Day Runner, Inc. Business Information, Profile, and History

Company Perspectives:

The Company's near and long-term operating strategies are focused on stabilizing profitable sales volume in its retail markets, exploiting product innovation and promotions where appropriate profitability is achieved, and aggressively reducing costs to better position the Company to compete under current market conditions. The Company remains highly focused on providing products to the consumer of recognizable value, while removing any product and service costs not recognized or valued by the ultimate consumer.

History of Day Runner, Inc.

Day Runner, Inc., headquartered in Fullerton, California, is a major developer and manufacturer of and paper- and computer-based personal organizers. The company produces and markets a wide variety of such aids, as well as refills and other accessories, ranging from student planners to sophisticated systems for busy executives. Included are desk and wall calendars, combination telephone and address books, wall organizers, and dated appointment books. The company's line of products is available in more than 20,000 stores, including office supply superstores and mass merchandising outlets. Office Depot, Staples, OfficeMax, and Wal-Mart account for almost half of the company's sales. In addition, its products are sold in approximately 6,000 international retail outlets. In April 2001, the financially troubled company sold off Filofax Inc., which produced a line of products popular in Europe but which had become a financial burden for the parent company because of its increased debt service. The company's financial straits were also exacerbated by stiffening competition from such electronic organizer systems as those produced by Palm Pilots and other software and hardware makers.

1980--89: Novelty Day Runner Personal Organizers Develop into a Big Business

Day Runner was established as Harper House, Inc., in 1980. The personal organizer that became the company's flagship product was conceived by Boyd and Felice Willat, film production coordinators in Hollywood. The Willats discovered that the simple planners on the market at that time were not up to the task of organizing the frantic schedules they kept in both their work and social lives. To meet their own needs, they designed an organizer that combined the functions of calendar, address and telephone book, and personal planner. Reasoning that other people were probably having similar problems managing their hectic lives, Harper House put its first generation of Day Runner personal organizers, called the Day Runner System, on the market in 1982, targeting the growing numbers of young, ambitious professionals and entrepreneurs with family responsibilities and numerous outside interests.

Initially, Day Runner organizers were marketed mainly in gift stores, as something of a novelty item for executives. It quickly became clear, however, that the Day Runner had market potential far beyond what could be called a novelty. A key shift in strategy came in the mid-1980s, when Harper House began emphasizing 'productivity' in its promotion of the Day Runner line, and the organizers began appearing in office supply stores rather than gift shops. Soon Day Runner organizers were being purchased by a much broader range of people, including executives, blue-collar workers, and students.

By 1987 Harper House had annual sales of $11 million. As the decade rolled on, consumers continued to flock to office supply stores to buy Day Runners. Over the years, the Day Runner System was offered in a growing array of styles. Users could choose between loose-leaf and spiral formats; vinyl and leather; and snap, Velcro, and zipper closures. The systems could also be personalized by choosing from a variety of refills, calendar formats, and accessories. All versions of the system shared Day Runner's trademark burgundy and gray page design, and featured the company's characteristic colored tabs.

As the name Day Runner began to achieve a high degree of recognition in the growing personal organizer market, Harper House made the decision to adopt it as its corporate name in 1988. Company revenues continued to soar over the next few years. By 1989 Day Runner's sales had grown to $26 million, with net income reaching $2.3 million. The impressive increase in the company's sales during this period was fueled in part by its appearance in low-cost office product superstores, such as Office Depot and Staples. Around this time, competition began to emerge from electronic organizers, like Sharp Co.'s Wizard. Although electronic gizmos like the Wizard and similar products made by Casio and other companies sold reasonably well, they did not make much of a dent in the market for paper-based planning systems at the time.

1990--92: Company Develops New Products and Goes Public

Day Runner entered the 1990s on a strong note. By early in the decade, the personal organizer market had blossomed into a $500 million business, with Day Runner in the lead among companies doing primarily retail business. Since the other leading planner companies sold their wares through different channels--Franklin Quest Co. at its own time management seminars and Day-Timers by direct mail--competition was relatively scarce. By 1991 Day Runner's sales had grown to $53 million, a 500 percent jump over a period of just four years. That year the company rolled out a new line of products, called the FactCentre. First introduced as one model, the FactCentre was essentially a more economical version of the original Day Runner System, with sections for calendars, addresses, and notes. The line was eventually expanded to include specialized models for business people (Personal Organizer), purse carriers (Compact Organizer & Memo Planner), home planning (Home Manager), and school (Student Organizer & Planner). Suggested prices for the various FactCentres ranged from $10 to $65.

The year 1992 was particularly eventful at Day Runner. In March the company went public, with an initial offering of 1.4 million shares. By this time, there were about 80 different Day Runner organizers for customers to choose from, and about 6,000 stores from which those organizers could be bought. At the root of the company's ongoing growth was the idea that each individual had different planning needs, and these differences could be translated into subtly different organizer products. In order to assess exactly what these differing needs were, the company sought out feedback from customers. As its base of potential customers broadened, Day Runner began selling its goods in large discount chains, such as Fred Meyer, Inc., and Wal-Mart. The target market throughout these mass marketing efforts was usually the 25 to 49 age group with better-than-average incomes and busy lifestyles.

Day Runner also introduced its first organizer computer software, Time Plus, in 1992. Designed to be used in conjunction with a paper-based personal organizer, Time Plus duplicated the most worthwhile features of existing planner software in a more user-friendly format. Day Runner's system, for DOS-based IBM-compatible computers, offered automatically updated to-do lists, special abbreviations to ease database manipulation, and the ability to print out updated address book entries, project notes, and other features on sheets that could then be popped into a conventional Day Runner organizer.

In spite of a fourth-quarter slump that saw Day Runner's newly offered stock sink to around $8 a share (from a high of $21.75 shortly after it began trading), company sales soared again in 1992, reaching $71 million for the year. Day Runner Chairman Mark Vidovich attributed the slump to poor sales at smaller independent dealers. Large wholesalers, the company's bread and butter, continued to sell Day Runner products at a brisk pace. By this time Day Runner controlled at least half of the retail market for personal organizers.

1993--95: New Product Development Continues

Day Runner emphasized mass market channels even more as the 1990s continued. New outlets for Day Runner products in 1993 included Payless Drug Stores, Revco, and Kmart. During 1993 the company sold over three million organizers and planners and about 12.5 million refills. Two new products were introduced during the year. The PRO Business System, designed for business managers, took the standard Day Runner concept to new levels of sophistication. New wrinkles offered by the PRO Business System included a seven-ring format, graphics for locating specific sections more easily, a built-in solar-powered calculator, and, in some models, a slide-out panel that turned the organizer into a miniature desk top.

The other new Day Runner product launched in 1993 was the d'Affaires, a line of organizers with an elegant look. The d'Affaires was designed to be sold in departments stores, luggage shops, leather goods stores, and other specialty retailers. This new look featured beige pages and brown ink in a soft leather binder. Like the classic Day Runner organizer, the d'Affaires was offered in a variety of page sizes and book thicknesses. Along with the addition of the PRO Business System and d'Affaires lines, the company also expanded the FactCentre line.

For 1993 Day Runner reported sales of nearly $82 million, about one-fourth of which came from mass market sources. That figure was held down somewhat by a wave of closings and consolidations among independent office supply dealers. Nevertheless, net income took a healthy jump to $5.6 million, a company record. A number of other developments took place during 1993. James E. Freeman, formerly president and chief operating officer of Stuart Hall Co., was named to the newly created position of chief operating officer at Day Runner. An East Coast distribution facility was opened as well. Perhaps more importantly, the company increased its focus on operations outside North America by creating Day Runner International Ltd., a wholly owned subsidiary based in the United Kingdom. Sales to foreign customers during the year amounted to $3.5 million.

As the 1990s progressed, more new products were unveiled. The 4-1-1 line of student planners, first introduced for the 1994 back-to-school season, was aimed at the student market from junior high through college. Available in both loose-leaf and wire-bound formats with youthful styling, the 4-1-1 line included places for phone numbers, class notes, class schedules, and personal information. Day Runner was recognized by the Calendar Marketing Association for its innovative design work on the 4-1-1 system. Fueled by the company's success at seeking out new market segments and targeting new products accordingly, Day Runner's sales reached $97 million in 1994. As Day Runner continued to parlay its dominance in the personal organizer market--which it had largely created--into profits, the business media began to take notice. Both Forbes and Business Week included Day Runner on their lists of the United States' best small companies in 1994.

In 1995 Day Runner introduced a Day Runner Planner for Windows. The new Planner software combined all of the most popular Day Runner functions, including calendars, phone books, to-do lists, project planners, and expense reports into an easy-to-use system whose graphics resembled the classic look of the paper-based Day Runner organizer. Other features made possible by the software included auto-dialing and audible alarms. Pre-formatted, hole-punched paper for printing out sheets generated by the software were also made available. For those customers who did not already use Day Runner organizers, a special package that included both the Planner software and a paper-based organizer was offered at a bargain price.

For the fiscal year ending in June 1995, Day Runner's sales increased by 26 percent to $121.8 million. During 1995 Freeman was given the additional title of president in addition to his role as chief operating officer. Day Runner was also cited again by the Calendar Marketing Association, this time receiving that organization's Gold Award for the page design of its PRO Business System.

1996--98: Sales Stagnate in Light of Electronic Organizers

In 1996, Day Runner began construction of a new warehouse in La Vergne, Tennessee. Located across the street from its existing eastern operations facility, the new building was slated to increase its area distribution capacity by nearly 300 percent. Also that year, continuing its commitment to introducing of new products, Day Runner began marketing a new line of diaries and planners decorated with licensed cartoon characters, and in 1997 came out with a line of organizers featuring Dilbert and The Far Side illustrations. In the same year, the company purchased Ram Manufacturing, a privately-owned, Arkansas-based producer of erasable wallboards and other bulletin and activity boards.

Despite its aggressive growth and product development, Day Runner experienced stagnating sales between 1995 and 1997. Although still maintaining a healthy profit margin, the company's revenues, which in 1995 had reached $121.8 million, grew to only $127.4 million in 1997. Several factors contributed to the stagnating sales, including the growing competition from producers of electronic (as opposed to paper) organizers and, specifically, Wal-Mart's decision, later revoked, to replace Day Runner's product line with cheaper imitations.

In 1998, Day Runner paid $85.8 to acquire Filofax Group PLC, a British competitor. This turned out to be costly move. For one thing, as many analysts believed, the company probably paid too much. Also, the timing was bad; the popularity of Filofax's product line was in decline. Moreover, the domestic market for Day Runner's paper-based organizer systems suffered because of increasing popularity of the electronic versions of such accessories. As a result, the company's biggest customers, including Wal-Mart, Office Depot, and Staples, began reducing their Day Runner paper product inventories. Nevertheless, the Filofax acquisition sent Day Runner's sales up to $167.8 million in 1998, producing a net income of $15.9 million. It turned out to be Day Runner's last profitable year.

1999--2001: Challenges and an Uncertain Future

By 1999, Day Runner went in the red to the tune of $4 million, despite the fact that its Filofax acquisition helped drive the company's sales up to $196.2 million, an increase of about 17 percent over the previous year and its all-time high. Very early in the year, Day Runner had laid off 20 percent of its workforce, a belt-tightening move designed to offset its increased operating costs. To enhance its sales, the company also began e-commerce marketing, selling its products online at its dayrunner.com web site. These measures were not enough to keep the company profitable, however.

Day Runner also faced other difficulties, including a class action suit filed on behalf of the company's common stock holders who purchased shares from October 20, 1998 through August 31, 1999. The suit charged that the company violated federal security laws by misrepresenting or omitting information about Day Runner's revenue, thereby artificially inflating the value of the company's stock. The suit named both the company and certain of its officers and directors. Defections, firings, and resignations ensued, starting in December with Dennis K. Marquardt, who resigned as CFO and executive vice-president and was replaced by David A. Werner.

By the end of 1999, the company was openly seeking a buyer as a way of extricating itself from its difficulties. None was forthcoming, and in 2000 the company's problems worsened. In an attempt to stem further losses, early in the year Day Runner closed its European plants as well as its Irvine, California, administrative offices. It also reduced its workforce, trimming it from 1,620 in 1999 to 841 in 2000.

Still, troubles continued to mount. A major problem was that the value of the company's stock had dropped by over 98 percent in one year. The decline of its stock value forced Day Runner into an agreement with NASDAQ that required Day Runner to achieve and maintain a stock value of at least $5 per share. In April 2000, the company attempted to boost its stock value through a five-for-one reverse stock split, but the move failed, and in May the exchange delisted Day Runner's stock and forced the company into over-the-counter trading. The upshot was that James Freeman, Day Runner's CEO, resigned and was replaced by an interim CEO provided by a crisis-management firm.

The move did little to help. Sales were dropping alarmingly as the company's principal customers continued to tighten their inventories. Badly reeling, in July the company began reorganizing, replacing key officers, including the company's chairman, Mark A. Vidovich, as well as other members of the company's board of directors: Jill T. Higgins, James P. Higgins, and Boyd I. Willat.

All of its strategies failed to keep Day Runner from financial disaster in 2000. Its total revenues dropped off to a $171.5 million from its 1999 historic peak of $196.2 million with the devastating result that it recorded a net loss of $106.6 million. The picture improved slightly in 2001, although Day Runner was still struggling just to stay afloat. On March 31, at the end of the third quarter of its fiscal year, its net loss on revenues of $110.7 million had reached almost $22.9 million. Failing to fulfill the obligations of its debt service, in April it sold off Filofax, its London-based wholly-owned subsidiary. Under the sale agreement, Day Runner offset its $30 million debt. It remained to be seen whether the strategy would be adequate to restore the company to financial stability.

Principal Subsidiaries: Day Runner Direct Inc.

Principal Competitors: Franklin Covey Co.; The Mead Corporation; Palm, Inc.

Chronology

• Key Dates:

• 1980: Company is founded as Harper House.
• 1982: Harper House puts Day Runner System on market.
• 1987: Company's sales reach $11 million.
• 1988: Harper House changes name to Day Runner.
• 1989: Day Runner's sales climb to $26 million.
• 1991: Company introduces new product line called FactCentre.
• 1992: Day Runner goes public.
• 1995: Company markets a Day Runner Planner for Windows.
• 1998: Company acquires Filofax.
• 1999: Day Runner begins selling product line on the Internet; losses lead to 20 percent cut in workforce.
• 2000: A consortium of banks attempt to bail out the struggling company; NASDAQ delists Day Runner when stock remained under $5 per share.
• 2001: Unable to meet its debt obligations, Day Runner sells Filofax operation for $30 million debt reduction.