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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended ____
OR
[ X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from March 2, 1997 to January 31, 1998
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.)
1 Environmental Way 80021
Broomfield, Colorado (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 664-2000
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 registrants 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at April 23, 1998 was $1,039,452,708.
The number of shares outstanding of the registrant's Common Stock as of
April 23, 1998 was 107,932,725.
Documents Incorporated by Reference
Portions of the following documents are incorporated by reference:
Part III - The Registrant's definitive Proxy Statement for its 1998 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/A
For the transition period from March 2, 1997 to January 31, 1998
Table of Contents
Item Page
Number Number
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PART I
1. Business.............................................................1
2. Properties...........................................................8
3. Legal Proceedings....................................................8
4. Submission of Matters to a Vote of Security Holders..................8
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters..............................................................9
6. Selected Consolidated Financial Data.................................9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................11
7A. Quantitative and Qualitative Disclosure About Market Risk...........11
8. Financial Statements and Supplementary Data.........................19
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................73
PART III
10. Directors and Executive Officers of the Registrant..................73
11. Executive Compensation.............................................73
12. Security Ownership of Certain Beneficial Owners and Management......73
13. Certain Relationships and Related Transactions......................73
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K...73
15. Signatures..........................................................77
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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
global provider of essential goods and services to corporations and
organizations which value innovative procurement solutions. Since 1991, the
Company has grown internally and through acquisitions from a regional operation
in Colorado to a global enterprise with locations throughout the United States
and various international markets.
The Company believes it has developed a substantially different model of
non-store retailing, defining itself as a "Corporate Supplier" capable of
providing a broad assortment of non-production goods and services to customers,
while reducing their total procurement costs and providing them with a high
level of customer service. The Company's current product and service offering
includes office supplies, paper, computer and imaging supplies, computer desktop
software, office furniture, janitorial and cleaning supplies, advertising
specialties, custom business forms, pressure-sensitive label products, forms
management services, printing, same-day local delivery services and distribution
logistics management. Corporate Express markets to existing and prospective
customers through a direct sales force and delivers its products and services
utilizing approximately 700 world-wide locations including 92 distribution
centers and a fleet of over 10,000 owned or contracted vehicles.
The Company's target customers, which value innovative procurement
solutions, are typically large corporations and organizations with over 100
employees. The Company believes that these large corporations increasingly seek
to reduce the cost of procuring non-production goods and services while
decreasing the time and effort spent managing functions that are not considered
their core competencies. To that end, corporations seek to reduce their number
of suppliers in order to eliminate the internal costs associated with multiple
invoices, multiple deliveries, complex and varied 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 in many of their locations nationally and internationally.
THE CORPORATE SUPPLIER STRATEGY
The Company's Corporate Supplier strategy is designed to reduce its
customers' aggregate costs (especially their internal operating costs) and
effort necessary to manage the procurement of essential goods and services. The
Company believes that its wide assortment of non-production goods and services,
as well as its broad geographic coverage and delivery capabilities, allow the
Company to effectively respond to a broad range of customer needs. The Company
also believes that its customers value the high level of service the Company
provides through its account relationship managers, electronic commerce
solutions, same-day delivery, customized pricing, broad product assortment,
customized reporting and array of product catalogs.
The Company seeks to continually reduce its merchandise and operating costs
enabling it to offer its customers competitive prices. By purchasing most of
its products directly from manufacturers in large volume and limiting the number
of manufacturers represented in its In-Stock Catalog and other specialty
catalogs, the Company is able to obtain increasing volume discounts and
allowances from its vendors. The Company believes its information systems
represent a key strategic advantage differentiating the Company from its
competitors while permitting it to achieve cost savings, provide unique
capabilities to its customers, and centrally manage its operations. The Company
expects to continue making improvements and enhancements to the capabilities of
its information systems. Such investments are expected to enable the Company to
continue to differentiate its product and service offerings, while increasing
its operating margins.
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The Company intends to continue to grow in the future, primarily through
internal growth, coupled with selective strategic acquisitions. The Company
plans to increase sales to existing customers by cross-selling its expanded
product and service offerings and by developing existing customers into multi-
regional, national or international accounts. The Company seeks to attract new
customers, including national and international accounts, through its marketing
efforts and the use of its direct sales force. The Company continues to expand
its product depth while it expands its geographic coverage outside the United
States and its sales efforts in all geographic regions.
INDUSTRY OVERVIEW
In many non-production goods and services business sectors, including
office products and same-day local delivery, competition is fragmented and
includes many small local or regional providers. The Company believes that the
desire of large corporations to reduce their procurement costs by decreasing
their number of suppliers to a small group of reliable and cost-effective
partners will continue to cause the consolidation of many currently fragmented
product segments, as well as consolidation between separate sectors where the
key differentiation among suppliers will be their relative ability to fulfill
customer needs, rather than their ability to supply an individual product or
service.
The Company currently operates in two main product sector categories:
product distribution (which includes office products, computer supplies, forms
production and management, desktop software, promotional products and cleaning
and service supplies) and services (primarily same-day delivery), with the
majority of its revenue and cash flow attributable to the product distribution
business.
Product Distribution
The office products distribution industry in the U.S. is consolidating
rapidly and undergoing other significant changes. As a result of consolidation,
the number of independent, midsize office products contract distribution
companies (those with annual sales of more than $15 million) has declined
significantly. Large companies (including the Company) serving a broad range of
customers have acquired many of these smaller businesses. As the office
products industry continues to consolidate, the Company believes that many of
the remaining smaller office products distribution companies will be unable to
compete due, in part, to their inability to purchase products at favorable
prices or provide all of the services customers require. The Company expects
that these independent businesses will be acquired by larger companies or will
close.
The office products industry consists primarily of companies that operate
in one or more of three broad sales channels: the contract distribution
channel, the direct marketing channel and the retail channel. Contract
distributors typically serve large and medium-sized business customers through
the use of a product catalog and a direct sales organization and typically stock
certain products in distribution centers and deliver such products to customers
the next business day. The major contract stationers carry a significant
proportion of their merchandise in-stock, relying only upon wholesaler
intermediaries for inventory backup and increased product breadth, while smaller
contract distributors carry a much smaller portion of their merchandise in
stock. Direct marketers of office products typically target small business
customers and home offices. While their procurement and order fulfillment
functions are similar to contract stationers, direct marketers rely almost
exclusively on catalogs and other direct marketing programs, rather than direct
sales forces, to sell their products, and generally use third parties to deliver
such products. Office product retailers typically serve smaller businesses,
home office and individuals. Over the last decade, this retail channel has
undergone significant change, primarily as the result of the emergence of office
products superstores. The Company believes that every major metropolitan area
in the U.S. is now served by at least one office products superstore.
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Also included in the Company's product distribution sector are desktop
software, forms production and management, advertising specialties, promotional
products and cleaning and service supplies. Companies in the desktop software
industry provide its corporate clients with a wide array of personal computer
and network software titles on a shrink-wrapped and volume license basis. Net
revenue includes the sale of shrink-wrapped product and the sale of licenses for
the use of software produced by major software publishers. The Company's other
product distribution business lines are also large markets served by many large
and small competitors.
Services
The services segment consists primarily of same-day delivery and logistics
services along with certain call center services. The same-day delivery
industry offers a variety of customized distribution services for corporate
customers with time-sensitive pickup and delivery requirements. Services
include regularly scheduled core replenishment deliveries, individual special
orders and door-to-door courier deliveries. Through both ground and air
divisions, the Company provides same day delivery fulfillment and next flight
out services to its corporate clients.
PRODUCTS, SERVICES AND REGIONS OF OPERATION
The Company provides a broad range of non-production goods and services to
large corporations throughout North America as well as Europe and the Southern
Pacific. The Company's product and service offerings include office products,
computer supplies, forms production and management, desktop software,
promotional products, cleaning and service supplies and services (primarily
same-day delivery). Name brands offered by the Company include 3M, Microsoft
and Hewlett-Packard, as well as the Company's own "EXP" private label. The
approximate percentages of the Company's net sales by product and service
category and by geographical segments are as follows:
Fiscal Year
-----------------------------
1997 1996 1995 1994
----- ----- ----- -----
Industry segments:
Product distribution (1) 79% 76% 82% 81%
Delivery services 21% 24% 18% 19%
Geographical segments:
Domestic (U.S. only) 81% 82% 87% 100%
International 19% 18% 13% 0%
(1) Includes office, computer and janitorial supplies, desktop software,
promotional products, furniture and forms production and management.
MERCHANDISING STRATEGY
The Company's domestic merchandising strategy is based primarily on the
Company's proprietary, full-color In-Stock Catalog. This catalog provides a
comprehensive selection and variety of more than 5,000 of the best-selling items
in the core categories of office and computer supplies which the Company
regularly maintains in inventory in its regional warehouses for next-day
delivery. The Company is currently expanding its core assortment of products
featured in the In-Stock Catalog to include certain additional products. This
merchandising strategy differs from that of traditional contract stationers
which typically provide their customers with wholesaler-produced catalogs and
maintain only a small portion of that product assortment on hand. The Company
has introduced the In-Stock Catalog in all of its United States regions and has
introduced similar country-specific versions of the In-Stock
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Catalog in Canada, Australia and the United Kingdom. Substantially all products
featured in the In-Stock Catalog are purchased by the Company directly from the
manufacturer, eliminating the wholesaler's mark-up. A broad selection of
specialty computer and imaging supplies, computer software, furniture and other
items are featured in various Company 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 scanning
order entry. In addition to the In-Stock Catalog, the Company produces
supplementary specialty catalogs for complementary products and services,
including additional computer and imaging products, office furniture,
promotional products and advertising specialties. The Company also offers
various electronic versions of the In-Stock Catalog complete with pictures and
custom pricing.
DISTRIBUTION FACILITIES
The Company's distribution network consists of 92 warehouses that maintain
significant inventory for resale and 604 distribution breakpoints and satellite
sales offices which extend the Company's geographic coverage. Corporate Express
has eliminated, and plans to continue to eliminate, redundant facilities in the
United States and abroad. In its office products business, the Company
typically operates from a single regional distribution center which generally
supports multiple distribution breakpoints and satellite sales offices. Items
stocked in these regional office products' distribution centers generally
consist of the most commonly ordered items for which customers generally demand
next-day delivery through Company vehicles.
PROPRIETARY COMPUTER SOFTWARE APPLICATIONS
Corporate Express continues to make substantial investments in the
development and enhancement of its proprietary computer software applications.
During the eleven months ended January 31, 1998 ("fiscal 1997"), the Company
completed the development and implementation of its ISIS computer software for
its national account customers and successfully launched the internet version of
E-Way, its electronic commerce, ordering and fulfillment system. The integrated
multi-divisional version of the ISIS software continues to be developed and
enhanced and is currently in beta test mode at two operating divisions.
Key features of the ISIS system are the use of three-tier client server
architecture that allows customers and suppliers to better communicate with
Corporate Express, object oriented design techniques and a relational database
designed to handle customer inquiry, data warehouse and management information
applications. Through the implementation of these enhanced systems, Corporate
Express plans to make its products and services available to a broader range of
customers through its Corporate Supplier business model and to further customize
customer services and account information while lowering the customer's overall
procurement cost. In addition, the new systems are expected to allow Corporate
Express to more effectively integrate acquisitions and streamline operations by
providing greater electronic access to information between the Company, its
customers and its suppliers. There can be no assurance that these objectives
will be attained.
The Company anticipates that ongoing enhancements and modifications to its
computer systems 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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MARKETING
The Company markets its various products and services directly to individual
customers by designing and offering customized merchandise and service packages
tailored to each customer's specific needs. The Company generally offers
discounts from the manufacturer's suggested list prices on many products.
Prices for some high volume items are often established by competitive bidding.
A substantial portion of the Company's revenues from its service segment are
derived from customers who have entered into contracts with the Company. The
Company has a broad customer base and believes that no single customer accounted
for more than one percent of total sales during fiscal 1997.
The Company markets its products and services through a combination of
national account sales teams, a local sales force, and account managers. The
national account sales teams take primary responsibility for maintaining and
increasing sales of the Company's wide array of products and services to multi-
location customers. These marketing efforts are supported through proprietary
information technology resources dedicated to the national account teams. The
Company's local sales force is generally commission-based and is organized
within each of the Company's major product and service categories. The Company
believes that this structure maximizes the productivity as well as the product
and service knowledge of its sales force. Each customer is assigned an account
manager, who maintains regular contact with the customer. Account managers
share in the responsibility of maintaining customer satisfaction, resolving any
potential customer issues and increasing the Company's sales to each account.
Account managers are also assigned a list of prospective customers for whom the
account manager takes responsibility in directing all marketing efforts.
Additional responsibilities of the account managers include designing and
implementing customized merchandise and service packages for each of their
accounts as well as responding to all special service requests.
STRUCTURE AND INTEGRATION OF ACQUISITIONS
The Company has historically grown through numerous acquisitions of small
office products and service companies who generally have annual sales of less
than $30 million. The Company intends to continue to grow in the future through
internal growth coupled with selective strategic acquisitions. The Company
plans to increase sales to existing customers by cross-selling its expanded
product and service offerings and developing existing customers into multi-
regional, national or international accounts. The Company seeks to attract new
customers, including national and international accounts, through the marketing
efforts of its direct sales force.
Additionally, 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 consolidation expenses, asset write downs and
severance payments. 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 generally eliminated or consolidated with
the Company's existing operations.
Upgrading of Facilities. In addition to eliminating redundant facilities,
the Company has undertaken a program to upgrade certain of its existing
facilities to enable these facilities to handle higher sales volumes resulting
from its internal growth and acquisition activity. These upgrades include
modernization of equipment and computer systems, phone system and wide area
network standardization and improved material handling including a
reconfiguration of inventory within the warehouse. The Company will also, where
appropriate, construct or lease new distribution facilities into which existing,
outdated facilities will be combined.
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Consolidation of Purchasing Power. As part of its integration of
acquisitions, the Company takes advantage of its volume purchasing power and
seeks to negotiate favorable prices and terms from suppliers.
Implementation of Proprietary Computer Software. Acquired product
distribution companies are generally incorporated into the Company's proprietary
computer software environment, including EDI, common master item files, national
accounts software and customer ordering, inventory management software, etc.
Certain elements of these implementations will be timed to coincide with
introduction of the Company's next generation of computer software (see
"Proprietary Computer Software Applications" above).
The consolidation, centralization and integration of widely dispersed
businesses involve a number of special risks, including adverse short-term
effects on the Company's reported operating results, the diversion of
management's attention, the dependence on retention, hiring and training key
personnel, 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.
INTERNATIONAL ACQUISITIONS
The Company has made acquisitions and established operations in Canada,
Australia, New Zealand, the United Kingdom, Germany, France, Italy, Ireland and
Switzerland, and the Company may enter additional international markets in the
future. The Company has typically retained existing management and information
systems in its international acquisitions. The Company has and will continue 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, while focusing on larger customers and
developing national and international accounts. Portions of the Corporate
Supplier business model have been implemented in Canada, Australia and the
United Kingdom.
EXPANSION OF PRODUCT AND SERVICE OFFERINGS
The Company believes that its domestic and international network of
centrally-managed distribution centers, computer systems and direct sales force
provides the infrastructure to efficiently supply corporate customers with a
broad range of non-production goods and services. To capitalize on this
competitive advantage, the Company has added through acquisitions the following
major product and service categories since 1994: forms printing and management,
same-day local delivery services, distribution logistics management, computer
and imaging supplies, desktop software, advertising specialties, janitorial and
cleaning supplies, business forms and pressure-sensitive labels. The Company
may add additional product and service categories through acquisitions or
product line expansion. Following the acquisition of a company whose product
and service offerings are complementary to the Company's existing offerings, the
Company's initial integration efforts are focused on cross selling its products
and services and those of the acquired operations to each respective customer
base.
COMPETITION
The Company operates in a highly competitive environment. The Company's
principal competitors in North America for office supplies and computer products
include both 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 and supplies for personal computers. In
certain of its business segments the Company may have various other large and
small competitors. In Europe and Australia, the Company's competitors include
primarily local and regional contract stationers and, to a limited extent,
national and multi-national contract stationers. In the delivery services
sector the
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Company has numerous competitors in each market, certain of which have service
capabilities which are similar 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 a part of
fragmented industries which are currently experiencing a trend toward
consolidation. Although the Company believes its pricing is competitive with
its competitors, the Company also seeks to differentiate itself from its
competitors in each of its major product and service categories through its
systems, product assortment, service offerings and breadth of capabilities.
Certain of the Company's competitors have greater financial resources than the
Company. However, the Company believes that its Corporate Supplier business
model differentiates the Company from its competitors by offering, through a
single source, a unique selection of products and services for large corporate
customers.
EMPLOYEES
As of April 1, 1998, the Company had approximately 27,300 full-time
employees, 6,900 of whom were primarily employed in management and
administration, 15,000 in regional warehouse, delivery and distribution
operations and 5,400 in sales and marketing, order processing and customer
service. Approximately 87% of these employees are in the U.S., 6% are in
Europe, 3% are in Canada and 4% are in the Southern Pacific. As of April 1,
1998, approximately 391 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 is currently 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.
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 operating 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 to the demand for the
products and services offered by the Company.
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ITEM 2. PROPERTIES
As of January 31, 1998, Corporate Express owned 46 facilities and leased 650
facilities. Of the 696 facilities, one was the corporate headquarters in
Broomfield, Colorado, 92 were product distribution warehouses and contiguous
administrative offices and 603 were separate sales or administrative offices,
delivery facilities or breakpoints. The Company's principal properties are
summarized as follows:
Sales, Service
Distribution & Corporate Total
Centers Facilities Facilities
------------ ----------- --------------
United States 51 554 605
Australia 8 3 11
New Zealand 6 --- 6
Canada 6 10 16
United Kingdom 5 17 22
France 1 1 2
Italy 3 4 7
Switzerland 2 --- 2
Ireland 1 --- 1
Germany 9 15 24
-- --- ---
Total 92 604 696
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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 office and computer supply product distribution from a single regional
warehouse with satellite sales offices and distribution breakpoints in each of
its regions. The Company also may 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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 in
September 1994, the Company's Common Stock has traded on the Nasdaq National
Market under the symbol "CEXP." The following table sets
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forth, for the fiscal quarters indicated, the high and low closing sale prices
for the Common Stock, as reported by the Nasdaq National Market, and reflect
prior share dividends:
High Low
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Fiscal 1995
First Quarter $13.33 $10.22
Second Quarter 17.17 12.67
Third Quarter 19.92 13.33
Fourth Quarter 21.09 15.42
Fiscal 1996
First Quarter 28.17 19.25
Second Quarter 30.54 21.83
Third Quarter 26.08 18.67
Fourth Quarter 23.75 16.63
Fiscal 1997
First Quarter 18.38 8.38
Second Quarter 17.88 12.63
Third Quarter 22.06 14.06
Fourth Quarter (two-month period ending 1/31/98) 16.75 8.00
As of April 23, 1998 the Company's Common Stock was held by 818 holders of
record.
The Company has never paid a cash 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 $1,000,000,000 Secured Credit Facility (the "Senior Secured 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 "Senior 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.
During fiscal 1997, in connection with certain business acquisitions, the
Company issued 8,233 shares of Common Stock to former shareholders of the
acquired companies in exchange for such shareholders' shares of capital stock.
All of the issuances of Common Stock by the Company during fiscal 1997 were made
pursuant to exemptions from registration under Section 4(2) of the Securities
Act of 1933, as amended.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for fiscal 1997 (eleven
months ended January 31, 1998), 1996 (twelve months ended March 1, 1997), 1995
(twelve months ended March 2, 1996), and 1994 (twelve months ended February 25,
1995) have been derived from the Company's consolidated financial statements
which have been audited by independent auditors. The selected consolidated
financial data for the eleven months ended February 1, 1997 and fiscal 1993 and
1992 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 only of normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for these periods.
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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.
<TABLE>
<CAPTION>
Eleven Months Ended
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January 31, February 1, Fiscal Year
---------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Statements of Operations Data:(1)
Net sales $3,573,311 $2,911,189 $3,196,056 $1,890,639 $1,145,151 $520,956
Cost of sales (2) 2,733,308 2,205,359 2,417,746 1,417,366 855,361 402,142
Merger related inventory provisions (3) --- - --- 5,952 --- 1,146
---------- ---------- ---------- ---------- ---------- --------
Gross profit 840,003 705,830 778,310 467,321 289,790 117,668
Warehouse operating and selling expenses 605,243 508,676 562,879 342,581 219,213 97,054
Corporate general and administrative
expenses 105,055 87,793 95,101 49,742 29,624 13,063
Merger and other nonrecurring charges (4) 14,890 19,841 19,840 36,838 --- 1,928
---------- ---------- ---------- ---------- ---------- --------
Operating profit 114,815 89,520 100,490 38,160 40,953 5,623
Interest expense, net 38,115 24,550 26,949 17,968 16,915 5,014
Other income (expense) 842 152 244 1,786 562 (104)
---------- ---------- ---------- ---------- ---------- --------
Income (loss) before income taxes 77,542 65,122 73,785 21,978 24,600 505
Income tax expense 34,457 30,728 33,649 13,766 8,294 2,316
---------- ---------- ---------- ---------- ---------- --------
Income (loss) before minority interest 43,085 34,394 40,136 8,212 16,306 (1,811)
Minority interest (income) expense (1,319) (1,314) (1,860) 1,436 69 152
---------- ---------- ---------- ---------- ---------- --------
Income (loss) from continuing operations 44,404 35,708 41,996 6,776 16,237 (1,963)
Loss from discontinued operations (5) --- --- --- 1,225 327 712
---------- ---------- ---------- ---------- ---------- --------
Income (loss) before extraordinary item 44,404 35,708 41,996 5,551 15,910 (2,675)
Extraordinary item (6) --- --- --- --- 586 (1,169)
---------- ---------- ---------- ---------- ---------- --------
Net income (loss) $ 44,404 $ 35,708 $ 41,996 $ 5,551 $ 16,496 $ (3,844)
========== ========== ========== ========== ========== ========
Pro forma net income (loss) (7) $ 44,404 $ 33,993 $ 40,281 $ 5,140 $ 15,769 $ (5,124)
========== ========== ========== ========== ========== ========
Pro forma net income (loss) per share
Basic: (8)
Continuing operations $0.34 $0.28 $0.33 $ 0.06 $ 0.20 $ (0.10)
Discontinued operations -- -- -- (0.01) 0.00 (0.02)
Extraordinary item -- -- -- -- 0.00 (0.02)
---------- ---------- ---------- ---------- ---------- --------
Net income (loss) $0.34 $0.28 $0.33 $ 0.05 $ 0.20 $ (0.14)
========== ========== ========== ========== ========== ========
Pro forma net income (loss) per share
Diluted: (8)
Continuing operations $0.32 $0.26 $0.31 $ 0.06 $ 0.19 $ (0.10)
Discontinued operations -- -- -- (0.01) 0.00 (0.02)
Extraordinary item -- -- -- -- 0.00 (0.02)
---------- ---------- ---------- ---------- ---------- --------
Net income (loss) $0.32 $0.26 $0.31 $ 0.05 $ 0.19 $ (0.14)
========== ========== ========== ========== ========== ========
Balance Sheet Data: (1)
Working capital $ 517,476 $ 360,619 $ 393,653 $ 253,693 $ 166,421 $ 96,880
Total assets 2,349,659 1,816,434 1,843,977 1,023,365 645,309 446,189
Long-term debt and capital lease 763,243 608,680 633,250 163,399 188,340 177,523
obligations
Shareholders' equity and redeemable 932,433 667,006 693,607 521,776 259,325 116,363
preferred (9)
Weighted average common shares
outstanding:
Basic 121,612 121,612 121,901 104,162 75,400 47,740
Diluted 137,858 129,749 130,029 110,408 79,026 47,740
1992
--------
<S> <C>
Statements of Operations Data:(1)
Net sales $420,030
Cost of sales (2) 323,922
Merger related inventory provisions (3) ---
--------
Gross profit 96,108
Warehouse operating and selling expenses 76,056
Corporate general and administrative
expenses 12,408
Merger and other nonrecurring charges (4) 2,592
--------
Operating profit 5,052
Interest expense, net 4,972
Other income (expense) (993)
--------
Income (loss) before income taxes (913)
Income tax expense 1,567
--------
Income (loss) before minority interest (2,480)
Minority interest (income) expense ---
--------
Income (loss) from continuing operations (2,480)
Loss from discontinued operations (5) 4,571
--------
Income (loss) before extraordinary item (7,051)
Extraordinary item (6) ---
--------
Net income (loss) $ (7,051)
========
Pro forma net income (loss) (7) $ (7,390)
========
Pro forma net income (loss) per share
Basic: (8)
Continuing operations
Discontinued operations
Extraordinary item
Net income (loss)
Pro forma net income (loss) per share
Diluted: (8)
Continuing operations
Discontinued operations
Extraordinary item
Net income (loss)
Balance Sheet Data: (1)
Working capital $ 50,771
Total assets 160,510
Long-term debt and capital lease 52,375
obligations
Shareholders' equity and redeemable 39,584
preferred (9)
Weighted average common shares
outstanding:
Basic
Diluted
</TABLE>
__________
(1) The Hermann Marketing, Inc. ("HMI") acquisition (effective January 30,
1997), the Sofco-Mead, Inc. ("Sofco") acquisition (effective January 24,
1997), the United TransNet, Inc. ("UT") acquisition (effective November 8,
1996), the Nimsa S.A. ("Nimsa") acquisition (effective October 31, 1996),
the U.S. Delivery, Inc. ("Delivery") acquisition (effective March 1, 1996),
the Richard Young Journal, Inc. ("Young") acquisition (effective February
27, 1996) and the Lucas Bros., Inc. ("Lucas") acquisition (effective
November 30, 1993) were accounted for as poolings of interests and,
accordingly, the HMI, Sofco, UT, Nimsa, Delivery, Young and Lucas accounts
and results are included for all applicable periods.
(2) Cost of sales includes occupancy and delivery expenses.
(3) Reflects the write-down to fair market value of certain inventory which the
Company decided to eliminate from its product line.
-10-
<PAGE>
(4) Merger and other nonrecurring charges in fiscal 1997 include the acquisition
costs incurred by Data Documents Incorporated ("DDI"), the continued
integration of delivery services and certain provisions for reductions in
force and facility closures at other locations. Merger and other
nonrecurring charges in prior fiscal years relate primarily to the mergers
with Sofco, HMI, Nimsa and UT in fiscal 1996, 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,
personnel reductions and centralizing certain administrative functions.
(5) In fiscal 1995, Sofco adopted a plan to discontinue Sofco-Eastern, Inc.;
and in February 1993, Lucas adopted a plan to discontinue its retail
operations.
(6) 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.
(7) Pro forma net income reflects the additional taxes that would be incurred to
treat a subchapter S acquisition as if the acquired company was a C
corporation.
(8) Pro forma net income (loss) per share is calculated by dividing pro forma
net loss, after preferred stock dividend requirements of Young of $432,000
and $1,500,000 for fiscal 1994 and fiscal 1993, respectively, by basic and
diluted weighted common shares outstanding, respectively. Fiscal 1993 basic
and diluted pro forma net loss per share includes preferred shares as if
they had been converted as of the beginning of the year. These shares
converted automatically upon the completion of the Company's initial public
offering in fiscal 1994.
(9) Redeemable preferred shares were converted to common stock in fiscal 1994.
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 the Company's 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
including the acquisition of HMI on January 30, 1997, Sofco on January 24, 1997,
UT on November 8, 1996, Nimsa on October 31, 1996, Delivery on March 1, 1996,
and Young on February 27, 1996, all of which were accounted for as poolings of
interest. Accordingly, the Consolidated Financial Statements have been restated
to include the accounts and operations of Sofco, HMI, Nimsa, Delivery and Young
for all periods prior to the mergers. The accompanying financial statements
have been restated to include the operations of UT effective March 3, 1996 and
Nimsa effective from its formation in fiscal 1995. Reference to fiscal 1997
refers to the eleven-month period ended January 31, 1998 for Corporate Express.
Reference to fiscal 1996 refers to the year ended March 1, 1997 for Corporate
Express and all pooled companies. Reference to fiscal 1995 refers to the year
ended March 2, 1996 for Corporate Express, Delivery, Young, and Sofco, to the
year ended December 31, 1995 for HMI, and to the year ended June 30, 1996 for
Nimsa. Reference to the fiscal year 1994 and prior fiscal years refers to the
February year end for Corporate Express, to the December 31 year end for
Delivery and HMI, to the May 31 year end for Sofco, and to the September 30 year
end for Young. During fiscal 1997, the Company changed its fiscal year end from
February 28
-11-
<PAGE>
to January 31 in order to better align its fiscal year with its customers' and
competitors' fiscal calendars and to reduce the seasonality between quarters.
The 1997 fiscal period refers to the eleven months ended January 31, 1998.
During fiscal 1997, the Company continued to increase the scope of its
operations throughout the United States, Canada, Germany, and Italy, and entered
new markets with acquisitions in Ireland and Switzerland. Substantial emphasis
was placed in fiscal 1997 on expanding and improving international operations
and improving operations in the services segment. The Company continued to
execute its Corporate Supplier strategy and expanded the depth and breadth of
its product offerings as well as its geographic presence through 31 acquisitions
during fiscal 1997.
During fiscal 1998, the Company will place emphasis on internal growth
through continued implementation of the Corporate Supplier business model. The
Corporate Supplier business model reflects the Company's plan to reduce the
total procurement cost of non-production goods and services for customers. The
key elements of the Corporate Supplier model are the broad offering of products
and services, global coverage for selected products and services, a
comprehensive distribution and logistics network, information systems that
integrate the complete product and service offering while linking suppliers to
customers and procurement management and consulting for customers. The Company
also plans to increase sales to existing customers by cross-selling its expanded
product and service offerings and developing existing customers into
international, national or multi-regional accounts.
International markets historically have higher gross profit margins and
higher operating costs than the Company experiences domestically. Certain
products now offered by the Company, such as computer software, have lower gross
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 or the costs of consolidating acquired business units
with the Company may impact the operating margins and profitability of the
Company.
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>
Eleven Months Ended
--------------------------- Fiscal Year
January 31, February 1, ------------------------
1998 1997 1996 1995 1994
------------ ------------ ------ ------ ------
Statements of Operations Data: (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.5 75.8 75.6 75.0 74.7
Merger related inventory provisions -- -- -- 0.3 --
----- ----- ----- ----- -----
Gross profit 23.5 24.2 24.4 24.7 25.3
Warehouse operating and selling 17.0 17.5 17.6 18.1 19.1
expenses
Corporate general and administrative 2.9 3.0 3.0 2.6 2.6
expenses
Merger and other nonrecurring charges 0.4 0.7 0.6 1.9 --
----- ----- ----- ----- -----
Operating profit 3.2 3.0 3.2 2.1 3.6
Interest expense, net 1.0 0.8 0.8 1.0 1.5
Other income 0.0 0.0 0.0 0.1 0.0
----- ----- ----- ----- -----
Income before income taxes 2.2 2.2 2.4 1.2 2.1
Income tax expense 1.0 1.1 1.1 0.7 0.7
----- ----- ----- ----- -----
Income before minority interest 1.2 1.1 1.3 0.5 1.4
Minority interest (income) expense (0.0) (0.1) (0.0) 0.1 0.0
----- ----- ----- ----- -----
Income from continuing operations 1.2 1.2 1.3 0.4 1.4
Loss from discontinued operations -- -- -- 0.1 0.0
----- ----- ----- ----- -----
Income before extraordinary item 1.2 1.2 1.3 0.3 1.4
Extraordinary gain -- -- -- -- 0.0
----- ----- ----- ----- -----
Net income 1.2% 1.2% 1.3% 0.3% 1.4%
===== ===== ===== ===== =====
Pro forma net income (1) 1.2% 1.2% 1.3% 0.3% 1.4%
===== ===== ===== ===== =====
</TABLE>
-12-
<PAGE>
(1) Pro forma net income reflects the tax impact for a subchapter S acquisition
as if the acquired company was a C corporation.
ELEVEN MONTHS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997
Net Sales. Consolidated net sales increased 22.7% to $3,573,311,000 in the
eleven months ended January 31, 1998 from $2,911,189,000 in the same eleven-
month period last year. Net sales for the Company's product distribution
segment increased 26.6% to $2,816,244,000 in the current eleven-month fiscal
period from $2,224,203,000 in the same eleven-month period last year while net
sales for its service segment increased 10.2% to $757,067,000 from $686,986,000
in the same periods. These increases were primarily attributable to 31
acquisitions in the eleven months ended January 31, 1998, the full year impact
of 100 acquisitions completed in fiscal 1996, and strong internal growth
reflecting increased market penetration in the Company's products distribution
business. This growth was partially offset by the elimination of low margin
customers, the effect of closing or consolidating facilities, and the
disposition of certain non-strategic businesses.
International operations accounted for 18.8% of total sales or $671,567,000 in
the eleven months ended January 31, 1998 and 17.5% of total sales or
$509,734,000 in the same eleven-month period last year. The Company expanded
its international operations in Germany, Italy and Canada in the eleven months
ended January 31, 1998 and entered markets in Ireland and Switzerland.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Consolidated gross profit as a percentage of sales was 23.5% for the
eleven months ended January 31, 1998 compared to 24.2% for the same period in
the prior year. The decrease in the gross profit percentage is attributable to
the services segment, which experienced reduced gross profit margins as a result
of consolidation costs, increases in driver and vehicle related costs and
pricing, partially offset by better product distribution margin. Also affecting
gross profit were lower international gross margins primarily as a result of
increased competitive pressures and increased computer software sales (with
lower gross margins), all of which were partially offset by increased vendor
rebates as a result of improved programs.
The gross profit percentage of sales for the product distribution segment was
23.9% in the eleven months ended January 31, 1998 and 23.8% in the same eleven-
month period last year. The gross profit percentage in the services segment was
21.9% in the eleven months ended January 31, 1998 compared to 25.7% in the same
eleven-month period last year. The decrease in the gross profit percentage in
the services segment is attributable to consolidation costs, increases in driver
and vehicle related costs, and pricing concessions.
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 including
commissions related to the Company's direct sales force, and warehouse
consolidation and relocation costs and expenses. Warehouse operating and
selling expenses decreased as a percentage of sales to 17.0% in the eleven
months ended January 31, 1998 from 17.5% in the same eleven-month period last
year. This decrease is primarily attributable to the Company's efforts to
leverage and streamline its operations, including the elimination of redundant
facilities and positions.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include the central expense incurred to provide
corporate oversight and support for regional operations, goodwill amortization
and depreciation. Corporate general and administrative expenses increased to
$105,055,000 in the eleven months ended January 31, 1998 from $87,793,000 in the
same eleven-month period last year reflecting the Company's expanded operations.
As a percentage of net sales, corporate general and administrative expenses
decreased to 2.9% in the current period from 3.0% in the prior period. This
decrease reflects the Company's efforts to leverage these expenses over expanded
operations, partially offset by increased goodwill amortization.
-13-
<PAGE>
Merger and Other Nonrecurring Charges. During the eleven months ended January
31, 1998, the Company recorded $14,890,000 in net merger and other nonrecurring
charges. The charge includes $4,485,000 of transaction costs incurred by DDI in
connection with its merger with the Company, costs related to the continued
integration of the delivery service business and certain provisions for
reductions in the workforce and facility closures at other locations including
the planned closure of 34 facilities and reduction of 722 employees. These exit
plans are expected to be completed by the end of fiscal 1998.
Operating Profit. Consolidated operating profit increased 28.3% to
$114,815,000 or 3.2% of net sales for the eleven months ended January 31, 1998
compared to operating profit of $89,520,000 or 3.0% of net sales in the same
period last year. Before merger related and other nonrecurring charges,
operating profit increased to $129,705,000 in the current period from
$109,361,000 in the prior period due largely to internal growth and improved
operating efficiencies. Before merger related and other nonrecurring charges,
operating profit for the product distribution segment increased 42.0% to
$112,961,000 or 4.0% of net product distribution sales in the current fiscal
period from $79,549,000 or 3.6% of net sales in the same period last year.
Operating profit before nonrecurring charges for the services segment decreased
to $16,744,000 or 2.2% of net service sales in the current fiscal period from
$29,812,000 or 4.3% of net service sales in the prior fiscal period. The
decrease in operating profit for the services segment reflects poor performance
at several delivery locations and expenses related to integration projects,
partially offset by the cost savings from the elimination of redundant
personnel. Operating profit before nonrecurring charges for international
operations increased 114.0% to 2.0% of net international sales in the current
eleven-month fiscal period from 1.2% of net international sales in the prior
eleven-month fiscal period reflecting improved performance in Australia and
Canada, partially offset by decreased operating profits in the United Kingdom.
International operating profit before nonrecurring charges accounted for 11.7%
of total product distribution operating profit in the current fiscal period and
7.8% in the prior fiscal period.
Interest Expense. Net interest expense of $38,115,000 in the eleven months
ended January 31, 1998 increased from $24,550,000 in the prior eleven-month
fiscal period. This increase reflects increased borrowings under the Senior
Credit Facility, interest on acquired debt, and the sale in June 1996 of
$325,000,000 aggregate principal amount of the Company's 4 1/2% Convertible
Notes due July 1, 2000 (the "Convertible Notes"). The proceeds from the sale of
the Convertible Notes and borrowings under the Senior Credit facility were used
to fund acquisitions and provide the additional working capital required as a
result of increased business and for general corporate purposes. See "Liquidity
and Capital Resources."
Minority Interest. Minority interest income of $1,319,000 in the eleven
months ended January 31, 1998 compares to income of $1,314,000 in the prior
eleven-month fiscal period, reflecting a 47.6% minority interest in Corporate
Express Australia and a 49.0% minority interest in Corporate Express United
Kingdom through June 1997. The Company acquired a majority ownership interest
in Corporate Express Australia in May 1995 and a majority ownership interest in
Corporate Express United Kingdom in December 1995. In June 1997, the Company
acquired the remaining 49.0% ownership interest in Corporate Express United
Kingdom.
Net Income. Net income of $44,404,000 in the eleven months ended January 31,
1998 increased 24.4% from net income of $35,708,000 in the prior eleven-month
fiscal period. This increase reflects the increased profits from the Company's
mature product distribution operations, the lower merger and other nonrecurring
charges recorded in the current eleven-month fiscal period and corporate expense
leverage offset in part by higher goodwill amortization. The Company
experienced an effective tax rate of 44.4% in the fiscal 1997 period compared to
47.2% in the fiscal 1996 period. The tax rate for both periods reflects certain
non-deductible merger costs and certain non-deductible goodwill.
Other. The net accounts receivable balance at January 31, 1998 of
$616,574,000 increased $122,375,000 from $494,199,000 at March 1, 1997 primarily
as a result of acquired receivables and internal sales growth in existing
regions. The allowance for doubtful accounts as a percentage of consolidated
accounts receivable was 2.4% and 2.6% at the end of the fiscal 1997 and fiscal
1996 periods, respectively. The Company's historical bad debt
-14-
<PAGE>
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 acquisitions the seller guarantees acquired receivables.
The inventory balance at January 31, 1998 of $251,108,000 increased
$63,550,000 from $187,558,000 at March 1, 1997 primarily as a result of acquired
inventories and inventory growth to support increased sales.
Goodwill at January 31, 1998 of $847,544,000 increased $175,577,000 from
$671,967,000 reflecting additions from acquisitions of $197,250,000 (primarily
attributable to the DDI acquisition) offset by current year amortization of
$21,087,000 and reversals of $586,000.
The accounts payable trade balance at January 31, 1998 of $354,915,000
increased $62,874,000 from $292,041,000 at March 1, 1997 primarily as a result
of acquired trade payables and increased inventory purchases to support sales
growth.
Accrued purchase costs at January 31, 1998 of $9,378,000 decreased by
$3,510,000 from the March 1, 1997 balance of $12,888,000. This decrease
reflects acquisition additions of $6,365,000, payments of $9,289,000, and
reversals of $586,000 reducing previously recorded goodwill.
FISCAL YEARS 1996 AND 1995
Net Sales. Consolidated net sales increased 69.0% to $3,196,056,000 in fiscal
1996 from $1,890,639,000 in fiscal 1995. Net sales for the Company's product
distribution segment increased 57.4% to $2,436,296,000 in fiscal 1996 from
$1,548,175,000 in fiscal 1995 while net sales for its service segment increased
121.9% to $759,760,000 from $342,464,000 in the same periods. These increases
were primarily attributable to 100 acquisitions in fiscal 1996 of which 77 were
product based companies (48 domestic and 29 international) and 23 were service
based companies (21 domestic and two international) and the acquisition of UT,
which was accounted for as a pooling of interests with operations from March 3,
1996 (prior year results were immaterial). Also contributing to the sales
increase was strong internal growth reflecting increased market penetration in
product distribution.
International operations accounted for 17.7% of total sales or $565,126,000 in
fiscal 1996 and 12.6% of total sales or $238,201,000 in fiscal 1995. The
Company expanded its international operations in fiscal 1996 to include
operations in New Zealand, Germany, France, and Italy.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Consolidated gross profit as a percentage of sales was 24.4% for fiscal
1996 compared to 24.7% for fiscal 1995. Included in cost of sales in fiscal
1995 is a merger related inventory provision of $5,952,000, representing 0.3% of
sales. In fiscal 1995, 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 wrote certain inventory down to its fair market value.
Impacting the declining gross profit percentage in fiscal 1996 was the addition
of a desktop software line of products which has substantially lower gross
profit margins, and decreased gross margins in the delivery business.
The gross profit percentage of sales for the product distribution segment was
24.0% in fiscal 1996 and 23.8% in fiscal 1995 (excluding the merger related
inventory provision). The increase reflects gross margin improvement in all of
the domestic office product distribution operations which was partially offset
by lower margin sales from an acquired desktop software distributor. The
improvement in domestic office product distribution gross profit is due, in
part, to the expanded usage of the Company's In-Stock Catalog resulting in fewer
wholesaler purchases and increased vendor rebates. The gross profit percentage
in the services segment was 25.5% in fiscal 1996 compared to 30.8% in fiscal
1995. The decrease in the gross profit percentage in the service segment is
primarily attributable to the acquisition of UT which had lower gross profit
margins than other delivery services operations.
-15-
<PAGE>
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 17.6% in fiscal 1996 from 18.1% in fiscal 1995. This
decrease is primarily attributable to the Company's efforts to leverage and
streamline its operations and to the software distribution operation and UT,
both of which have lower operating expenses as a percentage of sales.
Corporate General and Administrative Expenses Corporate general and
administrative expenses increased to $95,101,000 in fiscal 1996 from $49,742,000
in fiscal 1995, reflecting the Company's expanded operations. As a percentage
of net sales, corporate general and administrative expenses increased to 3.0% in
fiscal 1996 from 2.6% in fiscal 1995. This increase reflects increased goodwill
amortization resulting from purchase acquisitions in fiscal 1995 and fiscal 1996
and costs associated with developing a larger corporate staff to support
acquisition efforts and expanded operations, including an expanded information
system staff.
Merger and Other Nonrecurring Charges. During fiscal 1996, the Company
recorded $19,840,000 in net merger and other non-recurring charges primarily in
conjunction with the acquisitions of Nimsa, UT, Sofco and HMI. Of the total
charge, a net $12,366,000 was recorded in the third quarter and $7,474,000 was
recorded in the fourth quarter of fiscal 1996. The third quarter charge is
comprised of merger and other nonrecurring charges primarily in conjunction with
the acquisitions of UT and Nimsa, offset by $7,571,000 in adjustments to the
merger and other nonrecurring charge established in the fourth quarter of fiscal
1995. The fiscal 1995 charge included an exit plan for the integration of the
newly acquired delivery business into the Company's core product distribution
business. In the third quarter of fiscal 1996, nine months after the creation
of the original exit plan, the Company acquired UT, approximately doubling its
delivery services capacity. At that time, the Company adopted a new plan to
integrate the delivery services business separate from the core product
distribution business. In connection with the new exit plan, the Company
evaluated its facility and personnel requirements and identified duplicate
facilities consistent with the new plan. As a result of this new plan, the
closure of thirteen delivery facilities and five distribution facilities,
incorporated in the original fiscal 1995 plan, was superseded. The third
quarter fiscal 1996 charge includes the planned closure of 115 facilities and
reduction of approximately 485 employees. The fourth quarter fiscal 1996 charge
primarily reflects the actual costs of completing the acquisitions of Sofco and
HMI. (See Note 4 to the Consolidated Financial Statements).
Operating Profit. Consolidated operating profit was $100,490,000, or 3.2% of
net sales, in fiscal 1996, compared to operating profit of $38,160,000, or 2.1%
of net sales, in fiscal 1995. Before merger related and other nonrecurring
charges, operating profit increased 48.6% to $120,330,000 in fiscal 1996 from
$80,950,000 in fiscal 1995, reflecting increased acquisitions, internal growth,
and improved operating efficiencies. Before merger related and other
nonrecurring charges, operating profit for the product distribution segment
increased 52.1% to $88,802,000, or 3.6% of net sales, in fiscal 1996 from fiscal
1995 operating profit of $58,394,000 or 3.8% of net sales. Operating profit
before nonrecurring charges for the service segment increased 39.8% to
$31,528,000, or 4.1% of net sales, in fiscal 1996 from $22,556,000, or 6.6% of
net sales, in fiscal 1995. The decrease in operating profit for the service
segment as a percentage of sales reflects the results of UT which had lower
operating margins, poor performance at several delivery locations and expenses
related to consolidation projects. Operating profit before nonrecurring charges
for international operations decreased to 1.1% of net international sales in
fiscal 1996 from 3.9% of net international sales in fiscal 1995 reflecting
operating losses in Australia related to warehouse consolidation projects and
expansion to new European markets, partially offset by increased operating
profits in Canada. International operating profit before nonrecurring charges
accounted for 6.8% of total office products operating profit in fiscal 1996 and
15.8% of total office products operating profit in fiscal 1995.
Interest Expense. Net interest expense of $26,949,000 in fiscal 1996
increased from $17,968,000 in fiscal 1995. This increase reflects increased
borrowings under the Senior Credit Facility and the sale of $325,000,000
aggregate principal amount of the Convertible Notes. The proceeds from the sale
of the Notes were used to fund acquisitions and provide the additional working
capital required as a result of increased business and general corporate
purposes. See "Liquidity and Capital Resources."
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<PAGE>
Minority Interest. Minority interest income of $1,860,000 in fiscal 1996
compares to an expense of $1,436,000 in fiscal 1995, reflecting a 47.6% minority
interest in the operating losses at Corporate Express Australia partially offset
by a 49.0% minority interest in operating profits in Corporate Express United
Kingdom.
Net Income. Net income of $41,996,000 in fiscal 1996 compares to net income
of $5,551,000 in fiscal 1995. This increase reflects the increased profits from
the Company's more mature operations, the lower merger and other nonrecurring
charges recorded in fiscal 1996 and the purchase acquisitions. The Company
experienced an effective tax rate of 45.6% in fiscal 1996 compared to 62.6% in
fiscal 1995. The fiscal 1995 tax rate reflects certain non-deductible merger
costs, the utilization of certain net operating losses ("NOLs"), and certain
non-deductible goodwill. The fiscal 1996 tax rate reflects certain non-
deductible merger costs and certain non-deductible goodwill. The principle
reason the 1995 effective tax rate exceeds the 1996 rate is the higher level of
non-deductible merger costs in fiscal 1995.
FISCAL YEARS 1995 AND 1994
Net Sales. Net sales increased 65.1% to $1,890,639,000 in fiscal 1995 from
$1,145,151,000 in fiscal 1994. Net sales in the product distribution segment
increased 67.4% to $1,548,175,000 in fiscal 1995 from $924,886,000 in fiscal
1994, while the service segment increased 55.5% to $342,464,000 from
$220,265,000 in the same periods. These increases were primarily attributable to
51 acquisitions, of which 28 were product based companies (17 domestic and 11
international), seven were repurchases of computer product franchises by Young,
and 16 were service based companies principally in the delivery services
business (all domestic). Also contributing to the sales increase was the
inclusion of the results of operations of acquisitions accounted for as
purchases during fiscal 1995 and internal growth.
Gross Profit. Consolidated gross profit as a percentage of sales was 24.7%
for fiscal 1995 compared to 25.3% for fiscal 1994. Included in cost of sales
for fiscal 1995 is a merger related inventory provision of $5,952,000. The
gross profit percentage, excluding the merger related inventory provision was
25.0% in fiscal 1995. The gross profit percentage in product distribution,
excluding the merger related inventory provision was 23.8% in fiscal 1995
compared to 23.9% in fiscal 1994 and services segment gross profit percentage
was 30.8% in fiscal 1995 compared to 31.3% in fiscal 1994. Decreases in
services are primarily attributable to increased delivery costs resulting from
unusually severe weather in the Northeast.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses decreased as a percentage of sales to 18.1% in fiscal 1995 from 19.1%
in fiscal 1994. This decrease reflects cost savings as a result 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.
Corporate General and Administrative Expenses. As a percentage of net sales,
corporate general and administrative expenses were 2.6% in both fiscal 1995 and
fiscal 1994. Expenses increased to $49,742,000 in fiscal 1995 from $29,624,000
in fiscal 1994, reflecting the Company's expanded operations.
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. These merger and other nonrecurring charges
include merger transaction related costs of $13,273,000; severance
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<PAGE>
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.
Operating Profit. Operating profit of $38,160,000 in fiscal 1995 compares to
operating profit of $40,953,000 in fiscal 1994. Operating profit before
nonrecurring charges for product distribution increased to $58,394,000 in fiscal
1995 from $29,811,000 in fiscal 1994. This increase reflects the contribution
of acquired companies and increased regional operating profits at the Company's
other regional operations. Operating profit before nonrecurring charges for
services increased to $22,556,000, or 6.6% of net sales, in fiscal 1995 from
$11,142,000, or 5.1% of net sales, in fiscal 1994.
Interest Expense. Net interest expense increased to $17,968,000 in fiscal
1995 from $16,915,000 in fiscal 1994. Increases due to the elimination of the
0.5% per annum additional illiquidity payment of the Senior 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 offset by higher levels of
Delivery, Young and HMI 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."
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 the Senior Notes.
Net Income. Net income of $5,551,000 in fiscal 1995 decreased compared to a
net income of $16,496,000 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 62.6% in fiscal 1995 from 33.7% 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.
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 the Senior Notes.
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 February 5, 1998 the Company announced a Dutch Auction issuer tender offer
to purchase for cash up to 35,000,000 shares of its issued and outstanding
common stock, par value $.0002 per share. The terms of the tender offer invited
the Company's shareholders to tender up to 35,000,000 shares of the Company's
common stock to the Company at prices not greater than $11.50 nor less than
$10.00 per share, as specified by the tendering shareholders. On April 10,
1998, the Company closed the tender offer and the Company purchased 35,000,000
shares tendered at a price of $10.75 per share. Shares tendered at prices in
excess of the purchase price and shares
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<PAGE>
not purchased because of proration were returned at the Company's expense. The
Company funded the purchase of such shares and the payment of related fees and
expenses through its new $1.0 billion Senior Secured Credit Facility. This
Senior Secured Credit Facility consists of a $250 million, seven-year term loan
and a $750 million five-year revolving credit facility. The Senior Secured
Credit Facility is guaranteed by substantially all domestic subsidiaries of
Corporate Express and is collateralized by all tangible and intangible property
of the guarantors including inventory and accounts receivables. At the
borrower's option interest rates are at a base rate or a Eurodollar rate plus an
applicable margin determined by a leverage ratio as defined in the loan
agreements. The term loan's interest rate ranges from 0.25% to 0.75% above the
revolving loan interest rate. The Company is subject to usual covenants
customary for this type of facility including financial covenants. The available
funds may be used for general corporate purposes including permitted
acquisitions and permitted share repurchase. As of April 22, 1998, the Company
had $632,606,000 outstanding under the Senior Secured Credit Facility and an
unused borrowing capacity of $367,394,000.
Effective December 15, 1997 the prior $500,000,000 Senior Credit Facility,
due March 31, 2000, was amended to permit the Company's subsidiaries to
guarantee up to $500,000,000 of debt, permit the repurchase of up to
$100,000,000 of Company stock, and permit the early repayment of the Company's 9
1/8% Senior Subordinated Notes due 2004. This Senior Credit Facility was
replaced and paid in full with proceeds from the new Senior Secured Credit
facility on April 22, 1998. Approximately $1,960,000 of deferred financing
costs related to the replaced Senior Credit facility will be expensed in the
first quarter of fiscal 1998.
On June 24, 1996, the Company issued $325,000,000 aggregate principal
amount of Convertible Notes. The notes are convertible into the Company's
common stock at a conversion price of $33.33 per share, subject to adjustments
under certain conditions. A portion of the proceeds from the sale of the
Convertible Notes was used to repay the Company's Senior Credit Facility and an
acquisition note payable with the remaining proceeds being used to fund
acquisitions and for other general corporate purposes.
During fiscal 1997, the Company entered into an interest rate hedging
contract based on $300,000,000 of U.S. Treasury notes to manage the Company's
exposure related to an anticipated debt offering which the Company expects to
complete in the second quarter of fiscal 1998. Any gain or loss from the
settlement of the contract will be included in deferred financing costs and will
be amortized over the term of the new debt agreement as an adjustment to the
effective interest rate of the debt agreement. As of April 27, 1998, the
deferred unrealized loss on the contract was $4,700,000 and the amortization of
the settlement gain or loss is anticipated to be immaterial to the Company's
future earnings. The Company had no other financial instrument contracts
outstanding as of January 31, 1998.
The Company does not enter into financial instrument contracts for trading
or speculative purposes. The counterparts to all contracts outstanding are
major financial institutions and the Company does not have significant exposure
to any one counterparty.
During the eleven months ended January 31, 1998, the Company invested
$24,572,000 net cash and approximately 14,895,000 shares of common stock in its
acquisition program. Total liabilities assumed in connection with these
acquisitions were $171,928,000. In addition, the Company made payments of
approximately $8,797,000 and issued approximately 252,000 shares of common stock
related to acquisitions completed in prior fiscal years.
During the eleven months ended January 31, 1998, the Company had capital
expenditures of $82,959,000 for computer systems and software, warehouse
reconfigurations, telecommunications equipment, delivery vehicles, leasehold
improvements and investments in facilities. The Company continues to invest in
advanced facilities, the development of its proprietary computer software, and
the upgrade of its computer systems.
Significant uses of cash in the eleven months ended January 31, 1997 were
as follows: capital expenditures of $82,959,000, cash paid for acquisitions of
$33,369,000, net debt repayments of $10,393,000,
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<PAGE>
retirement of DDI bonds of $62,178,000, and net other uses of $2,168,000,
partially offset by cash provided by net borrowings on lines of credit of
$122,376,000, operating activities of $26,916,000, proceeds from the sale of
assets of $21,100,000, issuance of common stock of $8,104,000, and issuance of
subsidiary common stock of $2,434,000.
The Company expects net capital expenditures for fiscal 1998 of
approximately $80,000,000 comprised of approximately $59,000,000 to be used for
upgrading and enhancing its information systems and telecommunications equipment
and approximately $21,000,000 for warehouse reconfiguration and equipment.
Actual capital expenditures for fiscal 1998 may be greater or less than budgeted
amounts.
The Company continues to make substantial investments in the development
and enhancement of its proprietary computer software applications. During fiscal
1997, the Company completed the development and implementation of its ISIS
computer software for its national account customers and successfully launched
the internet version of E-Way, its electronic commerce, ordering and
fulfillment system. The Company began amortizing its ISIS national account
software and E-Way in fiscal 1997 over a seven-year and five-year life,
respectively, on a straight-line basis. All costs associated with the
maintenance and production of its ISIS national account software are being
expensed as incurred. The integrated divisional version of the ISIS software
continues to be developed and is currently in beta test mode at two operating
divisions. The Company estimates that the costs to complete and implement ISIS
divisional software will be approximately $40 million and the software will be
implemented at all existing domestic office products distribution centers by the
end of fiscal 2002.
During fiscal 1996, the Company acquired, for a net cash purchase price of
$241,846,000 and 5,542,000 shares of common stock, 77 office products
distributors and 23 service companies. Of these 100 acquisitions, 86 were
accounted for as purchases and 14 were accounted for as immaterial poolings of
interest. In addition, the Company acquired UT, which was accounted for as a
pooling of interests with financial results included from March 3, 1996 for
6,332,000 shares of common stock. Total liabilities assumed in connection with
these acquisitions were $282,777,000 (including accounts payable and assumed
debt). In addition, the Company made payments of approximately $13,984,000
related to prior acquisitions. Included in the net cash purchase price of
$241,846,000 is the purchase of ASAP, a computer software distribution company,
in May 1996 for approximately $98,000,000 in cash offset by cash acquired of
approximately $14,000,000.
Cash and cash equivalents increased by $24,686,000 in fiscal 1996. This
increase reflects proceeds of $325,000,000 from issuance of the convertible
debt, net borrowings on lines of credit of $104,382,000 and cash from operations
of $25,753,000, offset by capital expenditures of $119,639,000, payments for
acquisitions of $255,830,000, repayment of debt of $64,893,000 and net other
additions of $9,913,000. Net cash provided by operating activities of
$25,753,000 reflects cash generated by net income plus non-cash expenses,
primarily depreciation and amortization, offset by an increase in accounts
receivable, inventories, and accrued liabilities reflecting increased sales.
The repayment of debt is primarily debt of acquired operations.
During fiscal 1995, the Company purchased 45 companies for a net cash purchase
price of $96,971,000 and 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). The Company also repurchased
seven computer product franchises for $21,187,000. Total liabilities assumed in
connection with these acquisitions were $118,447,000 (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.
Cash and cash equivalents increased by $14,314,000 in fiscal 1995. This
increase reflects net proceeds from the sale of common stock of $449,288,000
(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 $53,124,000, cash paid for acquisitions of $124,300,000, cash
used in operating activities and repayment of debt of $99,838,000 and net other
additions of $56,990,000. Net cash used in operating activities of $16,433,000
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.
The Company believes that the borrowing capacity under the Senior Secured
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.
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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 paper, fuel and other 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, Canada and Europe are
typically lower in the summer months due to lower levels of business activity.
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,
higher delivery costs during inclement weather, 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 integration
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.
Revenues and profit margins from the Company's local delivery services are
subject to seasonal variations. 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
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income," in the first quarter of fiscal 1998. Upon adoption of SFAS No. 130,
the Company will report all changes in the Company's stockholders' equity other
than transactions with stockholders. Comprehensive income pursuant to SFAS No.
130 would include net income, as reported in the Consolidated Statement of
Operations, plus the net changes in the foreign currency translation component
of stockholders' equity.
The Company is required to adopt SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," in the fourth quarter of fiscal 1998.
SFAS No. 131 will supersede the business segment disclosure requirements
currently in effect under SFAS No. 14. SFAS No. 131, among other things,
establishes standards regarding the information a company is required to
disclose about its operating segments and provides guidance regarding what
constitutes a reportable operating segment. The Company is currently evaluating
disclosures under SFAS No. 131 compared to current disclosures.
The Company is required to adopt the disclosure requirements of SFAS No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits," in
the fourth quarter of fiscal 1998. SFAS No. 132 revises disclosure requirements
for such pension and postretirement benefit plans to, among other things,
standardize certain disclosures and eliminate certain other disclosures no
longer deemed useful. SFAS No. 132 does not change the measurement or
recognition criteria for such plans.
On March 4, 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1 providing guidance on accounting for the costs
of computer software developed or obtained for internal use. The effective date
of this pronouncement is for fiscal years beginning after December 15, 1998.
The Company
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is in the process of reviewing its current policies of accounting for costs
associated with internal software development projects and how they may be
affected by SOP 98-1. The Company believes its current policies are materially
consistent with the SOP, however, the ultimate impact on the Company's future
results of operations has not yet been determined.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system/job failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar business activities.
The Company's ISIS computer software has been designed with the Year 2000
issue in mind, and the Company believes it is Year 2000 compliant; however,
Corporate Express utilizes many different systems and software programs to
process and summarize business transactions. The Company is continuing the
evaluation of its various operating systems and determining the additional
remediation efforts required to ensure its computer systems will properly
utilize dates beyond December 31, 1999. Preliminary results of this assessment
have revealed that remediation efforts required will vary from system to system.
For example, it appears some systems will not require any additional programming
efforts, while others may require significant programming changes.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issue. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
For those systems identified as non-compliant, the Company has begun and,
in certain cases, completed remediation efforts. The Company will utilize both
internal and external resources to reprogram, or replace, and test the software
for Year 2000 modifications. The Company plans to complete the Year 2000
project before January 31, 1999. The total estimated cost of the Year 2000
project is estimated to be between $6,000,000 and $8,000,000 and is being funded
through operating cash flows. These costs are not expected to be material to
the Company's consolidated results of operations. Of the total project cost,
approximately $2,000,000 is attributable to the purchase of new software or
equipment which will be capitalized. The remaining $4,000,000 to $6,000,000
will be expensed as incurred. In a number of instances, the Company may decide
to install new software or upgraded versions of current software programs which
are Year 2000 compliant. In these instances, the Company may capitalize certain
costs of the new system in accordance with current accounting guidelines.
The Company presently believes that with modifications to existing software
and conversions to new software for those sites which it believes may be
effected, the Year 2000 issue can be mitigated. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 issue
could have a material adverse impact on the operations of the Company.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
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7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is primarily exposed to currency exchange-rate risk with respect
to its transactions and net assets denominated in Canadian and Australian
Dollars, U.K. Pound Sterling, French Francs, German Marks, Irish Pounds, Swiss
Francs and Italian Lira. Business activities in various currencies expose the
Company to the risk that the eventual net dollar cash inflows resulting from
transactions with foreign customers and suppliers denominated in foreign
currencies may be adversely affected by changes in currency exchange rates.
Based on debt balances at January 31, 1998, a hypothetical 10% change in the
Company's weighted average interest rate would have an immaterial effect on the
Company's fiscal 1998 pretax earnings and on the fair value of the Company's
fixed-rate financial instruments.
During fiscal 1997, the Company entered into an interest rate hedging contract
based on $300,000,000 of U.S. Treasury notes to manage the Company's exposure
related to an anticipated debt offering which the Company expects to complete in
the second quarter of fiscal 1998. Any gain or loss from the settlement of the
contract will be included in deferred financing costs and will be amortized
over the term of the new debt agreement as an adjustment to the effective
interest rate of the debt agreement. As of April 27, 1998, the deferred
unrealized loss on the contract is $4,700,000 and the amortization of the
settlement gain or loss is anticipated to be immaterial to the Company's future
earnings. The Company had no other financial instrument contracts outstanding
as of January 31, 1998.
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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
January 31, 1998, March 1, 1997 and March 2, 1996 and for the eleven month
period ended January 31, 1998 and the years ended March 1, 1997, March 2, 1996
and February 25, 1995 listed in the index in Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
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 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 January 31, 1998, March 1, 1997 and March 2, 1996
and the consolidated results of their operations and their cash flows for the
eleven month period ended January 31, 1998 and the years ended March 1, 1997,
March 2, 1996, and February 25, 1995, 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
April 6, 1998
except for Note 18, for which
the date is April 22, 1998 and
Note 19, for which the date
is September 24, 1998
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<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
January 31, March 1, March 2,
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 44,362 $ 54,499 $ 29,813
Trade accounts receivable, net of allowance
of $14,523, $13,004 and $6,964, respectively 616,574 494,199 320,483
Notes and other receivables 86,687 55,530 30,046
Inventories 251,108 187,558 128,803
Deferred income taxes 40,729 29,076 18,470
Other current assets 41,713 28,548 27,357
---------- ---------- ----------
Total current assets 1,081,173 849,410 554,972
Property and equipment:
Land 17,540 14,105 8,715
Buildings and leasehold improvements 126,006 106,824 38,663
Furniture and equipment 339,577 249,693 130,497
---------- ---------- ----------
483,123 370,622 177,875
Less accumulated depreciation (131,756) (106,891) (60,744)
---------- ---------- ----------
351,367 263,731 117,131
Goodwill, net of accumulated amortization of $57,558,
$36,471 and $16,292, respectively 847,544 671,967 333,161
Other assets, net 69,575 58,869 18,101
---------- ---------- ----------
Total assets $2,349,659 $1,843,977 $1,023,365
========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
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<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, March 1, March 2,
1998 1997 1996
------------------ ---------------- ----------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable - trade 354,915 $ 292,041 $ 177,295
Accounts payable - acquisitions 6,106 5,078 2,063
Accrued payroll and benefits 61,308 45,512 26,648
Accrued purchase costs 9,378 12,888 3,049
Accrued merger and related costs 15,512 18,484 24,880
Other accrued liabilities 80,214 52,012 42,955
Current portion of long-term debt and capital leases 36,264 29,742 24,389
---------- ---------- ----------
Total current liabilities 563,697 455,757 301,279
Capital lease obligations 9,414 11,545 9,568
Long-term debt 753,829 621,705 153,831
Deferred income taxes 52,515 26,819 7,374
Minority interest in subsidiaries 20,791 22,015 24,843
Other non-current liabilities 16,980 12,529 4,694
---------- ---------- ----------
Total liabilities 1,417,226 1,150,370 501,589
Commitments and contingencies (Notes 8 and 9)
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, 142,392,845, 126,171,467 and
111,954,350 shares issued and outstanding, respectively 28 25 22
Common stock, non-voting, $.0002 par value,
3,000,000 shares authorized, none issued or outstanding - - -
Additional paid-in capital 852,507 646,536 513,358
Retained earnings 91,887 48,222 8,200
Foreign currency translation adjustments (11,989) (1,176) 196
---------- ---------- ----------
Total shareholders' equity 932,433 693,607 521,776
---------- ---------- ----------
Total liabilities and shareholders' equity $2,349,659 $1,843,977 $1,023,365
========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-26-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Eleven Years Ended
Months Ended ------------------------------------------
January 31, March 1, March 2, February 25,
1998 1997 1996 1995
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales $3,573,311 $3,196,056 $1,890,639 $1,145,151
Cost of sales 2,733,308 2,417,746 1,417,366 855,361
Merger related inventory provisions - - 5,952 -
---------- ---------- ---------- ----------
Gross profit 840,003 778,310 467,321 289,790
Warehouse operating and selling expenses 605,243 562,879 342,581 219,213
Corporate general and administrative expenses 105,055 95,101 49,742 29,624
Merger and other nonrecurring charges 14,890 19,840 36,838 -
---------- ---------- ---------- ----------
Operating profit 114,815 100,490 38,160 40,953
Interest expense, net 38,115 26,949 17,968 16,915
Other income 842 244 1,786 562
---------- ---------- ---------- ----------
Income before income taxes 77,542 73,785 21,978 24,600
Income tax expense 34,457 33,649 13,766 8,294
---------- ---------- ---------- ----------
Income before minority interest 43,085 40,136 8,212 16,306
Minority interest (income) expense (1,319) (1,860) 1,436 69
---------- ---------- ---------- ----------
Income from continuing operations 44,404 41,996 6,776 16,237
Discontinued operations:
Loss from discontinued operations - - - 327
Loss on disposals - - 1,225 -
---------- ---------- ---------- ----------
Income before extraordinary item 44,404 41,996 5,551 15,910
Extraordinary item:
Gain on early extinguishment of debt - - - 586
---------- ---------- ---------- ----------
Net income $ 44,404 $ 41,996 $ 5,551 $ 16,496
========== ========== ========== ==========
Pro forma net income (Note 14) $ 44,404 $ 40,281 $ 5,140 $ 15,769
========== ========== ========== ==========
Pro forma net income (loss) per share -
Basic:
Continuing operations $ .34 $ .33 $ .06 $ .20
Discontinued operations - - (.01) .00
Extraordinary item - - - .00
---------- ---------- ---------- ----------
Net income $ .34 $ .33 $ .05 $ .20
========== ========== ========== ==========
Pro forma net income (loss) per share -
Diluted:
Continuing operations $ .32 $ .31 $ .06 $ .19
Discontinued operations - - (.01) .00
Extraordinary item - - - .00
---------- ---------- ---------- ----------
Net income $ .32 $ .31 $ .05 $ .19
========== ========== ========== ==========
Weighted average common shares outstanding:
Basic 131,423 121,901 104,162 75,400
Diluted 137,858 130,029 110,408 79,026
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-27-
<PAGE>
CORPORATE EXPRESS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 25, 1995, MARCH 2, 1996 AND
MARCH 1, 1997 AND ELEVEN MONTHS ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Foreign
Preferred Stock Common Stock Additional Currency
----------------- ------------------ Paid-in Translation Retained
Shares Amount Shares Amount Capital Adjustment Earnings
------ ------ ------ ------ ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1994 26,980,000 $ 7,502 38,378,246 $ 8 $115,805 $ 9 $(6,963)
Issuance of common stock 31,602,150 6 138,300
Conversion of common stock 100,000 (112,500) -
Conversion of preferred stock (19,580,000) (2) 22,027,500 4 (2)
Redemption of preferred stock (7,500,000) (7,500)
Preferred stock dividend (432)
S Corporation dividends and other equity
transactions of pooled companies 117 (4,076)
Net income 16,496
Foreign currency translation
adjustment 50
-------------- ------- ------------ ------ ---------- ----------- --------
Balance, February 25, 1995 - - 91,895,396 18 254,220 59 5,025
Issuance of common stock 20,058,954 4 245,573
Young capital contribution 12,182
Adjustment to conform fiscal year
ends of certain pooled companies 1,876
S Corporation dividends and other
equity transactions of pooled companies 1,383 (4,252)
Net income 5,551
Foreign currency translation
adjustment 137
-------------- ------- ------------ ------ ---------- ----------- --------
Balance, March 2, 1996 - - 111,954,350 22 513,358 196 8,200
Issuance of common stock 14,217,117 3 119,274
Tax benefit on non-qualified stock
options exercised 11,161
Adjustment to conform fiscal year
ends of certain pooled companies (430)
S Corporation dividends and other
equity transactions of pooled
companies 2,743 (1,544)
Net income 41,996
Foreign currency translation
adjustment (1,372)
-------------- ------- ------------ ------ ---------- ----------- --------
Balance, March 1, 1997 - - 126,171,467 $25 $646,536 $ (1,176) $48,222
Issuance of common stock 16,221,378 $ 3 198,095
Tax benefit on non-qualified
stock option exercised 4,673
Equity transactions of pooled
companies 3,203 (739)
Net income 44,404
Foreign currency translation
adjustment - - - - - (10,813) -
-------------- ------- ------------ ------ ---------- ----------- --------
Balance, January 31, 1998 - $ - 142,392,845 $28 $852,507 $(11,989) $91,887
============== ======== =========== ======= ========= =========== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-28-
<PAGE>
<TABLE>
<CAPTION>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Eleven Years Ended
Months Ended ----------------------------------------------------------
January 31, March 1, March 2, February 25,
1998 1997 1996 1995
------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 44,404 $ 41,996 $ 5,551 $ 16,496
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 39,477 30,319 18,765 10,705
Amortization 21,188 18,417 9,733 6,373
Non-cash portion of merger and restructuring
charge 2,197 3,761 10,268 -
Adjustment to conform fiscal years - (430) 1,876 -
Gain on early extinguishment of debt - - - (700)
Minority interest (income)/expense (1,319) (1,860) 1,436 69
Other 3,743 1,496 (1,263) 492
Changes in assets and liabilities, excluding
acquisitions:
(Increase) decrease in accounts receivable (99,758) (45,552) (43,173) (29,672)
(Increase) decrease in inventory (23,369) (12,015) (11,538) (5,934)
(Increase) decrease in other current assets (16,632) (1,984) (12,494) (3,338)
(Increase) decrease in other assets 8,348 3,694 (2,194) (1,260)
Increase (decrease) in accounts payable 23,144 (667) (8,798) 16,167
Increase (decrease) in accrued liabilities 25,493 (11,422) 15,398 2,638
-------- --------- --------- ---------
Net cash provided by (used in) operating activities 26,916 25,753 (16,433) 12,036
-------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 21,100 3,026 5,899 463
Capital expenditures (82,959) (119,639) (53,124) (18,670)
Payment for acquisitions, net of cash acquired (33,369) (255,830) (124,300) (87,886)
Investment in marketable securities (5,229) (15,602) - -
Other, net 5,012 (1,978) 72 (612)
-------- --------- --------- ---------
Net cash used in investing activities (95,445) (390,023) (171,453) (106,705)
-------- --------- --------- ---------
Cash flows from financing activities:
Issuance of preferred and common stock 8,104 12,643 449,288 134,993
Stock offering costs - - (20,313) (9,388)
Issuance of subsidiary common stock 2,434 2,258 7,733 -
Young capital contribution - - 12,182 -
Purchase of common stock held by OfficeMax - - (195,831) -
Preferred stock redemption - - - (7,500)
Debt issuance costs (1,083) (8,818) - (869)
Proceeds from long-term borrowings 10,241 347,829 44,208 35,189
Repayments of long-term borrowings (31,575) (37,948) (71,813) (35,422)
Proceeds from short-term borrowings 15,308 772 12,835 -
Repayments of short-term borrowings (4,367) (26,945) (11,592) (11,095)
Cash paid to retire bonds (62,178) - - (9,300)
Net proceeds from (payments on) line of credit 122,376 104,382 (18,871) 1,778
Other (22) (4,833) (4,245) (1,647)
-------- --------- --------- ---------
Net cash provided by financing activities 59,238 389,340 203,581 96,739
-------- --------- --------- ---------
Net cash provided by (used in) discontinued (12) 61 (222) (600)
operations -------- --------- --------- ---------
Effect of foreign currency exchange rate changes (834) (445) (1,159) 25
on cash -------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents (10,137) 24,686 14,314 1,495
Cash and cash equivalents, beginning of period 54,499 29,813 15,499 14,004
-------- --------- --------- ---------
Cash and cash equivalents, end of period $ 44,362 $ 54,499 $ 29,813 $ 15,499
======== ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of
amounts capitalized 42,593 $ 35,526 $ 20,469 $ 13,829
Cash paid (received) during the period for taxes (7,686) $ 25,413 $ 16,046 $ 6,082
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-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 $5,212,000, $7,198,000, $4,305,000
and $3,103,000 were incurred during fiscal 1997, 1996, 1995 and 1994,
respectively.
During the eleven months ended January 31, 1998, the Company acquired for a
net cash purchase price of $24,572,000 and approximately 14,895,000 shares of
common stock, 16 domestic product distributors and 15 international product
distributors. Included in the 16 domestic product distributors is the
acquisition of Data Documents, Incorporated ("DDI"), a provider of forms
management services, custom business forms and pressure-sensitive labels for
large corporate customers, for approximately 10,740,000 shares of common stock.
There were no material pooling of interests transactions during fiscal 1997.
During fiscal 1996, the Company acquired, for a net cash purchase price of
$241,846,000 and 5,542,000 shares of common stock, 77 office products
distributors and 23 service companies. Of these 100 acquisitions, 86 were
accounted for as purchases and 14 were accounted for as immaterial poolings of
interest. In addition, the Company acquired UT, which was accounted for as a
pooling of interests with financial results included from March 3, 1996 for
6,332,000 shares of common stock and Nimsa, which was accounted for as a pooling
of interests with financial results included beginning in fiscal 1995 for
1,125,000 shares of common stock. The Company completed 52 acquisitions for a
net cash outlay in fiscal 1995 of $118,256,000. During fiscal 1994, the Company
completed 24 acquisitions for a net cash outlay of $74,707,000. In conjunction
with the acquisitions, liabilities were assumed as follows:
<TABLE>
<CAPTION>
Eleven Years Ended
Months Ended --------------------------------------
January 31, March 1, March 2, February 25,
1998 1997 1996 1995
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Fair value of assets acquired $ 383,840 $ 620,252 $ 271,264 $135,248
Cash paid, net of cash acquired (24,572) (241,846) (118,256) (74,707)
Issuance of notes payable --- (4,650) (11,111) ---
Issuance of stock (184,264) (86,922) (9,562) (4,614)
Forgiveness of debt --- --- (11,138) (150)
Purchase price payable, included in current liabilities (3,076) (4,057) (2,750) (5,325)
--------- --------- --------- --------
Liabilities assumed $ 171,928 $ 282,777 $ 118,447 $ 50,452
========= ========= ========= ========
</TABLE>
During the eleven months ended January 31, 1998, the Company paid $8,797,000
and issued 252,000 shares of common stock for prior period acquisitions
including its purchase of the remaining 49% interest in Corporate Express United
Kingdom.
During fiscal 1996, the Company paid $11,695,000 for prior period
acquisitions, $2,289,000 to dissenting shareholders of a pooled company,
purchased a warehouse facility for 202,250 shares of common stock, and issued
107,207 shares of common stock to retire convertible debt of $1,449,400
previously issued by one of the Company's acquired subsidiaries.
During fiscal 1995, the Company paid $6,044,000 for prior period acquisitions.
During fiscal 1994, the Company paid $11,643,000 for prior period
acquisitions, recorded a liability of $1,855,000 for subsequent payments due to
the sellers of a company acquired by Lucas in fiscal 1993, issued 14,610,000
shares of common stock upon conversion of its Series A, B and C preferred stock
on a two-for-one basis,
-30-
<PAGE>
and purchased for $350,000 in cash and $100,000 in notes payable a 45% interest
in an office products distributor. Additionally, Delivery distributed non-cash
dividends of $493,000 to certain Delivery stockholders and Young accrued
dividends of $2,044,000 on Young's preferred stock which were converted to a
subordinated promissory note. This note and accrued interest was contributed as
additional paid in capital.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-31-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO COONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Corporate Express, Inc. ("Corporate Express" or the "Company") is a leading
global provider of essential goods and services to large corporations and
organizations. The Company's current product and service offerings include
office supplies, paper, computer and imaging supplies, computer desktop
software, office furniture, janitorial and cleaning supplies, advertising
specialties, custom business forms, pressure-sensitive label products, forms
management services, printing, same-day local delivery services and distribution
logistics management. The Company's target customers are large corporations
which operate from multiple locations and can benefit from selecting suppliers
who can service them in many of their locations nationally and internationally.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. As more fully described in Note 3, the Company
has consummated numerous acquisitions certain of which 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,
Nimsa, HMI and Sofco for all applicable periods. The accompanying financial
statements have been restated to include the operations of UT effective March 3,
1996 and Nimsa effective from its formation in fiscal 1995; prior UT results
were immaterial. 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.
Definition of Fiscal Year
As used in these consolidated financial statements and notes to consolidated
financial statements, "fiscal 1997" refers to the eleven-month period ended
January 31, 1998 and "fiscal 1996," "fiscal 1995," and "fiscal 1994" refer to
the Company's fiscal years ended March 1, 1997, March 2, 1996 and February 25,
1995, respectively. In connection with the mergers, Nimsa, UT and HMI changed
their 1996 fiscal year ends, Sofco changed its 1996 and 1995 fiscal year ends,
and Delivery and Young changed their 1995 fiscal year ends to conform to the
fiscal year ends of the Company. References to fiscal 1995 for Nimsa refers to
Nimsa's June 1996 year end; references to fiscal 1995 and prior fiscal years for
HMI refers to HMI's December year end; and references to fiscal 1994 and prior
fiscal years for Sofco, Delivery and Young refer to Sofco's May year end,
Delivery's December year end and Young's September year end.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. All cash equivalents are
carried at cost, which approximates fair value.
Inventories
Inventories primarily consist of finished goods which are 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 is a merger related
inventory provision of $5,952,000. This provision reflects the write-down to
fair market value of certain inventory which the Company decided to eliminate
from its product line.
-32-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
The Company capitalizes certain internal and external software acquisition
and development costs that benefit future years. The amortization commencement
is dependent on when the software is placed in service (for purchased software)
or when the software is ready for its intended use (for internally developed
software). All software is amortized over its economic useful life, which is
three to seven years, using the staight-line method. Capitalized costs include,
primarily, payments to outside firms for purchased software and for direct
services related to the development of proprietary software (external costs),
salaries and wages of individuals dedicated to the development of software
(internal costs), and capitalized interest. The following table summarizes the
periodic changes to capitalized software costs:
<TABLE>
<CAPTION>
External Internal Capitalized Total Net
Costs Costs Interest Costs Amortization Asset
----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance February 25, 1995 $ 2,654 $ - $ - $ 2,654 $ (1,150) $ 1,504
Additions 12,975 3,816 717 17,508 (1,097) 16,411
----------------------------------------------------------------------------------------------
Balance March 2, 1996 15,629 3,816 717 20,162 (2,247) 17,915
Additions 27,197 7,379 2,105 36,681 (2,427) 34,254
----------------------------------------------------------------------------------------------
Balance March 1, 1997 42,826 11,195 2,822 56,843 (4,674) 52,169
Additions 19,643 15,948 3,248 38,839 (5,656) 33,183
----------------------------------------------------------------------------------------------
Balance January 31, 1998 $ 62,469 $ 27,143 $ 6,070 $ 95,682 $ (10,330) $ 85,352
=========== ========== ======== ========== ========= ===========
</TABLE>
On November 11, 1997, the FASB Emerging Issues Task Force (EITF) issued EITF
97-13 providing guidance on the treatment of business process reengineering
costs ("BPR") for companies that have undertaken enterprise software projects.
The EITF required all previously capitalized BPR costs be written off through a
cumulative catch-up adjustment in the current period. The effect of adopting
EITF 97-13 was not material to the Company's consolidated financial results.
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 January 31, 1998, 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 does not enter into financial instruments for trading or
speculative purposes. The counterparts to all financial instrument contracts
outstanding are major financial institutions, and the Company does not have
significant exposure to any one counterparty.
The Company maintains allowances for potential credit losses and historical
losses have been within management's expectations.
-33-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 two to ten years. The Company evaluates
intangible assets periodically in accordance with Statement of Financial
Accounting Standards No. 121 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. The balance of $847,544,000 at January 31, 1998 reflects fiscal
period 1997 additions from acquisitions of $197,250,000.
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 pooling of interests transactions, additional
costs associated with integrating the combined companies' operations, including
liabilities for severance benefits for employees expected to be terminated, and
costs to restructure the Company's existing operations.
Revenue Recognition
Revenue is recognized upon the shipment of products and completion of service
to customers.
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.
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.
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. Translation gains and
losses are recorded in shareholders' equity, and realized gains and losses from
transactions are reflected in income. An aggregate transaction gain of $116,000
and a loss of $37,000 were included in the determination of net income in fiscal
1996 and 1995, respectively. No material transaction gains or losses were
included in the determination of net income in fiscal 1997 and 1994. The
Company does not currently hedge foreign currency risk exposure.
-34-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
Pro Forma Income Taxes
In fiscal 1996, the Company acquired an entity in a pooling of interests
transaction, which was previously an S Corporation for income tax purposes prior
to its acquisition by Corporate Express, and accordingly, any income tax
liabilities for the periods prior to the acquisition are the responsibility of
the previous owner. For purposes of these consolidated financial statements,
federal and state income taxes have been provided as a pro forma adjustment as
if the acquired entity had filed C Corporation tax returns for the pre-
acquisition periods (See Note 14).
Pro Forma Net Income Per Share
Effective for the eleven months ended January 31, 1998, pro forma earnings
per share (EPS) is computed and presented in accordance with SFAS No. 128,
"Earnings Per Share." SFAS No. 128 supersedes all prior EPS guidance found in
APB Opinion No. 15. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders (net income after giving effect to the
pro forma tax adjustment and after preferred stock dividend requirements of
Young of $432,000 for the year ended February 25, 1995) by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. All prior periods
have been restated to conform with SFAS No. 128.
Stock Split and Stock Dividends
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 three-for-two share basis in September
1994. The Company distributed a 50% share dividend in June 1995 and January
1997. All share numbers and prices have been adjusted to reflect the reverse
stock split, the conversion of preferred to common and the 50% share dividends.
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 1996, 1995 and 1994
consolidated financial statements to conform to the fiscal 1997 presentation.
These reclassifications had no impact on net income.
New Accounting Standards
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income," in the first quarter of 1998. Upon adoption of SFAS No. 130, the
Company will report all changes in the Company's stockholders' equity other than
transactions with stockholders. Comprehensive income pursuant to SFAS No. 130
would include net
-35-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
income, as reported in the Consolidated Statement of Operations, plus the net
changes in the foreign currency translation component of stockholders' equity.
The Company is required to adopt SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," in the fourth quarter of 1998. SFAS No.
131 will supercede the business segment disclosure requirements currently in
effect under SFAS No. 14. SFAS No. 131, among other things, establishes
standards regarding the information a company is required to disclose about its
operating segments and provides guidance regarding what constitutes a reportable
operating segment. The Company is currently evaluating disclosures under SFAS
No. 131 compared to current disclosures.
The Company is required to adopt the disclosure requirements of SFAS No. 132,
"Employer's Disclosures about Pensions and Other Postretirement Benefits," in
the fourth quarter of 1998. SFAS No. 132 revises disclosure requirements for
such pension and postretirement benefit plans to, among other things,
standardize certain disclosures and eliminate certain other disclosures no
longer deemed useful. SFAS No. 132 does not change the measurement or
recognition criteria for such plans.
On March 4, 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1 providing guidance on accounting for the costs
of computer software developed or obtained for internal use. The effective date
of this pronouncement is for fiscal years beginning after December 15, 1998.
The Company is in the process of reviewing its current policies for accounting
for costs associated with internal software development projects and how they
may be affected by SOP 98-1. The Company believes its current policies are
materially consistent with the SOP; however, the ultimate impact on the
Company's future results of operations has not yet been determined.
2. CHANGE IN YEAR END
In January 1998, the Company changed its fiscal year end from the end of
February to January 31,1998. The results of operations of the Company for the
eleven months ended January 31, 1998 and February 1, 1997 are as follows:
<TABLE>
<CAPTION>
Eleven Months Eleven Months
Ended Ended
January 31, 1998 February 1, 1997
----------------- -----------------
(Audited) (Unaudited)
<S> <C> <C>
Net sales $3,573,311 $2,911,189
Cost of sales 2,733,308 2,205,359
---------- ----------
Gross profit 840,003 705,830
Warehouse operating and selling expenses 605,243 508,676
Corporate general and administrative expenses 105,055 87,793
Merger and other non-recurring items 14,890 19,841
---------- ----------
Operating profit 114,815 89,520
Net interest expense 38,115 24,550
Other income 842 152
---------- ----------
Income before income taxes 77,542 65,122
Income tax expense 34,457 30,728
Minority interest income 1,319 1,314
---------- ----------
Net income $ 44,404 $ 35,708
========== ----------
Pro forma net income (1) $ 44,404 $ 33,993
========== ==========
</TABLE>
-36-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Pro forma net income per common share - Basic $0.34 $0.28
Pro forma net income per common share - Diluted $0.32 $0.26
</TABLE>
(1) Pro forma net income for the eleven months ended February 1, 1997 reflects
the tax impact for a subchapter S acquisition as if the acquired company was a C
corporation.
3. POOLING OF INTERESTS
Fiscal 1997
The Company completed 6 acquisitions which were accounted for as immaterial
poolings of interests for approximately 2,208,000 shares of common stock. The
financial statements for these immaterial acquisitions for periods prior to the
acquisition have not been restated. There were no material pooling of interests
transactions in fiscal 1997.
Fiscal 1996
Effective January 30, 1997, the Company issued approximately 4,650,000 shares
of common stock in exchange for all of the outstanding stock of HMI, the largest
privately-held supplier of promotional products to large corporations.
Effective January 24, 1997, the Company issued approximately 2,550,000 shares
of common stock in exchange for all of the outstanding stock of Sofco, one of
the largest suppliers of janitorial and cleaning supplies in the United States.
Effective November 8, 1996, the Company issued approximately 6,332,000 shares
of common stock in exchange for all of the outstanding stock of UT, the second
largest same-day delivery service provider in the United States.
Effective October 31, 1996, the Company issued approximately 1,125,000 shares
of common stock and paid approximately $2,289,000 to the consenting and
dissenting shareholders, respectively, of Nimsa, a computer software reseller
located in Paris, France, in exchange for all of Nimsa's outstanding stock.
In addition to the above acquisitions, the Company completed 14 other
acquisitions which were accounted for as immaterial poolings of interests for
approximately 1,942,000 shares of common stock during fiscal 1996. The
financial statements for these immaterial acquisitions for periods prior to the
acquisition have not been restated.
Fiscal 1995
Effective March 1, 1996, the Company issued approximately 23,409,000 shares
of common stock in exchange for all of the outstanding stock of Delivery, a
provider of same-day local delivery services.
Effective February 27, 1996, the Company issued approximately 4,398,000
shares of common stock in exchange for all of the outstanding stock of Young, a
distributor of computer and imaging supplies and accessories.
Also in fiscal 1995, prior to merging with the Company, Delivery acquired the
outstanding stock of 14 companies in exchange for approximately 3,951,000 shares
of Delivery common stock.
-37-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal 1994
Delivery acquired the stock of six companies in exchange for approximately
1,722,000 shares of Delivery common stock.
Results of Pooled Companies Prior to Merger
Separate results of operations for Corporate Express and the pooled
operations for the periods prior to the mergers are as follows:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
March 1, March 2, February 25,
1997 1996 1995
----------- ----------- -------------
(In thousands)
<S> <C> <C> <C>
Net sales:
Corporate Express $2,715,785 $1,132,012 $ 621,469
HMI 92,080 84,013 83,752
Sofco 139,734 144,621 133,481
UT 196,199 --- ---
Nimsa 52,258 71,901 ---
Young --- 115,628 86,184
Delivery --- 306,364 109,865
Delivery poolings prior to merger with Delivery --- 36,100 110,400
---------- ---------- ----------
Combined $3,196,056 $1,890,639 $1,145,151
========== ========== ==========
Net income (loss):
Corporate Express $ 31,710 $ 3,702 $ 5,248
HMI 4,182 990 1,772
Sofco 3,529 319 1,989
UT 1,369 --- ---
Nimsa 1,206 1,762 ---
Young --- (3,073) 1,264
Delivery --- 815 4,223
Delivery poolings prior to merger with Delivery --- 1,036 2,000
---------- ---------- ----------
Combined $ 41,996 $ 5,551 $ 16,496
========== ========== ==========
Other changes in shareholders' equity:
Corporate Express $ 106,299 $ 229,356 $ 115,024
HMI (3,761) (2,193) (1,917)
Sofco 1,538 (230) 694
UT 26,135 -- --
Nimsa (376) 6,026 --
Young -- 13,028 (7,932)
Delivery -- 12,032 23,211
Delivery poolings prior to merger with Delivery -- (1,116) (2,613)
---------- ---------- ----------
Combined $ 129,835 $ 256,903 $ 126,467
========== ========== ==========
</TABLE>
-38-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Certain reclassifications and adjustments have been made to the prior
financial statements of the pooled companies to conform to the Corporate
Express financial presentation and policies which adjustments had an
immaterial effect on net income.
All intercompany transactions have been eliminated.
The consolidated statement of operations for fiscal 1996 includes the income
and expenses of Corporate Express (including Young and Delivery), HMI, Sofco,
UT and Nimsa for the twelve months ended March 1, 1997.
The consolidated statement of operations for fiscal 1995 includes the income
and expenses of Corporate Express, Sofco, Young and Delivery for the twelve
months ended March 2, 1996, of HMI for the twelve months ended December 31,
1995, and of Nimsa for the twelve months ended June 30, 1996. In order to
conform the HMI and Nimsa year ends to Corporate Express' fiscal year end, Nimsa
net income for the March 1996 to June 1996 period was included in both fiscal
1995 and 1996, and HMI net income for the January 1996 to February 1996 period
was excluded from fiscal 1995. Accordingly, an adjustment has been made in
fiscal 1996 to debit retained earnings directly for the March 1996 to June 1996
Nimsa net income of $630,000 and to credit retained earnings directly for the
January 1996 to February 1996 HMI net income of $200,000.
The consolidated statement of operations for fiscal 1994 includes the income
and expenses of Corporate Express for the twelve months ended February 25, 1995,
of Sofco for the twelve months ended May 26, 1995, of HMI for the twelve months
ended December 31, 1994, of Young for the twelve months ended September 30,
1994, and of Delivery for the twelve months ended December 31, 1994. In order
to conform the Sofco, Young and Delivery year ends to Corporate Express' fiscal
year end, Sofco net income for the March 1995 to May 1995 period was included in
both fiscal 1994 and 1995, Young net income for the October 1994 to February
1995 period was excluded from fiscal 1994, and Delivery net income for the
January 1995 to February 1995 period was excluded from fiscal 1994.
Accordingly, an adjustment has been made in fiscal 1995 to debit retained
earnings directly for the March 1995 to May 1995 Sofco net income of $747,000,
and to credit retained earnings for the October 1994 to February 1995 Young net
income of $846,000 and the January 1995 to February 1995 Delivery net income of
$1,777,000.
The results of operations for the adjustment periods are as follows:
Period Net Sales Net Income
---------- --------- ----------
(in thousands)
Nimsa 3/96-6/96 $25,986 $ 630
HMI 1/96-2/96 15,415 200
Sofco 3/95-5/95 33,085 747
Young 10/94-2/95 39,683 846
Delivery 1/95-2/95 50,382 1,777
4. MERGER AND OTHER NONRECURRING COSTS
During fiscal 1997, the Company recorded a net merger and other nonrecurring
charge of $14,890,000. This net charge is comprised of $18,827,000 in merger
and other nonrecurring charges in connection with the Company's acquisition of
DDI, several acquisitions accounted for as immaterial poolings of interests, the
continued integration of delivery services and certain provisions for reductions
in force and facility closures at other locations, offset by $3,937,000 in
revisions to the merger and other nonrecurring charges established in previous
periods to reflect the final transaction and exit costs incurred. These
revisions reflect the finalization of employee contract buyouts and
-39-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
delays in closing certain facilities and disposition of related assets. The 1997
fiscal period charge includes the planned closure of 34 facilities and the
reduction of 722 employees. As of January 31, 1998, no facilities have been
closed or consolidated and 93 employees have been terminated.
During fiscal year 1996, the Company recorded an estimated net merger and
other nonrecurring charge of $19,840,000. This net charge is comprised of
$27,411,000 in merger and other nonrecurring charges primarily in conjunction
with the acquisitions of UT, Nimsa, HMI and Sofco, offset by $7,571,000 in
revisions to the merger and other nonrecurring charge established in the fourth
quarter of fiscal 1995. The fiscal 1995 charge included an exit plan for the
integration of the newly acquired delivery business into the Company's core
product distribution business. In the third quarter of fiscal 1996, nine months
after the creation of the original exit plan, the Company acquired UT,
approximately doubling its delivery services capacity. At that time, the
Company adopted a new plan to integrate the delivery services business separate
from the core product distribution business. In connection with the new exit
plan, the Company evaluated its facility and personnel requirements and
identified duplicate facilities consistent with the new plan. As a result of
this new plan, the closure of thirteen delivery facilities and five distribution
facilities, incorporated in the original fiscal 1995 plan, was superseded.
Included in the distribution facilities that were to be retained, was the South
Carolina facility which was expected to be merged into the Atlanta and planned
North Carolina facilities. Due to significant new business in the Atlanta area
and several unexpected acquisitions, the Atlanta facility is at full capacity
and this closure plan was terminated. Additionally, several subsequent
acquisitions in fiscal 1996, which were not contemplated at the end of fiscal
1995, were completed in the Carolinas and surrounding markets, which eliminated
the opportunity to close the South Carolina facility and maintain a high level
of customer service.
The fiscal year 1996 charges include the actual costs of completing the
acquisitions, anticipated costs for integrating the delivery business, closing
other redundant facilities, and severance for employee terminations, merging
various UT facilities into Company locations and closing redundant facilities.
The original charge included the closure of 115 facilities and the reduction of
484 employees; as a result of revised estimates during the third quarter ended
November 29, 1997, 172 additional employees were identified to be terminated.
To date 82 facilities have been closed or consolidated, 522 employees have been
terminated, and 54 employees will no longer be terminated as the result of
revised exit plans.
The fiscal 1995 merger and other nonrecurring charge of $36,838,000 consisted
of 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. This liability was adjusted in fiscal 1996 to reflect the actual
merger transaction costs incurred and to eliminate the original liability
established for specific facilities which will not be closed as a result of the
significant change in circumstances due to the acquisition of UT. The initial
plan included the closure of 88 facilities and a reduction of 767 employees. To
date 57 facilities have been closed or consolidated and 100 employees have been
terminated. Revisions in the plan have eliminated the closure of 22 facilities
and the reduction of 375 employees.
The following table summarizes the merger and other nonrecurring charges and
sets forth their usage for the periods indicated:
-40-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Employee Accrued
Merger Severance & Facility Merger & Other Asset
Transaction Termination Closure & Related Costs, Write Downs
Costs (1) Costs(2) Consolidations (3) Balance & Costs (4) Total
--------- -------------- ------------------ ---------- -------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1995 charge $13,273 $ 7,457 $ 9,693 $30,423 $ 6,415 $ 36,838
Payments (4,112) (292) (1,139) (5,543) (5,543)
Non-cash usage (2,626) (2,626)
------- -------- ------- ------- -------- --------
Balance, March 2, 1996 9,161 7,165 8,554 24,880 3,789 28,669
Additions, net of reversals 15,015 2,783 (546) 17,252 2,588 19,840
Payments (20,094) (2,283) (1,271) (23,648) (23,648)
Non-cash usage (2,225) (2,225)
------- -------- ------- ------- -------- --------
Balance, March 1, 1997 4,082 7,665 6,737 18,484 4,152 22,636
Additions, net of reversals 4,485 7,745 463 12,693 2,197 14,890
Payments (7,956) (5,714) (1,995) (15,665) (15,665)
Non-cash usage (3,590) (3,590)
------- -------- ------- ------- -------- --------
Balance, January 31, 1998 $ 611 $ 9,696 $ 5,205 $15,512 $ 2,759 $ 18,271
======= ======== ======= ======= ======== ========
</TABLE>
(1) Merger transaction costs are the direct costs from the pooling transactions
and those direct costs incurred by DDI, and include legal, accounting,
investment banking, printing, contract buy-outs and other related costs.
(2) Severance and employee termination costs are related to the elimination of
duplicate management positions, facility closures and consolidations, and
centralization of certain shared services. Of the 1,716 employees currently
planned to be terminated, 715 have been terminated as of January 31, 1998.
The Company expects to complete the facility closures and related
terminations for the fiscal 1995 charge, which totals $1,638,000, and the
fiscal 1996 charge, which totals $1,838,000, by the end of fiscal 1998. The
centralization of certain shared services began in the second quarter of
fiscal 1997 and will continue through fiscal 1998. The Company expects to
complete the facility closures and related terminations for the fiscal year
1997 charge, which totals $6,220,000, by the end of fiscal 1998.
(3) Facility closure and consolidation costs are the estimated costs to close
redundant facilities, lease costs and other costs associated with closed
facilities. Of the 215 facilities currently planned to be closed or
consolidated, 139 have been closed or consolidated. The remaining facilities
in the fiscal 1995 and 1996 charges, and the facilities identified in the
1997 charge 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
the loss on sale of assets and leasehold improvements and equipment being
abandoned or written off as a result of the exit plans. 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
fiscal 1998.
5. PURCHASES
Fiscal 1997
The Company acquired for a net cash purchase price of $24,572,000 and
approximately 12,687,000 shares of common stock, 10 domestic product
distributors, and 15 international product distributors. The excess of the
purchase price over the fair market value of the net tangible assets acquired
was allocated to goodwill and is being amortized over 40 years. Additionally,
the Company completed six acquisitions which were accounted for as immaterial
poolings of interest for approximately 2,208,000 shares of common stock.
Included in the 10 domestic product distributors is the acquisition of DDI, a
provider of forms management services, custom business forms and
-41-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
pressure-sensitive labels for large corporate customers, purchased for
approximately 10,740,000 shares of common stock.
The net purchase price for DDI was allocated as follows:
(in thousands)
--------------
Current assets, excluding cash acquired................. $ 75,365
Property, plant and equipment, net...................... 52,487
Other assets............................................ 20,591
Goodwill................................................ 130,438
Liabilities assumed..................................... (112,938)
--------------
Purchase price, net of cash acquired.................... $ 165,943
==============
Total DDI goodwill, included in the fair value of assets acquired, of
$130,438,000 includes transaction and other direct costs of such acquisition
of $1,672,000 and purchase accounting adjustments (primarily relating to
recording assets and liabilities at their fair market values) of $8,659,000
net of related deferred taxes.
In June 1997, the Company purchased the remaining 49% interest in Corporate
Express United Kingdom by issuance of shares of Corporate Express common stock.
Fiscal 1996
The Company acquired for a net cash purchase price of $241,846,000 and
approximately 3,600,000 shares of common stock, 46 domestic office product
distributors, 29 international office product distributors and 11 delivery
service companies. The excess of the purchase price over the fair market value
of the net tangible assets acquired was allocated to goodwill and is being
amortized over 40 years for office product distributors and 25 years for
delivery service companies. Included in the 46 domestic product acquisitions
are three purchases and one immaterial pooling consummated by UT prior to its
acquisition by Corporate Express, and ASAP Software Express, Inc. ("ASAP"), a
distributor of software to large corporations. The ASAP purchase price was
$97,611,000 offset by cash acquired of $13,792,000. Included in the 29
international product acquisitions is 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 $731,900 and 356,832 shares of the
Company's common stock.
In January 1997, Corporate Express Australia ("CEA") shareholders approved a
one-for-five non-renounceable common stock rights offer at a price of A$.85
(US$.65) per share. Pursuant to the rights offer, on February 27, 1997, CEA
issued 8,216,721 shares to Corporate Express and 3,553,370 shares to
institutional investors. As of March 1, 1997, Corporate Express interest in CEA
was 54.6%. On March 10, 1997, an additional 3,750,000 shares were issued to
institutional investors which changed the Corporate Express interest in CEA to
52.4%.
Fiscal 1995
Corporate Express purchased for a net cash purchase price of $79,111,000, 27
office product distributors including five distributors purchased by CEA and a
software distributor purchased by Nimsa. 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.
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. Delivery completed
16 acquisitions accounted for as purchases. The net cash purchase price paid in
these transactions was $15,208,000 in cash, 378,000 shares of Delivery common
stock and $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 service.
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 was 51.8%.
-42-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On December 21, 1995 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%.
Pro Forma Results of Acquired Companies
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 earliest
period presented. 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 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 the impact of purchase price adjustments.
<TABLE>
<CAPTION>
Eleven Months Year Ended Year Ended
Ended March 1, March 2,
January 31, 1998 1997 1996
---------------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $3,889,076 $4,026,121 $3,444,883
Net income before extraordinary item 53,537 52,317 34,783
Net income 53,537 52,263 31,103
Net income per common share - Basic 0.38 0.38 0.25
Net income per common share - Diluted 0.36 0.35 0.24
</TABLE>
6. ACCRUED PURCHASE COSTS
In conjunction with purchase acquisitions, the Company accrues certain of the
direct external costs associated with closing redundant facilities of acquired
companies, and severance and relocation payments to the acquired companies'
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.
The following tables set forth activity in the Company's accrued purchase
liabilities:
<TABLE>
<CAPTION>
Prior to EITF 95-3:
Warehouse Disposition
& System Redundant of Assets
Total Integrations Facilities Severance & Other
------ ------------ ---------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, March 2, 1996 $1,264 $ 750 $ 403 $ 41 $ 70
Payments (675) (452) (182) (41) --
Reversals to goodwill (589) (298) (221) -- (70)
------ ----- ----- ---- ----
Balance, March 1, 1997 (1) $ 0 $ 0 $ 0 $ 0 $ 0
====== ===== ===== ==== ====
</TABLE>
(1) All consolidation projects relating to companies acquired prior to the
adoption of EITF 95-3 have been successfully completed.
-43-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
After adoption of EITF 95-3:
Disposition
Facility Redundant of Assets
Total Exit Costs Facilities Severance & Other
-------- ----------- ----------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, February 25, 1995 $ -- $ -- $ -- $ -- $ --
Additions 2,414 691 202 1,065 456
Payments (629) (177) (4) (293) (155)
------- ------- ------- ------- -------
Balance, March 2, 1996 1,785 514 198 772 301
Additions 21,429 2,037 4,912 9,727 4,753
Payments (8,503) (699) (557) (4,066) (3,181)
Reversals to goodwill (1,823) (7) (1,284) (284) (248)
------- ------- ------- ------- -------
Balance, March 1, 1997 12,888 1,845 3,269 6,149 1,625
Additions 6,365 807 1,477 3,788 293
Payments (9,289) (2,188) (1,379) (5,256) (466)
Reversals to goodwill (586) -- (239) (281) (66)
------- ------- ------- ------- -------
Balance, January 31, 1998 (1) $ 9,378 $ 464 $ 3,128 $ 4,400 $ 1,386
======= ======= ======= ======= =======
</TABLE>
(1) Accrued purchase costs, after adoption of EITF 95-3, primarily relate to
consolidating acquired operations into existing Company facilities. All
consolidation projects are planned to be completed within two years of the
acquisition date. Remaining balances primarily represent international and
the recent DDI consolidation plans.
7. DISCONTINUED OPERATIONS
During fiscal 1995, Sofco adopted a plan to discontinue the operations of
Sofco-Eastern, Inc. ("Eastern"). Accordingly, the consolidated financial
statements have been reclassified to report separately the net assets,
liabilities and operating results of the Eastern operations. As of March 1,
1997, all Eastern operations have been disposed of and actual losses recorded on
the disposal of the assets. The loss from discontinued operations in fiscal
1995 and fiscal 1994 were $1,225,000 (net of tax benefits of $851,000),
representing the loss on disposal and $327,000 (net of tax benefits of
$225,000), representing the net loss on operations. The Eastern revenues were
not material to total consolidated revenues for fiscal years 1996, 1995 and
1994.
8. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
January 31, March 1, March 2,
1998 1997 1996
----------- -------- --------
(In thousands)
<S> <C> <C> <C>
Domestic:
4 1/2% Convertible Notes (the "Notes"), due July 1, 2000,
unsecured, interest payable semi-annually commencing on
January 1, 1997, convertible into shares of the Company's
common stock at a conversion price of $33.33 per share. $325,000 $325,000 ---
</TABLE>
-44-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<S> <C> <C> <C>
$500,000,000 unsecured multi-currency revolving line of credit
(Senior Credit Facility). Interest rates at LIBOR plus .75%,
(8.5% at January 31, 1998), with principal due on March 31,
2000. Balance paid in full subsequent to year end. Refer to
Note 18. 254,037 136,000 8,000
9 1/8% Series B Senior Subordinated Notes, unsecured, subordinated to
existing debt, guaranteed by certain operating subsidiaries of the
Company. Due March 15, 2004, interest payable semi-annually.
Redeemable by the Company from March 1999 to March 2001
at premiums ranging from 3.422% to 1.141%. 90,000 90,000 90,000
Senior secured notes collateralized by the assets of DDI. 7,397 -- --
Bank term loans, collateralized by equipment, with interest floating at
LIBOR plus 1.75% to 2.0%, principal and interest payable monthly,
maturities range from 48 months to 60 months through March 2002. 7,113 9,341 5,620
Convertible subordinated notes due between March 26, 1999 and
January 31, 2000, bearing interest of 5.0% to 6.0%, payable
quarterly or semi-annually, and convertible prior to maturity at
the holder's option at prices ranging from $19.97 to $32.70,
into 222,000 shares of common stock. 3,315 4,864 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 4.8% in 1995 to 5.5% at January 31, 1998,
payable semi-annually and principal installments of varying amounts
($100,000 in 1995, $200,000 in 1996, and $100,000 in 1997) payable
annually through November 2009. 4,280 4,380 4,480
Various revolving lines of credit, collateralized by certain assets of
the Company, variable interest rate of 9.25% at January 31, 1998. 2,455 --- 27,773
Other term loans, a portion collaterized by certain assets, interest
from 4.8% to 16%. 20,905 12,701 20,482
International:
Term loan facility collateralized by the assets of Corporate Express
Canada ("CEC"). Floating interest rate, as defined, is 5.05% at
January 31, 1998. $1,031,000 principal was repaid in
1997, with remaining principal payments of $2,061,000 due
annually in 1998, 1999, 2000, and 2001 and final payment
of $1,031,000 due in August 2002. 9,275 -- --
Notes payable due December 2006, variable interest rates
(6.5% on January 31, 1998, 4.75% on March 1, 1997 and
5.34% on March 2, 1996), collateralized by cash deposits. 3,099 4,015 4,641
Various revolving lines of credit, collateralized by certain assets
of the Company, variable interest rates ranging from 4.0%
to 9.0% at January 31, 1998. 46,496 37,355 --
Other term loans, a portion collateralized by certain assets, interest
from 3.8% to 9.95%. 11,252 21,851 7,422
-------- -------- --------
Total debt 784,624 645,507 173,983
Less current portion of debt 30,795 23,802 20,152
-------- -------- --------
Long-term portion of debt $753,829 $621,705 $153,831
======== ======== ========
</TABLE>
-45-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The annual maturities of debt for succeeding years are as follows:
Fiscal Year (In thousands)
- ------------- ------------
1998 $ 30,795
1999 26,230
2000 331,722
2001 5,641
2002 5,122
Thereafter 385,114
--------
Total $784,624
========
Certain of the debt agreements contain provisions which require maintenance of
the Company's minimum net worth, certain financial ratios, including debt to
cash flow and fixed charge coverage, and limit the Company's ability to pay
dividends.
Effective December 15, 1997 the prior $500,000,000 Senior Credit Facility,
which was previously expanded on September 10, 1997 to increase the borrowing
capacity from $350,000,000 to $500,000,000 and increase the cost of borrowings
to LIBOR plus .75%, was amended to permit the Company's subsidiaries to
guarantee up to $500,000,000 of additional debt and permit the repayment of the
Company's 9 1/8% Senior Subordinated Notes due 2004. As more fully described in
Note 18 the Company terminated this Senior Credit Facility and replaced it with
a new Senior Secured Credit Facility.
In conjunction with the purchase price allocation for the acquisition of DDI,
the Company recorded DDI's 13.5% Senior Secured Notes, due in 2002, at their
fair market value, then repurchased $54,068,000 of the Notes at a redemption
price of 115%. On or after July 15, 1999 the Notes are redeemable, at the
option of the Company, in whole or in part at redemption prices of 104.2% in
1999 decreasing to 100% in 2001. Interest on the notes is due semi-annually on
January 15, 1998 and July 15, 1998. The notes are collateralized by a first
priority security interest in substantially all assets of DDI other than
accounts receivable.
On June 24, 1996, the Company issued $325,000,000 principal amount of
Convertible Notes. The Convertible Notes are convertible into the Company's
common stock at a conversion price of $33.33 per share, subject to adjustments
under certain conditions. A portion of the proceeds from the sale of the Notes
was used to repay the Company's revolving 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 Secured Credit Facility prohibits the distribution of
dividends without the prior written consent of the lenders and the Indenture
governing the Series B Notes which are registered under the Securities Act of
1933 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.
The Company capitalized $3,239,000, $3,887,000 and $882,000 of interest
expense in the fiscal 1997, 1996 and 1995 periods, respectively, primarily
related to software developed for internal use and the construction of corporate
facilities. No interest was capitalized in fiscal 1994.
Interest Rate Risk Management
During fiscal 1997, the Company entered into an interest rate hedging contract
with a major U.S. financial institution. The contract is based upon a nominal
value of $300,000,000 of U.S. Treasury notes and has been designated as a hedge
of the Company's interest rate exposure related to an anticipated subordinated
debt offering which is expected to close in the second quarter of fiscal 1998.
At the closing of the debt offering, the hedging
-46-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
contract will be settled, and any gain or loss will be included in deferred
financing costs and amortized over the term of the new debt agreement as an
adjustment of the effective interest rate. As of April 27, 1998, the deferred
loss under the terms of the hedging contract was $4,700,000 based on the
difference between the fixed and hedged amounts, representing the cost to the
Company if the contract was settled on that date.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has various noncancellable operating leases, primarily for
warehouse buildings, delivery trucks, and computer equipment. Lease expense, net
of sublease rentals of $1,430,000, $992,000, $30,000, and $127,000 for the
eleven months ended January 31, 1998 and the years ended March 1, 1997, March 2,
1996, and February 25, 1995 was $68,274,000, $54,567,000, $19,195,000 and
$13,906,000, respectively.
Future minimum lease payments are as follows:
Fiscal Year (In thousands)
- ----------- ------------
1998 $ 56,804
1999 45,017
2000 32,140
2001 20,892
2002 31,017
Thereafter 74,610
--------
Total 260,480
Less subleases 2,837
--------
Net obligation $257,643
========
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.
The Company has entered into agreements for the sale and leaseback of certain
buildings and has accounted for such transactions as operating leases in
accordance with SFAS No. 98 "Accounting for Leases." As of January 31, 1998,
facilities with book values totaling $17,096,000 have been removed from the
balance sheet, and gains realized on the sale transactions totaling $2,569,000
have been deferred and are being amortized to income as rent expense adjustments
over the lease terms. The average annual net lease payments, over the lives of
the leases which expire between 2002 and 2009, are $990,602. The Company has
purchase and lease renewal options at projected future fair market values under
the agreements.
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 January 31, 1998 is $25,559,000 of assets under capital leases and
related accumulated depreciation of $8,742,000.
Future minimum lease payments required under these capital leases are as
follows:
-47-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal Year (In thousands)
- ----------- ------------
1998 $ 5,469
1999 4,869
2000 4,036
2001 1,910
2002 521
Thereafter 45
-------
Total minimum lease payments 16,850
Less amount representing interest 1,967
-------
Present value of minimum lease payments 14,883
Less current portion of capital lease obligations 5,469
-------
Non-current portion of capital lease obligations $ 9,414
=======
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. The Company has a dispute with a former shareholder of a
Company acquired by the Company in fiscal 1996. No legal proceedings have been
commenced by the shareholder, and the Company cannot determine if any legal
action will be initiated, or the results or materiality of any such action.
10. INCOME TAXES
Federal, state and foreign income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended
Eleven Months ------------------------------------------
Ended March 1, March 2, February 25,
January 31, 1998 1997 1996 1995
----------------- -------------- --------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Current:
Federal $ 10,973 $ 202 $10,604 $ 7,707
State 1,217 615 1,089 1,218
Foreign 3,571 1,943 3,205 ---
Deferred:
Federal 21,785 17,149 (429) (2,499)
State 2,914 5,401 1,544 (251)
Foreign 130 (793) --- ---
Utilization of net operating loss (10,806) --- (2,247) (1,051)
Change in tax status --- (2,029) --- ---
Allocated to goodwill --- --- --- 4,374
Allocated to contributed capital 4,673 11,161 --- ---
Adjustment of beginning valuation allowance --- --- --- (1,204)
-------- ------- ------- -------
Total income tax expense $ 34,457 $33,649 $13,766 $ 8,294
======== ======= ======= =======
</TABLE>
The benefit recognized in fiscal 1996 for change in tax status relates to
establishing deferred tax assets for an acquired S corporation. The amounts
"allocated to contributed capital" relate to deductions recognizable only for
tax purposes from the exercise of non-qualified stock options and the
disqualifying dispositions of stock purchased under the Company's incentive
stock option plan.
-48-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At January 31, 1998 the Company had $32,911,000 of net operating loss
carryforwards of which $5,154,000 and $27,757,000 are for United States and
foreign tax purposes, respectively. The U.S. losses begin to expire in 2007,
while the foreign losses are generally not subject to expiration dates.
Included in the net operating loss carryforwards are losses from acquired
subsidiaries. The utilization of these carryforwards may be affected by
limitations under the Internal Revenue Code, and therefore, the benefit of these
pre-acquisition net operation loss carryforwards may be limited.
The components of the net deferred tax assets and liabilities as of January
31, 1998, March 1, 1997 and March 2, 1996 are as follows:
<TABLE>
<CAPTION>
January 31, March 1, March 2,
1998 1997 1996
------------ --------- ---------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Inventory $ 8,138 $ 5,999 $ 3,712
Allowance accounts 5,945 4,532 1,615
Accrued purchase costs 2,784 3,734 1,053
Insurance reserves 3,726 3,980 271
Accrued merger and other costs 7,767 8,760 6,767
Vacation and benefits accrual 7,773 5,407 396
Net operating loss carryforwards 12,238 13,275 4,879
Valuation allowance (2,255) (6,049) (2,433)
Alternative minimum tax and other
tax credits 3,075 --- ---
Other 2,749 1,733 7,398
-------- -------- -------
Total deferred tax assets 51,940 41,371 23,658
-------- -------- -------
Deferred tax liabilities:
Accounting methods 3,479 4,943 1,650
Property, plant and equipment 47,103 28,807 4,731
Intangible assets 6,729 3,926 5,886
Other 1,245 1,438 295
-------- -------- -------
Total deferred tax liability 58,556 39,114 12,562
-------- -------- -------
Net deferred tax asset (liability) $ (6,616) $ 2,257 $11,096
======== ======== =======
Financial Statements
Current deferred tax assets 40,729 29,076 18,470
Non-current deferred tax assets 5,170 --- ---
Non-current deferred tax liabilities (52,515) (26,819) (7,374)
-------- -------- -------
Net deferred tax asset (liability) $ (6,616) $ 2,257 $11,096
======== ======== =======
</TABLE>
The net change in the valuation allowance for deferred taxes in the year ended
January 31, 1998 and March 1, 1997 is a decrease of $3,794,000 and an increase
of $3,616,000, respectively. The Company reviewed the need for a valuation
allowance related to deferred tax assets and determined that it was more likely
than not that a portion of the deferred tax assets, comprised primarily of
operating loss carryforwards of acquired companies, may not be realized.
-49-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The reconciliation of the differences between the Company's expense (benefit)
for income taxes and taxes at the statutory rate is as follows:
<TABLE>
<CAPTION>
Years Ended
Eleven Months -------------------------------------
Ended March 1, March 2, February 25,
January 31, 1998 1997 1996 1995
----------------- --------- --------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Statutory federal income tax expense $27,140 $25,825 $ 7,692 $ 8,610
Adjustments:
State income taxes, net of federal effect 3,452 3,910 1,521 886
Foreign income taxes 1,469 (123) 461 ---
Merger costs 1,500 4,924 4,952 ---
Amortization of goodwill 3,540 3,693 1,404 1,784
Untaxed S Corporation earnings and change in
tax status --- (3,514) (347) (620)
Valuation allowance on tax loss carryforward (2,386) (47) (2,247) (2,636)
Other (258) (1,019) 330 270
------- ------- ------- -------
Income tax expense $34,457 $33,649 $13,766 $ 8,294
======= ======= ======= =======
</TABLE>
11. 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 employees salary and all
full-time employees are eligible to participate in the plan. New employees are
eligible to enroll at the beginning of each calendar quarter. For the fiscal
periods ended January 31, 1998, March 1, 1997, March 2, 1996, and February 25,
1995, the Company's matching contribution expense was $3,297,000, $2,204,000,
$1,807,000, and $1,704,000, respectively.
CEA, the Company's majority-owned Australian subsidiary since May 1995,
sponsors superannuation funds for its employees (similar to 401(k) plans in the
United States). Total contributions by the Company for the period ended January
31, 1998, and the years ended March 1, 1997 and March 2, 1996 were approximately
$1,606,000, $1,912,000 and $980,000, respectively.
On August 29, 1994, the Company's shareholders approved the adoption of the
1994 Employee Stock Purchase Plan ("ESPP"). A maximum of 1,125,000 shares of
Common Stock may be purchased by eligible employees under the 1994 Employee
Stock Purchase Plan. All full-time employees with 30 days 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 offering
periods or end of the offering periods fair market value, less a discount of up
to 15%. Contributions to this plan during fiscal 1997, 1996 and 1995 totaled
approximately $3,358,000, $2,066,000 and $679,000, respectively and purchases
under the plan totaled 277,571, 115,488 and 49,200 shares. There were no
contributions to or stock purchases under the 1994 Employee Stock Purchase Plan
during fiscal 1994.
Sofco has an Employee Stock Ownership Plan ("the ESOP") covering substantially
all full-time employees. The ESOP invested in the common stock of Sofco which
was converted to Corporate Express common stock upon consummation of the
acquisition. As of March 1, 1997 and March 2, 1996, the ESOP owned 1,512,164
shares and 1,303,512 shares, respectively, of Corporate Express common stock or
equivalents. Of the shares owned, 329,034
-50-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
were is escrow as of March 2, 1996. Employer contributions were $436,000 for
fiscal 1996, $1,925,000 for fiscal 1995, and $805,000 for fiscal 1994. In
December 1990, Sofco guaranteed a $4,000,000 loan to the ESOP which is
collateralized by the stock held in escrow and a security interest in accounts
receivable and inventory. The loan had an approximate interest rate of 85% of
prime and was repaid in full in August 1996. The loan balance at March 2, 1996
was $1,047,619 and is included in liabilities on the Company's consolidated
balance sheets with a corresponding reduction in additional paid-in capital. The
Sofco Employee Stock Ownership Plan ("the ESOP") was merged into the Corporate
Express, Inc. 401(k) Retirement Plan on September 3, 1997. A total of 1,494,152
shares were transferred and allocated to the participants. A total of 16 other
qualified plans were merged into the Corporate Express, Inc. 401(k) Retirement
Plan during fiscal 1997. The total amount of assets transferred into the Plan
were $9,482,000.
12. COMMON STOCK
As of January 31, 1998, March 1, 1997 and March 2, 1996 there were
142,392,845, 126,171,467 and 111,954,350 common shares outstanding, respectively
(after giving effect to the three-for-two stock split effected in the form of a
stock dividend in January 1997). On January 31, 1997, a 50% share dividend of
approximately 39,979,000 shares of common stock was distributed to shareholders
of record as of January 24, 1997. On April 10, 1998, after close of fiscal 1997,
the Company repurchased in a tender offer 35,000,000 common shares. See Note
18.
On January 14, 1998, the Board of Directors of the Company adopted a
Shareholder Rights Plan, pursuant to which the Company distributed a dividend
consisting of one right for each share of Common Stock to holders of record on
January 30, 1998. The rights, which are to purchase newly created Series A
Junior Participating Preferred Stock, become exercisable only in the event, with
certain exceptions which include a permitted waiver by the Board of Directors,
that a party accumulates 15% or more of the Company's Common Stock. The rights
expire ten years from the issuance date. In addition, upon the occurrence of
certain events, holders of the rights are entitled to purchase either the
Company's Common Stock or stock in an "acquiring entity" at half the market
value. The Company is entitled to redeem the rights at $0.01 per right at any
time until a certain time following the acquisition of a 15% position in its
voting stock.
On September 15, 1995, the Company sold 24,486,792 shares in a follow-on
public offering of its common stock, and selling shareholders sold 3,113,208
shares at a price of $16.00 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 21,075,000 shares of
common stock was distributed to shareholders of record as of June 15, 1995.
On March 30, 1995, a follow-on public offering of 10,155,938 shares of common
stock was consummated at a price to the public of $11.12 per share. Of the
shares offered, 4,500,000 shares were sold by the Company and 5,655,938 shares
were sold by selling security holders, including 397,407 shares issued upon
exercise of warrants purchased by the underwriters.
On September 30, 1994, the Company consummated its initial public offering of
15,750,000 shares of common stock at a price of $7.11 per share. Selling
shareholders sold an additional 3,656,250 shares of common stock in the initial
public offering. In connection with this offering, the Company effected a one-
for-two reverse
-51-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
stock split in August 1994 and converted all of its outstanding preferred stock
to common stock on a three-for-two 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 1, 1997 or 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 1, 1997 or March 2,
1996.
STOCK-BASED COMPENSATION PLANS:
Stock 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.
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 3,375,000 and was increased to 5,625,000
in August 1995, which increase was approved by shareholders in August 1996, and
no single executive officer may be granted options covering more than 750,000
shares of common stock in any calendar year. Vesting accelerates upon
occurrence of certain conditions, including increases in the Company's stock
price and changes in control of the Company. The options expire ten years from
the date of grant.
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 replaced, 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 2,812,500 and was increased to 9,562,500 in March 1996 and approved by
the shareholders in August 1996. Options granted under the 1994 Stock Option
Plan vest as specified in individual stock option agreements, which typically
provide vesting 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.
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.
-52-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
UT Plan. Effective with the merger with Corporate Express on November 8,
1996, all UT stock options became vested and were exercisable into shares of the
Company's common stock, as adjusted to reflect the exchange ratio as defined in
the merger agreement.
Directors Plan. The 1996 Stock Option Plan for Outside Directors (the
"Directors Plan") was adopted by the Board of Directors and approved by
shareholders in August 1996. The maximum aggregate number of shares of common
stock for which options may be granted under this plan is 375,000. Initial
options granted under the Directors Plan vest at 40% on the first anniversary of
the date of grant, 40% on the second anniversary and the remaining 20% on the
third anniversary. All other stock options shall become exercisable at 50% on
the first anniversary of the date of grant and the remaining 50% on the second
anniversary of the date of grant. Each eligible director who first becomes a
member of the Board shall automatically be granted stock options to purchase
37,500 shares on the date of his or her selection or election to the Board.
Each eligible director shall also automatically be granted stock options to
purchase 15,000 shares on each anniversary of the date of such initial grant
(beginning on the second such anniversary).
Supplemental Plan. The 1996 Supplemental Stock Option Plan (the "Supplemental
Plan") was adopted by the Board of Directors in December 1996. The maximum
aggregate number of shares of common stock for which options may be granted
under this plan is 10,000,000. Option grants under the Supplemental Plan and
the terms of the grants are identical to the 1994 Stock Option Plan.
DRC Plan. Effective with the merger with Corporate Express on May 30, 1997,
all Distribution Resources Company stock options became vested and were
exercisable into shares of the Company's common stock, as adjusted to reflect
the exchange ratio as defined in the merger agreement.
CSI Plan. Effective with the merger with Corporate Express on June 6, 1997,
all Computer Software stock options will become vested and exercisable into
shares of the Company's common stock one year from the effective date, as
adjusted to reflect the exchange ratio as defined in the merger agreement.
DDI Plan. Effective with the merger with Corporate Express on November 26,
1997, all DDI stock options became vested and were exercisable into shares of
the Company's common stock, as adjusted to reflect the exchange ratio as defined
in the merger agreement.
The summary of the status of the Company's seven fixed stock option plans as
of January 31, 1998, March 1, 1997, March 2, 1996 and February 25, 1995, and
changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
January 31, 1998 March 1, 1997 March 2, 1996 February 25, 1995
----------------------- ---------------------- --------------------- -------------------
Weighted- Weighted- Weighted- Weighted-
Average Average Average Average
Shares Exercise Shares Exercise Shares Exercise Shares Exercise
(000s) Price (000s) Price (000s) Price (000s) Price
---- --------- ---- -------- ---- --------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 16,833 $13.59 15,216 $10.90 6,465 $ 4.57 2,914 $2.88
Granted 11,797 10.15 4,405 21.15 9,872 14.21 4,076 5.74
Exercised (1,501) 5.83 (1,686) 5.98 (819) 2.03 (240) 3.83
Forfeited (3,508) 17.46 (1,102) 18.46 (302) 7.67 (285) 4.62
------ ------ ------ -----
Outstanding at end of year 23,621 11.78 16,833 13.59 15,216 10.90 6,465 4.57
====== ====== ====== =====
Options vested and
exercisable
at year end 6,365 5,407 3,324 716
Weighted-average fair value of
options granted during the year $ 3.85 $ 7.61 $ 6.26
Weighted-average fair value of
ESPP awards during the year $ 4.49 $ 4.47 $ 7.68
</TABLE>
-53-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes information about fixed stock options outstanding
as of January 31. 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------- --------------------------------
Number Weighted-Average Number
Outstanding Remaining Exercisable
Range of at 1/31/98 Option Term Weighted-Average at 1/31/98 Weighted-Average
Exercise Prices (000s) (in Years) Exercise Price (000s) Exercise Price
--------------- ----------- --------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
$ .10 to 3.55 1,068 3.1 $ 3.25 740 $ 3.33
3.56 to 7.10 3,382 6.1 5.15 2,207 5.09
7.11 to 11.11 9,545 6.2 9.68 930 8.63
11.12 to 14.66 4,772 6.6 13.57 1,188 13.15
14.68 to 19.83 2,974 5.4 19.23 882 18.10
19.84 to 38.70 1,880 5.6 22.97 418 23.67
------- -----
23,621 6.0 11.78 6,365 9.93
======= =====
</TABLE>
The Company applies APB Opinion 25 and related interpretations in accounting
for the above plans and the 1994 ESPP described in Note 11. Accordingly, no
compensation cost has been recognized for its fixed stock-based option plans.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for fiscal
1997, 1996 and 1995: risk-free interest rates ranging from 5.66% to 6.69%,
expected life of four years; volatility of 35%; dividend yield of 0%. Had
compensation cost been determined based on the fair value at the grant dates for
stock option grants and ESPP awards under those plans consistent with the method
of FASB Statement 123, the Company's net income and net income per common share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Eleven Year Ended
Months Ended -------------------
January 31, March 1, March 2,
1998 1997 1996
------------ ------- --------
<S> <C> <C> <C> <C>
Net income As reported $44,404 $40,281 $5,140 (1)
Pro forma 33,673 32,062 1,718
Net income per common share - Basic As reported $ 0.34 $ 0.33 $ 0.05 (1)
Pro forma 0.26 0.26 0.02
Net income per common share - Diluted As reported $ 0.32 $ 0.31 $ 0.05
Pro forma 0.24 0.25 0.02
</TABLE>
(1) Net income and net income per common share as reported represent pro forma
net income and pro forma net income per common share as adjusted for the
effects of pro forma S Corporation taxes as more fully described in Note
14.
Subsequent to year end the Company offered employees the opportunity to cancel
existing stock options in exchange for fewer replacement stock options priced at
market value on the date of the new grant. Approximately 4,097,000 stock
options were canceled, and new grants totaling approximately 3,227,000 were
issued for replacement stock options.
Warrants
-54-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of February 25, 1995, warrants to purchase 1,489,500 shares of the
Company's common stock, had been issued with exercise prices of $.02 per share
for 6,750 shares, $4.89 per share for 562,500 shares and $1.78 for the remaining
920,250 shares. As of January 31, 1998, warrants to purchase 675,000 shares of
common stock were outstanding, with exercise prices of $4.89 per share for
562,500 shares and $1.78 per share for the remaining 112,500 shares. The
warrants expire on various dates through January 31, 1999. The exercise price
assigned to the 675,000 of warrants was based on the fair market value of the
Company's common stock at the dates of issuance of such warrants, which occurred
late in fiscal 1992 and late fiscal 1993. The estimated fair market value for
the Company's common stock was determined by the board of directors, which then
included independent sophisticated investors, based upon recent cash sales of
the Company's equity to third parties.
Warrants were assumed by the Company in connection with the DDI and Delivery
mergers and were converted to warrants for Corporate Express, Inc. common stock
based upon the exchange ratio applicable to the respective mergers. As of
January 31, 1998, outstanding warrants to purchase Delivery common stock are
vested and exercisable into 36,000 shares of Corporate Express common stock at a
price of $9.44 per share and outstanding warrants to purchase DDI common stock
were vested and exercisable into 135,411 shares of Corporate Express stock.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," the Company has estimated the fair value of its financial
instruments using the following methods and assumptions:
. The carrying amount of accounts receivable, accounts payable and accrued
liabilities approximate their fair values;
. The fair value of the Convertible Notes is based on quoted market prices
and was approximately $289,445,000 at January 31, 1998;
. The fair value of the Series B Notes is based on quoted market prices and
was approximately $91,800,000 at January 31, 1998;
. The carrying amounts of the Company's debt, other than the Convertible
Notes and the Series B Notes, approximates fair value, estimated by
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
14. 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>
Fiscal Year
------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net income before pro forma adjustments, per
consolidated statements of operations $41,996 $5,551 $16,496
Pro forma provision for income taxes 1,715 411 727
------- ------ -------
Pro forma net income $40,281 $5,140 $15,769
======= ====== =======
</TABLE>
-55-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
Eleven Years Ended
Months Ended -------------------------------------------------
January 31, March 1, March 2 February 25,
1998 1997 1996 1995
----------------- ------------- -------------- ----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator for basic and diluted EPS:
Income from continuing operations $ 44,404 $ 41,996 $ 6,776 $16,237
Less:
Pro forma taxes (Note 14) --- (1,715) (411) (727)
Young preferred stock dividends --- --- --- (432)
-------- -------- -------- -------
Income available to common shareholders 44,404 40,281 6,365 15,078
Discontinued operations --- --- (1,225) (327)
Extraordinary item --- --- --- 586
-------- -------- -------- -------
Net income $ 44,404 $ 40,281 $ 5,140 $15,337
======== ======== ======== =======
Basic EPS Calculation:
Denominator:
Average common shares outstanding 131,423 121,901 104,162 70,612
Convertible preferred stock (1) --- --- --- 4,788
-------- -------- -------- -------
131,423 121,901 104,162 75,400
======== ======== ======== =======
Earnings per common share:
Continuing operations $ 0.34 $ 0.33 $ 0.06 $ 0.20
Discontinued operations --- --- (0.01) 0.00
Extraordinary item --- --- --- 0.00
-------- -------- -------- -------
Net income $ 0.34 $ 0.33 $ 0.05 $ 0.20
======== ======== ======== =======
Diluted EPS Calculation:
Denominator (2):
Basic shares 131,423 121,901 104,162 75,400
Dilutive stock options and warrants 6,435 8,128 6,246 3,626
-------- -------- -------- -------
Diluted shares 137,858 130,029 110,408 79,026
======== ======== ======== =======
Earnings per common share:
Continuing operations $ 0.32 $ 0.31 $ 0.06 $ 0.19
Discontinued operations --- --- (0.01) 0.00
Extraordinary item --- --- --- 0.00
-------- -------- -------- -------
Net income $ 0.32 $ 0.31 $ 0.05 $ 0.19
======== ======== ======== =======
</TABLE>
(1) Preferred stock is included even though antidilutive due to automatic
conversion to common on a two-for-one basis upon completion of an initial
public offering. Had preferred stock been excluded from the calculation
above, basic earnings per share would have been $.22 and diluted earnings
per share would have been $.21 for the year ended February 25, 1995.
-56-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(2) Antidilutive stock options omitted from the denominator were immaterial.
Also excluded from the calculation are the Convertible Notes with an
exercise price of $33.33 per share which is greater than the average market
price of the common shares.
As more fully described in Note 18, the Company repurchased 35,000,000
shares of its common stock.
16. 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, New Zealand, Canada, the United Kingdom, Germany,
France, Italy, Ireland and Switzerland. Currently, the largest operations in
the international segment are in Australia. The service segment includes same
day delivery, distribution and logistics management and call center.
Net sales, merger and other nonrecurring charges, operating profit,
identifiable assets, capital expenditures and depreciation and amortization
pertaining to the industries and geographic areas in which the Company operates
are presented below.
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Corporate
Express Product
Consolidated Distribution Services
------------ ------------ --------
(In thousands)
<S> <C> <C> <C>
ELEVEN MONTHS ENDED JANUARY 31,1998
Net Sales $3,573,311 $2,816,244 $757,067
Merger and other nonrecurring
charges 14,890 11,346 3,544
Operating profit 114,815 101,615 13,200
Identifiable assets 2,349,659 2,178,401 171,258
Capital expenditures 82,959 70,959 12,000
Depreciation and amortization 60,665 44,194 16,471
FISCAL YEAR ENDED MARCH 1, 1997
Net sales $3,196,056 $2,436,296 $759,760
Merger and other nonrecurring
charges 19,840 8,406 11,434
Operating profit 100,490 80,396 20,094
Identifiable assets 1,843,977 1,685,716 158,261
Capital expenditures 119,639 104,432 15,207
Depreciation and amortization 48,736 33,446 15,290
FISCAL YEAR ENDED MARCH 2, 1996
Net sales $1,890,639 $1,548,175 $342,464
Merger and other nonrecurring
charges 42,790 29,203 13,587
Operating profit 38,160 29,191 8,969
Identifiable assets 1,023,365 900,722 122,643
Capital expenditures 53,124 41,469 11,655
Depreciation and amortization 28,498 19,977 8,521
</TABLE>
FISCAL YEAR ENDED FEBRUARY 25, 1995
-57-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<S> <C> <C> <C>
Net sales $1,145,151 $ 924,886 $220,265
Operating profit 40,953 29,811 11,142
Identifiable assets 645,309 568,562 76,747
Capital expenditures 18,670 11,525 7,145
Depreciation and amortization 17,078 12,694 4,384
<CAPTION>
GEOGRAPHICAL SEGMENTS
Corporate
Express Domestic International
Consolidated Operations Operations
------------ ---------- -------------
(In thousands)
<S> <C> <C> <C>
Eleven Months Ended January 31,
1998
Net Sales $3,573,311 $2,901,744 $671,567
Merger and other nonrecurring
charges 14,890 13,285 1,605
Operating profit 114,815 103,199 11,616
Identifiable assets 2,349,659 1,987,177 362,482
Capital expenditures 82,959 71,921 11,038
Depreciation and amortization 60,665 50,844 9,821
FISCAL YEAR ENDED MARCH 1, 1997
Net sales $3,196,056 $2,630,930 $565,126
Merger and other nonrecurring
charges 19,840 18,511 1,329
Operating profit 100,490 95,788 4,702
Identifiable assets 1,843,977 1,519,152 324,825
Capital expenditures 119,639 108,655 10,984
Depreciation and amortization 48,736 41,598 7,138
FISCAL YEAR ENDED MARCH 2, 1996
Net sales $1,890,639 $1,652,438 $238,201
Merger and other nonrecurring
charges 42,790 42,790 ---
Operating profit 38,160 28,943 9,217
Identifiable assets 1,023,365 868,227 155,138
Capital expenditures 53,124 50,963 2,161
Depreciation and amortization 28,498 26,010 2,488
FISCAL YEAR ENDED FEBRUARY 25,
1995
Net sales $1,145,151 $1,143,457 $ 1,694
Operating profit 40,953 40,939 14
Identifiable assets 645,309 641,898 3,411
Capital expenditures 18,670 18,665 5
Depreciation and amortization 17,078 17,066 12
</TABLE>
-58-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
17. QUARTERLY FINANCIAL DATA (unaudited)(a)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
May 31, August 30, November 29, January 31,
1997 1997 1997 1998
-------- -------- -------- ------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
ELEVEN MONTHS ENDED JANUARY 31, 1998
Net sales $913,342 $941,634 $996,160 $722,175 (b)
Gross profit 214,228 222,224 241,935 161,616 (b)
Net income 10,022 14,567 14,523 (c) 5,292 (b)
Net income per common share:
Basic .08 .11 .11 .04
Diluted .08 .11 .10 .04
FISCAL YEAR ENDED MARCH 1, 1997
Net sales $650,861 $755,009 $889,563 $900,623
Gross profit 164,329 182,814 217,197 213,970
Net income 12,081 13,417 9,290 (c) 7,208 (c)
Pro forma net income 11,752 13,090 8,918 6,521
Pro forma net income per common
share:
Basic .10 .11 .07 .05
Diluted .09 .10 .07 .05
FISCAL YEAR ENDED MARCH 2, 1996
Net sales $394,115 $452,540 $493,725 $550,259
Gross profit 99,211 111,075 125,670 131,365
Income (loss) from continuing
operations 7,154 7,637 11,898 (19,913)
Net income (loss) 6,069 7,637 11,898 (20,053) (d)
Pro forma income (loss) from
continuing operations 7,236 7,501 11,691 (20,064)
Pro forma net income (loss) 6,152 7,501 11,691 (20,204)
Pro forma income (loss) from
continuing operations per common share:
Basic .07 .08 .11 (.18)
Diluted .07 .07 .10 (.18)
Pro forma net income (loss) per
common share:
Basic .06 .08 .11 (.18)
Diluted .06 .07 .10 (.18)
</TABLE>
During fiscal 1997, the Company changed its fiscal year end from February 28
to January 31. Quarterly results restated for the twelve months ended January
31, 1998 are as follows:
-59-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
May 3, August 2, November 1, January 31,
1997 1997 1997 1998
-------- --------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
TWELVE MONTHS ENDED JANUARY 31, 1998
Net sales $921,453 $925,084 $983,108 $1,028,530
Gross profit 220,503 216,523 230,282 245,173
Net income 12,411 12,261 17,483 8,521
Net income per common share:
Basic 0.10 0.10 0.13 0.06
Diluted 0.09 0.09 0.12 0.06
</TABLE>
_________
(a) Quarterly amounts have been restated to include the accounts and operations
of HMI, Sofco, Nimsa and UT for fiscal 1996, and HMI, Sofco, Nimsa,
Delivery and Young for fiscal 1995.
(b) Fourth Quarter Ended January 31, 1998 reflects results for the two months
ended January 31, 1998.
(c) In the third quarter of fiscal 1997, the Company recognized pre-tax charges
of $15.0 million, primarily related to the DDI acquisition, the continued
integration of delivery and certain provisions for reductions in force and
facility closures at other locations. In the third and fourth quarters of
fiscal 1996, the Company recognized pretax charges of $12.4 million and
$7.5 million, respectively, related to merger and other nonrecurring items.
Net income reflects these charges in the applicable periods.
(d) In the fourth quarter of fiscal 1995, the Company recognized pretax charges
of $42.8 million related to merger and other nonrecurring items.
18. SUBSEQUENT EVENTS
During April 1998, the Company closed its Dutch Auction tender offer and
purchased 35,000,000 shares tendered at a price of $10.75 per share
On April 22, 1998, the Company executed a new $1 billion Senior Secured
Credit Facility and terminated the Senior Credit Facility. The Company has
utilized borrowings under the new credit facility to fund the purchase of
35,000,000 shares of its common stock pursuant to its Dutch Auction tender
offer, to repay and terminate the previously existing bank credit facility and
for general corporate and working capital requirements. Approximately $1,960,000
of deferred financing costs related to the terminated Senior Credit Facility
will be expensed in the first quarter of fiscal 1998. This Senior Secured Credit
Facility consists of a $250 million, seven-year term loan and a $750 million
five-year revolving credit facility. The Senior Secured Credit Facility is
guaranteed by substantially all domestic subsidiaries of Corporate Express and
is collateralized by all tangible and intangible property of the guarantors
including inventory and receivables. At the borrower's option interest rates are
at a base rate or a Eurodollar rate plus an applicable margin determined by a
leverage ratio as defined in the loan agreements. The term loan's interest rate
ranges from 0.25% to 0.75% above the revolving loan. The Company is subject to
usual covenants customary for this type of facility including restrictions on
dividends, additional borrowings and certain financial covenants.
-60-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
19. SUPPLEMENTAL GUARANTOR INFORMATION
On May 29, 1998, CEX Holdings, Inc. ("CEX Holdings" or the "Issuer"), a
wholly owned subsidiary of the Registrant, completed a private placement of $350
million principal amount of 9.625% Senior Subordinated Notes due 2008 (the
"Notes"). The Notes are fully and unconditionally guaranteed on a joint and
several basis by the Registrant (the "Parent Guarantor") and certain of the
Registrant's subsidiaries. Substantially all of the Issuer's income and cash
flow is generated by its subsidiaries. As a result, funds necessary to meet the
Issuer's debt service obligations are provided in large part by distributions or
advances from its subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of the Issuer's subsidiaries, could limit the Issuer's ability to
obtain cash from its subsidiaries for the purpose of meeting its debt service
obligations, including the payment of principal and interest on the Notes.
The following information sets forth the condensed consolidating balance
sheet of the Registrant as of January 31, 1998, March 1, 1997, and March 2,
1996, and condensed consolidating statements of operations and cash flows for
the eleven months ended January 31, 1998 and the years ended March 1, 1997,
March 2, 1996 and February 25, 1995. Investments in subsidiaries are accounted
for on the equity method; accordingly entries necessary to consolidate the
Parent Guarantor, CEX Holdings, Inc., and all of its subsidiaries are reflected
in the eliminations column. Separate complete financial statements of the Issuer
(CEX Holdings) and the Subsidiary Guarantors would not provide additional
material information that would be useful in assessing the financial composition
of the Guarantors.
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
January 31, 1998
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
---------- ---------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 372 $ 33,843 $ 10,147 $ - $ 44,362
Trade accounts receivable, net - - 472,115 144,459 - 616,574
Notes and other receivables - - 72,059 14,628 - 86,687
Inventories - - 200,583 50,525 - 251,108
Deferred income taxes - - 33,421 7,308 - 40,729
Other current assets - - 33,323 8,390 - 41,713
---------- ---------- ----------- ------------ ------------ --------------
Total current assets - 372 845,344 235,457 - 1,081,173
Property and Equipment:
Land - - 16,151 1,389 - 17,540
Buildings and leasehold improvements - - 112,940 13,066 - 126,006
Property and equipment - - 302,875 36,702 - 339,577
---------- ---------- ----------- ------------ ------------ --------------
- - 431,966 51,157 - 483,123
Less accumulated depreciation - - (118,757) (12,999) - (131,756)
---------- ---------- ----------- ------------ ------------ --------------
Net property and equipment - - 313,209 38,158 - 351,367
Goodwill, net - - 668,711 178,833 - 847,544
Net investment in and advances
to subsidiaries 1,317,540 1,634,064 (65,246) (99,595) (2,786,763) -
Other assets, net 4,583 31,384 23,977 9,631 - 69,575
---------- ---------- ----------- ------------ ------------ --------------
Total assets $1,322,123 $1,665,820 $ 1,785,995 $ 362,484 $ (2,786,763) $ 2,349,659
========== ========== =========== ============ ============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade 59,121 - 190,581 105,213 - 354,915
Accounts payable-acquisition - - 1,440 4,666 - 6,106
Accrued payroll and benefits - - 53,529 7,779 - 61,308
Accrued purchase costs - - 4,226 5,152 - 9,378
Accrued merger and related costs - - 14,545 967 - 15,512
Other accrued liabilities 5,569 4,243 48,835 21,567 - 80,214
Current portion of long-term debt
and capital leases - - 12,253 24,011 - 36,264
---------- ---------- ----------- ------------ ------------ --------------
Total current liabilities 64,690 4,243 325,409 169,355 - 563,697
Capital lease obligations - - 5,996 3,418 - 9,414
Long-term debt 325,000 344,037 36,271 48,521 - 753,829
Deferred income taxes - - 52,012 503 - 52,515
Minority interest - - - 20,791 - 20,791
Other non-current liabilities - - 8,840 8,140 - 16,980
---------- ---------- ----------- ------------ ------------ --------------
Total liabilities 389,690 348,280 428,528 250,728 - 1,417,226
Total shareholders' equity 932,433 1,317,540 1,357,467 111,756 (2,786,763) 932,433
---------- ---------- ----------- ------------ ------------ --------------
Total liabilities and
shareholders' equity $1,322,123 $1,665,820 $ 1,785,995 $ 362,484 $ (2,786,763) $ 2,349,659
========== ========== =========== ============ ============ ==============
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Eleven Months Ended January 31, 1998
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
--------- --------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ - $ - $ 2,901,744 $ 671,567 $ - $ 3,573,311
Cost of sales - - 2,211,538 521,770 - 2,733,308
Equity in subsidiary earnings 53,291 59,553 - - (112,844) -
--------- --------- ----------- --------- --------- -------------
Gross profit 53,291 59,553 690,206 149,797 (112,844) 840,003
Warehouse operating and selling
expenses - - 486,803 118,440 - 605,243
Corporate general and
administrative expenses - - 86,919 18,136 - 105,055
Merger and other nonrecurring
charges - - 13,285 1,605 - 14,890
--------- --------- ----------- --------- --------- -------------
Operating profit 53,291 59,553 103,199 11,616 (112,844) 114,815
Interest expense and other, net 15,164 10,686 3,043 8,380 - 37,273
--------- --------- ----------- --------- --------- -------------
Income before income taxes 38,127 48,867 100,156 3,236 (112,844) 77,542
Income tax expense (benefit) (6,277) (4,424) 41,457 3,701 - 34,457
--------- --------- ----------- --------- --------- -------------
Income before minority
interest 44,404 53,291 58,699 (465) (112,844) 43,085
Minority interest (income)
expense - - - (1,319) - (1,319)
--------- --------- ----------- --------- --------- -------------
Net income $ 44,404 $ 53,291 $ 58,699 $ 854 $(112,844) $ 44,404
========= ========= =========== ========= ========= =============
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Eleven Months Ended January 31, 1998
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Consolidated
---------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities $ (49) $ (6,531) $ 49,050 $ (15,554) $ 26,916
---------- --------- ----------- ----------- -------------
Cash flows from investing activities:
Proceeds from sale of assets - - 15,112 5,988 21,100
Capital expenditures - - (71,921) (11,038) (82,959)
Payment for acquisitions, net of cash acquired - - (17,151) (16,218) (33,369)
Investment in marketable securities - (9,164) - 3,935 (5,229)
Other, net - - 4,761 251 5,012
---------- --------- ----------- ----------- -------------
Net cash provided by (used in) investing activities - (9,164) (69,199) (17,082) (95,445)
---------- --------- ----------- ----------- -------------
Cash flows from financing activities:
Issuance of common stock 8,104 - - - 8,104
Issuance of subsidiary common stock - - - 2,434 2,434
Debt issuance costs (139) (944) - - (1,083)
Proceeds from long-term borrowings - - 2,000 8,241 10,241
Repayments of long-term borrowings - - (14,384) (17,191) (31,575)
Proceeds from short-term borrowings - - 15 15,293 15,308
Repayments of short-term borrowings - - (3,774) (593) (4,367)
Net proceeds from (payments on) line of credit - 118,037 9,430 (5,091) 122,376
Cash paid to retire bonds - - (62,178) - (62,178)
Net activity in investment in and advances
to (from) subsidiaries (7,916) (101,026) 77,182 31,760 -
Other - (22) (22)
---------- --------- ----------- ----------- -------------
Net cash provided by financing activities 49 16,067 8,269 34,853 59,238
---------- --------- ----------- ----------- -------------
Net cash used by discontinued operations - - (12) - (12)
Effect of foreign currency exchange rates changes on cash - - - (834) (834)
---------- --------- ----------- ----------- -------------
Increase (decrease) in cash and cash equivalents - 372 (11,892) 1,383 (10,137)
Cash and cash equivalents, beginning of period - - 45,735 8,764 54,499
---------- --------- ----------- ----------- -------------
Cash and cash equivalents, end of period $ - $ 372 $ 33,843 $ 10,147 $ 44,362
========== ========= =========== =========== =============
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 1, 1997
<TABLE>
<CAPTION>
Parent Issuer Subsidiary
Guarantor of Notes Guarantors
----------------- ---------------- -------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 45,735
Trade accounts receivable, net 378,464
Notes and other receivables 40,274
Inventories 146,157
Deferred income taxes 26,586
Other current assets 14,877 4,696
----------------- ---------------- -------------------
Total current assets 14,877 641,912
Property and equipment:
Land 10,976
Buildings and leasehold improvements 93,873
Property and equipment 218,929
----------------- ---------------- -------------------
323,778
Less accumulated depreciation (96,852)
----------------- ---------------- -------------------
226,926
Goodwill, net 510,400
Net investment in and advances to subsidiaries 1,054,999 1,263,291
Other assets, net 6,160 22,231 20,737
----------------- ---------------- -------------------
Total assets 1,076,036 1,285,522 1,399,975
================= ================ ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 54,969 148,046
Accounts payable - acquisition 1,505
Accrued payroll and benefits 37,547
Accrued purchase costs 3,655
Accrued merger and related costs 18,484
Other accrued liabilities 2,460 4,523 28,132
Current portion of long-term debt and capital leases 13,473
----------------- ---------------- -------------------
Total current liabilities 57,429 4,523 250,842
Capital lease obligations 7,208
Long-term debt 325,000 226,000 21,214
Deferred income taxes 25,386
Minority interest
Other non-current liabilities 6,289
----------------- ---------------- -------------------
Total liabilities 382,429 230,523 310,939
Total shareholders' equity 693,607 1,054,999 1,089,036
----------------- ---------------- -------------------
Total liabilities and shareholders' equity 1,076,036 1,285,522 1,399,975
================= ================= ===================
<CAPTION>
CORPORATE EXPRESS, INC.
CONSOLIDATING BALANCE SHEET
MARCH 1, 1997
Subsidiary
Non
Guarantors Eliminations Consolidated
----------------- ---------------- -------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 8,764 54,499
Trade accounts receivable, net 115,735 494,199
Notes and other receivables 15,256 55,530
Inventories 41,401 187,558
Deferred income taxes 2,490 29,076
Other current assets 8,975 28,548
----------------- ---------------- -------------------
Total current assets 192,621 849,410
Property and equipment:
Land 3,129 14,105
Buildings and leasehold improvements 12,951 106,824
Property and equipment 30,764 249,693
----------------- ---------------- -------------------
46,844 370,622
Less accumulated depreciation (10,039) (106,891)
----------------- ---------------- -------------------
36,805 263,731
Goodwill, net 161,567 671,967
Net investment in and advances to subsidiaries (75,919) (2,242,371)
Other assets, net 9,741 58,869
----------------- ---------------- -------------------
Total assets 324,815 (2,242,371) 1,843,977
================= ================= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 89,026 292,041
Accounts payable - acquisition 3,573 5,078
Accrued payroll and benefits 7,965 45,512
Accrued purchase costs 9,233 12,888
Accrued merger and related costs 18,484
Other accrued liabilities 16,897 52,012
Current portion of long-term debt and capital leases 16,269 29,742
----------------- ---------------- -------------------
Total current liabilities 142,963 455,757
Capital lease obligations 4,337 11,545
Long-term debt 49,491 621,705
Deferred income taxes 1,433 26,819
Minority interest 22,015 22,015
Other non-current liabilities 6,240 12,529
----------------- ---------------- -------------------
Total liabilities 226,479 1,150,370
Total shareholders' equity 98,336 (2,242,371) 693,607
----------------- ---------------- -------------------
Total liabilities and shareholders' equity 324,815 (2,242,371) 1,843,977
================= ================ ===================
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED MARCH 1, 1997
<TABLE>
<CAPTION>
Parent Issuer Subsidiary
Guarantor of Notes Guarantors
-------------------- --------------- ---------------------
<S> <C> <C> <C>
Net sales 2,630,930
Cost of sales 1,987,715
Equity in subsidiary earnings 48,339 51,262
-------------------- --------------- ---------------------
Gross profit 48,339 51,262 643,215
Warehouse operating and selling expenses 451,073
Corporate general and administrative expenses 77,843
Merger and other nonrecurring charges 18,511
-------------------- --------------- ---------------------
Operating profit 48,339 51,262 95,788
Interest expense and other, net 11,270 5,193 4,971
-------------------- --------------- ---------------------
Income before income taxes 37,069 46,069 90,817
Income tax expense (benefit) (4,927) (2,270) 39,699
-------------------- --------------- ---------------------
Income before minority interest 41,996 48,339 51,118
Minority interest (income) expense
-------------------- --------------- ---------------------
Net income 41,996 48,339 51,118
==================== =============== =====================
<CAPTION>
Subsidiary
Non
Guarantors Eliminations Consolidated
------------------- --------------------- --------------------
<S> <C> <C> <C>
Net sales 565,126 3,196,056
Cost of sales 430,031 2,417,746
Equity in subsidiary earnings (99,601)
------------------- --------------------- --------------------
Gross profit 135,095 (99,601) 778,310
Warehouse operating and selling expenses 111,806 562,879
Corporate general and administrative expenses 17,258 95,101
Merger and other nonrecurring charges 1,329 19,840
------------------- --------------------- --------------------
Operating profit 4,702 (99,601) 100,490
Interest expense and other, net 5,271 26,705
------------------- --------------------- --------------------
Income before income taxes (569) (99,601) 73,785
Income tax expense (benefit) 1,147 33,649
------------------- --------------------- --------------------
Income before minority interest (1,716) (99,601) 40,136
Minority interest (income) expense (1,860) (1,860)
------------------- --------------------- --------------------
Net income 144 (99,601) 41,996
=================== ===================== ====================
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 1, 1997
<TABLE>
<CAPTION>
Parent Issuer Subsidiary
Guarantor of Notes Guarantors
------------- ------------ -------------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities 29,251 (11,824) 33,482
------------ ------------ --------------
Cash flows from investing activities:
Proceeds from sale of assets 2,674
Capital expenditures (108,655)
Payment for acquisitions, net of cash acquired (173,440)
Investment in marketable securities (17,853)
Other, net (4,270)
------------ ------------ --------------
Net cash used in investing activities (17,853) (283,691)
------------ ------------ --------------
Cash flows from financing activities:
Issuance of common stock 12,643
Issuance of subsidiary common stock
Debt issuance costs (7,374) (1,444)
Proceeds from long-term borrowings 325,000 493
Repayments of long-term borrowings (9,027)
Proceeds from short-term borrowings 272
Repayments of short-term borrowings (25,628)
Net proceeds from (payments on) line of credit 128,000 (42,278)
Net activity in investment in and advances to (from) subsidiaries (359,520) (96,879) 353,856
Other (4,891)
------------ ----------- --------------
Net cash provided by (used in) financing activities (29,251) 29,677 272,797
------------ ----------- --------------
Net cash used by discontinued operations 61
Effect of foreign currency exchange rates changes on cash
------------ ------------ --------------
Increase in cash and cash equivalents 22,649
Cash and cash equivalents, beginning of period 23,086
------------ ------------ --------------
Cash and cash equivalents, end of period 45,735
============ ============ ==============
<CAPTION>
Subsidiary
Non
Guarantors Consolidated
------------- ----------------
<S> <C> <C>
Net cash provided by (used in) operating activities (25,156) 25,753
----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets 352 3,026
Capital expenditures (10,984) (119,639)
Payment for acquisitions, net of cash acquired (82,390) (255,830)
Investment in marketable securities 2,251 (15,602)
Other, net 2,292 (1,978)
------------ -----------
Net cash used in investing activities (88,479) (390,023)
------------ -----------
Cash flows from financing activities:
Issuance of common stock 12,643
Issuance of subsidiary common stock 2,258 2,258
Debt issuance costs (8,818)
Proceeds from long-term borrowings 22,336 347,829
Repayments of long-term borrowings (28,921) (37,948)
Proceeds from short-term borrowings 500 772
Repayments of short-term borrowings (1,317) (26,945)
Net proceeds from (payments on) line of credit 18,660 104,382
Net activity in investment in and advances to (from) subsidiaries 102,543 -
Other 58 (4,833)
----------- -----------
Net cash provided by (used in) financing activities 116,117 389,340
----------- -----------
Net cash used by discontinued operations 61
Effect of foreign currency exchange rates changes on cash (445) (445)
----------- -----------
Increase in cash and cash equivalents 2,037 24,686
Cash and cash equivalents, beginning of period 6,727 29,813
----------- -----------
Cash and cash equivalents, end of period 8,764 54,499
============ ===========
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 2, 1996
<TABLE>
<CAPTION>
Subsidiary
Parent Subsidiary Non
Guarantor Guarantors Guarantors Eliminations Consolidated
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents 23,086 6,727 29,813
Trade accounts
receivable, net 259,415 61,068 320,483
Notes and other
receivables 21,032 9,014 30,046
Inventories 110,138 18,665 128,803
Deferred income taxes 18,470 18,470
Other current assets 19,094 8,263 27,357
--------- ---------- ---------- ------------ ------------
Total current assets 451,235 103,737 554,972
Property and equipment:
Land 8,490 225 8,715
Buildings and leasehold
improvements 34,790 3,873 38,663
Property and equipment 118,097 12,400 130,497
--------- ---------- ---------- ------------ ------------
161,377 16,498 177,875
Less accumulated
depreciation (54,108) (6,636) (60,744)
--------- ---------- ---------- ------------- ------------
107,269 9,862 117,131
Goodwill, net 271,977 61,184 333,161
Net investment in and advances to
subsidiaries 620,574 (20,399) (600,175)
Other assets, net 3,936 11,865 2,300 18,101
--------- ---------- ----------- ------------- ------------
Total assets 624,510 842,346 156,684 (600,175) 1,023,365
========= ========== =========== ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 120,354 56,941 177,295
Accounts payable - acquisition 2,063 2,063
Accrued payroll and
benefits 22,904 3,744 26,648
Accrued purchase costs 1,791 1,258 3,049
Accrued merger and
related costs 24,880 24,880
Other accrued liabilities 4,734 29,703 8,518 42,955
Current portion of long-term
debt and capital leases 21,668 2,721 24,389
--------- --------- ---------- ------------- ------------
Total current liabilities 4,734 223,363 73,182 301,279
Capital lease obligations 7,897 1,671 9,568
Long-term debt 98,000 39,815 16,016 153,831
Deferred income taxes 6,906 468 7,374
Minority interest 24,843 24,843
Other non-current liabilities 2,829 1,865 4,694
--------- ---------- ---------- ------------- ------------
Total liabilities 102,734 280,810 118,045 501,589
Total shareholders' equity 521,776 561,536 38,639 (600,175) 521,776
--------- ---------- ---------- ------------- ------------
Total liabilities and
shareholders' equity 624,510 842,346 156,684 (600,175) 1,023,365
========= ========== ========== ============= ============
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED MARCH 2, 1996
<TABLE>
<CAPTION>
Subsidiary
Parent Subsidiary Non
Guarantor Guarantors Guarantors
------------------ -------------------- -------------------
<S> <C> <C> <C>
Net sales 1,652,439 238,200
Cost of sales 1,233,877 183,489
Merger related inventory provisions 5,952
Equity in subsidiary earnings 7,747
------------------ -------------------- -------------------
Gross profit 7,747 412,610 54,711
Warehouse operating and selling expenses 301,934 40,647
Corporate general and administrative expenses 44,895 4,847
Merger and other nonrecurring charges 36,838
------------------ -------------------- -------------------
Operating profit 7,747 28,943 9,217
Interest expense and other, net 9,911 5,467 804
------------------ -------------------- -------------------
Income before income taxes (2,164) 23,476 8,413
Income tax expense (benefit) (7,715) 18,275 3,206
------------------ -------------------- -------------------
Income before minority interest 5,551 5,201 5,207
Minority interest expense 1,436
------------------ -------------------- -------------------
Income from continuing operations 5,551 5,201 3,771
Discontinued operations:
Loss on disposals 1,225
------------------ -------------------- -------------------
Net income 5,551 3,976 3,771
================== ==================== ===================
<CAPTION>
Eliminations Consolidated
--------------------- -----------------------
<S> <C> <C>
Net sales 1,890,639
Cost of sales 1,417,366
Merger related inventory provisions 5,952
Equity in subsidiary earnings (7,747)
--------------------- -----------------------
Gross profit (7,747) 467,321
Warehouse operating and selling expenses 342,581
Corporate general and administrative expenses 49,742
Merger and other nonrecurring charges 36,838
--------------------- -----------------------
Operating profit (7,747) 38,160
Interest expense and other, net 16,182
--------------------- -----------------------
Income before income taxes (7,747) 21,978
Income tax expense (benefit) 13,766
--------------------- -----------------------
Income before minority interest (7,747) 8,212
Minority interest expense 1,436
--------------------- -----------------------
Income from continuing operations (7,747) 6,776
Discontinued operations:
Loss on disposals 1,225
--------------------- -----------------------
Net income (7,747) 5,551
===================== =======================
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 2, 1996
<TABLE>
<CAPTION>
Subsidiary
Parent Subsidiary Non
Guarantor Guarantors Guarnators Consolidated
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Net cash used in operating activities (869) (3,293) (12,271) (16,433)
---------- ---------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets 5,899 5,899
Capital expenditures (51,113) (2,011) (53,124)
Payment for acquisitions, net of cash acquired (86,722) (37,578) (124,300)
Other, net (1,698) 1,770 72
---------- ---------- ----------- -----------
Net cash used in investing activities (133,634) (37,819) (171,453)
---------- ---------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock 449,288 449,288
Stock offering costs (20,127) (186) (20,313)
Issuance of subsidiary common stock 7,733 7,733
Young capital contribution 12,182 12,182
Purchase of common stock held by Officemax (195,831) (195,831)
Proceeds from long-term borrowings 35,595 8,613 44,208
Repayments of long-term borrowings (71,813) (71,813)
Proceeds from short-term borrowings 12,835 12,835
Repayments of short-term borrowings (11,592) (11,592)
Net proceeds from (payments on) line of credit (16,600) (1,995) (276) (18,871)
Net activity in investment in and advances to (from) subsidiaries (228,043) 186,440 41,603
Other (4,245) (4,245)
---------- ---------- ----------- -----------
Net cash provided by financing activities 869 145,225 57,487 203,581
---------- ---------- ----------- -----------
Net cash used by discontinued operations (222) (222)
Effect of foreign currency exchange rates changes on cash (1,159) (1,159)
---------- ---------- ----------- -----------
Increase in cash and cash equivalents 8,076 6,238 14,314
Cash and cash equivalents, beginning of period 15,010 489 15,499
---------- ---------- ----------- -----------
Cash and cash equivalents, end of period 23,086 6,727 29,813
========== ========== =========== ===========
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 25, 1995
<TABLE>
<CAPTION>
Subsidiary
Parent Subsidiary Non
Guarantor Guarantors Guarantors
---------------- ------------------- ----------------
<S> <C> <C> <C>
Net sales 1,143,457 1,694
Cost of sales 854,141 1,220
Equity in subsidiary earnings 24,112
---------------- ------------------- ----------------
Gross profit 24,112 289,316 474
Warehouse operating and selling expenses 218,756 457
Corporate general and administrative expenses 29,621 3
---------------- ------------------- ----------------
Operating profit 24,112 40,939 14
Interest expense and other, net 12,428 3,914 11
---------------- ------------------- ----------------
Income before income taxes 11,684 37,025 3
Income tax expense (benefit) (4,226) 12,518 2
---------------- ------------------- ----------------
Income before minority interest 15,910 24,507 1
Minority interest expense 69
---------------- ------------------- ----------------
Income from continuing operations 15,910 24,438 1
Discontinued operations
Loss from discontinued operations 327
---------------- ------------------- ----------------
Income before extraordinary item 15,910 24,111 1
Extraordinary item
Gain on early extinguishment of debt 586
---------------- ------------------- ----------------
Net income 16,496 24,111 1
================ =================== ================
<CAPTION>
CORPORATE EXPRESS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 25, 1995
Eliminations Consolidated
----------------- ---------------
<S> <C> <C>
Net sales 1,145,151
Cost of sales 855,361
Equity in subsidiary earnings (24,112)
----------------- ---------------
Gross profit (24,112) 289,790
Warehouse operating and selling expenses 219,213
Corporate general and administrative expenses 29,624
----------------- ---------------
Operating profit (24,112) 40,953
Interest expense and other, net 16,353
----------------- ---------------
Income before income taxes (24,112) 24,600
Income tax expense (benefit) 8,294
----------------- ---------------
Income before minority interest (24,112) 16,306
Minority interest expense 69
----------------- ---------------
Income from continuing operations (24,112) 16,237
Discontinued operations
Loss from discontinued operations 327
----------------- ---------------
Income before extraordinary item (24,112) 15,910
Extraordinary item
Gain on early extinguishment of debt 586
----------------- ---------------
Net income (24,112) 16,496
================= ===============
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 25, 1995
<TABLE>
<CAPTION>
Subsidiary
Parent Subsidiary Non
Guarantor Guarantors Guarantor Consolidated
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities (4,113) 16,724 (575) 12,036
---------------- ---------------- ---------------- -----------------
Cash flows from investing activities:
Proceeds from sale of assets 463 463
Capital expenditures (18,670) (18,670)
Payment for acquisitions, net of cash acquired (86,135) (1,751) (87,886)
Other, net (524) (88) (612)
---------------- ---------------- ---------------- -----------------
Net cash used in investing activities (104,866) (1,839) (106,705)
---------------- ---------------- ---------------- -----------------
Cash flows from financing activities:
Issuance of common stock 134,993 134,993
Stock offering costs (9,388) (9,388)
Preferred stock redemption (7,500) (7,500)
Debt issuance costs (869) (869)
Proceeds from long-term borrowings 35,189 35,189
Repayments of long-term borrowings (17,550) (17,872) (35,422)
Repayments of short-term borrowings (10,697) (398) (11,095)
Cash paid to retire bonds (9,300) (9,300)
Net proceeds from (payments on) line of credit 4,150 (549) (1,823) 1,778
Net activity in investment in and advances to
(from) subsidiaries (90,423) 85,324 5,099
Other (1,647) (1,647)
---------------- ---------------- ---------------- -----------------
Net cash provided by financing activities 4,113 89,748 2,878 96,739
---------------- ---------------- ---------------- -----------------
Net cash used by discontinued operations (600) (600)
Effect of foreign currency exchange rates changes
on cash 25 25
---------------- ---------------- ---------------- -----------------
Increase in cash and cash equivalents 1,006 489 1,495
Cash and cash equivalents, beginning of period 14,004 14,004
---------------- ---------------- ---------------- -----------------
Cash and cash equivalents, end of period 15,010 489 15,499
================ ================ ================ =================
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No change of accountants or disagreements on any matter of accounting
principles or financial statement disclosures have occurred within the last two
years.
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 Registrants
definitive Proxy Statement for its Annual Meeting of Shareholders, presently
scheduled to be held on July 14, 1998, which will be filed with the Securities
and Exchange Commission within 120 days from the end of the Registrants fiscal
year.
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
Consolidated Balance Sheets as of January 31, 1998, March 1, 1997 and
March 2, 1996
Consolidated Statements of Operations for the eleven-month period ended
January 31, 1998 and the fiscal years ended March 1, 1997, March 2,
1996, and February 25, 1995
Consolidated Statements of Shareholders Equity for the eleven-month
period ended January 31, 1998 and the fiscal years ended March 1, 1997,
March 2, 1996, and February 25, 1995
Consolidated Statements of Cash Flows for the eleven-month period ended
January 31, 1998 and the fiscal years ended March 1, 1997, March 2, 1996,
and February 25, 1995
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.
<PAGE>
CORPORATE EXPRESS, INC.
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 Articles of Amendment and Restatement of the Company, filed on August
22, 1996.
3.3 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 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.
4.4 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.
4.5 Recapitalization Agreement dated December 3, 1991, by and between the
Company, J.P. Morgan Investment Corporation ("J.P. Morgan") and
Shareholders.
4.6 Recapitalization Agreement dated August 29, 1992 by and among the
Company, J.P. Morgan and certain shareholders.
4.7 Indenture dated as of June 24, 1996 by and among the Company and
Bankers Trust Company, as trustee, for the 4 1/2% Convertible Notes
due July 1, 2000 (including Form of Notes) (incorporated by reference
to the Company's Registration Statement on Form S-3, File No. 333-
12451).
4.8 First Supplemental Indenture dated as of October 15, 1996 relating to
the Company's 4 1/2% Convertible Notes (incorporated by reference to
the Company's Registration Statement on Form S-3, File No. 333-12451).
4.9 Rights Agreement dated as of January 29, 1998 between the Company and
Chasemellon Shareholder Services, L.L.C. as Rights Agent
(Incorporated by reference to the Company's Form 8-A dated January 30,
1998)
4.10 Form of 4 1/2% Convertible Note (incorporated by reference to the
Company's Registration Statement on Form S-3, File No. 333-12451).
10.1 Employment Agreement dated as of August 25, 1993, by and between the
Company and Robert King, as amended effective July 15, 1994.
10.2 Amended and Restated 1992 Stock Option Plan, Form of Non-qualified
Stock Option Agreement and Form of Incentive Stock Option Agreement.
10.3 1994 Executive Stock Option Plan.
<PAGE>
Exhibit
Number Description
- ------ -----------
10.4 Form of Indemnification Agreement between the Company and its officers
and directors.
10.5 1994 Stock Option and Incentive Plan.
10.6 1994 Employee Stock Purchase Plan.
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 Stock Purchase Agreement dated April 22, 1996 by and among the
Company, ASAP Software Express, Inc. and the shareholders of ASAP
Software Express, Inc. (incorporated by reference to the Company's
Form 8-K dated May 15, 1996).
10.12 Corporate Express, Inc. Supplemental Stock Option Plan.
10.13 Amended and Restated Credit Agreement, dated as of November 26, 1996
by and among CEX Holdings, Inc., as borrower, the Company, as a
guarantor, the lenders named therein and The First National Bank of
Chicago, as agent (incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the period ended November 30, 1996).
10.14 Agreement and Plan of Merger dated as of September 10, 1996 among the
Company, United TransNet, Inc. and Bevo Acquisition Corp., Inc.
(incorporated by reference to the Company's Registration Statement on
Form S-4, File No. 333-13217).
10.15 Agreement and Plan of Merger dated as of September 10, 1997 by and
among the Company, IDD Acquisition Corp. and Data Documents
Incorporated (Incorporated by reference to the Company's Report on
Form 8-K dated September 10, 1997)
*10.16 Credit Agreement dated as of April 17, 1998 among the Company, CEX
Holdings, Inc., Various Banks, The First National Bank of Chicago, as
Syndication Agent, the Bank of New York, as Co-Documentation Agent,
DLJ Capital Funding, Inc., as Co-Documentation Agent and Bankers Trust
Company as Administrative Agent.
*21.1 List of Subsidiaries.
<PAGE>
Exhibit
Number Description
- ------ -----------
*23.1 Consent of Independent Accountants.
*27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
- ------------------
*Filed herewith.
<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.
(Registrant)
By: /s/ Sam R. Leno Date: October__, 1998
---------------
SAM R. LENO
Executive Vice President and
Chief Financial Officer
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended February 25, 1995, and the Periods Ended
March 2, 1996, March 1, 1997 and January 31, 1998 (a)
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
beginning costs and other at end
of period expenses accounts Deductions of period
--------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended February 25, 1995 $ 4,090 $ 2,460 $ 1,050 (b) $(1,610) $ 5,990
Period ended March 2, 1996 5,990 4,226 1,633 (4,885) 6,964
Period ended March 1, 1997 6,964 6,152 5,324 (5,436) 13,004
Period ended January 31, 1998 13,004 5,823 1,731 (6,035) 14,523
Inventory Reserve:
Year ended February 25, 1995 $ 5,145 $ 2,564 $ 330 (c) $ (850) $ 7,189
Period ended March 2, 1996 7,189 1,212 - (259) 8,142
Period ended March 1, 1997 8,142 4,306 - (3,546) 8,902
Period ended January 31, 1998 8,902 3,871 - (4,752) 8,021
Discontinued Operations Reserve:
Year ended February 25, 1995 $ 1,138 $ - $ - $ (697) $ 441
Period ended March 2, 1996 441 - - (222) 219
Period ended March 1, 1997 219 - - (183) 36
Period ended January 31, 1998 36 - - (11) 25
Valuation Allowance for Deferred Tax Assets:
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
Period ended March 1, 1997 2,433 (47) 3,663 (b) - 6,049
Period ended January 31, 1998 6,049 (2,386) (1,408) - 2,255
(a) The period ended January 31, 1998 represents the eleven-month transition
period for the Company. The period ended March 1, 1997 includes the twelve
months ended March 1, 1997 for Corporate Express, Inc., and fourteen months
ended March 1, 1997 for Hermann Marketing, Inc. as each company had
different fiscal year ends. 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, the seventeen months ended March 2,
1996 for Young, and the nine months ended March 2, 1996 for Sofco, as each
company had different fiscal year ends.
(b) Represents additional allowances as a result of the purchase acquisitions
and UT, which was accounted for as a pooling of interests effective March 3,
1996.
(c) Represents inventory reserve for Lucas pooling.
</TABLE>
