<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 30,1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
Commission File No. 0-24642
-------
CORPORATE EXPRESS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0978360
-------------------------- ----------
(State of incorporation or (I.R.S. Employer
organization) Identification No.)
1 Environmental Way
Broomfield, Colorado 80021
------------------------ -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 664-2000
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
---------- ----------
The number of shares of the registrant's common stock, par value $.0002 per
share, outstanding as of October 8, 1997 was 130,073,050.
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
August 30, March 1,
1997 1997
------------------ ----------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,290 $ 54,499
Trade accounts receivable, net of allowance
of $14,567 and $13,004, respectively 519,040 494,199
Notes and other receivables 50,336 55,530
Inventories 201,354 187,558
Deferred income taxes 28,363 29,076
Other current assets 36,332 28,548
------------------ ----------------
Total current assets 874,715 849,410
Property and equipment:
Land 13,831 14,105
Buildings and leasehold improvements 104,198 106,824
Furniture and equipment 286,628 249,693
------------------ ----------------
404,657 370,622
Less accumulated depreciation (124,077) (106,891)
------------------ ----------------
280,580 263,731
Goodwill, net of $45,896 and $36,471 of accumulated
amortization, respectively 680,396 671,967
Other assets, net 71,274 58,869
------------------ ----------------
Total assets $ 1,906,965 $ 1,843,977
================== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-2-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 30, March 1,
1997 1997
---------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 307,722 $ 297,119
Accrued payroll and benefits 57,709 45,512
Accrued purchase costs 11,307 12,888
Accrued merger and related costs 12,292 18,484
Other accrued liabilities 47,929 52,012
Current portion of long-term debt and capital leases 25,976 29,742
---------------- -------------
Total current liabilities 462,935 455,757
Capital lease obligations 11,398 11,545
Long-term debt 626,216 621,705
Deferred income taxes 38,350 26,819
Minority interest in subsidiaries 22,285 22,015
Other non-current liabilities 13,178 12,529
---------------- -------------
Total liabilities 1,174,362 1,150,370
Contingencies (Note 7)
Shareholders' equity:
Preferred stock, $.0001 par value, 25,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.0002 par value, 300,000,000 shares
authorized, 129,840,434 and 126,171,467 shares 26 25
issued and outstanding, respectively
Common stock, non-voting, $.0002 par value, 3,000,000
shares authorized, none issued or outstanding - -
Additional paid-in capital 666,461 646,536
Retained earnings 72,811 48,222
Foreign currency translation adjustments (6,695) (1,176)
---------------- -------------
Total shareholders' equity 732,603 693,607
---------------- -------------
Total liabilities and shareholders' equity $ 1,906,965 $ 1,843,977
================ =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-3-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------------
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
--------------- ---------------- ------------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 941,634 $ 755,009 $ 1,854,976 $ 1,405,870
Cost of sales 719,410 572,195 1,418,524 1,058,727
--------------- ---------------- ------------------- -----------------
Gross profit 222,224 182,814 436,452 347,143
Warehouse operating and selling expense 161,857 131,841 320,900 249,281
Corporate general and administrative expenses 25,997 22,886 55,480 44,124
--------------- ---------------- ------------------- -----------------
Operating profit 34,370 28,087 60,072 53,738
Interest expense, net 9,279 5,965 19,194 10,669
--------------- ---------------- ------------------- -----------------
Income before income taxes 25,091 22,122 40,878 43,069
Income tax expense 10,621 9,035 17,331 17,670
--------------- ---------------- ------------------- -----------------
Income before minority interest 14,470 13,087 23,547 25,399
Minority interest (97) (330) (1,042) (100)
--------------- ---------------- ------------------- -----------------
Net income $ 14,567 $ 13,417 $ 24,589 $ 25,499
=============== ================ =================== =================
Pro forma net income $ 14,567 $ 13,090 $ 24,589 $ 24,842
=============== ================ =================== =================
Pro forma net income per share $ .11 $ .10 $ .18 $ .19
=============== ================ =================== =================
Weighted average common shares outstanding 137,061 128,961 133,786 128,267
=============== ================ =================== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-4-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
August 30, August 31,
1997 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 24,589 $ 25,499
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 20,337 13,432
Amortization 11,028 7,946
Adjustment to conform fiscal years - (430)
Minority interest (1,042) (100)
Other 2,299 881
Changes in assets and liabilities, excluding acquisitions:
(Increase) decrease in accounts receivable (16,778) (8,255)
(Increase) decrease in inventory (12,194) (5,174)
(Increase) decrease in other current assets (2,232) (4,208)
(Increase) decrease in other assets (1,605) (108)
Increase (decrease) in accounts payable 5,087 4,882
Increase (decrease) in accrued liabilities 8,819 (4,269)
-------------- -------------
Net cash provided by operating activities 38,308 30,096
-------------- -------------
Cash flows from investing activities:
Proceeds from sale of assets 13,040 752
Capital expenditures (47,447) (59,135)
Payment for acquisitions, net of cash acquired (14,603) (199,085)
Purchase of marketable securities (12,762) (11,575)
Other 3,507 (8,241)
-------------- -------------
Net cash used in investing activities (58,265) (277,284)
-------------- -------------
Cash flows from financing activities:
Issuance of common stock 4,261 5,810
Issuance of subsidiary common stock 2,434 -
Debt issuance costs (155) (7,198)
Proceeds from long-term borrowings 7,423 343,967
Repayments of long-term borrowings (19,033) (6,236)
Proceeds from short-term borrowings 7,085 2,011
Repayments of short-term borrowings (5,711) (8,366)
Net (payments on) proceeds from all lines of credit 9,305 (19,285)
Other (67) (3,056)
-------------- -------------
Net cash (used in) provided by financing activities 5,542 307,647
Effect of foreign currency exchange rate changes on cash (794) (314)
-------------- -------------
(Decrease) increase in cash and cash equivalents (15,209) 60,145
Cash and cash equivalents, beginning of period 54,499 29,813
-------------- -------------
Cash and cash equivalents, end of period $ 39,290 $ 89,958
============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-5-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations in the amount of $3,342,000 and $4,732,000 were
incurred during the six months ended August 30, 1997 and August 31, 1996,
respectively, for equipment and vehicles.
During the six months ended August 30, 1997, the Company acquired nine
companies accounted for as purchases for a net cash purchase price of
$10,467,000 and approximately 105,000 shares of common stock and seven companies
accounted for as immaterial poolings of interest for 2,056,000 shares of common
stock. During the six months ended August 31, 1996, the Company acquired 47
companies accounted for as purchases for a net cash purchase price of
$192,724,000 and approximately 617,000 shares of common stock, and nine
companies accounted for as immaterial poolings of interest for 924,000 shares of
common stock. In conjunction with these acquisitions, liabilities were assumed
as follows:
<TABLE>
<CAPTION>
Six Months Ended
-----------------
August 30, August 31,
1997 1996
---- ----
(In thousands)
(Unaudited)
<S> <C> <C>
Fair value of assets and goodwill acquired $ 35,164 $ 356,563
Cash paid, net of cash acquired (10,467) (192,724)
Issuance of stock (5,248) (25,326)
Purchase price payable, included
in current liabilities ( 57) (1,916)
-------- ---------
Liabilities assumed $ 19,392 $ 136,597
======== =========
</TABLE>
In addition to the amounts set forth above, during the six months ended
August 30, 1997, the Company paid $4,136,000 and issued approximately 354,000
shares of common stock for prior period acquisitions and acquired the remaining
49% interest in Corporate Express United Kingdom for shares of common stock of
the Company. During the six months ended August 31, 1996, the Company paid
$6,361,000 for prior period acquisitions.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements include the accounts of Corporate
Express, Inc. ("Corporate Express" or the "Company") and its majority-owned
subsidiaries. The following acquisitions were accounted for as poolings of
interests and, accordingly, the accompanying financial statements have been
restated to include their accounts and operations:
. Nimsa S.A. ("Nimsa") was acquired by the Company on October 31, 1996.
. Bevo Acquisition Corp., Inc., a wholly-owned subsidiary of the Company,
was merged with and into United TransNet, Inc. ("UT") on November 8, 1996.
. IMS Acquisition, Inc., a wholly-owned subsidiary of the Company, was
merged with and into Sofco Mead, Inc. ("Sofco") on January 24, 1997.
. H.M. Acquisition Corp., a wholly-owned subsidiary of the Company, was
merged with and into Hermann Marketing, Inc. ("HMI") on January 30, 1997.
Acquisitions accounted for as purchases are included in the accounts and
operations as of the effective date of the transaction and immaterial
acquisitions accounted for as poolings of interests are included in the accounts
and operations as of the beginning of the fiscal quarter in which the
transaction is effective. 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.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the year ended March 1, 1997.
Certain of the Company's locations calculate cost of sales using an estimated
gross profit method for interim periods. Cost of sales at these locations are
adjusted based on physical inventories which are performed no less than once a
year.
New Accounting Standards:
In the fourth quarter of fiscal 1997, the Company will adopt SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, "Earnings per Share" and makes
them comparable to international earnings per share standards. Had SFAS No. 128
been effective during the six months ended August 30, 1997 and August 31, 1996,
(i) "Basic earnings per share" under SFAS No. 128 would have been $.19 and $.21,
respectively, and (ii) "Dilutive earnings per share" under SFAS No. 128 would
have been $.18 and $.19, respectively. Had SFAS No. 128 been effective during
the three months ended August 30, 1997 and August 31, 1996, (i) "Basic earnings
per share" under SFAS No. 128 would have been $.11 and $.11, respectively, and
(ii) "Dilutive earnings per share" under SFAS No. 128 would have been $.11 and
$.10, respectively.
7
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
2. Accrued Purchase Costs
In conjunction with purchase acquisitions, the Company accrues certain of the
direct costs associated with closing redundant facilities of acquired companies,
and severance and relocation payments for the acquired company's employees.
The following table sets forth activity in the Company's accrued purchase
liability accounts for the six months ended August 30, 1997:
<TABLE>
<CAPTION>
Disposition
Facility Redundant of Assets
Total Exit Costs Facilities Severance & Other
------------ ----------- ----------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1997 $12,888 $ 1,845 $3,269 $ 6,149 $1,625
Additions/Adjustments 4,280 724 864 2,699 (7)
Payments (5,681) (1,364) (829) (3,301) (187)
Reversals to goodwill (180) -- (71) (109) --
------- ------- ------ ------- ------
Balance, August 30, 1997 $11,307 $ 1,205 $3,233 $ 5,438 $1,431
======= ======= ====== ======= ======
</TABLE>
3. Merger and Other Nonrecurring Charges
During the second quarter of fiscal 1997, the Company incurred $754,000 of
merger transaction costs related to second quarter acquisitions accounted for as
immaterial poolings of interests. Additionally, the Company reduced previous
charges by $874,000 to reflect actual exit costs to be incurred. Due to the
immateriality of these net amounts, they are included in corporate general and
administrative expenses in the consolidated statement of operations.
During the third and fourth quarters of fiscal 1996, the Company recorded an
estimated net merger and other nonrecurring charge in connection with the
Company's acquisition of UT, Nimsa, HMI and Sofco. This charge was adjusted in
the second quarter of fiscal 1997 to reflect the actual merger transaction costs
incurred. The following table sets forth the usage of this charge for the six
months ended August 30, 1997:
<TABLE>
<CAPTION>
Balance Cash Non-Cash Balance
3/1/97 Payments Usage Adjustment 8/30/97
------- -------- -------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Merger transaction costs (1) $ 2,568 $ (915) -- $(235) $ 1,418
Severance and terminations (2) 4,573 (1,494) -- -- 3,079
Facility closure and consolidation (3) 3,473 (361) -- -- 3,112
------- ------- -------- ----- --------
Accrued merger and related costs, balance 10,614 (2,770) -- (235) 7,609
Other asset write-downs and costs (4 ) 2,049 -- $(285) -- 1,764
------- ------- -------- ----- --------
Total $12,663 $(2,770) $(285) $(235) $ 9,373
======= ======= ======== ===== ========
</TABLE>
(1) Remaining merger transaction costs are primarily for the UT acquisition and
include contract buy-outs for certain employees. These amounts are expected
to be resolved by the end of fiscal 1997.
(2) Severance and employee termination costs are related to the elimination of
duplicative management positions and facility closures and consolidations.
Approximately 236 of the 485 employees originally estimated to be terminated
have been terminated as of August 30, 1997. The remaining terminations will
occur in conjunction with the facility closures and be concluded by the end
of fiscal 1998.
(3) Of the 115 facilities estimated to be closed or consolidated, 36 have been
closed or consolidated as of August 30, 1997. The remaining facilities are
expected to be closed by the end of fiscal 1998.
(4) Other asset write-downs and costs are recorded as contra assets and include
software, leasehold improvements and equipment being abandoned or written
off as a result of the UT acquisition and the facility consolidations.
8
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
During the fourth quarter of fiscal 1995, the Company recorded a merger and
other nonrecurring charge primarily in conjunction with the U.S. Delivery
Systems, Inc. ("Delivery") and Richard Young Journal, Inc. acquisitions. This
liability was adjusted in fiscal 1996 to reflect the actual merger transaction
costs incurred and revised plans primarily as a result of the integration of UT
with Delivery. The Company expected to complete this plan within two years;
however, due to the acquisition of UT in the third quarter of fiscal 1996, the
exit plan is expected to be completed by the end of the first quarter of fiscal
1998. This liability was adjusted by $639,000 during the second fiscal quarter
to reflect the actual exit costs to be incurred. The following table sets forth
the usage of this charge for the six months ended August 30, 1997:
<TABLE>
<CAPTION>
Balance Cash Non-Cash Balance
3/1/97 Payments Usage Adjustment 8/30/97
------- -------- -------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Merger transaction costs (1) $ 1,514 $(1,075) -- -- $ 439
Severance and terminations (2) 3,092 (648) -- $(448) 1,996
Facility closure and consolidation (3) 3,264 (886) -- (191) 2,187
------- ------- ----- ----- --------
Accrued merger and related costs, balance 7,870 (2,609) (639) 4,622
Other asset write-downs and costs (4 ) 2,103 -- $(737) -- 1,366
------- ------- ----- ----- --------
Total $ 9,973 $(2,609) $(737) $(639) $ 5,988
======= ======= ===== ===== ========
</TABLE>
(1) Remaining merger transactions costs represent the estimated contract buy-
outs for certain former Delivery employees which are being negotiated and
will be resolved in the third quarter of fiscal 1997.
(2) Severance and termination costs are the severance payments related to
facility closures and centralization of certain shared services. Of the 391
employees planned to be terminated, 67 have been terminated as of August 30,
1997. The Company expects to complete the facility closures and related
terminations by the end of the first quarter in fiscal 1998. The
centralization of certain shared services has begun in the second quarter of
fiscal 1997 and will continue through the first quarter of fiscal 1998.
(3) Facility closure and consolidation costs are the estimated costs to close
duplicate facilities, lease costs, and other costs associated with closed
facilities. Thirty-six of the 70 facilities planned to be closed or
consolidated have been; the remaining 34 facilities are expected to be
closed by the end of the first quarter in fiscal 1998.
(4) Other asset write-downs and costs are recorded as contra assets and include
software, leasehold improvements and equipment being abandoned or written
off as a result of the acquisition. The remaining balance primarily
represents assets that will be disposed of in conjunction with facility
closures which are expected to be completed by the end of the first quarter
in fiscal 1998.
4. PRO FORMA ACQUISITION RESULTS
On May 15, 1996, the company acquired all of the outstanding capital stock
of ASAP Software Express, Inc. ("ASAP"), a leading distributor of software to
large corporations for a purchase price of approximately $98 million. In
addition, the Company purchased all of the outstanding capital stock of
Boulevard Produits De Bureau, Inc. ("Boulevard"), a seller of office supplies,
furniture and equipment, for a net cash purchase price of $16,102,000. The
Company also repaid $9,498,000 of Boulevard promissory notes with cash of
$731,900 and 356,832 shares of the Company's common stock. The excess of the
purchase price over the fair market value of the net tangible assets acquired in
both acquisitions was allocated to goodwill and is being amortized over 40
years.
The operating results of ASAP and Boulevard are included in the Company's
consolidated statement of operations from the effective date of each
acquisition. The following pro forma financial information assumes the ASAP and
Boulevard acquisitions occurred at the beginning of the six-month period ended
August 31, 1996. These results have been prepared for comparative purposes only
and do not purport to be indicative of what would have occurred had the
transaction occurred at the beginning of the period, or of results which may
occur in the future. The pro forma results listed below are unaudited and
reflect purchase price adjustments.
Six Months Ended
August 31, 1996
------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C>
Net sales $1,456,863
Net income 26,169
Net income per share 0.20
</TABLE>
9
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
5. Pro Forma Net Income:
The pro forma net income and pro forma net income per share reflects the tax
adjustment for a fiscal 1996 acquisition accounted for as a pooling of interests
that was previously an S corporation for income tax purposes, as if the acquired
company had filed a C corporation tax return for all periods presented. The
effect is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, 1996 August 31, 1996
------------------ ----------------
<S> <C> <C>
Net income before pro forma adjustments, per
consolidated statements of operations $13,417 $25,499
Pro forma provision for income taxes 327 657
------- -------
Pro forma net income $13,090 $24,842
======= =======
</TABLE>
6. Subsequent Events
On September 10, 1997, the Company announced that a definitive agreement had
been executed providing for the merger with Data Documents, Inc. ("DDI"), a
provider of forms management services and systems, custom business forms and
pressure-sensitive labels for large corporate customers. Pursuant to the merger
agreement DDI will become a wholly-owned subsidiary of the Company and each
outstanding share of DDI's common stock will be converted into 1.1 shares of the
Company's common stock. The exchange ratio is subject to adjustment if the
price per share of the Company's common stock is greater than $18.20 or less
than $15.00 during a specified period prior to the closing date of the merger,
as provided in the merger agreement. In addition, the parties have the right to
terminate the merger agreement in certain circumstances. The shares of the
Registrant's common stock to be issued to DDI's shareholders will be registered
on a Registration Statement on Form S-4 filed under the Securities Act of 1933,
as amended. The consummation of the merger is subject to approval by DDI's
stockholders, receipt of all necessary regulatory approvals, satisfactory
confirmation that the merger will be treated as a tax-free reorganization and
accounted for as a pooling of interests, and other customary conditions. The
merger agreement may be terminated by the parties if the merger is not
consummated by December 31, 1997.
7. 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.
10
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net Sales. Consolidated net sales increased 24.7% to $941,634,000 in the
three months ended August 30, 1997 from $755,009,000 in the same period last
year and 31.9% to $1,854,976,000 from $1,405,870,000 for the respective six-
month periods. Net sales for the Company's product distribution business
increased 27.8% to $734,168,000 in the three months ended August 30, 1997 from
$574,413,000 in the same period last year, while net sales in the service
business increased 14.9% to $207,466,000 from $180,596,000 for the respective
three-month periods. Net sales for the Company's product distribution business
increased 35.3% to $1,434,490,000 in the six months ended August 30, 1997 from
$1,060,469,000 in the same period last year, while net sales in the service
business increased 21.7% to $420,486,000 from $345,401,000 for the respective
six-month periods. These increases were primarily attributable to 60
acquisitions completed since August 31, 1996. Also contributing to the sales
increase was strong internal growth reflecting increased market penetration in
domestic product distribution.
International operations accounted for 17.7% of consolidated net sales, or
$166,351,000, in the three months ended August 30, 1997 and 16.4% of
consolidated net sales, or $123,896,000, in the same period last year and 18.4%
of consolidated net sales, or $340,728,000, for the six months ended August 30,
1997 compared to 15.5% of consolidated net sales, or $218,396,000, for the same
period last year. The Company has expanded its international operations since
August 31, 1996 by acquiring 16 entities and expanding into France and Italy.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Gross profit as a percentage of sales was 23.6% for the three months
ended August 30, 1997 and 24.2% for the same period last year compared to 23.5%
and 24.7% for the respective six-month periods. The decrease in the gross
profit percentage is primarily attributable to the service business, which has
experienced reduced gross profit margins as a result of consolidation costs,
increases in driver and vehicle related costs, and pricing. Also affecting gross
profit were lower international gross margins primarily as a result of increased
competitive pressures and the addition of a desktop software line of products,
offset by increased vendor rebates reflecting improved programs due to the
integration of acquisitions to common vendors.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses as a percentage of sales decreased to 17.2% for the three months ended
August 30, 1997 from 17.5% for the same period last year and to 17.3% from 17.7%
for the respective six-month periods. The improvement in operating expenses as
a percentage of sales primarily reflects the recent consolidation cost savings
and elimination of duplicative administrative functions in the service and
international segments. Warehouse operating and selling expenses increased to
$161,857,000 in the three months ended August 30, 1997 from $131,841,000 in the
same period last year and to $320,900,000 from $249,281,000 for the respective
six-month periods. This dollar increase is primarily attributable to the 24.7%
increase in net sales in the comparable three-month period and 31.9% increase in
the comparable six-month period.
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 $25,997,000 in the
three months ended August 30, 1997 from $22,886,000 in the same period last year
and to $55,480,000 from $44,124,000 for the respective six-month periods. This
increase reflects the costs associated with developing a larger corporate staff
to support the expanded operations, including an expanded information systems
staff, and increased amortization of goodwill resulting from purchase
acquisitions since August 1996. As a percentage of net sales, corporate general
and administrative expenses decreased to 2.8% in the three months ended August
30, 1997 from 3.0% in the same period last year, and to 3.0% from 3.1% for the
respective six-month periods. These decreases reflect the leveraging of these
expenses as the Company's sales increase.
11
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONT'
Operating Profit. Consolidated operating profit was $34,370,000, or 3.7%
of net sales, for the three months ended August 30, 1997 compared to
consolidated operating profit of $28,087,000, or 3.7% of net sales, for the same
period last year. Consolidated operating profit was $60,072,000, or 3.2% of net
sales, for the six months ended August 30, 1997 compared to consolidated
operating profit of $53,738,000, or 3.8% of net sales, for the same period last
year. Operating profit for the product distribution segment increased to
$28,338,000, or 3.9% of product distribution net sales, in the three months
ended August 30, 1997 from $19,946,000, or 3.5% of product distribution net
sales, in the same period last year, and to $46,871,000, or 3.3% of product
distribution net sales, from $37,897,000, or 3.6% of product distribution net
sales, for the corresponding six-month periods. The increase in operating
profit as a percentage of product distribution net sales for the respective
three-month periods primarily reflects increased international operating
profits. Operating profit for the service segment decreased to $6,032,000, or
2.9% of service net revenues, in the three months ended August 30, 1997 from
$8,142,000, or 4.5% of service net revenues, in the same period last year, and
to $13,201,000 or 3.1% of service net sales, from $15,842,000, or 4.6% of
service net sales, for the corresponding six-month periods. The decrease in
operating profit for the service segment reflects restructuring efforts and weak
performance at several delivery locations, partially offset by some cost savings
from consolidation efforts and the elimination of duplicative personnel.
Operating profit for international operations increased to 1.2% of net
international sales in the three months ended August 30, 1997 from break even in
the same period last year, and to 1.2% from 1.0% in the respective six-month
periods, primarily reflecting operating profits in Canada, Australia, and
France, partially offset by operating losses in the United Kingdom, Germany, and
Italy. Recent consolidations in the United Kingdom and Italy have negatively
impacted operating profits.
Interest Expense. Net interest expense of $9,279,000 in the three months
ended August 30, 1997 increased from $5,965,000 in the same period last year,
and to $19,194,000 from $10,669,000 for the respective six-month periods. The
increase in net interest expense reflects increased Company debt to fund
international and domestic expansion and reflects the interest on the
$325,000,000 principal amount of 4.5% Convertible Notes due July 1, 2000 which
were issued June 24, 1996 (the "Convertible Notes").
Minority Interest. Minority interest income of $97,000 in the three months
ended August 30, 1997 compares to minority interest income of $330,000 in the
same period last year, and to $1,042,000 from $100,000 for the respective six-
month periods. The minority interest income for the three months ended August
30, 1997 reflects the 47.4% minority interest in the operating profits at
Corporate Express Australia ("CEA"), offset by the 49% minority interest
operating losses at Corporate Express United Kingdom ("CEUK") through June 30,
1997. On July 1, 1997, the Company acquired the remaining 49% interest in
CEUK. The minority interest income for the six months ended August 30, 1997
reflects the 47.4% minority interest in the operating losses at CEA and the 49%
minority interest operating losses at CEUK through June 30, 1997.
Net Income. Net income of $14,567,000 in the three months ended August 30,
1997 compared to net income of $13,417,000 in the same period last year, and to
$24,589,000 from $25,499,000 for the respective six-month periods. The after-
tax profitability was reduced by an increase in the effective tax rate to 42.3%
in the three months ended August 30, 1997 from 40.8% in the same period last
year, and to 42.4% from 41.0% for the respective six-month periods.
Other. Goodwill at August 30, 1997 of $680,396,000 increased $8,429,000
from $671,967,000 at March 1, 1997, reflecting net additions from acquisitions
of $17,854,000, offset by current year amortization of $9,425,000.
Accrued purchase costs at August 30, 1997 of $11,307,000 decreased by
$1,581,000 from the March 1, 1997 balance of $12,888,000. This decrease
reflects acquisition additions of $4,280,000, usage of $5,681,000 and reversals
to goodwill of $180,000. The remaining balance primarily represents the current
estimate for costs
12
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONT'
to be incurred in conjunction with planned consolidation projects in Canada, the
United Kingdom, Italy, Germany, and certain domestic locations. (See Note 2 to
the Consolidated Financial Statements.)
The accrued merger and related costs balance at August 30, 1997 of
$12,292,000 decreased by $6,192,000 from the March 1, 1997 balance of
$18,484,000, primarily as a result of severance and termination costs related to
the Delivery and UT mergers and final payments for the acquisitions of Delivery
and Richard Young Journal, Inc. transaction costs. (See Note 3 to the
Consolidated Financial Statements.)
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.
On June 24, 1996, the Company issued the Convertible Notes, which are
convertible into shares of Common Stock of the Company at a conversion price of
$33.33 per share, subject to certain conditions. A portion of the proceeds from
the sale of the Convertible Notes was used to repay the Company's revolving
credit facility (the "Senior Credit Facility") and an acquisition note payable
with the remaining proceeds being used to fund acquisitions and for other
general corporate purposes.
The Company's Senior Credit Facility was expanded on September 10, 1997 to
increase the borrowing capacity from $350,000,000 to $500,000,000 and the cost
of borrowings under the Facility was increased to LIBOR plus .75%. The Senior
Credit Facility was previously amended and restated on November 26, 1996 to
increase the borrowing capacity from $90,000,000 to $350,000,000, extend the
facility termination date to March 31, 2000, release the assets of the Company
(the previous facility was secured by substantially all of the assets, including
accounts receivable and inventory of the Company and its United States
subsidiaries), and to make certain other changes.
During the six months ended August 30, 1997, the Company purchased 16
companies for a net cash purchase price of $10,467,000 and approximately
2,161,000 shares of common stock. Total liabilities assumed in connection with
these acquisitions were $19,392,000. In addition, the Company made payments of
approximately $4,136,000 and issued approximately 354,000 shares of common stock
related to acquisitions completed in prior fiscal years.
During the six months ended August 30, 1997, the Company had capital
expenditures of $47,447,000 for computer systems and software, warehouse
reconfigurations, telecommunications equipment, delivery vehicles, leasehold
improvements and investments in facilities. The Company continues to invest in
the development of its proprietary computer software and the upgrade of its
computer systems.
Significant uses of cash in the six months ended August 30, 1997 were as
follows: capital expenditures of $47,447,000, cash paid for acquisitions of
$14,603,000, purchase of marketable securities of $12,762,000 and net debt
repayments of $931,000, partially offset by cash provided by operating
activities of $38,308,000, proceeds from the sale of assets of $13,040,000,
issuance of common stock of $4,261,000, issuance of subsidiary common stock of
$2,434,000, and net other activities of $2,491,000.
The Company believes that the borrowing capacity under the Senior Credit
Facility, together with proceeds from future debt and equity financings, in
addition to the Company's cash on hand, capital resources and cash flows, will
be sufficient to fund the Company's 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 complete in the future.
13
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONT'
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 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.
14
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
On June 13, 1997, in connection with a business acquisition, the
Company issued 5,297 shares of common stock to former shareholders of an
acquired company in exchange for such shareholders' shares of capital stock.
This issuance was made pursuant to exemptions from registration under Section
4(2) under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on July
17, 1997. Of the 127,113,436 shares of the Company's common stock issued and
outstanding and entitled to vote at the meeting, there were present, in person
or by proxy, 112,036,351 shares, or 88.1% of those shares eligible to vote, such
percentage representing a quorum.
The matters voted upon at the annual meeting and the votes cast for,
against and abstaining as to each matter, were as follows:
(1) The election of directors of the Company to serve until the next
meeting of shareholders or until their successors are duly elected and
qualified.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Jirka Rysavy 110,677,668 1,358,683
Janet A. Hickey 110,495,631 1,540,720
Robert L. King 110,674,221 1,362,130
Mo Siegel 110,597,545 1,438,806
James P. Argyropoulos 110,750,021 1,286,330
</TABLE>
(2) To approve an amendment to the 1994 Stock Option and Incentive
Plan to increase the number of shares authorized for grant from 9,562,500 to
13,562,500:
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
97,253,988 14,635,170 100,358 46,835
76.5% of outstanding voting in favor; 11.5% against.
ITEM 5. OTHER INFORMATION
None.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE EXPRESS, INC.
By: /s/ Sam R. Leno
----------------
Sam R. Leno
Executive Vice President and
Chief Financial Officer
Date: October 14, 1997 (Principal Financial Officer and Duly
Authorized Officer)
17
<PAGE>
Exhibit 11.1
CORPORATE EXPRESS, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------- --------------------------------------
August 30, August 31, August 30, August 31,
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Pro forma net income $ 14,567 $ 13,090 $ 24,589 $ 24,842
================= ================= ================= =================
Pro forma net income per share $ 0.11 $ 0.10 $ 0.18 $ 0.19
================= ================= ================= =================
Weighted average shares outstanding 129,574 119,700 128,196 119,100
Common Stock Equivalents:
Stock options and warrants 7,487 9,261 5,590 9,167
----------------- ----------------- ----------------- -----------------
Total weighted average shares outstanding 137,061 128,961 133,786 128,267
================= ================= ================= =================
</TABLE>
FULLY DILUTED EARNINGS PER SHARE
Fully diluted earnings per share differs from primary earnings per share by less
than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Corporate
Express Consolidated Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> AUG-30-1997
<CASH> 39,920
<SECURITIES> 0
<RECEIVABLES> 533,607
<ALLOWANCES> 14,567
<INVENTORY> 201,354
<CURRENT-ASSETS> 874,715
<PP&E> 404,657
<DEPRECIATION> 124,077
<TOTAL-ASSETS> 1,906,965
<CURRENT-LIABILITIES> 462,935
<BONDS> 626,216
0
0
<COMMON> 26
<OTHER-SE> 732,577
<TOTAL-LIABILITY-AND-EQUITY> 1,906,965
<SALES> 1,854,976
<TOTAL-REVENUES> 1,854,976
<CGS> 1,418,524
<TOTAL-COSTS> 376,380
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,194
<INCOME-PRETAX> 40,878
<INCOME-TAX> 17,331
<INCOME-CONTINUING> 24,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,589
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
