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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 June 30, 1997
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 July 31, 1997 there were 6,796,576 shares of registrant's common stock
outstanding.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 (Unaudited) and
March 31, 1997...................................................... 3
Unaudited Interim Consolidated Statements of Income for the
Three Months Ended June 30, 1997 and 1996 .......................... 5
Unaudited Interim Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1997 and 1996........................... 6
Notes to Unaudited Interim Consolidated Financial Statements............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ........................................... 14
SIGNATURES ......................................................................... 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
June 30, March 31,
1997 1997
------------- -------------
(Unaudited)
CURRENT ASSETS
Cash $ 1,080 $ 552
Accounts receivable, net of allowance for doubtful
accounts of $2,048 and $2,360 at June 30, 1997 and
March 31, 1997, respectively 90,595 90,778
Inventories, net:
Inventories, excluding Priority Fulfillment Services Division 60,431 54,426
Inventories, Priority Fulfillment Services Division 12,703 10,354
Prepaid expenses and other current assets 1,754 1,214
Deferred income tax asset 563 565
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Total current assets 167,126 157,889
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PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 21,652 20,949
Leasehold improvements 745 673
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22,397 21,622
Less - Accumulated depreciation and amortization (10,722) (9,648)
------------- -------------
Net property and equipment 11,675 11,974
EMPLOYEE RECEIVABLES 431 423
EXCESS OF COST OVER NET ASSETS ACQUIRED,
net of accumulated amortization of $660 and $608 at
June 30, 1997 and March 31, 1997, respectively 4,950 5,002
------------- -------------
Total assets $ 184,182 $ 175,288
============= =============
The accompanying notes are an integral part
of these consolidated balance sheets.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, March 31,
1997 1997
------------- -------------
(Unaudited)
CURRENT LIABILITIES
Current portion of long-term debt $ 670 $ 662
Trade accounts payable 66,736 62,552
Accrued expenses 6,509 6,260
Income taxes payable 1,150 1,398
Other current liabilities 5,764 6,769
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Total current liabilities 80,829 77,641
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LONG-TERM DEBT, less current portion 30,209 30,454
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares authorized at June 30,
1997 and March 31, 1997, none issued
and outstanding -- --
Common stock, $0.01 par value; 20,000,000 shares
authorized at June 30, 1997 and March 31, 1997; 6,763,744 and 6,520,709
shares issued and outstanding at June 30, 1997 and March 31, 1997,
respectively 68 65
Additional paid-in capital 35,674 33,331
Retained earnings 38,932 35,103
Cumulative foreign currency translation adjustment (1,530) (1,306)
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Total shareholders' equity 73,144 67,193
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Total liabilities and shareholders' equity $ 184,182 $ 175,288
============= =============
The accompanying notes are an integral part
of these consolidated balance sheets.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
June 30,
------------------------------
1997 1996
------------ ------------
NET SALES $ 172,812 $ 136,894
COST OF SALES 155,506 123,224
------------ ------------
Gross profit 17,306 13,670
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 10,583 8,306
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Income from operations 6,723 5,364
INTEREST EXPENSE 519 432
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Income before income taxes 6,204 4,932
PROVISION FOR INCOME TAXES 2,375 1,891
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NET INCOME $ 3,829 $ 3,041
============ ============
NET INCOME PER COMMON SHARE $ 0.55 $ 0.44
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 7,004 6,907
============ ============
The accompanying notes are an integral part
of these interim consolidated statements.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
June 30,
----------------------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,829 $ 3,041
Adjustments to reconcile net income to net cash provided by
(used in) operating activities --
Depreciation and amortization 1,159 773
Provision for doubtful accounts 391 324
Deferred income tax provision 2 87
Changes in operating assets and liabilities --
Trade accounts receivable (266) (193)
Receivables from related parties 42 2
Inventories, net (8,427) (2,895)
Trade accounts payable and accrued expenses 4,674 (4,653)
Income taxes payable (338) 456
Prepaid expenses and other current assets (573) 304
-------------- -------------
Net cash provided by (used in) operating activities 493 (2,754)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (775) (1,475)
Advances to employees, net (138) (66)
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Net cash used in investing activities (913) (1,541)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) revolving line of credit, net (50) 5,460
Decrease in other current liabilities, net (1,005) (1,766)
Payments on capital leases and notes payable (187) (153)
Net proceeds from exercise of stock options 2,331 1,042
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Net cash provided by financing activities 1,089 4,583
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EFFECT OF EXCHANGE RATES ON CASH (141) (9)
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NET INCREASE IN CASH 528 279
CASH, beginning of period 552 204
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CASH, end of period $ 1,080 $ 483
============= =============
The accompanying notes are an integral part
of these interim consolidated statements.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS
ENDED JUNE 30, 1997 AND 1996 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, Australia 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, contract stationers, buying groups, computer and office
product superstores, warehouse clubs and other retailers who resell the
products to end-users.
During fiscal year 1996, the Company formed Priority Fulfillment
Services, Inc. ("PFS"), a wholly owned subsidiary, to provide outsourcing
solutions to its business partners. Through PFS, the Company sells its core
competencies in call-center, product fulfillment, logistics and support
services to client companies worldwide, primarily on a fee-based relationship.
PFS customizes these services to meet specific requirements of these companies.
PFS's call-center services include: order entry, order tracking and customer
service (inbound), outbound telemarketing services and customized reporting of
customer and call information. PFS utilizes primarily the Company's centralized
distribution facility in Memphis, Tennessee to provide product fulfillment and
logistics services, with additional distribution facilities available in
Florida, Canada, Mexico and Australia. PFS maintains relationships with a
number of shipping companies to provide next business day delivery on domestic
package orders, truck shipments on larger domestic orders and a variety of air
and surface delivery options for international orders. PFS also provides other
support services such as invoicing, credit management and collection services,
and accounting and systems support.
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 June 30, 1997, its results of operations for the three
months ended June 30, 1997 and 1996, and its results of cash flows for the
three months ended June 30, 1997 and 1996. 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 included in the Company's Form 10-K (File Number 0-25400)
as filed with the SEC on June 27, 1997 (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.
Certain prior period data has been reclassified to conform to the current
period presentation. These reclassifications had no effect on previously
reported net income, shareholders' equity or cash flows.
3. INVENTORIES:
Inventories (merchandise held for resale, all of which is finished goods)
are stated at the lower of weighted average cost or market.
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4. DEBT:
Debt as of June 30, 1997 and March 31, 1997, is as follows (dollars in
thousands):
June 30, March 31,
1997 1997
---------- ----------
Revolving line of credit with commercial banks, interest
(weighted average rate of 6.7% at June 30, 1997) at the
Company's option at the prime rate of a bank (8.5% at
June 30, 1997) or the Eurodollar rate plus 0.625% to 1.125%
(6.6% at June 30, 1997), due July 1, 1999 $ 30,050 $ 30,100
Notes payable and obligations under capital leases for warehouse
equipment, computer equipment, office furniture and fixtures,
interest at varying rates ranging from 8% to 21%, with lease
terms varying from three to seven years 829 1,016
---------- ----------
Long-term debt 30,879 31,116
Less: Current portion of long-term debt (670) (662)
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Long-term debt, less current portion $ 30,209 $ 30,454
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In May 1995, the Company entered into an agreement with certain banks for
an unsecured revolving line of credit facility (the "facility") that, as amended
on June 30, 1997, has a borrowing availability of $50.0 million and expires on
July 1, 1999. Availability under the facility is based upon amounts of eligible
accounts receivable, as defined.
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 June 30, 1997, $19.95 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 June 30, 1997 and March 31, 1997, the Company had checks and other
items outstanding in excess of its cash balance of approximately $5.8 million
and $6.8 million, respectively, which are included in other current
liabilities.
5. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
Three Months Ended
June 30,
----------------------
1997 1996
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Cash paid during the period for:
Interest $ 523 $ 369
Income taxes $ 1,069 $ 591
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6. STOCK OPTIONS:
During the three months ended June 30, 1997, the Company granted options
to certain employees under its employee stock option plans (the "Plans" ).
These options were granted at the fair market value of the Company's common
stock 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. In
addition to the options granted under the Plans, during the three months ended
June 30, 1997, the Company granted 32,913 non-plan options.
Also during the three months ended June 30, 1997, the Company, at the
option of individual employees, canceled options issued during fiscal year 1997
and issued replacement options, granted at the fair market value of the
Company's common stock on the date of the replacement grant. Such options also
become exercisable over a three year period starting with the date of the
replacement grant, based on vesting percentages. The following table summarizes
stock option activity for the three months ended June 30, 1997:
Shares Price per Share
-------- ---------------
Outstanding, March 31, 1997 853,469 $1.28 - $40.00
Granted 626,105 $25.00
Exercised (242,495) $1.28 - $32.50
Canceled (307,686) $1.28 - $40.00
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Outstanding, June 30, 1997 929,393 $1.28 - $32.50
========
7. RECENTLY ISSUED ACCOUNTING STANDARD:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This statement establishes new standards for computing and presenting
earnings per share ("EPS"). SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods,
and earlier application is not permitted. When adopted, the Company will be
required to restate its EPS data for all periods presented. Had the Company
adopted SFAS No. 128 in the first quarter of fiscal year 1998, basic earnings
per share would have been $0.57 and $0.47 for the three months ended June 30,
1997 and 1996, respectively. Diluted earnings per share would have been the same
as net income per common share included in the accompanying Unaudited Interim
Consolidated Statements of Income.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED JUNE 30, 1997 AND 1996.
Net Sales. Net sales for the three months ended June 30, 1997 were $172.8
million as compared to $136.9 million for the three months ended June 30, 1996,
an increase of $35.9 million, or 26.2%, as the result of an increase in U.S. net
sales of $21.1 million, or 18.4%, and an increase in international net sales of
$14.8 million, or 66.2%. The growth in U.S. and international net sales was
primarily due to new customers, increased sales volume to large national
accounts, computer and office product superstores, the Company's continued
introduction of new products, and the addition of net sales from its Australian
subsidiary which was acquired by the Company during the third quarter of fiscal
year 1997. Net sales to new customers for the three months ended June 30, 1997
were approximately $21 million, including the net sales from its new Australian
subsidiary, while net sales to existing customers increased by approximately $15
million during this period.
Gross Profit. Gross profit for the three months ended June 30, 1997 was
$17.3 million as compared to $13.7 million in the same period in 1996, an
increase of $3.6 million, or 26.6%, primarily as the result of increased sales
volume in the first quarter of fiscal year 1998. The Company's gross profit
margin as a percent of net sales was unchanged at 10.0% for the three month
periods ended June 30, 1997 and June 30, 1996. Gross profit margin as a
percentage of net sales declined slightly during the first quarter of fiscal
1998 for the Company's domestic wholesale computer supplies business due to the
ongoing competitive environment and consolidation of its customers. These gross
profit margin percentage declines were offset by higher margin fee revenue
business for the Company's outsource providing subsidiary, Priority Fulfillment
Services ("PFS"). The Company believes that the competitive environment and
consolidation of its domestic customers, and the corresponding decline in gross
profit margin percentage will continue during fiscal year 1998.
SG&A Expenses. SG&A expenses for the three months ended June 30, 1997 were
$10.6 million, or 6.1% of net sales, as compared to $8.3 million, or 6.1% of
net sales, for the three months ended June 30, 1996. The increase in SG&A
expenses was primarily a result of the increase in costs associated with the
Company's increased sales volume. The Company continues to incur incremental
SG&A expenses to invest in growth areas of the business, PFS in particular.
SG&A as a percentage of net sales remained unchanged as these incremental SG&A
expenses were offset by 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
June 30, 1997 was $6.7 million as compared to $5.4 million for the same period
during 1996, an increase of $1.3 million, or 25.3%. This increase was primarily
due to increased sales volume and increased gross profit. Income from
operations as a percentage of net sales was 3.9% for both the three months
ended June 30, 1997 and June 30, 1996.
Interest Expense. Interest expense for the three months ended June 30, 1997
was $0.5 million as compared to $0.4 million for the three months ended June
30, 1996. Interest expense was higher during the three months ended June 30,
1997 primarily due to an increase in the average line of credit due to
increased sales volume in addition to a slight increase in interest rates
during fiscal year 1998. The weighted average interest rate was 6.9% and 6.8%
for the three month periods ended June 30, 1997 and 1996, respectively.
Income Taxes. The Company's provision for income taxes was $2.4 million for
the three months ended June 30, 1997 as compared to $1.9 million for the three
months ended June 30, 1996. The increase was primarily due to increased pretax
profits. The effective tax rates for all periods presented was approximately
38.3%.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of cash has been from financing
activities. During the three months ended June 30, 1997, net cash of $1.1
million was provided by financing activities, compared to net cash provided by
financing activities of $4.6 million for the three months ended June 30, 1996.
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Cash provided by financing activities was generated primarily from the tax
benefit relating to the exercise of non-qualified common stock options and from
the cash received from the exercise of common stock options. Financing
activities should provide the Company's primary source of cash during the
remainder of fiscal year 1998, primarily to support the Company's growth.
During the three months ended June 30, 1997, $0.5 million was provided by
operating activities, while net cash of $2.8 million was used in operating
activities for the three months ended June 30, 1996. Increased working capital
requirements during the three months ended June 30, 1997 were funded by cash
generated by the Company's operations. During the three months ended June 30,
1996, increased working capital required to support the Company's growth were
partially funded by cash generated from operating activities.
The Company's principal use of funds for investing activities during the
three months ended June 30, 1997 was for capital expenditures of $0.8 million.
The principal use of funds for investing activities were for capital
expenditures of $1.5 million for the three months ended June 30, 1996. The
capital expenditures have consisted primarily of additions to upgrade the
Company's management information systems, including the Company's Internet
based catalog and ordering tool (SOLO-Net) and other methods of electronic
commerce, and general expansion of its facilities, both domestic and foreign.
The Company anticipates that its total investment in upgrades and additions to
facilities for fiscal 1998 will be approximately $5 to $6 million.
Working capital increased to $86.3 million at June 30, 1997 from $80.2
million at March 31, 1997, an increase of $6.1 million which was primarily
attributable to an increase in inventory and a decrease in other current
liabilities, which were only partially offset by an increase in trade accounts
payable and a slight decrease in trade accounts receivable. During the three
month periods ended June 30, 1997 and 1996, the Company generally maintained an
accounts receivable balance of approximately 47 and 45 days of sales,
respectively. This increase resulted primarily from growth in sales to larger
national accounts and computer and office product superstores which typically
take longer to settle their outstanding balances. Inventory turnover, excluding
Priority Fulfillment Services Division, was approximately 10 and 11 turns for
the three month periods ended June 30, 1997 and 1996, respectively.
In May 1995, the Company entered into an agreement with certain banks for
an unsecured revolving line of credit facility (the "facility") that, as amended
on June 30, 1997, has a borrowing availability of $50.0 million and expires on
July 1, 1999. Availability under the facility is based upon amounts of eligible
accounts receivable, as defined.
As of June 30, 1997, the Company had borrowed $30.05 million, leaving
$19.95 million available under the facility for additional borrowings. The
facility 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 three months ended June 30, 1997, approximately $37.2 million,
or 21.5%, of the Company's net sales were sold through the Company's Canadian,
Mexican, Australian 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 and
non-Australian international sales in U.S. dollars. In addition, on an annual
basis, the Company has entered into various one-year forward Canadian currency
exchange contracts in order to hedge the Company's net investment in, and its
intercompany payable applicable to, its Canadian subsidiary. There have been no
material gains or losses incurred by the Company relating to these contracts.
In May 1997, the Company entered into a new $9.6 million (U.S.) one-year
forward Canadian currency exchange contract to replace the previous contract
which matured during that same month. In July 1997, the Company entered into a
$4.8 million (U.S.) 60 day forward Australian currency exchange contract in
order to hedge the Company's net investment in, and its intercompany payable
applicable to, its Australian subsidiary. The Company may consider entering into
other forward exchange contracts in order to hedge the Company's net investment
in its Mexican, Australian and Canadian
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subsidiaries, although no assurance can be given that the Company will be able
to do so on acceptable terms.
The Company believes it will be able to satisfy its working capital needs
for fiscal year 1998, including such additional working capital as may be
required by existing or additional PFS logistics contracts, as well as business
growth and 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 (although the Company has
presently neither requested nor received any commitment to do so). 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.
The Company may attempt to acquire other businesses to expand its product
line and/or in the call-center or public warehousing industries in connection
with its efforts to grow its PFS subsidiary. The Company currently has no
agreements to acquire any such businesses. Should the Company be successful in
identifying an acquisition candidate, however, the Company may require
additional financing to consummate such a transaction. Acquisitions involve
certain risks and uncertainties, therefore, the Company can give no assurance
with respect to whether it will be successful in identifying such a business to
acquire, whether it will be able to obtain financing to complete such an
acquisition, or whether the Company will be successful in operating the
acquired business.
INVENTORY MANAGEMENT
The Company manages its computer consumable supplies inventories held for
sale in its wholesale distribution business 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.
During fiscal year 1997, the Company, through its PFS subsidiary, began
providing product fulfillment and distribution services for third parties.
Certain of these distribution agreements provide that the Company own the
related inventory, some of which also allow for the third party to manage the
levels of inventory held by the Company. As a result, the levels of inventory
held by the Company under these contracts is higher than the Company would
normally carry in its core wholesale business.
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.
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INFLATION
Management believes that inflation has not had a material effect on the
Company's operations.
FORWARD-LOOKING INFORMATION
The matters discussed in this report on 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, and the matters set forth in the Company's
Report on Form 10-K filed on June 27, 1997, 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), risks inherent in acquiring and operating new
businesses, 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
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This statement establishes new standards for computing and presenting
earnings per share ("EPS"). SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods, and earlier application is not permitted. When adopted, the Company
will be required to restate its EPS data for all prior periods presented. Had
the Company adopted SFAS No. 128 in the first quarter of fiscal year 1998,
basic earnings per share would have been $0.57 and $0.47 for the three months
ended June 30, 1997 and 1996, respectively. Diluted earnings per share would
have been the same as net income per common share included in the accompanying
Unaudited Interim Consolidated Statements of Income.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- --------- -----------------------
10.1 Third Amendment to Credit Agreement dated June 30,
1997 between Daisytek, Incorporated, as Borrower,
Daisytek International Corporation and Borrower's
Subsidiaries, as Guarantors, and State Street Bank
and Trust Company, The First National Bank of
Chicago, and Texas Commerce Bank National
Association, as Lenders
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
b) Reports on Form 8-K:
Form 8-K filed on May 2, 1997 reporting Item 5. the Company's press
release dated April 29, 1997.
Form 8-K filed on May 19, 1997 reporting Item 5. the Company's press
release dated May 13, 1997.
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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: August 14, 1997
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ Thomas J. Madden
--------------------------------
Thomas J. Madden
Chief Financial Officer,
Chief Accounting Officer,
Vice President - Finance
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INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
No. DESCRIPTION OF EXHIBITS PAGE
- ----------- ------------------------- ------------
10.1 Third Amendment to Credit Agreement dated June 30, 1997 between 17
Daisytek, Incorporated, as Borrower, Daisytek International
Corporation and Borrower's Subsidiaries, as Guarantors, and State
Street Bank and Trust Company, The First National Bank of Chicago,
and Texas Commerce Bank National Association, as Lenders
11 Statement re: Computation of Earnings Per Share 25
27 Financial Data Schedule 26
16