1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
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
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 881-4700
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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, 1998 there were 17,096,528 shares of registrant's common stock
outstanding.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
JUNE 30, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements:
Unaudited Consolidated Balance Sheets as of June 30, 1998 and
March 31, 1998...................................................... 3
Unaudited Interim Consolidated Statements of Income for the
Three Months Ended June 30, 1998 and 1997 .......................... 5
Unaudited Interim Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1998 and 1997........................... 6
Notes to Unaudited Interim Condensed Consolidated Financial
Statements.......................................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................... 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................................... 21
SIGNATURES............................................................................. 22
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
June 30, March 31,
1998 1998 (a)
---------- ----------
CURRENT ASSETS:
Cash $ 725 $ 2,087
Accounts receivable, net of allowance for doubtful accounts of
$2,075 and $2,765 at June 30, 1998 and March 31, 1998, respectively 114,651 127,563
Inventories, net:
Inventories, excluding Priority Fulfillment Services Division 105,347 81,956
Inventories, Priority Fulfillment Services Division 14,375 11,634
Prepaid expenses and other current assets 5,946 3,944
---------- ----------
Total current assets 241,044 227,184
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 29,885 28,391
Leasehold improvements 2,060 1,907
---------- ----------
31,945 30,298
Less - Accumulated depreciation and amortization (16,307) (15,025)
---------- ----------
Net property and equipment 15,638 15,273
EMPLOYEE RECEIVABLE 463 459
OTHER ASSETS 3,980 --
EXCESS OF COST OVER NET ASSETS ACQUIRED,
net of accumulated amortization of $1,091 and $931 at June 30, 1998 and
March 31, 1998, respectively 17,466 14,929
---------- ----------
Total assets $ 278,591 $ 257,845
========== ==========
- ----------------------
(a) Retroactively restated to combine the financial positions of Daisytek
International Corporation ("Daisytek") with The Tape Company, Inc. ("The
Tape Company"), which was acquired by Daisytek during June 1998 and
accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
Interim Unaudited Consolidated Financial Statements).
The accompanying notes are an integral part
of these consolidated balance sheets.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, March 31,
1998 1998 (a)
---------- ----------
CURRENT LIABILITIES:
Current portion of long-term debt $ 176 $ 3,010
Trade accounts payable 84,226 87,390
Accrued expenses 10,288 9,768
Income taxes payable 2,316 1,484
Deferred income tax liability 1,032 1,546
---------- ----------
Total current liabilities 98,038 103,198
---------- ----------
LONG-TERM DEBT, less current portion 37,085 16,916
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares authorized
at June 30, 1998 and March 31, 1998; none issued
and outstanding -- --
Common stock, $0.01 par value; 20,000,000 shares
authorized at June 30, 1998 and March 31, 1998;
17,041,308 and 16,935,896 shares issued and
outstanding at June 30, 1998 and March 31, 1998,
respectively 170 169
Additional paid-in capital 91,322 89,879
Retained earnings 54,034 49,614
Cumulative foreign currency translation adjustment (2,058) (1,931)
---------- ----------
Total shareholders' equity 143,468 137,731
---------- ----------
Total liabilities and shareholders' equity $ 278,591 $ 257,845
========== ==========
- ----------------------
(a) Retroactively restated to combine the financial positions of Daisytek with
The Tape Company, which was acquired by Daisytek during June 1998 and
accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
Interim Unaudited Consolidated Financial Statements).
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,
-----------------------------
1998 1997 (a)
------------ ------------
Net sales $ 222,589 $ 182,777
Cost of sales 196,062 163,154
------------ ------------
Gross profit 26,527 19,623
Selling, general and administrative expenses 16,875 12,522
Acquisition related costs 405 --
------------ ------------
Income from operations 9,247 7,101
Interest expense 852 586
------------ ------------
Income before income taxes 8,395 6,515
Provision for income taxes 3,002 2,415
------------ ------------
Net income $ 5,393 $ 4,100
============ ============
Net income per common share:
Basic $ 0.32 $ 0.29
Diluted $ 0.30 $ 0.27
Pro forma data (b):
Net income $ 5,393 $ 4,100
Pro forma adjustments:
Provision for income taxes (291) (82)
Acquisition related costs, net of tax 246 --
------------ ------------
Pro forma net income $ 5,348 $ 4,018
============ ============
Pro forma net income per common share:
Basic $ 0.31 $ 0.28
Diluted $ 0.30 $ 0.27
Weighted average common and common share equivalents outstanding:
Basic 17,005 14,339
Diluted 17,814 14,983
- ----------------------
(a) Retroactively restated to combine the results of operations of Daisytek
with The Tape Company, which was acquired by Daisytek during June 1998 and
accounted for as a pooling of interests. (see Footnotes 1 and 3 of these
Interim Unaudited Consolidated Financial Statements).
(b) Pro forma data includes the following adjustments: (1) The Tape Company
included a business unit organized as a subchapter S corporation, whereby
income taxes were paid individually by the owners. The pro forma provision
for income tax adjustment is provided to reflect income tax under a
corporate tax structure. (2) Daisytek incurred various acquisition related
accounting, legal and other costs applicable to the acquisition of The Tape
Company. The pro forma adjustment for acquisition related costs, net of
tax, excludes such costs from pro forma net income for the three months
ended June 30, 1998.
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,
-------------------------
1998 1997(a)
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,393 $ 4,100
Adjustments to reconcile net income to net cash
provided by (used in) operating activities --
Depreciation and amortization 1,782 1,223
Provision for doubtful accounts 525 418
Deferred income tax provision (benefit) (399) 2
Changes in operating assets and liabilities --
Accounts receivable 11,949 (390)
Inventories, net (26,690) (7,492)
Trade accounts payable and accrued expenses (2,217) 4,197
Income taxes payable 828 (332)
Prepaid expenses and other current assets (2,526) (632)
---------- ---------
Net cash provided by (used in) operating activities (11,355) 1,094
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,807) (837)
Additional cost of acquired business (2,886) --
Advances to employees, net (29) (138)
Increase in other assets (3,980) --
---------- ---------
Net cash used in investing activities (8,702) (975)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net 25,024 (50)
Payments on capital leases and notes payable (7,132) (746)
Net proceeds from exercise of stock options 1,443 2,331
Distributions to shareholders of pooled company (973) (985)
---------- ----------
Net cash provided by financing activities 18,362 550
---------- ---------
EFFECT OF EXCHANGE RATES ON CASH 333 (141)
---------- ----------
NET INCREASE (DECREASE) IN CASH (1,362) 528
CASH, beginning of period 2,087 557
---------- ---------
CASH, end of period $ 725 $ 1,085
========== =========
- ------------------------
(a) Retroactively restated to combine the cash flows of Daisytek with The Tape
Company, which was acquired by Daisytek during June 1998 and accounted for
as a pooling of interests. (see Footnotes 1 and 3 of these Interim
Unaudited Consolidated Financial Statements).
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 CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
1. BASIS OF PRESENTATION:
The Interim Unaudited Consolidated Financial Statements include the
accounts of Daisytek International Corporation and the accounts of companies
acquired in business combinations accounted for under 1) the purchase method
from their respective acquisition dates, and 2) the pooling of interests method,
giving retroactive effect for all periods presented. See Footnote 3 of these
Interim Unaudited Consolidated Financial Statements for a reconciliation of the
Company's retroactively restated and previously reported revenue, net income,
pro forma net income and weighted average common share and common share
equivalents outstanding, resulting from the business combination with The Tape
Company, Inc. ("The Tape Company"), which was acquired by the Company during
June 1998 and accounted for as a pooling of interests.
In the opinion of management, the Interim Unaudited Condensed 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, 1998, its results of operations and its
results of cash flows for the three months ended June 30, 1998 and 1997. 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 Condensed 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 May 29, 1998 (the "Company's Form
10-K"). Accounting policies used in the preparation of the Interim Unaudited
Condensed 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.
Presented as follows, for informational purposes only, are the Company's
unaudited interim consolidated statements of income for the three month periods
ended June 30, 1998 and 1997:
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
Three Months Ended June 30,
-------------------------------------------------------
1997 % 1997
1998 Reported (a) Change Restated (b)
------------ ------------ ------ -------------
Net sales $ 222,589 $ 172,812 28.8% $ 182,777
Cost of sales 196,062 155,506 163,154
------------ ------------ ------------
Gross profit 26,527 17,306 53.3% 19,623
Selling, general and administrative expenses 16,875 10,583 59.5% 12,522
Acquisition related costs 405 -- --
------------ ------------ ------------
Income from operations 9,247 6,723 37.5% 7,101
Interest expense 852 519 586
------------ ------------ ------------
Income before income taxes 8,395 6,204 6,515
Provision for income taxes 3,002 2,375 2,415
------------ ------------ ------------
Net income $ 5,393 $ 3,829 40.8% $ 4,100
============ ============ ============
Net income per common share:
Basic $ 0.32 $ 0.29 10.3% $ 0.29
Diluted $ 0.30 $ 0.27 11.1% $ 0.27
Pro forma data (c):
Net income $ 5,393 $ 3,829 $ 4,100
Pro forma adjustments:
Provision for income taxes (291) -- (82)
Acquisition related costs, net of tax 246 -- --
------------ ------------ ------------
Pro forma net income $ 5,348 $ 3,829 39.7% $ 4,018
============ ============ ============
Pro forma net income per common share:
Basic $ 0.31 $ 0.29 6.9% $ 0.28
Diluted $ 0.30 $ 0.27 11.1% $ 0.27
Weighted average common and common share
equivalents outstanding:
Basic 17,005 13,364 27.2% 14,339
Diluted 17,814 14,008 27.2% 14,983
- ------------------------
(a) Results previously reported for Daisytek prior to the acquisition of The
Tape Company.
(b) Retroactively restated to combine the results of operations of Daisytek
with The Tape Company, which was acquired by Daisytek during June 1998 and
accounted for as a pooling of interests.
(c) Pro forma data includes the following adjustments: (1) The Tape Company
included a business unit organized as a subchapter S corporation, whereby
income taxes were paid individually by the owners. The pro forma provision
for income tax adjustment is provided to reflect income tax under a
corporate tax structure. (2) Daisytek incurred various acquisition related
accounting, legal and other costs applicable to the acquisition of The Tape
Company. The pro forma adjustment for acquisition related costs, net of
tax, excludes such costs from pro forma net income for the three months
ended June 30, 1998.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
2. ORGANIZATION AND NATURE OF BUSINESS:
The Company is a wholesale distributor of non-paper computer and office
automation supplies and accessories, whose primary products are laser toner,
inkjet cartridges, copier and fax supplies, printer ribbons, diskettes, optical
storage products, computer tape cartridges and accessories such as cleaning kits
and media storage files. The Company's products are used in a broad range of
computers and office automation products including laser and inkjet printers,
photocopiers, fax machines and data storage products. The Company, through its
wholly owned subsidiaries in the U.S., Canada, Australia, Mexico and Singapore,
sells products primarily in North America, as well as in Latin America,
Australia, Singapore, the Pacific Rim, Europe and Africa. 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 and other customers. Through PFS, the Company sells its core
competencies in call-center, product fulfillment, logistics and support services
to client companies worldwide. 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 also
provides other support services such as invoicing, credit management and
collections services, and accounting and systems support. PFS utilizes primarily
the Company's centralized distribution facility in Memphis, Tennessee and also
the Company's foreign distribution facilities, and 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 presently provides
its services under both fee-based contracts (where revenue is based on either
the sales value of the products or service activity volume) and transaction
based contracts (where PFS takes title and resells the product).
In January 1998, the Company expanded its product line by acquiring
Steadi-Systems, Ltd., ("Steadi-Systems") an independent wholesale distributor of
professional-grade audio and video media products (pro-tape products) to the
filmed entertainment and multimedia industries. The Company further expanded its
operations in the distribution of pro-tape products through the acquisition of
The Tape Company in June 1998. Through Steadi-Systems and The Tape Company, the
Company distributes a wide array of professional-grade audio and video media
products and video hardware and is an authorized distributor for leading
manufacturers such as Sony, Fuji, JVC, Avid and others to customers including
production companies, post-production operations, and television stations.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
3. BUSINESS COMBINATIONS:
During June 1998, the Company completed the acquisition of The Tape Company
through a stock-for-stock merger. Under the terms of the acquisition, accounted
for as a pooling of interest, the Company exchanged 974,864 shares of Company
common stock for all of The Tape Company's common stock. The Tape Company is a
Chicago, Ill.-based independent distributor of professional grade audio and
video media products. Retroactively restated and previously reported revenue,
net income, pro forma net income and weighted average common share and common
share equivalents outstanding are as follows (in thousands, except per share
data):
Three Months Ended June 30, 1997
-----------------------------------------------
Daisytek -
Previously The Tape Daisytek -
Reported Company Restated
------------ ------------ ------------
Net sales $ 172,812 $ 9,965 $ 182,777
Net income $ 3,829 $ 271 $ 4,100
Net income per common share:
Basic $ 0.29 $ 0.29
Diluted $ 0.27 $ 0.27
Pro forma data (a):
Net income $ 3,829 $ 271 $ 4,100
Pro forma adjustment for income taxes -- (82) (82)
------------ ------------ ------------
Pro forma net income $ 3,829 $ 189 $ 4,018
============ ============ ============
Pro forma net income per common share:
Basic $ 0.29 $ 0.28
Diluted $ 0.27 $ 0.27
Weighted average common and
common share equivalents outstanding:
Basic 13,364 14,339
Diluted 14,008 14,983
- ------------------------
(a) Pro forma data includes the following adjustments: (1) The Tape Company
included a business unit organized as a subchapter S corporation, whereby
income taxes were paid individually by the owners. The pro forma provision
for income tax adjustment is provided to reflect income tax under a
corporate tax structure. (2) Daisytek incurred various acquisition related
accounting, legal and other costs applicable to the acquisition of The Tape
Company. The pro forma adjustment for acquisition related costs, net of
tax, excludes such costs from pro forma net income for the three months
ended June 30, 1998.
4. 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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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
5. DEBT:
Debt as of June 30, 1998 and March 31, 1998, is as follows (dollars in
thousands):
June 30, March 31,
1998 1998
---------- ----------
Revolving line of credit with commercial banks, interest (weighted average rate
of 6.9% at June 30, 1998) at the Company's option at the prime rate of a
bank (8.5% at June 30, 1998) or the Eurodollar rate plus
0.625% to 1.125% (6.3% at June 30, 1998), due December 31, 2000 $ 24,900 $ --
Revolving line of credit with commercial bank, interest at the Australian Bank
Bill Rate or the Australian bank's overnight rate plus 0.75%
(6.0% at June 30, 1998), due December 31, 2000 3,813 4,410
Revolving line of credit with commercial bank, interest (weighted average rate
of 5.8% at June 30, 1998) at the Canadian bank's cost of funds plus 0.65%
(5.8% at June 30, 1998) or the Canadian bank's prime rate
(6.5% at June 30, 1998), due December 31, 2000 8,271 8,101
Revolving line of credit with commercial bank, interest payable monthly at the
Federal Funds rate plus 2%, due October 31, 1998, and secured by a
blanket lien on all assets of The Tape Company and affiliates -- 2,161
Term loan with commercial bank, payable monthly at a rate of $25 plus interest
at 7.65%, due October 31, 2002 and secured by a blanket lien
on all assets of The Tape Company and affiliates -- 1,400
Note payable to individual, payable monthly at a rate of $41 including
interest at a rate of 6.66%, due July 25, 2007 -- 3,413
Notes payable and obligations under capital leases for warehouse equipment,
computer equipment, office furniture, fixtures and transportation equipment
interest at varying rates ranging from 7.5% to 11%, with
lease terms varying from three to seven years 277 441
---------- ----------
Long-term debt 37,261 19,926
Less: Current portion of long-term debt (176) (3,010)
---------- ----------
Long-term debt, less current portion $ 37,085 $ 16,916
========== ==========
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 February 13, 1998, has a maximum borrowing availability of $65.0 million and
expires on December 31, 2000. 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
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,
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12
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
investments and asset sales. As of June 30, 1998, the Company had borrowed $24.9
million under the Facility, leaving $40.1 million available 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.
During October 1997, the Company's Australian subsidiary entered into an
agreement with an Australian bank for an unsecured revolving line of credit
facility (the "Australian Facility"). The Australian Facility, as amended in
July 1998, expires on December 31, 2000 and allows the Company to borrow
Australian dollars up to a maximum of $7.5 million (Australian), or
approximately $4.6 million (U.S.) at June 30, 1998. The Australian Facility
accrues interest at the Australian Bank Bill Rate plus 0.75% or the Australian
bank's overnight rate plus 0.75%. A commitment fee of 0.25% is charged on the
total amount of the Australian Facility. As of June 30, 1998, the Company had
borrowed approximately $3.8 million (U.S.), leaving approximately $0.8 million
(U.S.) available under the Australian Facility for additional borrowings.
During December 1997, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for an unsecured revolving line of credit
facility (the "Canadian Facility"). The Canadian Facility, as amended in July
1998, expires on December 31, 2000 and allows the Company to borrow Canadian or
U.S. dollars up to a maximum of $15.0 million (Canadian), or approximately $10.2
million (U.S.) at June 30, 1998. The Company had borrowed approximately $8.3
million (U.S.) under the Canadian Facility at June 30, 1998, leaving
approximately $1.9 million (U.S.) available under the Canadian Facility for
additional borrowings. The Canadian Facility accrues interest at the Company's
option at the bank's prime rate, the bank's cost of funds plus 0.65%, the bank's
U.S. dollar commercial loan rate or LIBOR plus 0.65%. A commitment fee of 0.25%
is charged on the unused portion of the Canadian Facility.
In conjunction with the business combination with The Tape Company, certain
debt of The Tape Company, including the revolving line of credit due October 31,
1998, the term loan with commercial bank due October 31, 2002, and the note
payable to individual due July 25, 2007, were paid in full by the Company and
were retired.
6. SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
Three Months Ended
June 30,
-----------------------
1998 1997
--------- ---------
Cash paid during the period for:
Interest $ 728 $ 590
Income taxes $ 2,177 $ 1,103
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13
DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
7. STOCK OPTIONS:
During the three months ended June 30, 1998, 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.
Shares Price per Share
---------- ---------------
Outstanding, March 31, 1998 1,725,974 $0.64 - $22.44
Granted 737,298 $21.50 - $22.88
Exercised (104,779) $2.65 - $16.25
Canceled (74,031) $9.75 - $17.38
----------
Outstanding, June 30, 1998 2,284,462 $0.64 - $22.88
==========
8. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires companies to report comprehensive
income, which is defined as all changes in equity during a period, except those
resulting from investment by owners and distribution to owners. The Company
adopted SFAS No. 130 during the three months ended June 30, 1998. Comprehensive
income for the Company includes net income and foreign currency translation
adjustments for the Company's foreign subsidiaries where the local currency is
the functional currency. The Company's comprehensive income is as follows (in
thousands):
Three months ended
June 30,
------------------------
1998 1997
-------- --------
Net income $ 5,393 $ 4,100
Comprehensive income adjustments:
Cumulative translation adjustment (127) (224)
-------- --------
Comprehensive income $ 5,266 $ 3,876
======== ========
9. NEW ACCOUNTING STANDARDS:
The Company adopted SFAS No. 128, "Earnings per Share," during the quarter
ended December 31, 1997. The statement establishes new standards for computing
and presenting earnings per share ("EPS"). The Company restated its earnings per
share data for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997; however, earlier adoption is permitted.
SFAS No. 131 requires the disclosure of financial and descriptive information
about reportable operating segments. SFAS No. 131 modifies existing disclosure
requirements, which will have no effect on the results of operations or
financial condition of the Company. The Company is currently evaluating the
standard and its potential impact on disclosures and will adopt these
pronouncement in its fiscal year 1999 annual financial statements.
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DAISYTEK INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE THREE MONTH PERIODS ENDED JUNE 30, 1998
AND 1997 AND RELATED TO MARCH 31, 1998 IS UNAUDITED.)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivative financial instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. If certain conditions are met, a derivative may be used to hedge certain
types of transactions, including foreign currency exposures of a net investment
in a foreign operation. The Company presently utilizes derivative financial
instruments only to hedge its net investment in certain of its foreign
operations. SFAS No. 133 requires gains or losses on these financial instruments
to be included in other comprehensive income as a part of the cumulative
translation adjustment. The Company currently complies with the provisions of
SFAS No. 133 in its accounting treatment of these financial instruments. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, with
initial application as of the beginning of an entity's fiscal quarter. Early
adoption of the standard is allowed, however, the statement cannot be applied
retroactively to financial statements of prior periods.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Interim Unaudited Consolidated Financial Statements include the accounts
of Daisytek International Corporation and the accounts of companies acquired in
business combinations accounted for under 1) the purchase method from their
respective acquisition dates, and 2) the pooling of interests method, giving
retroactive effect for all periods presented.
RESULTS OF OPERATIONS FOR THE INTERIM PERIODS ENDED JUNE 30, 1998 AND 1997.
Net Sales. Net sales for the three months ended June 30, 1998 were $222.6
million as compared to $182.8 million for the three months ended June 30, 1997,
an increase of $39.8 million, or 21.8%. The increase was the result of an
increase in domestic and international computer supplies sales, revenues from
outsourcing activities of Priority Fulfillment Services ("PFS"), and the
addition of net sales of professional-grade audio and video media products
(pro-tape products) resulting from the acquisitions of Steadi-Systems, Ltd.
("Steadi-Systems") in January 1998. The business combination of Steadi-Systems
was accounted for under the purchase method, thus its results of operations are
included in the Company's consolidated results after the acquisition date. The
growth in U.S. net sales was approximately $24 million, or approximately 17%,
and the growth in international net sales was approximately $16 million, or
approximately 41%. 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, and the Company's continued
introduction of new products, including those new products added through
business acquisitions. In addition, continuing consolidation among the Company's
domestic customers may reduce the rate of U.S. sales growth below that achieved
in the past.
Gross Profit. Gross profit for the three months ended June 30, 1998 was
$26.5 million as compared to $19.6 million in the same period in 1997, an
increase of $6.9 million, or 35.2%, primarily as the result of increased sales
volume in the first quarter of fiscal year 1999. The Company's gross profit
margin as a percent of net sales was 11.9% for the three month period ended June
30, 1998 as compared to 10.7% for the same period of 1997. The increase in the
Company's gross profit margin as a percentage of net sales was a result of an
increase in pro-tape net sales, which have higher margins than the Company's
traditional computer supplies products, as a percent of total net sales. Also
increased higher margin fee revenue business for the Company's outsource
providing subsidiary, Priority Fulfillment Services ("PFS"), and enhanced
product sourcing in fiscal year 1999 contributed to increased gross profit
margins during fiscal year 1999. The Company believes that the competitive
environment and consolidation of its computer supplies products customers may
negatively impact the Company's gross profit margin percentage during fiscal
year 1999. The Company continues to look for opportunities to offset such
impact, however, there can be no assurance that the Company will be successful
in doing so.
SG&A Expenses. SG&A expenses for the three months ended June 30, 1998 were
$16.9 million (excluding acquisition related costs), or 7.6% of net sales, as
compared to $12.5 million, or 6.9% of net sales, for the three months ended June
30, 1997. The increase in SG&A expenses was primarily a result of the increase
in costs associated with the Company's increased sales volume. The increase in
SG&A expenses as a percentage of net sales for fiscal year 1999 were primarily
due to increased SG&A costs from the addition of Steadi-Systems, whose SG&A
expenses are higher than the Company's core computer supplies business, and due
to incremental SG&A expenses associated with its PFS subsidiary. The Company
continues to incur incremental SG&A expenses to invest in growth areas of the
business, PFS and international operations in particular.
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Acquisition Related Costs. During June 1998, the Company completed the
acquisition of The Tape Company, Inc. ("The Tape Company") through a
stock-for-stock merger, which is accounted for as a pooling of interest in the
accompanying Unaudited Interim Consolidated Financial Statements and notes
thereto. Daisytek incurred various acquisition related accounting, legal and
other costs applicable to the acquisition of The Tape Company of approximately
$0.4 million, or approximately $0.01 per share net of income taxes. These costs
were charged to income during the 3 months ended June 30, 1998. The Company
expects to incur approximately $0.4 million of expenses in each of the next two
fiscal quarters relating to The Tape Company merger activities.
Income from Operations. Income from operations for the three months ended
June 30, 1998 was $9.2 million. Income from operations excluding acquisition
related costs was $9.7 million as compared to $7.1 million for the same period
during 1997, an increase of $2.6 million, or 35.9%. This increase was due to
increased sales volume and increased gross profit partially offset by increased
SG&A expenses. Income from operations as a percentage of net sales was 4.2% for
the three months ended June 30, 1998. Income from operations excluding
acquisition related costs as a percentage of net sales was 4.3% for the three
months ended June 30, 1998 as compared to 3.9% for the corresponding period
ending June 30, 1997.
Interest Expense. Interest expense for the three months ended June 30, 1998
was $0.9 million as compared to $0.6 million for the three months ended June 30,
1997. Interest expense was higher during the three months ended June 30, 1998
primarily due to an increase in the average line of credit, partially offset by
a slight decrease in interest rates during fiscal year 1999. The weighted
average interest rate was 6.7% and 7.0% during the three months ended June 30,
1998 and 1997, respectively.
Income Taxes. The Company's provision for income taxes was $3.0 million for
the three months ended June 30, 1998 as compared to $2.4 million for the three
months ended June 30, 1997. The increase was primarily due to increased pretax
profits. The effective tax rate was 35.8% and 37.1% for the three months ended
June 30, 1998 and 1997, respectively. The effective tax rate for the three
months ended June 30, 1998 was lower than the corresponding period during 1997
as The Tape Company's income before income taxes represented a larger percentage
of the Company's total income before income taxes during the three months ended
June 30, 1998. The Tape Company, prior to its acquisition by the Company
included a business unit organized as a subchapter S corporation, whereby income
taxes were paid individually by the owners. In future periods, The Tape Company,
including all of its operating units, will be taxed under a corporate tax
structure, and accordingly, the Company's effective tax rate should be in the
range of 38% to 39% during the remainder of fiscal year 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of cash has been from financing
activities. During the three months ended June 30, 1998, net cash of $18.4
million was provided by financing activities, compared to net cash provided by
financing activities of $0.6 million for the three months ended June 30, 1997.
Cash provided by financing activities was generated primarily from proceeds from
revolving lines of credit and the exercise of common stock options during the
three months ended June 30, 1998. In conjunction with the business combination
with The Tape Company, certain debt of The Tape Company, including the revolving
line of credit due October 31, 1998, the term loan with commercial bank due
October 31, 2002, and the note payable to an individual due July 25, 2007, were
paid in full by the Company during the three months ended June 30, 1998, and
were retired. Included in cash flows from financing activities for the three
months ended June 30, 1998 and 1997 are distributions made to shareholders of
The Tape Company relating to taxes incurred by these shareholders for earnings
of the business unit of The Tape Company which was organized as a subchapter S
corporation. These distributions were made prior to the business combination
with the Company. During the three months ended June 30, 1997, cash provided by
financing activities was generated primarily from proceeds 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 1999,
primarily to support the Company's growth.
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During the three months ended June 30, 1998, $11.4 million was used in
operating activities, while net cash of $1.1 million was provided by operating
activities during the three months ended June 30, 1997. Increased working
capital requirements during the three months ended June 30, 1998, were partially
funded by cash generated by the Company's operations, with the remainder
provided by financing activities. During the three months ended June 30, 1997,
increased working capital required to support the Company's growth was funded by
cash generated from operating activities.
Funds used for investing activities during the three months ended June 30,
1998 included incremental costs of an acquired business and for capital
expenditures. During May 1998, certain events occurred which were defined in the
acquisition agreement for Steadi-Systems, which caused the Company to incur
approximately $2.9 million in contingent cash payments for that acquisition.
Capital expenditures of approximately $1.9 during the three months ended June
30, 1998 consisted primarily of additions to upgrade the Company's management
information systems, including the Company's Internet based customer tools,
including its on-line catalog and ordering tool (SOLOnet) and other methods of
electronic commerce, and general expansion of its facilities, both domestic and
foreign. The principal use of funds for investing activities were for capital
expenditures of $0.8 million for the three months ended June 30, 1997. The
Company anticipates that its total investment in upgrades and additions to
facilities for fiscal year 1999 will be approximately $6 million to $7 million.
Working capital increased to $143.0 million at June 30, 1998 from $124.0
million at March 31, 1998. This increase of $19.0 million was primarily
attributable to an increase in inventory and a decrease in accounts payable,
which were partially offset by a decrease in accounts receivable. During the
three month periods ended June 30, 1998 and 1997, the Company generally
maintained an accounts receivable balance of approximately 47 days of sales.
Inventory turnover, excluding Priority Fulfillment Services Division, was
approximately 7 and 10 turns for the three month periods ended June 30, 1998 and
1997, respectively. The Company generally maintains an inventory turnover of
approximately 10 to 11 turns, however, inventory turnover was lower during the
three months ended June 30, 1998 primarily due to increased inventory levels
held by the Company's pro-tape business and due to inventory buy-in activity to
take advantage of enhanced product sourcing opportunities.
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 February 13, 1998, has a maximum borrowing availability of $65.0 million and
expires on December 31, 2000. Availability under the Facility is based upon
amounts of eligible accounts receivable, as defined. As of June 30, 1998, the
Company had borrowed $24.9 million, leaving $40.1 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 October 1997, the Company's Australian subsidiary entered into an
agreement with an Australian bank for an unsecured revolving line of credit
facility (the "Australian Facility"). The Australian Facility, as amended in
July 1998, expires on December 31, 2000 and allows the Company to borrow
Australian dollars up to a maximum of $7.5 million (Australian), or
approximately $4.6 million (U.S.) at June 30, 1998. The Australian Facility
accrues interest at the Australian Bank Bill Rate plus 0.75%. A commitment fee
of 0.25% is charged on the total amount of the Australian Facility. As of June
30, 1998, the Company had borrowed approximately $3.8 million (U.S.), leaving
approximately $0.8 million (U.S.) available under the Australian Facility for
additional borrowings.
During December 1997, the Company's Canadian subsidiary entered into an
agreement with a Canadian bank for an unsecured revolving line of credit
facility (the "Canadian Facility"). The Canadian Facility, which expires on
December 31, 2000, allows the Company to borrow Canadian or U.S. dollars up to a
maximum of $15.0 million (Canadian), or approximately $10.2 million (U.S.) at
June 30, 1998. The Company had borrowed approximately $8.3 million (U.S.) under
the Canadian Facility, leaving approximately $1.9 million (U.S.) available under
the Canadian Facility for additional borrowings at June 30, 1998. The Canadian
Facility accrues interest at the Company's option at the bank's prime rate, the
bank's cost of funds plus 0.65%, the bank's U.S. dollar commercial loan rate or
LIBOR plus 0.65%. A commitment fee of 0.25% is charged on the unused portion of
the Canadian Facility.
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During January 1998, the Company entered into a promissory note agreement
with a bank which allows the Company to borrow up to a maximum of $10.0 million.
Amounts borrowed under this note agreement bear interest at the bank's
discretion, primarily based on a money market borrowing rate plus an adjustment.
The maturity date of any amounts borrowed will occur prior to January 1999, the
expiration date of the note. The Company had no borrowings outstanding under
this promissory note agreement at June 30, 1998.
During the three months ended June 30, 1998, approximately 23% of the
Company's net sales were sold through the Company's Canadian, Mexican,
Australian, Singaporean and U.S. export operations, including Latin America. The
Company believes that international markets represent further opportunities for
growth. The Company attempts to protect itself from foreign currency
fluctuations by denominating substantially all of its non-Canadian and
non-Australian international sales in U.S. dollars. In addition, the Company has
entered into various forward Canadian and Australian currency exchange contracts
in order to hedge the Company's net investment in, and its intercompany payable
applicable to, its Canadian and Australian subsidiaries. The Company has the
following forward currency exchange contracts outstanding:
CURRENCY TYPE US$ CONTRACT AMOUNT CONTRACT TYPE EXPIRATION
------------- ------------------- ------------- ----------
Canadian Dollars $11.7 million Sell Canadian Dollars October 1998
Australian Dollars $1.8 million Sell Australian Dollars October 1998
Australian Dollars $0.5 million Sell Australian Dollars October 1998
Australian Dollars $3.7 million Sell Australian Dollars October 1998
As of June 30, 1998, the Company had incurred unrealized gains of
approximately $0.3 million, net of income taxes, on these outstanding Canadian
and Australian forward exchange contracts. The Company may consider entering
into other forward exchange contracts in order to hedge the Company's net
investment in its Canadian, Australian, Mexican, and Singaporean subsidiaries,
although no assurance can be given that the Company will be able to do so on
acceptable terms.
The Company may attempt to acquire other businesses to expand its product
line in its core wholesale business 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 acquiring other businesses, 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.
The Company believes it will be able to satisfy its working capital needs
for fiscal year 1999, as well as business growth and planned capital
expenditures, through funds available under the Company's various line of credit
facilities, trade credit, lease financing, internally generated funds and by
increasing the amount available under the Company's credit facilities. In
addition, 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.
YEAR 2000 ISSUE
The Company has developed plans to ensure its information systems are
capable of properly utilizing dates beyond December 31, 1999 (the "Year 2000"
issue). The Company believes that with upgrades or modifications to existing
software and conversion to new software, the impact of the Year 2000 issue can
be mitigated. However, if such upgrades, modifications and conversions are not
made, or are not made in a timely manner, the Year 2000 Issue could have a
material impact on the Company's operations. The total cost of implementing
these system upgrades and modifications is not expected to be material to the
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Company's results of operations or cash flows, and the Company estimates
completion by December 31, 1998. The costs of the Year 2000 project and the date
on which the Company plans to complete Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurance that these estimates will be achieved and actual results could differ
materially from these estimates.
To the extent it can, the Company is also working with its customers,
suppliers and other service providers to ensure their systems are Year 2000
compliant. There can be no assurance that customers or suppliers will
successfully implement Year 2000 compliant systems. In the event that numerous
or significant customers or suppliers do not successfully implement Year 2000
compliant systems, the Company's operations could be materially affected. In the
event any service providers are unable to convert their systems appropriately,
the Company will switch to providers capable of performing such processing.
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.
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
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"Risk Factors" set forth in the Company's prospectus dated March 26, 1998, and
the matters set forth in the Company's Report on Form 10-K filed on May 29,
1998, 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,
integrating 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 STANDARDS
The Company adopted SFAS No. 128, "Earnings per Share," during the quarter
ended December 31, 1997. The statement establishes new standards for computing
and presenting earnings per share ("EPS"). The Company restated its earnings per
share data for all periods presented. The Company also adopted SFAS No. 130,
"Reporting Comprehensive Income," during the quarter ended June 30, 1998. SFAS
No. 130 requires companies to report comprehensive income, which is defined as
all changes in equity during a period, except those resulting from investment by
owners and distribution to owners.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997; however, earlier adoption is permitted.
SFAS No. 131 requires the disclosure of financial and descriptive information
about reportable operating segments. SFAS No. 131 modifies existing disclosure
requirements, which will have no effect on the results of operations or
financial condition of the Company. The Company is currently evaluating the
standard and its potential impact on disclosures and will adopt these
pronouncement in its fiscal year 1999 annual financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that an entity
recognize all derivative financial instruments as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. If certain conditions are met, a derivative may be used to hedge certain
types of transactions, including foreign currency exposures of a net investment
in a foreign operation. The Company presently utilizes derivative financial
instruments only to hedge its net investment in certain of its foreign
operations. SFAS No. 133 requires gains or losses on these financial instruments
in other comprehensive income as a part of the cumulative translation
adjustment. The Company currently complies with the provisions of SFAS No. 133
in its accounting treatment of these financial instruments. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999, with initial
application as of the beginning of an entity's fiscal quarter. Early adoption of
the standard is allowed, however, the statement cannot be applied retroactively
to financial statements of prior periods.
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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 Agreement and Plan of Merger Among Daisytek International
Corporation, Daisytek, Incorporated, TC Illinois Acquisition
Corp., TC Michigan Acquisition Corp., TC Georgia Acquisition
Corp., TC Ohio Acquisition Corp., TC Pennsylvania
Acquisition Corp., TC Texas Acquisition Corp., And TC
Minnesota Acquisition Corp., The Tape Company, Inc., An
Illinois Corporation, The Tape Company, Inc., A Michigan
Corporation, The Tape Company, Inc., A Georgia Corporation,
The Tape Company, Inc., An Ohio Corporation, Tape
Distributors, Inc., A Pennsylvania Corporation, Tape
Distributors Of Texas, Inc., A Texas Corporation, Tape
Distributors Of Minnesota, Inc., A Minnesota Corporation,
Michael Cullen and Robert Daly.
10.2 Registration Rights Agreement by and among Daisytek
International Corporation, a Delaware corporation, Michael
Cullen and Robert Daly, dated June 1, 1998.
11 Statement re: Computation of Earnings Per Share.
27.1 Financial Data Schedule for the three months ended June 30,
1998.
27.2 Financial Data Schedule for the three months ended June 30,
1997.
b) Reports on Form 8-K:
Form 8-K filed on May 5, 1998 reporting Item 5. the Company's press
release dated May 5, 1998 announcing fourth quarter and fiscal year
ended March 31, 1998 results.
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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, 1998
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
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
-------- -----------------------------------------------------------
10.1 Agreement and Plan of Merger Among Daisytek International
Corporation, Daisytek, Incorporated, TC Illinois Acquisition
Corp., TC Michigan Acquisition Corp., TC Georgia Acquisition
Corp., TC Ohio Acquisition Corp., TC Pennsylvania
Acquisition Corp., TC Texas Acquisition Corp., And TC
Minnesota Acquisition Corp., The Tape Company, Inc., An
Illinois Corporation, The Tape Company, Inc., A Michigan
Corporation, The Tape Company, Inc., A Georgia Corporation,
The Tape Company, Inc., An Ohio Corporation, Tape
Distributors, Inc., A Pennsylvania Corporation, Tape
Distributors Of Texas, Inc., A Texas Corporation, Tape
Distributors Of Minnesota, Inc., A Minnesota Corporation,
Michael Cullen and Robert Daly.
10.2 Registration Rights Agreement by and among Daisytek
International Corporation, a Delaware corporation, Michael
Cullen and Robert Daly, dated June 1, 1998.
11 Statement re: Computation of Earnings Per Share.
27.1 Financial Data Schedule for the three months ended June 30,
1998.
27.2 Financial Data Schedule for the three months ended June 30,
1997.
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