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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission file number 0-24642
CORPORATE EXPRESS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0978360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
325 INTERLOCKEN PARKWAY 80021
BROOMFIELD, COLORADO (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 373-2800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.0002 PER SHARE
(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 at May 31, 1996 was $2,479,788,444.
The number of shares outstanding of the registrant's Common Stock as of
May 31, 1996 was 68,982,951.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Part III - The Registrant's definitive Proxy Statement for its 1996 Annual
Meeting of Shareholders, to be filed not later than 120 days after the end of
the fiscal year.
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CORPORATE EXPRESS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 2, 1996
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
PART I
1 Business........................................... 1
2 Properties......................................... 8
3 Legal Proceedings.................................. 9
4 Submission of Matters to a Vote of Security Holders 10
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters................................ 10
6 Selected Consolidated Financial Data............... 11
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 14
8 Financial Statements and Supplementary Data........ 23
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 52
PART III
10 Directors and Executive Officers of the Registrant 53
11 Executive Compensation........................... 53
12 Security Ownership of Certain Beneficial Owners
and Management.................................... 53
13 Certain Relationships and Related Transactions.... 53
PART IV
14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K............................... 54
Signatures........................................ 57
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PART I
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ITEM 1. BUSINESS
OVERVIEW
Corporate Express, Inc.("Corporate Express" or the "Company") is a
leading provider of office products and services to large corporations.
Since 1991, Corporate Express has expanded through acquisitions from a
regional operation in Colorado to operations throughout the United States,
Canada, the United Kingdom, Australia and New Zealand. Corporate Express
believes it has developed a substantially different business model from
traditional contract stationers, defining itself as a "Corporate Supplier"
which provides a broad array of non-production goods and services to its
customers while reducing overall procurement costs and providing a high
level of customer service. The Company's current offering includes office
supplies, computer and imaging supplies, computer software, office
furniture, and forms management, printing, same-day local delivery services
and distribution logistics management. Corporate Express markets to its
existing and prospective customers through a direct sales force and fulfills
its products and services through 358 locations including 73 warehouses and
a fleet of approximately 6,500 owned or contracted vehicles.
Since its founding in 1986, the Company has focused its acquisition
strategy on acquiring other office products companies and companies which
market complementary products. The Company has recently expanded its
product and service offering through the acquisition of Richard Young
Journal, Inc., a computer products distributor ("Young"), U.S. Delivery
Systems, Inc., a same-day local delivery company ("Delivery"), and ASAP
Software Express, Inc., a direct reseller of computer software and provider
of related services ("ASAP").
INDUSTRY OVERVIEW
The Company's target customers are large corporations with over 100
employees. The Company believes that these large corporations increasingly
seek to reduce the cost of procuring non-production goods and services and
decrease the time and effort spent managing functions that are not
considered core competencies. To that end, corporations seek to reduce the
number of their suppliers in order to eliminate the internal costs
associated with multiple invoices, deliveries, and ordering procedures,
uneven service levels and inconsistent product availability. Many large
corporations operate from multiple locations and can benefit from selecting
suppliers who can service them nationally or internationally.
In many non-production goods and services sectors, including office
products and same-day local delivery, competition is often highly fragmented
and consists primarily of smaller local or regional providers. The Company
believes that the desire of large corporations to reduce costs by decreasing
their number of suppliers to a small group of reliable and cost-effective
partners will continue to lead to the consolidation of many currently
fragmented sectors, as well as consolidation in sectors where the key
differentiation will be customers' needs rather than a product or service as
it has been historically.
THE CORPORATE SUPPLIER STRATEGY
The Company's Corporate Supplier strategy is designed to reduce its
customers' total costs and the internal effort necessary to manage the
procurement of non-production goods and services. The Company believes that
its target customers value a high level of service including account
relationship managers, delivery services and customized pricing, electronic
interfaces, reporting formats and product catalogs. Corporate Express seeks
to supply a broad range of the non-production goods and services needs of
large corporations. This broad product and service offering permits
Corporate Express to reduce its customers' procurement costs associated with
dealing with multiple vendors, including multiple invoices,
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deliveries, ordering procedures, uneven service levels, and inconsistent
product availability, while servicing customers' broad geographical service
and delivery requirements.
Corporate Express also seeks to continually reduce its merchandise and
operating costs which should permit it to offer its customers lower prices.
By purchasing most of its products directly from manufacturers in large
volumes and limiting the number of manufacturers represented in its In-Stock
Catalog and other specialty catalogs, Corporate Express is increasingly able
to earn volume discounts and advertising allowances from its vendors.
Corporate Express believes its computer systems represent a key strategic
advantage which differentiates the Company from its competitors and permits
it to achieve cost savings, provide superior customer service and centrally
manage its operations. The Company expects to continue making substantial
investments to upgrade and enhance its computer systems.
A key element of Corporate Express' business strategy is to seek to
provide superior customer service in addition to providing "one-stop
shopping," reliable delivery, national account service, electronic customer
interfacing, customized reporting and other customized services. Also, in
order to better serve its multi-national customers and to take advantage of
the fragmented nature of many international markets, Corporate Express has
devoted substantial resources to expanding outside of the United States,
principally through acquisitions.
PRODUCTS AND SERVICES
Corporate Express provides a broad range of non-production goods and
services used by large corporations. The Company's current product
distribution offering includes office supplies, computer and imaging
supplies, computer software, office furniture, and forms management and
printing and its current service offering in the United States includes
same-day local delivery, distribution logistics management and other
services. Name-brands offered by the Company include 3M, Microsoft, and
Hewlett-Packard as well as the Company's own "EXP" private label. For fiscal
1995 (taking into account the Delivery and Young mergers) and pro forma for
newly introduced product categories, the approximate percentages of the
Company's domestic net sales by product and service category were as
follows:
<TABLE>
<CAPTION>
Fiscal 1995
------------
Category Actual Pro Forma(1)
- ------------------------------------------------- ------- ------------
<S> <C> <C>
Product Distribution:
Office, Computer and Imaging Supplies and
Computer Software (2) 67% 70%
Office Furniture 8 8
Other (3) 3 3
Services 22 19
--- ---
100% 100%
</TABLE>
(1) Includes 1995 sales of ASAP, which was acquired in May 1996.
(2) Corporate Express does not have significant sales of computer systems.
(3) Includes forms management and printing, advertising specialties and
other products.
Company Catalogs. Corporate Express' merchandising strategy is based
primarily on the Company's proprietary, full-color In-Stock Catalog. This
catalog provides a comprehensive selection and variety of the approximately
5,000 best-selling items in the core categories of office and computer
supplies which Corporate Express regularly maintains in inventory in its
regional warehouses for next-day delivery. This merchandising strategy
differs from that of traditional contract stationers which typically provide
their customers with wholesaler-produced catalogs
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and maintain only a small portion of inventory on hand. Corporate Express
has introduced the In-Stock Catalog in all of its United States regions as
well as Canada and Australia. Substantially all products featured in the
In-Stock Catalog are purchased by Corporate Express directly from the
manufacturer, or its agents at comparable prices, eliminating the
intermediate wholesaler's mark-up. A broad selection of specialty computer
and imaging supplies, furniture and other items are listed in various
Computer specialty catalogs.
The number of items found in the In-Stock Catalog is comparable to that
found in a typical office products superstore, although the merchandise mix
differs substantially. Products are selected for the In-Stock Catalog
utilizing computerized sales trend analyses which determine the best-selling
items and needs of the large corporate customer. The In-Stock Catalog is
updated annually to account for new sales trends, new product introductions
and changes in manufacturers' list prices. The In-Stock Catalog includes a
full-color photograph of each item, a narrative product description that
emphasizes the particular benefits and features of each item and a bar code
to permit electronic order entry. In addition to the In-Stock Catalog,
Corporate Express has introduced or will soon introduce supplementary
specialty catalogs for complementary products and services, including
additional computer and imaging products, office furniture, refreshment and
coffee service items and advertising specialties. The Company also offers
an electronic version of its in-stock office products catalog.
Computer Software. The recent acquisition of ASAP enables Corporate
Express to offer its customers microcomputer ("PC") software, and help desk,
training, installation and evaluation support for IBM, IBM-compatible and
Macintosh PC's, and for all major operating systems such as DOS, Windows,
OS/2, Netware and UNIX. The Company's product offering includes major
business programs for word processing, spreadsheets, electronic mail,
suites/offices, databases, graphics, operating systems, utilities and
languages.
Services. Through its Delivery operations, the Company provides same
day local delivery service including both prescheduled and on-demand
delivery services and offers distribution logistics management based on the
specific needs of each customer as well as call center services.
DISTRIBUTION FACILITIES
The Company's distribution network consists of 73 warehouses that
maintain significant inventory for resale and 285 distribution breakpoints
and satellite sales offices which extend the Company's geographic coverage.
Corporate Express plans to eliminate redundant facilities in the United
States and abroad such that it typically will operate from a single regional
warehouse which also supports multiple distribution breakpoints and
satellite sales offices in each of its regions. Items stocked in regional
warehouses will generally consist of the most commonly ordered items for
which customers demand next-day or same-day delivery through Company owned
or contracted vehicles.
PROPRIETARY COMPUTER SOFTWARE APPLICATIONS
Corporate Express continues to make substantial investments in the
development and enhancement of its proprietary computer software
applications. The Company has significantly increased its information
systems development staff and expects to dedicate substantial additional
resources to its software applications as the Company executes its expansion
plans, increases the scope of its product and service offerings and responds
to customer needs and technological developments.
During April 1996, Corporate Express began the implementation of a new
3.0 release of its "ISIS" computer software which is being developed to
incorporate three-tier client/server architecture that is expected to permit
customers and suppliers to better communicate with Corporate Express. ISIS
is being designed in its new release to give Corporate Express the ability
to more readily customize its product offering, operating procedures and
customer services, and will give Corporate Express the ability to integrate
various products and service offerings, enabling it to reduce procurement
costs for its customers and add value as a service provider. Key features
of ISIS are the use of object oriented design techniques and a relational
database designed to handle warehouse and management information
applications.
Through these enhanced systems, Corporate Express expects to be able
to make its products and services available to a broader array of customers
and to further customize customer services and account data. The new systems
are expected to allow Corporate Express to more effectively integrate
acquisitions by more rapidly converting acquired operations to its systems
and to streamline operations by providing greater electronic access among
the Company, its customers and suppliers, but there can be no assurance that
such goals will be attained. Pending full introduction of the ISIS upgrades,
which should take approximately 24 months to complete in North America,
certain acquired operations are expected to continue to run on the computer
systems acquired with such operations, but all United States office products
regions purchased before February 1996 are linked to Corporate Express'
national accounts and accounting systems.
The Company anticipates that ongoing modifications to its computer
systems such as the introduction of the new release of ISIS will continue to
be made in the future. Such modifications may cause disruptions in
operations, delay the integration of acquisitions, or cost more to design,
implement or operate than currently budgeted. Any such disruptions, delays
or costs could have a material adverse effect on the Company's operations
and financial performance.
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CUSTOMER RELATIONSHIPS, SALES AND MARKETING
Corporate Express has a broad customer base and believes that no single
customer accounted for more than one percent of total sales during fiscal
1995. The Company relies on separate commission-based sales forces
dedicated to each of its major product and service categories thereby
ensuring product and service knowledge among its principal customer
contacts.
Corporate Express establishes and maintains its relationships with its
customers by assigning an account manager and typically a customer service
representative to each customer account. The Company's account managers can
offer customers customized merchandising and purchasing programs tailored to
the customers' needs. Corporate Express generally offers a discount
(negotiated by customers) on many products from the manufacturers' suggested
list prices. Prices for some high volume items are often established by
competitive bidding.
The Company markets its various services directly to individual
customers by designing and offering a customized service package for that
customer after determining its specific needs. A substantial portion of the
Company's revenues from services is derived from customers who have entered
into contracts with the Company.
The Company's national accounts program focuses on the sale of a broad
array of the Company's products and services to multi-location customers.
The marketing of this program is coordinated by a national accounts sales
team with dedicated data processing support.
Account managers have frequent contact with their customers and share
responsibility for increasing account penetration and solving customer
problems. Account managers are also responsible for all marketing efforts
directed at an explicit list of prospective customers assigned to them and
for responding to all bid or contract situations for existing or prospective
customers. Corporate Express has not conducted significant mass market
advertising.
INTERNATIONAL OPERATIONS
The Company acquired or made investments in companies in Canada and
Australia in 1995, and the United Kingdom and New Zealand in 1996, and plans
to enter additional international markets in the future. Over time, the
Company plans to implement appropriate aspects of the Corporate Supplier
business model in its international operations, including creating in-stock
catalogs, consolidating warehouses, upgrading information systems, acquiring
companies offering complementary products and services and focusing on
larger customers and national and international accounts.
In 1995, Corporate Express acquired a controlling interest in Macquarie
Office Limited ("Macquarie"). Since its acquisition, Macquarie, which is
now named Corporate Express Australia, has become the largest supplier of
office products to large Australian corporations, primarily through
additional acquisitions of five companies. The Company is currently
integrating the catalog and operations distribution facilities of these
acquired companies. Corporate Express Australia also made two acquisitions
in New Zealand in 1996. Due to a review of the Australian office products
market by the Australian Competition and Consumer Commission, future
acquisitions of office products suppliers by Corporate Express Australia may
be subject to heightened regulatory scrutiny.
In February 1995, the Company entered the Canadian market by acquiring
two office product suppliers in Vancouver, British Columbia and Calgary,
Alberta. Since then, the Company has acquired three additional Canadian
office products suppliers, and extended its geographic coverage to cover
other English speaking areas of Canada. In 1996, the Company also acquired
a same-day local delivery company in Ottawa. The Company plans to run its
Canadian operations as part of its North American distribution network, and
is structuring its integration plans to that end. An in-stock catalog,
modified to account for market differences in Canada, was introduced in the
Canadian regions in April 1996.
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In 1996, Corporate Express U.K. entered the United Kingdom through the
acquisition of a controlling interest in The Chisholm Group, an office
products supplier in the London area. The Company has an option to purchase
the remainder of The Chisholm Group. Since that acquisition, Corporate
Express U.K. has acquired three other U.K. office products suppliers,
extending its geographic coverage.
Also in 1996, the Company entered into a definitive agreement to
acquire an office products company in Germany.
Expansion into international markets involves unique risks in addition
to those risks relating to acquisitions in general. These risks include
risks relating to implementing elements of the Company's business model as
well as risks relating to currency exchange rates, new and different legal
and regulatory requirements, difficulties in staffing and managing foreign
operations, operating difficulties and other factors.
EXPANSION STRATEGY
The Company historically has grown and intends to continue to grow in
the future through a combination of acquisitions and internal growth. The
Company plans to increase sales to existing customers by cross-selling its
expanded product and service offering and developing existing customers into
international, national or multi-regional accounts. The Company believes
that its expanded product line and expanding geographic coverage enable it
to offer its customers a broad array of non-production goods and services to
address their desire to reduce the number of suppliers with which they
interact. Corporate Express seeks to attract new customers, including
national and international accounts, through the marketing efforts of its
direct sales force. Further, the merger with Delivery has expanded the
Company's delivery capabilities and geographic coverage in the United States
and Corporate Express intends to develop sales efforts in these new
geographic areas. In addition, the Company may open additional satellite
sales offices and distribution breakpoints to serve new accounts.
The Company believes that its domestic and international network of
centrally-managed warehouses and direct sales force provide the
infrastructure to supply a broad range of non-production goods and services.
Since 1994, the Company has added, through acquisitions, the following
product and service categories to its core office products and furniture
categories: forms management and printing services, same-day local delivery
services, distribution logistics management, computer and imaging supplies,
computer software and advertising specialties. The Company may add
additional product categories either internally or through acquisitions in
the future and may increase its presence in existing product and service
categories through acquisitions and product line expansion.
The recent additions by the Company to its product and service offering
presents certain risks and uncertainties involving the Company's relative
unfamiliarity with these new products and services and the market for such
new products and services. There can be no assurance that the Company will
be successful in marketing these or other additions to its product and
service offering or that its existing customers will accept such additions
to the products and services currently purchased from the Company.
STRUCTURE AND INTEGRATION OF ACQUISITIONS
The Company has grown through numerous acquisitions of smaller United
States office products and service companies and the Company expects that
such acquisitions will continue to be an important contributor to the future
growth of its operations. However, there can be no assurance that the
Company will be able to continue to complete acquisitions at the same rate
that it has in the past or that such acquisitions, if completed, will prove
to be beneficial to the Company. Many of these acquisitions involve
companies with annual sales of less than $30 million. In addition, the
Company has acquired companies in international markets including Canada,
Australia, the United Kingdom and New Zealand.
Consideration for all acquisitions typically involves any or all of
cash, promissory notes and, in certain cases, common stock. Acquisitions
are made pursuant to acquisition agreements containing customary
representations, warranties, covenants and indemnification provisions. The
Company typically obtains noncompete and confidentiality agreements from
selling owners and may enter into employment or consulting agreements with
key personnel of the
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acquired company. For many recent acquisitions, the period between the
execution of a letter of intent and consummation of an acquisition has been
20 to 60 days.
The Company generally seeks to increase the sales, profitability and
asset productivity of its acquisitions by combining them with the Company's
existing operations, implementing the Company's business model and
eliminating redundant facilities. Integration of acquisitions is often a
complex process which may entail material, nonrecurring expenditures,
including facility closing costs, warehouse assimilation expenses and
severance payments. These expenditures have in the past had, and may
continue to have, an adverse impact on the Company's results of operations.
Integration of acquisitions generally involves the following elements:
Elimination of Redundant Facilities and Services. In cases where
acquired companies have facilities, systems and administrative functions
in the Company's existing markets, these operations are eliminated or
consolidated with Corporate Express' existing operations.
Upgrading of Facilities. In addition to eliminating redundant
facilities, Corporate Express has recently undertaken a program to upgrade
certain of its existing facilities to enable these facilities to handle
higher sales volumes resulting from its acquisition activity and internal
growth. These upgrades include modernization of equipment and systems,
phone systems and wide area network standardization and the
reconfiguration of inventory within the warehouse. Corporate Express will
also, where appropriate, develop new facilities into which existing,
outdated facilities will be combined. Planned expenditures for such
upgrading and development are included in the Company's capital
expenditure budget.
Consolidation of Purchasing Power. As part of its integration of
acquisitions, Corporate Express takes advantage of its volume purchasing
power and seeks to negotiate better prices and terms from vendors.
Implementation of Proprietary Computer Software. Acquired companies
are generally incorporated into the Company's proprietary computer
software environment, including EDI, common master information files,
national accounts software and customer ordering, inventory management
software, etc. These implementations will be timed with respect to recent
acquisitions to coincide with introduction of the Company's next
generation of computer software. See "--Proprietary Computer Software
Applications."
The Company implements various aspects of the Corporate Express
business model as appropriate in its international acquisitions. For
example, the Company will typically retain and rely on existing management
and information systems and may, depending on the circumstances, defer
implementation of the In-Stock Catalog and modifications to the
information systems. Similarly, with respect to the acquisition of
companies which offer complementary products, the Company concentrates
initially on its marketing efforts to enhance and expand its product and
services offering.
The Company anticipates that acquisitions will continue to constitute a
principal component of growth in revenue and operating income. However,
there can be no assurance that the Company will be able to identify and
acquire acceptable acquisition candidates on terms favorable to it and in a
timely manner to the extent necessary to fulfill its expansion plans. The
Company may require additional debt or equity financing for future
acquisitions, which additional financing may not be available on favorable
terms. The failure to complete acquisitions and continue its expansion
could have a material effect on the Company's financial performance.
As the Company proceeds with its acquisition strategy, it will continue
to encounter certain risks associated with such acquisitions. There can be
no assurance that the Company's management and financial controls,
personnel, computer systems and other corporate support systems will be
adequate to manage the increase in the size and scope of the Company's
operations and acquisition activity. In addition, there can be no assurance
that the Company will be able to successfully implement its business plan in
a timely manner without substantial costs, delays or other problems. Recent
acquisitions may not achieve sales, profitability and asset productivity
commensurate with Corporate Express' existing operations. In addition,
consolidation, centralization and integration of widely dispersed businesses
involves a number of special risks, including adverse
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short-term effects on Corporate Express' reported operating results, the
diversion of management's attention, the dependence on retention, hiring and
training of key personnel, management of disparate financial and accounting
reporting systems, the amortization of acquired intangible assets and risks
associated with unanticipated problems or legal liabilities, some or all of
which could have a material adverse effect on the Company's operations and
financial performance.
INDUSTRY SEGMENT DATA
Information on the Company's industry segments is presented in Note 14
of the Notes to the Consolidated Financial Statements.
COMPETITION
Corporate Express operates in a highly competitive environment. The
Company's principal competitors in North America for office supplies and
computer products are regional and national contract stationers, including
the contract stationer operations of office products superstores, large
direct resellers, privately-held companies that generally operate in only
one location, and distributors of business software for personal computers.
In the delivery services sector the Company has numerous competitors,
certain of which have service capabilities which are equal to the Company's
and others which provide different types or levels of service.
Each of the Company's major product and service categories are within
fragmented industries which are currently experiencing a trend toward
consolidation. Although the Company believes its pricing is competitive
with its competitors, Corporate Express also seeks to differentiate itself
from its competitors in each of its major product and service categories
through its customer service. Certain of the Company's competitors have
greater financial resources than Corporate Express. However, Corporate
Express believes that its Corporate Supplier model increases its
differentiation from its competitors by offering a single source of
products and services for the corporate office.
EMPLOYEES
As of April 30, 1996, the Company had 12,413 full-time employees, 2,522
of whom were employed primarily in management and administration, 5,171 in
regional warehouse, delivery and distribution operations and 4,720 in sales
and marketing, order processing and customer service. As of April 30, 1996,
approximately 177 of the Company's employees were members of labor unions.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations
and ordinances that (i) govern activities or operations that may have
adverse environmental effects, such as discharges to air and water as well
as handling and disposal practices for solid and hazardous wastes, or (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous
substances. Certain of the Company's subsidiaries operate printing
facilities which may generate, or may have generated in the past, hazardous
wastes, and the Company operates a fleet of vehicles, the maintenance or
fueling of which may generate hazardous waste.
The Company currently is not aware of any environmental conditions
relating to present or past waste generation at or from these facilities, or
any other of the Company's facilities or operations, that would be likely to
have a material adverse effect on the financial condition or results of
operations of the Company. However, there can be no assurance that
environmental liabilities in the future will not have a material adverse
effect on the financial condition or results of operations of the Company.
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IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Some of the information presented in this report constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations are
based on reasonable assumptions within the bounds of its knowledge of its
business and operations, there can be no assurance that actual results of
the Company's operations will not differ materially from its expectations.
Factors which could cause actual results to differ from expectations
include, among others, uncertainties related to integrating recent
acquisitions, uncertainties relating to the Company's new product and
service offerings, uncertainties related to legislation with respect to
independent contract drivers, uncertainties related to future domestic and
international acquisitions, uncertainties related to the Company's systems
and proprietary software, uncertainty of whether the Company's activities
will continue to be successful, and uncertainties related to competition and
the demand for the products and services offered for by the Company.
Specific reference is made to the risks and uncertainties described in the
Company' Registration Statement of Form S-4, Registration No. 333-288.
ITEM 2. PROPERTIES
As of April 30, 1996, Corporate Express owned approximately 14
facilities and leased approximately 345 facilities. Of the 359 facilities,
one was the corporate headquarters in Broomfield, Colorado, 73 were product
distribution facilities, and 285 were sales administrative offices or
delivery facilities. The Company's principal properties are as follows:
<TABLE>
<CAPTION>
PRODUCT DISTRIBUTION
<S> <C> <C>
United States - Regional Warehouses
Anchorage, Alaska Miami, Florida Cincinnati, Ohio
Phoenix, Arizona Miami Lakes, Florida Columbus, Ohio
Compton, California Tampa, Florida Tulsa, Oklahoma
Hayward, California Atlanta, Georgia Macon, Georgia
Tulsa, Oklahoma(Ross-Martin) Idaho Falls, Idaho Greenville, South Carolina
Union City, California Fort Wayne, Indiana Nashville, Tennessee
Aurora, Colorado Baton Rouge, Louisiana Lake Charles, Louisiana
Beaumont,Texas Fort Worth, Texas Jessup, Maryland
Houston, Texas*** Stratford, Connecticut Savage, Maryland
New Castle, Delaware Malden, Massachusetts Renton, Washington
Deerfield Beach, Florida Kansas City, Missouri Wauwatosa, Wisconsin
Ft. Lauderdale, Florida Whippany, New Jersey
Australia - Regional Warehouses
Canberra, Australian Capital Territory* Brisbane, Queensland** Melbourne, Victoria***
Cairns, Queensland Sydney, New South Wales** Adelaide, South Australia**
Perth, Western Australia*
New Zealand - Regional Warehouses
Auckland
Christchurch
</TABLE>
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<TABLE>
<CAPTION>
Canada - Regional Warehouses United Kingdom - Regional Warehouses
<S> <C> <C>
Calgary, Alberta London* Cambridge
Vancouver, British Columbia Surrey Gratham
Halifax, Nova Scotia Manchester Boston
Mississauga, Ontario Kingston Burton
Lyme Regis
</TABLE>
* Two facilities in these locations
** Three facilities in these locations
*** Four facilities in these locations
<TABLE>
<CAPTION>
SERVICES
Number of Number of Number of
State Facilities State Facilities State Facilities
- ---------------------- ---------------------------- -------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
New York 31 Illinois 2 Utah 2
California 17 Oklahoma 4 Colorado 1
Texas 22 Virginia 2 Michigan 1
New Jersey 8 Connecticut 3 Minnesota 1
North Carolina 10 Georgia 3 Nevada 1
Pennsylvania 7 Louisiana 4 New Hampshire 1
Alabama 8 Maryland 2 New Mexico 1
Florida 7 Washington 2 Tennessee 1
Arizona 6 Maine 2 Wisconsin 1
Massachusetts 1 South Carolina 2 Ontario, Canada 2
Oregon 1 Missouri 2
</TABLE>
Due to the unavailability of adequate and suitable lease space in
northern Colorado, in November 1995 the Company purchased real estate in
Broomfield, Colorado for $4,600,000 and began construction of its corporate
headquarters, which will replace currently leased space and consolidate
staff from five existing buildings. Construction of the new headquarters,
which is expected to be funded when completed through third party financing,
is currently estimated to cost approximately $36,000,000.
The Company periodically evaluates the location and efficiency of its
facilities to maximize customer satisfaction and increase economies of
scale. The Company plans to eliminate redundant facilities such that it
typically will operate product distribution from a single regional warehouse
with satellite sales offices and distribution breakpoints in each of its
regions. The Company may also close, consolidate or relocate regional
warehouses, satellite sales offices and distribution breakpoints from time
to time.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition
or results of operations of the Company. The Company maintains general
liability and business interruption insurance coverage in amounts which it
believes to be adequate.
-9-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's shareholders was held on March 1,
1996 to consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger dated as of January 6, 1996, among the Company, DSU
Acquisition Corp., a wholly-owned subsidiary of the Company, and Delivery
and the conversion of each outstanding share of Delivery's common stock into
1.2 shares of the Company's common stock. Of the 50,515,713 shares of the
Company's common stock issued and outstanding and entitled to vote at the
meeting, there were present at the meeting, in person or by proxy, the
holders of 37,219,940 common shares, or 73.6% of those shares eligible to
vote, such percentage representing a quorum. With respect to the matter
voted upon, the votes were cast as follows: Votes For - 36,697,392; Votes
Against - 109,299; Abstentions - 14,401; Broker Non-Votes -398,848.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since the Company's initial public offering of its Common Stock on
September 23, 1994, the Company's Common Stock has traded on the Nasdaq
National Market under the symbol "CEXP." The following table sets forth, for
the fiscal quarters indicated, the high and low closing sale prices for the
Common Stock, as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1994
Third Quarter (from September 23) $15.83 $12.83
Fourth Quarter 17.50 11.00
Fiscal 1995
First Quarter 20.00 15.33
Second Quarter 25.75 19.00
Third Quarter 29.88 20.00
Fourth Quarter 31.63 23.13
</TABLE>
As of May 31, 1996, the Company's Common Stock was held by 568 holders
of record.
The Company has never paid a dividend on its Common Stock. The Company
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business and for general corporate purposes. Any payment
of future dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
relevant factors. The Company's Senior Credit Facility prohibits the
distribution of dividends without the prior written consent of the lenders
and the Indenture governing the 9 1/8 Senior Subordinated Notes due 2004
(the "Notes") prohibits the Company from paying a dividend which would cause
a default under such Indenture or which would cause the Company to fail to
comply with certain financial covenants.
-10-
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for fiscal 1995 (the
12 months ending March 2, 1996), 1994 (the 12 months ending February 25,
1995), and 1993 (the 12 months ending February 28, 1994) have been derived
from the Company's consolidated financial statements which have been audited
by independent auditors. The selected consolidated financial data for fiscal
1992 and 1991 is derived from unaudited consolidated financial statements.
The unaudited consolidated financial statements have been prepared on the
same basis as the audited consolidated financial statements and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company.
-11-
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
1995 1994 1993 1992 1991
----------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:(1)
Net sales $1,590,104 $927,918 $337,094 $237,473 $195,783
Cost of sales(2) 1,173,255 681,962 254,698 175,309 144,418
Merger related inventory provisions (3) 5,952 -- 1,146 -- --
---------- -------- -------- -------- --------
Gross profit 410,897 245,956 81,250 62,164 51,365
Warehouse operating and selling expenses 297,275 188,464 69,851 49,383 38,489
Corporate general and administrative expenses 46,980 23,852 8,690 7,139 5,088
Merger and other nonrecurring charges (4) 36,838 --- 1,928 2,592 ---
---------- -------- -------- -------- --------
Operating profit 29,804 33,640 781 3,050 7,788
Interest expense, net 15,396 15,610 4,463 4,087 5,109
Other expenses (income) (5) (724) (352) (126) 1,737 480
---------- -------- -------- -------- --------
Income (loss) before income taxes 15,132 18,382 (3,556) (2,774) 2,199
Income tax expense 10,952 6,164 1,894 947 1,326
---------- -------- -------- -------- --------
Income (loss) before minority interest 4,180 12,218 (5,450) (3,721) 873
Minority interest 1,436 69 152 --- ---
---------- -------- -------- -------- --------
Income (loss) from continuing operations 2,744 12,149 (5,602) (3,721) 873
Income (loss) from discontinued operations (6) --- --- 138 (4,571) (435)
---------- -------- -------- -------- --------
Income (loss) before extraordinary item 2,744 12,149 (5,464) (8,292) 438
Extraordinary item (7) --- 586 (1,169) --- ---
---------- -------- -------- -------- --------
Net income (loss) $ 2,744 $ 12,735 $ (6,633) $ (8,292) $ 438
========== ======== ======== ======== ========
Per common share:
Income (loss) from continuing operations $.04 $.24 $(.21)
========== ======== ========
Net income (loss) $.04 $.25 $(.25)
========== ======== ========
Shares used to compute per share amounts 68,057 49,195 32,265
========== ======== ========
BALANCE SHEET DATA: (1)
Working capital $ 217,243 $131,202 $ 68,084 $ 25,560 $ 21,061
Total assets 910,523 568,161 387,477 108,811 83,682
Long-term debt and capital lease obligations 137,468 166,427 161,881 38,576 39,339
Shareholders' equity and redeemable preferred (8) 496,514 240,470 100,045 25,528 14,502
</TABLE>
- ----------------
(1) The Delivery acquisition (effective March 1, 1996), the Young
acquisition (effective February 27, 1996) and the acquisition of Lucas
Bros., Inc. ("Lucas") (effective November 30, 1993) were accounted for
as poolings of interests and, accordingly, the Delivery, Young and Lucas
accounts and results are included for all periods presented.
(2) Cost of sales includes occupancy and delivery expenses.
(3) Reflects the write-down to market value of certain inventory which the
Company has decided to eliminate from its product line in connection
with the Delivery, Young and Lucas mergers.
(4) Merger and other nonrecurring charges relate primarily to the mergers
with Delivery and Young in fiscal 1995 and Lucas in fiscal 1993 and
include, among other things, costs to complete the acquisitions, merging
and closing redundant facilities, and centralizing certain
administrative functions.
(5) Includes a write-off of $1.2 million of investments in fiscal 1992.
(6) In November 1990, Corporate Express made a strategic decision to close
all of its retail operations and, in February 1993, Lucas adopted a plan
to discontinue its retail operations.
-12-
<PAGE>
(7) Reflects extraordinary loss related to a write-off of an unamortized
discount on debt in fiscal 1993 and extraordinary gain related to the
repurchase by the Company of $10 million principal amount of Notes in
fiscal 1994.
(8) Redeemable preferred was converted to common stock in fiscal 1994.
-13-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto appearing
elsewhere in this Form 10-K.
Some of the information presented in this Form 10-K constitutes forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Although the Company believes that its expectations
are based on reasonable assumptions within the bounds of its knowledge of
its business and operations, there can be no assurance that actual results
of the Company's operations and acquisition activities and their effect on
the Company's results of operations will not differ materially from its
expectations. See "ITEM 1. - BUSINESS - Important Factors Regarding Forward
Looking Statements."
GENERAL
Corporate Express has grown primarily through a series of acquisitions.
The Company completed mergers with Delivery on March 1, 1996, Young on
February 27, 1996 and Lucas on November 30, 1993, all of which were
accounted for as poolings of interests. Accordingly, the Consolidated
Financial Statements have been restated to include the accounts and
operations of Delivery, Young and Lucas for all periods prior to these
mergers. In connection with these mergers, Delivery and Young changed their
1995 fiscal year ends to March 2, 1996, in order to conform to the fiscal
year end of Corporate Express. References to fiscal 1994 and prior fiscal
years refer to Delivery's December 31 year end and Young's September 30 year
end.
During the fourth quarter of fiscal 1995, the Company recorded expenses of
$42,790,000 primarily related to the mergers with Delivery and Young and the
financial impact of management's decisions related to the future operations
of the combined companies. These merger and other nonrecurring charges
consisted of transaction costs, costs related to severance and termination
agreements, facility closure costs and the cost of consolidations of
operations and administrative functions among the companies, the reduction
in recorded value of certain assets that had diminished future value in the
operations of the combined company, and other related costs.
Through acquisitions since fiscal 1991, the Company has significantly
increased the scope of its operations from a regional warehouse in Colorado
to operations throughout the United States, Canada, the United Kingdom,
Australia and New Zealand. Substantial emphasis will be placed in fiscal
1996 on improving operations while implementing the Corporate Express
business model in the most recently acquired operations and on pursuing
additional acquisition opportunities. Similarly, Delivery has grown
primarily through acquisitions. Corporate Express expects to enhance the
Delivery acquisition program. These anticipated acquisitions will result in
increased accounts receivable, inventory, accounts payable and other account
balances, as well as increased warehouse closing costs in future periods.
Implementation of the Company's expansion and acquisition strategy, both
domestically and internationally, involves significant risks and
uncertainties. See "Business - International Operations; Expansion Strategy;
Structure and Integration of Acquisitions."
In addition to acquisitions, Corporate Express will place substantial
emphasis on internal growth through implementation of the Corporate Express
business model. The Company also plans to increase sales to existing
customers by cross-selling its expanded product and service offering and
developing existing customers into international, national or multi-regional
accounts.
International markets historically have higher profit margins and higher
operating costs than the Company experiences domestically. Certain
complementary products now offered by the Company, such as computer
software, have lower profit margins and lower operating costs than the
products traditionally sold by the Company. In addition, the acquisition of
companies with break-even or marginal operating results may impact the
margins and profitability of the Company.
-14-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages which the items in the
Company's consolidated statements of operations bear to net sales for the
periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
-----------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statements of Operations Data:
Net sales 100.0% 100.0% 100.0%
Cost of sales 73.8 73.5 75.6
Merger related inventory provisions 0.4 -- 0.3
----- ----- -----
Gross profit 25.8 26.5 24.1
Warehouse operating and selling expenses 18.7 20.3 20.7
Corporate general and administrative expenses 2.9 2.6 2.6
Merger and other nonrecurring charges 2.3 0.0 0.6
----- ----- -----
Operating profit 1.9 3.6 0.2
Interest expense, net 0.9 1.6 1.3
Other income 0.0 0.0 0.0
----- ----- -----
Income (loss) before income taxes 1.0 2.0 (1.1)
Income tax expense 0.7 0.7 0.6
----- ----- -----
Income (loss) before minority interest 0.3 1.3 (1.7)
Minority interest 0.1 0.0 0.0
----- ----- -----
Income (loss) from continuing operations 0.2 1.3 (1.7)
Income (loss) from discontinued operations -- -- 0.0
----- ----- -----
Income (loss) before extraordinary item 0.2 1.3 (1.7)
Extraordinary gain (loss) -- 0.1 (0.3)
----- ----- -----
Net income (loss) 0.2% 1.4% (2.0)%
===== ===== =====
</TABLE>
FISCAL YEARS 1995 AND 1994
Net Sales. Consolidated net sales increased 71% to $1,590,104,000
in fiscal 1995 from $927,918,000 in fiscal 1994. Net sales for the Company's
product distribution increased 76.3% from $707,653,000 in fiscal 1994 to
$1,247,640,000 in fiscal 1995 while services increased 55.5% from
$220,265,000 to $342,464,000 in the same periods. These increases were
primarily attributable to 51 acquisitions in fiscal 1995 of which 28 were
product based companies (17 in the United States, three in Canada, six in
Australia, and two in the United Kingdom), seven were repurchases of
computer product franchisees by Young (all in the United States) and 16 were
service based companies principally in the delivery and distribution
services business (all in the United States). Also contributing to the
sales increase was strong internal growth reflecting increased market
penetration in office products distribution and higher demand for the
Company's local delivery services.
International operations accounted for 10.5% of total sales or
$166,296,000 in fiscal 1995 and .2% of total sales or $1,694,000 in fiscal
1994. The Company entered the international market by acquiring two
Canadian office product distributors in February 1995. The Company expanded
its international operations in fiscal 1995 to include operations in Canada,
Australia, and the United Kingdom.
Gross Profit. Cost of sales includes merchandise, occupancy and
delivery costs (including fees paid to drivers and transportation and
delivery agents). Consolidated gross profit as a percentage of sales was
25.8% for fiscal 1995 compared to 26.5% for fiscal 1994. Included in cost
of sales in fiscal 1995 is a merger related inventory provision of
$5,952,000 representing 0.4% of sales. In connection with the Delivery and
Young mergers, the Company made the decision to expand to new product
categories, while discontinuing certain low-end products, to standardize
core product lines and to eliminate certain inventory historically
maintained for specific customers and has written this inventory down to its
-15-
<PAGE>
fair market value at March 2, 1996. Excluding this merger related
provision, gross profit as a percentage of sales was 26.2% for fiscal 1995
compared to 26.5% for fiscal 1994.
The gross profit percentage of sales for office products,
excluding the merger related inventory provision, was 25.0% in both fiscal
1995 and fiscal 1994. The merchandise margin component of gross profit
increased from 1994 to 1995 for the office products segment primarily as a
result of increased purchasing efficiencies and benefits associated with the
In-Stock Catalog and increased vendor rebates. In the third quarter of
fiscal 1995, the Company received additional vendor rebates resulting from
higher than expected purchase volume due to acquisitions. Excluding these
additional third quarter rebates, domestic vendor rebates, including catalog
participation payments but excluding cash payment discounts, increased to
3.8% of domestic office products revenue in fiscal 1995 from 3.5% in fiscal
1994. This increase in rebates reflects the benefits of the Company's
merchandising strategy to reduce the number of vendors included in the
Company's proprietary In-stock Catalog thereby increasing the sales dollars
per vendor. These improvements in the merchandise component of gross profit
were offset by the impact of lower gross profit from newly acquired
operations which initially have lower merchandise margins and higher
delivery and occupancy costs, and by supplier price increases on certain
products lines, particularly paper products, on which price increases to the
Company were often effective before corresponding price increases were
passed on to customers.
The gross profit percentage in the service segment was 30.8% in
fiscal 1995 compared to 31.3% in fiscal 1994. The decrease in the gross
profit percentage in the service segment is primarily attributable to
increased delivery costs resulting from unusually severe winter weather in
the northeast.
Warehouse Operating and Selling Expenses. Warehouse operating and
selling expenses primarily include labor and administrative costs associated
with operating regional warehouses and sales offices, selling expenses and
commissions related to the Company's direct sales force and warehouse
assimilation costs. Warehouse operating and selling expenses decreased as a
percentage of sales to 18.7% in fiscal 1995 from 20.3% in fiscal 1994. This
decrease reflects cost savings as a results of the implementation of the
Corporate Express business model at certain regional warehouses, which
includes centralizing certain administrative functions. Also contributing to
this decrease is a reduction of approximately $3,100,000 in Delivery
compensation expense which was eliminated in fiscal 1995 pursuant to
agreements made in connection with companies acquired in poolings of
interest acquisitions.
Reduction to warehouse operating and selling expense as a
percentage of sales in fiscal 1995 was partially offset by contract labor
warehouse operating costs of $1,754,000 related to the consolidation of the
San Jose and Hayward facilities in Northern California. This consolidation
took longer than expected due to a variety of issues including a search for
a suitably larger facility, timing of former tenants vacating the expansion
space, delays in obtaining building permits, labor negotiations and the need
to integrate these facilities cautiously to ensure uninterrupted service to
customers. In addition, this integration and computer conversion was more
costly than anticipated because it took more hours to complete related tasks
including all aspects of data conversion to comply with Corporate Express
standard product files. Combining the San Jose and Hayward facilities was
the most significant integration the Company had attempted to date. Both
were large distribution centers, approximately equal in size, with different
customers and non-compatible SKU reference numbers for those products that
were similar. Developing data consistency in the customer files, inventory
records, invoicing format, and other related areas required more effort than
originally anticipated due to the volume of data and the inconsistent
product files.
Corporate General and Administrative Expenses. Corporate general
and administrative expenses include central expenses incurred to provide
corporate oversight and support for regional operations and goodwill
amortization. Corporate general and administrative expenses increased to
$46,980,000 in fiscal 1995 from $23,852,000 in fiscal 1994, reflecting the
Company's expanded operations. As a percentage of net sales, corporate
general and administrative expenses increased to 2.9% in fiscal 1995 from
2.6% in fiscal 1994. This increase reflects the costs associated with
developing a larger corporate staff to support acquisition efforts and
expanded operations, including an expanded information system staff, and
increased goodwill amortization resulting from purchase acquisitions in
fiscal 1994 and fiscal 1995.
-16-
<PAGE>
Merger and Other Nonrecurring Charges. During the fourth quarter
of fiscal 1995, the Company recorded $36,838,000 in merger and other
nonrecurring charges (in addition to $5,952,000 in merger related inventory
provisions)primarily in conjunction with the acquisitions of Delivery and
Young. The charges include the actual costs of completing the acquisitions
and additional costs associated with a plan to integrate the combined
companies' operations. The major activities associated with the plan include
merging various Delivery and Young facilities into company locations,
closing duplicate facilities and centralizing certain administrative
functions. The Company expects to complete this plan within two years. These
merger and other nonrecurring charges include merger transaction related
costs of $13,273,000; severance and employee termination costs of $7,457,000
(representing approximately 760 employees); facility closure and
consolidation costs of $9,693,000; and other asset write-downs and costs of
$6,415,000. Of the $36,838,000 charges, $7,724,000 are non-cash charges.
(The charges incurred are for domestic operations only. See Note 3 to the
Consolidated Financial Statements).
Operating Profit. Consolidated operating profit of $29,804,000, or
1.9% of net sales, in fiscal 1995 was less than the operating profit of
$33,640,000, or 3.6% of net sales, in fiscal 1994 due to the merger and
other nonrecurring charges recorded in the fourth quarter of fiscal 1995.
Operating profit before merger related and other nonrecurring charges of
$72,594,000 for fiscal 1995 increased 115.8% over fiscal 1994 operating
profit reflecting increased acquisitions, internal growth, and improved
operating efficiencies. Operating profit before nonrecurring charges for the
office products segment increased to $49,587,000, or 120.4%, in fiscal 1995
over fiscal 1994 operating profit of $22,498,000. Operating profit before
nonrecurring charges for the delivery segment increased 106.5% to
$23,007,000, or 6.7% of net sales, in fiscal 1995 from $11,142,000, or 5.1%
of net sales, in fiscal 1994. Operating profit as a percentage of sales for
international operations was 3.4% and accounted for 11.3% of total office
products operating profit before nonrecurring charges in fiscal 1995.
Interest Expense. Net interest expense of $15,396,000 in fiscal
1995 was relatively unchanged from $15,610,000 in fiscal 1994. Decreases due
to the elimination of the 0.5% per annum additional illiquidity payment of
the Notes effective upon completion of a registered exchange offer in March
1995 and principal reductions on the line of credit using funds from the
public offerings of Common Stock completed in March 1995 and September 1995
were largely offset by higher levels of Delivery and Young debt outstanding
as a result of their increased borrowings to fund acquisitions and to
provide the additional working capital required as a result of increased
business. On February 27, 1996, the Company borrowed on its line of credit
and repaid in full, as required under its terms, the Young revolving line of
credit balance of $10,809,000 which bore interest at prime plus 1.25%, the
Young subordinated debt of $11,930,000 which bore interest at 17.5% and debt
payable to the selling shareholders of $10,834,000 which bore interest at
9.75%. The Delivery bank credit facility became due as of the acquisition
date due to a change of control provision. This facility was amended to
expire on May 31, 1996 to provide time for the Company to renegotiate its
primary bank revolver, which has been completed and the Delivery credit
facility has been repaid. See "Liquidity and Capital Resources."
Minority Interest. Minority interest increased to $1,436,000 in
fiscal 1995 from $69,000 in fiscal 1994, reflecting a 47.5% minority
interest in Corporate Express Australia and a 49.0% minority interest in
Corporate Express United Kingdom. The Company acquired a 52.5% ownership
interest in Corporate Express Australia in May 1995 and a 51.0% ownership
interest in Corporate Express United Kingdom in December 1995.
Net Income. Net income of $2,744,000 in fiscal 1995 compared to
net income of $12,735,000 in fiscal 1994. This decrease reflects the merger
and other nonrecurring charges recorded in fiscal 1995 offset by
contributions from purchase acquisitions and increased profits from the
Company's more mature operations. The pre-tax profitability is reduced by
an increase in the effective tax rate to 72.4% in fiscal 1995 from 33.5% in
fiscal 1994. The fiscal 1995 tax rate reflects certain non-deductible
merger costs, international tax rates, the utilization of certain NOLs, and
certain non-deductible goodwill. During fiscal 1995, the Company prepared
projections of future taxable income and concluded that the realization of
all non-restricted U.S. net operating losses was more likely than not.
Accordingly, the valuation allowance was reduced, and at the end of the
year, the remaining valuation allowance related exclusively to acquired net
operating losses subject to restrictions on realization. The fiscal 1994 tax
rate included the utilization of certain NOLs and certain non-deductible
goodwill. The principle reason the 1995 effective tax rate exceeds the 1994
effective tax rate is the non-deductibility of certain merger costs. The
fiscal 1994 period included in net income an extraordinary gain of $586,000,
net of tax, related to the repurchase of $10,000,000 principal amount of
Notes.
Other. The accounts receivable balance at March 2, 1996 of
$266,360,000 increased $101,116,000 from $165,244,000 at February 25, 1995
primarily as a result of acquired receivables of $60,503,000 and internal
sales
-17-
<PAGE>
growth in existing regions. The allowance for doubtful accounts as a
percentage of consolidated accounts receivable was 2.0% and 3.0% at the end
of fiscal 1995 and fiscal 1994, respectively. This decrease reflects the
fact that the Company's historical bad debt write-offs have been very low
due to the high credit quality of its customers, resulting from the
Company's focus on large corporations, and the fact that, in certain cases,
the seller guarantees acquired receivables. In most acquisitions, the
seller guarantees the receivables for a period of time, and if they are not
collected, that amount is deducted from escrow accounts prior to final
payment to the seller.
The inventory balance at March 2, 1996 of $101,995,000 increased
$34,839,000 from $67,156,000 at February 25, 1995 primarily as a result of
acquired inventories of $26,017,000, increased sales and the introduction of
new products from the In-Stock Catalog into acquired operations.
Goodwill at March 2, 1996 of $324,603,000 increased $116,097,000
from $208,506,000 reflecting additions from acquisitions of $129,591,000
offset by current year amortization and reversals of $5,250,000. This
increase in goodwill will result in increased amortization expense in future
periods.
The accounts payable balance at March 2, 1996 of $135,069,000
increased $46,498,000 from $88,571,000 at February 25, 1995 primarily as a
result of acquired trade payables of $57,481,000, offset by reduced days in
accounts payable.
Accrued purchase costs at March 2, 1996 of $3,049,000 decreased by
$8,203,000 from the February 25, 1996 balance of $11,252,000. This decrease
reflects acquisition additions of $4,145,000, usage of $7,098,000, and
reversals of $5,250,000. The reversal relates to excess computer conversion
costs not fully utilized in connection with the Hanson acquisition of
$3,723,000 and excess accrued purchase cost estimates for other fiscal 1994
acquisitions of $1,527,000. All reversals reduced goodwill in the fourth
quarter of fiscal 1995. The remaining balance represents the current
estimate for costs to be incurred in conjunction with current consolidation
projects in South Florida, Canada, and certain newly acquired operations.
FISCAL YEARS 1994 AND 1993
Net Sales. Net sales increased 175.3% to $927,918,000 in fiscal
1994 from $337,094,000 in fiscal 1993. Net sales in the product
distribution segment increased 200.0% to $707,653,000 in fiscal 1994 from
$235,918,000 in fiscal 1993 while its service segment increased 117.7% to
$220,265,000 from $101,176,000 in the same periods. These increases were
primarily attributable to 26 asset or stock purchase acquisitions, the
largest of which were the Hanson Office Products Group ("Hanson")
acquisition on February 28, 1994 and Delivery's initial acquisition of the
Founding Companies on April 1, 1994. Of the 26 acquisitions, 11 were
product based companies (9 in the United States and two in Canada), three
were repurchases of computer product franchises by Young, and 12 were
service based companies principally in the delivery and distribution
services business (all in the United States). Of the 11 product based
acquisitions, Hanson closed at the end of fiscal 1993, six closed in the
second quarter, and four closed in the fourth quarter. Of the three
computer product franchise repurchases, one was acquired in the first
quarter and two were acquired in the fourth quarter. Also contributing to
the sales increase was the inclusion of the results of operations of the
Delivery Founding Companies beginning April 1, 1994, additional revenues
from companies which were acquired in acquisitions accounted for as
purchases during fiscal 1994 and internal growth.
Gross Profit. Consolidated gross profit as a percentage of sales
was 26.5% for fiscal 1994 compared to 24.1% for fiscal 1993. Included in
cost of sales for fiscal 1993 is a merger related inventory provision of
$1,146,000. In connection with the Lucas merger, the Company adjusted to
market value certain furniture and stationery products which would no longer
be merchandised by Lucas. The gross profit percentage, excluding the merger
related inventory provision was 26.5% in fiscal 1994 compared to 24.4% for
fiscal 1993. The gross profit percentage in product distribution, excluding
the merger related inventory provision increased to 25.1% in fiscal 1994
from 22.3% in fiscal 1993 while services gross profit percentage increased
to 31.3% from 29.5% in the same periods. Increased in product distribution
reflect increased purchasing efficiencies and benefits associated with the
In-Stock Catalog and increased vendor rebates. Increases in services are
attributable to higher margins from the Founding Delivery Companies.
-18-
<PAGE>
Warehouse Operating and Selling Expenses. Warehouse operating and
selling expenses decreased as a percentage of sales to 20.3% in fiscal 1994
from 20.7% in fiscal 1993. This decrease reflects the higher revenue base
due to the inclusion of results of operations from the Founding Companies
partially offset by the impact of the Richard Young operation which has a
much lower expense to revenue ratio and was a much larger percentage of
total sales in fiscal 1993.
Corporate General and Administrative Expenses. Corporate general
and administrative expenses increased to $23,852,000 in fiscal 1994 from
$8,690,000 in fiscal 1993, reflecting the Company's expanded operations and
the establishment of the service segment in April 1994. As a percentage of
net sales, corporate general and administrative expenses were 2.6% in both
fiscal 1994 and fiscal 1993. Increases related to the establishment of the
Delivery corporate staff in fiscal 1994 were offset by the leveraging of
general and administrative expense over a higher revenue base.
Merger and Other Nonrecurring Charges. During the period ended
February 28, 1994, the Company recorded $1,928,000 in merger and other
nonrecurring charges in conjunction with the acquisition of Lucas. The
charge included the actual costs of completing the acquisition and
additional costs associated with consolidating the companies.
Operating Profit. Operating profit of $33,640,000 in fiscal 1994
compares to operating profit of $781,000 in fiscal 1993. Operating profit
before nonrecurring charges for office products increased to $22,498,000 in
fiscal 1994 from $2,571,000 in fiscal 1993. This increase reflects the
contribution of acquired companies and increased regional operating profits
at the Company's other regional operations. Operating profit for delivery
services increased to $11,142,000, or 5.1% of net sales, in fiscal 1994 from
$1,284,000, or 1.3% of net sales, in fiscal 1993.
Interest Expense. Net interest expense increased to $15,610,000
in fiscal 1994 from $4,463,000 in fiscal 1993. This increase was primarily
due to the issuance of the Notes and borrowings under the Company's senior
credit facilities to fund acquisitions and to provide the additional working
capital required as a result of increased business.
Extraordinary Item. The extraordinary gain of $586,000, net of
tax, in the second quarter of fiscal 1994 related to the repurchase of
$10,000,000 principal amount of Notes. The extraordinary loss of
$1,169,000, net of tax, in fiscal 1993 related to the loss on the early
extinguishment of debt in connection with the Lucas acquisition.
Net Income. Net income of $12,735,000 in fiscal 1994 compared to
a net loss of $6,633,000 in fiscal 1993. This increase reflects the
contributions from acquisitions and increased profits from the Company's
more mature operations. Also contributing to this increase in net income was
the extraordinary gain in fiscal 1994 and the extraordinary loss and merger
and other nonrecurring charges recorded in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through
internally generated funds and borrowings from commercial banks and has
financed its acquisitions through the use of such funds and the issuance of
equity and debt securities and, in certain instances, promissory notes.
In February 1994, at the time of the Hanson acquisition, the
Company completed a private placement of $100,000,000 of Notes. In July
1994, $10,000,000 principal amount of the Notes was repurchased by the
Company for $9,300,000 plus accrued interest. Interest on the $90,000,000
of outstanding Notes is payable semi-annually on March 15 and September 15
of each year. The Notes will mature on March 15, 2004 and will not be
redeemable prior to March 15, 1999. Thereafter, the Notes will be
redeemable at the option of the Company, in whole or in part. On March 17,
1995, the Company completed an offer to exchange the privately placed Notes
for registered Notes. The additional illiquidity payment of approximately
0.5% per annum ceased on completion of the exchange offer, reducing the
Company's interest rate with respect to the Notes from approximately 9 5/8%
to 9 1/8% per annum.
The Company had two separate credit facilities outstanding at
March 2, 1996, one of which related to Delivery, for a combined borrowing
capacity of $145,000,000. The then existing Company credit arrangement of
$90,000,000 (the "Senior Credit Facility") bears interest, at Corporate
Express' option at (i) the applicable 30-, 60-, 90-, or 180-day adjusted
London Interbank Offering Rate ("LIBOR") plus 2.25% (plus or minus 0.25%),
subject, with respect to the
-19-
<PAGE>
plus or minus 0.25% adjustment, to a performance-based grid based on
Corporate Express' financial results and availability under the Senior
Credit Facility or (ii) the applicable prime rate plus .50% (plus or minus
0.25%). The Delivery credit facility was amended on June 15, 1995 to
increase the borrowing capacity to $55,000,000, and borrowings under this
facility bear interest at LIBOR plus 1.25% or the prime rate, at the
Company's option. These rates are adjustable based upon certain financial
ratios of the Company. In connection with its merger with the Company,
Delivery's credit facility was amended to expire on May 31, 1996 in order to
provide a short-term bridge to renegotiate existing inadequate facilities.
Both facilities were subject to customary borrowing capacity requirements.
On May 10, 1996, the Company renegotiated its credit facility and increased
the facility amount to $250,000,000 and lowered the cost of its borrowings
to LIBOR plus 1.25% if borrowings are less than $180,000,000 and LIBOR plus
1.5% if borrowings exceed $180,000,000. These rates are subject to increase
if the Company does not renegotiate its credit facility within 120 days,
which the Company intends to do.
On March 30, 1995, a public offering of 6,770,625 shares of Common
Stock was consummated at a price to the public of $16.68 per share. Of the
shares offered, 3,000,000 shares were sold by the Company and 3,770,625
shares were sold by selling security holders, including 264,938 shares
issued upon exercise of warrants purchased by the underwriters. On
September 15, 1995, the Company sold 16,324,528 shares in a follow-on public
offering of its Common Stock, and selling shareholders sold 2,075,472 shares
all at a price of $24.00 per share. Of the $375,200,000 of net proceeds to
the Company from this offering, $195,831,000 was used to pay for the
purchase of the Common Stock held by OfficeMax, Inc., the Company's largest
shareholder at the time, and $61,000,000 was used to repay existing
indebtedness. The remaining proceeds were used to finance acquisitions,
capital expenditures and for general corporate purposes.
During fiscal 1995, the Company purchased 28 contract stationers
for a net cash purchase price of $76,653,000 (including five contract
stationers purchased by Corporate Express Australia and one contract
stationer purchased by Young), newly issued securities representing a 52.5%
interest in Corporate Express Australia for a net cash outlay of $98,000
($16,785,000 purchase price less cash acquired of $16,687,000), and 16
delivery operations accounted for as purchases for a net cash purchase price
of $15,208,000. The Company also repurchased seven computer product
franchises for $21,187,000. Total liabilities assumed in connection with
these acquisitions were $92,347,000 (including accounts payable and assumed
debt). In addition, the Company made payments of approximately $6,044,000
related to acquisitions completed in fiscal 1994. During fiscal 1995, the
Company sold its high-end furniture business for $4,362,000, which was
acquired as part of the acquisition of Joyce International, Inc.'s office
products division ("Joyce"). The sale was contemplated at the time of the
Joyce acquisition and was reflected in the financial statements accordingly.
The Company expended approximately $51,765,000 in fiscal 1995 for
capital expenditures for computer systems, warehouse reconfigurations,
telecommunications equipment and delivery vehicles, leasehold improvements,
and its corporate headquarters facility. The Company expects capital
expenditures for fiscal 1996 of approximately $70,000,000, (excluding
capital expenditures for the new headquarters facility) comprised of
approximately $30,000,000 to be used for upgrading and enhancing its
information systems, approximately $17,500,000 for warehouse reconfiguration
and equipment, approximately $3,500,000 to be used for acquisition related
initial capital costs, and approximately $19,000,000 for transportation and
telecommunications equipment. Actual capital expenditures for fiscal 1996
may be greater or less than budgeted amounts. In fiscal 1995, the Company
purchased real estate of $4,600,000 and began construction of its corporate
headquarters, which will replace currently leased space. Construction of the
new headquarters is currently estimated to cost approximately $39,000,000.
Cash and cash equivalents increased by $13,272,000 in fiscal 1995.
This increase reflects net proceeds from the sale of Common Stock of
$428,881,000 (primarily from the March and September 1995 public offerings)
offset by the purchase of Common Stock held by OfficeMax, Inc. for
$195,831,000, net payments on the line of credit of $18,871,000, payments
for capital expenditures during fiscal 1995 of $51,765,000, as well as cash
used for operations and repayment of debt of $29,952,000. Net cash used for
operating activities of $18,508,000 reflects cash generated by net income
plus non-cash expenses offset by an increased investment in accounts
receivable and inventories reflecting increased sales and the introduction
of the In-Stock Catalog into acquired operations. The repayment of debt
includes the repayment of debt of acquired companies.
-20-
<PAGE>
During fiscal 1994, the Company received approximately
$125,482,000 in net proceeds from the sale of its Common Stock, of which
approximately $103,000,000 was received through an initial public offering
of 7,000,000 common shares in September 1994. Proceeds from the offering
were used to repay the outstanding debt under the senior credit facility,
which consisted of $18,000,000 in term loans and $41,000,000 of revolving
debt, and to finance the expansion of the Company's business through
subsequent acquisitions and for other capital expenditures.
During fiscal 1994, the Company purchased ten contract stationers
for a net cash purchase price of $59,720,000 and 26,250 shares of Common
Stock and assumed notes and other current liabilities totalling $5,325,000.
In addition, the Company purchased 12 delivery operations for a net cash
purchase price of $8,242,000. The Company also repurchased one computer
product franchisee for a net cash purchase price of $608,000. Total
liabilities assumed in connection with these acquisitions were $49,400,000
(including accounts payable and assumed debt). In addition, the Company made
payments of approximately $13,179,000 related to acquisitions purchased in
fiscal 1993.
Cash and cash equivalents increased by $1,442,000 in fiscal 1994.
This increase reflects the net proceeds from the sale of Common Stock of
$125,482,000, the cash provided by operating activities of $7,558,000 and
other net increases of $1,113,000; offset by cash paid for acquisitions of
$81,749,000, capital expenditures of $16,078,000, cash paid to retire bonds
of $9,300,000, payments for the Young preferred stock redemption of
$7,500,000, and net repayments on short and long-term borrowings of
$18,084,000.
In May 1996 the Company purchased ASAP, a computer software
distribution company for approximately $98,000,000 in cash. Approximately
$52,000,000 was paid at closing with additional payments of approximately
$46,000,000 due in July 1996, which deferred payment will be partially paid
utilizing ASAP's cash balances which on the date of acquisition exceed $10.0
million.
The Company believes the borrowing capacity under the credit
facility, together with proceeds from future debt and/or equity activity,
coupled with its cash on hand, capital resources and cash flows, will be
sufficient to fund its ongoing operations, anticipated capital expenditures
and acquisition activity for the next twelve months. However actual capital
needs may change, particularly in connection with acquisitions which the
Company may make in the future.
INFLATION
Certain of the Company's product offerings, particularly paper
products, have been and are expected to continue to be subject to
significant price fluctuations due to inflationary and other market
conditions. The Company generally is able to pass such increased costs on
to its customers through price increases, although it may not be able to
adjust its prices immediately. Significant increases in fuel costs in the
future could materially affect the Company's profitability if these costs
cannot be passed on to customers. In general, the Company does not believe
that inflation has had a material effect on its results of operations in
recent years. However, there can be no assurance that the Company's
business will not be affected by inflation in the future.
SEASONALITY AND QUARTERLY RESULTS
The Company's product distribution business is subject to seasonal
influences. In particular, net sales and profits in the United States and
Canada are typically lower in the three months ended August 31 due to lower
levels of business activity during the summer months. Because cost of sales
includes delivery and occupancy expenses, gross profit as a percentage of
net sales may be impacted by seasonal fluctuations in net sales and the
acquisition of less efficient operations. Quarterly results may be
materially affected by the timing of acquisitions and the timing and
magnitude of acquisition assimilation costs. Therefore, the operating
results for any three month period are not necessarily indicative of the
results that may be achieved for any subsequent fiscal quarter or for a full
fiscal year.
-21-
<PAGE>
Revenues from the Company's local delivery services generally do
not reflect significant seasonal variations, although the Company typically
experiences slightly lower revenues in the middle of the summer and in the
last week of December. Prolonged inclement weather can have an adverse
impact on the Company's business to the extent that transportation and
distribution channels are disrupted.
ACCOUNTING STANDARDS
In fiscal 1996, the Company will adopt SFAS No. 123, "Accounting
for Stock-Based Compensation." This standard establishes a fair value
method for accounting for stock-based compensation plans either through
recognition or disclosure. The Company will adopt this standard through
compliance with the disclosure requirements set forth in SFAS No. 123.
Adoption of this standard will have no impact on the financial position or
results of operations of the Company.
The Company prospectively changed its accounting policy for
business combinations during fiscal 1995 to comply with the Emerging Issues
Task Force consensus on issue 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination".
-22-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Corporate Express, Inc.:
We have audited the accompanying consolidated financial statements
and the consolidated financial statement schedule of Corporate Express, Inc.
as of March 2, 1996 and February 25, 1995 and for the years ended March 2,
1996, February 25, 1995 and February 28, 1994, listed in the index in Item
14. 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 did not audit the financial statements
of Corporate Express of Delaware (formerly Lucas Bros., Inc.) which
statements reflect net sales constituting 18% of the total for the year
ended February 28, 1994. Those financial statements were audited by other
auditors whose report has been furnished to us, and our opinion insofar as
it relates to the amounts for Corporate Express of Delaware, Inc., is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit 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 and the
report of the other auditors provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Corporate Express, Inc. as of March 2, 1996 and February 25,
1995 and the consolidated results of their operations and their cash flows
for the years ended March 2, 1996, February 25, 1995 and February 28, 1994,
in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Denver, Colorado
June 11, 1996
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Corporate Express of Delaware, Inc.:
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Corporate Express of Delaware, Inc. (a Delaware corporation)
and subsidiaries for the year ended February 28, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Corporate Express of Delaware, Inc. and subsidiaries for the year ended February
28, 1994, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
May 2, 1994
-24-
<PAGE>
<TABLE>
<CAPTION>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<S>
ASSETS
March 2, February 25,
1996 1995
---------- -----------
<C> <C>
Current assets:
Cash and cash equivalents $ 28,664 $ 15,392
Trade accounts receivable, net of allowance
of $5,380 and $5,180, respectively 266,360 165,244
Notes and other receivables 27,060 8,368
Inventories 101,995 67,156
Deferred income taxes 18,157 13,148
Other current assets 17,234 18,044
--------- --------
Total current assets 459,470 287,352
Property and equipment:
Land 8,384 3,752
Buildings and leasehold improvements 32,935 23,053
Furniture and equipment 117,655 62,384
-------- --------
158,974 89,189
Less accumulated depreciation (49,475) (30,742)
-------- ---------
109,499 58,447
Goodwill, net of $16,046 and $7,802 of accumulated
amortization, respectively 324,603 208,506
Other assets, net 16,951 13,856
-------- --------
Total assets $910,523 $568,161
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-25-
<PAGE>
<TABLE>
<CAPTION>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 2, February 25,
1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 135,069 $ 88,571
Accounts payable - acquisitions 2,063 6,454
Accrued payroll and benefits 23,019 15,380
Accrued purchase costs 3,049 11,252
Accrued merger and related costs 24,880 -
Other accrued liabilities 33,777 25,716
Current portion of long-term debt and capital leases 20,151 8,335
Other 219 442
------------ ------------
Total current liabilities 242,227 156,150
Capital lease obligations 9,568 8,172
Long-term debt 127,900 158,255
Deferred income taxes 7,374 4,670
Minority interest in subsidiaries 24,843 -
Other non-current liabilities 2,097 444
------------ ------------
Total liabilities 414,009 327,691
Commitments and contingencies (Note 8)
Shareholders' equity:
Common stock, $.0002 par value, 100,000,000 shares
authorized,69,088,000 and 56,463,400 shares
issued and outstanding, respectively 14 11
Additional paid-in capital 502,559 250,416
Accumulated deficit (6,712) (10,010)
Foreign currency translation adjustments 653 53
------------ ------------
Total shareholders' equity 496,514 240,470
------------ ------------
Total liabilities and shareholders' equity $ 910,523 $ 568,161
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-26-
<PAGE>
CORPORATE EXPRESS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Years Ended
----------------------------------------------------------------------
March 2, February 25, February 28,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $1,590,104 $ 927,918 $ 337,094
Cost of sales 1,173,255 681,962 254,698
Merger related inventory provisions 5,952 - 1,146
---------- ---------- ----------
Gross profit 410,897 245,956 81,250
Warehouse operating and selling expenses 297,275 188,464 69,851
Corporate general and administrative expenses 46,980 23,852 8,690
Merger and other nonrecurring charges 36,838 - 1,928
---------- ---------- ----------
Operating profit 29,804 33,640 781
Interest expense, net 15,396 15,610 4,463
Other income 724 352 126
---------- ---------- ----------
Income (loss) before income taxes 15,132 18,382 (3,556)
Income tax expense 10,952 6,164 1,894
---------- ---------- ----------
Income (loss) before minority interest 4,180 12,218 (5,450)
Minority interest 1,436 69 152
---------- ---------- ----------
Income (loss) from continuing operations 2,744 12,149 (5,602)
Discontinued operations:
Income from discontinued operations - - 138
---------- ---------- ----------
Income (loss) before extraordinary item 2,744 12,149 (5,464)
Extraordinary item:
Gain (loss) on early extinguishment of debt - 586 (1,169)
---------- ---------- ----------
Net income (loss) $ 2,744 $ 12,735 $ (6,633)
========== ========== ==========
Net income (loss) per share (Note 13):
Continuing operations $ .04 $ .24 $ (.21)
Discontinued operations - - .00
Extraordinary item - .01 (.04)
---------- ---------- ----------
Net income (loss) $ .04 $ .25 $ (.25)
========== ========== ==========
Weighted average common shares outstanding 68,057 49,195 32,265
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-27-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended February 28, 1994, February 25, 1995 and March 2, 1996
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Stock Common Stock Paid-in Translation Accumulated
Shares Amount Shares Amount Capital Adjustment Deficit
------ ------- ------ ------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1993 17,438,000 $7,501 13,152,400 $3 $29,933 $ - ($12,112)
Issuance of common stock 6,351,900 1 26,829
Issuance of common stock for liabilities 1,281,000 8,899
Issuance of preferred stock 9,542,000 1 47,622
Preferred stock dividend (1,500)
S Corporation dividends and other
equity transactions of pooled companies 173 (672)
Net loss (6,633)
------------- --------- ----------- ---- --------- ---------- -----------
Balance, February 28, 1994 26,980,000 7,502 20,785,300 4 113,456 - (20,917)
Issuance of common stock 21,068,100 4 138,179
Conversion of common stock 100,000 (75,000)
Conversion of preferred stock (19,580,000) (2) 14,685,000 3 (1)
Redemption of preferred stock (7,500,000) (7,500)
Preferred stock dividend (432)
S Corporation dividends and other
equity transactions of pooled companies (1,218) (1,396)
Net income 12,735
Foreign currency translation adjustment 53
------------- --------- ----------- ---- --------- ---------- -----------
Balance, February 25, 1995 - - 56,463,400 11 250,416 53 (10,010)
Issuance of common stock 12,624,600 3 239,008
Young capital contribution 12,182
Adjustment to conform fiscal year
ends of certain pooled companies 2,623
S Corporation dividends and other
equity transactions of pooled companies 953 (2,069)
Net income 2,744
Foreign currency translation adjustment 600
------------- --------- ----------- ---- --------- ---------- -----------
Balance, March 2, 1996 - $ - 69,088,000 $14 $502,559 $ 653 $ (6,712)
============= ========= =========== ==== ========= ========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended
-----------------------------------
March 2, February 25, February 28,
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,744 $ 12,735 $ (6,633)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 17,322 9,391 3,978
Amortization 9,522 6,349 1,982
Non-cash portion of merger and
restructuring charge 10,268 - -
Adjustment to conform fiscal years 2,623 - -
(Gain) loss on early
extinguishment of debt - (700) 1,169
Minority interest 1,436 69 152
Other (1,285) 488 826
Changes in assets and liabilities,
excluding acquisitions:
Increase in accounts receivable (44,117) (18,277) (869)
Increase in inventory (7,365) (8,290) (2,608)
(Increase) decrease in other
current assets (12,005) (2,670) 76
Increase in other assets (2,372) (1,261) (378)
Increase (decrease) in accounts
payable (5,761) 7,035 1,923
Increase in accrued liabilities 10,482 2,689 266
--------- -------- ---------
Net cash provided by (used in)
operating activities (18,508) 7,558 (116)
--------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 5,425 356 293
Capital expenditures (51,765) (16,078) (4,225)
Payment for acquisitions, net of cash
acquired (119,190) (81,749) (162,171)
Other, net (2,351) (612) (1,690)
--------- -------- ---------
Net cash used in investing activities (167,881) (98,083) (167,793)
--------- -------- ---------
Cash flows from financing activities:
Issuance of preferred and common stock 449,194 134,870 71,780
Stock offering costs (20,313) (9,388) (3,401)
Issuance of subsidiary common stock 7,733 - -
Capital contribution 12,182 - -
Purchase of common stock held by
OfficeMax (195,831) - -
Preferred stock redemption - (7,500) -
Debt issuance costs - (869) (5,476)
Proceeds from long-term borrowings 40,057 27,871 121,079
Repayments of long-term borrowings (70,649) (35,250) (4,796)
Proceeds from short-term borrowings 11,005 - -
Repayments of short-term borrowings (11,482) (10,705) (3,141)
Cash paid to retire bonds - (9,300) -
Net proceeds from (payments on) line
of credit (18,871) 1,778 1,059
Other (2,068) 1,032 (1,332)
--------- -------- ---------
Net cash provided by financing
activities 200,957 92,539 175,772
--------- -------- ---------
Net cash used by discontinued operations (222) (600) (750)
--------- -------- ---------
Effect of foreign currency exchange
rate changes on cash (1,074) 28 -
--------- -------- ---------
Increase in cash and cash equivalents 13,272 1,442 7,113
Cash and cash equivalents, beginning of
period 15,392 13,950 6,837
--------- -------- ---------
Cash and cash equivalents, end of period $ 28,664 $ 15,392 $ 13,950
--------- -------- ---------
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest $ 18,043 $ 12,249 $ 5,613
--------- -------- ---------
Cash paid during the period for taxes $ 13,385 $ 5,255 $ 1,847
--------- -------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
</TABLE>
-29-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental schedule of noncash investing and financing
activities:
Capital lease obligations in the amount of $4,305,000,
$3,103,000 and $1,070,000 were incurred during fiscal 1995, 1994 and 1993,
respectively, for equipment and software.
The Company completed 51 acquisitions for a net cash outlay in
fiscal 1995 of $113,146,000, 23 acquisitions for a net cash outlay in fiscal
1994 of $68,570,000, and six acquisitions for a net cash outlay of
$161,811,000 in fiscal 1993. In conjunction with the acquisitions,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------------------
March 2, February 25, February 28,
1996 1995 1994
-------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Fair value of assets acquired $233,581 $128,059 $256,238
Cash paid, net of cash acquired 113,146 68,570 161,811
Issuance of notes payable 11,111 --- 5,174
Issuance of stock 3,089 4,614 5,973
Forgiveness of debt --- 150 ---
Minority interest in subsidiary 11,138 --- ---
Purchase price payable, included in
current liabilities 2,750 5,325 12,267
-------- -------- --------
Liabilities assumed $ 92,347 $ 49,400 $ 71,013
======== ======== ========
</TABLE>
In addition to the amounts set forth above, Corporate Express paid
$6,044,000 for prior period acquisitions during fiscal 1995, of which
$5,000,000 was related to the acquisition of certain assets of the office
products division of Joyce International, Inc. Also in fiscal 1995, Young
terminated four franchises for consideration of $233,000 forgiveness of
receivables.
In January 1995, the Company purchased for $1,186,000 in cash,
$1,000,000 in accounts payable, and $650,000 in notes payable the remaining
interest of a company for which a majority interest was acquired in fiscal
1993.
In December 1994, the Company recorded a liability of $1,855,000
for subsequent payments due to the sellers of a company acquired by Lucas
Bros., Inc. in fiscal 1993.
On September 30, 1994, the Company issued 14,610,000 shares of
Common Stock upon conversion of its Series A, B and C preferred on a two for
one basis.
In August 1994, the Company purchased for $350,000 in cash and
$100,000 in notes payable a 45% interest in an office products distributor.
During fiscal 1993 and fiscal 1994, the Company paid $360,000 and $234,000
respectively, for additional expenses for prior period acquisitions. In
addition, the Company made a final payment of $11,409,000 for the Hanson
acquisition and Delivery paid non-cash dividends of $493,000 to certain
Delivery stockholders in fiscal 1994.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-30-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
During January 1994, accrued dividends of $2,044,007 on Young's
preferred stock were converted to a subordinated promissory note. This note
and accrued interest of $138,712 was contributed as additional paid-in
capital in December 1994.
In November 1993, the Company issued Common Stock for outstanding
debt, accrued interest and other fees totaling $8,899,000 as part of the
Lucas acquisition.
The accompanying notes are an integral part of the consolidated financial
statements.
-31-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of
Corporate Express, Inc. ("Corporate Express" or the "Company") and its
majority owned subsidiaries. As more fully described in Note 2, U.S.
Delivery Systems, Inc. ("Delivery") was merged into DSU Acquisition Corp., a
wholly-owned subsidiary of the Company, on March 1, 1996; Richard Young
Journal, Inc. ("Young") was merged into CEX Acquisition Corp., a wholly-
owned subsidiary of the Company, on February 27, 1996, and Lucas Bros., Inc.
was merged into Corporate Express of Delaware ("Lucas"), a wholly-owned
subsidiary of the Company, on November 30, 1993. The mergers were accounted
for as poolings of interests and, accordingly, the accompanying financial
statements have been restated to include the accounts and operations of
Delivery, Young and Lucas for all periods prior to the mergers. Acquisitions
accounted for as purchases are included in the accounts and operations as of
the effective date of the transaction. The Company accounts for its
investments in less than 50% owned entities using the equity or cost
methods. All intercompany balances and transactions have been eliminated.
Definition of Fiscal Year:
As used in these consolidated financial statements and notes to
consolidated financial statements, "fiscal 1995," "fiscal 1994," and "fiscal
1993" refer to the Company's fiscal years ended March 2, 1996, February 25,
1995, and February 28, 1994, respectively. In connection with the mergers,
Delivery and Young changed their 1995 fiscal year ends to conform to the
fiscal year end of the Company. References to fiscal 1994 and prior fiscal
years for Delivery and Young refer to Delivery's December 31 year end and
Young's September 30 year end.
Cash and Cash Equivalents:
Cash and cash equivalents include short-term investments with
original maturities of three months or less.
Inventories:
Inventories consist of finished goods. Inventories are primarily
valued at the lower of first-in, first-out (FIFO) cost or market. The
Company periodically assesses its inventory to determine market value based
upon such factors as historical sales and purchases, inclusion in the
Company's proprietary In-Stock Catalog and other factors. Included in cost
of sales for fiscal 1995 and 1993 are merger related inventory provisions of
$5,952,000 and $1,146,000, respectively. These provisions reflect the write-
down to fair market value of certain inventory which the Company has decided
to eliminate from its product line in connection with the Delivery, Young
and Lucas mergers.
Property and Equipment:
Property and equipment are carried at cost. Depreciation is
computed using the straight-line method over estimated useful lives which
range from three to seven years for furniture and equipment; up to 40 years
for buildings; and over the life of the lease for leasehold improvements.
Ordinary maintenance and repairs are charged to operations while
expenditures which extend the physical or economic life of property and
equipment are capitalized. Gains and losses on disposition of property and
equipment are recognized in operations in the year of disposition. Software
development costs of $16,790,000 at March 2, 1996 are capitalized and will
be amortized over the software's estimated useful life. Software conversion
costs (excluding training) will be capitalized and amortized over the
software's estimated useful life.
-32-
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Concentration of Credit Risk:
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents. The Company places its cash and temporary cash investments with
high quality credit institutions. At times, such investments may be in
excess of the FDIC insurance limit.
Concentration of credit risk with respect to trade receivables is
limited due to the wide variety of customers and markets into which the
Company's products are sold, as well as their dispersion across many
geographic areas. As a result, as of March 2, 1996, the Company did not
consider itself to have any significant concentrations of credit risk. The
Company performs ongoing credit evaluations of its customers and generally
does not require collateral.
The Company maintains allowances for potential credit losses and
historical losses have been within management's expectations.
Intangible Assets:
Goodwill is amortized on a straight-line basis over periods of 25
and 40 years. Noncompete agreements, which are included in other assets, are
amortized on a straight-line basis over periods of 2-10 years. The Company
evaluates intangible assets periodically to determine whether they are
properly reflected in the financial statements based upon future
undiscounted operating cash flows. If an impairment is determined to exist,
the impaired asset is written down to fair market value.
Accrued Purchase Costs:
The Company accrues direct external costs incurred to consummate
an acquisition, other external costs and liabilities to close the acquired
entity's facilities, and severance and relocation payments to the acquired
entity's employees. Prior to the adoption of EITF 95-3 effective with the
consensus, the Company also accrued the external incremental costs of
converting certain computer systems to the Company's systems.
Accrued Merger and Related Costs:
Accrued merger and related costs include the actual costs of
completing acquisitions accounted for as poolings of interests transactions
and additional costs associated with integrating the combined companies'
operations, including liabilities for severance benefits for employees
expected to be terminated.
Cost of Sales:
Vendor rebates and similar payments are recognized on an accrual
basis in the period earned and are recorded as a reduction to cost of sales.
Delivery and occupancy costs are included as an increase to cost of sales.
Cost of sales related to local delivery and distribution management services
consists primarily of fees paid to drivers. The fees are
-33-
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
generally negotiated with drivers based upon a percentage of the revenues
received from the Company's customers, thereby minimizing fluctuations in
gross margins from these services. Drivers typically provide their own
delivery vehicles and are responsible for all operating costs of such
vehicles.
Warehouse Operating and Selling Expenses:
Warehouse operating and selling expenses include all costs
associated with operating regional warehouses and sales offices, including
warehouse labor, related warehouse general and administrative expenses
(excluding occupancy), selling expenses and commissions related to the
Company's direct sales force and warehouse assimilation costs. Warehouse
assimilation costs were previously reported under the caption "New Warehouse
Assimilation Expenses" along with certain general and administrative and
delivery costs.
Foreign Currency Translation:
Balance sheet accounts of foreign operations are translated using
the year-end exchange rate, and income statement accounts are translated on
a monthly basis using the average exchange rate for the period. Transaction
gains and losses are recorded in shareholders' equity, and realized gains
and losses are reflected in income. An aggregate transaction gain of
$37,000 was included in the determination of net income in fiscal 1995. No
transaction gains or losses were included in the determination of net income
in fiscal 1994 or fiscal 1993. The Company does not currently hedge foreign
currency risk exposure.
Income Taxes:
For all periods presented, income taxes are calculated using the
liability method in accordance with the provisions set forth in Statement of
Financial Accounting Standards (SFAS) No. 109.
Certain of Delivery's subsidiaries were S Corporations for income
tax purposes prior to their acquisition by Delivery and, accordingly, any
income tax liabilities for the periods prior to the acquisition dates are
the responsibility of the respective stockholders. For purposes of these
consolidated financial statements, federal and state income taxes have been
provided for these companies as if they had filed C Corporation tax returns
for the pre-acquisition periods, and the current income tax expense of these
S Corporations is reflected as an increase to additional paid-in capital.
Net Income (Loss) Per Share:
Net income (loss) per share is calculated by dividing net income
(loss), after preferred stock dividend requirements of Young of $432,000 and
$1,500,000 for the years ended February 25, 1995 and February 28, 1994,
respectively, by the weighted average shares of common stock and common
stock equivalents outstanding. Pursuant to the rules of the Securities and
Exchange Commission, common stock equivalents related to common stock,
preferred stock, stock options and warrants issued within one year prior to
the Company's initial public offering have been included as if they were
outstanding for all periods presented. Other common stock equivalents have
not been included in loss years because they are anti-dilutive.
-34-
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Stock Split and Stock Dividend:
In connection with its initial public offering, the Company
effected a one-for-two reverse stock split in August 1994 and converted all
of its outstanding preferred stock to common stock on a two for one share
basis in September 1994. The Company distributed a 50% share dividend in
June 1995. All share numbers and prices have been adjusted to reflect the
reverse stock split, the conversion of preferred to common and the 50% share
dividend.
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 during the reporting period. Actual results could differ from
those estimates.
Reclassifications:
Certain reclassifications have been made to the fiscal 1994 and
fiscal 1993 consolidated financial statements to conform to the fiscal 1995
presentation. These reclassifications had no impact on net income (loss).
New Accounting Standards:
In fiscal 1996, the Company will adopt SFAS No. 123, "Accounting
for Stock-Based Compensation." This standard establishes a fair value
method for accounting for stock-based compensation plans either through
recognition or disclosure. The Company will adopt this standard through
compliance with the disclosure requirements set forth in SFAS No. 123.
Adoption of this standard will have no impact on the financial position or
results of operations of the Company.
2. POOLING OF INTERESTS:
Effective March 1, 1996, the Company issued 15,606,000 shares of
common stock in exchange for all of the outstanding common stock of
Delivery, a provider of same-day local delivery services.
Effective February 27, 1996, the Company issued 2,932,000
unregistered shares of common stock in exchange for all of the outstanding
common stock of Young, a distributor of computer and imaging supplies and
accessories.
During fiscal 1995, prior to merging with the Company, Delivery
acquired the outstanding stock of 14 companies in exchange for 2,634,000
shares of Delivery common stock. During fiscal 1994, Delivery acquired the
stock of six companies in exchange for 1,148,000 shares of Delivery common
stock.
Effective November 30, 1993, the Company issued 216,000 shares of
its common stock for all of the outstanding common stock of Lucas, a
commercial office products distributor. The Company also issued a warrant to
purchase 4,500 shares of common stock in exchange for outstanding warrants
to purchase the common stock of Lucas. In addition, the face value of the
subordinated notes payable and junior convertible subordinated notes
payable, along with accrued but unpaid interest and other fees, were
exchanged for 1,281,000 shares of common stock. The difference between the
carrying value of the debt and the face amount paid on extinguishment of
$1,169,000 has been shown as an extraordinary item.
-35-
<PAGE>
2. POOLING OF INTERESTS - (CONTINUED)
All of the above mergers have been accounted for as poolings of interests
and, accordingly, the Company's consolidated financial statements have been
restated to include the accounts and operations of the merged entities for all
periods prior to the mergers.
Separate results of operations for the periods prior to the mergers are as
follows:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
March 2, February 25, February 28,
1996 1995 1994
----------- ------------- -------------
<S> <C> <C> <C>
(In thousands)
Net sales:
Corporate Express $1,132,012 $621,469 $103,070
Lucas --- --- 61,758
Young 115,628 86,184 71,090
Delivery 306,364 109,865 --
Delivery poolings prior to merger
with Corporate Express 36,100 110,400 101,176
---------- -------- --------
Combined $1,590,104 $927,918 $337,094
========== ======== ========
Net income (loss):
Corporate Express $ 3,702 $ 5,248 $ 671
Lucas --- --- (9,637)
Young (3,073) 1,264 1,911
Delivery 815 4,223 --
Delivery poolings prior to merger
with Corporate Express 1,300 2,000 422
---------- -------- --------
Combined $ 2,744 $ 12,735 $ (6,633)
========== ======== ========
Other changes in shareholders' equity:
Corporate Express $ 229,356 $115,024 $ 83,350
Lucas --- --- ---
Young 12,182 (7,932) (1,500)
Delivery 10,255 23,211 ---
Delivery poolings prior to merger
with Corporate Express (1,116) (2,613) (497)
---------- -------- --------
Combined $ 250,677 $127,690 $ 81,353
========== ======== ========
</TABLE>
All intercompany transactions have been eliminated.
Young had expensed $27,437,000 related to write-offs of goodwill and
franchise acquisition expenses in its previously issued financial statements.
The Company reviewed these expenses in conjunction with the acquisition and
determined that they were inappropriate. All of the accompanying financial
information has been restated to reflect the reversal of those charges.
The consolidated statement of operations for fiscal 1995 includes the income
and expenses of Corporate Express, Young and Delivery for the twelve months
ended March 2, 1996. The Young statements of operations for the years
-36-
<PAGE>
2. POOLING OF INTERESTS - (CONTINUED)
ended September 30, 1994 and 1993 and the Delivery statements of operations for
the years ended December 31, 1994 and 1993 have been combined with the Corporate
Express statements of operations for the fiscal years ended February 25, 1995
and February 28, 1994, respectively. In order to conform the Young and Delivery
year ends to Corporate Express' fiscal year end, the consolidated statement of
income for fiscal 1994 excludes five months of Young's net income and two months
of Delivery's net income. Accordingly, an adjustment has been made in fiscal
1995 to credit retained earnings directly for the October 1994 to February 1995
Young net income of $846,000 and the January and February 1995 Delivery net
income of $1,777,000. The results of operations for the Young five-month period
and Delivery two-month period are as follows:
<TABLE>
<CAPTION>
Young Delivery Total
------- -------- -------
(In thousands)
<S> <C> <C> <C>
Net sales $39,683 $50,382 $90,065
Net income $ 846 $ 1,777 $ 2,623
</TABLE>
3. MERGER AND OTHER NONRECURRING COSTS:
During the fourth quarter of fiscal 1995, the Company recorded $36.8 million
in merger and other nonrecurring charges, primarily in conjunction with the
acquisitions of Delivery and Young. The charges include the actual costs of
completing the acquisitions and anticipated costs for merging various Delivery
and Young facilities into Company locations and closing duplicate facilities and
centralizing certain administrative functions. The Company expects to complete
this plan within the next two years.
During fiscal 1993, the Company recorded $1.9 million in merger and other
nonrecurring charges in conjunction with the acquisition of Lucas. The charge
included the actual costs of completing the acquisition; the write-down of
computer equipment exclusively used for a discontinued "Grade-A" furniture line;
and the accrual of severance pay related to work force reductions.
As a result of the mergers, the Company recorded the following charges to
the results of operations for fiscal 1995 and fiscal 1993 as follows:
<TABLE>
<CAPTION>
1995 1993
-------------------------- ------------------------
(In thousands)
Total Cash Non-Cash Total Cash Non-Cash
------- ------- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Merger transaction costs (1) $13,273 $13,273 $ -- $1,089 $1,089 $ --
Severance and terminations (2) 7,457 7,457 -- 539 539 --
Facility closure and consolidation (3) 9,693 8,384 1,309 200 200 --
Other asset write-downs and costs (4 ) 6,415 -- 6,415 100 -- 100
------- ------- ------ ------ ------ --------
$36,838 $29,114 $7,724 $1,928 $1,828 $100
======= ======= ====== ====== ====== ========
</TABLE>
There were no similar charges in fiscal 1994.
-37-
<PAGE>
3. MERGER AND OTHER NONRECURRING COSTS - (CONTINUED)
(1) Merger transaction costs are the direct costs from the pooling
transactions with Delivery and Young in fiscal 1995 and with Lucas in fiscal
1993. Costs included are legal, investment banking, printing and other
related costs.
(2) Severance and employee termination costs are the severance
payments related to facility closures and centralization of certain shared
services. The fiscal 1995 severance and termination costs of $7,457,000
representing approximately 760 employees whose positions will be terminated
due to elimination of regional redundant facilities and functions, primarily
in management, administration, and warehouse and distribution operations.
As of March 2, 1996, none of these costs had been paid and none of the
employees had been terminated. The fiscal 1993 severance and termination
costs relate to work force reductions of approximately 100 employees,
primarily in management and administration and warehouse and distribution
operations. As of March 2, 1996, all of the costs had been paid and all of
the approximately 100 employees have been terminated.
(3) Facility closure and consolidation costs are the estimated
costs to close duplicate facilities, lease costs associated with closed
facilities and estimated losses on disposal of owned properties.
(4) Other asset write-downs and costs include accounting software
and equipment being abandoned as a result of the Delivery acquisition,
deferred loan costs written off when loans required repayment as a result of
the merger, loss on sale of Delivery operation, and write-off of prepaid
assets which have no future value following the merger.
4. PURCHASES:
During fiscal 1995, Corporate Express purchased for a net cash
purchase price of $74,001,000, 27 office product distributors including five
distributors purchased by Corporate Express Australia (formerly Macquarie
Office Limited), an Australian contract stationer. In May 1995, Corporate
Express acquired a 52.7% interest through the purchase of newly issued
securities of Corporate Express Australia. Also included in the above
purchases is one office product distributor purchased by the Chisholm Group,
a United Kingdom contract stationer, in which corporate Express acquired a
51% interest in February 1996. The Company has earn-out agreements with
former shareholders of certain acquisitions that may require additional
payments by the Company of up to $3,650,000 if certain performance
objectives are achieved. In addition, the Company has not completed the
final purchase accounting on certain acquisitions due to outstanding
contingencies. Any additional payments will be accounted for as increases
to the purchase price of the related acquisition. The excess of the
purchase price over the fair value of the net tangible assets acquired was
allocated to goodwill and is being amortized over 40 years.
On December 21, 1995 Corporate Express Australia ("CEA") issued an
additional 6,110,000 shares of its common stock at a price of A$1.30
(US$.96) per share. Of the shares offered, 3,110,000 were purchased by
Corporate Express and 3,000,000 were purchased by institutional investors
for cash. As a result, Corporate Express' interest in CEA changed from
52.7% to 52.5%.
In February 1996, CEA shareholders approved the issue of an
additional 12,939,000 shares and 50,000 shares of its common stock at a
price of A$1.30 (US$.96) per share and A$1.00 (US$.74) per share,
respectively. Of the shares issued, 5,789,000 were purchased by Corporate
Express, 4,600,000 were purchased by institutional investors and 2,600,000
shares were approved for issue to CEA officers and employees as employee
incentive shares (of which 1,710,000 were issued as of March 2, 1996). As a
result, at March 2, 1996, Corporate Express' interest in CEA is 51.8%.
-38-
<PAGE>
4. PURCHASES - (CONTINUED)
During fiscal 1995, Young repurchased its remaining seven
franchises for approximately $20,512,000, terminated four franchises for
consideration of $233,000 and purchased substantially all of the business,
properties and assets of a computer supplies distributor for a purchase
price of $675,000. The excess of the purchase price over the fair value of
the net tangible assets acquired was allocated to goodwill and is being
amortized over 40 years.
During fiscal 1994, the Company purchased substantially all of the
assets and assumed certain liabilities of ten contract stationers for a net
cash outlay of $59,720,000 notes and other current liabilities totaling
$5,325,000, 26,250 shares of the Company's common stock valued at $9.34 per
share, and assumption of liabilities of $44,363,000. The excess purchase
price over the estimated fair value of the net tangible assets acquired has
been allocated to goodwill and is being amortized over 40 years. In
addition, in fiscal 1994, $150,000 was paid and 50,000 shares of Series B
Preferred stock were issued at $2.00 per share to the former shareholders of
certain acquisitions for achieving certain post-closing performance levels.
These transactions increased the amount of goodwill.
In December 1994, Young purchased all of the issued and
outstanding shares of a computer supplies distributor for a purchase price
of $2,750,000 and the assumption of other liabilities. Young may be
required to pay additional consideration to the former shareholders should
the acquired company reach certain earnings thresholds. No such additional
amounts were paid in 1995. The excess of the purchase price over the fair
value of net tangible assets acquired was allocated to goodwill and is being
amortized over 40 years.
During fiscal 1995 and fiscal 1994, Delivery completed 16 and 12
acquisitions, respectively, accounted for as purchases. The net cash
purchase price paid in these transactions was $15,208,000 and $8,242,000,
respectively, in cash, 252,000 shares and 382,000 shares, respectively, of
Delivery common stock and in fiscal 1995, $5,565,000 in convertible notes.
The excess of the purchase price over the fair value of the net tangible
assets acquired has been allocated to goodwill and is being amortized over
25 years. All of the companies acquired provide same-day delivery services
or related transportation services.
During fiscal 1993, the Company acquired 100% of two commercial
office products dealers and 70% of a third dealer. The combined
transactions included cash payments of $1,010,000, promissory notes totaling
$5,174,000, 1,269,300 shares of common stock valued at $4.67 to $5.34 per
share and related expenses of $710,000. The excess purchase price over the
estimated fair value of the net tangible assets acquired has been allocated
to goodwill and is being amortized over 40 years. In January 1995, the
Company acquired the remaining 30% of the 70%-owned dealer for $2.9 million,
of which $1.2 million was paid in fiscal 1994.
On February 28, 1994, the Company acquired the six operating
subsidiaries of Hanson for $171,140,000 in cash and acquisition expenses of
$3,165,000. The excess purchase price over the estimated fair value of the
net tangible assets acquired has been allocated to goodwill and is being
amortized over 40 years. Subsequent to the Hanson acquisition, the Company
sold the high-end furniture division of one of the subsidiaries and
discontinued another subsidiary's retiree health care benefits for existing
employees. The liability for future benefits under this health care plan of
$4,110,000 was consequently recorded as an offset to goodwill. In February
1994, Young repurchased its Tampa franchise for $800,000. The excess of the
purchase price over the fair value of the net tangible assets acquired was
allocated to goodwill and is being amortized over 40 years.
The operating results of all of the above acquisitions, which were
accounted for as purchases, are included in the Company's consolidated
statements of operations from the dates of acquisition. The following pro
forma financial information assumes the acquisitions occurred at the
beginning of the period. These results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the acquisitions been
-39-
<PAGE>
4. PURCHASES - (CONTINUED)
made at the beginning of the year, or of results which may occur in the future.
The pro forma results listed below are unaudited and reflect purchase price
adjustments.
<TABLE>
<CAPTION>
Year Ended Year Ended
March 2, February 25,
1996 1995
---------- ------------
(In thousands, except per
share amounts)
<S> <C> <C>
Net sales $1,763,762 $1,458,784
Income (loss) before extraordinary items 26,025 22,518
Net income (loss) 25,266 23,095
Net income (loss) per share $0.37 $0.46
</TABLE>
5. ACCRUED PURCHASE COSTS:
In conjunction with the purchase acquisitions (see Note 4), the Company
accrues the direct external costs incurred to consummate the acquisition,
external costs associated with closing duplicate facilities of acquired
companies, and severance and relocation payments to the acquired company's
employees. Prior to the adoption of EITF 95-3 in May 1995, the Company also
accrued the external incremental costs of converting acquired company computer
systems to the Company's systems.
As of the consummation date of the acquisition, the Company begins to assess
and formulate a plan to exit activities of the acquired companies. Typically,
this would involve evaluating the facilities of the Company and the acquiree in
the location, determining which of the acquired facilities will be exited and
identifying employee groups that will be terminated or relocated. In most cases,
the facilities are closed within a one-year period, and the employees
terminated. In some major acquisitions such as Hanson, the Company has taken
longer than one year to complete the integration due to the magnitude of the
tasks involved.
The following tables set forth the Company's accrued purchase liabilities
for the periods ended February 28, 1994, February 25, 1995 and March 2, 1996.
Prior to EITF 95-3:
<TABLE>
<CAPTION>
Warehouse Disposition
& System Redundant of Assets
Total Integrations Facilities Severance & Other
------- ------------ ---------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, February 28, 1994 $10,032 $ 7,568 $1,021 $ 1,061 $ 382
Additions 4,308 2,084 615 1,218 391
Payments (2,162) (1,143) (105) (683) (231)
Reversals (1) (926) (400) (526)
------- ------- ------ ------- -----
Balance, February 25, 1995 11,252 8,109 1,005 1,596 542
Additions 1,731 659 223 734 115
Payments (6,469) (3,630) (784) (1,766) (289)
Reversals (2) (5,250) (4,388) (41) (523) (298)
------- ------- ------ ------- -----
Balance, March 2, 1996 (3) $ 1,264 $ 750 $ 403 $ 41 $ 70
======= ======= ====== ======= =====
</TABLE>
(1) Reversal relates to lease termination costs for a facility not closed
and to a planned computer conversion which was not done in connection
with the Hanson acquisition; reversed to goodwill in the fourth quarter
of 1994.
-40-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. ACCRUED PURCHASE COSTS
(2) Reversal relates to excess computer conversion costs not fully utilized
in connection with the Hanson acquisition of $3,723,000 and excess
accruals for other fiscal 1994 acquisitions of $1,527,000. All reversals
reduced goodwill in the fourth quarter of fiscal 1995.
(3) Remaining balances relate primarily to current consolidation projects in
South Florida and Canada and reflect the estimated remaining costs to be
incurred in conjunction with these projects.
<TABLE>
<CAPTION>
After adoption of EITF 95-3:
<S> <C> <C> <C> <C> <C>
Disposition
Facility Redundant of Assets
Total Exit Costs Facilities Severance & Other
-------- ----------- ----------- --------- ----------
(In thousands)
Balance, February 25, 1995 $ -- $ -- $ -- $ -- $ --
Additions 2,414 691 202 1,065 456
Payments (629) (177) (4) (293) (155)
------ ----- ---- ------ -----
Balance, March 2, 1996 (3) $1,785 $ 514 $198 $ 772 $ 301
====== ===== ==== ====== =====
</TABLE>
Accrued purchase costs, after adoption of EITF 95-3, primarily represent the
liabilities incurred to consolidate acquired operations into existing
Company facilities.
6. DISCONTINUED OPERATIONS:
In February 1993, Lucas adopted a plan to discontinue its retail
operations. Accordingly, the consolidated financial statements have been
reclassified to report separately the net assets, liabilities and operating
results of the retail operations as of February 28, 1994.
During fiscal 1993, Lucas completed the disposal of substantially
all of its retail operations resulting in a $138,000 gain which has been
included in the accompanying consolidated statement of operations. The
remaining retail operations consist primarily of contractually required
operations.
Retail sales for the years ended February 25, 1995 and February
28, 1994 were $176,000 and $2,955,000, respectively. There were no retail
sales for fiscal 1995. The accrued liabilities of the discontinued
operations at March 2, 1996 and February 25, 1995 were $219,000 and
$441,000, respectively.
<TABLE>
<CAPTION>
<S> <C> <C>
7. DEBT:
March 2, February 25,
Debt consisted of the following: 1996 1995
-------- --------
(In thousands)
9 1/8% Senior Subordinated Notes, unsecured, subordinated to existing
debt up to an aggregate of $155 million, guaranteed by the operating
subsidiaries of the Company. Due March 15, 2004, semi-annual
interest payments beginning September 15, 1994. Redeemable
by the Company from March 1999 to March 2001 at premiums
ranging from 3.422% to 1.141% $ 90,000 $ 90,000
</TABLE>
-41-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
7. DEBT - (CONTINUED) March 2, February 25,
1996 1995
-------- ------------
(In thousands)
$90,000,000 revolving line of credit collateralized by accounts receivable
and inventory of the Company and its United States operating subsidiaries.
Interest rates are equal to either (i) the Administrative Agent's Reference
Rate plus .5% to 1.0% or (ii) the Administrative Agent's reserve adjusted
LIBOR rate plus 2.0% to 2.5% each of which is based upon a performance
grid (8.75% on March 2, 1996 and 9.75% on February 25, 1995), with
principal due February 28, 1998. 8,000 24,600
$55,000,000 Delivery unsecured revolving credit facility. Interest rates are
equal to i) the LIBOR plus 1.25% or ii) the prime rate, at the Company's
option (weighted average rate of 6.56% for fiscal 1995 and 7.30% for
fiscal 1994). Principal due May 31, 1996, as a result of merger with
the Company. 11,900 10,000
$6,094,000 term loan facility collateralized by CEA's assets.
Payments of $187,500 per quarter commencing October 1996,
increasing to $375,000 per quarter commencing October 1997,
fixed interest rates ranging from 8.80% to 9.10% until October
1996 to October 1998, at which times rates may be renegotiated.
All principal and interest due by January 2001. 6,094 ---
Bank term loans, collateralized by equipment, with interest floating at LIBOR
plus 2%, principal and interest payable monthly, maturities range from
48 months to 60 months through February 15, 2001. 5,620 ---
$5,600,000 convertible subordinated notes due between March 31, 1997 and
January 31, 1998, bearing interest of 6.0% to 6.75%, payable quarterly
or semi-annually, and convertible prior to maturity at the holder's option
at prices ranging from $17.71 to $29.96, into 246,000 shares of common
stock. 5,565 ---
City of Aurora, Colorado Industrial Development Bonds, Series 1984,
collateralized by land and building, interest at a floating rate, as defined,
ranging from 5.2% in 1995 to 4.8% at March 2, 1996, payable semi-
annually and principal installments of varying amounts ($100,000 in 1995
and $200,000 in 1996) payable annually through November 2009. 4,480 4,580
Various notes payable totalling $4,641,000 due December 2006, variable
interest rates (5.34% on March 2, 1996), collateralized by cash deposits
of $4,641,000. 4,641 --
Young revolving loan, interest rate equal to prime plus 1.25% (10.25% on
February 25, 1995), due on January 11, 1997 and collateralized by
substantially all of Young's assets. This loan was repaid in full on
February 27, 1996. --- 10,160
Young subordinated debt, bearing interest at 17.5%, payments in eight equal quarterly
installments commencing March 31, 1998 through maturity date of December 31,
1999. This debt was repaid in full on February 27, 1996. --- 10,000
Other, interest from 5% to 16% 7,514 13,754
------- -------
Total debt 143,814 163,094
Less current portion of debt 15,914 4,839
-------- -------
Long-term portion of debt $127,900 $158,255
======== ========
</TABLE>
-42-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. DEBT - (CONTINUED)
The annual maturities of debt for succeeding years are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year (In thousands)
------------------ --------------
1996 $ 15,914
1997 14,965
1998 6,215
1999 3,210
2000 2,649
Thereafter 100,861
-------
Total $143,814
========
</TABLE>
Certain of the debt agreements contain provisions which require
maintenance of certain financial ratios and limit the Company's ability to
pay dividends. Delivery's credit facility became due upon the acquisition
by the Company but was extended until May 31, 1996, when it was paid off
using the Company's line of credit.
On March 17, 1995, the Company exchanged all its $100,000,000 principal
amount of 9 1/8% Series A Senior Subordinated Notes due 2004 (the "Series A
Notes") for $100,000,000 principal amount of 9 1/8% Series B Senior
Subordinated Notes due 2004 (the "Series B Notes"). The terms of the Series
B Notes are substantially the same as the Series A Notes, except that the
Series B Notes are registered under the Securities Act of 1933. The
illiquidity payment of approximately .5% per annum previously payable on the
Series A Notes ceased when they were exchanged for the Series B Notes on
March 17, 1995, reducing the annual interest rate from 9 5/8% to 9 1/8%.
In July 1994, $10,000,000 principal amount of the Senior Subordinated
Notes was repurchased for $9,300,000 plus accrued interest.
On May 10, 1996, the Company amended its credit facility increasing the
facility amount to $250,000,000 and lowering the cost of its borrowings to
LIBOR plus 1.25% if borrowings are less than $180,000,000 and LIBOR plus
1.5% if borrowings exceed $180,000,000. These rates are subject to increase
if the Company does not renegotiate its credit facility within 120 days,
which the Company intends to do. Under the amended credit facility the
Company pays a .3% commitment fee on the unused line of credit.
The Company capitalized $882,000 of interest expense in fiscal 1995,
primarily related to software developed for internal use and the
construction of its corporate headquarters. No interest was capitalized in
fiscal 1994 or fiscal 1993.
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Company has various noncancellable operating leases, primarily for
warehouse buildings and delivery trucks. Lease expense, net of sublease
rentals of $30,000, $127,000, and $42,000 for the years ended March 2, 1996,
February 25, 1995 and February 28, 1994 was $19,195,000, $13,906,000, and
$3,848,000, respectively.
-43-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
Future minimum lease payments are as follows:
Fiscal Year (In thousands)
----------- --------------
1996 $21,118
1997 15,197
1998 11,173
1999 8,268
2000 5,735
Thereafter 9,904
-------
Total $71,395
=======
The leases generally are for periods of three to ten years and provide for
renewals of one month to five years at the Company's option.
Capital Leases:
The Company is the lessee of certain property and equipment under capital
leases expiring in various years through 2009. Included in furniture and
equipment at March 2, 1996 is $18,384,000 of assets under capital leases and
related accumulated depreciation of $6,493,000.
Future minimum lease payments required under these capital leases are as
follows:
<TABLE>
<CAPTION>
Fiscal Year (In thousands)
----------- --------------
<S> <C>
1996 $ 5,373
1997 4,405
1998 3,062
1999 1,654
2000 800
Thereafter 2,571
-------
Total minimum lease payments 17,865
Less amount representing interest 4,060
-------
Present value of minimum lease payments 13,805
Less current portion of capital lease obligations 4,237
-------
Non-current portion of capital lease obligations $ 9,568
=======
</TABLE>
Contingencies:
In the normal course of business, the Company is subject to certain legal
proceedings. In the opinion of management, the outcome of such litigation
will not have a material adverse effect on the Company's financial position
or operating results.
-44-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. INCOME TAXES:
Federal, state and foreign income taxes for the fiscal years ended March
2, 1996, February 25, 1995 and February 28, 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Current
Federal $ 9,745 $ 5,569 $1,745
State 677 878 282
Foreign 1,547 --- ---
Deferred
Federal (314) (2,151) (107)
State 1,544 (251) (26)
Utilization of net operating loss (2,247) (1,051) ---
Allocated to goodwill --- 4,374 ---
Adjustment of beginning valuation allowance --- (1,204) ---
------- ------- ------
Total income tax expense $10,952 $ 6,164 $1,894
======= ======= ======
</TABLE>
At March 2, 1996, the Company had, for United States Federal income tax
purposes, net operating loss carryforwards of $10,230,000 and alternative
minimum tax net operating loss carryforwards of $4,641,000 expiring
beginning in 2004.
Included in the net operating loss carryforwards are losses from acquired
subsidiaries. The utilization of these carryforwards may be effected by
limitations under the Internal Revenue Code and, therefore, the benefit of
these pre-acquisition net operating loss carryforwards may be limited.
The components of the net deferred tax assets and liabilities as of March
2, 1996 and February 25, 1995 are as follows:
<TABLE>
<CAPTION>
March 2, February 25,
1996 1995
------- -----------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Current:
Inventory $ 3,636 $ 4,820
Allowance accounts 1,789 1,759
Other non-deductible accounts 3,603 3,561
Accrued purchase costs 1,053 4,329
Discontinued operations --- 1,248
Accrued merger and other costs 6,767 ---
Accounting methods 2,959 ---
Non-current:
Net operating loss carryforwards 4,879 4,809
Valuation allowance (2,433) (4,854)
Other 1,092 571
------- -------
Total deferred tax assets 23,345 16,243
------- -------
</TABLE>
-45-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
9. INCOME TAXES - (CONTINUED)
March 2, February 25,
Continued 1996 1995
------------ ----------
<S> <C> <C>
(In thousands)
Deferred tax liabilities:
Current:
Cash/accrual difference 1,650 2,569
Noncurrent:
Property, plant and equipment 4,731 4,000
Intangible assets 5,886 1,122
Other 295 74
------- ------
Total deferred tax liability 12,562 7,765
------- ------
Net deferred tax asset $10,783 $8,478
======= ======
</TABLE>
The net change in the valuation allowance for deferred taxes in the year
ended March 2, 1996 is a decrease of $2,421,000. The Company reviewed the
valuation allowance related to deferred tax assets and determined that it
was more likely than not that a portion of this would be realized.
Accordingly, at March 2, 1996, the valuation allowance relates primarily to
tax benefits from restricted net operating loss carryforwards.
A reconciliation of the differences between the Company's expense
(benefit) for income taxes and taxes at the statutory rate for the fiscal
years ended March 2, 1996, February 25, 1995 and February 28, 1994 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statutory federal income tax expense (benefit) $ 5,296 $ 6,434 $(1,245)
Adjustments:
State income taxes, net of federal effect 1,253 665 (285)
Merger costs 4,952 599
Amortization of goodwill 1,404 1,784 363
Other non-deductible items 366
Valuation allowance on tax loss carryforward (2,247) (2,636) 2,425
Other (72) (83) 37
------- ------- -------
Income tax expense $10,952 $ 6,164 $ 1,894
======= ======= =======
</TABLE>
10. EMPLOYEE BENEFIT PLANS:
Effective September 1, 1992, the Company implemented a retirement
plan which allows employee contributions in accordance with Section 401(k)
of the Internal Revenue Code. The Company matches a portion of the
employee's salary and all full-time employees are eligible to participate in
the plan after six months of service. For the years ended March 2, 1996,
February 25, 1995 and February 28, 1994, the Company's matching contribution
expense was $1,700,000, $1,597,000, and $92,000, respectively.
CEA, the Company's 51% owned Australian subsidiary since May 1995,
sponsors superannuation funds for its employees (similar to 401(k) plans in
the United States). Total matching contributions by the Company for the
year ended March 2, 1996 were approximately $980,000.
-46-
<PAGE>
10. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Certain of the Delivery pooled companies have qualified defined
contribution plans, which allow for voluntary pretax contributions by
employees. Expenses related to these plans totaled $96,000, $192,000 and
$171,000 during fiscal 1995, 1994 and 1993, respectively.
Young has a retirement plan which allows employee contributions in
accordance with Section 401(k). Young's matching contribution expenses were
$106,000, $52,000 and $45,000 in fiscal 1995, 1994 and 1993, respectively.
On August 29, 1994, the Company's shareholders approved the
adoption of the 1994 Employee Stock Purchase Plan. A maximum of 750,000
shares of Common Stock may be purchased by eligible employees under the 1994
Employee Stock Purchase Plan. All full-time employees with six months
service at the start of the annual offering period are eligible to
participate at contribution levels ranging from 1% to 15% of compensation.
Contributions are applied to purchase common stock at a price equal to the
lower of the beginning of the year or end of the year market price, less a
discount of up to 15%. Contributions to this plan during fiscal 1995
totaled approximately $679,000 and purchases under the plan totaled 32,800
shares, which were awarded but not issued until subsequent to March 2, 1996.
There were no contributions to or stock purchases under the 1994 Employee
Stock Purchase Plan during fiscal 1994 or fiscal 1993.
11. COMMON STOCK:
As of March 2, 1996 and February 28, 1995 there were 69,088,000
and 56,463,400 common shares outstanding, respectively (after giving effect
to the three-for-two stock split effected in the form of a stock dividend in
June 1995, the conversion of preferred stock to common stock and the one-
for-two reverse stock split in August 1994). This includes 8,499,605 shares
of common stock held by OfficeMax, Inc. as of February 25, 1995. OfficeMax,
Inc. purchased these shares from the Company and certain of its shareholders
between October 1993 and September 1994 at prices ranging from $6.14 to
$10.27 per share. Corporate Express purchased the shares held by OfficeMax,
Inc. in September 1995.
On September 15, 1995, the Company sold 16,324,528 primary shares
in a follow-on public offering of its common stock, and selling shareholders
sold 2,075,472 shares at a price of $24.00 per share. Of the $375,200,000
of net proceeds to the Company from the offering, $195,800,000 was used to
pay for the prior purchase of the Company shares held by OfficeMax, Inc.,
the Company's largest shareholder, and $61,000,000 was used to repay
existing indebtedness. The remaining proceeds were used to finance the
Company's acquisitions and for general corporate purposes.
On June 21, 1995, a 50% share dividend of approximately 14,050,000
shares of common stock was distributed to shareholders of record as of June
15, 1995.
On March 30, 1995, a public offering of 6,770,625 shares of common
stock was consummated at a price to the public of $16.68 per share. Of the
shares offered, 3,000,000 shares were sold by the Company and 3,770,625
shares were sold by selling security holders, including 264,938 shares
issued upon exercise of warrants purchased by the underwriters.
On September 30, 1994, the Company consummated its initial public
offering of 10,500,000 shares of common stock at a price of $10.67 per
share. Selling shareholders sold an additional 2,437,500 shares of common
stock in the initial public offering. In connection with this offering, the
Company effected a one-for-two reverse stock split in
-47-
<PAGE>
11. COMMON STOCK - (CONTINUED)
August 1994 and converted all of its outstanding preferred stock to common
stock on a two-for-one basis in September 1994.
The Company has authorized 3,000,000 shares of Non-Voting Common
Stock, par value $.0002 per share. No shares of the Non-Voting Common Stock
are issued or outstanding at March 2, 1996. In addition, the Company has
authorized 25,000,000 shares of Preferred Stock, par value $.0001 per share.
No shares of Preferred Stock are issued or outstanding at March 2, 1996.
Options:
1992 Stock Option Plan. In February 1992, the Company adopted the
Corporate Express, Inc. 1992 Stock Option Plan (the ''1992 Stock Option
Plan''). The 1992 Stock Option Plan was approved by the Company's
shareholders in May 1992 and amended in January 1994. Options were granted
under the 1992 Stock Option Plan at the fair market value at the time of
grant as determined by the Board of Directors or the Compensation Committee,
based on recent stock transactions. Options granted under the 1992 Stock
Option Plan typically vest in equal monthly installments over a five-year
period, beginning on the month after the first anniversary of the grant
date. The options generally expire on the seventh anniversary of the grant
date. At March 2, 1996, 1,608,201 options were outstanding under the 1992
Stock Option Plan at prices ranging from $0.15 to $7.33 per share, 458,689
were exercisable and none were available for grant.
Executive Plan. In June 1994, the Board of Directors adopted the
1994 Executive Stock Option Plan (the "Executive Plan") which permits the
grant of stock options to the Company's executive officers. The Compensation
Committee administers the plan and establishes the terms of the options
granted, including the number of shares, the exercise price, vesting
schedule and termination provisions. The particular terms of each grant are
set forth in separate stock option agreements entered into between the
Company and the executive officer. The maximum aggregate number of shares of
common stock for which options may be granted under this plan originally was
2,250,000 and was increased (subject to shareholder approval) to 3,750,000
in August 1995, and no single executive officer may be granted options
covering more than 750,000 shares of common stock in any calendar year. At
March 2, 1996, 1,575,000 options were outstanding under the Executive Plan
at a price of $8.00 per share, none were exercisable and 675,000 were
available for future grant. The options outstanding at March 2, 1996 under
the Executive Plan vest ten years from date of grant and expire in 2006.
Vesting accelerates upon occurrence of certain conditions, including
increases in the Company's stock price and changes in control of the
Company.
In addition to the above, the Company granted options with terms
identical to those under the Executive Plan during fiscal 1995. A total of
1,350,000 options were granted to purchase common shares at $20.00 per
share. The options expire in 2007. At March 2, 1996, none of these options
were exercisable.
1994 Stock Option Plan. The 1994 Stock Option and Incentive Plan
(the "1994 Stock Option Plan") was adopted by the Board of Directors and
approved by shareholders in August 1994. This plan replaces, for future
grants, the 1992 Stock Option Plan. The 1994 Stock Option Plan permits the
Company to grant incentive stock options and nonqualified stock options. The
maximum aggregate number of shares of common stock which may be issued under
the 1994 Stock Option Plan was 1,875,000 and was (subject to shareholder
approval) increased to 6,375,000 in March 1996, plus an additional number of
shares equal to the number of options granted under the 1992 Stock Option
Plan that are terminated or forfeited. Options granted under the 1994 Stock
Option Plan typically vest in equal monthly installments over a period of
five years, beginning in the month after the first anniversary of the grant
date. The options generally expire on the seventh anniversary of the grant
date. Options and awards that expire, terminate or are cancelled or
forfeited will again be available for grant or award under the plan. At
March 2, 1996, 1,700,672 options were outstanding under the 1994 Stock
Option Plan at prices ranging from $10.67 to $29.75 per share, 15,781 were
exercisable and 417,957 were available for grant.
In addition to the above, the Company granted options at the time
of the Delivery merger with terms identical to those under the 1994 Stock
Option Plan. A total of 2,099,100 options were granted to purchase common
shares at $29.75 per share. At March 2, 1996, none of these options were
exercisable.
Non-Qualified Stock Options. Non-qualified options to purchase
50,250 shares of common stock were granted to certain employees on August 1,
1994. These options generally vest and expire on the same terms as the
options granted under the 1992 Stock Option Plan. At March 2, 1996, 34,704
options were outstanding at a price of $7.33 per share and 4,593 were
exercisable.
-48-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMON STOCK - (CONTINUED)
Information regarding the Company's stock options under the various plans
is summarized below:
<TABLE>
<CAPTION>
Shares Option Price
---------- ---------------
<S> <C> <C>
Outstanding at February 28, 1993 664,875 $ 0.15 - $ 2.67
Granted 1,292,730 $ 4.00 - $ 7.33
Exercised (15,000) $ 5.33
---------
Outstanding at February 28, 1994 1,942,605 $ 0.15 - $ 7.33
Granted 2,717,625 $ 7.33 - $16.67
Exercised (160,170) $ 7.33 - $13.77
Forfeited (189,750) $ 2.67 - $ 7.33
---------
Outstanding at February 25, 1995 4,310,310 $ 0.15 - $16.67
Granted 4,804,600 $15.83 - $29.75
Exercised (546,171) $ 0.15 - $12.92
Forfeited (201,062) $ 5.33 - $27.25
---------
Outstanding at March 2, 1996 8,367,677 $ 0.15 - $29.75
=========
</TABLE>
Delivery Plan. Delivery had a stock option plan which was approved by its
shareholders in January 1994. On March 1, 1996, effective with the merger with
Corporate Express, all Delivery options became vested and were exercisable into
shares of common stock, as adjusted to reflect the exchange ratio as defined in
the merger agreement. At March 2, 1996, 1,736,100 options to purchase Corporate
Express common stock were outstanding under the former Delivery plan at prices
ranging from $6.46 to $25.83, all were exercisable and none were available for
future grant.
Warrants:
As of February 25, 1995, warrants to purchase 993,000 shares of the
Company's common stock, had been issued with exercise prices of $.03 per share
for 4,500 shares, $7.34 per share for 375,000 shares and $2.67 for the remaining
613,500 shares. As of March 2, 1996, warrants to purchase 654,800 shares of
common stock were outstanding, with exercise prices of $7.34 per share for
375,000 shares and $2.67 per share for the remaining 279,800 shares. The
warrants expire on various dates between December 31, 1996 and January 31, 1999.
Outstanding warrants to purchase Delivery common stock are vested and
exercisable into shares of Corporate Express common stock, effective with the
merger with Corporate Express on March 1, 1996, at an exchange ratio as defined
in the merger agreement. As of March 2, 1996, warrants to purchase 44,100 and
48,000 shares of Corporate Express common stock were outstanding at prices of
$8.33 and $14.16 per share, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments including
cash and cash equivalents and debt approximates their carrying value at March 2,
1996 and February 25, 1995. The fair value of short and long-term debt was
estimated using discounted cash flows at current interest rates.
-49-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATMENTS -- (CONTINUED)
13. NET INCOME (LOSS) PER SHARE:
The February 28, 1994 net loss per share is calculated using the common
stock and common stock equivalents outstanding as of February 28, 1994 as if
this had been the capital structure throughout fiscal 1993 and at year end. This
calculation gives retroactive effect to the one-for-two reverse stock split in
August 1994, the conversion of preferred stock, which occurred automatically
upon the consummation of the Company's initial public offering of common stock,
as if such conversion had occurred as of February 28, 1994 and the 50% share
dividend in June 1995. The information does not reflect net cash proceeds
received or shares issued at the closing of the initial public offering.
14. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Company's major operations consist of providing the distribution of
products and services. The product distribution segment has operations in the
United States, Australia, Canada and the United Kingdom. Currently, the largest
operations in the international segment are in Australia. Services include same
day delivery, distribution and logistics management and call center (i.e.,
inbound telemarketing).
Revenues, operating income, identifiable assets, capital expenditures and
depreciation and amortization pertaining to the industries and geographic areas
in which the Company operates are presented below.
<TABLE>
<CAPTION>
Corporate
Express Product
Consolidated Distribution Services
------------ ------------ --------
Industry Segments: (In thousands)
<S> <C> <C> <C>
FISCAL YEAR ENDED MARCH 2, 1996:
Net sales $1,590,104 $1,247,640 $342,464
Operating profit 29,804(a) 20,384 (b) 9,420 (c)
Identifiable assets 910,523 788,065 122,458
Capital expenditures 51,765 40,110 11,655
Depreciation and amortization 26,844 18,323 8,521
FISCAL YEAR ENDED FEBRUARY 25, 1995:
Net sales $ 927,918 $ 707,653 $220,265
Operating profit 33,640 22,498 11,142
Identifiable assets 568,161 491,414 76,747
Capital expenditures 16,078 8,933 7,145
Depreciation and amortization 15,740 11,356 4,384
FISCAL YEAR ENDED FEBRUARY 28, 1994:
Net sales $ 337,094 $ 235,918 $101,176
Operating profit 781 (503) 1,284
Identifiable assets 387,477 367,015 20,462
Capital expenditures 4,225 1,710 2,515
Depreciation and amortization 5,960 3,828 2,132
</TABLE>
(a) Operating profit including $42,790,000 in merger related and other
nonrecurring charges.
(b) Operating profit including $29,203,000 in merger related and other
nonrecurring charges.
(c) Operating profit including $13,587,000 in merger related and other
nonrecurring charges.
-50-
<PAGE>
14. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION - (CONTINUED)
<TABLE>
<CAPTION>
Corporate
Express Domestic International
Consolidated Operations Operations
------------ ---------- -------------
<S> <C> <C> <C>
Geographical Segments: (In thousands)
FISCAL YEAR ENDED MARCH 2, 1996:
Net sales $1,590,104 $1,423,808 $166,296
Operating profit 29,804(a) 24,180(a) 5,624
Identifiable assets 910,523 795,882 114,641
Capital expenditures 51,765 49,754 2,011
Depreciation and amortization 26,844 24,859 1,985
FISCAL YEAR ENDED FEBRUARY 25, 1995:
Net sales $ 927,918 $ 926,224 $ 1,694
Operating profit 33,640 33,626 14
Identifiable assets 568,161 564,750 3,411
Capital expenditures 16,078 16,073 5
Depreciation and amortization 15,740 15,728 12
FISCAL YEAR ENDED FEBRUARY 28, 1994:
Net sales $ 337,094 $ 337,094 $ ---
Operating profit 781 781 ---
Identifiable assets 387,477 387,477 ---
Capital expenditures 4,225 4,225 ---
Depreciation and amortization 5,960 5,960 ---
</TABLE>
(a) Operating profit including $42,790,000 in merger related and other
nonrecurring charges.
15. SUBSEQUENT EVENTS:
Subsequent to March 2, 1996, Corporate Express purchased 13 office
product distributors, one delivery company and one software distributor, of
which two were in New Zealand, two in the United Kingdom and eleven in the
United States for a combined purchase price of approximately $126,629,000
and 24,000 shares of common stock. In addition, the Company acquired one
delivery service company in Ottawa, Canada for 46,000 shares of common stock
in a transaction accounted for as a pooling of interests.
Corporate Express entered the New Zealand market by acquiring two
companies that operate in six locations with two distribution centers, which
will provide coverage for both major islands in the country. In the United
Kingdom, Corporate Express expanded its operations in England by acquiring a
company, based in the greater London area. The New Zealand and the United
Kingdom companies were acquired through Corporate Express' majority owned
subsidiaries.
The computer software acquisition was consummated on May 15, 1996
when the Company acquired all of the outstanding capital stock of ASAP
Software Express, Inc., a leading distributor of software to large
corporations for a purchase price of approximately $98,000,000, subject to
certain adjustments.
-51-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED):(a)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- ------- --------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
FISCAL YEAR ENDED MARCH 2, 1996:
Net sales $330,394 $371,058 $420,185 $468,467
Gross profit 86,808 96,135 111,681 116,273
Income (loss) before extraordinary item 6,506 5,755 10,375 (19,892)
Net income $ 6,506 $ 5,755(b) $ 10,375(b) $(19,892)(c)
======== ======== ======== ========
Net income (loss) per common share before
extraordinary item $ .10 $ .09 $ .14 $ (.29)
======== ======== ======== ========
Net income per common share $ .10 $ .09 $ .14 $ (.29)
======== ======== ======== ========
FISCAL YEAR ENDED FEBRUARY 25, 1995:
Net sales $187,714 $224,380 $244,557 $271,267
Gross profit 47,819 59,116 65,453 73,568
Income before extraordinary item 1,789 1,573 3,698 5,089
Net income $ 1,789 $ 2,159 $ 3,698 $ 5,089
======== ======== ======== ========
Net income per common share before
extraordinary item $ .04 $ .04 $ .07 $ .09
======== ======== ======== ========
Net income per common share $ .04 $ .05 $ .07 $ .09
======== ======== ======== ========
</TABLE>
_________
(a) Quarterly amounts have been restated to include the accounts and
operations of Delivery and Young.
(b) Amounts for the second and third quarters of the fiscal year ended March
2, 1996 have been revised. The Company reviewed certain costs in
accordance with its established policies for accounting for
acquisitions. As a result of the review, the Company has reclassified
certain costs to either cost of sales or warehouse operating and selling
expenses from purchase accounting accruals. Such classification of these
costs is consistent with recently issued interpretations of accounting
literature applicable to accounting for business combinations. These
adjustments reduced net income by $872,000 and $1,257,000 in the second
and third quarter, respectively.
(c) In the fourth quarter of fiscal 1995, the Company recognized pretax
charges of $42.8 million related to merger and other nonrecurring items.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No change of accountants or disagreements on any matter of accounting
principals or financial statement disclosures have occurred within the last
two years.
-52-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant; Item 11, Executive Compensation; Item 12, Security Ownership
of Certain Beneficial Owners and Management; and Item 13, Certain
Relationships and Related Transactions, is incorporated herein by reference
to the Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders, presently scheduled to be held on July 18, 1996, which will be
filed with the Securities and Exchange Commission within 120 days from the
end of the Registrant's fiscal year.
-53-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements of the Company and its Consolidated Subsidiaries
Report of Independent Accountants
Report of Independent Public Accountants
Consolidated Balance Sheets as of March 2, 1996 and February 25,
1995
Consolidated Statements of Operations for the fiscal years ended
March 2, 1996, February 25, 1995, and February 28, 1994.
Consolidated Statements of Shareholders' Equity for the fiscal
years ended March 2, 1996, February 25, 1995, and February 28,
1994.
Consolidated Statements of Cash Flows for the fiscal years ended
March 2, 1996, February 25, 1995, and February 28, 1994.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
II. Valuation and Qualifying Accounts
3. Exhibits
The following exhibits are incorporated in this report by reference
or included and submitted with this report, as indicated. Except as
otherwise noted, the exhibit has previously been filed as an exhibit
to the Company's Registration Statement on Form S-1, File No. 33-
81924 (the "Registration Statement"), and is incorporated herein by
reference.
Exhibit
Number Description
------ -----------
3.1 Articles of Amendment and Restatement of the Articles of
Incorporation of Corporate Express, Inc., a Colorado
corporation (the "Company"), filed on September
30, 1994.
3.2 Amended and Restated By-Laws of the Company.
4.1 Specimen Common Stock Certificate of the Company.
4.2 Form of Warrant Agreement.
4.3 Credit Agreement, dated as of February 28, 1994 by and
among the Company, various Financial Institutions, Sanwa
Business Credit Corporation and Continental Bank N.A.,
as amended (the "Senior Credit Facility").
4.4 Indenture dated as of February 28, 1994 by and among the
Company, and the Guarantors named therein and First
Trust National Association for the $100,000,000 9 1/8%
Senior Subordinated Notes.
-54-
<PAGE>
Exhibit
Number Description
------ -----------
4.5 Note Purchase Agreement dated February 22, 1994 by and
among the Company, McQuiddy Holdings Inc., McQuiddy
Office Designers, Inc., New Jersey Office Supply Inc.,
Ross-Martin Company Inc., Scott Rice Company Inc.,
Schwabacher/Frey, Inc., Bayless Stationers, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and
Alex. Brown & Sons Incorporated.
4.6 Recapitalization Agreement dated December 3, 1991, by
and between the Company, J.P. Morgan Investment
Corporation ("J.P. Morgan") and Shareholders.
4.7 Recapitalization Agreement dated August 29, 1992 by and
among the Company, J.P. Morgan and certain shareholders.
*4.8 First Amendment to the Senior Credit Facility, dated as
of May 10, 1996 by and among the Company and Bank of
America, Illinois.
10.1 Employment Agreement (Restated) dated as of January 1,
1992, by and between the Company and Jirka Rysavy, as
amended.
10.2 Employment Agreement dated as of August 25, 1993, by and
between the Company and Robert King, as amended
effective July 15, 1994.
10.3 Stock Purchase Agreement dated September 26, 1993, by
and among the Company, Synergom, Inc. and OfficeMax,
Inc., as amended.
10.4 Agreement and Plan of Merger, dated May 3, 1993, by and
among Lindsay's Business Supplies and Furniture, Inc.
("Lindsay's"), the shareholders of Lindsay's and the
Company, as amended on May 6, 1993.
10.5 Stock Purchase Agreement dated November 19, 1993 by and
among HM Holdings, Inc., SFB Stationers Holdings, Inc.
and the Company, as amended on December 16, 1993 and
February 24, 1994.
10.6 Agreement and Plan of Merger, dated November 30, 1993,
by and among Lucas Bros., Inc. ("Lucas"), the
Shareholders of Lucas and the Company.
10.7 Amended and Restated 1992 Stock Option Plan, Form of
Non-qualified Stock Option Agreement and Form of
Incentive Stock Option Agreement.
10.8 1994 Executive Stock Option Plan.
10.9 Form of Indemnification Agreement between the Company
and its officers and directors.
10.10 1994 Stock Option and Incentive Plan.
10.11 1994 Employee Stock Purchase Plan.
-55-
<PAGE>
Exhibit
Number Description
------ -----------
10.12 Stock Purchase Agreement among Siekert & Baum, Inc.,
Richard Buckley, Peter Reiland, other Reiland family
members and related trusts, and the Company, dated as of
January 13, 1995 (incorporated by reference to the
Company's Form 8-K filed on January 30, 1995, as amended
by the Company's Form 8-K/A filed on February 9, 1995).
10.13 Asset Purchase Agreement between Joyce International,
Inc. and the Company, dated as of January 9, 1995
(incorporated by reference to the Company's Form 8-K
filed on January 30, 1995 as amended by the Company's
Form 8-K/A filed on February 9, 1995).
10.14 Letter Agreements dated as of December 19, 1994 and
February 3, 1995 amending the Senior Credit Facility
(incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-90106).
10.15 Employment Agreement dated as of July 31, 1995 by and
between the Company and Sam Leno (incorporated by
reference to the Company's Registration Statement on Form
S-1, File No. 33-95902).
10.16 Agreement among the Company, Synergom, Inc. and
OfficeMax, Inc. dated as of August 25, 1995 (incorporated
by reference to the Company's Registration Statement on
Form S-1, File No. 33-95902).
10.17 Agreement and Plan of Merger dated as of January 6, 1996
among the Company, Delivery Systems, Inc. and DSU
Acquisition Corp., as amended (incorporated by reference
to the Company's Registration Statement on Form S-4, File
No. 333-288).
10.18 Agreement and Plan of Merger dated as of February 8, 1996
by and among the Company, CEX Acquisition Corp., Young,
Richard Young, HCC Investments, Inc., Juliet Challenger,
Inc. and Wilmington Securities, Inc. (incorporated by
reference to the Company's Registration Statement on Form
S-4, File No. 333-288).
10.19 Stock purchase agreement dated April 22, 1996 by and
among the Company, ASAP Software Express, Inc. and the
shareholders of ASAP Software Express, Inc. (incorported
by reference to the Company's Form 8-K dated May 15,
1996).
*11.1 Statement regarding Computation of Net Income (Loss) Per
Share.
*21.1 List of Subsidiaries.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Arthur Andersen LLP
__________________
*Filed herewith.
(b) Reports on Form 8-K
-------------------
Form 8-K filed on January 6, 1996.
Form 8K-A filed on December 21, 1995 amending 8-K filed on October
26, 1996.
-56-
<PAGE>
SIGNATURES
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.
CORPORATE EXPRESS, INC.
SAM R. LENO
By: Sam R. Leno
Title: Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange 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>
Signature Title Date
<S> <C> <C>
JIRKA RYSAVY Chairman of the Board and Chief Executive June 12, 1996
Jirka Rysavy Officer (Principal Executive officer)
ROBERT L. KING President Chief Operating Officer June 12, 1996
Robert L. King
GARY M. JACOBS Executive Vice President and Secretary June 12, 1996
Gary M. Jacobs
SAM R. LENO Executive Vice President and Chief Financial June 12, 1996
Sam R. Leno Officer (Principal Financial Officer)
JOANNE C. FARVER Vice President, Controller June 12, 1996
Joanne C. Farver (Principal Accounting Officer)
CLAYTON TRIER Director June 12, 1996
Clayton Trier
JANET A. HICKEY Director June 12, 1996
Janet A. Hickey
</TABLE>
-57-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1994, FEBRUARY 25, 1995 AND THE PERIOD ENDED MARCH 2, 1996 (A)
(In Thousands)
Balance at Charged to Charged to Balance at
beginning costs and other end
of period expenses accounts Deductions of period
---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended February 28, 1994 $ 1,638 $ 313 $ 2,319 (B) $ (763) $ 3,507
Year ended February 25, 1995 3,507 1,475 1,050 (B) (852) 5,180
Period ended March 2, 1996 5,180 2,637 1,439 (B) (3,876) 5,380
Inventory Reserve:
Year ended February 28, 1994 $ 482 $ 197 $ - $ (244) $ 435
Year ended Feburary 25, 1995 435 1,646 330 (C) (404) 2,007
Period ended March 2, 1996 2,007 284 - - 2,291
Discontinued Operations Reserve:
Year ended February 28, 1994 $ 2,733 $ - $ - $ (1,595) $ 1,138
Year ended February 25, 1995 1,138 - - (697) 441
Period ended March 2, 1996 441 - - (222) 219
Valuation Allowance for Deferred
Tax Assets:
Year ended February 28, 1994 $ 4,761 $ 2,425 $(2,041) $ - $ 5,145
Year ended February 25, 1995 5,145 (2,636) 2,345 - 4,854
Period ended March 2, 1996 4,854 (2,247) (174) - 2,433
------------------
</TABLE>
(A) The period ended March 2, 1996 includes the twelve months ended March 2,
1996 for Corporate Express, Inc. the fourteen months ended March 2, 1996
for Delivery and the seventeen months ended March 2, 1996 for Young as each
company had different fiscal year ends.
(B) Represents additional allowances as a result of the purchase acquisitions.
(C) Represents inventory reserve for Lucas pooling.
<PAGE>
Exhibit 4.8
FIRST AMENDMENT AGREEMENT
-------------------------
THIS FIRST AMENDMENT AGREEMENT (this "Agreement"), dated as of May 10,
---------
1996, is among CORPORATE EXPRESS, INC., the Lenders listed on the signature
pages hereto, and BANK OF AMERICA ILLINOIS, as the Managing Agent, the
Documentation/Syndication Agent, and the Administrative Agent (in such capacity,
as successor to Sanwa Business Credit Corporation);
W I T N E S E T H:
- - - - - - - - -
WHEREAS, the parties hereto are parties to the Credit Agreement dated
as of February 28, 1994, as previously amended by the Joinder Agreement dated as
of April 6, 1994 and by the Letter Agreements dated as of April 21, 1994, May
31, 1994, July 19, 1994, December 19, 1994 and February 3, 1995 (the "Credit
------
Agreement");
- ---------
WHEREAS, the parties hereto wish to amend the Credit Agreement as
hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of the premises
and the mutual agreements herein contained, hereby agree as follows:
SECTION 1 CREDIT AGREEMENT DEFINITIONS. Capitalized terms used
herein that are defined in the Credit Agreement shall have the same meaning when
used herein unless otherwise defined herein.
SECTION 2 AMENDMENTS TO CREDIT AGREEMENT. Effective on (and subject
to the occurrence of) the First Amendment Effective Date (as defined below), the
Credit Agreement shall be amended as follows:
2.1 Borrowing Base. The following clauses shall be added at the end
--------------
of the definition of Borrowing Base in Section 1 of the Credit Agreement:
---------
"; minus (f) the unpaid purchase price (excluding any part of the
unpaid purchase price that is held in escrow or that represents a hold back
relating to adjustments in the purchase price) of all Permitted
Acquisitions for which a portion of the purchase price has been paid until
such purchase price is paid or a Borrowing is made the proceeds of which
shall be used to pay such purchase price; provided, however, until such
-------- -------
time as the Administrative Agent completes an audit of the Company's and
its Subsidiaries' records, at the expense of the Company, with respect to
matters relating to the Borrowing Base, the Borrowing Base shall not exceed
$200,000,000 (it being understood that such audit may affect the amount of
the Borrowing Base)."
2.2 Definition of Capital Stock. The following definition of Capital
---------------------------
Stock shall be inserted in proper alphabetical order in Section 1 of the Credit
Agreement:
"Capital Stock of any person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of such Person's
capital stock."
2.3 Definition of Equity Infusion. The definition of Equity Infusion in
-----------------------------
Section 1 of the Credit Agreement shall be amended to read as follows:
"Equity Infusion means an increase in the capital of the Company
---------------
pursuant either to a capital contribution from stockholders or the issuance
of additional stock; provided, however, Equity Infusion
-------- -------
<PAGE>
shall not include (a) the first $40,000,000 of proceeds of the Initial
Equity Offering, (b) any proceeds of any stock offering which are applied
to repayment of the Subordinated Debt under the Subordinated Indenture or
(c) any Net Cash Proceeds which reduce the Revolving Commitment pursuant to
Section 6.1.2."
-------------
2.4 Definition of First Amendment Effective Date. The following
--------------------------------------------
definition of First Amendment Effective Date shall be inserted in Section 1 of
the Credit Agreement:
"First Amendment Effective Date means the date on which the amendments
------------------------------
provided for in the First Amendment Agreement, dated as of May 10, 1996,
among the Company, the Lenders and the Agents became effective pursuant to
the terms thereof."
2.5 Margin. The definition of Margin in Section 1 of the Credit Agreement
------
shall be amended to read as follows:
"Margin means
------
(a) at any time the sum of outstanding Revolving Loans plus the
Stated Amount of issued Letters of Credit and reimbursement obligations
with respect to Letters of Credit (collectively, "Total Outstandings") is
------------------
equal to or less than $180,000,000, (i) 0% in the case of any Floating Rate
Revolving Loan, and (ii) 1.25% in the case of any Eurodollar Revolving
Loan, and
(b) at any time Total Outstandings is greater than $180,000,000, (i)
0.25% in the case of any Floating Rate Revolving Loan, and (ii) 1.50% in
the case of any Eurodollar Revolving Loan;
provided that on and after August 11, 1996 the percentage that would
--------
otherwise be applicable pursuant to the foregoing clauses (a) and (b) shall
----------- ---
be increased by 0.5%; and
provided, further, on and after September 10, 1996, the Margin shall be the
-------- -------
rate per annum set forth below for the applicable type of Loan opposite the
applicable level determined in accordance with the most recent Fiscal
Quarter for which the financial statements for such Fiscal Quarter have
been delivered:
<TABLE>
<CAPTION>
Margin for
Floating Margin for
Rate Eurodollar
Revolving Revolving
Level Loans Loans
----------- ----------- -----------
<S> <C> <C>
LEVEL I 0.50% 2.00%
LEVEL II 0.75% 2.25%
LEVEL III 1.00% 2.50%
</TABLE>
The Margin shall thereafter be adjusted, to the extent applicable, on the
earlier of (i) 45 days (or, in the case of the last Fiscal Quarter of any
Fiscal Year, 90 days) after the end of each Fiscal Quarter or (ii) the date
the financial statements for such period are delivered based on the
Interest Coverage Ratio and the Available Borrowing Base as of the last day
of such Fiscal Quarter; it being understood that, with respect to the
-------------------
Margin on and after September 10, 1996, if the Company fails to deliver the
financial statements required by Section 10.1.1 or 10.1.2, as applicable,
-------------- ------
by the 45th day (or, if applicable, the 90th day) after
2
<PAGE>
any Fiscal Quarter, the applicable Margin shall be at Level II until such
financial statements are delivered (provided that if the applicable Margin
is already at Level III or would have been set at Level III if at the time
the Margin was last set the Margin was set pursuant to this proviso, the
Margin shall remain at Level III until such financial statements are
delivered). If the Margin is set pursuant to this proviso, the Margin shall
decrease (i,e., move to a lower Level) if the Company satisfies both the
Interest Coverage Ratio and the Available Borrowing Base for such lower
Level and the Margin shall increase (i.e., move to a higher Level) at such
time as the Company fails to satisfy both the Interest Coverage Ratio and
Available Borrowing Base at the lower Level."
2.6 Definition of Net Cash Proceeds. The definition of Net Cash Proceeds
-------------------------------
in Section 1 of the Credit Agreement shall be amended to read as follows:
"Net Cash Proceeds (a) means with respect to any Asset Sale, the aggregate
-----------------
cash proceeds (including cash proceeds received in respect of non-cash
proceeds) received by the Company or any Restricted Subsidiary pursuant to
such Asset Sale, net of (i) the direct costs relating to such Asset Sale
(including, without limitation, sales commissions and legal, accounting and
investment banking fees), (ii) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any
tax sharing arrangements), (iii) amounts required to be applied to the
repayment of any Debt secured by a Lien on the asset subject to such sale
(other than the Loans) and (iv) any reserve for adjustment in respect of
the sale price of such asset (until such amount is available to the Company
or the applicable Restricted Subsidiary), (b) with respect to any issuance
or sale of Capital Stock or options, warrants or rights to purchase Capital
Stock or options, the proceeds of such issuance or sale in the form of cash
or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of cash or cash equivalents, net of
attorneys' fees, accountants' fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection
with such issuance or sale and net of taxes paid or payable as a result
thereof, and (c) with respect to the issuance of Subordinated Debt, the
proceeds of such issuance net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance."
2.7 Revolving Commitment. The definition of Revolving Commitment in
--------------------
Section 1 of the Credit Agreement shall be amended to read as follows:
- ---------
"Revolving Commitment means as to any Lender the commitment of such
--------------------
Lender to make Revolving Loans and to issue or participate in Letters of
Credit pursuant to Section 2.1.1. The amount of the Revolving Commitment
-------------
of each Lender as of the First Amendment Effective Date is set forth on
Schedule 1."
----------
2.8 Commitment Fee. Section 5.1 of the Credit Agreement shall be amended
-------------- -----------
to read as follows:
"5.1 Non-Use Fee. The Company agrees to pay the Administrative Agent
-----------
for the account of each Lender a non-use fee for the period from and
including the First Amendment Effective Date to and excluding the Revolving
Termination Date of (a) 0.30% per annum prior to September 10, 1996, and
(b) 0.375% per annum on and after September 10, 1996, in each case on the
daily average of the unused amount of such Lender's Revolving Commitment.
Such non-use fee shall be payable in arrears on the last day of each
calendar quarter and on the Revolving Termination Date, in each case for
the period then ending for which such non-use fee shall not have been
theretofore paid. The non-use fee shall be computed for the actual number
of days elapsed on the basis of a year of 360 days."
2.9 Letter of Credit Fees. Section 5.2(a) of the Credit Agreement shall
--------------------- --------------
be amended to read as follows:
3
<PAGE>
"5.2 Letter of Credit Fees. (a) The Company agrees to pay to the
---------------------
Administrative Agent for the account of the Lenders pro rata according to
their respective Percentages a letter of credit fee for each Letter of
Credit in an amount per annum of the daily average of the aggregate Stated
Amount of such Letter of Credit (excluding any unreimbursed payment or
disbursement thereunder) equal to (i) 1.0% with respect to commercial
Letters of Credit, and (ii) 50% of the then applicable Margin for
Eurodollar Revolving Loans with respect to each Non-Financial Letter of
Credit and each Financial Letter of Credit."
2.10 Reduction of Commitment. Section 6.1.2 of the Credit Agreement is
----------------------- --------------
amended to read as follows:
"6.1.2 Mandatory Reductions. (a) The Revolving Commitments shall be
--------------------
reduced, dollar for dollar, by the amount of any Revolving Loans repaid
pursuant to Section 6.2.1. (b) The Revolving Commitments also shall be
-------------
reduced, dollar for dollar, by the amount of any Net Cash Proceeds received
by the Company or any Restricted Subsidiary in connection with the issuance
of Capital Stock or Subordinated Debt; provided that the Revolving
--------
Commitments shall not be reduced pursuant to this clause (b) to an amount
----------
less than the result of $90,000,000 minus all reductions pursuant to the
preceding sentence. All reductions of the Revolving Commitments shall be
pro rata among the Lenders according to their Percentages."
2.11 Funded Debt to Cash Flow Ratio. Section 10.6.2 of the Credit
------------------------------ --------------
Agreement shall be amended to read as follows:
"10.6.2 Funded Debt to Cash Flow Ratio. Not Permit the Funded Debt
------------------------------
to Cash Flow Ratio to exceed 4.0 to 1.0 at any time."
2.12 Further Assurances. Section 10.20 of the Credit Agreement is amended
------------------
by adding the following paragraph at the end thereof:
"Without limiting the generality of the forgoing the Company shall, and
shall cause its Restricted Subsidiaries to, without any further request of any
Agent or Lender concurrently with any Permitted Acquisition or the designation
of an Unrestricted Subsidiary as a Restricted Subsidiary (a) deliver to the
Administrative Agent, together with certified resolutions authorizing the same,
(i) such UCC financing statements as are necessary to perfect the security
interests under the Security Agreement and the Intercompany Security Agreement
except to the extent not required pursuant to Section 4.3 of the First Amendment
Agreement dated as of May 10, 1996 which amends this Agreement, (ii) UCC search
results for each jurisdiction for which UCC financing statements are delivered
pursuant to clause (i) above showing no financing statements relating to liens
----------
not permitted by this Agreement unless satisfactory payoff letters and/or UCC
termination statements are also delivered at such time, (iii) a Trademark
Security Agreement, Copyright Security Agreement or Patent Security Agreement if
any federally registered Trademark Collateral, Copyright Collateral or Patent
Collateral (each as defined in the Security Agreement), respectively, is
acquired, and (iv) with respect to any Permitted Acquisition after the First
Amendment Effective Date a list of any deposit accounts acquired in such
acquisition or which proceeds of Collateral acquired in such acquisition will be
deposited together with a copy of a letter sent to the bank at which each such
account is maintained directing such bank to sweep the available balance of such
account to the Concentration Account on a daily basis unless a Blocked Account
Agreement would not have been required for such account under Section 7.7.5, as
-------------
in effect prior to the First Amendment Effective Date, and (b) in addition, in
connection with Permitted Acquisitions where a Restricted Subsidiary is created
or acquired, deliver a Subsidiary Note, counterparts of the Guaranty, the
Security Agreement, and the Intercompany Security Agreement to the
Administrative Agent and pledge the stock of such Restricted Subsidiary pursuant
to a Pledge Agreement. In addition, the Company agrees that the Administrative
Agent may order, at the Company's expense, such UCC and
4
<PAGE>
other lien searches as the Administrative Agent deems prudent in its sole
discretion to confirm its lien position against creditors of the Company and the
Restricted Subsidiaries."
2.13 Schedule 1. Schedule 1 to the Credit Agreement shall be amended to
----------
read as set forth on Exhibit A hereto.
---------
2.14 Schedules to Credit Agreement. Schedules 9.6, 9.8, 9.9, 9.15,
-----------------------------
9.16 and 9.17 to the Credit Agreement are amended to read as set forth on
Exhibit B of hereto.
- ---------
SECTION 3 ACQUISITIONS. Effective upon (and subject to the occurrence) the
First Amendment Effective Date:
3.1 Certain Permitted Acquisitions. The acquisitions described on Exhibit
------------------------------ -------
C hereto (or such other acquisitions that the Company designates as being
- -
effected pursuant to this Section (the "Replacement Acquisitions"); provided
------------------------ --------
that (i) the purchase price in connection with any Replacement Acquisition shall
not exceed $20,000,000 and (ii) the aggregate purchase price in connection with
all Replacement Acquisitions plus the purchase price in connection with all
acquisitions the Company enters into that are listed on Exhibit C (other than
---------
the acquisition of ASAP Software Express, Inc.) shall not exceed $64,300,000,
all such acquisitions including the acquisition of ASAP Software Express, Inc.
being herein, the "Approved Acquisitions") shall be Permitted Acquisitions and
no Event of Default shall arise under Section 10.12 of the Credit Agreement as a
-------------
result thereof; provided that such acquisitions comply with clause (x) and
-------- ----------
clause (y) of the proviso to clause (b)(i)(B) of the definition of Permitted
- ---------- -----------------
Acquisition in Section 1 of the Credit Agreement (it being agreed that, with
-- ----- ------
respect to any Approved Acquisition having a purchase price payable in
installments, compliance with such clause (y) shall be determined only on the
----------
date the Revolving Loan for the first installment is borrowed and "Available
Commitment" shall be determined after giving effect to such Revolving Loan and
the required deduction from the Borrowing Base) and comply with Section 10.20 of
the Credit Agreement, as amended.
3.2 Additional Acquisitions. For purposes of determining compliance with
-----------------------
the requirements of the definition of Permitted Acquisitions for acquisitions on
or after the First Amendment Effective Date, all acquisitions closed prior to
the First Amendment Effective Date and all Approved Acquisitions (unless such
Approved Acquisitions occurred on or after the date the notice referred to in
Section 3.3 has been delivered) shall not be included in determining compliance
- -----------
with the $30,000,000 limitation in clause (b)(i)(B) and the $20,000,000
----------------
limitation in clause (b)(ii)(B) in the definition of Permitted Acquisition in
-----------------
Section 1 of the Credit Agreement.
- ---------
3.3 Equity Infusions Not Previously Applied. The Company represents and
---------------------------------------
warrants that the amount of Equity Infusions Not Previously Applied as of the
First Amendment Effective Date is $43,700,000. Until the time at which the
Company gives the Administrative Agent the notice referred to in the next
sentence, such Equity Infusions Not Previously Applied may only be used for
Approved Acquisitions hereto and not for any other purpose permitted under the
Credit Agreement and the purchase price paid in such acquisitions shall reduce
such Equity Infusions Not Previously Applied on a dollar for dollar basis. At
any time after the Effective Date the Company may notify the Administrative
Agent that it wishes to use remaining Equity Infusions Not Previously Applied
for other purposes under the Credit Agreement; provided at such time the
--------
Approved Acquisitions not already closed shall no longer be Permitted
Acquisitions unless such acquisitions otherwise comply with the provisions of
the definition of Permitted Acquisitions as modified by Section 3.2 hereof.
-----------
SECTION 4 ADDITION OF RESTRICTED SUBSIDIARY; CLEANUP MATTERS; DE MINIMUS
--------------------------------------------------------------
INVENTORY LOCATIONS; AND BLOCKED ACCOUNTS.
- -----------------------------------------
4.1 U.S. Delivery. At any time on or after the First Amendment Effective
-------------
Date, U.S. Delivery Systems, Inc. may become a Restricted Subsidiary; provided
--------
that (i) in connection therewith the Company shall comply with the provisions of
Section 10.20 of the Credit Agreement as amended by this Agreement, (ii) all
Debt
5
<PAGE>
of U.S. Delivery Systems, Inc. owing to Texas Commerce Bank is paid, (iii)
after giving effect thereto the Company shall be in compliance with all
provisions of the Credit Agreement , (iv) U.S. Delivery Systems, Inc. shall be a
"Subsidiary" under the Subordinated Indenture, and (v) the Administrative Agent
shall have received an opinion of outside counsel to the Company relating to
U.S. Delivery Systems, Inc. similar to the opinion delivered in connection with
the initial closing of the Credit Agreement in form and substance satisfactory
to the Administrative Agent.
4.2 Cleanup Matters. Notwithstanding the provisions of the Credit
---------------
Agreement
(a) with respect to Permitted Acquisitions occurring prior to the
First Amendment Effective Date, the Company shall have 60 days from the
First Amendment Effective Date to comply with the provisions of clause
------
(a)(ii) of the second paragraph of Section 10.20 of the Credit Agreement,
-------
as amended hereby (and no asset shall be excluded from the Borrowing Base
solely because of the failure to comply therewith during such 60 day
period); and
(b) with respect to the acquisitions listed on Exhibit H hereto and CE
---------
Miami Real Estate, Inc., the Company shall have seven Business Days after
the First Amendment Effective Date to comply with the provisions of clause
------
(b) of the second paragraph of Section 10.20 of the Credit Agreement, as
---
amended hereby, and any required UCC financing statements shall also be
filed within such time period.
4.3 De Minimus Inventory Locations. Notwithstanding the other provisions
------------------------------
of the Loan Documents, the Company and its Restricted Subsidiaries shall not be
required to execute or file UCC financing statements with respect to Inventory
in any jurisdiction that is not the chief executive office of any such Person if
the book value of the Inventory located in such jurisdiction determined on a
FIFO basis is less than $100,000; provided that the book value for Inventory
--------
determined on a FIFO basis located in all such jurisdictions in which UCC
financing statements are not executed and filed shall not at any time exceed
$1,000,000; provided, further, Inventory located at any such location shall not
-------- -------
be Eligible Inventory for purpose of calculating the Borrowing Base.
4.4 Blocked Accounts. The Company and its Restricted Subsidiaries shall
----------------
not be required to obtain a Blocked Account Agreement with respect to any
deposit account if the bank at which such deposit account is maintained sweeps
the available balance in such deposit account to the Concentration Account on a
daily basis and with respect to accounts opened after the First Amendment
Effective Date the Company provides the Administrative Agent with a copy of the
letter directing the bank at which such account is maintained to do so.
SECTION 5 REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders
------------------------------
and the Agents to execute and deliver this Agreement, the Company hereby
represents and warrants to each Lender and to each Agent that:
(a) no Event of Default or Unmatured Event of Default has occurred and
is continuing or will result from the execution and delivery or
effectiveness of this Agreement,
(b) the warranties of the Company contained in Section 9 of the Credit
Agreement (excluding Section 9.19) are true and correct as of the date
hereof, with the same effect as though made on such date; provided that (a)
--------
with respect to clause (a) of Section 9.4 the reference to "February 28,
1993" therein shall instead be a reference to "February 28, 1995" and the
reference to "November 30, 1993" therein shall instead be a reference to
"November 25, 1995", and (b) with respect to clause (c) of Section 9.4 the
reference to "dated February 7, 1994 copies of which have been delivered to
each Lender" therein shall instead read "delivered to the Administrative
Agent under a cover letter of May 9, 1994".
6
<PAGE>
(c) since the date of the financial statements dated November 11,
1995, no event has occurred that may have a Material Adverse Effect, and
(d) the preliminary consolidated financial statements for the year
ended February 28, 1996 provided by the Company to the Administrative Agent
under a cover letter dated May 9, 1996 were prepared in accordance with
generally accepted accounting principles consistently applied and, to the
best of the Company's knowledge, are true and correct in all material
respects and present fairly the consolidated financial condition of the
Company and its Subsidiaries at such date and the results of their
operations for such period, subject only to normal audit adjustments; and
(e) Exhibit D hereto contains the information with respect to each
---------
Guarantor that would be required to be included on such Schedules I, II and
III to the Security Agreement if the Security Agreement was entered into by
each Guarantor as of the First Amendment Effective Date;
(f) Exhibit E hereto contains a list of all deposit accounts of the
---------
Company and its Restricted Subsidiaries and there is a Blocked Account
Agreement in effect for each such deposit account unless (i) the available
balances on deposit in such account are swept to the Concentration Account
on a daily basis or (ii) a Blocked Account Agreement would not have been
required for such deposit account pursuant to the Credit Agreement before
giving effect to this Agreement.
SECTION 6 CONDITIONS TO EFFECTIVENESS. The amendments set forth in
---------------------------
Sections 3, 4 and 5 hereof shall become effective on the date (the "First
- ---------- - - -----
Amendment Effective Date") when all of the following conditions precedent have
- ------------------------
been satisfied:
6.1 Documents. The Administrative Agent shall have received all of the
---------
following, each in form and substance satisfactory to the Administrative Agent:
(a) counterparts of this Agreement executed by all of the parties
hereto;
(b) a Note issued by the Company to Bank of America Illinois
substantially in the form of Exhibit F attached hereto;
---------
(c) a letter executed by each Guarantor substantially in the form of
Exhibit G hereto (the "Consent of Guarantors");
--------- ---------------------
(d) certified copies of resolutions of the Board of Directors of the
Company authorizing the execution and delivery by the Company of its
obligations under the Credit Agreement as amended by this Agreement;
(e) certified copies of the resolutions of the Board of Directors of
each Guarantor authorizing or ratifying the execution and delivery of the
Consent of Guarantors and the performance of each Guarantor of the Guaranty
and the other Collateral Documents to which it is a party;
(f) a certificate of the Secretary or an Assistant Secretary of the
Company certifying the names of the officer or officers authorized to sign
this Agreement, together with a sample of the true signature of each such
officer;
(g) a certificate of the Secretary or an Assistant Secretary of each
Guarantor certifying the names of the officer or officers authorized to
sign the Consent of Guarantors, together with a sample of the true
signatures of each such officer;
7
<PAGE>
(h) an opinion of counsel Ballard, Spahr, Andrews and Ingersoll in
substantially the form delivered in connection with the initial closing of
the Credit Agreement;
(i) a certificate of an authorized officer of the Company as to
satisfaction of the conditions set forth in Sections 6.2 and 6.3 of this
------------ ---
Agreement;
(j) a Borrowing Base Certificate as of a recent date acceptable to the
Administrative Agent signed by the chief executive officer, the chief
financial officer, the chief operating officer or the controller of the
Company;
(k) an executed copy of the letter agreement between the Company and
Bank of America dated as of an even date herewith relating to fees; and
(l) such other documents as any Agent or any Lender may reasonably
request.
6.2 Representations and Warranties. The representations and warranties
------------------------------
contained in Section 5 hereof shall be true and correct with the same effect as
---------
if made on such day.
6.3 Compliance with Section 10.20. The Company shall be in compliance
-----------------------------
with Section 10.20 of the Credit Agreement, as modified by Section 4 hereof.
------------- ---------
6.4 Payment of Outstanding Interest and Fees. The Company shall have paid
----------------------------------------
to Sanwa Business Credit Corporation in its capacity as the original
Administrative Agent all interest and fees which have accrued under the Credit
Agreement as of such date and all expenses that are included in the Payoff
Amount under the Assignment and Acceptance Agreement relating to the Credit
Agreement dated as of an even date herewith.
6.5 Fee Letter. The Company shall have paid to Bank of America those fees
----------
due under the letter agreement between the Company and Bank of America dated as
of an even date herewith.
SECTION 7 GENERAL.
7.1 Reaffirmation of Loan Documents. From and after the date hereof, each
-------------------------------
reference that appears in any other Loan Document to the Credit Agreement shall
be deemed to be a reference to the Credit Agreement as amended hereby. As
amended hereby, the Credit Agreement is hereby reaffirmed, approved and
confirmed in every respect, and shall remain in full force and effect.
7.2 Counterparts; Effectiveness. This Agreement may be executed by the
---------------------------
parties hereto in any number of counterparts and by the different parties on
separate counterparts and each such counterpart shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Agreement.
7.3 Computation of Interest and Fees. Any amendments herein to the
--------------------------------
interest rates or rates at which fees accrue under the Credit Agreement shall
not affect the interests or fees that accrued prior to the First Amendment
Effective Date.
7.4 Governing Law; Entire Agreement. THIS AGREEMENT SHALL BE DEEMED TO BE
-------------------------------
A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES. THIS AGREEMENT CONSTITUTES THE
ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER
HEREOF AND SUPERSEDES ANY PRIOR AGREEMENTS WITH RESPECT THERETO.
8
<PAGE>
7.5 Senior Debt. The Company agrees that the Revolving Loans and the
-----------
other obligations of the Company under or in connection with the Loan Documents
shall be "Senior Debt" for purposes of the Subordinated Indenture.
7.6 Loan Document. This Agreement is a Loan Document.
-------------
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CORPORATE EXPRESS, INC.
By: /s/ Sam Leno
--------------------------
Title: Executive Vice President
BANK OF AMERICA ILLINOIS,
as Managing Agent,
Administrative Agent and
Documentation/Syndication
Agent
By: /s/ Kevin Leader
--------------------------
Title: Vice President
BANK OF AMERICA ILLINOIS,
as Lender and as Issuing
Bank
By: /s/ Kevin Leader
--------------------------
Title: Vice President
10
<PAGE>
Exhibit A to
First Amendment Agreement
SCHEDULE 1
COMMITMENT AND PERCENTAGE
<TABLE>
<CAPTION>
Amount of
Revolving
Name of Lender Commitment Percentage
- -------------------------- ------------- -----------
<S> <C> <C>
Bank of America Illinois $250,000,000 100%
TOTALS: $250,000,000 100%
============
</TABLE>
A-1
<PAGE>
Exhibit 11.1
CORPORATE EXPRESS, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE
Year Ended Year Ended Year Ended
February 28, 1994 February 25, 1995 March 2, 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Income (loss) from $ (5,602,000) $ 12,149,000 $ 2,744,000
continuing operations
Preferred stock dividend $ (1,500,000) $ (432,000)
Discontinued operations 138,000 - -
Extraordinary item (1,169,000) 586,000 -
----------------- ----------------- ----------------
Net income (loss) $ (8,133,000) $ 12,303,000 $ 2,744,000
================= ================= ================
Income (loss) per share:
Continuing operations $ (.21) $ .24 $ .04
Discontinued operations .00 - -
Extraordinary item (.04) .01 -
----------------- ----------------- ----------------
Net income (loss) per share $ (.25) $ .25 $ .04
================= ================= ================
Weighted average shares 14,256,000 42,274,000 63,893,000
outstanding
Common Stock Equivalents:
Preferred stock 12,771,000 (A) 3,192,000 -
Stock options - (B) 2,418,000 4,164,000
and warrants
Convertible notes - (B)
Items issued within one
year of IPO:
Preferred stock 1,839,000 (C) 460,500 (C) -
Stock options 1,272,000 (C) 318,000 (C) -
and warrants
Common stock 2,127,000 (C) 532,500 (C) -
----------------- ----------------- ----------------
Total weighted average
shares outstanding 32,265,000 49,195,000 68,057,000
================= ================= ================
</TABLE>
FULLY DILUTED EARNINGS PER
SHARE
Fully diluted earnings per share differs from primary earnings per share by
less than 3%.
- ------------------------------------------------------------------------------
(A) Preferred stock is included even though anti-dilutive due to automatic
conversion to common stock on a two-for-one basis upon completion of the
initial public offering.
(B) Amounts are excluded from the calculation as they are anti-dilutive.
(C) Amounts represent stock issued within one year of the initial filing of the
registration statement in connection with the initial public offering at
below the IPO price and are net of shares repurchased under the treasury
stock method.
<PAGE>
EXHIBIT 21.1
Corporate Express of the South, Inc.
Schooley, Inc.
Lake Charles Office Plus, Inc.
CE Miami Real Estate, Inc.
Corporate Express of the West, Inc.
Corporate Express of Texas, Inc.
Lamb Printing & Stationery Co., Inc.
Enbee Company
General Stationers, Inc.
Brown & Parker, Inc. d/b/a Texas Office Supply
Corporate Express of the East, Inc.
Federal Sales Service, Inc.
Office Products Network of North America, Inc. (No assets)
Richard Young Journal, Inc.
International Business Supplies Corporation
Ross-Martin Company, Inc.
Advertising Consultants, Inc.
Corporate Express Real Estate, Inc.
U.S. Delivery Systems, Inc.
American Distribution Systems, Inc. (Michigan)
Boston Package Delivery, Inc. (Massachusetts)
CallCenter Services, Inc. (Delaware)
Connecticut Courier, Inc. (Connecticut)
Consolidated Services of NJ, Inc. (New Jersey)
Contemporary Courier, Inc. (New York)
Courier Services, Inc. (Arizona)
Crosstown Cartage, Inc. (Alabama)
Delivery Services, Inc. (Arizona)
Eastway Air Cartage, Inc. (Delaware)
Eastway Transportation Services, Inc. (Delaware)
First National Courier Systems, Inc. (Delaware)
Flash Courier Service of North Carolina, Inc. (NC)
Flash Courier Services, Inc. (Georgia)
Gamble Parts Dart, Inc. (Alabama)
General Transport Systems, Inc. (North Carolina)
Grace Courier Services, Inc. (Delaware)
Instant Delivery, Inc. (New York)
L.E.D.F.O.O.T. Express, Incorporated (New York)
Martinaire of Oklahoma, Inc. (Delaware)
New Delaware Delivery, Inc. (Delaware)
Pace Messenger Services, Inc. (Florida)
Parcel Delivery Quick, Inc. (Texas)
Primm Delivery Services, Inc. (Tennessee)
Priority Transportation, Inc. (California)
R & S Couriers, Inc. (Maryland)
S.R.G. Enterprises, Inc. (New York)
Security Acquisition, Inc. (Delaware)
Southwest Delivery Services, Inc. (Arizona)
Southwest Delivery Services, Inc. (Nevada)
Stat Express, Inc. (Delaware)
Systrans Air Freight, Inc.(New Jersey)
U.S. Delivery, Inc. (Delaware)
U.S. Corporation of America (Delaware)
ViaNet Austin, Inc. (Delaware)
ViaNet Dallas, Inc. (Delaware)
ViaNet Houston, Inc. (Texas)
ViaNet San Antonio, Inc. (Texas)
ViaNet New Orleans, Inc. (Delaware)
ViaNet Services, Inc. (Texas)
<PAGE>
EXHIBIT 21.1
Corporate Express (Holdings) Limited
Corporate Express (UK) Ltd (51%)
The Harrison Terry Group
Clix Magna plc
Caldwells The Stationers Limited
Chisholm's Limited
Highmead Stationers Limited
Chisholm's Mail Order Limited
Corporate Express Canada, Inc.
Corporate Express South Pacific Pty Ltd.
Corporate Express Holdings Australia Pty Limited
Corporate Express Finance Australia Pty Limited
Corporate Express Australia Limited (52%)
Arnell Pty Limited
Stationery Supermarket (Wholesale) Pty Limited
Ballment Manufacturing Co. Pty Limited
Ballment Office Products Pty Limited
Apex Office Products Pty Ltd
Illawarra Office Products (NSW) Pty Ltd
Ballment Group Superannuation Pty Ltd
Illawarra Office Products (Qld) Pty Limited
Barries (Aust.) Pty Limited
Adelaid Office Products Distributors Pty Ltd
Boulton Robinson Office Supplies Pty Limited
Revson Australia Pty Limited
ASAP Software Express, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Corporate Express, Inc. on Form S-8 (File No. 33-86574) of our report
dated June 11, 1996 on our audits of the consolidated financial statements
and financial statement schedule of Corporate Express, Inc. as of March 2,
1996 and February 25, 1995, and for the years ended March 2, 1996, February
25, 1995 and February 28, 1994, which report is included in this Annual
Report on Form 10-K.
Coopers & Lybrand, L.L.P.
Denver, Colorado
June 11, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 2, 1994 relating to the financial statements of Corporate
Express of Delaware, Inc. included in or made a part of this Form 10-K.
Arthur Andersen LLP
Baltimore, Maryland
June 7, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM* CORPORATE
EXPRESS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-02-1996
<PERIOD-START> FEB-26-1995
<PERIOD-END> MAR-02-1996
<CASH> 28,664
<SECURITIES> 0
<RECEIVABLES> 298,800
<ALLOWANCES> 5,380
<INVENTORY> 101,995
<CURRENT-ASSETS> 459,470
<PP&E> 158,974
<DEPRECIATION> 49,475
<TOTAL-ASSETS> 910,523
<CURRENT-LIABILITIES> 242,227
<BONDS> 127,900
0
0
<COMMON> 14
<OTHER-SE> 496,500
<TOTAL-LIABILITY-AND-EQUITY> 910,523
<SALES> 1,590,104
<TOTAL-REVENUES> 1,590,104
<CGS> 1,179,207
<TOTAL-COSTS> 381,093
<OTHER-EXPENSES> (724)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,396
<INCOME-PRETAX> 15,132
<INCOME-TAX> 10,952
<INCOME-CONTINUING> 2,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,744
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
