UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-19835
DAY RUNNER, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3624280
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
15295 Alton Parkway
Irvine, California 92618
(Address and zip code of principal executive offices)
(714) 680-3500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No|_|
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date:
Class Number of Shares Outstanding at February 6, 1997
- -------------------------- --------------------------------------------------
Common Stock, $0.001 par value 6,344,297
<PAGE>
DAY RUNNER, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page Reference
COVER PAGE....................................................................1
INDEX.........................................................................2
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1996 and June 30, 1996....................3
Consolidated Statements of Income
Three Months and Six Months Ended
December 31, 1996 and 1995..............................4
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1996 and 1995............5
Notes to Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............8
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......13
Item 6. Exhibits and Reports on Form 8-K.........................13
SIGNATURES....................................................................15
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1996 1996
------------ -----------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 31,711 $ 19,765
Accounts receivable (less allowances for doubtful accounts and sales returns
and other allowances of $8,247 and $7,374 at December 31, 1996 and
June 30, 1996, respectively)............................................... 20,185 21,441
Inventories..................................................................... 18,265 20,040
Prepaid expenses and other current assets....................................... 1,890 1,710
Income taxes receivable......................................................... 1,930
Deferred income taxes........................................................... 5,200 5,200
--------- ---------
Total current assets....................................................... 77,251 70,086
--------- ---------
Property and equipment -- At cost:
Machinery and equipment......................................................... 8,075 6,942
Data processing equipment and software.......................................... 5,475 4,707
Leasehold improvements.......................................................... 1,614 1,514
Vehicles........................................................................ 275 202
--------- ---------
Total...................................................................... 15,439 13,365
Less accumulated depreciation and amortization.................................. 7,334 5,864
--------- ---------
Property and equipment -- net................................................... 8,105 7,501
--------- ---------
Other assets......................................................................... 342 344
--------- ---------
Total assets......................................................................... $ 85,698 $ 77,931
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 5,591 $ 8,063
Accrued expenses................................................................ 11,167 10,370
Current portion of capital lease obligations.................................... 16
Income taxes payable............................................................ 482
--------- ---------
Total current liabilities.................................................. 17,256 18,433
--------- ---------
Long-term liabilities -
Capital lease obligations....................................................... 72
---------
Stockholders' equity:
Preferred stock (1,000,000 shares authorized, $0.001 par value; no shares issued
or outstanding).............................................................
Commonstock (14,000,000 shares authorized, $0.001 par value; 6,344,140 and
6,304,771 issued and outstanding at December 31, 1996 and
June 30, 1996, respectively).............................................. 6 6
Additional paid-in capital...................................................... 23,257 22,869
Retained earnings............................................................... 44,972 36,620
Cumulative translation adjustment............................................... 135 3
--------- ---------
Total stockholders' equity................................................. 68,370 59,498
--------- ---------
Total liabilities and stockholders' equity........................................... $ 85,698 $ 77,931
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales........................................................ $ 35,014 $ 40,058 $ 68,563 $ 72,864
Cost of goods sold........................................... 16,656 19,380 32,748 35,731
--------- --------- --------- ---------
Gross profit................................................. 18,358 20,678 35,815 37,133
--------- --------- --------- ---------
Operating expenses:
Selling, marketing and distribution..................... 7,741 8,372 15,601 15,843
General and administrative.............................. 3,413 4,091 6,807 7,610
--------- --------- --------- ---------
Total operating expenses............................ 11,154 12,463 22,408 23,453
--------- --------- --------- ---------
Income from operations....................................... 7,204 8,215 13,407 13,680
Net interest income.......................................... 303 104 513 158
--------- --------- --------- ---------
Income before provision for income taxes..................... 7,507 8,319 13,920 13,838
Provision for income taxes................................... 3,003 3,397 5,568 5,743
--------- --------- --------- ---------
Net income................................................... $ 4,504 $ 4,922 $ 8,352 $ 8,095
========= ========= ========= =========
Earnings per common and common equivalent share.............. $ 0.67 $ 0.75 $ 1.25 $ 1.25
========= ========= ========= ========
Weighted average number of common and common
equivalent shares................................... 6,678 6,584 6,692 6,497
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
Net income.................................................................... $ 8,352 $ 8,095
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization.............................................. 1,566 854
Provision for losses on accounts receivable................................ 214 485
Write-off of barter credits................................................ 220
Changes in operating assets and liabilities:
Accounts receivable..................................................... 1,091 (3,700)
Inventories............................................................. 1,867 7,374
Prepaid expenses and other current assets............................... (171) 391
Income taxes receivable................................................. 1,930
Accounts payable........................................................ (2,571) (3,735)
Accrued expenses........................................................ 785 2,524
Income taxes payable.................................................... 482 (1,246)
--------- ---------
Net cash provided by operating activities............................ 13,545 11,262
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment......................................... (2,080) (1,497)
Other assets.................................................................. 2 (6)
--------- ---------
Net cash used in investing activities.................................... (2,078) (1,503)
---------- ---------
Cash flows from financing activities:
Repayment of long-term debt................................................... (77)
Repayment of capital lease obligations........................................ (8)
Net proceeds from issuance of common stock.................................... 388 1,049
--------- ---------
Net cash provided by financing activities................................ 388 964
--------- ---------
Effect of exchange rate changes in cash........................................... 91 130
--------- ---------
Net increase in cash and cash equivalents......................................... 11,946 10,853
Cash and cash equivalents at beginning of period.................................. 19,765 4,269
--------- ---------
Cash and cash equivalents at end of period........................................ $ 31,711 $ 15,122
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
DAY RUNNER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information relating to the three months and six months ended
December 31, 1996 and 1995 is unaudited)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying consolidated balance sheet as of December 31, 1996,
consolidated statements of income for the three-month and six-month periods
ended December 31, 1996 and 1995 and consolidated statements of cash flows for
the six-month periods ended December 31, 1996 and 1995 are unaudited but, in the
opinion of management, include all adjustments consisting of normal, recurring
accruals necessary for a fair presentation of the financial position and the
results of operations for such periods. Certain information and footnote
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been omitted pursuant to the
requirements of the Securities and Exchange Commission, although the Company
believes that the disclosures included in the financial statements included
herein are adequate to make the information therein not misleading. The
financial statements included herein should be read in conjunction with the
Company's audited consolidated financial statements for the year ended June 30,
1996, and the notes thereto, which are included in the Company's Annual Report
on Form 10-K.
The results of operations for the three months and six months ended
December 31, 1996 and 1995 are not necessarily indicative of the results for a
full year. The seasonality of the Company's financial results and the
unpredictability of the factors affecting such seasonality make the Company's
quarterly and yearly financial results difficult to predict and subject to
significant fluctuation.
2. LINE OF CREDIT
Effective November 1, 1996, the Company amended its credit agreement
with a bank. The amended terms of the agreement allow the Company to borrow up
to $5,000,000 under a line of credit and open commercial letters of credit or
open standby letters of credit up to $5,000,000 through November 1, 1997.
However, in no event may the aggregate of borrowings and letters of credit
exceed $5,000,000. Commercial letters of credit and standby letters of credit
shall be issued for a term not to exceed 180 days and shall not expire
subsequent to February 1, 1998 and May 1, 1998, respectively. Borrowings are
collateralized by accounts receivable, inventories and certain other assets.
Borrowings under the line of credit bear interest either at the bank's prime
rate (8.25% at December 31, 1996) or at LIBOR (5.50% at December 31, 1996) plus
1.75%, at the Company's election. The credit agreement requires the Company to
maintain total debt to tangible net worth of not more than 1.5 to 1 and to
maintain certain specified operating ratios. The agreement also requires that
the Company obtain the bank's approval to declare or pay dividends in excess of
$200,000.
3. STOCKHOLDERS' EQUITY
During the six months ended December 31, 1996, certain directors,
officers and employees exercised options and warrants to purchase an aggregate
of 39,369 shares of the Company's Common Stock for an aggregate of approximately
$388,000.
4. OTHER TRANSACTIONS
During fiscal 1995 and calendar 1993, the Company entered into barter
agreements whereby it delivered $132,000 and $1,098,000, respectively, of its
inventory in exchange for future advertising credits and other items. The
credits, which expire in October 1998, are valued at the lower of the Company's
cost or market value of the inventory transferred. The Company has recorded
barter credits of $36,000 in prepaid expenses and other current assets at
December 31, 1996 and at June 30, 1996. At December 31, 1996 and June 30, 1996,
other assets include $279,000 of such credits. These credits are charged to
expense as they are used. During the six months ended December 31, 1996 and
1995, no amounts were charged to expense for barter credits used.
The Company assesses the recoverability of barter credits periodically.
Factors considered in evaluating the recoverability include management's plans
with respect to advertising and other expenditures for which barter credits can
be used. Any impairment losses are charged to operations as they are
determinable. During the six months ended December 31, 1995, the Company charged
$220,000 to operations for such impairment losses. No amounts were charged to
operations during the six months ended December 31, 1996 for such impairment
losses.
5. EARNINGS PER SHARE
Earnings per share information is computed using the weighted average
number of shares of common stock outstanding and dilutive common equivalent
shares from stock options and warrants. For the three months and six months
ended December 31, 1996 and 1995, the Company used the treasury stock method and
modified treasury stock method, respectively, of computing earnings per share.
6. STATEMENTS OF CASH FLOW
Capital lease obligations totaling $88,000 were incurred during the
three months ended December 31, 1996 when the Company entered into leases to
acquire certain vehicles.
Six Months Ended December 31,
1996 1995
------------------------------
Supplemental disclosure of cash flow
information (in thousands)-
Cash paid during the period for:
Interest $ 56 $ 65
Income taxes $ 3,174 $ 6,989
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto included elsewhere in this Quarterly Report. Historical results and
percentage relationships among any amounts included in the Consolidated
Financial Statements are not necessarily indicative of trends in operating
results for any future period.
Since the Company's introduction of the first Day Runner System
organizer in 1982, the Company's revenues have been generated by unit sales
primarily of organizers and planners and secondarily of refills. Sales increases
have resulted from higher sales of existing products, new products and product
line extensions. The Company focuses the great majority of its product
development, sales and marketing efforts on the office products channel, which
accounted for 58.7% of second quarter fiscal 1997 sales and 55.9% of sales for
the six months ended December 31, 1996, and the mass market channel, which
accounted for 30.1% of second quarter fiscal 1997 sales and 33.6% of sales for
the six months ended December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that income statement items bear to sales and the percentage change
in the dollar amounts of such items.
<TABLE>
<CAPTION>
Percentage Change
-----------------
Percentage of Sales Three Six
------------------- Months Months
Three Six Ended Ended
Months Ended Months Ended December 31, December 31,
December 31, December 31, 1995 1995
1996 1995 1996 1995 to 1996 to 1996
---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales............................................ 100.0% 100.0% 100.0% 100.0% (12.6)% (5.9)%
Cost of goods sold............................... 47.6 48.4 47.8 49.0 (14.1) (8.3)
----- ----- ----- -----
Gross profit..................................... 52.4 51.6 52.2 51.0 (11.2) (3.5)
----- ----- ----- -----
Operating expenses:
Selling, marketing and distribution........... 22.1 20.9 22.8 21.7 (7.5) (1.5)
General and administrative.................... 9.7 10.2 9.9 10.5 (16.6) (10.6)
----- ----- ----- -----
Total operating expenses.................... 31.8 31.1 32.7 32.2 (10.5) (4.5)
----- ----- ----- -----
Income from operations........................... 20.6 20.5 19.5 18.8 (12.3) (2.0)
Net interest income.............................. 0.9 0.3 0.8 0.2 NM NM
---- ----- ----- -----
Income before provision for income taxes......... 21.5 20.8 20.3 19.0 (9.8) 0.6
Provision for income taxes....................... 8.6 8.5 8.1 7.9 (11.6) (3.0)
----- ----- ----- -----
Net income....................................... 12.9% 12.3% 12.2% 11.1% (8.5) 3.2
===== ===== ===== =====
</TABLE>
<PAGE>
The following tables set forth, for the periods indicated, the
Company's approximate sales by product category and distribution channel and as
a percentage of total sales.
<TABLE>
<CAPTION>
Product Category:
Three Months Ended December 31, Six Months Ended December 31,
1996 1995 1996 1995
-------------- ---------------- ----------------- -----------------
(unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Organizers and planners......... $20,179 57.6% $ 24,977 62.4% $41,240 60.1% $ 45,152 62.0%
Refills......................... 12,981 37.1 14,473 36.1 23,425 34.2 26,373 36.2
Other........................... 1,854 5.3 608 1.5 3,898 5.7 1,339 1.8
------- ------ ------- ----- -------- ----- -------- ------
Total........................ $35,014 100.0% $40,058 100.0% $ 68,563 100.0% $ 72,864 100.0%
======= ====== ======= ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Distribution Channel:
Three Months Ended December 31, Six Months Ended December 31,
1996 1995 1996 1995
------------- ----------------- ----------------- ------------------
(unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office products................. $20,546 58.7% $25,020 62.4% $ 38,329 55.9% $ 41,642 57.1%
Mass market..................... 10,525 30.1 11,813 29.5 23,005 33.6 23,580 32.4
Foreign customers............... 1,754 5.0 1,077 2.7 3,118 4.5 3,259 4.5
Other........................... 2,189 6.2 2,148 5.4 4,111 6.0 4,383 6.0
------- ---- ------- ----- -------- ---- -------- ----
Total........................ $35,014 100.0% $40,058 100.0% $ 68,563 100.0% $ 72,864 100.0%
======= ====== ======= ====== ======== ====== ======== ======
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THE THREE MONTHS ENDED DECEMBER 31, 1995
SALES. Sales consist of revenues from gross product shipments net of
allowances for returns, rebates and credits. In the second quarter of fiscal
1997, sales decreased by $5,044,000, or 12.6%, due primarily to lower unit sales
of organizers and planners. Sales of organizers and planners declined by
$4,798,000, or 19.2%, and sales of refills (which include calendars and
accessories) declined by $1,492,000, or 10.3%. These decreases were partially
offset by an increase in sales of miscellaneous products grouped together as
"other" which grew by $1,246,000, or 204.9%. Product sales were primarily to the
office products channel and secondarily to mass market customers. Sales to
office products customers declined by $4,474,000, or 17.9%, and sales to mass
market customers declined by $1,288,000, or 10.9%. These decreases were
partially offset by sales to foreign customers which grew by $677,000, or 62.9%;
and sales to miscellaneous customers grouped together as "other" which grew by
$41,000, or 1.9%.
GROSS PROFIT. Gross profit is sales less cost of goods sold, which is
comprised of materials, labor and manufacturing overhead. Gross profit may be
affected by, among other things, product mix, production levels, changes in
vendor and customer prices and discounts, sales volume and growth rate,
purchasing and manufacturing efficiencies, tariffs, duties and inventory
carrying costs. Gross profit as a percentage of sales increased from 51.6% in
the second quarter of fiscal 1996 to 52.4% in the second quarter of fiscal 1997
primarily because of a decrease in the provision for obsolete inventory, due to
the Company's better management of its dated goods inventory, and secondarily
because of improved purchasing efficiencies.
OPERATING EXPENSES. Total operating expenses decreased by $1,309,000,
or 10.5%, in the second quarter of fiscal 1997 compared with the second quarter
of fiscal 1996 but, because of the lower sales level, increased as a percentage
of sales from 31.1% to 31.8%. Due primarily to lower advertising and promotional
expenses and secondarily to decreased freight costs, selling, marketing and
distribution expenses decreased $631,000 but, because of the lower sales level,
increased as a percentage of sales from 20.9% to 22.1%. Primarily because of a
decrease in the provision for losses on accounts receivable, general and
administrative expenses decreased by $678,000 and from 10.2% to 9.7% as a
percentage of sales. During the quarter ended December 31, 1995, the Company had
recorded an additional reserve for a major customer that was experiencing
financial difficulties.
NET INTEREST INCOME. Primarily because of the Company's higher levels
of cash available for short-term investment, net interest income in the second
quarter of fiscal 1997 increased by $199,000 compared with the second quarter of
fiscal 1996 and increased as a percentage of sales from 0.3% to 0.9%.
INCOME TAXES. Primarily because of the improved financial results of
the Company's Hong Kong subsidiary, the Company's second quarter fiscal 1997
effective tax rate was 40.0%, compared with 40.8% for the second quarter of
fiscal 1996.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THE SIX MONTHS ENDED DECEMBER 31, 1995
SALES. In the six months ended December 31, 1996 compared with the six
months ended December 31, 1995, sales decreased by $4,301,000, or 5.9%, due
primarily to lower unit sales of organizers and planners and secondarily to
lower sales of refills. Sales of organizers and planners declined by $3,912,000,
or 8.7%, and sales of refills declined by $2,948,000, or 11.2%. These decreases
were partially offset by an increase in sales of miscellaneous products grouped
together as "other," which grew by $2,559,000, or 191.1%. Product sales were
primarily to the office products channel and secondarily to mass market
customers. Sales to office products customers declined by $3,313,000, or 8.0%;
sales to mass market customers declined by $575,000, or 2.4%; sales to foreign
customers declined by $141,000, or 4.3%; and sales to miscellaneous customers
grouped together as "other" decreased by $272,000, or 6.2%.
GROSS PROFIT. Gross profit as a percentage of sales increased from
51.0% in the first six months of fiscal 1996 to 52.2% in the first six months of
fiscal 1997 primarily because of improved purchasing efficiencies and
secondarily because of a decrease in the provision for obsolete inventory, due
to the Company's better management of its inventory.
OPERATING EXPENSES. Total operating expenses decreased by $1,045,000,
or 4.5%, in the first six months of fiscal 1997 compared with the first six
months of fiscal 1996, but, because of the lower sales level, increased as a
percentage of sales from 32.2% to 32.7%. Due primarily to lower advertising and
promotional expenses and secondarily to lower freight costs, selling, marketing
and distribution expenses decreased $242,000 but, because of the lower sales
level, increased as a percentage of sales from 21.7% to 22.8%. Primarily because
of a decrease in the provision for losses on accounts receivable and secondarily
to lower legal and accounting costs, general and administrative expenses
decreased by $803,000 and from 10.5% to 9.9% as a percentage of sales. During
the six months ended December 31, 1995, the Company had recorded an additional
reserve for a major customer that was experiencing financial difficulties.
NET INTEREST INCOME. Primarily because of the Company's higher levels
of cash available for short-term investment, net interest income in the first
six months of fiscal 1997 increased by $355,000 compared with the first six
months of fiscal 1996 and increased as a percentage of sales from 0.2% to 0.8%.
INCOME TAXES. Primarily because of the improved financial results of
the Company's Hong Kong subsidiary, the effective tax rate for the first six
months of fiscal 1997 was 40.0%, compared with 41.5% for the first six months of
fiscal 1996.
SEASONAL FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience significant seasonal fluctuations in its sales and other financial
results that it believes have resulted and will continue to result primarily
from its customers' and users' buying patterns. These buying patterns have
typically adversely affected orders for the Company's products in the third
quarter of each fiscal year.
Although it is difficult to predict the future seasonality of sales,
the Company believes that future seasonality should be influenced at least in
part by customer and user buying patterns similar to those that have
historically affected the Company. Quarterly financial results are also affected
by timing and size of orders from large customers, new product introductions and
line extensions, timing and size of orders for new products, changes in product
mix, customer mix, competition, large customers' inventory management, vendor
and customer pricing, general economic conditions, the health of the retail
environment, production levels, supply constraints, manufacturing delays and
supplier performance. The seasonality of the Company's financial results and the
unpredictability of the factors affecting such seasonality make the Company's
quarterly and yearly financial results difficult to predict and subject to
significant fluctuation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at December 31, 1996 increased
to $31,711,000 from $19,765,000 at June 30, 1996. In the six months ended
December 31, 1996, net cash of $13,545,000 and $388,000 provided by operating
activities and financing activities, respectively, offset net cash of $2,078,000
used in investing activities. Of the $13,545,000 net amount provided by the
Company's operating activities, $8,352,000 was provided by net income,
$1,930,000 was provided by a decrease in income taxes receivable, $1,867,000 was
provided by a decrease in inventories and $1,566,000 was provided by
depreciation and amortization, which amounts were partially offset by a decrease
of $2,571,000 in accounts payable. The $388,000 net amount provided by the
Company's financing activities was provided by the issuance of Common Stock upon
exercise of then-outstanding stock options and warrants. The $2,078,000 used in
the Company's investing activities was used to acquire primarily machinery and
equipment and secondarily computer equipment and software.
Primarily because of the decrease in sales and the timing of orders and
shipments, accounts receivable (net) at December 31, 1996 decreased by 5.9% from
the fiscal 1996 year-end amount. Compared with the December 31, 1995 amount,
accounts receivable (net) decreased by 10.6% primarily because of the decrease
in sales. The average collection period of accounts receivable at December 31,
1996 was 47 days, compared with 43 days at June 30, 1996 and December 31, 1995,
respectively.
Inventories at December 31, 1996 decreased by 8.9% compared with the
fiscal 1996 year-end amount and by 4.6% from the December 31, 1995 amount
primarily because of the Company's improved control and management of inventory
levels.
The Company's bank line of credit allows for borrowings and the
issuance of commercial or standby letters of credit up to an aggregate of
$5,000,000. Borrowings under the line of credit bear interest at either the
bank's prime rate or at LIBOR plus 1.75%, at the Company's election, and are due
and payable in full on November 1, 1997. At December 31, 1996, Day Runner had no
borrowings under its bank line of credit but had used the line of credit to
secure outstanding letters of credit of approximately $1,133,000, which reduced
the availability under the line of credit to approximately $3,867,000. (See Note
2 to Consolidated Financial Statements.)
The Company has not incurred significant losses or gains from foreign
currency exchange rate fluctuations. The continuing expansion of the Company's
operations in Hong Kong, Mexico and the United Kingdom could, however, result in
larger gains or losses as a result of fluctuations in foreign currency exchange
rates as those subsidiaries conduct business in whole or in part in foreign
currencies.
The Company believes that cash flow from operations, vendor credit, its
existing working capital and its bank line of credit will be sufficient to
satisfy the Company's anticipated cash requirements at least through the next 12
months. Nonetheless, the Company may seek additional sources of capital as
necessary or appropriate to finance acquisitions or to otherwise finance the
Company's growth or operations; however, there can be no assurance that such
funds if needed will be available on favorable terms, if at all.
<PAGE>
PART II --OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a)On December 4, 1996, the Company held its 1996 Annual
Meeting of Stockholders (the "Annual Meeting").
(b)At the Annual Meeting, the Company's stockholders elected
the following persons as directors of the Company. The
number of votes cast for each director, as well as the
number of votes withheld, are listed opposite each
director's name.
Name Votes
of Cast for Votes
Director Director Withheld
-------- -------- --------
James P. Higgins 5,075,010 8,886
Jill Tate Higgins 5,074,911 8,985
Charles Miller 5,074,610 9,286
Alan R. Rachlin 5,076,110 7,786
Mark A. Vidovich 5,076,210 7,686
Boyd I. Willat 5,073,794 10,102
Felice Willat 5,074,128 9,768
(c)At the Annual Meeting, the stockholders approved, with
4,457,752 votes cast in favor, 546,104 votes cast against,
23,274 abstentions and 56,766 broker nonvotes, the
amendment to the Company's 1995 Stock Option Plan to
increase the aggregate number of shares authorized for
issuance thereunder from 300,000 to 500,000 shares.
(d)At the Annual Meeting, the stockholders approved, with
4,621,221 votes cast in favor, 379,248 votes cast against,
26,661 abstentions and 56,766 broker nonvotes, the
Company's grant to each of its non-employee directors of a
warrant to purchase 25,000 shares of the Company's Common
Stock.
(e)At the Annual Meeting, with 5,073,229 votes cast in
favor, 5,317 votes cast against and 5,350 abstentions, the
stockholders ratified the appointment of Deloitte & Touche
LLP as independent auditors for the Company for the fiscal
year ending June 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment No. 1, dated October 21, 1996, to the
Company's 1995 Stock Option Plan.(1)
10.2 Form of Warrant to purchase shares of the
Registrant's Common Stock issued to non-employee
directors on December 4, 1996 and schedule of
warrantholders.(1)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1996.
(1)Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (Registration No. 333-20247) filed with the Commission on
January 23, 1997.
<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 12, 1997
Day Runner, Inc.
By: /s/ MARK A. VIDOVICH
-----------------------------------
Mark A. Vidovich
Chairman of the Board and
Chief Executive Officer
By: /s/ DENNIS K. MARQUARDT
-----------------------------------
Dennis K. Marquardt
Executive Vice President,
Finance & Administration
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of income filed as
part of the quarterly report on Form 10-Q and is qualified in its entirety by
reference to such quarterly report on Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Dec-31-1996
<CASH> 31,711
<SECURITIES> 0
<RECEIVABLES> 28,432
<ALLOWANCES> 8,247
<INVENTORY> 18,265
<CURRENT-ASSETS> 77,251
<PP&E> 15,439
<DEPRECIATION> 7,334
<TOTAL-ASSETS> 85,698
<CURRENT-LIABILITIES> 17,256
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 68,364
<TOTAL-LIABILITY-AND-EQUITY> 85,698
<SALES> 68,563
<TOTAL-REVENUES> 68,563
<CGS> 32,748
<TOTAL-COSTS> 32,748
<OTHER-EXPENSES> 22,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (513)
<INCOME-PRETAX> 13,920
<INCOME-TAX> 5,568
<INCOME-CONTINUING> 8,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,352
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
