UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
Commission file number 0-19835
DAY RUNNER, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3624280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
15295 Alton Parkway, Irvine, California 92618
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 680-3500
Securities registered pursuant to Section 12(b) of
the Act: None Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.|X|
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing price of the Common Stock on September
16, 1997 as reported on The Nasdaq Stock Market, was approximately $207,000,000.
The number of shares outstanding of the registrant's Common Stock on
September 16, 1997 was 5,598,084.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be delivered
to stockholders in connection with their Annual Meeting of Stockholders to be
held on November 25, 1997 are incorporated by reference into Part III of this
Annual Report.
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Day Runner", Inc. ("Day Runner") is the leading developer, manufacturer and
marketer of paper-based organizers for the retail market. We also develop,
manufacture and market related organizing products. Day Runner's products are
carried by more than 20,000 retail stores across the U.S.
We market our products to customers through our own sales force,
through manufacturers' representatives and, in certain markets outside the U.S.,
through independent distributors. Our major customers in each of our primary
domestic channels include: office products superstores Office Depot, Inc.,
OfficeMax, Inc. and Staples, Inc.; office products national wholesalers United
Stationers Supply Co. and S.P. Richards Company; office products dealer
McWhorter Stationers Company, Inc.; and mass market retailers Wal-Mart, Kmart
and PriceCostco. Sales to the office products and mass market channels accounted
for approximately 47% and 42%, respectively, of fiscal 1997 sales.
Our organizers and planners are loose-leaf and spiral-bound time and
information management systems that range from simple to sophisticated. For
example, our flagship Day Runner System organizers include not only the
traditional planner components of appointment calendar, telephone/address
section and note pad but also interrelated pages for managing time and
information, tracking expenses, establishing goals and planning projects.
Segmenting the market for organizers and planners is a key element of our
strategy. We aim our product lines at market segments ranging from students to
women shopping in the mass market to business and professional people and offer
many of our organizers and planners in a choice of sizes, styles, cover
materials and colors. Suggested retail prices for our organizers and planners
range from $5 to $150. Organizers and planners accounted for approximately 58%
of our fiscal 1997 sales.
Most of our organizers and planners are refillable. Refills, which
include calendars and accessories, accounted for approximately 34% of our sales
in fiscal 1997. Suggested retail prices for refills, which include calendars,
other pages and accessories, range from $0.75 to $40.
Our related organizing products include telephone/address books,
traditional spiral dated goods, products for students from elementary school
through college, personal information management (PIM) software intended to
complement our paper-based organizers and our new Home Manager on-refrigerator
organizer. This category accounted for approximately 8% of fiscal 1997 sales.
With the exception of our software product and the calculators we
include in certain of our products and sell as accessories, all of our current
products have been developed internally. We manufacture and assemble a portion
of our products at our Fullerton, California facility and our Mexican subsidiary
and also use foreign and domestic contractors to supply both product components
and finished goods.
<PAGE>
BUSINESS STRATEGY
Day Runner sells broad-based personal organizing products through
retail distribution channels. Our strategy is to leverage our brand name
awareness and distribution strength to maximize sales of our existing products,
extend those product lines and introduce new product lines. Key elements of our
strategy include:
o Segmenting the market for organizers and planners.
o Entering related organizing product categories.
o Building sales through major customers.
o Marketing to increase sales.
o Expanding foreign sales.
o Providing excellent customer service.
SEGMENTING THE MARKET FOR ORGANIZERS AND PLANNERS. In order to expand
and segment our market, we offer our organizers and planners in a broad range of
systems, sizes, styles and cover materials and at suggested retail prices
ranging from $5 to $150. As a result, our products appeal to a large consumer
market comprised of users with differing needs, tastes and budgets and are
appropriate for sale through a broad range of retailers. Versatile Day Runner
System organizers and planners are suitable for use by adults in virtually all
walks of life. Specific target markets addressed by other Day Runner organizers
and planners include business and professional people, cost-conscious consumers,
young women shopping in the mass market and students from elementary school
through college, among others.
ENTERING RELATED ORGANIZING PRODUCT CATEGORIES. Day Runner believes
that related personal organizing products offer us an opportunity to leverage
our brand name and distribution and build upon our heritage in the area of
personal organization. Our strategy is to:
o Redefine existing product categories as value-added and offer
a superior price/value relationship to the consumer.
o Create new categories of personal organizing products.
o Gain initial distribution through our existing customers.
o Produce sales results we can build upon.
<PAGE>
BUILDING SALES THROUGH MAJOR CUSTOMERS. To reach consumers with differing
needs and varying retail shopping habits, we distribute our products in the U.S.
through multiple channels, including:
o Office products superstores, wholesalers and dealers.
o Mass market retailers, including discount department stores,
wholesale clubs, drug chains, chain groceries and other mass
market retailers.
o A wide variety of other customers, including book, department,
gift, leather and luggage, stationery and other specialty
stores and the U.S. Government.
Day Runner's products are carried by more than 20,000 retail outlets in
the U.S., including the leaders in our key office products and mass market
channels of distribution. Our strategy is to grow our sales through our major
customers by increasing our everyday shelf space where appropriate, continuing
to expand our product selection, serving the back-to-school market and creating
other seasonal, promotional and product opportunities.
MARKETING TO INCREASE SALES. We market our products to customers to
inform them of the benefits of selling Day Runner's products and to consumers to
further build brand name awareness and to maximize the productivity of the
retail shelf space our products occupy.
EXPANDING FOREIGN SALES. We are working to build our sales outside the
United States by focusing on key markets and offering products with features,
aesthetics and price points appropriate for those markets. We offer some of our
products in French, German and Spanish versions. We are currently launching
product lines designed especially for Europe and for Asia.
PROVIDING EXCELLENT CUSTOMER SERVICE. Day Runner believes that
excellent customer service can provide us with additional competitive advantage.
We serve customers from both our Fullerton plant and our Nashville,
Tennessee-area distribution center and ship directly to the individual retail
locations of a number of our large customers. We conduct business via EDI
(Electronic Data Interchange) with virtually all our key customers and recognize
the importance of continuing to implement applicable customer
service/distribution technology.
INDUSTRY OVERVIEW
ORGANIZER INDUSTRY. Day Runner has been instrumental in creating and
defining paper-based "organizers" as a product category in the United States.
Although time management products that included some "organizer" features had
been on the market for some time, the product category, as such, did not emerge
until the 1980s. We believe that the introduction of the Day Runner System in
1982 helped define the product category and, ultimately, led to the growth of
the organizer industry. By the late 1980s, organizers had become accepted tools
for improving individual and group productivity. (Because the distinctions
between organizers and planners have become blurred, except where otherwise
specified, we are using the terms "organizer" and "planner" interchangeably in
this report.)
Today, awareness of the organizer product category is widespread;
organizers are broadly accepted as substitutes for traditional dated goods; and
the usefulness of time management techniques is well recognized. Organizers are
sold through a wide variety of channels, including: office products superstores,
wholesalers and dealers; mass market retailers; book, department, gift, leather
and luggage, stationery and other specialty stores; and are sold direct to
organizations, the U.S. Government and individuals.
Day Runner believes the current principal competitive factors in the
paper-based retail organizer industry are distribution breadth, depth and
strength; brand name recognition; size and loyalty of user base; product
function, design, perceived quality and value; marketing capability; breadth of
product lines; financial resources; customer service; product development
capability; manufacturing/sourcing expertise; and price.
MARKET POTENTIAL. Day Runner believes that the growth in demand for
organizers and other personal organizing products in the United States is
attributable to a number of economic and cultural trends, including: the
increased percentage of women in the work force and the resulting prevalence of
two-income families; the continuing trend toward corporate downsizing; the
growth of the small business sector; the rising percentage of business done away
from the office; the greater emphasis on productivity; and the ongoing shift to
a service economy. Many of these trends contribute to widespread concerns with
saving and better using time and increasing personal productivity.
Day Runner's products address these concerns. We target both potential
first-time organizer users and existing users who may need refills or
replacements for their organizers. In addition, we believe that expansion into
related, non-organizer/planner products that provide other ways for people to
become better organized offers Day Runner an opportunity to reach consumers who
are not ready for an organizer or planner and to market additional Day Runner
branded products to consumers who already use a Day Runner organizer or planner.
Our goal is to offer one or more products that appeal to and meet the organizing
needs of virtually every American consumer, no matter what that individual's
income, occupation or age.
INDUSTRIES MARKETING SIMILAR OR SUBSTITUTE PRODUCTS. Day Runner's
products have features, functions or components in common with products in
several other industries. Our market overlaps to a limited extent that of
companies marketing: calendars, appointment books, agendas and diaries;
dry-erase boards; bulletin boards; small leather goods, which include
briefcases, folios, business card cases, etc.; and training products and
services designed to improve group and individual productivity and to upgrade
management skills. In addition, both PIM software and electronic organizers are
designed to fill many of the same needs addressed by paper-based organizers,
although virtually all PIM software products provide for paper-based output and
a number of such products allow users to print out pages in sizes that fit the
Company's organizers.
PRODUCTS
Day Runner's products are designed to help people become better
organized. We aim our products at various segments of a broad-based consumer
audience. Our goal is to provide "something for everyone" and to offer consumers
in each target segment the perception of broad choice and good value for their
money. Our products include:
o Multiple lines of paper-based organizers and planners.
o Refills, which include calendars and accessories.
o Related organizing products.
ORGANIZERS AND PLANNERS. Our organizers and planners are available in
varying systems, sizes, styles, cover materials and colors and at a broad range
of price points. These loose-leaf and spiral-bound portable "books" help users
keep "Everything in One Place(TM)." For example, in addition to the traditional
planner components of appointment calendar, telephone/address section and note
pad, Day Runner System organizers include, among other things, interrelated
pages for managing time and information, tracking expenses, establishing goals
and planning projects.
REFILLS. The great majority of our organizers, planners and
telephone/address books are refillable. Users may customize their loose-leaf
organizers and planners by choosing from a variety of additional pages and
accessories, ranging from Mileage Record, Strategy and Things To Do pages to
Currency/Checkbook Insert, Diskette Holders and a solar powered
Calculator/Ruler.
RELATED ORGANIZING PRODUCTS. Our related organizing products include
telephone/address books, traditional spiral dated goods, products for students
from elementary school through college, PIM software designed to complement our
paper-based organizers and our new Home Manager on-refrigerator organizer.
The following table sets forth, for the periods indicated, approximate
Day Runner sales by product category and as a percentage of total sales.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
Products 1997 1996 1995
-------- ------------------ ---------------- ---------------
(Unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Organizers and planners ... $ 73,858 58.0% $ 77,293 61.8% $ 84,473 69.4%
Refills ................... 43,264 34.0 43,473 34.7 35,240 28.9
Related organizing products 10,254 8.0 4,360 3.5 2,088 1.7
----- -------- ------ -------- ------
Total ............... $127,376 100.0% $125,126 100.0% $121,801 100.0%
======== ===== ======== ====== ======== ======
</TABLE>
Covers for Day Runner's organizers, planners and paper-based
related organizing products are made of leathers, vinyls and a variety of other
natural and man-made materials. In addition to holding loose-leaf or
spiral-bound pages, the covers of most of our organizers and loose-leaf planners
are also designed to hold note pads and many have additional features, such as
places to store pens, business and credit cards, calculators, loose papers and
spare keys.
<PAGE>
The following table sets forth basic price and other information
concerning our domestic product lines.
Current
Suggested
Current Products Retail Price(s)
-------------------- ---------------
Organizers and planners: ..................................... $5-150
Day Runner
DILBERT(TM)
FactCentre(TM)
THE FAR SIDE(R)
4-1-1 Student Planners(TM)
Looney Tunes(TM)
Mickey Unlimited(C)
Perennials(TM)
PRO Business System(R)
Refills (which include calendars, other pages and accessories) $0.75-40
Related organizing products:
Assignment books: .................................... $6-9.50
4-1-1
Mickey Unlimited
Executive accessories ................................ $4-50
Telephone/address books: ............................. $6-24
Day Runner
DILBERT
FactCentre
Looney Tunes
Perennials
Traditional spiral telephone/address books
Traditional spiral dated goods ....................... $4.30-35.75
Software:
Day Runner Planner for Windows(R) ................ $75
Other:
DILBERT Pocket Calendar .......................... $6-7
Home Manager(TM) ................................. $33.50-40
Mickey Unlimited Sticker Books ................... $6.50-10.50
Mickey Unlimited Sticker Diaries ................. $10-13.50
Day Runner and PRO Business System are registered trademarks, and Entrepreneur,
Everything in One Place, FactCentre, 4-1-1, Home Manager and Perennials are
trademarks, of Day Runner, Inc. DILBERT(C) is a trademark of United Feature
Syndicate, Inc. (C)Disney. THE FAR SIDE is a registered trademark of FarWorks,
Inc. LOONEY TUNES characters, names and all related indicia are trademarks of
Warner Bros. Post-it(R) is a registered trademark of 3M. VELCRO is a registered
trademark of VELCRO, USA, Inc. Windows is a registered trademark of Microsoft
Corporation.
<PAGE>
PRODUCT DEVELOPMENT
Day Runner's product development programs emphasize (i) identifying
unmet consumer needs and developing organizers, planners and related organizing
products to meet those needs; (ii) extending our existing product lines through
additional sizes, styles and materials; and (iii) augmenting the selection of
refills and accessories available for our product lines.
In addition, we monitor our existing products for continued
viability, needed enhancements, improvements in quality and potential reductions
in cost. With the exception of our software product and the calculators we
include in certain of our products and sell as accessories, all of our current
products have been developed internally, and products developed internally
accounted for substantially all of Day Runner's fiscal 1997 sales.
Since the introduction of the first Day Runner System organizer in
1982, we have transformed this single product into a broad line, which currently
includes three sizes and seventeen styles, each of which is available in up to
six different cover materials. The Entrepreneur Edition of the Day Runner
System, for example, has 8 1/2" x 11" pages and is available in three styles:
"notebook" with a snap closure; "notebook" with a VELCRO(R) flap closure; and
"attache" with a full-zippered closure and slide up handles.
In 1991, as part of our strategy of offering products aimed at more
cost-conscious consumers, we introduced the FactCentre line, which now includes
organizers, planners and telephone/address books.
In 1993, we introduced the first products in our PRO line. PRO Business
System organizers are aimed at people seeking a sophisticated but easy-to-use
organizing system that is designed specifically for business and professional
use.
In short fiscal 1994, we began shipping 4-1-1 Student Planners, a line
aimed at middle school, high school and college students and marketed primarily
for sale during the back-to-school consumer buying season.
In fiscal 1995, we added telephone/address books to our Day Runner and
FactCentre lines and launched Perennials, a line of organizers, planners and
telephone/address books aimed primarily at young women shopping in mass market
outlets.
In fiscal 1996, we launched our first licensed products: a line of
planners and telephone/address books featuring Warner Bros. Looney Tunes cartoon
characters and a line of "sticker books" and "sticker diaries" developed and
marketed under the Mickey Unlimited brand of Disney Enterprises. The Mickey
Unlimited Sticker Books and Diaries incorporate colorful stickers to make
planning and diary-keeping fun.
In fiscal 1996, we also introduced a line of spiral dated goods
designed for consumers who prefer traditional planning tools.
In fiscal 1997, we introduced THE FAR SIDE organizers featuring the
classic cartoons created by Gary Larson, a line of executive accessories,
including travel document holders, business card cases, business card files and
pad holders, and the Home Manager, a unique product that builds upon the
American family's habit of using the refrigerator door as a communication
center. The Home Manager combines a dry-erase board, bulletin board strip or
storage pocket, Post-it(R) notes in holder and dated monthly calendar and mounts
on a refrigerator via heavy-duty magnetic backing or on a wall with hooks.
Early in fiscal 1998, we began shipping a line of DILBERT organizers,
refills, telephone/address books and pocket calendars.
Developed under our direction, Day Runner Planner for Windows
software complements Day Runner's paper-based system. Our computer paper refills
allow users of Day Runner Planner for Windows and a number of other software
programs to print their computerized information on paper that looks like Day
Runner System or PRO Business System pages and carry it with them in their
organizers. Day Runner plans to introduce a version of this product designed for
Windows 95 during fiscal 1998.
SALES AND DISTRIBUTION
We market our products to customers through our own sales force,
through manufacturers' representatives and, in certain markets outside the U.S.,
through independent distributors. Our primary channels of distribution are
office products and the mass market.
Day Runner's products are carried by more than 20,000 retail stores
across the U.S. Our sales policies encourage smaller customers to purchase
through wholesalers. In fiscal 1997, we shipped directly to approximately 9,050
retail locations, to distribution centers serving approximately 9,650 retail
locations and to approximately 200 wholesalers, each of which serves a number of
dealers.
During fiscal 1997, Day Runner sold products to approximately 700
different customers, compared with approximately 730 in fiscal 1996. Our major
customers in each of our primary domestic channels include: office products
superstores Office Depot, Inc., OfficeMax, Inc. and Staples, Inc.; office
products national wholesalers United Stationers Supply Co. and S.P. Richards
Company; office products dealer McWhorter Stationers Company, Inc.; and mass
market retailers Wal-Mart, Kmart and PriceCostco. The only customers accounting
for 10% or more of the Company's fiscal 1997 sales were Wal-Mart Stores, Inc.
and its affiliates, including SAM'S Clubs; Office Depot, Inc. and its
affiliates; OfficeMax, Inc. and its affiliates; and Staples, Inc. and its
affiliates. These customers accounted for approximately 25%, 15%, 14% and 11%,
respectively, of fiscal 1997 sales. Including their affiliates, the top five
customers of the Company accounted for an aggregate of approximately 73% of
fiscal 1997 sales.
<PAGE>
The following table sets forth, for the periods indicated,
approximate Day Runner sales by distribution channel and as a percentage of
total sales.
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
Distribution Channel 1997 1996 1995
-------------------- ------------------ ------------------- ---------------------
(Unaudited; dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Office products channel. $ 59,416 46.7% $ 62,381 49.8% $ 56,717 46.6%
Mass market............. 53,785 42.2 46,804 37.4 50,699 41.6
Foreign customers....... 5,583 4.4 6,346 5.1 4,170 3.4
Other channels.......... 8,592 6.7 9,595 7.7 10,215 8.4
-------- ----- -------- ----- -------- -----
Total............. $127,376 100.0% $125,126 100.0% $121,801 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
OFFICE PRODUCTS CHANNEL. Since 1987, Day Runner products have been broadly
distributed through the office products channel.
OFFICE PRODUCTS SUPERSTORES. Since their emergence in 1986, office
products superstores offering discount prices in a warehouse atmosphere
have become a major factor in office products distribution. Our products
are carried by all the leading superstores, including Office Depot, Inc.,
OfficeMax, Inc. and Staples, Inc.
OFFICE PRODUCTS WHOLESALERS. Day Runner products are currently
distributed by local and regional office products wholesalers and by both
national wholesalers, S.P. Richards Company and United Stationers Supply
Co., which reach office products consumers through dealers nationwide.
OFFICE PRODUCTS DEALERS. Our products are also distributed through
traditional office products dealers, which buy directly from manufacturers
and indirectly through wholesalers. These customers include both storefront
dealers and contract stationers (also known as commercial dealers) that
specialize in selling to larger businesses through catalogs and their
direct sales forces.
MASS MARKET. Discount chains addressing the mass market have become an
increasingly important factor in the distribution of a wide variety of
consumer goods. Day Runner products are distributed through a number of
mass market retailers, including: Kmart, Target and Wal-Mart; the major
wholesale clubs, PriceCostco and SAM'S Clubs; a number of discount drug
chains; and a variety of other mass market resellers.
FOREIGN CUSTOMERS. Day Runner products are marketed internationally
through Day Runner Hong Kong Limited, Day Runner International Limited and
Ultima Distribution, Inc. (the Company's wholly owned Hong Kong, United
Kingdom and Canadian subsidiaries), independent foreign distributors and
its own sales force. The United Kingdom and key markets on the European
continent are served by Day Runner International; Asian and Pacific Rim
markets are served by Day Runner Hong Kong Limited; Canada is served by
Ultima; and Mexico is served by Day Runner's U.S.-based sales force.
OTHER CHANNELS. The Company also distributes its products through a
number of additional channels, including book, department, gift, leather
and luggage and stationery stores and other specialty retailers. Since
March 1989, Day Runner has held a General Services Administration ("GSA")
contract, which extends through February 2000 and which allows the Company
to market certain of its products to the executive branch of the U.S.
Government.
MARKETING
We market our products to consumers to increase awareness of the
Day Runner brand names and of specific products, to communicate the benefits of
our products and to create and reinforce an image that our products enable the
user to manage time and personal resources more effectively. We position Day
Runner to our distribution channels as the leader in the retail organizer market
and the logical source for organizers, planners and related organizing products
at a wide range of price points and appropriate for a wide range of broad
consumer markets.
ADVERTISING. Day Runner participates with customers in co-op
advertising and advertises from time to time in certain wholesale flyers and in
trade publications. In addition, from time to time, we conduct consumer
advertising campaigns. Media used in such campaigns have included cable and
broadcast television, business and lifestyle magazines and national and regional
newspapers.
PROMOTIONAL PROGRAMS. Day Runner offers special promotional and
incentive programs as part of our introduction of new products and to build
sales at specific times of the year; conducts promotions designed to build
awareness, expand distribution and increase sales of specific products; and
conducts sales incentive programs for wholesalers, dealers and manufacturers'
representatives.
SALES SUPPORT. We support our sales force and manufacturers'
representatives with a variety of sales tools, including catalogs and
presentation materials. We support our dealers with point-of-sale materials
developed based upon research and intended to build brand name awareness and
increase sales. Day Runner displays are designed to be easy for consumers to
shop and for store personnel to refill. Our packaging is designed to help
consumers choose the right product and make the decision to buy.
TRADE SHOWS. Day Runner exhibits or is represented by
manufacturers' representatives in a number of national and regional trade shows
aimed at office products, mass market and other customers.
MARKET RESEARCH. We regularly conduct market research and test
product concepts and prototypes through the use of focus groups and other
consumer research. In addition, we maintain a database containing information on
users who have mailed in the Welcome Cards included in many of our products.
USER SUPPORT. We estimate that we have sold approximately 32
million organizers and planners since our inception. To encourage our current
users to continue to purchase and recommend our products and their refills, we
provide a toll-free consumer hotline that consumers may call for referral to
conveniently located dealers or dealers that carry specific refills or
accessories, for customer service, to contribute suggestions and to purchase
products directly from Day Runner. We make such sales primarily as a service to
our users and charge consumers full suggested retail price plus handling and
shipping.
Although Day Runner products require no special training, we
provide a free user's guide in each of our two most sophisticated organizers.
Each Day Runner System and PRO Business System organizer includes an "Owner's
Manual." Each of these booklets includes illustrations showing effective use of
the system and of specific pages as well as tips on time management, project
management and organization.
MANUFACTURING
Day Runner's manufacturing strategy combines limited internal
manufacturing, consisting of heat-sealing binders, sewing binders and the
assembly of finished products, with the domestic and foreign subcontracting of
product components and finished goods. Our policy is to develop and maintain at
least two sources for key raw materials, product components and the finished
products we subcontract. Although we rely on foreign subcontractors for adequate
capacity, we have the ability to act as our own second or third source for the
manufacture of our loose-leaf binders and for the final assembly of many of our
products. This provides a degree of protection against vendor problems and,
under certain conditions, allows us to respond to higher than anticipated demand
and improve turn-around time.
INTERNAL MANUFACTURING. We manufacture a portion of our binders and
assemble a portion of our finished products in our Fullerton, California
facility and at Day Runner de Mexico, S.A. de C.V., our wholly owned
manufacturing subsidiary located in Tijuana.
PURCHASED COMPONENTS. In addition to vinyl and leather raw materials, we
purchase from suppliers certain major product components, including printed
pages, loose-leaf rings, pens, software disks containing our PIM software,
electronic components and certain accessories. With few exceptions, these items
are manufactured by a variety of outside contractors and are available both
domestically and overseas.
SUBCONTRACTED FINISHED GOODS. We subcontract the manufacture and assembly
of a portion of our finished products, including the great majority of our lower
priced organizers, planners and related products. Day Runner Hong Kong Limited
acts as our liaison with our Asian suppliers.
Competition
The paper-based organizer industry is becoming increasingly competitive and
is subject to rapid change. Day Runner competes directly with other companies
marketing paper-based organizers and related organizing products to consumers
through retail channels. We also compete for the same target market with
companies marketing organizers and/or organizers coupled with time management
training via direct sales to individuals and to organizations. Our competitors
also include companies marketing substitutes for paper-based organizer
and planner products, such as electronic organizers, PIM software and
traditional dated goods. Certain of our competitors have greater name
recognition and/or financial, product development, technical, manufacturing
and/or marketing resources than Day Runner.
Day Runner believes the current principal competitive factors in
the paper-based retail organizer industry are distribution breadth, depth and
strength; brand name recognition; size and loyalty of user base; product
function, design, perceived quality and value; marketing capability; breadth of
product lines; financial resources; customer service; product development
capability; manufacturing/sourcing expertise; and price. We believe that the
principal competitive factors in the related product categories we have entered
to date are similar to those in the paper-based organizer industry. Although a
number of our competitors have greater financial resources than Day Runner, we
believe that we compete well against our direct competition on each of the other
principal competitive factors and against certain of our direct competition with
respect to our financial strength.
Day Runner believes that we have a number of advantages over
certain of our competitors. Our products occupy significant shelf space in the
office products and mass market channels. Our leadership position in the retail
market, brand name recognition, broad product lines, marketing expertise,
manufacturing/sourcing skill, large user base and the appeal of our products to
consumers have been competitive advantages for us in these channels and in
certain other channels. There can be no assurance, however, that we will be able
to maintain or continue to benefit from our competitive advantages or that the
competitive environment will not change to our detriment.
EMPLOYEES
At September 16, 1997, Day Runner had 1,146 full-time employees, including
61 in sales; 31 in marketing; 112 in executive, finance and administration; 29
in product development; and 913 in manufacturing operations and distribution.
None of our employees is represented by a labor union, and we have experienced
no labor-related work stoppages.
PATENTS, COPYRIGHTS AND TRADEMARKS
Day Runner relies upon, among other things, a combination of copyright,
patent and trademark laws to protect our rights to certain aspects of our
products. There can be no assurance, however, that the steps taken by Day Runner
to protect our proprietary rights will be adequate to prevent imitation of our
products or independent development by others of similar products.
Day Runner holds seven United States patents and four foreign patents. The
Company also has several United States and foreign patents pending. The patents
we hold are related to improvements in the structure of and devices associated
with our loose-leaf binders, and we do not believe that any of these patents is
material to our business. We have also been issued United States copyright
registrations covering the text and the compilation and editing of data in
certain of our material products. Day Runner holds United States trademark
registrations for "Day Runner," "MEMO-RY," "PRO Business System," "Running
Mate," and the Day Runner logo and we have obtained certain state and foreign
registrations for certain of our trademarks.
<PAGE>
ITEM 2. PROPERTIES.
Day Runner's principal operating facility is located in an
approximately 221,000-square foot building in Fullerton, California, under
leases expiring in 2001. The leases include multiple, successive renewal options
that, if exercised in full, would extend the lease terms to expire in 2011. The
Company's corporate headquarters occupy approximately 21,300-square feet in
Irvine, California under a lease that expires in August 2001. The Company's
LaVergne, Tennessee distribution facility occupies an approximately
101,200-square foot facility under a lease expiring in 2005. The lease includes
multiple, successive renewal options that, if exercised in full, would extend
the lease terms to expire in 2011. The Company's Mexican subsidiary is located
in approximately 46,900 square feet, of which 22,450-square feet are occupied
under a month-to-month lease and the remaining 24,450 are occupied under two
leases expiring in 1998; the Company's United Kingdom subsidiary occupies an
approximately 2,400-square foot facility under a lease expiring in January 2002;
the Company's Hong Kong subsidiary occupies an approximately 1,200-square foot
facility under a lease expiring in June 1998; and the Company's Canadian
subsidiary, which was acquired in July 1997, occupies an approximately
15,000-square foot facility under a lease expiring in June 2000. The Company
believes it has sufficient space in its facilities or will be able to lease
additional space on acceptable terms to meet its needs for the foreseeable
future.
Item 3. LEGAL PROCEEDINGS.
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Day Runner's Common Stock is traded over-the-counter on The Nasdaq
Stock Market under the symbol "DAYR." The table below shows the high and low
closing sales prices for the Common Stock as reported on The Nasdaq Stock Market
for the fiscal years ended June 30, 1997 and 1996. As of September 16, 1997,
there were 183 recordholders of the Company's Common Stock based on information
provided by the Company's transfer agent.
Fiscal Year Fiscal Year
1997 1996
---------------- -----------------
Quarter High Low High Low
First $30 $25-1/2 $20 $16-3/8
Second 31 18-3/4 34-1/2 19-1/4
Third 26 17-7/8 33-1/2 23-5/8
Fourth 33-1/2 25-1/8 31-1/4 24-3/4
The Company has never paid cash dividends. It is the present policy of
the Company to retain earnings to finance the growth and development of its
business, and therefore the Company does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. Certain financial covenants in the
Company's bank line of credit agreement restrict the Company's ability to pay
cash dividends in excess of $200,000.
Item 6. SELECTED FINANCIAL DATA.
The selected consolidated income statement data for the fiscal year
ended June 30, 1997, 1996 and 1995 and the consolidated balance sheet data at
June 30, 1997 and 1996 are derived from, and are qualified in their entirety by
reference to, the Company's audited consolidated financial statements and notes
thereto included elsewhere in this Annual Report that have been audited by
Deloitte & Touche LLP, independent auditors, as indicated in their report, which
is also included elsewhere in this Annual Report. Information for the twelve
months ended June 30, 1994 is unaudited, and in the opinion of the Company's
management, the accounting principles used to prepare the unaudited financial
information are consistent with those used to prepare the audited financial
statements. The selected consolidated income statement data for the short fiscal
year ended June 30, 1994 and the years ended December 31, 1993 and 1992 and the
consolidated balance sheet data at June 30, 1995 and 1994 and December 31, 1993
are derived from audited consolidated financial statements of the Company that
are not included herein. Effective January 1, 1994, the Company changed its
fiscal year end from December 31 to June 30. The six-month period ended June 30,
1994 is therefore referred to as "short fiscal year 1994."
<PAGE>
<TABLE>
<CAPTION>
Consolidated Income Statement Data:
(In thousands, except per share data)
Twelve Months Short Years Ended
Fiscal Fiscal Fiscal Ended Fiscal Year December 31,
1997 1996 1995 June 30, 1994(1) 1994 1993 1992
---- ---- ---- ---------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sales........................... $127,376 $125,126 $121,801 $ 97,027 $ 43,160 $81,892 $71,241
Cost of goods sold.............. 60,452 59,920 62,175 50,405 22,981 41,699 35,512
------- ------ -------- -------- -------- ------- --------
Gross profit.................... 66,924 65,206 59,626 46,622 20,179 40,193 35,729
------- ------ -------- -------- -------- ------- --------
Operating expenses:
Selling, marketing and
distribution................ 31,673 29,878 32,154 25,180 12,156 21,786 20,125
General and administrative... 14,451 16,376 13,792 11,400 5,686 9,479 7,826
Costs incurred in pursuing
acquisitions 1,451
Total operating expenses..... 47,575 46,254 45,946 36,580 17,842 31,265 27,951
------- ------ -------- -------- -------- ------- -------
Income from operations.......... 19,349 18,952 13,680 10,042 2,337 8,928 7,778
Net interest (income) expense... (1,301) (706) (161) (88) (91) 229
------- ------ -------- -------- --------- ------- -------
Income before provision for
income taxes, extraordinary
item and cumulative effect of
accounting change............ 20,650 19,658 13,841 10,130 2,428 8,928 7,549
Provision for income taxes...... 8,102 7,840 5,863 4,196 1,061 3,638 3,096
------- ------ -------- -------- -------- ------- -------
Income before extraordinary item
and cumulative effect of
accounting change............ 12,548 11,818 7,978 5,934 1,367 5,290 4,453
Extraordinary item litigation
settlement - net............ 718 718
Cumulative effect of change in
accounting for income taxes.. 350
------- ------- -------- -------- -------- ------- -------
Net income...................... $12,548 $11,818 $ 7,978 $ 6,652 $ 2,085 $ 5,640 $ 4,453
======= ======= ======== ======== ======== ======= =======
Earnings per common and common
equivalent share:
Income before extraordinary
item and cumulative effect of
accounting change............ $ 1.90 $ 1.79 $ 1.25 $ 0.96 $ 0.22 $ 0.87 $ 0.77
Extraordinary item........... 0.12 0.11
Cumulative effect of change in
accounting for income taxes.. 0.06
------- ------- -------- --------- --------- ------- --------
Net earnings per share........... $ 1.90 $ 1.79 $ 1.25 $ 1.08 $ 0.33 $ 0.93 % 0.77
======= ======= ======== ========= ========= ======= ========
Weighted average number of
common and common
equivalent shares............. 6,591 6,602 6,374 6,185 6,308 6,065 5,799
======= ======= ======== ======== ======== ======= ========
(1) Information for the twelve months ended June 30, 1994 is provided on an unaudited basis for comparison purposes
only.
</TABLE>
Consolidated Balance Sheet Data:
(In thousands)
June 30, December 31,
-------------------------------------- ------------
1997 1996 1995 1994 1993
--------- ------- -------- ------- ------------
Working capital ..... $50,710 $51,653 $38,260 $30,581 $28,190
Total assets ........ 78,880 77,931 63,650 50,769 49,103
Short-term debt ..... 475 152 200 224
Long-term liabilities 52 12 141 223
Stockholders' equity 59,484 59,498 44,787 35,786 32,712
<PAGE>
Item 7. 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 Annual 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.
OVERVIEW
Since the Company's introduction of the first Day Runner System
organizer in 1982, the Company's revenues have been generated by 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 and the mass market channels.
The office products channel and the mass market channel accounted for 46.7% and
42.2%, respectively, of fiscal 1997 sales.
Results of Operations
The following tables set forth, for the periods indicated, the
percentages that selected income statement items bear to sales and the
percentage change in the dollar amounts of such items.
<TABLE>
<CAPTION>
Percentage of Sales
Years Ended June 30,
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Sales........................................ 100.0% 100.0% 100.0%
Cost of goods sold........................... 47.5 47.9 51.0
----- ----- -----
Gross profit................................. 52.5 52.1 49.0
----- ----- -----
Operating expenses:
Selling, marketing and distribution....... 24.9 23.9 26.4
General and administrative................ 11.3 13.1 11.3
Costs incurred in pursuing acquisitions... 1.1
-----
Total operating expenses................. 37.3 37.0 37.7
----- ----- -----
Income from operations....................... 15.2 15.1 11.3
Net interest income.......................... 1.0 0.6 0.1
----- ----- -----
Income before provision for income taxes..... 16.2 15.7 11.4
Provision for income taxes................... 6.3 6.3 4.8
----- ----- -----
Net income................................... 9.9% 9.4 % 6.6%
===== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percentage Change
Fiscal 1996 Fiscal 1995
to to
Fiscal 1997 Fiscal 1996
-------------------- -------------------
<S> <C> <C>
Sales............................................. 1.8% 2.7%
Cost of goods sold................................ 0.9 (3.6)
Gross profit...................................... 2.6 9.4
Operating expenses:
Selling, marketing and distribution............ 6.0 7.1
General and administrative..................... (11.8) 18.7
Costs incurred in pursuing acquisitions........ NM
Total operating expenses...................... 2.9 (0.7)
Income from operations............................ 2.1 38.5
Net interest income............................... 84.3 338.5
Income before provision for income taxes.......... 5.0 42.0
Provision for income taxes........................ 3.3 33.7
Net income........................................ 6.2 48.1
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1996
SALES. Sales consist of revenues from gross product shipments net of
allowances for returns, rebates and credits. In fiscal 1997, sales increased by
$2,250,000, or 1.8%, compared with fiscal 1996 primarily because of higher unit
sales of related organizing products. Product sales were primarily to the office
products channel and secondarily to mass market customers. Sales to mass market
customers grew by $6,981,000, or 14.9%, primarily due to higher sales to
Wal-Mart. Sales to the office products channel decreased by $2,965,000, or 4.8%.
Sales to foreign customers declined by $763,000, or 12.0%, and sales to
miscellaneous customers grouped together as "other," decreased by $1,003,000, or
10.5%. Sales of related organizing products increased by $5,894,000, or 135.2%.
Sales of organizers and planners decreased during the year by $3,435,000, or
4.4%, and sales of refills decreased by $209,000, or 0.5%.
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, sales
returns, purchasing and manufacturing efficiencies, tariffs, duties and
inventory carrying costs. Primarily because of improved purchasing efficiencies,
gross profit as a percentage of sales increased to 52.5% for fiscal 1997 from
52.1% for fiscal 1996.
OPERATING EXPENSES. Total operating expenses increased by $1,321,000,
or 2.9%, for fiscal 1997 compared with fiscal 1996 and increased as a percentage
of sales from 37.0% to 37.3% primarily because of $1,451,000 of costs incurred
in pursuing two significant acquisitions that did not come to fruition. These
costs included legal and accounting fees and miscellaneous expenses. Without
such costs, operating expenses for fiscal 1997 compared with fiscal 1996 would
have declined by $130,000 and would have decreased as a percentage of sales from
37.0% to 36.2%. Selling, marketing and distribution expenses as a percentage of
sales increased from 23.9% to 24.9% primarily because of increased display
costs. General and administrative expenses as a percentage of sales decreased
from 13.1% to 11.3% primarily because of lower personnel costs.
NET INTEREST INCOME. Primarily because of the Company's higher levels
of cash available for short-term investment during the year, net interest income
in fiscal 1997 compared with fiscal 1996 increased by $595,000 and by 0.4% as a
percentage of sales.
INCOME TAXES. Primarily as a result of the improved financial results
of the Company's Hong Kong subsidiary, the Company's fiscal 1997 effective tax
rate was 39.2%, compared with 39.9% for fiscal 1996. Prior to fiscal 1996, the
operating losses incurred by the Company's United Kingdom and Hong Kong
subsidiaries, which were formed in 1993 and 1994, respectively, and the tax
treatment required for these losses had increased the Company's effective tax
rate above what it otherwise would have been.
NET INCOME. Compared with fiscal 1996, net income for fiscal 1997
increased by $730,000, or 6.2%. Without the costs of pursuing acquisitions,
fiscal 1997 net income would have grown $1,619,000 or 13.7%, compared with
fiscal 1996.
During fiscal 1997, the Company repurchased 513,100 shares of Common
Stock of the 600,000 shares authorized for repurchase in February 1997 under the
Company's stock repurchase program (see Note 9 to Consolidated Financial
Statements). The effect of such repurchases is to reduce the number of shares
that would otherwise be used to calculate earnings per share for the 1997 fiscal
year and subsequent fiscal years.
In August 1997, the Company's Board of Directors increased the number
of shares authorized for repurchase under its stock repurchase program by
100,000 shares, bringing to 186,900 the number of shares remaining for
repurchase under such program. Separately, in August 1997, the Company also
repurchased an aggregate of 347,794 shares from certain officers and directors
of the Company. The effect of the repurchases from such officers and directors
and any future repurchases effected under the stock repurchase program will be
to reduce the number of shares that would otherwise be used to calculate
earnings per share for the 1998 fiscal year and subsequent fiscal years.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1995
Sales. In fiscal 1996, sales increased by $3,325,000, or 2.7%, compared
with fiscal 1995 primarily because of higher average selling prices of refills
and secondarily because of increased unit sales of refills. Product sales were
primarily to the office products channel and secondarily to mass market
customers. Sales to the office products channel grew by $5,664,000, or 10.0%.
Sales to mass market customers decreased by $3,895,000, or 7.7%, primarily due
to lower sales to Wal-Mart. Sales to foreign customers grew by $2,176,000, or
52.2%, and sales to miscellaneous customers grouped together as "other,"
decreased by $620,000, or 6.1%. Sales of refills grew by $8,233,000, or 23.4%;
sales of related organizing products increased by $2,272,000, or 108.8%; and
sales of organizers and planners decreased during the year by $7,180,000, or
8.5%.
GROSS PROFIT. Gross profit as a percentage of sales increased to 52.1%
for fiscal 1996 from 49.0% for fiscal 1995 primarily because of increased
purchasing and manufacturing efficiencies.
OPERATING EXPENSES. Total operating expenses increased by $308,000, or
0.7%, for fiscal 1996 compared with fiscal 1995, but decreased as a percentage
of sales from 37.7% to 37.0%. Selling, marketing and distribution expenses as a
percentage of sales decreased from 26.4% to 23.9% primarily because of lower
advertising and promotion expenses and secondarily because of lower commissions.
General and administrative expenses as a percentage of sales increased from
11.3% to 13.1% primarily because of higher personnel costs.
NET INTEREST INCOME. Primarily because of the Company's higher levels
of cash available for short-term investment during the year, net interest income
in fiscal 1996 compared with fiscal 1995 increased by $545,000 and by 0.4% as a
percentage of sales.
INCOME TAXES. Primarily as a result of the improved financial results
of the Company's Hong Kong subsidiary, the Company's fiscal 1996 effective tax
rate was 39.9%, compared with 42.4% for fiscal 1995.
NET INCOME. Compared with fiscal 1995, net income for fiscal 1996
increased by $3,840,000, or 48.1%.
QUARTERLY RESULTS
The following tables set forth selected unaudited quarterly
consolidated financial data and the percentages such items represent of sales.
The quarterly consolidated financial data reflect, in the opinion of Management
of the Company, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations for such
periods. Results of any one or more quarters are not necessarily indicative of
annual results or continuing trends.
<TABLE>
Quarters Ended
--------------
June 30, March 31, December 31, September 30,
1997 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Sales............................... $ 37,793 100.0% $ 21,020 100.0% $ 35,014 100.0% $ 33,549 100.0%
Gross profit........................ 19,803 52.4 11,024 52.4 18,512 52.9 17,585 52.4
Total operating expenses............ 13,613 36.0 11,272 53.6 11,308 32.3 11,382 33.9
Income (loss) from operations....... 6,190 16.4 (248) (1.2) 7,204 20.6 6,203 18.5
Net interest income................. 443 1.1 345 1.7 303 0.9 210 0.6
Income before provision for
income taxes..................... 6,633 17.5 97 0.5 7,507 21.5 6,413 19.1
Net income.......................... $ 4,138 10.9 $ 58 0.3 $ 4,504 12.9 $ 3,848 11.5
Earnings per common and
common equivalent share.......... $ 0.65 $ 0.01 $ 0.67 $ 0.57
Weighted average number of
common and common equivalent
shares........................... 6,334 6,532 6,678 6,710
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
--------------
June 30, March 31, December 31, September 30,
1996 1996 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Sales............................... $ 34,156 100.0% $ 18,106 100.0% $ 40,058 100.0% $ 32,806 100.0%
Gross profit........................ 18,279 53.5 9,506 52.5 20,764 51.8 16,657 50.8
Total operating expenses............ 14,028 41.1 8,485 46.9 12,549 31.3 11,192 34.1
Income from operations.............. 4,251 12.5 1,021 5.6 8,215 20.5 5,465 16.7
Net interest income................. 296 0.8 252 1.4 104 0.3 54 0.1
Income before provision for
income taxes..................... 4,547 13.3 1,273 7.0 8,319 20.8 5,519 16.8
Net income.......................... $ 2,978 8.7 $ 745 4.1 $ 4,922 12.3 $ 3,173 9.7
Earnings per common and
common equivalent share.......... $ 0.45 $ 0.11 $ 0.75 $ 0.49
Weighted average number of
common and common equivalent
shares........................... 6,686 6,657 6,584 6,445
</TABLE>
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 new product introductions and line extensions, the timing of large orders,
changes in product sales or customer mix, vendor and customer pricing,
production levels, supply and manufacturing delays, large customers' inventory
management and general industry and economic conditions. 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
During fiscal 1997, the Company financed its operating cash needs
primarily from internally generated funds. The Company's cash and cash
equivalents at June 30, 1997 decreased to $15,550,000 from $19,765,000 at June
30, 1996. In fiscal 1997, net cash of $13,148,000 provided by operating
activities offset net cash of $4,967,000 and $12,419,000 used in investing and
financing activities, respectively. Of the $13,148,000 net amount provided by
the Company's operating activities, $12,548,000 was provided by net income,
$3,869,000 was provided by depreciation and amortization and $1,930,000 was
provided by a decrease in income taxes receivable, which amounts were partially
offset by an increase of $3,294,000 and $1,220,000 in inventories and accounts
receivable, respectively. Of the $4,967,000 net amount used in the Company's
investing activities, $4,972,000 was used to acquire primarily machinery and
equipment and secondarily computer equipment and software. Of the $12,419,000
net amount used in the Company's financing activities, $13,541,000 was used to
repurchase 513,100 shares of Common Stock.
In August 1997, the Board of Directors increased the number of shares
of common stock that the Company is authorized to repurchase under its existing
stock repurchase program by 100,000 shares, with funds to pay for any such
repurchases to come from Day Runner's available cash resources. As of September
24, 1997, 186,900 shares remained for repurchase under this program.
In August 1997, the Company used approximately $11,600,000 of its available
cash resources to repurchase 347,794 shares from certain of its officers and
directors.
Accounts receivable (net) at June 30, 1997 increased by $862,000, or
4.0%, from the amount at June 30, 1996 primarily due to the growth in sales and
secondarily due to a change in the payment terms extended to a large customer.
Primarily because of this change in payment terms, the average collection period
of accounts receivable at June 30, 1997 increased to 47 days from 43 days at
June 30, 1996.
Inventories increased by $3,366,000, or 16.8%, from the June 30, 1996
amount primarily because of a planned inventory build-up done in preparation for
the Company's end of calendar year selling period.
At June 30, 1997, Day Runner had $452,000 outstanding under its
$5,000,000 bank line of credit and had also used the line of credit to secure
outstanding letters of credit of approximately $1,000,000, which reduced the
availability under the line of credit to approximately $3,548,000. Effective
September 1, 1997, the Company increased its line of credit from $5,000,000 to
$15,000,000. Borrowings under the line of credit bear interest at either the
bank's prime rate or LIBOR plus 1.75%, at the Company's election, and are due
and payable on November 1, 1997. (see Note 3 to Consolidated Financial
Statements.) The Company is currently negotiating its line of credit and expects
that it will be able to renew it for one year on terms generally no less
favorable than those of its current credit line.
The Company has not incurred significant losses or gains from foreign
currency exchange rate fluctuations. The continuing expansion of the Company's
international operations 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 fiscal
1998. 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>
FORWARD LOOKING STATEMENTS
With the exception of the actual reported financial results and other
historical information, the statements made in the Management's Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this
annual report are forward looking statements that involve risks and
uncertainties that could affect actual future results. Such risks and
uncertainties include, but are not limited to: timing and size of orders from
large customers, timing and size of orders for new products, competition, large
customers' inventory management, general economic conditions, the health of the
retail environment, supply constraints, supplier performance and other risks
indicated in the Company's filings with the Securities and Exchange Commission.
EFFECTS OF INFLATION
The Company believes that inflation has not had a material effect on
its operations.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Inapplicable
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements of the Company and its
subsidiaries included herein and listed in Item 14(a) of this Annual Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Inapplicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to
the sections of the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 25, 1997, entitled "Election of
Directors" and "Executive Officers," to be filed with the Commission.
Item 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
the sections of the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 25, 1997, entitled "Election of Directors
- -- Compensation of Directors," "Executive Compensation and Other Information,"
"Compensation Committee Report on Executive Compensation" and "Performance
Graph," to be filed with the Commission.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item is incorporated by reference to
the section of the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 25, 1997, entitled "Common Stock
Ownership of Principal Stockholders and Management," to be filed with the
Commission.
Item 13. CERTAIN TRANSACTIONS.
The information required by this Item is incorporated by reference to
the sections of the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on November 25, 1997, entitled "Election of Directors
- -- Compensation of Directors" and "Certain Relationships and Related
Transactions," to be filed with the Commission.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements Page
Independent Auditors' Report ........................... F-1
Consolidated Balance Sheets at June 30, 1997 and
1996 F-2
Consolidated Statements of Income for Each of the Three
Years in the Period Ended June 30, 1997 ................ F-3
Consolidated Statements of Stockholders' Equity for Each
of the Three Years in the Period Ended June 30, 1997 ... F-4
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended June 30, 1997 .......... F-5
Notes to Consolidated Financial Statements ............. F-6
2. Financial Statement Schedules
Independent Auditors' Report ........................... S-1
Schedule II -- Valuation and Qualifying Accounts S-2
Schedules which are not listed above have been omitted because they are
not applicable or the information required to be set forth therein is included
in the Consolidated Financial Statements or notes thereto.
3. List of Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended(1)
3.2 Bylaws of the Registrant(2)
10.1 Amended and Restated 1986 Stock Option Plan, including forms
of Stock Option Agreements and Stock Purchase Agreement(3) and
Amendment Nos. 1(4), 2(5), 3(5) and 4(6) thereto dated July
17, 1992, February 28, 1993, May 10, 1993 and May 12, 1994,
respectively(7)
10.2 1995 Stock Option Plan, including forms of Stock Option
Agreements(8)and Amendment No. 1 (9) thereto dated October 21,
1996(7)
10.3 Employee Stock Purchase Plan(3) and Amendment No. 1 thereto
dated July 17, 1992(4)(7)
10.4 Day Runner 401(k) Plan and Trust Agreement(3) effective as of
January 1, 1991 and Amendment Nos. 1(10), 2(1) and 3(11)
thereto effective January 1, 1992, January 1, 1991 and January
1, 1991, respectively(7)
10.5 1997 Officer Bonus Plan(7)
10.6 Officer Severance Plan effective as of February 28, 1993,
including form of Employment Separation Agreement(7)(10)
10.7 Credit Agreement dated as of May 1, 1993 between the
Registrant and Wells Fargo Bank, National Association,
including Line of Credit Note(5), Assumption and Consent to
Merger Agreement dated as of June 30, 1993(13), First
Amendment to Credit Agreement dated as of December 15,
1993(13), Second Amendment to Credit Agreement dated as of May
1, 1994, including Line of Credit Note(14), Third Amendment to
Credit Agreement dated as of October 1, 1994, including Line
of Credit Note(15), Fourth Amendment to Credit Agreement dated
as of October 2, 1995, including Revolving Line of Credit
Note(16) , Fifth Amendment to Credit Agreement dated as of
November 1, 1996, including Revolving Line of Credit Note (17)
and Sixth Amendment to Credit Agreement dated as of September
1, 1997, including Revolving Line of Credit Note
10.8 Triple Net Lease, as amended, effective as of March 22, 1991
between Catellus Development Corporation and the Registrant(3)
and as amended by Lease Amendment dated June 29, 1992(10)
10.9 Triple Net Lease dated July 28, 1992 between Catellus
Development Corporation and the Registrant(10)
10.10 Koll Business Center Lease dated September 7, 1994 between
the Registrant and Koll Alton Plaza and Aetna Life Insurance
Co.(1)
10.11 Standard Commercial Lease Agreement dated as of July 31,1996
between System Realty Nine, Inc. and the Registrant(18)
10.12 Form of Warrant to purchase shares of the Registrant's Common
Stock issued to certain directors and officers of the
Registrant(3) and Schedule of Warrants(7)
10.13 Form of Warrant dated August 19, 1997 to purchase shares of
the Registrant's Common Stock issued to certain officers of
the Company and Schedule of Warrants(7)
10.14 Consulting Agreement effective April 22, 1997 between the
Registrant and Alan R. Rachlin(7)(19)
11.1 Statement of Computation of Earnings Per Share
21.1 Subsidiaries of the Registrant(14)
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed or required to be filed by the
Registrant during the fourth quarter of the fiscal year ended June 30,
1997.
(c) Exhibits
See the list of Exhibits under Item 14(a)3 of this Annual Report on
Form 10-K.
(d) Financial Statement Schedules
See the list of Schedules under Item 14(a)2 of this Annual Report on
Form 10-K.
- ------------------------
(1) Incorporated by reference to the Registrant's Transition Report on Form
10-K (File No. 0-19835) filed with the Commission on September 27,
1994.
(2) Incorporated by reference to the Registrant's Current Report on Form
8-K (File No. 0-19835) filed with the Commission on August 5, 1993.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-45391) filed with the Commission on
January 30, 1992.
(4) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-53422) filed with the Commission on
October 15, 1992.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (Registration No. 0-19835) filed with the Commission on August 16,
1993.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-84036) filed with the Commission on
September 15, 1994.
(7) Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) of this
Annual Report on Form 10-K.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Registration No. 33-80819) filed with the Commission on
December 22, 1995.
(9) 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.
(10) Incorporated by reference to the Registrant's Annual Report on Form
10-K (File No. 0-19835) filed with the Commission on March 31, 1993.
(11) Incorporated by reference to the Registrant's Annual Report on Form
10-K (File No. 0-19835) filed with the Commission on September 27,
1995.
(12) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on February 13, 1996.
(13) Incorporated by reference to the Registrant's Annual Report on Form
10-K (File No. 0-19835) filed with the Commission on March 30, 1994.
(14) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on May 16, 1994.
(15) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on November 14, 1994.
(16) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on November 13, 1995.
(17) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on November 13, 1996.
(18) Incorporated by reference to the Registrant's Annual Report on Form
10-K (File No. 0-19835) filed with the Commission on September 27,
1996.
(19) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q (File No. 0-19835) filed with the Commission on May 15, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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, in the
City of Irvine, California.
DAY RUNNER, INC.
By: /s/ Mark A. Vidovich
-------------------------------
Chairman of the Board, Director
and Chief Executive Officer
Dated: September 29, 1997
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Mark A. Vidovich
------------------------ Chairman of the Board, September 29, 1997
Mark A. Vidovich Director and Chief
Executive Officer
(Principal Executive Officer)
/s/ James E. Freeman, Jr.
------------------------- President, Chief Operating September 29, 1997
James E. Freeman, Jr. Officer and Director
/s/ Dennis K. Marquardt
-------------------------- Executive Vice President, September 29, 1997
Dennis K. Marquardt Finance & Administration and
Chief Financial Officer
(Principal Financial Officer
and Accounting Officer)
/s/ James P. Higgins
-------------------------- Director September 29, 1997
James P. Higgins
/s/ Jill Tate Higgins
-------------------------- Director September 29, 1997
Jill Tate Higgins
/s/ Charles Miller
-------------------------- Director September 29, 1997
Charles Miller
/s/ Alan R. Rachlin
------------------------- Director September 29, 1997
Alan R. Rachlin
/s/ Boyd I. Willat
------------------------ Director September 29, 1997
Boyd I. Willat
/s/ Felice Willat
------------------------ Director September 29, 1997
Felice Willat
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Day Runner, Inc.:
We have audited the accompanying consolidated balance sheets of Day Runner, Inc.
and subsidiaries (the "Company") as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Day Runner, Inc. and subsidiaries
as of June 30, 1997 and 1996 and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
Long Beach, California
August 15, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
June 30,
1997 1996
--------- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1)............................................. $ 15,550 $19,765
Accounts receivable (less allowance for doubtful accounts and
sales returns and other allowances of $8,664 and $7,374 at
June 30, 1997 and 1996, respectively) (Notes 1 & 3)......................... 22,303 21,441
Inventories (Notes 1 & 3)...................................................... 23,406 20,040
Prepaid expenses and other current assets (Note 10)............................ 2,409 1,710
Income taxes receivable (Notes 1, 5 & 6)....................................... 1,930
Deferred income taxes (Notes 1 & 5)............................................ 6,386 5,200
-------- -------
Total current assets........................................................ 70,054 70,086
-------- -------
Property and equipment - At cost (Notes 1 & 4)
Machinery and equipment........................................................ 10,316 6,942
Data processing equipment and software......................................... 5,863 4,707
Leasehold improvements......................................................... 1,838 1,514
Vehicles....................................................................... 214 202
-------- -------
Total ............................................................................ 18,231 13,365
Accumulated depreciation and amortization...................................... (9,543) (5,864)
-------- -------
Property and equipment - net................................................... 8,688 7,501
-------- -------
Other assets (Note 10)............................................................. 138 344
-------- -------
Total assets....................................................................... $ 78,880 $77,931
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 3)........................................................ $ 452
Accounts payable (Note 1)...................................................... 8,320 $ 8,063
Accrued expenses (Note 2)...................................................... 9,500 10,370
Income taxes payable (Notes 1, 5 & 6).......................................... 1,049
Current portion of capital lease obligations (Notes 1 & 4)..................... 23
--------
Total current liabilities................................................... 19,344 18,433
-------- -------
Long-term liabilities:
Capital lease obligations (Notes 1 and 4)...................................... 52
--------
Commitments and contingencies (Notes 4 & 11)
Stockholders' equity (Notes 6, 7 & 8):
Preferred stock (1,000,000 shares authorized; $0.001 par value, no shares
issued or outstanding)
Common stock (14,000,000 shares authorized; $0.001 par value; 6,364,429
shares issued and 5,851,329 outstanding at June 30, 1997;
6,304,771 issued and outstanding at June 30, 1996).......................... 6 6
Additional paid-in capital..................................................... 23,759 22,869
Retained earnings.............................................................. 49,168 36,620
Cumulative translation adjustment (Note 1)..................................... 92 3
Treasury stock (513,100 shares, at cost)(Note 9)............................... (13,541)
--------
Total stockholders' equity.................................................. 59,484 59,498
-------- -------
Total liabilities and stockholders' equity......................................... $ 78,880 $77,931
======== =======
See accompanying notes to consolidated
financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years Ended June 30,
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Sales (Note 1).............................................. $ 127,376 $ 125,126 $ 121,801
Cost of goods sold.......................................... 60,452 59,920 62,175
--------- --------- ---------
Gross profit................................................ 66,924 65,206 59,626
--------- --------- ---------
Operating expenses (Notes 4, 10 & 11):......................
Selling, marketing and distribution..................... 31,673 29,878 32,154
General and administrative.............................. 14,451 16,376 13,792
Costs incurred in pursuing acquisitions................. 1,451
---------
Total operating expenses............................. 47,575 46,254 45,946
--------- --------- ---------
Income from operations...................................... 19,349 18,952 13,680
--------- --------- ---------
Interest (income) expense:
Interest income......................................... (1,431) (823) (428)
Interest expense........................................ 130 117 267
--------- --------- ---------
Net interest income.................................. (1,301) (706) (161)
--------- --------- ---------
Income before provision for income taxes.................... 20,650 19,658 13,841
Provision for income taxes (Notes 1 & 5).................... 8,102 7,840 5,863
--------- --------- ---------
Net income.................................................. $ 12,548 $ 11,818 $ 7,978
========= ========= =========
Earnings per common and common equivalent share
(Note 1)............................................... $ 1.90 $ 1.79 $ 1.25
======== ========= ========
Weighted average number of common and common
equivalent shares....................................... 6,591 6,602 6,374
========= ========= =========
See accompanying notes to consolidated financial
statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Number Additional Cumulative
of Shares Common Paid-In Retained Translation Treasury
Outstanding Stock Capital Earnings Adjustment Stock Total
----------- -------------- ------------- -------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1994.......... 6,032,317 $ 6 $ 18,964 $ 16,824 $ (8) $35,786
Exercise of warrants (Note 8).... 31,500 126 126
Exercise of options (Notes 6 & 7) 61,980 568 568
Tax benefit of options (Note 6).. 284 284
Cumulative translation adjustment
(Note 1)..................... 45 45
Net income....................... 7,978 7,978
--------- -------- --------- -------- ------ ---------- -------
Balance at June 30, 1995......... 6,125,797 6 19,942 24,802 37 44,787
Exercise of options (Notes 6 & 7) 178,974 1,475 1,475
Tax benefit of options (Note 6).. 1,452 1,452
Cumulative translation adjustment
(Note 1)..................... (34) (34)
Net income....................... 11,818 11,818
--------- -------- --------- -------- ------ ---------- -------
Balance at June 30, 1996......... 6,304,771 6 22,869 36,620 3 59,498
Exercise of warrants (Note 8).... 5,500 22 22
Exercise of options (Notes 6 & 7) 54,158 661 661
Tax benefit of options (Note 6).. 157 157
Compensation cost associated with
warrant grant (Note 8)....... 50 50
Cumulative translation adjustment
(Note 1)..................... 89 89
Treasury stock (Note 9).......... (513,100) (13,541) (13,541)
Net income....................... 12,548 12,548
--------- -------- --------- -------- ------ -------- -------
Balance at June 30, 1997......... 5,851,329 $ 6 $ 23,759 $ 49,168 $ 92 ($ 13,541) $59,484
========= ======== ========= ======== ====== ========= =======
See accompanying notes to consolidated
financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended June 30,
1997 1996 1995
--------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 12,548 $ 11,818 $ 7,978
Adjustments to reconcile net income to net cash
provided by(used in) operating activities:
Depreciation and amortization......................... 3,869 2,548 1,259
Provision for losses on accounts receivable........... 381 810 452
Write-off of barter credits (Note 10)....................... 200 520 210
Utilization of barter credits......................... 56
Compensation expense related to issuance of warrants........ 50
Deferred income tax provision......................... (1,186) (26) (2,690)
Changes in operating assets and liabilities:
Accounts receivable................................. (1,220) (2,884) (2,475)
Inventories ............................................... (3,294) 6,543 (8,182)
Prepaid expenses and other current assets................... (689) (87) 224
Income taxes receivable..................................... 1,930 (1,930)
Accounts payable.................................... 225 (1,028) (101)
Accrued expenses............................................ (872) 3,606 3,209
Income taxes payable........................................ 1,206 (1,247) 1,308
-------- -------- -------
Net cash provided by operating activities........... 13,148 18,643 1,248
-------- -------- -------
Cash flows from investing activities:
Acquisition of property and equipment................... (4,972) (4,393) (2,592)
Other assets ............................................... 5 (8) (146)
Sale of marketable securities........................... 3,843
-------- -------- -------
Net cash (used in) provided by investing activities..... (4,967) (4,401) 1,105
-------- -------- -------
Cash flows from financing activities:
Net borrowings under line of credit..................... 452
Payment of long-term debt............................... (141) (154)
Payment of capital lease obligations.................... (13) (23) (23)
Exercise of warrants.................................... 22 126
Exercise of options......................................... 661 1,475 568
Repurchase of common stock.............................. (13,541)
-------- -------- -------
Net cash (used in) provided by financing activities..... (12,419) 1,311 517
-------- -------- -------
Effect of exchange rate changes on cash and
cash equivalents....................................... 23 (57) (73)
-------- -------- -------
Net (decrease) increase in cash and cash equivalents........ (4,215) 15,496 2,797
Cash and cash equivalents at beginning of year.............. 19,765 4,269 1,472
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 15,550 $ 19,765 $ 4,269
======== ======== =======
See accompanying notes to consolidated financial
statements.
F-5
</TABLE>
<PAGE>
DAY RUNNER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Day Runner, Inc. and subsidiaries (the "Company") design and
manufacture personal organizer systems, refills and related products, marketing
them domestically and internationally. A substantial portion of the Company's
sales is to office products superstores, wholesalers and dealers and to mass
market retailers throughout the United States.
The Company grants credit to substantially all of its customers.
CONSOLIDATION. The consolidated financial statements include the accounts
of Day Runner, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the exchange rate
prevailing at the balance sheet date and, where appropriate, at historical rates
of exchange. Income and expense accounts are translated at the weighted average
rate in effect during the year. The aggregate effect of translating the
financial statements of the foreign subsidiaries is included as a separate
component of stockholders' equity. Foreign exchange gains (losses) were not
significant during the years ended June 30, 1997, 1996 and 1995.
CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out basis. Inventories consist of the
following (in thousands):
June 30,
1997 1996
------- --------
Raw materials ........ $10,204 $ 8,212
Work in process ...... 426 327
Finished goods ....... 12,776 11,501
------- -------
Total .............. $23,406 $20,040
======= =======
SALES. Revenue is recognized upon shipment of product to the customer, with
appropriate allowances for estimated returns, rebates and other allowances.
SIGNIFICANT CUSTOMERS. In 1997, sales to four customers accounted for
25%, 15%, 14% and 11% of the Company's sales. In 1996 and 1995, sales to three
customers accounted for 17%, 15% and 12% and 25%, 14% and 12%, respectively, of
the Company's sales.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment
is provided for over the estimated useful lives of the respective assets, using
the straight-line method. Estimated useful lives range from three to five years.
Leasehold improvements are amortized using the straight-line method over the
lesser of the estimated useful life of the asset or the life of the lease.
F-6
<PAGE>
INCOME TAXES. The Company uses the liability method of accounting for
income taxes. Under the liability method, deferred taxes are determined based on
temporary differences between the financial reporting and income tax bases of
assets and liabilities at the balance sheet date multiplied by the applicable
tax rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial
instruments consist primarily of cash, accounts receivable and payable, and debt
instruments. The book values of financial instruments, other than the debt
instruments, are representative of their fair values due to their short-term
maturity. The book values of the Company's debt instruments are considered to
approximate its fair value because the interest rate of these instruments is
based on current rates offered to the Company.
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 using the treasury
stock method. Fully diluted amounts for each period do not differ materially
from the amounts presented.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for the reporting period. Actual
results could differ from those estimates.
NEW ACCOUNTING STANDARDS. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128
("SFAS No. 128"), Earnings per Share, which will be effective for the Company
beginning with the interim period ending December 31, 1997. SFAS No. 128
replaces the presentation of primary earnings per share with a presentation of
basic earnings per share based upon the weighted average number of common shares
for the period. It also requires dual presentation of basic and diluted earnings
per share of companies with complex capital structures. Had earnings per share
been determined consistent with SFAS No. 128, basic and diluted earnings per
share would have been:
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
------------------------------------ -------------------------------- --------------------------------
Weighted Weighted Weighted
Average Shares Earnings Per Average Shares Earnings Per Average Shares Earnings Per
(in thousands) Share (in thousands) Share (in thousands) Share
-------------- ----- -------------- ----- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Basic 6,216 $2.02 6,234 $1.90 6,088 $1.31
Diluted 6,591 $1.90 6,602 $1.79 6,374 $1.25
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting for
Comprehensive Income, and No. 131 ("SFAS No. 131"), Disclosures about Segments
of an Enterprise and Related Information. These statements are effective for
financial statements issued for periods beginning after December 15, 1997. The
Company is evaluating what, if any, additional disclosures may be required upon
implementation of SFAS Nos. 130 and 131.
RECLASSIFICATIONS. Certain reclassifications were made to the 1996
financial statements to conform to the current year presentation.
F-7
<PAGE>
2. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1997 1996
--------- -------
<S> <C> <C>
Accrued sales and promotion costs........ $ 5,223 $ 4,027
Accrued payroll and related costs........ 2,128 3,923
Other.................................... 2,149 2,420
--------- --------
Total............................ $ 9,500 $ 10,370
========= ========
</TABLE>
3. BANK BORROWINGS
The Company has a credit agreement with a bank, the terms of which
provide for borrowings under a line of credit of up to an aggregate of
$5,000,000 through November 1, 1997. Under the line of credit, the Company may
either borrow funds, open commercial letters of credit or open standby letters
of credit up to $5,000,000. 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 may be issued for a term not to exceed 180 days and
may not expire subsequent to February 1, 1998 and May 1, 1998, respectively. At
June 30, 1997, the Company had $452,000 outstanding under its line of credit and
had used the line of credit to secure outstanding letters of credit of
approximately $1,000,000, which reduced the availability under the line of
credit to approximately $3,548,000. Effective September 1, 1997, the Company
increased its line of credit from $5,000,000 to $15,000,000.
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 (8.5% at June 30, 1997) or at LIBOR (5.6875% at June
30, 1997) 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.
4. LEASES
The Company has four noncancelable operating leases for its principal
operating facilities and its corporate headquarters. The leases expire through
2005. The leases include renewal options that, if exercised, would extend the
lease terms through 2011, and the leases provide for increases in future minimum
annual rental payments based on defined increases in the Consumer Price Index,
subject to certain minimum increases. The Company also has entered into leases
for certain production, warehouse, computer and office equipment under
noncancelable operating leases that expire through September 2004.
The Company also leases certain vehicles under agreements that meet the
criteria for classification as capital leases. Future minimum lease payments
under these capital leases, and the future minimum lease payments under the
operating leases at June 30, 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Leases Leases
---- --------- ---------
<S> <C> <C>
1998.................................................... $ 23 $ 2,939
1999.................................................... 23 2,497
2000.................................................... 15 2,015
2001.................................................... 5 1,891
2002.................................................... 5 814
Thereafter.............................................. 4 896
--------- --------
Total minimum lease payments............................ 75 $ 11,052
========
Less current portion of capital lease obligations....... 23
---------
Portion of capital lease obligation due after one year.. $ 52
=========
</TABLE>
F-8
<PAGE>
Included in property and equipment at June 30, 1997 are capitalized leased
vehicles with a cost of $88,000 and accumulated amortization of $43,000.
Rent expense was $3,841,000, $3,927,000 and $3,128,000 for the years ended
June 30, 1997, 1996 and 1995, respectively.
5. INCOME TAXES
The income tax provision consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
Current:
Federal............................... $ 7,076 $ 6,051 $ 6,998
State................................. 1,825 1,473 1,400
Foreign............................... 387 342 155
-------- -------- --------
Total current........................... 9,288 7,866 8,553
-------- -------- --------
Deferred provision (benefit):...........
Federal............................... (961) (37) (2,363)
State................................. (225) 11 (327)
-------- -------- --------
Total deferred.......................... (1,186) (26) (2,690)
-------- -------- --------
Total income tax provision.............. $ 8,102 $ 7,840 $ 5,863
======== ======== ========
</TABLE>
Differences between the total income tax provision and the amount
computed by applying the statutory federal income tax rate to income before
income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
---------- --------- --------
<S> <C> <C> <C>
Computed tax expense using the
statutory federal income tax rate..... $ 7,228 $ 6,880 $ 4,946
Increase (decrease) in taxes arising from:
State taxes, net of federal benefit... 1,000 980 698
Foreign subsidiary operating losses... 46 35 281
Other................................. (172) (55) (62)
-------- -------- ---------
Total................................. $ 8,102 $ 7,840 $ 5,863
======== ======== =========
Effective income tax rate............... 39% 40% 42%
========= ========= ==========
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Total deferred tax assets and deferred tax liabilities consist of the
following at June 30, 1997 and 1996 (in thousands):
June 30,
1997 1996
------------- --------------
<S> <C> <C>
Allowance for sales returns............................ $2,490 $ 2,072
Inventory obsolescence reserve......................... 1,394 1,479
Allowance for doubtful accounts........................ 1,147 1,005
State taxes............................................ 615 523
Other deferred tax assets.............................. 1,491 706
------ --------
Total deferred tax assets.............................. 7,137 5,785
Less deferred tax liabilities.......................... 751 585
------ --------
Total.................................................. $6,386 $ 5,200
====== ========
</TABLE>
6. STOCK OPTION PLANS
Under the Company's 1995 Stock Option Plan (the "Plan"), an aggregate
of 500,000 shares of common stock is reserved for issuance to key employees,
including officers and directors, and consultants of the Company. Both incentive
stock options and nonstatutory stock options are authorized for issuance under
the Plan. The terms of the options are determined at the time of grant. Pursuant
to the Plan, the per share option price of stock options may not be less than
the fair market value of a share of common stock at the date of grant, and no
options may be granted after December 2005. The outstanding options typically
become exercisable over a period of five years from the date of issuance and
have terms of up to ten years.
The Company also authorized the issuance of up to 1,725,000 shares of
the Company's common stock under its Amended and Restated 1986 Stock Option
Plan. Such options typically become exercisable ratably over a period of five
years from the date of issuance and have terms of six to ten years. As of June
30, 1997, options covering 890,325 shares have been exercised and options
covering 826,550 shares remain outstanding. No additional options will be
granted under this plan.
During the years ended June 30, 1997, 1996 and 1995, certain officers
and employees exercised options to purchase an additional 37,150, 164,025 and
45,750 shares, respectively, of the Company's common stock for an aggregate of
$381,000, $1,214,000 and $362,000, respectively (see Note 7).
In connection with the exercise of nonstatutory stock options and the
sale of shares purchased pursuant to incentive stock options, the Company
realized a reduction in its current tax liability during the years ended June
30, 1997, 1996 and 1995. This reduction totaled $157,000, $1,452,000 and
$284,000, respectively, and was credited to additional paid-in capital.
F-10
<PAGE>
<TABLE>
<CAPTION>
A summary of stock option activity is as follows:
Number of
Options Per Share
------- ---------
<S> <C> <C>
Outstanding, July 1, 1994............. 797,475 $ 2.26 - $18.625
Granted............................ 148,000 16.75 - 19.50
Exercised.......................... (45,750) 2.26 - 12.50
Cancelled.......................... (33,000) 2.26 - 18.625
---------
Outstanding, June 30, 1995............ 866,725 2.26 - 19.50
Granted............................ 168,375 16.75
Exercised.......................... (164,025) 2.26 - 19.50
Cancelled.......................... (5,000) 12.50 - 19.50
---------
Outstanding, June 30, 1996............ 866,075 8.75 - 19.50
Granted............................ 232,500 26.00
Exercised.......................... (37,150) 8.75 - 26.00
Cancelled.......................... (15,625) 26.00
---------
Outstanding, June 30, 1997............ 1,045,800 10.25 - 26.00
=========
</TABLE>
At June 30, 1997, options to purchase 551,157 shares at prices ranging
from $10.25 to $26.00 were exercisable.
The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized for stock option awards. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of Statement of Financial Accounting Standards No. 123 ("SFAS No.
123"), Accounting for Stock Based Compensation, the Company's net income and
earnings per common and common equivalent shares would have been reduced to the
pro forma amounts indicated below:
Years Ended June 30,
1997 1996
-------- -------
Net income:
As reported ......................... $12,548 $11,818
Pro forma ........................... $11,094 $11,294
Earnings per common and common equivalent shares:
As reported ......................... $ 1.90 $ 1.79
Pro forma ........................... $ 1.68 $ 1.71
The fair value of the options granted under the plans during 1997 and
1996 was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions for 1997 and 1996,
respectively: no dividend yield, volatility of 53.28% and 56.26%, risk-free
interest rates of 5.41% to 6.95% and 5.69% to 6.40%, and expected option lives
of 1.4 to 4 years for both periods. Pro forma compensation cost of options
granted under the Employee Stock Purchase Plan is measured based on the discount
from market value.
On August 19, 1997, the Company issued options to key employees to
purchase 257,500 shares of the Company's common stock at $33.75 per share. The
options vest over a period of five years and expire in 2007.
F-11
<PAGE>
7. EMPLOYEE STOCK PURCHASE PLAN
During 1992, the Company adopted an Employee Stock Purchase Plan under
which 100,000 shares of common stock were authorized for issuance to employees.
Under the plan, eligible employees may purchase, through payroll deductions
withheld during an offering period, an amount of common stock not to exceed
approximately 5% of the employee's annual compensation. The purchase price per
share is the lower of 85% of the fair market value of a share of common stock on
the first day of the offering period or on the last day of the offering period.
There are two offering periods during each year. During the years ended June 30,
1997, 1996 and 1995, employees purchased an aggregate of 17,008, 14,949 and
16,230 shares of common stock for $280,000, $261,000 and, $206,000,
respectively, under this plan. These amounts are included in the amounts shown
for exercise of options on the accompanying consolidated statements of
stockholders' equity (see Note 6).
8. WARRANTS
During the years ended June 30, 1997, 1996 and 1995, the Board of
Directors approved the issuance of warrants to purchase an aggregate of 200,000
shares of the Company's common stock. Such warrants were issued at prices
ranging from $19.00 to $25.625 per share, vest over periods up to 48 months and
expire at various times through April 2007.
During 1997 and 1995, certain directors exercised warrants to purchase
5,500 and 31,500 shares, respectively, of the Company's common stock for an
aggregate of $22,000 and $126,000, respectively. No warrants were exercised
during the year ended June 30, 1996.
Included in the issuance of warrants to purchase 200,000 shares of the
Company's common stock is a warrant to purchase 25,000 shares that was issued to
a director under the terms of a consulting agreement during fiscal 1997. Such
issuance was accounted for under SFAS No. 123, which resulted in the recording
of $50,000 in compensation cost.
<TABLE>
<CAPTION>
A summary of warrant activity is as follows:
Number of
Warrants Per Share
-------- -------------
<S> <C> <C>
Outstanding, July 1, 1994............. 220,000 $4.00 - $12.50
Granted............................ 25,000 19.00
Exercised.......................... (31,500) 4.00
-----------
Outstanding, June 30, 1995............ 213,500 4.00 - 19.00
Granted............................ 25,000 19.00
-----------
Outstanding, June 30, 1996............ 238,500 4.00 - 19.00
Granted ................................... 150,000 23.5625 - 25.625
Exercised.......................... (5,500) 4.00
-----------
Outstanding, June 30, 1997............ 383,000 4.00 - 25.625
===========
</TABLE>
At June 30, 1997, warrants to purchase 244,456 shares at prices ranging
from $4.00 to $25.625 were exercisable.
On August 19, 1997, the Company issued warrants to key employees to
purchase 95,000 shares of the Company's common stock at $33.75 per share. The
warrants vest immediately and expire in 2007.
9. TREASURY STOCK
In 1997, the Board of Directors authorized a stock repurchase program
under which the Company may repurchase up to 600,000 shares of its common stock.
Such stock may be used to meet the Company's common stock requirements for its
stock benefit plans. During fiscal 1997, the Company repurchased 513,100 shares
at an average per share cost of $26.39.
F-12
<PAGE>
On August 27, 1997, the Board of Directors authorized the purchase of
up to 360,000 shares of the Company's common stock from officers and directors
and increased the number of shares of common stock that the Company is
authorized to repurchase under its existing stock repurchase program by 100,000
shares. In addition, on that date, the Company repurchased 347,794 shares from
certain officers and directors at a cost of $33.25 per share.
10. OTHER TRANSACTIONS
During 1995 and 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 June 30, 1997 and 1996.
At June 30, 1997 and 1996, other assets include $79,000 and $279,000,
respectively, of such credits. Under the terms of the agreement, the Company is
required to pay cash equal to a negotiated amount of the bartered advertising,
or other items, and use the barter credits to pay the balance. These credits are
charged to expense as they are used. During the years ended June 30, 1997 and
1996, 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 year ended June 30, 1997, 1996 and 1995, the Company
charged $200,000, $520,000 and $210,000, respectively, to operations for such
impairment losses.
11. PROFIT-SHARING AND BONUS PLANS
In January 1991, the Company established a 401(k) profit-sharing plan
in which eligible employees may contribute up to 15% of their eligible earnings.
The Company may contribute to the plan at the discretion of the Board of
Directors, subject to applicable regulations. In the years ended June 30, 1997,
1996 and 1995, the Board elected to contribute an amount equal to 25% of the
first 6% of eligible earnings. Participants vest in the Company's contributions
at a rate of 20% after two years of plan participation and 20% each year
thereafter until fully vested.
During the years ended June 30, 1997, 1996 and 1995, the Company's matching
contributions were $133,000, $128,000 and, $120,000, respectively.
The Company has an executive bonus plan and incentive compensation
arrangements for key employees based on an earnings formula. Compensation
expense recorded under these plans was $1,120,000 and $550,000 during the years
ended June 30, 1996 and 1995, respectively. No amounts were recorded under these
plans during the year ended June 30, 1997.
12. STATEMENTS OF CASH FLOWS
Capital lease obligations totaling $88,000 were incurred in 1997 when the
Company entered into leases to acquire certain vehicles.
In a barter transaction entered in 1995, the Company exchanged
$132,000, respectively, of inventory for an equal amount of barter credits (see
Note 10).
The Company realized a reduction in its current tax liability during
1997, 1996 and 1995 in the amount of $157,000, $1,452,000 and $284,000,
respectively. Such amounts were credited to additional paid-in capital (see Note
6).
Years Ended June 30,
1997 1996 1995
--------- --------- ---------
Supplemental disclosure of cash flow
information (in thousands) -
Cash paid during the period for:
Interest ...................... $ 130 $ 24 $ 80
Income taxes .................. $6,026 $9,988 $6,610
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Day Runner, Inc.:
We have audited the consolidated financial statements of Day Runner, Inc. and
its subsidiaries as of June 30, 1997 and 1996, and for each of the three years
in the period ended June 30, 1997, and have issued our report thereon dated
August 15, 1997; such report is included elsewhere in this Form 10-K. Our audits
also included the consolidated financial statement schedule of Day Runner, Inc.
and its subsidiaries, listed in Item 14(a)2. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
Long Beach, California
August 15, 1997
S-1
<PAGE>
<TABLE>
<CAPTION>
DAY RUNNER, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at Balance at
June 30, Charged to June 30,
Classification 1996 Operations Deductions 1997
- -------------- ---------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts............ $2,358 $ 381 $ 57 $ 2,682
Allowance for sales returns................ 5,016 13,883 12,917 5,982
Reserve for obsolete inventory............. 3,473 1,267 1,481 3,259
Balance at Balance at
June 30, Charged to June 30,
Classification 1995 Operations Deductions 1996
- -------------- ---------------- ---------- ---------- ----------
Allowance for doubtful accounts............ $1,671 $ 810 $ 123 $ 2,358
Allowance for sales returns................ 5,461 8,221 8,666 5,016
Reserve for obsolete inventory............. 3,214 2,754 2,495 3,473
Balance at Balance at
June 30, Charged to June 30,
Classification 1994 Operations Deductions 1995
- -------------- ---------------- ---------- ---------- ----------
Allowance for doubtful accounts............ $1,368 $ 452 $ 149 $ 1,671
Allowance for sales returns................ 2,883 10,451 7,873 5,461
Reserve for obsolete inventory............. 1,800 3,508 2,094 3,214
Balance at Balance at
December 31, Charged to June 30,
Classification 1993 Operations Deductions 1994
- -------------- ---------------- ---------- ---------- ----------
Allowance for doubtful accounts............ $1,362 $ 124 $ 118 $ 1,368
Allowance for sales returns................ 3,092 3,839 4,048 2,883
Reserve for obsolete inventory............. 1,529 924 653 1,800
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ---------- -------------
10.6 1997 Officer Bonus Plan
10.8 Sixth Amendment to Credit Agreement dated as of
September 1, 1997 between the Registrant and Wells
Fargo Bank, National Association, including revolving
Line of Credit Note
10.12 Schedule of Warrants
10.13 Form of Warrant dated August 19, 1997 to purchase
shares of the Registrant's Common Stock issued
to certain officers of the Company and Schedule of
Warrants
11.1 Statement of Computation of Earnings Per Share
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
DAY RUNNER, INC.
EXHIBIT 10.6
DAY RUNNER, INC. OFFICER BONUS PLAN
FOR THE FISCAL YEAR ENDING JUNE 30, 1997
The Officer Bonus Plan (the "Bonus Plan") for the fiscal year ending
June 30, 1997, will be paid based on the Company's fiscal year ending June 30,
1997 financial performance as measured by the degree of attainment of a pre-set,
Board-approved, net income goal.
The established fiscal 1997 net income goal for the period ending
June 30, 1997 to be used for calculation of the 1997 bonuses is
after bonuses net income (after taxes and all other expense items)
of $11,818,000.
The percentage attainment of the net income goal will be applied
to the matrix on the following pages to determine the bonus. (For
the purposes of these attachments, only a partial matrix is
shown.) Percentage calculations for net income and bonus
percentages will be calculated to two decimal places and will be
rounded up.
A minimum of 120% of the after-bonuses net income goal must
be achieved to receive any bonus.
Bonus payments, if any, will be made in one lump sum payment all
at one time within 30 days after the June 30, 1997 net income
results have been finalized and any review and audit by the
Company's outside accountants has been completed (as evidenced by
the Company's auditors executing its financial report and
delivering copies to the Compensation Committee.)
In the event any officer included in the Bonus Plan is an officer
of the Company for only a portion of the 12-month period ending
June 30,1997 (or changes his/her officer position during this
period), then his/her participation in the Bonus plan will be
pro-rata based on the number of days as a Company officer (or as
he/she held each respective office) in the fiscal year ending June
30, 1997 divided by 365, without regard to the actual net income
earned by the Company during the period he/she was an officer;
provided, however, that an officer must be an officer for at least
six months of this fiscal year and must not voluntarily resign as
an officer of the Company on or prior to June 30, 1997 to be
eligible for participation in the Bonus Plan.
Unless additional officers are explicitly included in the Bonus
Plan pursuant to a subsequent, duly adopted Board resolution, only
the following officers shall be included in the Bonus Plan: Chief
Executive Officer; President and Chief Operating Officer; Chief
Financial Officer & Executive Vice President, Finance &
Administration; Vice President, Operations, North America; Vice
President, Sales; Vice President, Product Development; Vice
President, International Sales; Vice President, Chief Information
Officer; Vice President, Corporate Development; and Vice
President, Human Resources.
Bonuses will be paid according to the partial table on the following
page which is to be used by applying the appropriate bonus percentage to the
base salary for each respective executive.
<TABLE>
<CAPTION>
DAY RUNNER, INC.
Officer Bonus Calculation for Fiscal 1997
Base period = 12 months ended June 30, 1996
Bonus calculated using bonus factor
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income(in $000's) Chief Executive President & Chief Chief Financial VP - Sales VP - Product
Goal = $11,818 Officer Operating Officer Officer Development
- ----------------------------------------------------------------------------------------------------------------------------------
Annual Salary $300,000 $250,000 $150,000 $132,000 $132,000
Bonus Factor 2.44% 2.36% 2.24% 2.16% 2.16%
- ----------------------------------------------------------------------------------------------------------------------------------
Percent After Bonus
of 12 Months Fiscal 1997 Percent Percent Percent Percent Percent
Ended 6/30/97 Net Income of Annual of Annual of Annual of Annual of Annual
Net Income ($000) Salary Bonus Salary Bonus Salary Bonus Salary Bonus Salary Bonus
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
120.0 $14,182 2.44% $7,320 2.36 $5,900 2.24 $3,360 2.16 $2,851 2.1 $2,851
120.0 $14,241 4.88 14,640 4.72 11,800 4.48 6,720 4.32 5,702 4.32 5,702
121.0 $14,300 7.32 21,960 7.08 17,700 6.72 10,080 6.48 8,554 6.48 8,554
121.5 $14,359 9.76 29,280 9.44 23,600 8.96 13,440 8.64 11,405 8.6 11,405
122.0 $14,418 12.20 36,600 11.80 29,500 11.20 16,800 10.80 14,256 10.8 14,256
122.5 $14,477 14.64 43,920 14.16 35,400 13.44 20,160 12.96 17,107 12.9 17,107
123.0 $14,536 17.08 51,240 16.52 41,300 15.68 23,520 15.12 19,958 15.1 19,958
123.5 $14,595 19.52 58,560 18.88 47,200 17.92 26,880 17.28 22,810 17.2 22,810
124.0 $14,654 21.96 65,880 21.24 53,100 20.16 30,240 19.44 25,661 19.4 25,661
124.5 $14,713 24.40 73,200 23.60 59,000 22.40 33,600 21.60 28,512 21.6 28,512
125.0 $14,773 26.84 80,520 25.96 64,900 24.64 36,960 23.76 31,363 23.76 31,363
125.5 $14,832 29.28 87,840 28.32 70,800 26.88 40,320 25.92 34,214 25.9 34,214
126.0 $14,891 31.72 95,160 30.68 76,700 29.12 43,680 28.08 37,066 28.0 37,066
126.5 $14,950 34.16 102,480 33.04 82,600 31.36 47,040 30.24 39,917 30.2 39,917
127.0 $15,009 36.60 109,800 35.40 88,500 33.60 50,400 32.40 42,768 32.4 42,768
127.5 $15,068 39.04 117,120 37.76 94,400 35.84 53,760 34.56 45,619 34.5 45,619
128.0 $15,127 41.48 124,440 40.12 100,300 38.08 57,120 36.72 48,470 36.7 48,470
128.5 $15,186 43.92 131,760 42.48 106,200 40.32 60,480 38.88 51,322 38.8 51,322
129.0 $15,245 46.36 139,080 44.84 112,100 42.56 63,840 41.04 54,173 41.0 54,173
130.0 $15,363 48.80 146,400 47.20 118,000 44.80 67,200 43.20 57,024 43.2 57,024
131.0 $15,482 51.24 153,720 49.56 123,900 47.04 70,560 45.36 59,875 45.3 59,875
132.0 $15,600 53.68 161,040 51.92 129,800 49.28 73,920 47.52 62,726 47.5 62,726
133.0 $15,718 56.12 168,360 54.28 135,700 51.52 77,280 49.68 65,578 49.6 65,578
134.0 $15,836 58.56 175,680 56.64 141,600 53.76 80,640 51.84 68,429 51.8 68,429
135.0 $15,954 61.00 183,000 59.00 147,500 56.00 84,000 54.00 71,280 54.0 71,280
136.0 $16,072 63.44 190,320 61.36 153,400 58.24 87,360 56.16 74,131 56.1 74,131
137.0 $16,191 65.88 197,640 63.72 159,300 60.48 90,720 58.32 76,982 58.3 76,982
138.0 $16,309 68.32 204,960 66.08 165,200 62.72 94,080 60.48 79,834 60.4 79,834
139.0 $16,427 70.76 212,280 68.44 171,100 64.96 97,440 62.64 82,685 62.64 82,685
140.0 $16,545 73.20 219,600 70.80 177,000 67.20 100,800 64.80 85,536 64.80 85,536
141.0 $16,663 75.64 226,920 73.16 182,900 69.44 104,160 66.96 88,387 66.96 88,387
142.0 $16,782 78.08 234,240 75.52 188,800 71.68 107,520 69.12 91,238 69.12 91,238
143.0 $16,900 80.52 241,560 77.88 194,700 73.92 110,880 71.28 94,090 71.28 94,090
144.0 $17,018 82.96 248,880 80.24 200,600 76.16 114,240 73.44 96,941 73.44 96,941
145.0 $17,136 85.40 256,200 82.60 206,500 78.40 117,600 75.60 99,792 75.60 99,792
146.0 $17,254 87.84 263,520 84.96 212,400 80.64 120,960 77.76 102,643 77.76 102,643
147.0 $17,372 90.28 270,840 87.32 218,300 82.88 124,320 79.92 105,494 79.92 105,494
148.0 $17,491 92.72 278,160 89.68 224,200 85.12 127,680 82.08 108,346 82.08 108,346
149.0 $17,609 95.16 285,480 92.04 230,100 87.36 131,040 84.24 111,197 84.24 111,197
150.0 $17,727 97.60 292,800 94.40 236,000 89.60 134,400 86.40 114,048 86.40 114,048
151.0 $17,845 100.04 300,120 96.76 241,900 91.84 137,760 88.56 116,899 88.56 116,899
152.0 $17,963 102.48 307,440 99.12 247,800 94.08 141,120 90.72 119,750 90.72 119,750
153.0 $18,082 104.92 314,760 101.48 253,700 96.32 144,480 92.88 122,602 92.99 122,602
154.0 $18,200 107.36 322,080 103.84 259,600 98.56 147,840 95.04 125,453 95.04 125,453
155.0 $18,318 109.80 329,400 106.20 265,500 100.80 151,200 97.20 128,304 97.20 128,304
156.0 $18,436 112.24 336,720 108.56 271,400 103.04 154,560 99.36 131,155 99.36 131,155
157.0 $18,554 114.68 344,040 110.92 277,300 105.28 157,920 101.52 134,006 101.52 134,006
158.0 $18,672 117.12 351,360 113.28 283,200 107.52 161,280 103.68 136,858 103.68 136,858
159.0 $18,791 119.56 358,680 115.64 289,100 109.76 164,640 105.84 139,709 105.84 139,709
160.0 $18,909 122.00 366,000 118.00 295,000 112.00 168,000 108.00 142,560 108.00 142,560
161.0 $19,027 124.44 373,320 120.36 300,900 114.24 171,360 110.16 145,411 110.16 145,411
162.0 $19,145 126.88 380,640 122.72 306,800 116.48 174,720 112.32 148,262 112.32 148,262
163.0 $19,263 129.32 387,960 125.08 312,700 118.72 178,080 114.48 151,114 114.48 151,114
164.0 $19,382 131.76 395,280 127.44 318,600 120.96 181,440 116.64 153,965 116.64 153,965
165.0 $19,500 134.20 402,600 129.80 324,500 123.20 184,800 118.80 156,816 118.80 156,816
166.0 $19,618 136.64 409,920 132.16 330,400 125.44 188,160 120.96 159,667 120.96 159,667
167.0 $19,736 139.08 417,240 134.52 336,300 127.68 191,520 123.12 162,518 123.12 162,518
168.0 $19,854 141.52 424,560 136.88 342,200 129.92 194,880 125.28 165,370 125.28 165,370
169.0 $19,972 143.96 431,880 139.24 348,100 132.16 198,240 127.44 168,221 127.44 168,221
170.0 $20,091 146.40 439,200 141.60 354,000 134.40 201,600 129.60 171,072 129.60 171,072
171.0 $20,209 148.84 446,520 143.96 359,900 136.64 204,960 131.76 173,923 131.76 173,923
172.0 $20,327 151.28 453,840 146.32 365,800 138.88 208,320 133.92 176,774 133.92 176,774
173.0 $20,445 153.72 461,160 148.68 371,700 141.12 211,680 136.08 179,626 136.08 179,626
174.0 $20,563 156.16 468,480 151.04 377,600 143.36 215,040 138.24 182,477 138.24 182,477
175.0 $20,682 158.60 475,800 153.40 383,500 145.60 218,400 140.40 185,328 140.40 185,328
176.0 $20,800 161.04 483,120 155.76 389,400 147.84 221,760 142.56 188,179 142.56 188,179
177.0 $20,918 163.48 490,440 158.12 395,300 150.08 225,120 144.72 191,030 144.72 191,030
178.0 $21,036 165.92 497,760 160.48 401,200 152.32 228,480 146.88 193,882 146.88 193,882
179.0 $21,154 168.36 505,080 162.84 407,100 154.56 231,840 149.04 196,733 149.04 196,733
180.0 $21,272 170.80 512,400 165.20 413,000 156.80 235,200 151.20 199,584 151.20 199,584
181.0 $21,391 173.24 519,720 167.56 418,900 159.04 238,560 153.36 202,435 153.36 202,435
182.0 $21,509 175.68 527,040 169.92 424,800 161.28 241,920 155.52 205,286 155.52 205,286
183.0 $21,627 178.12 534,360 172.28 430,700 163.52 245,280 157.68 208,138 157.68 208,138
184.0 $21,745 180.56 541,680 174.64 436,600 165.76 248,640 159.84 210,989 159.84 210,989
185.0 $21,863 183.00 549,000 177.00 442,500 168.00 252,000 162.00 213,840 162.00 213,840
186.0 $21,981 185.44 556,320 179.36 448,400 170.24 255,360 164.16 216,691 164.16 216,691
187.0 $22,100 187.88 563,640 181.72 454,300 172.48 258,720 166.32 219,542 166.32 219,542
188.0 $22,218 190.32 570,960 184.08 460,200 174.72 262,080 168.48 222,394 168.48 222,394
189.0 $22,336 192.76 578,280 186.44 466,100 176.96 265,440 170.64 225,245 170.64 225,245
190.0 $22,454 195.20 585,600 188.80 472,000 179.20 268,800 172.80 228,096 172.80 228,096
191.0 $22,572 197.64 592,920 191.16 477,900 181.44 272,160 174.96 230,947 174.96 230,947
192.0 $22,691 200.08 600,240 193.52 483,800 183.68 275,520 177.12 233,798 177.12 233,798
193.0 $22,809 202.52 607,560 195.88 489,700 185.92 278,880 179.28 236,650 179.28 236,650
194.0 $22,927 204.96 614,880 198.24 495,600 188.16 282,240 181.44 239,501 181.44 239,501
195.0 $23,045 207.40 622,200 200.60 501,500 190.40 285,600 183.60 242,352 183.60 242,352
196.0 $23,163 209.84 629,520 202.96 507,400 192.64 288,960 185.76 245,203 185.76 245,203
197.0 $23,281 212.28 636,840 205.32 513,300 194.88 292,320 187.92 248,054 187.92 248,054
198.0 $23,400 214.72 644,160 207.68 519,200 197.12 295,680 190.08 250,906 190.08 250,906
199.0 $23,518 217.16 651,480 210.04 525,100 199.36 299,040 192.24 253,757 192.24 253,757
200.0 $23,636 219.60 658,800 212.40 531,000 201.60 302,400 194.40 256,608 194.40 256,608
201.0 $23,754 222.04 666,120 214.76 536,900 203.84 305,760 196.56 259,459 196.56 259,459
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table continued below
- ----------------------------------------------------------------------------------------------------------------------------------
VP - Operations, VP - International VP - Information VP-Corporate VP - Human
North America Sales Services Development Resources
- ----------------------------------------------------------------------------------------------------------------------------------
$125,000 110,000 $110,000 $90,000 $90,000
1.80 1.40% 1.40% 1.40% 1.40%
- ------------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent Bonus
of Annual of Annual of Annual of Annual of Annual Grand
Salary Bonus Salary Bonus Salary Bonus Salary Bonus Salary Bonus Total
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.80% $2,250 1.40 $1,540 1.40 $1,540 1.40 $1,260 1.40 $1,260 $30,132
3.60 4,500 2.80 3,080 2.80 3,080 2.80 2,520 2.80 2,520 $60,264
5.40 6,750 4.20 4,620 4.20 4,620 4.20 3,780 4.20 3,780 $90,398
7.20 9,000 5.60 6,160 5.60 6,160 5.60 5,040 5.60 5,040 $120,530
9.00 11,250 7.00 7,700 7.00 7,700 7.00 6,300 7.00 6,300 $150,662
10.80 13,500 8.40 9,240 8.40 9,240 8.40 7,560 8.40 7,560 $180,794
12.60 15,750 9.80 10,780 9.80 10,780 9.80 8,820 9.80 8,820 $210,926
14.40 18,000 11.20 12,320 11.20 12,320 11.20 10,080 11.20 10,080 $241,060
16.20 20,250 12.60 13,860 12.60 13,860 12.60 11,340 12.60 11,340 $271,192
18.00 22,500 14.00 15,400 14.00 15,400 14.00 12,600 14.00 12,600 $301,324
19.80 24,750 15.40 16,940 15.40 16,940 15.40 13,860 15.40 13,860 $331,456
21.60 27,000 16.80 18,480 16.80 18,480 16.80 15,120 16.80 15,120 $361,588
23.40 29,250 18.20 20,020 18.20 20,020 18.20 16,380 18.20 16,380 $391,722
25.20 31,500 19.60 21,560 19.60 21,560 19.60 17,640 19.60 17,640 $421,854
27.00 33,750 21.00 23,100 21.00 23,100 21.00 18,900 21.00 18,900 $451,986
28.80 36,000 22.40 24,640 22.40 24,640 22.40 20,160 22.40 20,160 $482,118
30.60 38,250 23.80 26,180 23.80 26,180 23.80 21,420 23.80 21,420 $512,250
32.40 40,500 25.20 27,720 25.20 27,720 25.20 22,680 25.20 22,680 $542,384
34.20 42,750 26.60 29,260 26.60 29,260 26.60 23,940 26.60 23,940 $572,516
36.00 45,000 28.00 30,800 28.00 30,800 28.00 25,200 28.00 25,200 $602,648
37.80 47,250 29.40 32,340 29.40 32,340 29.40 26,460 29.40 26,460 $632,780
39.60 49,500 30.80 33,880 30.80 33,880 30.80 27,720 30.80 27,720 $662,912
41.40 51,750 32.20 35,420 32.20 35,420 32.20 28,980 32.20 28,980 $693,046
43.20 54,000 33.60 36,960 33.60 36,960 33.60 30,240 33.60 30,240 $723,178
45.00 56,250 35.00 38,500 35.00 38,500 35.00 31,500 35.00 31,500 $753,310
46.80 58,500 36.40 40,040 36.40 40,040 36.40 32,760 36.40 32,760 $783,442
48.60 60,750 37.80 41,580 37.80 41,580 37.80 34,020 37.80 34,020 $813,574
50.40 63,000 39.20 43,120 39.20 43,120 39.20 35,280 39.20 35,280 $843,708
52.20 65,250 40.60 44,660 40.60 44,660 40.60 36,540 40.60 36,540 $873,840
54.00 67,500 42.00 46,200 42.00 46,200 42.00 37,800 42.00 37,800 $903,972
55.80 69,750 43.40 47,740 43.40 47,740 43.40 39,060 43.40 39,060 $934,104
57.60 72,000 44.80 49,280 44.80 49,280 44.80 40,320 44.80 40,320 $964,236
59.40 74,250 46.20 50,820 46.20 50,820 46.20 41,580 46.20 41,580 $994,370
61.20 76,500 47.60 52,360 47.60 52,360 47.60 42,840 47.60 42,840 $1,024,502
63.00 78,750 49.00 53,900 49.00 53,900 49.00 44,100 49.00 44,100 $1,054,634
64.80 81,000 50.40 55,440 50.40 55,440 50.40 45,360 50.40 45,360 $1,084,766
66.60 83,250 51.80 56,980 51.80 56,980 51.80 46,620 51.80 46,620 $1,114,898
68.40 85,500 53.20 58,520 53.20 58,520 53.20 47,880 53.20 47,880 $1,145,032
70.20 87,750 54.6 60,060 54.60 60,060 54.60 49,140 54.60 49,140 $1,175,164
72.00 90,000 56.00 61,600 56.00 61,600 56.00 50,400 56.00 50,400 $1,205,296
73.80 92,250 57.40 63,140 57.40 63,140 57.40 51,660 57.40 51,660 $1,235,428
75.60 94,500 58.80 64,680 58.80 64,680 58.80 52,920 58.80 52,920 $1,265,560
77.40 96,750 60.20 66,220 60.20 66,220 60.20 54,180 60.20 54,180 $1,295,694
79.20 99,000 61.60 67,760 61.60 67,760 61.60 55,440 61.60 55,440 $1,325,826
81.00 101,250 63.00 69,300 63.00 69,300 63.00 56,700 63.00 56,700 $1,355,958
82.80 103,500 64.40 70,840 64.40 70,840 64.40 57,960 64.40 57,960 $1,386,090
84.60 105,750 65.80 72,380 65.80 72,380 65.80 59,220 65.80 59,220 $1,416,222
86.40 108,000 67.20 73,920 67.20 73,920 67.20 60,480 67.20 60,480 $1,446,356
88.20 110,250 68.60 75,460 68.60 75,460 68.60 61,740 68.60 61,740 $1,476,488
90.00 112,500 70.00 77,000 70.00 77,000 70.00 63,000 70.00 63,000 $1,506,620
91.80 114,750 71.40 78,540 71.40 78,540 71.40 64,260 71.40 64,260 $1,536,752
93.60 117,000 72.80 80,080 72.80 80,080 72.80 65,520 72.80 65,520 $1,566,884
95.40 119,250 74.20 81,620 74.20 81,620 74.20 66,780 74.20 66,780 $1,597,018
97.20 121,500 75.60 83,160 75.60 83,160 75.60 68,040 75.60 68,040 $1,627,150
99.00 123,750 77.00 84,700 77.00 84,700 77.00 69,300 77.00 69,300 $1,657,282
100.80 126,000 78.40 86,240 78.40 86,240 78.40 70,560 78.40 70,560 $1,687,414
102.60 128,250 79.80 87,780 79.80 87,780 79.80 71,820 79.80 71,820 $1,717,546
104.40 130,500 81.20 89,320 81.20 89,320 81.20 73,080 81.20 73,080 $1,747,680
106.20 132,750 82.60 90,860 82.60 90,860 82.60 74,340 82.60 74,340 $1,777,812
108.00 135,000 84.00 92,400 84.00 92,400 84.00 75,600 84.00 75,600 $1,807,944
109.80 137,250 85.40 93,940 85.40 93,940 85.40 76,860 85.40 76,860 $1,838,076
111.60 139,500 86.80 95,480 86.80 95,480 86.80 78,120 86.80 78,120 $1,868,208
113.40 141,750 88.20 97,020 88.20 97,020 88.20 79,380 88.20 79,380 $1,898,342
115.20 144,000 89.60 98,560 89.60 98,560 89.60 80,640 89.60 80,640 $1,928,474
117.00 146,250 91.00 100,100 91.00 100,100 91.00 81,900 91.00 81,900 $1,958,606
118.80 148,500 92.40 101,640 92.40 101,640 92.40 83,160 92.40 83,160 $1,988,738
120.60 150,750 93.80 103,180 93.80 103,180 93.80 84,420 93.80 84,420 $2,018,870
122.40 153,000 95.20 104,720 95.20 104,720 95.20 85,680 95.20 85,680 $2,049,004
124.20 155,250 96.60 106,260 96.60 106,260 96.60 86,940 96.60 86,940 $2,079,136
126.00 157,500 98.00 107,800 98.00 107,800 98.00 88,200 98.00 88,200 $2,109,268
127.80 159,750 99.40 109,340 99.40 109,340 99.40 89,460 99.40 89,460 $2,139,400
129.60 162,000 100.80 110,880 100.80 110,880 100.80 90,720 100.80 90,720 $2,169,532
131.40 164,250 102.20 112,420 102.20 112,420 102.20 91,980 102.20 91,980 $2,199,666
133.20 166,500 103.60 113,960 103.60 113,960 103.60 93,240 103.60 93,240 $2,229,798
135.00 168,750 105.00 115,500 105.00 115,500 105.00 94,500 105.00 94,500 $2,259,930
136.80 171,000 106.40 117,040 106.40 117,040 106.40 95,760 106.40 95,760 $2,290,062
138.60 173,250 107.80 118,580 107.80 118,580 107.80 97,020 107.80 97,020 $2,320,194
140.40 175,500 109.20 120,120 109.20 120,120 109.20 98,280 109.20 98,280 $2,350,328
142.20 177,750 110.60 121,660 110.60 121,660 110.60 99,540 110.60 99,540 $2,380,460
144.00 180,000 112.00 123,200 112.00 123,200 112.00 100,800 112.00 100,800 $2,410,592
145.80 182,250 113.40 124,740 113.40 124,740 113.40 102,060 113.40 102,060 $2,440,724
147.60 184,500 114.80 126,280 114.80 126,280 114.80 103,320 114.80 103,320 $2,470,856
149.40 186,750 116.20 127,820 116.20 127,820 116.20 104,580 116.20 104,580 $2,500,990
151.20 189,000 117.60 129,360 117.60 129,360 117.60 105,840 117.60 105,840 $2,531,122
153.00 191,250 119.00 130,900 119.00 130,900 119.00 107,100 119.00 107,100 $2,561,254
154.80 193,500 120.40 132,440 120.40 132,440 120.40 108,360 120.40 108,360 $2,591,386
156.60 195,750 121.80 133,980 121.80 133,980 121.80 109,620 121.80 109,620 $2,621,518
158.40 198,000 123.20 135,520 123.20 135,520 123.20 110,880 123.20 110,880 $2,651,652
160.20 200,250 124.60 137,060 124.60 137,060 124.60 112,140 124.60 112,140 $2,681,784
162.00 202,500 126.00 138,600 126.00 138,600 126.00 113,400 126.00 113,400 $2,711,916
163.80 204,750 127.40 140,140 127.40 140,140 127.40 114,660 127.40 114,660 $2,742,048
</TABLE>
DAY RUNNER, INC.
EXHIBIT 10.8
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of September 1, 1997, by and between DAY RUNNER, INC., a Delaware
corporation("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of Nay 1, 1993, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1(a) is hereby amended by deleting "Five Million Dollars
($5,000,000.00)" as the maximum principal amount available under the Line of
Credit, and by substituting for said amount "Fifteen Million Dollars
($15,000,000.00)," with such change to be effective upon the execution and
delivery to Bank of a promissory note substantially in the form of Exhibit A
attached hereto (which promissory note shall replace and be deemed the Line of
Credit Note defined in and made pursuant to the Credit Agreement) and all other
contracts, instruments and documents required by Bank to evidence such change.
2. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
3. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
as of the day and year first written above.
DAY RUNNER, INC WELLS FARGO BANK,
. NATIONAL ASSOCIATION
By: /s/ Dennis Marquardt /s/Clare Gurbach
Title: Executive Vice President Vice President
- 2-
<PAGE>
TO: WELLS FARGO BANK, NATIONAL ASSOCIATION
Authorization to Increase Borrowing Limit
RESOLVED, that Mark A. Vidovich, Chief Executive Officer of
the Company and Dennis K. Marquardt, Chief Financial Officer of the Company, or
either of them, be, and they hereby are, authorized to increase the maximum
amount which the Company may borrow pursuant to that certain Credit Agreement
dated as of May 1, 1993 and the collateral agreements thereto between Wells
Fargo Bank, National Association ("Wells Fargo"), and the Company, each as
amended to date (collectively, as amended to date, the "Credit Agreement"),
from $5,000,000 to an amount not in excess of $15,000,000;
RESOLVED FURTHER, that the Chief Executive Officer of the
Company and Chief Financial Officer of the Company, or either of them, be, and
they hereby are, authorized and directed, for and on behalf of the Company, to
take all actions necessary to secure and effectuate the increase in amount
which the Company may borrow from Wells Fargo pursuant to the Credit Agreement,
including the negotiation, execution and delivery to Wells Fargo of such
documents, certificates, and other instruments as may be required by Wells
Fargo
CERTIFICATION
I, Dennis K. Marquardt, Corporate Secretary of DAY RUNNER, INC., a corporation
created and existing under the laws of the state of DELAWARE, do hereby certify
and declare that the foregoing is a full, true and correct copy of the
resolutions duly passed and adopted by the Board of Directors of said
corporation, by written consent of all Directors of said corporation or at a
meeting of said Board duly and regularly called, noticed and held on August 19,
1997, at which meeting a quorum of the Board of Directors was present and voted
in favor of said resolutions; that said resolutions are now in full force and
effect; that there is no provision in the Articles of Incorporation or Bylaws
of said corporation, or any shareholder agreement, limiting the power of the
Board of Directors of said corporation to pass the foregoing resolutions and
that such resolutions are in conformity with the provisions of such Articles of
Incorporation and Bylaws; and that no approval by the shareholders of, or of
the outstanding shares of, said corporation is required with respect to the
matters which are the subject of the foregoing resolutions. IN TESTIMONY
WHEREOF, I have hereunto set my hand and affixed the corporate seal of said
corporation as of September 19, 1997.
/s/ Dennis K. Marquardt
Corporate Secretary
(SEAL)
<PAGE>
REVOLVING LINE OF CREDIT NOTE
$15,000,000.00 Los Angeles, California
September 1, 1997
FOR VALVE RECEIVED, the undersigned DAY RUNNER, INC. ("Borrower") promises to
pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at Los Angeles RCBO, 333 South Grand Avenue, Third Floor, Los Angeles,
California, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of Fifteen Million Dollars ($15,000,000.00), or so much thereof as
may be advanced and be outstanding, with interest thereon, to be computed on
each advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1) or two (2) months, as designated by Borrower, during
which all or a portion of the outstanding principal balance of this Note bears
interest determined in relation to LIBOR; provided however, that no Fixed Rate
Term may be selected for a principal amount less than Five Hundred Thousand
Dollars ($500,000.00); and provided further, that no Fixed Rate Term shall
extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would
end on a day which is not a Business Day, then such Fixed Rate Term shall be
extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed
by the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be one and
three quarters percent (1.75%) above LIBOR in effect on the first day of the
applicable Fixed Rate Term. When interest is determined in relation to the Prime
Rate, each change in the rate of interest hereunder shall become effective on
the date each Prime Rate change is announced within Bank. With respect to each
LIBOR selection hereunder, Bank is hereby authorized to note the date, principal
amount, interest rate and Fixed Rate Term applicable thereto and any payments
made thereon on Bank's books and records (either manually or by electronic
entry) and/or on any schedule attached to this Note, which notations shall be
prima facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone so long as, with respect to
each LIBOR selection, (A) Bank receives written confirmation from Borrower not
later than three (3) Business Days after such telephone notice is given, and (B)
such notice is given to Bank prior to 10:00 a.m., California time, on the first
day of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to accept any such rate by 11:00
a.m., California time, on the Business Day such quotation is given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR
option to be selected on such day. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
(i) If Bank at any time shall determine that for any reason adequate
and reasonable means do not exist for ascertaining LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until such
notice has been withdrawn by Bank, then (A) no new LIBOR option may be selected
by Borrower, and (B) any portion of the outstanding principal balance hereof
which bears interest determined in relation to LIBOR, subsequent to the end of
the Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court
or governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be
--3--
<PAGE>
cancelled, and in the latter event, any such unlawful LIBOR-based interest rates
then outstanding shall be converted, at Bank's option, so that interest on the
portion of the outstanding principal balance subject thereto is determined in
relation to the Prime Rate; provided however, that if any such Change in Law
shall permit any LIBOR-based interest rates to remain in effect until the
expiration of the Fixed Rate Term applicable thereto, then such permitted
LIBOR-based interest rates shall continue in effect until the expiration of such
Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower
shall pay to Bank immediately upon demand such amounts as may be certified to
Borrower by Bank in writing as necessary to compensate Bank for any fines, fees,
charges, penalties or other costs incurred or payable by Bank as a result
thereof and which are attributable to any LIBOR options made available to
Borrower hereunder, and any reasonable allocation made by Bank among its
operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank of principal,
interest, fees or any other amount payable hereunder (except for changes in the
rate of tax on the overall net income of Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances or loans by, or any other
acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank such amounts as may be certified to Borrower by Bank
in writing as necessary, immediately upon receipt of such certification, to
compensate Bank for any additional costs incurred by Bank and/or reductions in
amounts received by Bank which are attributable to such LIBOR options. In
determining which costs incurred by Bank and/or reductions in amounts received
by Bank are attributable to any LIBOR options made available to Borrower
hereunder, any reasonable allocation made by Bank among its operations shall be
conclusive and binding upon Borrower.
--4--
<PAGE>
(d) Payment of Interest. Interest accrued on this Note shall
be payable in arrears on the first day of each month, commencing October 1,
1997.
(e) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to two percent (2%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time
during the term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding principal
amount of borrowings under this Note shall not at any time exceed the principal
amount stated above. The unpaid principal balance of this obligation at any time
shall be the total amounts advanced hereunder by the holder hereof less the
amount of principal payments made hereon by or for any Borrower, which balance
may be endorsed hereon from time to time by the holder. The outstanding
principal balance of this Note shall be due and payable in full on November 1,
1997.
(b) Advances. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(i) Dennis K. Marquardt or James Freeman, Jr. or Kevin Marquez or Mark Vidovich
or Ravi Shan, any one acting alone, who are authorized to request advances and
direct the disposition of any advances until written notice of the revocation of
such authority is received by the holder at the office designated above, or (ii)
any person, with respect to advances deposited to the credit of any account of
any Borrower with the holder, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower.
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the
--5--
<PAGE>
outstanding principal balance of this Note which bears interest determined in
relation to the Prime Rate, if any, and second, to the outstanding principal
balance of this-Note which bears interest determined in relation to LIBOR, with
such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
(a) Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of One Hundred Thousand Dollars ($100,000.00); provided however,
that if the outstanding principal balance of such portion of this Note is less
than said amount, the minimum prepayment amount shall be the entire outstanding
principal balance thereof. In consideration of Bank providing this prepayment
option to Borrower, or if any such portion of this Note shall become due and
payable at any time prior to the last day of the Fixed Rate Term applicable
thereto by acceleration or otherwise, Borrower shall pay to Bank immediately
upon demand a fee which is the sum of the discounted monthly differences for
each month from the month of prepayment through the month in which such Fixed
Rate Term matures, calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each
month on the amount prepaid at the interest rate applicable to such amount had
it remained outstanding until the last day of the Fixed Rate Term applicable
thereto.
(ii) Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.
(iii)If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above. . Borrower acknowledges
that prepayment of such amount may result in Bank incurring additional costs,
expenses and/or liabilities, and that it is difficult to ascertain the full
extent of such costs, expenses and/or liabilities. Borrower, therefore, agrees
to pay the above-described prepayment fee and agrees that said amount represents
a reasonable estimate of the prepayment costs,
-6--
<PAGE>
expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee
when due, the amount of such prepayment fee shall thereafter bear interest until
paid-at a rate per annum two percent (2%) above the Prime Rate in effect from
time to time (computed on the basis of a 360-day year, actual days elapsed).
Each change in the rate of interest on any such past due prepayment fee shall
become effective on the date each Prime Rate change is announced within Bank.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of that
certain Credit Agreement between Borrower and Bank dated as of May 1, 1993, as
amended from time to time (the "Credit Agreement"). Any default in the payment
or performance of any obligation under this Note, or any defined event of
default under the Credit Agreement, shall constitute an "Event of Default" under
this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of this
Note, at the holder's option, may declare all sums of principal and interest
outstanding hereunder to be immediately due and payable without presentment,
demand, notice of nonperformance, notice of protest, protest or notice of
dishonor, all of which are expressly waived by Borrower, and the obligation, if
any, of the holder to extend any further credit hereunder shall immediately
cease and terminate. Borrower shall pay to the holder immediately upon demand
the full amount of all payments, advances, charges, costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of the holder's in-house counsel), expended or incurred by the
holder in connection with the enforcement of the holder's rights and/or the
collection of any amounts which become due to the holder under this Note, and
the prosecution or defense of any action in any way related to this Note,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity.
(b) Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California.
- --7--
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first
written above.
DAY RUNNER, INC.
/s/ Dennis Marquardt
Title: Executive Vice President
<TABLE>
<CAPTION>
DAY RUNNER,INC.
Exhibit 10.12
Schedule of Warrants
--------------------
No. of Exercise Date Date of
Holder Shares Price of Issue Expiration Vesting Schedule
- --------------- --------------- -------- ---------- ---------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Higgins, James 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/97(1)
Higgins, Jill 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/97(1)
Miller, Charles 4,733(2) $ 4.00 03/12/91 03/11/98 Original warrant covered 25,000
shares and vested in 60 equal
monthly installments commencing
04/01/91
Miller, Charles 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/97(1)
Rachlin, Alan 25,000 $ 4.00 03/12/91 03/11/98 60 equal monthly installments
commencing 04/01/91
Rachlin, Alan 25,000(3) $ 4.00 03/12/91 03/11/98 60 equal monthly installments
commencing 04/01/91
Rachlin, Alan 50,000 $ 4.00 03/18/92 03/12/98 10,000 commencing 03/18/92; 40,000
in 48 equal monthly installments
commencing 04/01/92
Rachlin, Alan 25,000 $ 12.00 03/09/93 01/22/03 2,083 on 03/09/93; 22,917 in 11
equal monthly installments
commencing 03/20/93
Rachlin, Alan 25,000 $ 12.50 01/16/94 01/16/04 12 equal monthly installments
commencing 02/14/94
Rachlin, Alan 25,000 $19.00 08/15/94 08/15/04 12 equal monthly installments
commencing 08/29/94
Rachlin, Alan 25,000 $19.00 07/28/95 07/28/05 24 equal monthly installments
commencing 08/28/95
Rachlin, Alan 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/97(1)
Willat, Boyd 25,000 $ 4.00 03/12/91 03/11/98 60 equal monthly installments
commencing 04/01/91
Willat, Boyd 25,000 $23.5625 12/04/96 12/03/03 60 equal monthly installments
commencing 01/01/97(1)
(1) The Warrant also contains the following provision with respect to the right
to exercise the Warrant:
"Notwithstanding the foregoing, if [the Holder] shall cease to
be a director of the Company for any reason or no reason
("Termination"), whether such Termination is permanent or temporary,
then after the effective date of such Termination and through the
end of the Warrant Term the Holder may exercise the Warrant to
purchase only such number of Shares that the Holder would have been
entitled to purchase on the effective date of such Termination in
accordance with the foregoing. To the extent that the Holder shall
not have been entitled to exercise any portion of the Warrant on the
effective date of such Termination, such portion shall be deemed to
have expired unexercised on such effective date."
(2) The original warrant covered 25,000 shares and has been exercised with
respect to 20,267 of such shares.
(3) The subject warrant was assigned to Mr. Rachlin by Jill Tate Higgins on
March 12, 1991.
</TABLE>
Exhibit 10.13
WARRANT TO PURCHASE COMMON STOCK
OF
DAY RUNNER, INC.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
Warrant to Purchase
____________ Shares of Common Stock
DAY RUNNER, INC.
INCORPORATED UNDER THE LAWS OF THE STATE
OF DELAWARE
Void after August 19, 2007
THE WARRANT evidenced by this Certificate has been issued for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
THIS CERTIFICATE evidences the right of ____________________ (the
"Holder") to purchase ____________ shares of Common Stock, par value $0.001 per
share (the "Shares"), of Day Runner, Inc., a Delaware corporation (the
"Company"), at a price of $33.75 per Share, subject, however, to the terms and
conditions hereinafter set forth.
1. Definitions. As used in this Certificate:
(a) "Warrant" shall mean the rights evidenced by this
Certificate.
(b) "Warrant Price" shall mean $33.75, as adjusted in
accordance with Section 5 hereof.
2. Term of Warrant. The Warrant may be exercised only during the period
commencing on August 19, 1997 through the close of business on August 19, 2007
(the "Warrant Term") and may be exercised only in accordance with the terms and
conditions hereinafter set forth.
3. Exercise of Warrant. The Warrant shall be exercisable as follows:
(a) Right to Exercise. The Warrant shall immediately vest and
become exercisable in full.
(b) Method of Exercise; Payment; Issuance of New Warrant;
Transfer and Exchange. The Warrant may be exercised by the Holder, in whole or
in part, by the surrender of this Certificate, properly endorsed, with the form
of subscription attached to this Certificate duly executed by the Holder, at the
principal office of the Company, and by the payment to the Company by certified
or cashier's check of the then applicable Warrant Price. In the event of any
exercise of the Warrant, certificates for the Shares so purchased shall be
delivered to the Holder within a reasonable time after the Warrant has been so
exercised and, unless the Warrant has expired, a new certificate representing
the right to purchase the number of Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
within such time. All such new certificates shall be dated the date hereof and
shall be identical to this Certificate except as to the number of Shares
issuable pursuant thereto.
(c) Restrictions on Exercise. The Warrant may not be
exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other laws or
regulations. As a condition to the exercise of the Warrant, the Company may
require the Holder to make such representations and warranties to the Company as
may be required by applicable law or regulation.
4. Shares Fully Paid; Reservation of Shares. The Company covenants and
agrees that all Shares will, upon issuance and payment in accordance herewith,
be fully paid, validly issued and nonassessable. The Company further covenants
and agrees that during the Warrant Term the Company will at all times have
authorized and reserved for the purpose of issue upon exercise of the Warrant at
least the maximum number of Shares as are issuable upon the exercise of the
Warrant.
5. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Consolidation, Merger or Reclassification. If the Company
at any time while the Warrant remains outstanding and unexpired shall
consolidate with or merge into any other corporation, or sell all or
substantially all of its assets to another corporation, or reclassify or in any
manner change the securities then purchasable upon the exercise of the Warrant
(any of which shall constitute a "Reorganization"), then lawful and adequate
provision shall be made whereby this Certificate shall thereafter evidence the
right to purchase such number and kind of securities and other property as would
have been issuable or distributable on account of such Reorganization upon or
with respect to the securities which were purchasable or would have become
purchasable under the Warrant immediately prior to such Reorganization. The
Company shall not effect any such Reorganization unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting from such Reorganization shall assume by written
instrument executed and mailed or delivered to the Holder, at the last address
of the Holder appearing on the books of the Company, the obligation to deliver
to the Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase.
Notwithstanding anything in this Section 5(a) to the contrary, the prior two
sentences shall be inoperative and of no force and effect if upon the completion
of any such Reorganization the stockholders of the Company immediately prior to
such event do not own at least 50% of the equity interest of the corporation
resulting from such Reorganization, in which case the Warrant or any unexercised
portion thereof shall expire upon the completion of such Reorganization if the
notice required by Section 5(e) hereof has been duly given.
(b) Subdivision or Combination of Shares. If the Company at
any time while the Warrant remains outstanding and unexpired shall subdivide or
combine its Common Stock, the Warrant Price shall be adjusted to that price
determined by multiplying the Warrant Price in effect immediately prior to such
subdivision or combination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
subdivision or combination and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such subdivision
or combination.
(c) Certain Dividends and Distributions. If the Company at
any time while the Warrant is outstanding and unexpired shall take a record of
the holders of its Common Stock for the purpose of:
(i) Stock Dividends. Entitling them to receive a
dividend payable in, or other distribution without
consideration of, Common Stock, then the Warrant Price shall
be adjusted to that price determined by multiplying the
Warrant Price in effect immediately prior to each dividend or
distribution by a fraction (A) the numerator of which shall be
the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution and (B) the
denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such dividend or
distribution; or
(ii) Distribution of Assets, Securities, etc. Making
any distribution without consideration with respect to its
Common Stock (other than a cash dividend) payable other than
in its Common Stock, the Holder shall, upon the exercise
hereof, be entitled to receive, in addition to the number of
Shares receivable upon such exercise, and without payment of
any additional consideration therefor, such assets or
securities as would have been payable to the Holder as owner
of that number of Shares receivable by exercise of the Warrant
had the Holder been the holder of record of such Shares on the
record date for such distribution, and an appropriate
provision therefor shall be made a part of any such
distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price pursuant to Subsections (b) or (c)(i) of this Section 5, the
number of Shares purchasable hereunder shall be adjusted to that number
determined by multiplying the number of Shares purchasable upon the exercise of
the Warrant immediately prior to such adjustment by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately following such
adjustment.
(e) Notice. In case at any time during the Warrant Term:
(i) The Company shall pay any dividend payable in
stock upon its Common Stock or make any distribution,
excluding a cash dividend, to the holders of its Common Stock;
(ii) The Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares
of stock of any class or other rights;
(iii) There shall be any reclassification of the
Common Stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its
assets to, another corporation; or
(iv) There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to the
Holder at least ten days' prior written notice (or, in the event of notice
pursuant to Section 5(e)(iii), at least 30 days' prior written notice) of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect to any such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up. Such notice shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Each such written
notice shall be given personally or by first-class, registered or certified mail
or similar delivery service, postage prepaid, addressed to the Holder at the
address of the Holder as shown on the books of the Company.
(f) No Change in Certificate. The form of this Certificate
need not be changed because of any adjustment in the Warrant Price or in the
number of Shares purchasable upon exercise of any or all of the Warrant. The
Warrant Price or the number of Shares shall be considered to have been so
changed as of the close of business on the date of adjustment.
6. Fractional Shares. No fractional Shares will be issued in
connection with any exercise of the Warrant, rather, in lieu of such fractional
Shares, the Company shall make a cash payment therefor upon the basis of the
fair market value of the Shares at the time of such exercise, as determined in
good faith by the Company's Board of Directors.
7. Nontransferability of Warrant. The Warrant may not be sold,
pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law, other than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order, as defined by the Internal Revenue Code of 1986, as
amended, or the rules thereunder, and may be exercised during the lifetime of
the Holder only by the Holder. Subject to the foregoing, the terms of the
Warrant shall be binding upon the executors, administrators, heirs, successors
and assigns of the Holder.
8. No Rights as Stockholder. The holder of the Warrant, as such, shall
not be entitled to vote or receive dividends or be considered a stockholder of
the Company for any purpose, nor shall anything in the Warrant be construed to
confer on such holder, as such, any rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action, to receive
notice of meetings of stockholders, to receive dividends or subscription rights
or otherwise.
9. Miscellaneous Provisions.
(a) Replacement. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement or bond reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of the
Warrant, the Company at its expense will execute and deliver, in lieu of the
Warrant, a new Warrant of like tenor.
(b) Governing Law. The Warrant shall be governed by and
construed and enforced in accordance with the internal laws, and not the laws
pertaining to choice or conflicts of laws, of the State of Delaware.
Dated as of August 19, 1997.
DAY RUNNER, INC.
By: /s/ Mark A. Vidovich
---------------------------------
Mark A. Vidovich, Chief Executive Officer
ATTEST:
/s/ Dennis K. Marquardt
---------------------------
Dennis K. Marquardt, Secretary
<PAGE>
DAY RUNNER, INC.
SUBSCRIPTION FORM
(To be completed and signed only upon exercise of the Warrant)
TO: Day Runner, Inc.
15295 Alton Parkway
Irvine, CA 92718
Attention: Secretary
The undersigned, the holder of the attached Warrant, hereby irrevocably
elects to exercise the right of purchase represented by such Warrant for, and to
purchase thereunder, _______* shares of Day Runner, Inc. Common Stock and
herewith makes payment of $___________ for those shares, and requests that the
certificate(s) for those shares be issued in the name of and delivered to:
(Please print name and address)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Dated:
Signature
Print Name
<PAGE>
SCHEDULE OF WARRANTHOLDERS
No. of Shares
Name of Officer Subject to Warrant
- --------------- ------------------
Mark Vidovich .................................................. 15,000
Dennis Marquardt ............................................... 15,000
Dennis Baglama ................................................. 15,000
Ron Bianco ..................................................... 15,000
Stan Littley ................................................... 15,000
Judy Tucker .................................................... 15,000
John Kirkland .................................................. 5,000
------
TOTAL ...................... 95,000
======
- --------
* Insert here the number of shares called for on the face of the Warrant
(or in the case of partial exercise, that portion as to which the Warrant is
being exercised), without making any adjustment for additional Common Stock or
any other securities or property which, under the adjustment provisions of the
Warrant, may be deliverable upon exercise.
<TABLE>
<CAPTION>
DAY RUNNER, INC.
EXHIBIT 11.1
DAY RUNNER, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
Years Ended June 30,
---------------------------------------------------
1997 1996 1995
---------------------------------------------------
<S> <C> <C> <C>
Net Income $ 12,548,000 $ 11,818,000 $ 7,978,000
---------------------------------------------------
PRIMARY:
Weighted average shares outstanding 6,216,000 6,234,000 6,088,000
Additional shares from assumed exercise of options
and warrants 1,379,000 1,147,000 939,000
Shares assumed to be repurchased under the
treasury stock method (825,000) (596,000) (534,000)
NQ tax benefit (179,000) (183,000) (119,000)
---------------------------------------------------
Total 6,591,000 6,602,000 6,374,000
---------------------------------------------------
FULLY DILUTED:
Weighted average shares outstanding 6,216,000 6,234,000 6,088,000
Additional shares from assumed exercise of options
and warrants 1,379,000 1,147,000 953,000
Shares assumed to be repurchased under the
treasury stock method (669,000) (543,000) (527,000)
NQ tax benefit (240,000) (201,000) (128,000)
---------------------------------------------------
Total 6,686,000 6,637,000 6,386,000
---------------------------------------------------
EARNINGS PER SHARE:
Primary $ 1.90 $ 1.79 $ 1.25
---------------------------------------------------
Fully diluted $ 1.88 $ 1.78 $ 1.25
---------------------------------------------------
</TABLE>
DAY RUNNER, INC.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement Nos. 33-46969 and 33-53422 of Day Runner, Inc. on Form
S-8, in Registration Statement No. 33-670792 of Day Runner, Inc. on form S-8, in
Post- Effective Amendment No. 1 to Registration Statement No. 33-61186 of Day
Runner, Inc. on Form S-3, and in Registration Statement Nos. 33-84036, 80819,
333-20247 and 333-34887 of Day Runner, Inc. on Form S-8 of our reports dated
August 15, 1997 appearing in the Annual Report on Form 10-K of Day Runner, Inc.
for the year ended June 30, 1997.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
Long Beach, California
September 26, 1997
<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 annual report on Form 10-K and is qualified in its entirety by
reference to such annual report on Form 10-K.
</LEGEND>
<CIK> 0000853102
<NAME> Day Runner, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Jun-30-1997
<CASH> 15,550
<SECURITIES> 0
<RECEIVABLES> 30,967
<ALLOWANCES> 8,664
<INVENTORY> 23,406
<CURRENT-ASSETS> 70,054
<PP&E> 18,231
<DEPRECIATION> 9,543
<TOTAL-ASSETS> 78,880
<CURRENT-LIABILITIES> 19,344
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 59,478
<TOTAL-LIABILITY-AND-EQUITY> 78,880
<SALES> 127,376
<TOTAL-REVENUES> 127,376
<CGS> 60,452
<TOTAL-COSTS> 60,452
<OTHER-EXPENSES> 47,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,301)
<INCOME-PRETAX> 20,650
<INCOME-TAX> 8,102
<INCOME-CONTINUING> 12,548
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,548
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.90
</TABLE>
