Exhibit 99.1
Daisytek Expects Significant Loss in Fourth Quarter 2003;
Company Evaluating Financing Options and Reorganization Alternatives
ALLEN, Texas--(BUSINESS WIRE)--April 28, 2003--Daisytek
International Corp. (Nasdaq: DZTK) today provided an update on its
operations, financial condition and fourth quarter results. Additional
lending restrictions from Daisytek's U.S. lending syndicate have
significantly tightened the borrowing capacity of the company, which
has had a substantial negative impact on fourth quarter operations and
created serious liquidity constraints for Daisytek's largest U.S.
subsidiary, Daisytek, Incorporated.
Daisytek announced the following business developments:
-- Daisytek has sought to negotiate a forbearance agreement with
its U.S. lending syndicate subsequent to the receipt of a
default notice relating to the fixed-charge coverage ratio and
letters for subsequent defaults. To date, the syndicate has
not accepted the company's proposals. The company also is
seeking accommodations from its U.S. vendors, although vendors
have not taken any action against Daisytek.
-- While negotiating with its current lenders, Daisytek is
pursuing several financing alternatives. A well-known global
financing institution has begun due diligence procedures on a
proposed credit facility that could replace the company's
current U.S. and Canadian facilities. In addition, Daisytek is
negotiating with a number of parties interested in purchasing
portions of the company's assets.
-- The company will require alternative financing to continue to
meet its obligations. If the company cannot obtain alternative
financing in the near future, one or more of the company's
primary U.S. subsidiaries may file a voluntary petition to
reorganize under Chapter 11 of the U.S. Bankruptcy Code. If
the company were to elect this course of action, management
anticipates that its foreign subsidiaries in Europe,
Australia, Mexico and Canada would not be included in any
bankruptcy filing in the United States.
-- The company expects to record a significant loss for
fourth-quarter 2003, due in large part to serious liquidity
constraints resulting from lending restrictions.
-- The company continues to aggressively execute a number of
reorganization alternatives and pursue profitability
improvements. Cost-saving plans to date are expected to
improve cash flow by more than $16 million annually.
-- Daisytek's executive officers and outside Board members have
taken interim, voluntary pay cuts, including a reduction of
32% for Jim Powell, Daisytek's president and CEO, 20% for
certain other executive vice presidents and outside Board
members, and 5% -15% for most of the Daisytek, Incorporated
vice presidents.
-- Daisytek's independent Audit Committee has completed an
investigation and report relating principally to the company's
accounting treatment of vendor monies prior to its adoption of
a recently issued accounting pronouncement. The company has
concluded that no restatement of its previously issued
financial statements is required and has voluntarily provided
the results of this investigation to the Securities and
Exchange Commission (SEC).
Daisytek pursues other financial alternatives
The company has signed and funded a term sheet proposal for a $185
million agreement with a well-known global financing institution and
due diligence procedures are already underway. The proposed facility
would include a $150 million U.S. senior secured revolving credit
facility and a $35 million Canadian senior secured revolving credit
facility, established through the company's wholly owned subsidiary
Daisytek, Incorporated. Proceeds from the new facility would be used
to repay the company's current lenders and to fund working capital.
The proposed credit facility would have a three-year term and
availability would be subject to certain borrowing base and other
limitations.
Daisytek is also negotiating with a number of parties interested
in purchasing portions of the company's assets.
The company will require alternative financing to continue to meet
its obligations. If the company cannot obtain alternative financing in
the near future, one or more of the company's primary U.S.
subsidiaries may file a voluntary petition to reorganize under Chapter
11 of the U.S. Bankruptcy Code. If the company were to elect this
course of action, management anticipates that its foreign subsidiaries
in Europe, Australia, Mexico and Canada would not be included in any
bankruptcy filing in the United States.
The company noted there can be no assurance that this potential
lender ultimately will commit to or sign the term sheet or credit
facility as proposed, or at all, or that the other alternatives being
pursued will be consummated. Further, there can be no assurance that
alternative financing could be obtained prior to any filing by one or
more of the company's primary U.S. subsidiaries of a voluntary
petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code.
Daisytek has engaged reorganization consultants to assist the
company in its discussions with alternative financing sources and with
the company's vendors. Daisytek also continues to aggressively pursue
profitability improvement plans previously announced. Cost-saving
plans to date are expected to increase cash flow by more than $16
million per year.
Company seeks forbearances from U.S. lending syndicate
Daisytek has sought to negotiate a forbearance agreement with U.S.
lenders subsequent to the receipt of a default notice relating to the
fixed-charge coverage ratio and letters for subsequent defaults. The
company previously announced it had not maintained the minimum
fixed-charge coverage ratio required by the credit facility agreement
and subsequently received a letter of default from its lenders on this
and other covenant violations. To date, the syndicate has not accepted
the company's proposals. The banking syndicate also has imposed
additional borrowing base limitations and reserves. Subject to these
restrictions and limitations, the syndicate is continuing to advance
funds to the primary U.S. subsidiaries. As a result of the credit
restrictions imposed on the U.S. facility, the company has repaid
approximately $56 million in debt between Dec. 31, 2002 and Apr. 25,
2003.
The company also is seeking accommodations from its U.S. vendors,
although vendors have not taken any action against Daisytek.
Fourth-quarter results impacted by U.S. financing restrictions and
balance sheet adjustments
Due to the tightened borrowing capacity of the company's U.S.
credit facility, inventory purchases were severely restricted during
the fourth quarter, which significantly reduced fill rates and sales.
Further, the lack of sufficient funding prohibited Daisytek from
taking advantage of vendor programs such as rebates, cooperative
advertising and marketing development funds, which often require
minimum levels of purchasing. As a result of the shortfall in the
principal U.S. subsidiary's earnings, the company expects to report a
consolidated operating loss for the quarter.
In addition to the loss generated from the impact of significantly
restricted liquidity, the company expects to make balance sheet
adjustments that will widen the fourth quarter loss from operations,
including significant increases in reserves for customer and vendor
accounts receivable and inventory, and to incur greater-than-expected
restructuring charges, primarily related to the completion of the
Memphis reconfiguration.
"Results of operations for our fourth quarter of fiscal year 2003
and to-date first fiscal quarter of 2004 have been negatively affected
by serious liquidity constraints resulting from the restrictions
imposed by the lending syndicate," said Jack Kearney, Daisytek's
acting chief financial officer. "Because we are reviewing all of our
strategic initiatives and customer and vendor relationships, our team
needs to reassess the balance sheet and make adjustments with respect
to the realizable value of receivables, inventory, deferred costs and
other assets. We expect these balance sheet adjustments to be
material."
Daisytek expects to provide financial results and a more detailed
summary of fourth quarter operations in a news release in June.
Cost-savings initiatives include voluntary pay cuts for executives
and Board members
In addition to the cost savings actions already put into place,
Daisytek's executive officers and outside Board members have taken
interim, voluntary pay cuts starting in April. Compensation for
Powell, Daisytek's president and CEO, will be reduced by 32%. Certain
other executive vice presidents and outside Board members will take
pay cuts of 20%, and most of the Daisytek, Incorporated vice
presidents will take pay cuts of 5%-15%.
"The management team is prepared to do whatever it takes to get
Daisytek through this difficult time," said Jim Powell, Daisytek's
president and CEO.
Audit Committee completes investigation into accounting treatment
of vendor monies
Daisytek's independent Audit Committee has completed an
investigation and report relating primarily to the company's
accounting treatment of vendor monies prior to its adoption of the
recently issued Emerging Issues Task Force (EITF) Issue No. 02-16,
Accounting by a Customer (Including a Reseller) for Cash Consideration
Received from a Vendor. The Audit Committee initiated its
investigation in response to concerns raised by two employees. In
connection with its inquiry, Daisytek's Audit Committee retained
separate legal counsel, which retained its own accounting advisors.
As previously announced, Daisytek adopted EITF Issue No. 02-16
effective January 1, 2003. EITF Issue No. 02-16 standardizes the
accounting treatment and classification of monies received from
vendors and generally requires that such cash consideration be treated
as a reduction of the cost of inventory acquired from the vendor.
The company has concluded that no restatement of its previously
issued financial statements is required. The Audit Committee has
provided the results of its investigation to the company's Board of
Directors and to the SEC. Powell expressed his strong support for the
independent inquiry.
About Daisytek
Daisytek is a Fortune 1000 global distributor of computer
supplies, office products and accessories and professional tape media
with projected annual revenues approaching $2 billion. In addition, it
offers fee-based marketing, demand-generation and fulfillment
services. Daisytek sells its products and services in North America,
South America, Europe and Australia, distributing more than 25,000
products from about 500 manufacturers, including printer supplies,
magnetic and data storage media, video and motion picture film. This
news release and Daisytek's annual report are available at
www.daisytek.com. The Web site is 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 or inability to hire skilled
personnel, 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 (including equipment failure
or a breach of our security measures), the volatility of our common
stock, economic and political uncertainties arising as a result of
terrorist attacks, seasonality, exchange rate fluctuations, foreign
currency devaluations, economic and political uncertainties in
international markets, potential obligations under operating lease
commitments of our former subsidiary PFSweb 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, 2002.
CONTACT: Daisytek International
Barbara Benson, 972/881-4700
or
Carol Reed Associates
Becky Mayad, 214/352-1881 or 214/697-7745 Mobile
bmayad@sbcglobal.net