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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended DECEMBER 27, 1996
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Commission file number 0-20287
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NU-KOTE HOLDING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 16-1296153
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17950 PRESTON ROAD, SUITE 690, DALLAS, TEXAS 75252
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(Address of principal executive offices) (Zip Code)
(972) 250-2785
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has (1) 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
----- -----
Number of shares of common stock of registrant outstanding at February 5,
1997:
CLASS OUTSTANDING
----- -----------
Class A common stock $.01 par value 21,775,302
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NU-KOTE HOLDING, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets as of
December 27, 1996 and March 31, 1996 3
Consolidated Statements of Operations and Retained
Earnings for the Three Month Periods
Ended December 27, 1996 and December 29, 1995 4
Consolidated Statements of Operations and Retained
Earnings (Deficit) for the Nine Month Periods
Ended December 27, 1996 and December 29, 1995 5
Consolidated Statements of Cash Flows for the Nine
Month Periods Ended December 27, 1996
and December 29, 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II - OTHER INFORMATION
Other Information 19
Signature Page 20
2
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<TABLE>
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
December 27, March 31,
1996 1996
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,667 $ 6,540
Accounts receivable, net 71,378 94,440
Receivables from related parties 4,391 5,622
Inventories, net 108,632 115,226
Prepaid expenses 13,146 9,618
Deferred income taxes 9,266 8,122
-------- --------
Total current assets 211,480 239,568
Property, plant, and equipment, net 88,073 92,402
Other assets and deferred charges 13,038 7,430
Assets held for sale 2,065 2,065
Intangibles, net 23,217 24,950
-------- --------
Total assets $337,873 $366,415
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans and current portion of long-term debt $ 1,084 $ 6,358
Accounts payable 48,321 53,046
Compensation related liabilities 7,321 14,563
Other accrued liabilities 35,403 47,936
-------- --------
Total current liabilities 92,129 121,903
Long-term debt, net of current maturities 122,597 111,843
Other liabilities 15,942 17,433
Deferred income taxes 8,919 10,327
-------- --------
Total liabilities 239,587 261,506
-------- --------
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; none
issued Class A common stock, $.01 par value, 40,000,000 shares
authorized; 22,325,302 and 22,292,008 shares issued 223 223
Class B common stock, $.01 par value, 15,000,000 shares authorized;
none issued
Additional paid-in capital 91,589 91,178
Retained earnings 8,476 13,042
Foreign currency translation adjustments (1,776) 692
Treasury stock, at cost, 550,000 shares (226) (226)
-------- --------
Total shareholders' equity 98,286 104,909
-------- --------
Total liabilities and shareholders' equity $337,873 $366,415
-------- --------
-------- --------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
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NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
FOR THE THREE MONTH PERIODS ENDED DECEMBER 27, 1996
AND DECEMBER 29, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
----------------------------
December 27, December 29,
1996 1995
------------ ------------
Net sales $ 82,923 $ 104,660
Cost of sales 67,568 74,252
------------ ------------
Gross margin 15,355 30,408
Selling, general and administrative expenses 15,387 18,128
Research and development expenses 2,517 2,117
Restructuring expense 2,031 5,457
------------ ------------
Operating income (loss) (4,580) 4,706
Interest expense 1,990 1,879
Other (income) expense items, net 158 (230)
------------ ------------
Income (loss) before income taxes (6,728) 3,057
Provision (benefit) for income taxes (2,699) 1,037
------------ ------------
Net income (loss) (4,029) 2,020
Retained earnings - Beginning of period 12,505 6,641
------------ ------------
Retained earnings - End of period $ 8,476 $ 8,661
------------ ------------
------------ ------------
Net income (loss) per share of common stock $ (0.19) $ 0.09
------------ ------------
------------ ------------
Weighted average shares outstanding 21,775,302 22,693,394
------------ ------------
------------ ------------
The accompanying notes are an integral part of
the consolidated financial statements.
4
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NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (DEFICIT)
FOR THE NINE MONTH PERIODS ENDED DECEMBER 27, 1996
AND DECEMBER 29, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
--------------------------
December 27, December 29,
1996 1995
------------ ------------
Net sales $ 256,621 $ 311,592
Cost of sales 195,331 220,597
------------ ------------
Gross margin 61,290 90,995
Selling, general and administrative expenses 48,413 55,619
Research and development expenses 7,648 6,923
Restructuring expense 7,811 9,684
------------ ------------
Operating income (loss) (2,582) 18,769
Interest expense 6,014 5,598
Other (income) items, net (935) (769)
------------ ------------
Income (loss) before income taxes (7,661) 13,940
Provision (benefit) for income taxes (3,095) 5,184
------------ ------------
Net income (loss) (4,566) 8,756
Retained earnings (deficit) - Beginning of period 13,042 (95)
------------ ------------
Retained earnings - End of period $ 8,476 $ 8,661
------------ ------------
------------ ------------
Net income (loss) per share of common stock $ (0.21) $ 0.39
------------ ------------
------------ ------------
Weighted average shares outstanding 21,764,239 22,587,499
------------ ------------
------------ ------------
The accompanying notes are an integral part of the
consolidated financial statements.
5
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NU-KOTE HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED DECEMBER 27, 1996
AND DECEMBER 29, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
(Unaudited)
---------------------------
December 27, December 29,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,566) $ 8,756
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Exchange gains (1,066) (503)
Depreciation and amortization 9,849 10,123
Deferred income taxes (82) (2,827)
Tax benefit from exercise of stock options 75 1,536
Other (5,187) 1,491
Changes in working capital:
Accounts receivable 24,293 (3,031)
Inventories 6,594 (9,338)
Prepaid expenses (3,528) (3,989)
Accounts payable (4,725) (8,439)
Compensation related liabilities (7,242) (1,759)
Other accrued liabilities (6,429) 4,687
Cash paid for restructuring (8,572) (13,198)
-------- --------
Net cash used in operating activities (586) (16,491)
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,065) (8,139)
Sale of property, plant and equipment 715
Acquisition of business (6,107)
-------- --------
Net cash used in investing activities (7,350) (14,246)
-------- --------
Cash flows from financing activities:
Borrowings on long-term debt and other loans 100,139 46,315
Payments on long-term debt and other loans (91,632) (26,149)
Exercise of stock options 338 1,838
-------- --------
Net cash provided by financing activities 8,845 22,004
-------- --------
Effect of exchange rate changes on cash (2,782) 177
-------- --------
Net decrease in cash (1,873) (8,556)
Cash and cash equivalents at beginning of period 6,540 17,049
-------- --------
Cash and cash equivalents at end of period $ 4,667 $ 8,493
-------- --------
-------- --------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
6
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NU-KOTE HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. THE COMPANY
Nu-kote Holding, Inc. ("Nu-kote") and its wholly-owned subsidiaries are
referred to collectively as the "Company". The Company is one of the
leading independent manufacturers and distributors of impact and
non-impact imaging supplies for office and home printing devices,
including the manufacture and distribution of a full line of typewriter
and printer ribbons, thermal fax ribbons, cartridges and toners for laser
printers, facsimile machines and copiers, cartridges and ink for ink jet
printers, specialty papers, calculator ink rolls, and carbon paper.
The Company sells products primarily in the United States and Europe,
directly to wholesale and retail markets, and also to original equipment
manufacturers and distributors for resale under their brand names or
private labels. The Company distributes through virtually all major
office supply marketing channels, including wholesale distributors,
office products dealers, direct mail catalogs, office supply "super
stores", warehouse clubs, information processing specialists, value added
resellers, and mass market retailers.
The consolidated balance sheet as of December 27, 1996 and the related
consolidated statements of operations and retained earnings (deficit) for
the three and nine month periods and consolidated statements of cash
flows for the nine month periods ended December 27, 1996 and December 29,
1995 are unaudited. However, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for
a fair presentation of such financial statements have been included.
Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form
10-Q, and do not contain all financial disclosures and details included
in the Company's annual financial statements and notes.
2. NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Net income (loss) per share of common stock for the three and nine month
periods ended December 27, 1996 and December 29, 1995 is based on the
weighted average number of common shares outstanding during the period
and the effect of considering common stock equivalents (stock options)
under the treasury stock method. Primary and fully diluted net income
(loss) per share of common stock are the same and, therefore, are not
shown separately.
7
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3. ACCOUNTS RECEIVABLE
Accounts receivable are reflected net of allowances for doubtful accounts
of $4,129 and $3,933 at December 27, 1996 and March 31, 1996,
respectively.
4. INVENTORIES
Inventories consist of the following:
December 27, March 31,
1996 1996
------------ ---------
Raw materials $ 42,834 $ 42,291
Work-in-process 13,751 18,341
Finished goods 52,047 54,594
-------- --------
Total $108,632 $115,226
-------- --------
-------- --------
Since physical inventories taken during the year do not necessarily
coincide with the end of a quarter, management has estimated the
composition of inventories with respect to raw materials, work-in-process
and finished goods. It is management's opinion that this estimate
represents a reasonable approximation of the inventory levels at December
27, 1996. The amounts at March 31, 1996 are based upon the audited
balance sheet at that date.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the
following components:
December 27, March 31,
1996 1996
------------ ---------
Land $ 4,606 $ 5,323
Buildings and improvements 22,701 22,742
Machinery and equipment 93,727 90,827
-------- --------
121,034 118,892
Less accumulated depreciation and impairment
provision (32,961) (26,490)
-------- --------
Total $ 88,073 $ 92,402
-------- --------
-------- --------
Depreciation expense amounted to $2,486 and $3,182 for the three month
periods and $7,656 and $8,183 for the nine month periods ended December
27, 1996 and December 29, 1995, respectively.
8
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6. INTANGIBLE ASSETS
Intangible assets consist of amounts allocated as a result of purchases
of existing businesses and are summarized as follows:
Amortization December 27, March 31,
Period 1996 1996
------------ ------------ ---------
Goodwill 20 years $ 9,880 $ 9,880
Covenants-not-to-compete 3-5 years 6,642 6,642
Trademark 40 years 11,306 11,306
Technology license 8 years 1,272 1,272
------- -------
29,100 29,100
Less accumulated amortization (5,883) (4,150)
------- -------
Total $23,217 $24,950
------- -------
------- -------
Covenant-not-to-compete agreements have been recorded at their net
present value using estimated discount rates of 7% and 16%. The
trademark has been recorded at its estimated value based upon royalty
rates charged for its use, discounted at an estimated rate of return of
35%. The technology license has been recorded at its estimated fair
value based on forecasted discounted cash flows using a 16% discount rate.
7. LINE OF CREDIT
The Company has a line of credit in Colombia in the amount of $1,450.
Borrowings against the line of credit amounted to $687 and $681 at
December 27, 1996 and March 31, 1996, respectively. The line bears
interest at the prevailing Colombia interest rate plus 2 percentage
points. Average interest rates at December 27, 1996 and March 31, 1996
were 17.6% and 22.6%, respectively.
8. LONG-TERM DEBT
Long-term debt of the Company consists of the following:
December 27, March 31,
1996 1996
------------ ---------
Revolving lines of credit $122,336 $ 75,919
Term loan 40,000
Other items 1,345 1,601
-------- --------
122,994 117,520
Less current portion (397) (5,677)
-------- --------
Long-term debt, net of current portion $122,597 $111,843
-------- --------
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9
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The Company has amended and restated its credit facilities dated February
24, 1995 (the "Original Credit Agreement"). The Amended and Restated
Credit Agreement (the "Amended Credit Agreement") dated October 15, 1996
consists of a five-year $200 million revolving credit arrangement. The
Amended Credit Agreement is comprised of a $150 million Domestic (U.S.
dollar denominated) facility and two multi-currency European facilities
(the "Multi-Currency Facilities"). The Multi-Currency Facilities are
denominated in Swiss Francs, British Pound Sterling, Deustchmarks and
U.S. dollars. The Amended Credit Agreement provides for affirmative and
negative covenants customary in an agreement of this nature and
consistent with the Original Credit Agreement. Interest rates and the
collateral structure for the Amended Credit Agreement are also
substantially the same as the Original Credit Agreement.
As of December 27, 1997, the Company was in technical default of its
Amended Credit Agreement. The technical default involved the failure to
meet the required ratio of Consolidated Total Debt to Consolidated
EBITDA (calculated on a cumulative basis for the last four fiscal
quarters). The Company has obtained a waiver of the technical default,
including an amendment limiting borrowings under the Company's credit
facilities to $140 million and increasing the interest rate on libor
borrowings, effective for the period December 27, 1996 to March 30, 1997.
The Company is currently in discussions with its lenders regarding
further amendments to the terms of the Amended Credit Agreement, and
expects to finalize such amendments prior to March 30, 1997.
9. INCOME TAXES
Following are the approximate effective blended tax rates for significant
jurisdictions:
North America 40%
Switzerland 22%
Germany 64%
United Kingdom 33%
The above resulted in a worldwide effective blended tax rate of 40% for
both the three and nine month periods ended December 27, 1996,
respectively.
10. CONTINGENCIES
Three original equipment manufacturers filed lawsuits against Nu-kote
International, Inc. ("NII") alleging that certain NII ink jet replacement
cartridges, refill inks and packaging infringe their trademarks, trade
dress and patents and alleging, among other things, unfair competition
and misleading representations. The plaintiffs are seeking injunctive
relief, monetary damages, court costs and attorney's fees. The complaint
in one of the cases has been amended to name Nu-kote and Pelikan
Produktions A.G. as defendants. All of the cases are being vigorously
contested, and in each case the Company or NII has asserted affirmative
defenses and counterclaims and has requested damages and affirmative
injunctive relief. All of the lawsuits are in the discovery stage. In
management's opinion,
10
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the ultimate resolution of these lawsuits will not have a material
adverse effect on the Company's financial position, results of future
operations or liquidity.
In connection with Nu-kote's acquisition of the Office Supplies Division
and the International Business Forms Division of Unisys Corporation
("Unisys"), Unisys agreed to retain all liabilities resulting from or
arising out of any environmental conditions existing on or before January
16, 1987 at the Company's Rochester, Macedon and Bardstown facilities
and, additionally, to indemnify the Company for such. State
environmental agencies have alleged that environmental contamination
exists at all three sites. To date Unisys has handled all remediation
efforts related to these properties. As a result of the indemnification
from Unisys, in the opinion of management, the ultimate cost to resolve
these environmental matters will not have a material adverse effect on
the Company's financial position, results of future operations or
liquidity.
In addition, the Company is involved in various routine legal matters.
In the opinion of the Company's management, the ultimate cost to resolve
these matters will not have a material adverse effect on the Company's
financial position, results of future operations or liquidity.
This note contains various "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities and Exchange Act of 1934, which represent the Company's
expectations or beliefs concerning the possible outcome of the various
litigation matters described herein and estimates of the Company's
liabilities associated with identified environmental matters. The
Company cautions that the actual outcome of the various litigation
matters could be affected by a number of factors beyond its control,
including, without limitation, judicial interpretations of applicable
laws, rules and regulations, the uncertainties and risks inherent in any
litigation, particularly a jury trial, the nature and extent of any
counter claims, and the scope of insurance coverage, and that the final
resolution of such matters could differ materially from the Company's
current evaluation of such matters. The Company further cautions that
the statements regarding identified environmental matters are qualified
by important factors that could cause the Company's actual liabilities to
differ materially from those in the forward looking statements,
including, without limitation, the following: (i) the actual nature and
extent of contamination, if any; (ii) the remedial action selected; (iii)
the actual cleanup level required; (iv) changes in regulatory
requirements; (v) the ability of other responsible parties, if any, to
pay their respective shares; and (vi) any insurance recoveries.
11
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11. RESTRUCTURING EXPENSE
As a result of the Pelikan Hardcopy Division acquisition, the Company
merged certain of its operations with those of the Pelikan Hardcopy
Division. The plan to integrate the Pelikan Hardcopy Division's operations
included, among other things, closure of the Company's manufacturing,
distribution and administration facility in Bardstown, Kentucky and merger
of its operations into the Pelikan Hardcopy Division's facility in
Franklin, Tennessee; termination of contract manufacturing and other
contracts; closure of the Company's manufacturing facility in Deeside,
Wales and merger of its operations with the Pelikan Hardcopy Division's
operations in Scotland; consolidation of certain toner manufacturing
operations of ICMI's Connellsville, Pennsylvania facility and the Pelikan
Hardcopy Division's Derry, Pennsylvania facility; and consolidation of
sales and administrative organizations of the two companies. The Company
substantially completed the merger activities in fiscal 1996 and
anticipates completion in fiscal 1997.
Activity related to accrued restructuring costs during the quarters ended
December 27, 1996 and December 29, 1995 are as follows:
Amount Amount
Accrued at Amount Accrued at
Description of End of Paid in Beginning of
Restructuring Expense Quarter Quarter Quarter
--------------------- ---------- ------- ------------
Quarter Ended December 27,
1996:
Severance $ 1,755 $ 938 $ 2,693
Lease cancellations 201 184 385
Facility maintenance
and other 194 15 209
--------- -------- ---------
$ 2,150 $ 1,137 $ 3,287
--------- -------- ---------
--------- -------- ---------
Amount Amount
Accrued at Amount Accrued at
Description of End of Paid in Beginning of
Restructuring Expense Quarter Quarter Quarter
--------------------- ---------- ------- ------------
Quarter Ended December 27,
1995:
Severance $ (424) $ 434 $ 10
Lease cancellations 1,075 45 1,120
Termination of contract
manufacturing and
other contracts 1,006 75 1,081
Facility maintenance
and other (146) 405 259
--------- -------- ---------
$ 1,511 $ 9,59 $ 2,470
--------- -------- ---------
--------- -------- ---------
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Activity related to accrued restructuring costs during the nine month
periods ended December 27, 1996 and December 29, 1995 are as follows:
<TABLE>
Amount Amount
Accrued at Amount Accrued at
Description of End of Paid in Additional Beginning of
Restructuring Expense Period Period Provision Period
--------------------- ---------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Nine Months Ended December
27, 1996:
Severance $ 1,755 $ 1,009 $ 2,693 $ 71
Lease cancellations 201 224 425
Facility maintenance
and other 194 190 384
--------- -------- ---------- --------
$ 2,150 $ 1,423 $ 26,93$ 880
--------- -------- ---------- --------
--------- -------- ---------- --------
</TABLE>
Amount Amount
Accrued at Amount Accrued at
Description of End of Paid in Beginning of
Restructuring Expense Period Period Period
--------------------- ---------- ------- ------------
Nine Months Ended December
29, 1995:
Severance $ (424) $ 3,595 $ 3,171
Lease cancellations 1,075 135 1,210
Termination of contract
manufacturing and
other contracts 1,006 1,344 2,350
Facility maintenance
and other (146) 1,780 1,634
--------- -------- ---------
$ 1,511 $ 6,854 $ 8,365
--------- -------- ---------
--------- -------- ---------
13
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 27, 1996 COMPARED TO QUARTER ENDED DECEMBER 29, 1995
Net sales for the quarter ended December 27, 1996 were $82.9 million,
a decline of $21.7 million (20.8%) over the quarter ended December 29,
1995. For the quarter ended December 27, 1996, sales in North America
amounted to $43.1 million, a decline of 20% as compared to sales of
$54.0 million during the previous year period, and sales in Europe
amounted to $39.0 million as compared to $49.7 million during the
previous year period, a decline of 22%. All of the net sales decline
experienced in North America ($10.9 million) was due to a 40% decline
in sales of impact products, whereas the decline in sales in Europe
($10.7 million) was due to a decline in sales of both impact and
non-impact products of 24% and 20%, respectively.
Worldwide sales of non-impact supplies accounted for 58% of total
worldwide sales for the quarter ended December 27, 1996, compared to
50% for the previous year period. Sales of non-impact product as a
percentage of worldwide sales increased because sales of impact
products declined by $17.1 million (33%). In North America, sales
of non-impact supplies amounted to $25.1 million as compared to $24.0
million in the previous year period and represented 58% and 44%,
respectively, of total North American sales. Sales of non-impact
products as a percentage of North American sales increased because
North American sales of non-impact products increased by $1.1 million
(4.6%) and sales of impact products declined by $12.0 million (40%).
Sales of non-impact supplies in Europe amounted to $23.1 million for
the quarter ended December 27, 1996 as compared to $28.9 million and
represented 59% of total European sales.
Management expects that world-wide sales of impact products will
continue to decline as the migration to the use of non-impact printing
devices accelerates. In addition, even though revenue from sales of
non-impact products is growing, management is evaluating its
non-impact products with the intent of re-defining the core product
base and eliminating unprofitable product categories.
Cost of sales were $67.6 million (81.5% of net sales) for the quarter
ended December 27, 1996, compared to $74.3 million (70.9% of net
sales) in the prior year period. The increase in cost of sales as
a percentage of net sales was due primarily to the decline in net
sales of impact and toner products and the related effect on
absorption of manufacturing overhead costs associated therewith. In
addition, as was experienced in the previous quarter, sales of
Pelikan "Easy-Click" and Nu-kote "Cartridge Plus" systems,
14
<PAGE>
which have a higher initial product cost, also contributed to the
decline in gross profit margins.
The Company expects to reduce its world-wide manufacturing costs for
impact products by shifting the manufacturing of such products to
Mexico and China. The Company also expects that in the future, the
gross profit margin for Pelikan "Easy-Click" and Nu-kote "Cartridge
Plus" systems will improve due to (a) an increase in the sales
volume of such products due in part from customer re-orders of refill
tanks associated with these products and (b) a reduction in the
raw material cost of these products resulting from the Company's
recently initiated used ink jet cartridge recovery program.
Research and development expenses were $2.5 million, an increase of
$0.4 million over the previous year period. The increase in expenses
is directly attributed to ink jet development activities in North
America.
Selling, general and administrative expenses were $15.4 million
(18.6% of net sales) for the quarter ended December 27, 1996, a
reduction of $2.7 million, as compared to $18.1 million (17.3% of net
sales) for the previous year period. The decrease in actual
expenditures resulted from the implementation of worldwide expense
reduction programs.
Restructuring cost, related primarily to the down sizing of impact
product production in Europe, amounted to $2.0 million as compared
to $5.5 million in the previous year period.
Interest expense was $2.0 million, compared to $1.9 million for the
previous year period.
For the quarter ended December 27, 1996, the Company recognized a net
loss of $4.0 million compared to net income of $2.0 million (1.9% of
net sales) for the previous year period. The decrease in net income
is directly attributable to the decrease in sales and the increased
cost of goods sold discussed above.
NINE MONTHS ENDED DECEMBER 27, 1996 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1995
Net sales for the nine months ended December 27, 1996 were $256.6
million, a decrease of $55.0 million (17.6%) over the nine months
ended December 29, 1995. For the nine months ended December 27,
1996, sales in North America amounted to $129.5 million, a decline
of 10% as compared to the previous year period. All of the net
sales decline experienced in North America ($15.0 million) was due
to a 29% ($22.0 million) decline in sales of impact products, as
sales of non-impact products have increased $7.0 million (10%) over
the previous year period. For the nine month period ended
December 27, 1996, sales in Europe amounted to $124.6 million, a
decline of 24% as compared to the previous year period. Sales of
impact products in Europe declined $18.0 million (26%),
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while sales of non-impact products declined $21.0 million (22%) as
compared to the previous year period.
As a percentage of total sales, worldwide sales of non-impact
supplies accounted for 57% of total sales for the nine months ended
December 27, 1996, compared to 49% of total sales in the nine months
ended December 29, 1995. Sales of non-impact products as a percentage
of worldwide sales increased because sales of impact products declined
$40.0 million (27%), while sales of non-impact products declined
$14.0 million (9%).
Management expects that world-wide sales of impact products will
continue to decline as the migration to the use of non-impact printing
devices accelerates. In addition, management is evaluating its
non-impact products with the intent of re-defining the core product
base and eliminating non-profitable product categories.
Cost of sales were $195.3 million (76.1% of net sales) for the nine
months ended December 27, 1996 compared to $220.6 million (70.8% of
net sales) in the prior period. As previously indicated, the increase
in cost of sales percentage was due primarily to: (1) the decline in
net sales of impact and toner products and the related effect on
absorption of manufacturing overhead costs associated therewith;
(2) sales of Pelikan "Easy-Click" and Nu-kote "Cartridge Plus"
systems, which have a higher initial product cost; and (3) price
reductions initiated in Europe which have not been offset by increased
volumes. The Company expects to reduce its world-wide manufacturing
costs as it shifts the manufacturing of such products to Mexico and
China. The Company also expects that in the future, the gross profit
margin for Pelikan "Easy-Click" and Nu-kote "Cartridge Plus" systems
will improve due to (a) an increase in the sales volume of such
products in part from customer re-orders of refill tanks associated
with these products and (b) a reduction in the raw material cost of
these products resulting from the Company's recently initiated used
ink jet cartridge recovery program.
Research and development expenses were $7.6 million, up $0.7 million
as compared to the previous year period. The increase in expenses is
directly attributed to increased ink jet technology spending in North
America.
Selling, general and administrative expenses were $48.4 million (18.9%
of net sales) for the nine months ended December 27, 1996, a reduction
of $7.2 million, as compared to $55.6 million (17.9% of net sales) for
the previous year period. The decrease in actual expenditures
resulted from the implementation of worldwide expense reduction
programs.
Other income, primarily due to exchange gains in Europe amounted to
$0.9 million and $0.8 million, respectively.
Restructuring cost, related primarily to the down sizing of world-wide
impact product production, amounted to $7.8 million and $9.7 million,
respectively.
Interest expense was $6.0 million, compared to $5.6 million for the
prior period.
16
<PAGE>
For the nine months ended December 27, 1996, the Company recognized
a net loss of $4.6 million compared to net income of $8.8 million
(2.8% of net sales) for the prior period. The decrease in net income
is directly attributable to the decrease in sales and the increased
cost of goods sold discussed above.
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT
Because the Company conducts business in many countries, fluctuations
in foreign currency exchange rates affect the Company's financial
position and results of operations. It is the Company's policy to
monitor currency exposures and enter into hedging arrangements to
manage the company's exposure to currency fluctuations. As a result,
the Company reported $1.1 million and $0.5 million, respectively,
in exchange gains, in the nine month periods reported.
LIQUIDITY AND CASH FLOW
For the nine months ended December 27, 1996, cash used by operations,
primarily to fund restructuring expenses and increased working capital
needs, amounted to $0.6 million. Capital expenditures, primarily
related to the purchase of ink jet manufacturing equipment, were
$8.1 million.
As of February 6, 1996, borrowings outstanding under the Company's
credit facilities amounted to $131.0 million, up $13.5 million from
March 31, 1996. The Company has $9.0 million available for future
borrowings under its credit facilities.
As of December 27, 1997, the Company was in technical default of its
Amended and Restated Credit Agreement (the "Amended Credit
Agreement"), as described in Note 8 of Notes to Consolidated Financial
Statements. The technical default involved the failure to meet the
required ratio of Consolidated Total Debt to Consolidated EBITDA
(calculated on a cumulative basis for the last four fiscal quarters).
The Company has obtained a waiver of the technical default, including
an amendment limiting borrowings under the Company's credit facilities
to $140 million and increasing the interest rate on libor borrowings,
effective for the period December 27, 1996 to March 30, 1997. The
Company is currently in discussions with its lenders regarding
further amendments to the terms of the Amended Credit Agreement, and
expects to finalize such amendments prior to March 30, 1997.
If the Company is unable to amend the terms of its Amended Credit
Agreement, it is likely that it will continue to be in technical
default of the EBITDA covenant beyond the March 30, 1997
expiration date of the current waiver. No assurance can be given
that satisfactory amendments, modifications or waivers to the
terms of the Amended Credit Agreement can be negotiated.
Assuming the current level of operations and the continued
availability of the Company's credit facilities, as amended to
date, the Company believes it will have sufficient funds available
to meet its liquidity requirements for the next 12 months.
17
<PAGE>
CAUTIONARY STATEMENT
The foregoing "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section contains various
"forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which represent the Company's expectations or
beliefs concerning, among other things, future operating results
and various components thereof and the adequacy of future operations
to provide sufficient liquidity. The Company cautions that such
matters necessarily involve significant risks and uncertainties that
could cause actual operating results and liquidity needs to differ
materially from such statements, including, without limitation,
general economic conditions, product demand and industry capacity,
competitive products and pricing, manufacturing efficiencies, new
product development, availability of raw materials and critical
manufacturing equipment, and the regulatory and trade environment.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See Item 3 - Legal Proceedings in the registrant's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996 and Note 10
of Notes to Consolidated Financial Statements for the three and
nine month periods ended December 27, 1996 and December 29, 1995
included elsewhere in this report.
ITEM 2 - INAPPLICABLE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As of December 27, 1997, the Company was in technical default of
its Amended and Restated Credit Agreement (the "Amended Credit
Agreement"), as described in Note 8 of Notes to Consolidated
Financial Statements. The technical default involved the
failure to meet the required ratio of Consolidated Total Debt to
Consolidated EBITDA (calculated on a cumulative basis for the
last four fiscal quarters). The Company has obtained a
waiver of the technical default, including an amendment limiting
borrowings under the Company's credit facilities to $140 million
and increasing the interest rate on libor borrowings, effective
for the period December 27, 1996 to March 30, 1997. The Company
is currently in discussions with its lenders regarding further
amendments to the terms of the Amended Credit Agreement, and
expects to finalize such amendments prior to the March 30, 1997.
See Note 8 of Notes to Consolidated Financial Statements and
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Cash Flow.
ITEMS 4 - 5 INAPPLICABLE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.36a - First Amendment to Amended and Restated
Credit Agreement and Waiver
Exhibit 11.1 - Statement regarding computation of per share
earnings.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the
quarterly period ended December 27, 1996.
19
<PAGE>
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 February 7, 1996 /s/ DAVID F. BRIGANTE
-------------------------- ----------------------------------
David F. Brigante
Chairman of the Board and
Chief Executive Officer
Date February 7, 1996 /s/ DANIEL M. KERRANE
-------------------------- ----------------------------------
Daniel M. Kerrane
Executive Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT 10.36a
FIRST AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND WAIVER
is dated as of the 7th day of February, 1997, and entered into among NU-KOTE
HOLDINGS, INC., a Delaware corporation ("Holding"), NU-KOTE INTERNATIONAL,
INC., a Delaware corporation ("Company"), the Lenders signatory hereto,
BARCLAYS BANK PLC, in its capacity as documentation agent ("Documentation
Agent") and NATIONSBANK OF TEXAS, N.A., a national banking association, as
administrative agent and collateral agent (in such capacities, "Agent").
WITNESSETH:
WHEREAS, Holding, Company, Lenders, Documentation Agent and Agent
entered into an Amended and Restated Credit Agreement, dated as of October
15, 1996 ("Credit Agreement");
WHEREAS, Holding and Company have requested that Lenders waive during
the period starting on December 27, 1996, to March 30, 1997, inclusive (the
"Waiver Period"), the Event of Default arising from non-compliance with
Section 6.6A of the Credit Agreement for the fiscal quarter ended December
27, 1996;
WHEREAS, Lenders and Agent have agreed to grant the request of Holding
and Company and to modify the Credit Agreement upon the terms and conditions
set forth below.
NOW, THEREFORE, for valuable consideration hereby acknowledged, Holding,
Company, Lenders, Documentation Agent and Agent agree as follows:
SECTION 1. DEFINITIONS. Unless specifically defined or redefined
below, capitalized terms used herein shall have the meanings ascribed thereto
in the Credit Agreement.
SECTION 2. MAXIMUM OUTSTANDING. Notwithstanding anything to the
contrary in the Credit Agreement, Total Utilization of Revolving Credit
Commitments shall not exceed $95,000,000, starting on February 7, 1997,
through the end of the Waiver Period.
SECTION 3. APPLICABLE MARGIN. Notwithstanding anything to the contrary
in the definition of "Applicable Margin" in Section 1.1 of the Credit
Agreement, the Applicable Margin shall be 1.50% per annum, starting on
February 7, 1997, through the end of the Waiver Period.
SECTION 4. WAIVERS. (a) Subject to the terms and conditions hereof,
Lenders hereby waive, but only during the Waiver Period, the Specified
Default (hereinafter defined); PROVIDED, HOWEVER, that Lenders' waiver of the
Specified Default and their rights and remedies as a result of the occurrence
thereof shall not constitute and shall not be deemed to constitute a waiver
of any other Event of Default, whether arising as a result of further
violations of any provision of the Credit Agreement previously violated by
Holding or Company, or a waiver of any rights and
<PAGE>
remedies arising as a result of such other Events of Default. As used
herein, "SPECIFIED DEFAULT" shall mean the failure of Holding and Company to
observe the covenant set forth in Section 6.6A of the Credit Agreement for
the fiscal quarter ended December 27, 1996. At the end of the Waiver Period,
the waiver of the Specified Default will automatically terminate.
(b) In consideration of Lenders' waiver of the Specified Default and
certain other good and valuable consideration, Holding and Company each
hereby expressly acknowledge and agree that neither of them has any setoffs,
counterclaims, adjustments, recoupments, defenses, claims or actions of any
character, whether contingent, non-contingent, liquidated, unliquidated,
fixed, matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured, known or unknown, against any Lender, Documentation Agent or Agent
or any grounds or cause for reduction, modification or subordination of the
Obligations or any liens or security interests of any Lender or the
Collateral Agent. To the extent Holding or Company may possess any such
setoffs, counterclaims, adjustments, recoupments, claims, actions, grounds or
causes, each of Holding and Company hereby waives, and hereby releases each
Lender, Documentation Agent and Agent from, any and all of such setoffs,
counterclaims, adjustments, recoupments, claims, actions, grounds and causes,
such waiver and release being with full knowledge and understanding of the
circumstances and effects of such waiver and release and after having
consulted counsel with respect thereto.
SECTION 5. CONDITIONS PRECEDENT. This Amendment and Waiver shall not
be effective until all proceedings of Company taken in connection herewith
and the transactions contemplated hereby shall be satisfactory in form and
substance to Documentation Agent, Agent and Lenders, and each of the
following conditions precedent shall have been satisfied:
(a) All fees and expenses, including legal and other professional
fees and expenses incurred, payable on or prior to the date of this
Amendment and Waiver to Agent, including, without limitation, the fees and
expenses of its counsel, shall have been paid to the extent that same had
been billed prior to the date of this Amendment and Waiver.
(b) Agent and each Lender shall have received each of the following,
in form and substance satisfactory to Agent, Lenders and Agent's counsel in
their sole and absolute discretion:
(1) a certificate of Holding and Company certifying (i) as to
the accuracy, after giving effect to this Amendment and Waiver, of the
representations and warranties set forth in Section 4 of the Credit
Agreement, the other Loan Documents and in this Amendment and Waiver,
and (ii) that there exists no Potential Event of Default or Event of
Default, after giving effect to this Amendment and Waiver, and the
execution, delivery and performance of this Amendment and Waiver will
not cause a Potential Event of Default or Event of Default; and
-2-
<PAGE>
(2) such other documents, instruments, and certificates, in form
and substance reasonably satisfactory to Lenders, as Lenders shall
deem necessary or appropriate in connection with this Amendment and
Waiver and the transactions contemplated hereby, including without
limitation copies of resolutions of the board of directors of each of
Holding and Company authorizing the transactions contemplated by this
Amendment and Waiver.
(c) Company or Holding shall have paid to Agent for the pro rata
account of Lenders an amendment fee in the amount of $175,000.
SECTION 6. REPRESENTATIONS AND WARRANTIES. Holding and Company
represent and warrant to Lenders, Documentation Agent and Agent that (a) this
Amendment and Waiver constitutes their legal, valid, and binding obligations,
enforceable in accordance with the terms hereof (subject as to enforcement of
remedies to any applicable bankruptcy, reorganization, moratorium, or other
laws or principles of equity affecting the enforcement of creditors' rights
generally), (b) there exists no Potential Event of Default or Event of
Default under the Credit Agreement after giving effect to this Amendment and
Waiver, (c) their representations and warranties set forth in the Credit
Agreement and other Loan Documents are true and correct on the date hereof
after giving effect to this Amendment and Waiver, (d) they have complied with
all agreements and conditions to be complied with by them under the Credit
Agreement and the other Loan Documents by the date hereof, and (e) the Credit
Agreement, as amended hereby, and the other Loan Documents remain in full
force and effect.
SECTION 7. EXPENSES OF LENDERS. Holding and Company hereby jointly and
severally agree to pay on demand all costs and expenses incurred by Agent,
including costs and fees of counsel to Agent in connection with the
preparation, negotiation, review and execution of this Amendment and Waiver
and the other Loan Documents executed pursuant hereto and any and all
amendments, modifications and supplements thereto.
SECTION 8. FURTHER ASSURANCES. Holding and Company shall execute and
deliver such further agreements, documents, instruments, and certificates in
form and substance satisfactory to Agent, as Agent or any Lender may deem
necessary or appropriate in connection with this Amendment and Waiver.
SECTION 9. CONSENTS OF EUROCURRENCY BORROWERS AND EUROCURRENCY LENDERS.
Each Eurocurrency Borrower and Eurocurrency Lender by its execution below
consents and agrees to this Amendment and Waiver and agrees that the
Eurocurrency Credit Agreement or Eurocurrency Credit Agreements to which it
is a party are and shall continue to be in full force and effect and are
hereby ratified and confirmed in all respects except that, upon the
effectiveness of and on and after the date of this Amendment and Waiver each
reference to the Credit Agreement, "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference to the
Credit Agreement as amended by this Amendment and Waiver. Each Eurocurrency
Borrower agrees that the collateral described in the Eurocurrency Security
Documents to which it is a party shall continue to secure the payment of the
indebtedness therein described.
-3-
<PAGE>
SECTION 10. COUNTERPARTS. This Amendment and Waiver and the other Loan
Documents may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument. In making proof of
any such agreement, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement is
sought. Telecopies of signatures shall be binding and effective as originals.
SECTION 11. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
LAW, HOLDING AND COMPANY EACH HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A
TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR
OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE
TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
SECTION 12. GOVERNING LAW. (a) THIS AGREEMENT AND ALL LOAN DOCUMENTS
SHALL BE DEEMED CONTRACTS MADE UNDER THE LAWS OF TEXAS AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO
THE EXTENT (1) FEDERAL LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND INTERPRETATION OF ALL OR ANY PART OF THIS AGREEMENT AND ALL LOAN
DOCUMENTS OR (2) STATE LAW GOVERNS UCC COLLATERAL INTERESTS FOR PROPERTIES
OUTSIDE THE STATE OF TEXAS. WITHOUT EXCLUDING ANY OTHER JURISDICTION,
HOLDING AND COMPANY EACH AGREES THAT THE COURTS OF TEXAS WILL HAVE
JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
(b) HOLDING AND COMPANY EACH HEREBY WAIVES PERSONAL SERVICE OF ANY
LEGAL PROCESS UPON IT. IN ADDITION, HOLDING AND COMPANY EACH AGREES THAT
SERVICE OF PROCESS MAY BE MADE UPON IT BY REGISTERED MAIL (RETURN RECEIPT
REQUESTED) DIRECTED TO IT AT ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS
AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON RECEIPT BY
IT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF AGENT OR ANY LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 13. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK. SIGNATURE PAGES FOLLOW.]
-4-
<PAGE>
IN WITNESS WHEREOF, this Amendment and Waiver is executed as of the date
first set forth above.
Holding: NU-KOTE HOLDING, INC.
By: /s/ STEVEN J. DIPASQUALE
-----------------------------------
Name: Steven J. Dipasquale
----------------------------------
Title: Treasurer
--------------------------------
Company: NU-KOTE INTERNATIONAL, INC.
By: /s/ STEVEN J. DIPASQUALE
-----------------------------------
Name: Steven J. Dipasquale
----------------------------------
Title: Treasurer
--------------------------------
Agent: NATIONSBANK OF TEXAS, N.A.
By: /s/ WILLIAM E. LIVINGSTONE
-----------------------------------
Name: William E. Livingstone, IV
Title: Senior Vice President
Documentation Agent: BARCLAYS BANK PLC
By: /s/ BEN J. MARCIANO
-----------------------------------
Name: Ben J. Marciano
----------------------------------
Title: Vice President
--------------------------------
Lenders and Eurocurrency NATIONSBANK OF TEXAS, N.A.
Lenders:
Address: By: /s/ WILLIAM E. LIVINGSTONE
901 Main Street, 66th Floor -----------------------------------
Dallas, Texas 75202 Name: William E. Livingstone, IV
Attn: Mr. William E. Livingstone, IV Title: Senior Vice President
Senior Vice President
<PAGE>
BARCLAYS BANK PLC
Address: By: /s/ BEN J. MARCIANO
222 Broadway -----------------------------------
New York, New York 10038
Attn: L. Peter Yetman Name: Ben J. Marciano
Associate Director ---------------------------------
Title: Vice President
--------------------------------
ABN AMRO BANK, N.V.
Address: By: /s/ LAURIE C. TUZO
Three Riverway, Suite 1700 -----------------------------------
Houston, Texas 77056
Attn: Laurie C. Tuzo Name: Laurie C. Tuzo
Vice President ---------------------------------
Title: Group Vice President
--------------------------------
By: /s/ RONALD A. MAHLE
-----------------------------------
Name: Ronald A. Mahle
---------------------------------
Title: Group Vice President
--------------------------------
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY
Address: By: /s/ ERIC. R. KAGERER
Promenade Two, Suite 3500 -----------------------------------
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309 Name: Eric. R. Kagerer
Attn: Harry P. Yergey ---------------------------------
Vice President
Title: Vice President
--------------------------------
By: /s/ MARY B. SMITH
-----------------------------------
Name: Mary B. Smith
---------------------------------
Title: Asst. Vice President
--------------------------------
CREDIT LYONNAIS, NEW YORK BRANCH
Address: By:
2200 Ross Avenue, Suite 4400 W -----------------------------------
Dallas, Texas 75201
Attn: Timothy M. O'Connor Name:
Assistant Vice President ---------------------------------
Title:
--------------------------------
<PAGE>
DEUTSCHE BANK, A.G., NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
Address: By:
31 W. 52nd Street, 24th Floor -----------------------------------
New York, New York 10019
Attn: Gregory M. Hill Name:
Vice President ---------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
FIRST AMERICAN NATIONAL BANK
Address: By: /s/ COREY NAPIER
4th & Union Street AA-0310 -----------------------------------
Nashville, Tennessee 37238
Attn: Corey Napier Name: Corey Napier
---------------------------------
Title: Vice President
--------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
Address: By: /s/ KATHLEEN COMELLA
One First National Plaza -----------------------------------
Mail Suite 0364
Chicago, Illinois 60670-0364 Name: Kathleen Comella
Attn: Stephen C. Price ---------------------------------
Vice President
Title: Vice President
--------------------------------
SOCIETE GENERALE
Address: By: /s/ RICHARD M. LEWIS
Trammell Crow Center -----------------------------------
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201 Name: Richard M. Lewis
Attn: Richard Lewis ---------------------------------
Vice President
Title: Vice President
--------------------------------
<PAGE>
CONSENTED AND AGREED TO BY EUROCURRENCY BORROWERS:
PELIKAN SCOTLAND LIMITED
By: /s/ GERARD MCNALLY
--------------------------------
Name: Gerard McNally
------------------------------
Title: Director
-----------------------------
PELIKAN PRODUKTIONS AG
By: /s/ HANS PAFFHAUSEN
--------------------------------
Name: Hans Paffhausen
------------------------------
Title: Director
-----------------------------
PELIKAN HARDCOPY (INTERNATIONAL) AG
By: /s/ HANS PAFFHAUSEN
--------------------------------
Name: Hans Paffhausen
------------------------------
Title: Managing Director
-----------------------------
<PAGE>
CONSENT
Each of the undersigned, as Guarantors under a "Subsidiary Guaranty" and
as grantors under one or more "Subsidiary Security Documents" (as such terms
are defined in the Credit Agreement referred to in the foregoing Amendment
and Waiver), each hereby consents and agrees to the foregoing Amendment and
Waiver and agrees that (i) each Subsidiary Guaranty and Subsidiary Security
Document is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects except that, upon the effectiveness of
and on and after the date of such Amendment and Waiver each reference to the
Credit Agreement, "thereunder", "thereof" or words of like import referring
to the Credit Agreement shall mean and be a reference to the Credit Agreement
as amended by such Amendment and Waiver, and (ii) the collateral described in
the Subsidiary Security Documents shall continue to secure the payment of the
indebtedness therein described.
FUTURE GRAPHICS, INC.
By: /s/ STEVEN J. DIPASQUALE
-----------------------------------
Name: Steven J. Dipasquale
---------------------------------
Title: Asst. Chief Financial Officer
--------------------------------
INTERNATIONAL COMMUNICATION
MATERIALS, INC.
By: /s/ STEVEN J. DIPASQUALE
-----------------------------------
Name: Steven J. Dipasquale
---------------------------------
Title: Asst. Treasurer
--------------------------------
NU-KOTE IMAGING INTERNATIONAL, INC.
By: /s/ STEVEN J. DIPASQUALE
-----------------------------------
Name: Steven J. Dipasquale
---------------------------------
Title: Asst. Treasurer
--------------------------------
NU-KOTE IMPERIAL, LTD.
By: /s/ STEVEN J. DIPASQUALE
-----------------------------------
Name: Steven J. Dipasquale
---------------------------------
Title: Asst. Treasurer
--------------------------------
<PAGE>
EXHIBIT 11.1
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
DECEMBER 27, DECEMBER 29,
1996 1995
------------ ------------
PRIMARY
- -------
Shares outstanding:
Weighted average number of shares outstanding 21,775 21,603
Net effect of dilutive stock options (1) 1,047
------- -------
21,775 22,650
------- -------
------- -------
Net income (loss) $(4,029) $ 2,020
------- -------
------- -------
Net income (loss) per common share $ (0.19) $ 0.09
------- -------
------- -------
FULLY DILUTED
- -------------
Shares outstanding:
Weighted average number of shares outstanding 21,775 21,603
Net effect of dilutive stock options (1) 1,090
------- -------
21,775 22,693
------- -------
------- -------
Net income (loss) $(4,029) $ 2,020
------- -------
------- -------
Net income (loss) per common share $ (0.19) $ 0.09
------- -------
------- -------
<PAGE>
EXHIBIT 11.1 (CONTINUED)
NU-KOTE HOLDING, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
--------------------------
DECEMBER 27, DECEMBER 29,
1996 1995
------------ ------------
PRIMARY
- -------
Shares outstanding:
Weighted average number of shares outstanding 21,764 21,498
Net effect of dilutive stock options (1) 964
------- -------
21,764 22,462
------- -------
------- -------
Net income (loss) $(4,566) $ 8,756
------- -------
------- -------
Net income (loss) per common share $ (0.21) $ 0.39
------- -------
------- -------
FULLY DILUTED
- -------------
Shares outstanding:
Weighted average number of shares outstanding 21,764 21,498
Net effect of dilutive stock options (1) 1,089
------- -------
21,764 22,587
------- -------
------- -------
Net income (loss) $(4,566) $ 8,756
------- -------
------- -------
Net income (loss) per common share $ (0.21) $ 0.39
------- -------
------- -------
- ----------------------
(1) The net effects for the three and nine month periods ended December 29,
1995 are based upon the treasury stock method using average market price
during the periods for the primary amounts, and the higher of the average
market price or the market price at the end of the period for the fully
diluted amounts. For the three and nine month periods ended December 27,
1996 stock options are not considered as those periods resulted in net
losses, making the stock options anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-27-1996
<CASH> 4,667
<SECURITIES> 0
<RECEIVABLES> 75,769
<ALLOWANCES> 4,129
<INVENTORY> 108,632
<CURRENT-ASSETS> 211,480
<PP&E> 121,034
<DEPRECIATION> 32,961
<TOTAL-ASSETS> 337,873
<CURRENT-LIABILITIES> 92,129
<BONDS> 122,597
0
0
<COMMON> 223
<OTHER-SE> 98,063
<TOTAL-LIABILITY-AND-EQUITY> 337,873
<SALES> 256,621
<TOTAL-REVENUES> 256,621
<CGS> 195,331
<TOTAL-COSTS> 195,331
<OTHER-EXPENSES> 63,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,014
<INCOME-PRETAX> (7,661)
<INCOME-TAX> (3,095)
<INCOME-CONTINUING> (4,566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,566)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
