SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported):
May 7, 2002
Daisytek International Corporation
(Exact Name of Registrant as Specified in Charter)
Delaware 0-25400 75-2421746
- ----------- --------- -----------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1025 Central Expressway South, Suite 200
Allen, Texas 75013
(Address of Principal Executive Offices, including zip code)
(972) 881-4700
(Registrant's Telephone Number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS
On May 7, 2002, Daisytek International
Corporation issued a press release filed herewith as
Exhibit 99.1, regarding earnings for the quarter and year
ended March 31, 2002.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired
Not applicable
(b) Pro forma financial information
Not applicable
(c) Exhibits
99.1 Press Release dated May 7, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DAISYTEK INTERNATIONAL CORPORATION
By: /s/ RALPH MITCHELL
--------------------------------------
Ralph Mitchell
Chief Financial Officer,
Executive Vice President - Finance
Dated: May 7, 2002
Index to Exhibits
Exhibit
Number Description
99.1 Press Release dated May 7, 2002.
Daisytek Q4 Earnings Up Over 20%; Revenue Growth of 23%; Fourth
Quarter Performance has Company on Track for Continued Growth
ALLEN, Texas--May 7, 2002--Daisytek International Corporation (Nasdaq: DZTK)
today announced fourth quarter net income from continuing operations of $5.2
million and diluted earnings per share of $0.27, excluding special charges. Net
income, as adjusted, represents a 23% increase over the prior year adjusted net
income of $4.2 million. Current quarter diluted earnings per share of $0.27 (on
19.2 million shares) compares to prior year diluted earnings per share of $0.28
(on 15.1 million shares). Revenues for the quarter increased 23% to $324.0
million compared to last year's quarterly revenues of $264.1 million. For the
fiscal year ended March 31, 2002, net income from continuing operations was
$17.8 million (excluding special charges), a 13% increase over $15.8 million for
the prior year, and revenues were $1.2 billion, an 18% increase over $1.0
billion in the prior year. Diluted earnings per share for the fiscal year ended
March 31, 2002 were $1.03 compared to $0.98 for the prior year.
After accounting for special charges, fourth quarter net income from
continuing operations was $3.9 million, a 29% increase over the same quarter
last year of $3.0 million. Diluted earnings per share from continuing operations
were $0.20 in both quarters, using share counts above.
Daisytek considers its adjusted presentation of earnings, which excludes
nonrecurring charges and discontinued operations, to be the most relevant
benchmark of the company's operating performance. The information in this
release relates to Daisytek's adjusted financial data, unless otherwise noted.
"Daisytek has again delivered earnings and revenue to meet expectations
despite the uncertain global economic climate. In addition, we have announced an
intention to offer to acquire full control of ISA International plc in Europe.
We continue to move forward with operational plans in the areas of information
technology improvements, distribution efficiencies and cost-saving back-office
consolidations, which all support our strategic growth initiatives and will
further lower costs in the supply chain," said Jim Powell, president and CEO of
Daisytek.
Achievements for this past full fiscal year include:
-- Consolidated revenue growth of 18%.
-- Overall U.S. revenue growth of 23%.
-- International revenue growth of 21%, in local currencies.
-- Earnings growth of 13%, before nonrecurring charges and discontinued
operations.
-- Re-acquired control of the Memphis distribution Superhub and Daisytek IT
infrastructure.
-- Announced plans to establish five new regional distribution center hubs
and eliminate unnecessary subsidiary costs The first two sites have been
selected.
-- Created a strategic alliance with ECI2 to offer technology tools to help
office products resellers.
-- Invested in ISA International plc, a $510 million European computer
supplies wholesaler, which owns a 47% interest in Kingfield-Heath,
itself a $290 million office products wholesaler.
-- Finalized a new shipping agreement with FedEx.
-- Acquired General Stationery Supplies in Australia and opened the first
integrated office products and computer supplies warehouse operation in
Sydney.
-- Acquired Digital Storage Inc., with operations in the United
States and Canada.
-- Expanded Canadian operations into the Quebec market.
-- Completed a $17.7 million placement of common stock.
-- Acquired the exclusive right to distribute OpenSupply, software that
monitors toner and ink usage and can automatically order replenishment
serviced by Daisytek on behalf of any reseller.
-- Named to the Forbes Platinum 400 and Bloomberg 100 corporate lists for
2001.
In the fourth quarter, revenue growth for the U.S. division was 34% compared
to the prior year's quarter, including the acquisition of Digital Storage.
Excluding the Digital Storage acquisition, domestic revenue growth for the
quarter was 13%. Daisytek's initiative to drive sales through the
consumer-convenient channel - which includes grocery, drug, online and other
resellers - continues to produce excellent results, with fourth quarter revenues
up approximately 58% over the prior year. In addition, the company's plan to
expand its existing offering of office products is on track for a full launch in
early fall.
International revenues grew approximately 13% in U.S. dollars (15% in local
currencies). Daisytek's divisions in Australia, Canada and Mexico, which
represent nearly 90% of the company's international business, delivered strong
results, each experiencing growth higher than their relative market growth. In
Canada, the company recently expanded into the Quebec market with the opening of
a new sales office. In Australia, the company now operates in Sydney, Perth and
Brisbane.
The increase in international revenues was affected by economic issues in
Argentina, which represents less than 3% of the company's total consolidated
revenues. Argentina continues to experience significant economic and political
challenges and further devaluation of the Argentinean peso has led to Daisytek
recording a decrease in the U.S. dollar value of its net asset investment of
$3.2 million at March 31, 2002 (recorded as a separate component of equity).
Daisytek has made a proposed offer to acquire all of the ordinary shares of
ISA International plc, a pan-European distributor of computer supplies, which
indirectly owns 47% of Kingfield Heath Ltd., a U.K.-based wholesaler of office
products. Daisytek's existing investment in ISA preference shares and in loans
to ISA have previously been announced. Earlier today, Daisytek and ISA announced
that the directors of ISA intend to unanimously recommend Daisytek's proposed
offer for ISA, and 56.5% of shareholders have already irrevocably committed to
accept the offer. ISA's current market capitalization at the cash offer price of
7.5 pence (approximately $0.11) per ordinary share is $6.4 million. According to
ISA's public announcements, their revenues for calendar and fiscal year 2001
were approximately (pound)361 million (approximately $510 million), a 22%
year-on-year growth.
"Both ISA and Kingfield Heath have shown progress over the last six months,
and despite short-term funding issues, we believe they represent excellent
potential for future returns. Our investment, and proposed offer for 100% of
ISA, is an important step in our vision to become the world's largest
distributor of computer supplies, office products and accessories," said Powell.
At The Tape Company, operating profit contribution increased significantly
over the prior-year quarter despite a revenue decrease of 13%. "There continues
to be progress from cost savings plans and marketing initiatives," said Powell.
Overall gross margins were approximately 10.3%, consistent with the third
quarter of the year. This quarter's SG&A was 7.1% of total revenue compared to
7.2% for the preceding quarter. Resulting EBIT (excluding certain charges) for
the fourth quarter, as a percentage of net revenues, was an improved 3.2%,
exceeding Daisytek's target of achieving 3.0% by the end of the fiscal year, and
up from 3.1% in the third quarter and from 3.1% a year ago.
EBIT over the last year has been affected by the following favorable factors:
(1) lower costs of operating the company's Memphis distribution facility versus
outsourcing this activity; (2) adoption of SFAS 142, whereby the company no
longer amortizes goodwill; and (3) commencement of the company's restructuring
activities. These favorable impacts to EBIT margins were partially offset by (1)
lower performance of The Tape Co., which has a relatively higher EBIT margin;
(2) the acquisition of Digital Storage, which has a relatively lower EBIT
margin; and (3) since Sept. 11, a movement in product mix away from higher gross
margin international opportunities. Going forward, the company will continue its
focus on EBIT improvements.
Net debt (total debt less cash) increased to approximately $112 million
during the quarter. This increase was mainly attributable to ISA funding and
increases in working capital, primarily from revenue growth during the quarter.
Daisytek recently announced that it had signed a new three-year $200 million
senior secured debt facility with Bank of America, N.A.
The company is progressing its previously announced restructuring plans,
including IT enhancements to support Daisytek's growing businesses, United
States distribution improvements through consolidation of subsidiary computer
and office supplies warehouses into five new regional facilities (plus the
Memphis facility), and centralization of certain U.S. back-office resources into
a shared services organization. The first two regional distribution sites were
announced with opening plans for late summer near Bakersfield, Calif., and fall
near Albany, N.Y. In addition, certain administrative functions were
consolidated into the Texas headquarters during the quarter.
"This restructuring plan will support our goal to be THE low-cost national
provider in our industry. We expect great results from the project, including
gains in market share and further improvements in our operating margins," Powell
said. The company, in the March 31, 2002 quarter, recorded after-tax
restructuring charges of $1.3 million, including $1.0 million related to
warehouse and distribution initiatives and $0.3 million related to back-office
improvements. "We expect the projects will take about 12 to 15 months to
complete, with a further $6 million to $8 million of such charges, before
taxes," said Powell. "We are targeting improvements in profitability of
approximately $5 million in fiscal year 2004 and $7 million in fiscal year 2005
due to these restructuring moves. We are also building a very leveragable fixed
cost structure, catering to future growth needs."
The company is providing updated guidance to the market to help facilitate a
better understanding of Daisytek's short-term outlook. These estimates are the
company's current targets, and are not predictions of actual performance. The
company's actual performance may differ from its projections; therefore, the
forward-looking information set forth below must be read in conjunction with the
business risks listed below as well as with those highlighted in Daisytek's 10-K
for the fiscal year ended March 31, 2001. In addition, in accordance with the
requirements of the U.K. Code on Takeovers and Mergers, any statement on future
performance should not be interpreted to mean that earnings per share will
necessarily be greater or lower than those for the relevant preceding financial
period.
Ralph Mitchell, executive vice president and CFO, said, "Before accounting
for the consolidation of ISA, we expect total corporate revenue growth for the
fiscal year ending March 31, 2003, to be 10% - 15%, in the range of $1.3 billion
to $1.4 billion. We see U.S. revenue growth for the full year achieving the
target of 10% to 15%. We continue to target international revenue growth at a
rate to achieve the goal of 15% to 20%, although currency issues, mainly in
Argentina, will challenge this. Due to our control over ISA, even if the offer
is not successful, we will commence consolidating ISA's results in Q1 of our
fiscal 2003 year, which will substantially impact revenue and earnings in that
quarter and beyond. ISA's announced revenue for calendar FY01 was (pound)361
million (approximately $510 million). We expect this to grow at the market rate
of 10% to 15%, at least. Given this, Daisytek's combined revenue for Fiscal 2003
is projected to be $1.8 to $1.9 billion."
Mitchell continued, "However, we do expect earnings dilution from the
consolidation and funding of ISA (and its 47% investment in Kingfield Heath),
especially in the first two quarters of our FY03, due to the seasonality of the
European businesses and the ongoing operational improvement initiatives in ISA's
continental operations. We are targeting breakeven with funding costs in our
third and fourth quarters or possibly a small accretion, after funding costs,
during these quarters. By next fiscal year, ending March 2004, we expect ISA to
be significantly net accretive, rather than dilutive, for the full fiscal year.
Once the offer period for the acquisition of ISA is complete, which we expect to
occur in the next two to three months, we will be able to provide more specific
guidance on earnings targets."
"In addition, we believe that performance in Argentina will cause a small
decline in first-quarter earnings, overall debt costs have risen and there will
be certain redundant operating costs in the U.S. for each quarter of our
distribution center reorganization and shared-services restructuring. These
redundant operating costs are in addition to the separately identifiable,
nonrecurring charges," Mitchell concluded.
"FY02 was a year of significant change for Daisytek and FY03 will be no
different. While being very committed to deliver on our short-term performance
goals, we believe this next year will establish us as the world's leading
distributor of computer supplies, office products and accessories. In North
America we intend to establish the most cost-effective national supplies
distribution model in the industry. Internationally, should our offer for ISA be
successful, we will add a major European presence which we believe has
significant upside potential. Ultimately, we hope that our focus on supply-chain
efficiencies and fanatic cost management, coupled with our strategies for the
long term, will create significant shareholder value," said Powell.
To reiterate, Daisytek's strategies for future growth are based on the
following:
-- Capitalizing on the strong growth in computer supplies;
-- Expanding the supplies offering to include a full line of
office products;
-- Investing in the development of emerging, higher growth customer
channels such as drug and grocery chains and the Web-based divisions of
major corporate resellers;
-- Developing new client services, such as the customer care and demand
generation services of the fee-based VirtualDemand division;
-- Expanding products and services described above into new and
existing international markets; and
-- Pursuing financially attractive acquisitions that support these
strategies.
Items excluded from the unaudited, adjusted historical financial presentation
for the periods ended March 31, 2002 and 2001, are summarized below (in
thousands):
Quarter Ended March 31, Year Ended March 31,
---------------------- ----------------------
2002 2001 2002 2001
---------------------- ----------------------
GAAP net income $3,877 $3,119 $10,853 $11,426
Reconciling
items, net of tax:
Restructuring
charges 1,300 -- 3,185 --
Reacquisition
of Memphis hub -- -- 2,725 --
PFSweb operations,
spin-off costs and
other nonrecurring
charges -- 1,194 -- 4,780
Discontinued
operations (BSD) -- (113) 1,085 (389)
Adjusted net income $5,177 $4,200 $17,848 $15,817
Daisytek will hold a conference call today at 9 a.m. Central.
Please dial in by 8:50 a.m. to 801/303-7410 and ask to be placed on
the Daisytek earnings conference call. Two hours after the call, a
recorded playback can be heard for 14 days at 402/220-1490. The access
code for the playback is 1460. Check www.Daisytek.com for more details
on the call, playback and webcast. NOTE: If you encounter
telecommunications difficulties during the call, please redial the
call-in number immediately.
About Daisytek
Daisytek is a leading wholesale distributor of computer and office supplies
and professional tape products, in addition to providing marketing and demand
generation services. Daisytek sells its products and services in the United
States, Canada, Australia, Mexico and South America. Daisytek distributes more
than 20,000 nationally known, name-brand computer and office supplies products
and over 2,800 professional tape products from numerous manufacturers. Daisytek
is headquartered in Allen, Texas. This news release and more information about
Daisytek are available at www.daisytek.com. The company's annual report is at
www.dztkannualreport.com. These Web sites are not part of this release. Daisytek
is a registered trademark of Daisytek, Incorporated. All rights reserved.
The matters discussed in this news release contain both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking information within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended. You can identify these statements by the
fact that they do not relate strictly to historical or current facts, but rather
reflect our current expectations concerning future results and events.
Forward-looking statements relating to such matters as our financial condition
and operations, including forecasted information, are based on our management's
current intent, belief or expectations regarding our industry or us. These
forward-looking statements including forecasts are not guarantees of future
performance and involve risks, uncertainties and assumptions that are difficult
to predict. In addition, some forward-looking statements are based upon
assumptions as to future events that may not prove to be accurate. Therefore,
actual outcomes and results may differ materially from what is expected or
forecasted in such forward-looking statements. We undertake no obligation to
update publicly any forward-looking statement for any reason, even if new
information becomes available or other events occur in the future.
Certain factors, including but not limited to, general economic conditions,
industry trends, the loss of key suppliers or customers, the loss or material
decline in service of strategic product shipping relationships, customer demand,
product availability, competition (including pricing and availability), risks
inherent in acquiring, integrating and operating new businesses and investments,
concentrations of credit risk, distribution efficiencies, capacity constraints,
technological difficulties, exchange rate fluctuations, currency devaluations
and the regulatory and trade environment (both domestic and foreign) could cause
our actual results to differ materially from the anticipated results or other
expectations expressed in our forward-looking statements. There may be
additional risks that we do not currently view as material or that are not
presently known.
Other factors that could affect Daisytek are set forth in Daisytek's 10-K for
the fiscal year ended March 31, 2001.
Daisytek International Corporation and Subsidiaries, Excluding
Restructuring and Nonrecurring Charges and Results of Operations for
PFSweb, Inc. and Discontinued Operations Unaudited Adjusted
Consolidated Statements of Operations.
The following is an unaudited adjusted historical financial presentation of
the results of operations of Daisytek International excluding restructuring and
nonrecurring charges, the results of operations of PFSweb, Inc., and the income
(loss) from operations of a discontinued subsidiary. First quarter 2002 adjusted
historical financial results exclude a nonrecurring charge of $4.4 million
related to Daisytek's May 2001 acquisition of distribution assets in its Memphis
Superhub facility from PFSweb and the termination of certain transaction
management service agreements between Daisytek and PFSweb shown as nonrecurring
costs in the GAAP financial statements. Restructuring charges of $2.9 million
and $2.1 million, respectively, are excluded from third quarter and fourth
quarter adjusted historical financial results. Daisytek completed the spin-off
of its subsidiary PFSweb during July 2000. The fiscal year 2001 financial
presentation excludes the results of operations of PFSweb and nonrecurring
charges including activities related to the spin-off of PFSweb and certain other
charges.
Daisytek based the following unaudited adjusted historical financial data on
available information and certain estimates and assumptions. Daisytek believes
that such assumptions provide a reasonable basis for presenting the results of
Daisytek International on a stand-alone basis. This unaudited adjusted financial
information does not reflect what our results of operations may be in the
future.
Daisytek International Corporation and Subsidiaries, Excluding
Restructuring and Nonrecurring Charges and Results of Operations for
PFSweb, Inc. and Discontinued Operations Unaudited Adjusted
Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
Fiscal Year 2002
June 30, Sept 30, Dec 31, March 31, FY
2001 2001 2001 2002 Total
--------- ---------- ---------- -------------------
Net sales $272,952 $278,769 $309,338 $323,971 $1,185,030
Cost of sales 241,504 249,148 277,500 290,487 1,058,639
------- ------- ---------- ---------- ---------
Gross profit 31,448 29,621 31,838 33,484 126,391
Selling, general
and
administrative
expenses 22,649 22,742 22,176 23,143 90,710
------ ------ --------- --------- ----------
Income from
operations 8,799 6,879 9,662 10,341 35,681
Interest expense 1,554 1,786 1,850 2,031 7,221
----- ----- --------- --------- ----------
Income before
income taxes 7,245 5,093 7,812 8,310 28,460
Provision for
income taxes 2,784 1,884 2,811 3,133 10,612
----- ---------- --------- --------- ----------
Net income $4,461 $3,209 $5,001 $5,177 $17,848
Net income per common share:
Basic $0.30 $0.21 $0.31 $0.29 $1.12
Diluted $0.28 $0.19 $0.29 $0.27 $1.03
Fiscal Year 2001
-----------------------------------------
June 30, Sept 30, Dec 31, March 31, FY
2000 2000 2000 2001 Total
-------- --------- ---------- ---------- --------
Net sales $246,178 $242,305 $251,034 $264,066 $1,003,583
Cost of
sales 218,319 214,058 222,662 232,765 887,804
------- ------- -------- --------- ----------
Gross profit 27,859 28,247 28,372 31,301 115,779
Selling,
general and
administrative
expenses 20,993 20,615 21,215 23,237 86,060
------ ------ -------- --------- ----------
Income from
operations 6,866 7,632 7,157 8,064 29,719
Interest
expense 839 940 1,050 1,344 4,173
--- --- -------- --------- ----------
Income before
income taxes 6,027 6,692 6,107 6,720 25,546
Provision for
income taxes 2,320 2,534 2,355 2,520 9,729
----- ----- -------- --------- ----------
Net income $3,707 $4,158 $3,752 $4,200 $15,817
===== ===== ======== ========= ==========
Net income per common share:
Basic $0.21 $0.25 $0.25 $0.29 $0.99
Diluted $0.21 $0.25 $0.25 $0.28 $0.98
Daisytek International Corporation and Subsidiaries
Unaudited Adjusted Consolidated Balance Sheet Data, Excluding
Discontinued Operations
(In Thousands)
March 31, March 31,
2002 2001
-------- ---------
Total assets, including
net interest in BSD
at March 31, 2001 $ 414,390 $ 315,364
Working capital
from continuing
operations, excluding
debt and cash $ 206,264 $ 175,542
Total net debt,
excluding cash $ 111,640 $ 76,072
Shareholders' equity $ 196,020 $ 159,102
Daisytek International Corporation and Subsidiaries Unaudited
Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
The following presentation of Daisytek International Corporation
is based on generally accepted accounting principles
Three Months Ended Fiscal Year Ended
March 31, March 31,
-------------------------------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Net revenues $323,971 $264,066 $1,185,030 $1,012,130
Cost of revenues 290,487 232,765 1,059,539 894,766
---------- --------- ---------- ---------
Gross profit 33,484 31,301 125,491 117,364
Selling, general
and administrative
expenses 23,143 23,237 90,710 88,193
Restructuring and
nonrecurring costs 2,087 1,909 8,556 6,940
----------- --------- ---------- ---------
Income from
continuing operations 8,254 6,155 26,225 22,231
Interest expense, net 2,031 1,344 7,221 3,857
---------- --------- ---------- ----------
Income from continuing
operations before
income taxes 6,223 4,811 19,004 18,374
Provision for
income taxes 2,346 1,805 7,066 7,384
---------- --------- ---------- ----------
Income from continuing
operations before
minority interest 3,877 3,006 11,938 10,990
Minority interest -- -- -- 47
---------- --------- ---------- ----------
Income from
continuing operations 3,877 3,006 11,938 11,037
Discontinued operations
Income (loss) from
operations of
discontinued subsidiary,
net of tax -- 113 (1,085) 389
---------- --------- ---------- ----------
Net income $3,877 $3,119 $10,853 $11,426
========== ========= ========== ==========
Net income per common share:
Basic
Income from
continuing
operations $0.22 $0.21 $ 0.75 $0.69
Income (loss)
from operations
of discontinued
subsidiary, net of tax -- -- (0.07) 0.03
Net income $0.22 $0.21 $ 0.68 $0.72
====== ====== ====== ======
Diluted
Income from
continuing
operations $0.20 $0.20 $ 0.69 $0.69
Income (loss)
from operations
of discontinued
subsidiary, net
of tax -- 0.01 (0.07) 0.02
------ ------ ------ -------
Net income $0.20 $0.21 $0.62 $0.71
======= ====== ======== ========
Weighted-average common and common share equivalents outstanding:
Basic 17,748 14,525 15,963 15,904
Diluted 19,177 15,050 17,396 16,108