered) using the tax rates and legislation that has been
enacted or substantially enacted by the balance sheet date.
Deferred taxation relating to the excess of capital allowances
over depreciation and other timing differences is provided in the
Financial Statements to the extent that an asset or liability is
expected to crystallise.
j) FOREIGN CURRENCIES AND RELATED DERIVATIVE FINANCIAL INSTRUMENTS
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction. Assets and liabilities
denominated in foreign currencies and the balance sheets of
overseas subsidiary undertakings are translated at the rate of
exchange ruling at the balance sheet date.
Exchange differences arising on the re-translation of the opening
net assets of overseas subsidiary undertakings at the closing
rate are taken directly to reserves. The profit and loss accounts
of overseas subsidiary undertakings are translated using average
rates of exchange with the adjustment arising from closing rates
taken to reserves.
Gains and losses arising on forward exchange contracts are
deferred and recognised in the profit and loss account at the
same time as the hedged transaction.
All other exchange differences are dealt with in the profit and
loss account.
k) PENSION COSTS
The Group operates a defined contribution pension scheme for
senior employees in the UK. The assets of the scheme are held
separately from those of the Group and are administered
independently. The Group's contribution to the scheme is charged
to the profit and loss account as it falls due.
Any difference between amounts charged to the profit and loss
account and amounts payable in respect of the Group's pension
schemes are shown as either provisions or prepayments in the
balance sheet. There are no Group pension arrangements in respect
of overseas operations.
F-6
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December, 2001 and 2000
2 TURNOVER
Turnover comprises the invoiced value of goods and services supplied
by the Group, exclusive of value added taxation, and intra-group
transactions, and is attributable to the distribution of consumable
products for the office.
<Table>
<Caption>
TURNOVER BY DESTINATION 2001 2000
L.000 L.000
United Kingdom & Ireland 132,398 104,053
Continental Europe 176,066 140,855
Scandinavia 44,416 43,798
Other areas 8,674 8,097
----------- -----------
361,554 296,803
----------- -----------
</Table>
3 SEGMENTAL REPORTING
<Table>
<Caption>
UNITED KINGDOM CONTINENTAL
& IRELAND EUROPE SCANDINAVIA TOTAL
2001 2001 2001 2001
L.000 L.000 L.000 L.000
TURNOVER BY ORIGIN
Total sales 144,353 180,318 46,682 371,353
Inter-segment sales (2,872) (4,661) (2,266) (9,799)
------------ ------------ ------------ ------------
Sales to third parties 141,481 175,657 44,416 361,554
------------ ------------ ------------ ------------
LOSS BEFORE TAXATION
Segment operating
profit/(loss) before 5,589 (4,165) 1,072 2,496
exceptional items
Exceptional items (1,101) (301) -- (1,402)
------------ ------------ ------------ ------------
4,488 (4,466) 1,072 1,094
------------ ------------ ------------
Unallocated central costs: operating loss (1,103)
exceptional items (320)
------------
Operating loss (329)
Share of associates' loss after exceptional items and goodwill (2,520)
amortisation
Net interest (3,941)
------------
GROUP LOSS BEFORE TAXATION (6,790)
------------
NET ASSETS
Segmental net assets 10,007 18,794 3,910 32,711
------------ ------------ ------------
Investments and goodwill 16,262
Unallocated liabilities (37,043)
------------
Total net assets 11,930
------------
</Table>
Unallocated liabilities represent net borrowings and taxation, which
are not applicable to the operations of any individual segment.
F-7
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December, 2001 and 2000
3 SEGMENTAL REPORTING (continued)
<Table>
<Caption>
UNITED
KINGDOM CONTINENTAL
& IRELAND EUROPE SCANDINAVIA TOTAL
2000 2000 2000 2000
L.000 L.000 L.000 L.000
TURNOVER BY ORIGIN
Total sales 113,107 142,834 45,195 301,136
Inter-segment sales (1,686) (1,250) (1,397) (4,333)
------------ ------------ ------------ ------------
Sales to third parties 111,421 141,584 43,798 296,803
------------ ------------ ------------ ------------
LOSS BEFORE TAXATION
Segment operating profit/(loss) before
exceptional items 4,430 (4,348) 504 586
Exceptional items (45) (7,936) -- (7,981)
------------ ------------ ------------ ------------
4,385 (12,284) 504 (7,395)
------------ ------------ ------------
Unallocated central costs: operating loss (1,184)
exceptional items 279
------------
Operating loss (8,300)
Share of associates' loss after exceptional (517)
items and goodwill amortisation
Net interest (3,084)
------------
GROUP LOSS BEFORE TAXATION (11,901)
------------
NET ASSETS
Segmental net assets 8,912 9,167 3,091 21,170
------------ ------------ ------------
Investments and goodwill 17,602
Unallocated liabilities (26,034)
------------
Total net assets 12,738
------------
</Table>
Unallocated liabilities represent net borrowings and taxation, which are not
applicable to the operations of any individual segment.
F-8
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
4 OPERATING LOSS
<Table>
<Caption>
2001 2000
L.000 L.000
Operating loss is stated after charging:
Depreciation - on owned assets 1,670 1,453
- on hire purchase assets 388 356
Exceptional items recognised in arriving at operating loss:
Costs in connection with distribution reorganisation and outsourced
logistics contract and termination 74 6,919
Relocation of distribution centre 939 --
Board and senior management settlements 592 513
Property and location rationalisation 117 270
Auditors' remuneration - audit 172 169
- other services 535 44
Operating lease rentals - land and buildings 2,225 1,904
- plant and machinery 1,535 1,577
</Table>
The auditors' remuneration figure given above for other services
provided in 2001 relates to work performed by KPMG Audit Plc, its
associates and Arthur Andersen. Principally this is related to
assisting the Group with the formation of the strategic alliance with
Daisytek International Corporation and the issue of the Preference
Shares (see note 22 for further details), and preparation of other
necessary financial information and reports.
5 SHARE OF RESULTS OF ASSOCIATED UNDERTAKINGS
<Table>
<Caption>
2001 2000
L.000 L.000
Operating profit (excluding exceptional items) 1,001 1,527
Net interest payable (1,076) (1,075)
Exceptional items (2,636) (1,245)
---------- ----------
Loss before tax (2,711) (793)
Tax (145) 334
---------- ----------
Loss after tax (2,856) (459)
---------- ----------
</Table>
Further details are given in Note 15.
6 INTEREST RECEIVABLE
<Table>
<Caption>
2001 2000
L.000 L.000
Bank interest 58 41
Other interest 70 74
---------- ----------
128 115
---------- ----------
</Table>
F-9
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
7 INTEREST PAYABLE AND SIMILAR CHARGES
<Table>
<Caption>
2001 2000
L.000 L.000
Bank loans and overdrafts 2,778 2,051
Hire purchase charges 26 50
Other interest 189 23
---------- ----------
Total before share of associated undertakings 2,993 2,124
Share of associated undertakings 1,076 1,075
---------- ----------
4,069 3,199
---------- ----------
</Table>
8 DIRECTORS' REMUNERATION
<Table>
<Caption>
2001 2000
L.000 L.000
Executive Directors' salaries and fees 407 322
Performance related bonus 20 --
Fees for Non-Executive Directors 25 17
Compensation for loss of office 100 --
Other benefits 21 18
---------- ----------
573 357
Contributions to money purchase pension schemes 18 15
---------- ----------
591 372
---------- ----------
</Table>
F-10
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
8 DIRECTORS' REMUNERATION (continued)
EXECUTIVE DIRECTORS' REMUNERATION 2001
<Table>
<Caption>
B Robinson MJ Murphy DA Heap * Total
L.000 L.000 L.000 L.000
Salary and fees 187 120 100 407
Benefits 10 11 -- 21
Bonus -- 20 -- 20
Pension -- 18 -- 18
Compensation for loss of office -- -- 100 100
--- --- --- ---
TOTAL 2001 197 169 200 566
--- --- --- ---
</Table>
* resigned 31st December, 2001
EXECUTIVE DIRECTORS' REMUNERATION 2000
<Table>
<Caption>
B Robinson * MJ Murphy DA Heap Total
L.000 L.000 L.000 L.000
Salary and fees 122 100 100 322
Benefits 8 10 -- 18
Pension -- 15 -- 15
--- --- --- ---
TOTAL 2000 130 125 100 355
--- --- --- ---
</Table>
* appointed 26th January, 2000
NON-EXECUTIVE DIRECTORS' REMUNERATION
<Table>
<Caption>
2001 2002
L.000 L.000
BV Triebel + 8 17
H Fristedt * 17 --
---- ----
25 17
---- ----
</Table>
* H Fristedt was a representative of CHISA LLC in 2000 and only received
expenses in that year.
+ BV Triebel resigned on 26th June 2001.
F-11
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
8 DIRECTORS' REMUNERATION (continued)
SHARE OPTIONS
In order to link an element of remuneration with long-term share
performance, the company operates discretionary share option schemes for
the Executive directors and other senior management.
Following shareholder approval on 22nd June, 2000, the rules of the share
option schemes were amended to reflect the changed circumstances of the
Group. Options over 3,885,500 ordinary shares outstanding at that time
were surrendered and re-issued. Exercise of these options is subject to
the satisfaction of performance criteria. Options over a further 2,207,500
ordinary shares, exercisable subject to the same performance criteria,
were granted during the year, of which 750,000 were to Directors.
Following shareholder approval on 3rd September, 2001, the rules of the
share option schemes were further amended to reflect the changes
circumstances of the Group. Options over 3,739,000 ordinary shares
outstanding at that time were surrendered and re-issued, of which
1,750,000 were to Directors. Exercise of these options is subject to the
satisfaction of performance criteria. Options over a further 11,306,307
ordinary shares, (including 6,342,307 to Directors) exercisable subject to
the same performance criteria were granted during the year. Of these,
options over 7,518,807 ordinary shares (including 4,042,307 to Directors)
are subject to a further condition that the Preference Shares must have
been converted to ordinary shares.
Details of outstanding options are set out in Note 22 to the Financial
Statements.
PENSIONS
The Group operates a defined contribution pension scheme for senior
employees in the UK.
SERVICE CONTRACTS
The Executive Directors have service contracts terminable on twelve
months' notice. In the case of Mr B Robinson, this notice may not be
served before 31st December, 2002.
NON-EXECUTIVE DIRECTORS
Independent Non-Executive Directors are appointed for an initial period of
three years, following which their appointment is reviewed annually.
Details of the amounts paid to Non-Executive Directors are set out on the
previous page. There are no pension arrangements for the Non-Executive
Directors, nor do they participate in any share option scheme.
DIRECTORS' INTERESTS
According to the register maintained under the Companies Act 1985 the
interests (all of which were beneficial), of the Directors in office at
31st December 2001 and 2000 (and their immediate families) in the issued
share capital of the Company were as shown in the table below.
ORDINARY SHARES 2001
<Table>
<Caption>
21st May, 2002 31st December, 2001 1st January, 2001
Ordinary shares of 5p Ordinary shares of 5p each Ordinary shares of 5p each
each
B Robinson --
MJ Murphy 120,000 120,000 120,000
H Fristedt 90,000 90,000 90,000
</Table>
*or date of appointment, if later
F-12
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
8 DIRECTORS' REMUNERATION (continued)
DIRECTORS' INTERESTS (continued)
ORDINARY SHARES 2000
<Table>
<Caption>
31st December, 2000 1st January, 2000*
Ordinary shares of 5p each Ordinary shares of 5p each
DA Heap 12,278,029 12,118,029
B Robinson -- --
MJ Murphy 120,000 --
BV Triebel + 40,000 40,000
H Fristedt 90,000 100,000
</Table>
*or date of appointment, if later
+ BV Triebel resigned on 26th June 2001.
DIRECTORS' SHARE OPTIONS
Options held by the Directors to subscribe for the Company's ordinary shares
are shown in Note 22 to the Financial Statements.
9 EMPLOYEE NUMBERS
<Table>
<Caption>
2001 2000
Number Number
The average monthly number of persons employed by the Group during the
year was:
Sales 642 627
Administration 301 316
Distribution 217 152
----- -----
1,160 1,095
----- -----
</Table>
10 STAFF COSTS
<Table>
<Caption>
2001 2000
L.000 L.000
Staff costs, including Executive Directors' remuneration, during the
year amounted to:
Wages and salaries 23,071 21,445
Social security costs 4,441 4,069
Pension costs 270 172
------ ------
27,782 25,686
------ ------
</Table>
F-13
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
11 TAX ON LOSS ON ORDINARY ACTIVITIES
<Table>
<Caption>
2001 2000
L.000 L.000
UK Corporation tax at 30% (2000: 30%) 1,115 677
Double taxation relief (893) (207)
Transfer (from)/to deferred tax (52) 52
Overseas taxation 505 (5)
Share of associates' tax 145 (334)
Adjustment relating to prior years - UK Corporation tax (189) 266
----- ----
631 449
----- ----
</Table>
The tax charge for the year has been reduced by tax relief in respect of
exceptional items amounting to L.394,000 in 2001 and L.31,000 in 2000.
12 DIVIDENDS
<Table>
<Caption>
2001 2000
L.000 L.000
Non-equity Preference Shares
Declared (see Note 22) 208 --
--- ---
</Table>
13 LOSSES PER ORDINARY SHARE
The calculation of basic loss per ordinary share is based on the loss for
the financial year, less non-equity dividends, of L.7,629,000 in 2001 and
L.12,350,00 in 2000, and on 58.8 million ordinary shares in 2001 and 57.8
million ordinary shares in 2000, being the weighted average number of
shares in issue during the years.
The calculation of loss before exceptional items per ordinary share is
based on a loss of L.3,594,000 in 2001 and a loss of L.3,434,000 in 2000
arrived at as follows:
<Table>
<Caption>
2001 2000
L.000 L.000
Loss after taxation and non-equity dividends (7,629) (12,350)
Exceptional items 4,358 8,947
Tax effect of exceptional items (Note 11) (394) (31)
Loss on disposal of associate 71 --
------ ------
Loss before exceptional items (3,594) (3,434)
------ ------
</Table>
The calculation of diluted loss per ordinary share is based on 58.8
million shares in 2001 and on 58.9 million in 2000, as the outstanding
warrants and share options have no dilutive effect.
F-14
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
14 TANGIBLE FIXED ASSETS
<Table>
<Caption>
Freehold Leasehold Plant and Fixtures and Total
buildings improvements machinery fittings
L.000 L.000 L.000 L.000 L.000
COST
At 1st January, 2001 328 674 8,326 4,441 13,769
Additions -- 108 493 1,302 1,903
Disposals -- -- (1,930) (37) (1,967)
Exchange adjustments -- (1) (113) (89) (203)
---- --- ------ ----- ------
AT 31ST DECEMBER, 2001 328 781 6,776 5,617 13,502
---- --- ------ ----- ------
DEPRECIATION
At 1st January, 2001 131 206 4,935 2,412 7,684
Charge for the year 9 54 1,494 501 2,058
Disposals -- -- (1,847) (28) (1,875)
Exchange adjustments -- 1 (87) (56) (142)
---- --- ------ ----- ------
AT 31ST DECEMBER, 2001 140 261 4,495 2,829 7,725
---- --- ------ ----- ------
Net book value at 31st December
2001 188 520 2,281 2,788 5,777
---- --- ------ ----- ------
</Table>
The net book value of tangible fixed assets includes L.351,000 in
respect of assets held under hire purchase or finance lease contracts.
<Table>
<Caption>
Freehold Leasehold Plant and Fixtures and Total
buildings improvements machinery fittings
L.000 L.000 L.000 L.000 L.000
COST
At 1st January, 2000 327 467 6,651 3,836 11,281
Additions 1 413 1,947 1,109 3,470
Disposals -- (201) (248) (492) (941)
Exchange adjustments -- (5) (24) (12) (41)
--- ---- ----- ----- ------
AT 31ST DECEMBER, 2000 328 674 8,326 4,441 13,769
--- ---- ----- ----- ------
DEPRECIATION
At 1st January, 2000 121 193 3,973 2,288 6,575
Charge for the year 10 50 1,212 537 1,809
Disposals -- (36) (232) (408) (676)
Exchange adjustments -- (1) (18) (5) (24)
--- ---- ----- ----- ------
AT 31ST DECEMBER, 2000 131 206 4,935 2,412 7,684
--- ---- ----- ----- ------
Net book value at 31st December
2000 197 468 3,391 2,029 6,085
--- ---- ----- ----- ------
</Table>
The net book value of tangible fixed assets includes L.738,000 in
respect of assets held under hire purchase or finance lease contracts.
F-15
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
15 INVESTMENT IN ASSOCIATED UNDERTAKINGS
<Table>
<Caption>
Share of net Goodwill Total
tangible
assets
L.000 L.000 L.000
AT 1ST JANUARY 2001 2,609 15,989 18,598
Additions 2,993 292 3,285
Disposals (449) (565) (1,014)
Share of loss after tax for year (2,856) -- (2,856)
------- ------- -------
At 31st December 2001 2,297 15,716 18,013
------- ------- -------
AMORTISATION
At 1st January 2001 -- 996 996
Charge for the year -- 814 814
Disposals -- (59) (59)
------- ------- -------
At 31st December 2001 -- 1,751 1,751
------- ------- -------
Net book value at 31st December 2001 2,297 13,965 16,262
======= ======= =======
</Table>
An impairment review has been performed in respect of the investment in
Kaye. The recoverable amount of the investment has been assessed by
reference to the net present value of estimated future cash flows,
incorporating the planned costs and expected benefits of the
reorganisation (that was planned at the time of acquisition of the
Group's interest in Kaye and that is currently in process) and applying a
discount rate of 10%. This review demonstrated that no provision is
required in relation to this investment.
F-16
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
15 INVESTMENT IN ASSOCIATED UNDERTAKINGS (continued)
<Table>
<Caption>
Share of net Goodwill Total
tangible assets
L.000 L.000 L.000
AT 1ST JANUARY 2000 3,262 15,634 18,896
Reassessment of fair value of assets acquired in prior year
(194) 194 --
Additions -- 161 161
Share of loss after tax for year (459) -- (459)
---------- ---------- ----------
At 31st December 2000 2,609 15,989 18,598
---------- ---------- ----------
AMORTISATION
At 1st January 2000 -- 197 197
Charge for the year -- 799 799
---------- ---------- ----------
At 31st December 2000 -- 996 996
---------- ---------- ----------
Net book value at 31st December 2000 2,609 14,993 17,602
---------- ---------- ----------
</Table>
The fair value of certain assets in EXY Group Limited ("EXY"), acquired in 1999,
were reassessed following completion of the audited accounts of EXY for the
period ended 31st March, 2000.
a) KAYE OFFICE SUPPLIES LIMITED ("KAYE")
Kaye is a private company registered in England. The Group acquired a
holding of 46.85% of the issued ordinary L.1 shares on 30th September 1999.
This percentage shareholding was increased to 47% in 2001 by purchasing
shares which were offered for sale by a director of Kaye, and then
maintained at this level by participating in a rights issue which was
completed on 12th October 2001.
Kaye is the parent undertaking of a group of companies, which trade as
wholesale distributors of office products.
F-17
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
15 INVESTMENT IN ASSOCIATED UNDERTAKINGS (continued)
The summarised profit and loss account of Kaye for the two years in
the period ended 31st December 2001 and the shares attributable to the
Group comprises:
<Table>
<Caption>
Group share Kaye
2001 2000 2001 2000
L.000 L.000 L.000 L.000
Turnover 97,245 97,127 206,904 207,320
---------- ---------- ---------- ----------
(Loss)/profit before exceptional items,
amortisation of goodwill and tax (432) 375 (918) 799
Exceptional items (2,636) (1,245) (5,609) (2,657)
Amortisation of goodwill -- -- (308) (307)
---------- ---------- ---------- ----------
Loss before tax (3,068) (870) (6,835) (2,165)
Tax -- 353 -- 754
---------- ---------- ---------- ----------
Loss after tax (3,068) (517) (6,835) (1,411)
---------- ---------- ---------- ----------
</Table>
The table below summarises the exceptional items incurred by
Kaye, and the share attributable to the Group in the two years in
the period ended 31st December 2001:
<Table>
<Caption>
Group Share Kaye
2001 2000 2001 2000
L.000 L.000 L.000 L.000
Integration costs 170 676 361 1,443
Redundancy -- 569 -- 1,214
----------- ----------- ----------- -----------
170 1,245 361 2,657
----------- ----------- ----------- -----------
Costs of a restructuring of continuing operations:
Establishment and set-up of Arrow 1,486 -- 3,162 --
Redundancy costs relating to closure of 779 -- 1,657 --
depots
Professional fees associated with the
refinancing 201 -- 429 --
----------- ----------- ----------- -----------
2,466 -- 5,248 --
----------- ----------- ----------- -----------
Total exceptional items for Kaye 2,636 1,245 5,609 2,657
----------- ----------- ----------- -----------
</Table>
Arrow is the new automated distribution centre, located in
Lutterworth, Leicestershire.
F-18
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
15 INVESTMENT IN ASSOCIATED UNDERTAKINGS (continued)
The summarised balance sheets of Kaye at 31st December, 2001 and 2000
and the share attributable to the Group comprise:
<Table>
<Caption>
Group Share Kaye
2001 2000 2001 2000
L.000 L.000 L.000 L.000
Fixed assets 5,679 3,311 12,083 7,068
Investments 5 5 10 10
Goodwill -- -- 5,455 5,763
Current assets 30,999 36,922 65,957 78,810
----------- ----------- ----------- -----------
36,683 40,238 83,505 91,651
Creditors due within one year (33,131) (36,728) (70,492) (78,395)
Creditors due after one year and provisions
(1,255) (1,224) (2,669) (2,612)
----------- ----------- ----------- -----------
Equity Shareholders' funds 2,297 2,286 10,344 10,644
----------- ----------- ----------- -----------
</Table>
b) EXY GROUP LIMITED ("EXY")
EXY is a private company registered in England. EXY is the parent
undertaking of a group of companies whose trading activities
principally consist of the recycling, manufacture and
distribution of consumable products for the office. EXY has a
financial year end of 31st March.
The Group acquired its holding of 32.0% of the issued ordinary
L.1 shares on 22nd November, 1999.
On 24th December, 2001, the Group disposed of the whole of the
32% holding in EXY for a total consideration of L.888,000. Of the
total consideration, L.444,000 was received in cash in February,
2002, with the balance in the form of non-voting redeemable 7%
preference shares of L.1 each, redeemable in equal amounts on
30th April and 31st August 2002. Both redemptions have now taken
place. The carrying value of the associate at the time of
disposal was L.955,000, which after taking account of associated
legal costs of L.4,000, resulted in a loss on disposal of
L.71,000. During the year ended 31st December 2001, EXY had
contributed L.211,000 profit after tax to the Group's results.
16 STOCKS
Stocks comprise finished goods and goods held for resale.
17 DEBTORS
<Table>
<Caption>
2001 2000
L.000 L.000
Trade debtors 50,432 42,193
Amounts owed by associated undertakings 6 512
Other debtors 1,900 1,203
Prepayments and accrued income 2,706 1,761
Corporation tax recoverable 628 599
Short term investments 444 --
----------- -----------
56,116 46,268
----------- -----------
</Table>
F-19
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
18 CREDITORS due within one year
<Table>
<Caption>
2001 2000
L.000 L.000
Bank loans and overdrafts (see Note 20) 37,066 29,186
Obligations under hire purchase and finance lease contracts (see Note 20) 322 358
Trade creditors 38,549 37,384
Amounts owed to associated undertakings -- 1,173
Corporation tax payable 358 719
Other taxes and social security 3,094 2,651
Other creditors 3,846 3,574
Accruals and deferred income 5,078 4,188
Dividends payable 208 --
------------ ------------
88,521 79,233
------------ ------------
</Table>
Banks loans and overdrafts amounting to L.15,944,000 at 31st December 2001
and to L.16,546,000 at 31st December 2000 are secured by fixed and floating
charges over the assets of the Company and its subsidiary undertakings in
the UK and bear interest at rates linked to LIBOR. Bank loans and
overdrafts amounting to L.20,846,000 at 31st December 2001 and L.11,590,000
at 31st December 2000 are secured by charges over the assets of certain
overseas subsidiary undertakings.
19 CREDITORS due after more than one year
<Table>
<Caption>
2001 2000
L.000 L.000
Medium term loans (see Notes 20 and 27) 3,982 --
Obligations under hire purchase and finance lease contracts (see Note 20) 121 443
Other creditors 99 101
------------ ------------
4,202 544
------------ ------------
</Table>
F-20
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the two years ended 31st December 2001
20 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The Group's treasury policy aims to ensure that the Group has
sufficient resources, whilst monitoring and minimising risk. The Group
does not engage in speculative transactions. The main risks arising
from the Group's financial instruments are interest rate risk,
liquidity risk and foreign exchange risk. The Board reviews and agrees
policies for managing each of these risks and they are summarised
below.
Interest rate risk: The Group finances its operations through a mixture
of previously retained profits and bank borrowings. Interest rates are
managed by borrowing from various funding sources at a variable rate.
The Board reviews the interest rates that the Group is paying and,
where appropriate, purchases hedging instruments.
Liquidity risk: Financial flexibility is critical to the business and
is achieved through managing loans and overdrafts on a short-term
basis. It is the Group's policy to fund the purchase of long-term
assets by financing lines of a similar maturity, where available.
Foreign exchange risk: The Group has significant subsidiaries in Europe
whose revenues and expenses are denominated in local currency. In order
to provide some protection of the Group's sterling balance sheet from
movements in these primarily Euro based currencies, the Group finances
part of its net investment in the largest subsidiaries in the local
currencies of these operating units. Unrealised differences arising
from structural currency exposures are recognised in the Statement of
Total Recognised Gains and Losses. A significant amount of the Group's
cost of sales is denominated in currencies other than that of the local
operating unit. The Group's policy is to manage currency exposure on
purchase commitments through forward currency contracts and currency
options.
FINANCIAL ASSETS
The Group has no financial assets other than short-term debtors and
cash at bank.
FINANCIAL LIABILITIES
Short term creditors have been excluded from this note.
The currency profile of the Group's bank loans and overdrafts is as
follows:
<Table>
<Caption>
2001 2000
L.000 L.000
Sterling (6,054) 1,032
Euros (30,204) (29,937)
Other currencies (808) (281)
--------- ---------
(37,066) (29,186)
--------- ---------
</Table>
The sterling balance in hand above is pooled by the UK Bankers with
those Euro currency borrowings held within the UK as a net bank
facility.
All borrowings are repayable within three months of the year-end and
are financed using floating interest rates, linked to relevant national
LIBOR or base rate equivalents. All facilities are uncommitted.
F-21
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the two years ended 31st December 2001
20 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (continued)
The maturity profile of the Group's financial liabilities as at 31st
December 2001 and at 31 December 2000 was:
<Table>
<Caption>
Finance lease and
Bank loans and Medium Term hire purchase
overdraft Loans obligations
2001 2000 2001 2000 2001 2000
L.000 L.000 L.000 L.000 L.000 L.000
In one year or less, or on demand 37,066 29,186 -- -- 322 358
In more than one year, but less than two years -- -- 3,982 -- 121 322
In more than two years, but less than five years -- -- -- -- -- 121
------ ------ ------ ------ ------ ------
37,066 29,186 3,982 -- 443 801
------ ------ ------ ------ ------ ------
</Table>
FAIR VALUES OF FINANCIAL INSTRUMENTS
Except as disclosed below, at 31st December 2001 and 2000, the book,
and fair value, for both the financial assets (cash and cash
equivalents) and the financial liabilities (short and long term debt)
were equal. Where available, market values have been used to determine
fair values.
FORWARD CURRENCY CONTRACTS AND CURRENCY OPTIONS
The Group's policy is to manage the impact of currency movements by
using a combination of forward currency contracts and currency options.
This will both eliminate currency exposure at the time of purchase and
reduce the uncertainty of the price to be paid for imported products.
In November 2000, the Company took out an Average Rate Currency Option,
to partially hedge future purchase commitments. There were 26 weekly
fixing dates and fixing amounts throughout the period of the option,
with the settlement date being 27th September 2001. The book value at
31st December, 2000 was L.nil, as there was no premium payable in
relation to this option. The theoretical fair value of the option at
the year end based upon market value was L.405,000. As the transactions
being hedged had not taken place none of this theoretical value was
recognised at the year end.
In addition, there were forward contracts in place at 31st December
2000 and 2001 to fix the currency rate for specific creditor balances
in existence at those dates. The book value and fair value of these
contracts is set out below. The associated creditor balances were
retranslated at prevailing rates at the respective balance sheet dates:
<Table>
<Caption>
2001 2000
L.000 L.000
Book Value -- --
Fair Value (58) 443
-------- -------
</Table>
F-22
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
21 PROVISIONS FOR LIABILITIES AND CHARGES
<Table>
<Caption>
2001 2000
L.000 L.000
DEFERRED TAXATION
At 1st January 81 37
Transfer (to)/from profit and loss account (52) 52
Exchange adjustments (29) (8)
----- -----
AT 31ST DECEMBER -- 81
----- -----
</Table>
The potential liability to deferred taxation, together with the amounts
for which provision has been made, is as follows:
<Table>
<Caption>
Potential Provided
2001 2000 2001 2000
L.000 L.000 L.000 L.000
GROUP
Accelerated capital allowances (273) (296) (273) (296)
Other timing differences 273 377 273 377
---- ---- ---- ----
-- 81 -- 81
---- ---- ---- ----
</Table>
22 CALLED UP SHARE CAPITAL
<Table>
<Caption>
2001 2000
L.000 L.000
Authorised:
175,000,000 (2000: 80,000,000) Ordinary shares of 5p each 8,750 4,000
80,000,000 (2000: Nil) variable rate convertible cumulative redeemable
preference shares 2006 of 10p each 8,000 --
------ ------
16,750 4,000
------ ------
Allotted, called up and fully paid:
58,778,398 (2000: 58,778,398) Ordinary shares of 5p each 2,939 2,939
80,000,000 (2000: Nil) variable rate convertible cumulative redeemable
preference shares 2006 of 10p each 800 --
------ ------
3,739 2,939
------ ------
</Table>
F-23
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
22 CALLED UP SHARE CAPITAL (continued)
PREFERENCE SHARES
The 8,000,000 variable rate convertible cumulative redeemable
preference shares of 10p each ("Preference Shares"), were issued to
Daisytek UK Limited on the 3rd September, 2001, at L.1 per share,
resulting in consideration after costs, of L.6,913,000. The Preference
Shares will mature on the fifth anniversary of their issue and are
convertible at any time during their term at the option of Daisytek UK
Limited into ordinary shares of ISA representing 50 per cent. plus one
share of the Company's issued ordinary share capital as enlarged by the
conversion of the Preference Shares. The conversion is equivalent to a
subscription price per ordinary share of approximately 13p. The
Preference Shares carry a variable annual coupon of 3 per cent. over 3
month LIBOR, payable quarterly in arrears, and can be redeemed early at
the option of ISA after the third year on payment of a 10 per cent.
redemption premium. On a return of capital on a winding-up or otherwise
the holders of the Preference Shares will be entitled to receive out of
the available assets all arrears of Preference Dividend together with
an amount equal to the paid up capital and any premium on the
Preference Shares. The holders of the Preference Shares shall be
entitled to receive notice of and attend all general meetings of the
Company but not to vote unless an event of default has occurred. An
event of default occurred on 6th May, 2002. Daisytek have waived these
rights under the terms of an event of default, subsequent to the agreed
offer for the group being accepted.
WARRANT
A warrant was issued to Daisytek UK Limited on the 3rd September, 2001,
under which at any time during a period of five years from the date of
issue, Daisytek UK Limited may give notice in writing to subscribe for
up to 15,384,615 ordinary shares for an aggregate subscription price of
L.2,000,000. The warrant may be exercised in whole or in part and on
more than one occasion. It is also freely transferable.
SHARE OPTIONS
Under the terms of the Approved and Unapproved Share Option Schemes of
ISA INTERNATIONAL plc, options to subscribe for ordinary shares were
outstanding at 31st December 2001 and 2000 as follows:
<Table>
<Caption>
Exercise NO. OF SHARES
Exercisable between price 2001 2000
- ------------------- --------- --------- ---------
1st January 2002 and 18th March 2002* 97p 39,725 39,725
1st January 2001 and 7th September 2004* 150p 20,000 20,000
1st April 2001 and 29th June 2010 26 3/4p 30,000 30,000
24th March 2002 and 23rd March 2009 36p 56,625 56,625
1st April 2002 and 29th June 2010 26 3/4p 892,000 3,722,500
1st April 2003 and 29th June 2010 26 3/4p 25,000 75,000
1st April 2003 and 14th October 2011 13p 3,078,000 --
9th November 2003 and 8th November 2011 23 3/4p 536,500 1,532,500
9th November 2003 and 14th October 2011 13p 661,000 --
15th October 2004 and 14th October 2011 13p 3,787,500 --
15th October 2004 and 14th October 2011+ 13p 7,518,807 --
</Table>
Other than those marked *, the above options are subject to performance
criteria, which had not been satisfied at 31st December 2000 or 2001.
The options marked + above are subject to a further condition that the
Preference Shares (detailed above) must have been converted to ordinary
shares.
F-24
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
22 CALLED UP SHARE CAPITAL (continued)
Included in the above at 31st December 2001 are options held by
Directors as follows:
<Table>
<Caption>
AT
AT 1ST JAN, 31ST DEC, EXERCISE
DIRECTOR 2001 GRANTED SURRENDERED 2001 PRICE EXERCISABLE BETWEEN
-------- ----------- ---------- ----------- ---------- -------- -------------------
B Robinson 500,000 -- (500,000) -- 26 3/4p Surrendered
500,000 -- (500,000) -- 26 3/4p Surrendered
-- 1,000,000 -- 1,000,000 13 p 1st Apr, 2003 and 14th Oct, 2011
-- 1,200,000 -- 1,200,000 13 p 15th Oct, 2004 and 14th Oct, 2011
-- 2,200,000 -- 2,200,000 13 p 15th Oct, 2004 and 14th Oct, 2011+
MJ Murphy 500,000 -- (500,000) -- 26 3/4p Surrendered
250,000 -- (250,000) -- 23 3/4p Surrendered
-- 500,000 -- 500,000 13 p 1st Apr, 2003 and 14th Oct, 2011
-- 250,000 -- 250,000 13 p 9th Nov, 2003 and 14th Oct, 2011
-- 1,100,000 -- 1,100,000 13 p 15th Oct, 2004 and 14th Oct, 2011
-- 1,842,307 -- 1,842,307 13 p 15th Oct, 2004 and 14th Oct, 2011+
</Table>
Included in the above at 31st December 2000 are options held by
Directors as follows:
<Table>
<Caption>
AT
AT 1ST JAN, 31ST DEC, EXERCISE
DIRECTOR 2000 GRANTED SURRENDERED 2000 PRICE EXERCISABLE BETWEEN
-------- ----------- ------- ----------- ---------- -------- -------------------
B Robinson 500,000 -- (500,000) -- 46 1/2p Surrendered
-- 500,000 -- 500,000 26 3/4p 1st April, 2002 and 29th June, 2010
-- 500,000 -- 500,000 26 3/4p 1st April, 2003 and 29th June, 2010
MJ Murphy 500,000 -- (500,000) -- 41 p Surrendered
-- 500,000 -- 500,000 26 3/4p 1st April, 2002 and 29th June, 2010
-- 250,000 -- 250,000 23 3/4p 9th November, 2003 and 8th
November, 2010
</Table>
Under the terms of the Savings Related Share Option Scheme of ISA
INTERNATIONAL plc, options to subscribe for ordinary shares were
outstanding at 31st December 2001 and at 31st December, 2000 as
follows:
<Table>
<Caption>
NO. OF SHARES
EXERCISABLE BETWEEN EXERCISE PRICE 2001 2000
------------------- -------------- ------- -------
1st August 2002 and 31st January 2003 35 p 555,334 826,467
1st July 2003 and 31st December 2003 25 1/2p 489,447 672,702
</Table>
The market price of the shares at 31st December 2000 and 2001 was
20 1/4p and 6 1/4p respectively and the range during 2000 and 2001 was
20 1/4p to 50 1/2p and 5 3/4p to 20 1/4p.
CHANGES IN SHARE CAPITAL
On 9th March, 2000 deferred consideration of L.3,976,000 due under the
terms of the agreement to acquire John Heath (Holdings) Limited was
satisfied by the issue of 5,542,553 ordinary shares. Options in respect
of 29,321 ordinary shares with an aggregate nominal value of
L.2,000 were exercised during 2000 for a consideration of L.9,000.
F-25
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
23 RESERVES
<Table>
<Caption>
Share premium Profit and
account Merger reserve loss account
L.000 L.000 L.000
At 1st January, 2000 1,034 1,370 17,029
Premium on shares issued 7 3,699 --
Loss for the year -- -- (12,350)
Adjustment to unrealised gain on
disposal of subsidiary -- -- (182)
Exchange adjustments -- (808)
------- ------- -------
AT 31ST DECEMBER, 2000 1,041 5,069 3,689
Premium on shares issued 6,113 -- --
Loss for the year -- -- (7,629)
Exchange adjustments -- -- (92)
------- ------- -------
AT 31ST DECEMBER 2001 7,154 5,069 (4,032)
------- ------- -------
</Table>
The premium on certain shares issued in 2000 has been taken to merger
reserve as permitted by Section 131 of the Companies Act 1985.
The cumulative amount of goodwill written off directly to reserves in
respect of subsidiary undertakings at 31st December, 2000 and 2001 was
L.23,202,000.
24 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<Table>
<Caption>
2001 2000
L.000 L.000
Loss for the financial year (7,421) (12,350)
Dividends - Non-equity (208) --
------- -------
(7,629) (12,350)
------- -------
Other recognised net gains and losses relating to the year (92) (990)
New share capital subscribed 6,913 9
------- -------
Net deduction from shareholders' funds (808) (13,331)
Opening shareholders' funds 12,738 26,069
------- -------
Closing shareholders' funds 11,930 12,738
------- -------
</Table>
F-26
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
25 FINANCIAL COMMITMENTS
The annual commitment of the Group under non-cancellable operating
leases was as follows:
<Table>
<Caption>
Land and buildings Plant and machinery
2001 2000 2001 2000
L.000 L.000 L.000 L.000
Leases expiring:
Within one year 575 211 81 66
Within two to five years 560 935 1,329 1,062
After five years 1,612 865 -- --
----- ----- ----- -----
2,747 2,011 1,410 1,128
----- ----- ----- -----
</Table>
At 31st December 2000 and 2001 the Group had no commitment to future
capital expenditure.
26 CASH FLOW STATEMENT
a) RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
<Table>
<Caption>
2001 2000
L.000 L.000
Operating loss (329) (8,300)
Depreciation
Charge for year 2,058 1,809
Loss on sale of tangible fixed assets 1 39
(Increase)/decrease in stocks (3,832) 385
Increase in debtors (8,929) (866)
Increase in creditors 1,872 9,360
------ ------
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (9,159) 2,427
------ ------
</Table>
F-27
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
26 CASH FLOW STATEMENT (CONTINUED)
b) ANALYSIS OF NET CASH OUTFLOW FROM EXCEPTIONAL ITEMS
<Table>
<Caption>
2001 2000
L.000 L.000
Operating loss (1,722) (7,702)
Decrease in debtors -- 242
(Decrease)/increase in creditors (48) 537
------- -------
NET CASH OUTFLOW FROM EXCEPTIONAL ITEMS (1,770) (6,923)
------- -------
</Table>
c) ANALYSIS OF CASH FLOWS NETTED IN THE CASH FLOW STATEMENT
<Table>
<Caption>
2001 2000
L.000 L.000
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 125 116
Interest paid (3,235) (1,706)
Interest element of hire purchase and finance lease payments (37) (49)
------- -------
(3,147) (1,639)
------- -------
TAXATION
UK Corporation tax (paid)/received (224) 191
Overseas tax paid (691) (246)
------- -------
(915) (55)
------- -------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (1,903) (3,209)
Proceeds of sale of tangible fixed assets 91 226
------- -------
(1,812) (2,983)
------- -------
ACQUISITIONS AND DISPOSALS
Investment in associate (3,285) (161)
------- -------
(3,285) (161)
------- -------
FINANCING
Issue of share capital 6,913 9
New loans 3,982 --
Capital element of hire purchase and finance lease payments (358) (443)
------- -------
10,537 (434)
------- -------
</Table>
F-28
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
26 CASH FLOW STATEMENT (CONTINUED)
d) ANALYSIS OF NET DEBT
<Table>
<Caption>
2001 Opening net Exchange Closing net
debt Cash flow movement debt
L.000 L.000 L.000 L.000
Cash at bank and in hand 4,153 13 12 4,178
Overdrafts (29,186) (7,794) (86) (37,066)
Loans -- (3,982) -- (3,982)
------- ------- ------- -------
(25,033) (11,763) (74) (36,870)
Hire purchase and finance lease contracts (801) 358 -- (443)
------- ------- ------- -------
(25,834) (11,405) (74) (37,313)
------- ------- ------- -------
</Table>
<Table>
<Caption>
2000 Other non-
Opening cash Exchange Closing net
net debt Cash flow changes movement debt
L.000 L.000 L.000 L.000 L.000
Cash at bank and in hand 1,860 3,034 -- (741) 4,153
Overdrafts (23,225) (5,879) -- (82) (29,186)
------- ------- ------- ------- -------
(21,365) (2,845) -- (823) (25,033)
Hire purchase and finance
lease contracts (986) 443 (261) 3 (801)
------- ------- ------- ------- -------
(22,351) (2,402) (261) (820) (25,834)
------- ------- ------- ------- -------
</Table>
e) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<Table>
<Caption>
2001 2000
L.000 L.000
Decrease in cash in the year (7,781) (2,845)
Cash outflow from decrease in debt and lease financing 358 443
New loan (3,982) --
------- -------
Change in net debt resulting from cash flows (11,405) (2,402)
New hire purchase contracts -- (261)
Translation difference (74) (820)
------- -------
MOVEMENT IN NET DEBT IN THE YEAR (11,479) (3,483)
Net debt at 1st January (25,834) (22,351)
------- -------
NET DEBT AT 31ST DECEMBER (37,313) (25,834)
------- -------
</Table>
F-29
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
27 RELATED PARTY TRANSACTIONS
<Table>
<Caption>
2001 2000
L000 L000
-------- --------
During the year the Group purchased goods or services in the ordinary
course of business from the following related parties:
EXY Group Limited and subsidiary undertakings ("EXY") 5,433 5,500
Kaye Office Supplies Limited and subsidiary undertakings ("Kaye") -- 57
Daisytek International Corporation and subsidiary undertakings ("Daisytek") 17 --
Virtual Village Limited 7 3
During the year the Group sold goods in the ordinary course of business
to the following related parties:
EXY 2,580 1,453
Daisytek 269 --
Kaye 31 30
Virtual Village Limited 11 5
Torres Limited 2 --
</Table>
EXY Group Limited and Kaye Office Supplies Limited are related parties
as they are associated undertakings (see Note 15 for further details
regarding associated undertakings).
Virtual Village Limited and Torres Limited are related parties as DA
Heap has been a director and significant shareholder in both companies.
Virtual Village Limited provided the Group with information technology
services. Torres Limited provided senior management recruitment
services. The other related parties provided goods for re-sale.
For 2001 Daisytek is a related party as it holds 8,000,000 variable
rate convertible commutative redeemable preference shares, 2006 at 10p
each in the capital of the company. It has also formed a strategic
alliance with the Group.
F-30
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
27 RELATED PARTY TRANSACTIONS (continued)
<Table>
<Caption>
The following balances are included in debtors 2001 2000
L.000 L.000
TRADE DEBTORS:
Virtual Village Limited -- 2
EXY 449 --
---------- ----------
449 2
---------- ----------
AMOUNTS OWED BY ASSOCIATES:
EXY -- 512
Kaye 6 --
---------- ----------
6 512
---------- ----------
The following balances are included in creditors
TRADE CREDITORS:
Virtual Village Limited -- 1
EXY 641 --
Daisytek 15 --
---------- ----------
656 1
---------- ----------
AMOUNTS OWED TO ASSOCIATES:
EXY -- 1,157
Kaye -- 16
---------- ----------
-- 1,173
---------- ----------
ACCRUALS AND DEFERRED INCOME:
Daisytek 140 --
MEDIUM TERM LOANS:
Daisytek 3,982 --
---------- ----------
</Table>
28 SUBSEQUENT EVENTS
On 22nd January, 2002, the Group disposed of the whole of the share
capital of its Austrian subsidiary, Supplies Team EDV-Zubehor Handel GmbH
("ST Austria"), for a total cash consideration of L.1,432,000, of which
L.698,000 was used to settle intra-Group balances. During the year ended
31st December, 2001, ST Austria contributed L.7,408,000 to Group
turnover and generated a profit before tax of L.65,000. Its net assets
at 31st December, 2001 were L.549,000.
On 27th June, 2002 the acquisition of the entire share capital of ISA
International plc by Daisytek UK Limited, a wholly owned subsidiary of
Daisytek International Corporation, was completed.
29 BASIS OF PREPARATION
These financial statements do not constitute statutory accounts as
defined in section 240 of the Companies Act 1985.
The statutory accounts for the years ended 31st December, 2001 and 2000
have been delivered to the Registrar of Companies for England and Wales.
The auditors gave an unqualified report on the 2000 accounts and, whilst
the report on the 2001 accounts was also unqualified, the auditors'
opinion drew attention to Note 1a) of those statutory accounts concerning
the support provided by Daisytek, without which the directors considered
that it would be unlikely that the Group would be able to operate as a
going concern.
F-31
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
30 NEW ACCOUNTING STANDARDS
United Kingdom
FRS 17, Retirement Benefits, issued in November 2000, is fully effective
for accounting periods ending on or after 22nd June, 2003. The Group
operates a defined contribution pension scheme, as such, there is no
significant difference in accounting under FRS 17 for the Group than that
previously adopted under SSAP 24.
FRS 19, Deferred Tax, issued in December 2000, is effective for
accounting periods ending on or after 23rd January 2002. The standard
requires full provision to be made for deferred tax assets and
liabilities arising from most types of timing difference. The standard
allows, but does not require, a policy of discounting deferred tax assets
and liabilities. The financial effect of adopting FRS 19 has not yet been
determined.
United States
FAS 141 - "Business Combinations", was issued in July 2001 and requires
that all business combinations initiated after 30th June, 2001 are
accounted for in accordance with the purchase method of accounting. FAS
141 has no impact on the financial information presented.
FAS 142 - "Goodwill and other intangible assets", was issued in July
2001. This statement applies to accounting periods commencing after 15th
December 2001. It requires that goodwill and other intangible assets with
indefinite useful lives are tested at least annually for impairment
rather than amortised periodically. Intangible assets with finite
economic lives continue to be amortised over their useful lives. Goodwill
and intangible assets acquired prior to 1st July, 2001 are still
amortised and subject to impairment tests until the statement is adopted.
Once the statement is adopted, all intangible assets with indefinite
useful lives and goodwill must be tested for impairment annually. Where
no impairment is revealed, amortisation is not necessary. The impact of
the initial adoption on the Group under US GAAP has not yet been
determined. However it may be material to the financial position of the
Group under US GAAP.
FAS 143 - "Accounting for asset retirement obligations", was issued on
16th August, 2001. This statement deals with accounting for obligations
associated with the retirement of long-lived assets and the associated
asset retirement costs. It requires entities to record the fair value of
the liability for an asset retirement obligation in the period in which
it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalised as part of the carrying
amount of the long-lived asset. Under US GAAP the Group would be required
to adopt the statement in the 2003 financial statements. The financial
effect of adopting FAS 143 has not yet been determined.
FAS 144 - "Accounting for the impairment or disposal of long-lived
assets", supersedes FAS 121, "Accounting for the impairment of long-lived
assets to be disposed of", although it retains many of its provisions but
excludes goodwill and intangible assets not being amortised and
significantly changes the criteria that have to be met in order to
classify long-lived assets held for resale.
It also supersedes the accounting and reporting provisions of Accounting
Principles Board Opinion No.30 (APB 30), "Reporting the results of
operations-reporting the effects of disposal of a segment of a business,
and extraordinary, unusual and infrequently occurring events and
transactions", for the disposal of a segment of a business. It requires
expected future operating losses from discontinued operations in the
period to be displayed in discontinued operations in the period in which
the losses are incurred rather than as of the measurement date as
currently. The requirement in APB 30 to report discontinued operations
separately is retained and extended to a component of an entity that has
either been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. The provisions of FAS 144 are
to be applied prospectively and hence will not impact the financial
statements presented. Under US GAAP, the Group would be required to adopt
the statement for 2002. The financial effect of adopting FAS 144 has not
yet been determined.
F-32
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
31 DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND UNITED STATES
SUMMARY OF DIFFERENCES
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK
GAAP") which differ in certain respects from United States generally
accepted accounting principles ("US GAAP"). Those differences which have
a significant effect on the Group's net income and shareholders' equity
are as follows:
GOODWILL
Prior to 1998 goodwill arising on acquisitions was set off against
reserves. On disposal of such businesses, goodwill previously set off
against reserves is charged to profit or loss on disposal. Since 1998,
goodwill and other intangible fixed assets purchased by way of
acquisition have been capitalised and written off over a period not
exceeding 20 years. Under US GAAP, goodwill would be capitalised and
amortised over their expected useful lives which should not exceed 40
years. Under US GAAP, where goodwill has become impaired between the date
of acquisition and the date of the financial statements, the amount of
the impairment is deducted from cost. Under US GAAP an amount of
L.2,411,000 would have been written off at 31st December, 2000 in respect
of impairment of goodwill relating to certain acquisitions.
ACCOUNTING FOR INVESTMENTS IN ASSOCIATED UNDERTAKINGS
Investments in associated undertakings are accounted for using the equity
method under which the Group's share of their income is included in the
Group's income statement on a line by line basis below operating profit.
Under US GAAP, investments in associated undertakings would be accounted
for using the equity method under which the Group's share of their after
tax income is included in the Group's income statement in one line.
FORWARD FOREIGN EXCHANGE CONTRACTS
Gains and losses on forward foreign exchange contracts at the balance
sheet date are not recognised in income for the year, but are recognised
in the profit and loss account at the same time as the hedged
transaction. The loss or profit relating to foreign currency assets or
liabilities that are hedged are recognised in the profit and loss account
in the year.
Under US GAAP the gain or loss on retranslation of the hedged foreign
currency asset or liability would have been deferred at 31st December
2000.
FAS 133 was applicable to the Group for the first time for the 2001
accounts. FAS 133 requires the Company to recognise all derivative
instruments on the balance sheet at fair value. Derivative instruments
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in
its fair value will either be offset against the change in fair value of
the hedged asset, liability or firm commitment through earnings or
recognised in other comprehensive income until the hedged item is
recognised in earnings. Any ineffective portion of a derivative
instrument's change in fair value will be immediately recognized in
earnings.
DIVIDENDS
Dividends are provided for in the financial statements for the period to
which they relate and, in the case of proposed final dividends, on the
basis of proposals by the directors. Under US GAAP, dividends would be
provided for in the financial statements in the period in which they are
declared.
F-33
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the two years ended 31st December 2001
31 DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND UNITED STATES (continued)
REDEEMABLE PREFERENCE SHARES AND WARRANTS
Redeemable preference shares are recorded in shareholders' equity for
UK GAAP. Under US GAAP these would not be treated as shareholders'
equity. As explained in note 22, a warrant was issued to Daisytek at
the same time as the redeemable preference shares. Under UK GAAP none
of the consideration received has been allocated to the warrant but all
relates to the issue of redeemable preference shares. Under US GAAP, a
value would be attributed to the warrant based upon a calculation as at
the date of issue. This value would be treated as shareholders' equity.
The value attributed to the warrant was L.Nil.
PROVISION FOR RESTRUCTURING COSTS
Provisions for restructuring, including ongoing costs of vacant
properties, is made when each element of the restructuring is
implemented and properties become vacant. Under US GAAP, costs
associated with a restructuring, including ongoing costs of vacant
properties, would be provided at the time that management approves and
commits to the specific restructuring plan.
TAXATION
Deferred taxation is provided using the liability method on timing
differences between the taxable allowances and related accounting
treatments where these are regarded as likely to crystallise in the
foreseeable future. Under US GAAP deferred taxation would be recognised
on all temporary differences. No adjustments have been made for
deferred taxation. The amounts provided under UK GAAP are consistent
with the amounts that would be provided under US GAAP and therefore no
adjustment has been recognised.
F-34
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
31 DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND UNITED STATES (continued)
EFFECT OF DIFFERENCES
The effect of the significant adjustments to net income and to
shareholders' equity in 2001 and 2000, that would be required if US
GAAP were to be applied instead of UK GAAP is summarised as follows:
<Table>
<Caption>
2001 2000
L.000 L.000
NET LOSS
Loss for the financial year as reported in the consolidated profit and (7,421) (12,350)
loss account
Adjustments:
Amortisation of goodwill (1,123) (1,123)
Share of loss in associate - provision for restructuring (1,267) (170)
Unrecognised foreign exchange gains -- 468
Changes in fair value of derivatives (501) --
Deferred taxation on US GAAP adjustments 530 (89)
----------- -----------
Net loss as adjusted to accord with US GAAP (9,782) (13,264)
----------- -----------
Before cumulative effect of adoption of FAS 133 (10,187) (13,264)
Cumulative effect of adoption of FAS 133 405 --
----------- -----------
Net loss as adjusted to accord with US GAAP (9,782) (13,264)
----------- -----------
BASIC AND DILUTED LOSS PER SHARE
Before cumulative effect of adoption of FAS 133 (17.3)p (22.6)p
Cumulative effect of adoption of FAS 133 0.7p --
Net loss adjusted to accord with US GAAP (16.6)p (22.6)p
COMPREHENSIVE LOSS
Net loss as adjusted to accord with US GAAP (9,782) (13,264)
Other comprehensive income:
Exchange differences on retranslation of subsidiaries (92) (808)
----------- -----------
Comprehensive loss (9,874) (14,072)
----------- -----------
SHAREHOLDERS' EQUITY
Shareholders' funds as reported in the consolidated balance sheet 11,930 12,738
Adjustments:
Goodwill cost 20,790 20,790
amortisation (9,348) (8,225)
Investment in associates - provision for restructuring (1,437) (170)
Proposed dividend 208 --
Current liabilities - derivatives (58)
Current liabilities - deferred foreign exchange gain -- 443
Redeemable preference shares (6,898) --
Deferred taxation on US GAAP adjustments 448 (82)
----------- -----------
Shareholders' equity as adjusted to accord with US GAAP 15,635 25,494
----------- -----------
</Table>
F-35
ISA INTERNATIONAL PLC
Notes to the Financial Statements (Continued)
- --------------------------------------------------------------------------------
for the years ended 31st December 2001 and 2000
31 DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND UNITED STATES (continued)
CONSOLIDATED STATEMENT OF CASHFLOWS
The US GAAP cash flow statement reports changes in cash and cash
equivalents, which includes short term highly liquid investments. Under
UK GAAP, cashflows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing
activities and financing activities. US GAAP requires only three
categories of cash flow activity to be reported: operating, investing
and financing. Cashflows from taxation and returns on investments and
servicing of finance shown under UK GAAP would be included as operating
activities under US GAAP.
The categories of cash flow activity under US GAAP are summarised as
follows:
<Table>
<Caption>
2001 2000
L.000 L.000
Cashflows from operating activities (13,221) 733
Cashflows from investing activities (5,097) (3,144)
Cashflows from financing activities 18,417 5,527
------------ ------------
Increase in cash and cash equivalents 99 3,116
Exchange adjustments (74) (823)
Cash and cash equivalents at beginning of year 4,153 1,860
------------ ------------
Cash and cash equivalents at end of year 4,178 4,153
------------ ------------
</Table>
F-36
Index to Exhibits
<Table>
<Caption>
Exhibit
Number Description
- ------- -----------
23.1 Consent of Ernst & Young LLP.
99.1 Recommended Offer by Robert W. Baird Limited on behalf of Daisytek UK
Limited, a wholly-owned subsidiary of Daisytek International
Corporation, for ISA International plc (incorporated by reference from
Exhibit 99.2 to Current Report on Form 8-K dated May 24, 2002 (File
No. 000-25400)).
</Table>