<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 29, 1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _______
Commission File No. 0-24642
----------
CORPORATE EXPRESS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0978360
------------------------------- --------------
(State of incorporation or (I.R.S. Employer
organization) Identification No.)
1 Environmental Way
Broomfield, Colorado 80021
------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 664-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares of the registrant's common stock, par value $.0002 per
share, outstanding as of March 27, 1998 was 142,814,657.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
November 29, March 1,
1997 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 33,779 $ 54,499
Trade accounts receivable, net of allowance
of $15,353 and $13,004, respectively 619,268 494,199
Notes and other receivables 71,884 55,530
Inventories 242,414 187,558
Deferred income taxes 30,919 29,076
Other current assets 43,122 28,548
--------------- ---------------
Total current assets 1,041,386 849,410
Property and equipment:
Land 17,575 14,105
Buildings and leasehold improvements 125,733 106,824
Furniture and equipment 323,700 249,693
--------------- ---------------
467,008 370,622
Less accumulated depreciation (128,819) (106,891)
--------------- ---------------
338,189 263,731
Goodwill, net of $50,773 and $36,471 of accumulated
amortization, respectively 838,734 671,967
Other assets, net 71,346 58,869
--------------- ---------------
Total assets $ 2,289,655 $ 1,843,977
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 29, March 1,
1997 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 346,729 $ 297,119
Accrued payroll and benefits 59,119 45,512
Accrued purchase costs 10,928 12,888
Accrued merger and related costs 22,462 18,484
Other accrued liabilities 63,578 52,012
Current portion of long-term debt and capital leases 26,583 29,742
--------------- ---------------
Total current liabilities 529,399 455,757
Capital lease obligations 11,059 11,545
Long-term debt 745,709 621,705
Deferred income taxes 43,856 26,819
Minority interest in subsidiaries 20,955 22,015
Other non-current liabilities 15,423 12,529
--------------- ---------------
Total liabilities 1,366,401 1,150,370
Contingencies (Note 7)
Shareholders' equity:
Preferred stock, $.0001 par value, 25,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.0002 par value, 300,000,000 shares
authorized, 141,500,194 and 126,171,467 shares
issued and outstanding, respectively 28 25
Common stock, non-voting, $.0002 par value, 3,000,000
shares authorized, none issued or outstanding - -
Additional paid-in capital 842,307 646,536
Retained earnings 87,220 48,222
Foreign currency translation adjustments (6,301) (1,176)
--------------- ---------------
Total shareholders' equity 923,254 693,607
--------------- ---------------
Total liabilities and shareholders' equity $ 2,289,655 $ 1,843,977
=============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
November 29, November 30, November 29, November 30,
1997 1996 1997 1996
--------------- ---------------- ---------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 996,160 $ 889,566 $ 2,851,133 $ 2,295,442
Cost of sales 754,225 672,363 2,172,740 1,731,096
--------------- ---------------- ---------------- ---------------
Gross profit 241,935 217,203 678,393 564,346
Warehouse operating and selling expenses 161,878 150,546 482,781 399,830
Corporate general and administrative expenses 27,695 24,931 83,300 69,056
Merger and other nonrecurring charges 15,009 12,368 14,890 12,371
--------------- ---------------- ---------------- ---------------
Operating profit 37,353 29,358 97,422 83,089
Interest expense, net 9,998 7,493 29,192 18,156
--------------- ---------------- ---------------- ---------------
Income before income taxes 27,355 21,865 68,230 64,933
Income tax expense 12,804 12,935 30,138 30,606
--------------- ---------------- ---------------- ---------------
Income before minority interest 14,551 8,930 38,092 34,327
Minority interest loss (income) 28 (360) (1,014) (462)
--------------- ---------------- ---------------- ---------------
Net income $ 14,523 $ 9,290 $ 39,106 $ 34,789
=============== ================ ================ ===============
Pro forma net income $ 14,523 $ 8,918 $ 39,106 $ 33,760
=============== ================ ================ ===============
Pro forma net income per common share $ 0.10 $ 0.07 $ 0.29 $ 0.26
=============== ================ ================ ===============
Weighted average common shares outstanding 139,999 131,283 135,932 129,387
=============== ================ ================ ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
November 29, November 30,
1997 1996
---------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 39,106 $ 34,789
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 31,737 21,595
Amortization 16,832 12,891
(Gain) loss on sale of assets 787
Non-cash portion of merger and restructuring charge 2,197 2,384
Adjustment to conform fiscal years - 204
Minority interest (1,014) (462)
Other 2,342 (1,503)
Changes in assets and liabilities, excluding acquisitions:
(Increase) decrease in accounts receivable (94,778) (58,915)
(Increase) decrease in inventory (18,408) (6,228)
(Increase) decrease in other current assets (7,048) (6,570)
(Increase) decrease in other assets 6,258 2,667
Increase (decrease) in accounts payable 29,616 20,407
Increase (decrease) in accrued liabilities 6,069 11,948
---------------- ---------------
Net cash provided by operating activities 13,696 33,207
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of assets 20,200 1,829
Capital expenditures (64,125) (88,092)
Payment for acquisitions, net of cash acquired (21,693) (227,026)
Investment in marketable securities (10,902) (18,273)
Other 2,670 (8,730)
---------------- ---------------
Net cash used in investing activities (73,850) (340,292)
---------------- ---------------
Cash flows from financing activities:
Issuance of common stock 7,513 9,096
Issuance of subsidiary common stock 2,434 -
Debt issuance costs (704) (8,428)
Proceeds from long-term borrowings 8,324 344,834
Repayments of long-term borrowings (29,082) (15,059)
Proceeds from short-term borrowings 9,267 1,840
Repayments of short-term borrowings (6,247) (22,537)
Net proceeds from line of credit 110,558 5,913
Cash paid to retire bonds (62,178) -
Other (14) (4,666)
---------------- ---------------
Net cash provided by financing activities 39,871 310,993
Net cash used in discontinued operations (10) (177)
Effect of foreign currency exchange rate changes on cash (427) 232
---------------- ---------------
(Decrease) increase in cash and cash equivalents (20,720) 3,963
Cash and cash equivalents, beginning of period 54,499 29,813
---------------- ---------------
Cash and cash equivalents, end of period $ 33,779 $ 33,776
================ ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations in the amount of $3,504,000 and $5,853,000 were
incurred during the nine months ended November 29, 1997 and November 30, 1996,
respectively, for equipment and vehicles.
During the nine months ended November 29, 1997, the Company invested
$14,546,000 in net cash and 13,887,842 shares of common stock in its acquisition
program. During the nine months ended November 30, 1996, the Company invested
$219,917,000 in net cash and approximately 2,421,000 shares of common stock for
acquisitions. In conjunction with these acquisitions, liabilities were assumed
as follows:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
November 29, November 30,
1997 1996
------------- ------------------
(In thousands)
(Unaudited)
<S> <C> <C>
Fair value of assets and goodwill acquired $ 340,964 $ 541,469
Cash paid, net of cash acquired (14,546) (219,917)
Issuance of notes payable -- (4,325)
Issuance of stock (176,257) (75,620)
Purchase price payable, included
in current liabilities (3,361) (4,724)
--------- ---------
Liabilities assumed $ 146,800 $ 236,883
========= =========
</TABLE>
In addition to the amounts set forth above, during the nine months ended
November 29, 1997, the Company paid $7,147,000 and issued approximately 61,932
shares of common stock for prior period acquisitions, and acquired the remaining
49% interest in Corporate Express United Kingdom for shares of common stock of
the Company. During the nine months ended November 30, 1996, the Company paid
$4,820,000 for prior period acquisitions, $2,289,000 to dissenting shareholders
of a pooled company, purchased a warehouse facility for 135,000 shares of common
stock and issued 71,471 shares of common stock to retire convertible debt of
$1,449,400 previously issued by one of the Company's acquired subsidiaries.
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements include the accounts of Corporate
Express, Inc. ("Corporate Express" or the "Company") and its majority-owned
subsidiaries. The following acquisitions were accounted for as poolings of
interests and, accordingly, the accompanying financial statements have been
restated to include their accounts and operations:
. Nimsa S.A. ("Nimsa") was acquired by the Company on October 31, 1996.
. Bevo Acquisition Corp., Inc., a wholly-owned subsidiary of the Company, was
merged with and into United TransNet, Inc. ("UT") on November 8, 1996.
. IMS Acquisition, Inc., a wholly-owned subsidiary of the Company, was merged
with and into Sofco Mead, Inc. ("Sofco") on January 24, 1997.
. H.M. Acquisition Corp., a wholly-owned subsidiary of the Company, was
merged with and into Hermann Marketing, Inc. ("HMI") on January 30, 1997.
Acquisitions accounted for as purchases are included in the accounts and
operations as of the effective date of the transaction and immaterial
acquisitions accounted for as poolings of interests are included in the accounts
and operations as of the beginning of the fiscal quarter in which the
transaction is effective. The Company accounts for its investments in less than
50% owned entities using the equity or cost methods. All intercompany balances
and transactions have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K/A for the year ended March 1, 1997.
Certain of the Company's locations calculate cost of sales using an estimated
gross profit method for interim periods. Cost of sales at these locations are
adjusted based on physical inventories which are performed no less than once a
year.
The Company capitalizes certain salaries and wages and payments to outside
firms for direct services related to the development and implementation of its
software. All software is amortized over its economic useful life of three to
seven years using the straight-line method.
New Accounting Standards:
In the fourth quarter of fiscal 1997, the Company will adopt SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share found in APB Opinion No. 15, "Earnings per Share" and makes
them comparable to international earnings per share standards. Had SFAS No. 128
been effective during the nine months ended November 29, 1997 and November 30,
1996, (i) "Basic earnings per share" under SFAS No. 128 would have been $.30 and
$.28, respectively, and (ii) "Dilutive earnings per share" under SFAS No. 128
would have been $.29 and $.26, respectively. Had SFAS No. 128 been effective
during the three months ended November 29, 1997 and November 30, 1996, (i)
"Basic earnings per share" under SFAS No. 128 would have been $.11 and $.07,
respectively, and (ii) "Dilutive earnings per share" under SFAS No. 128 would
have been $.10 and $.07, respectively.
-7-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
2. Changes in Reported Amounts
The Company has revised its previously issued financial statements for the
three and nine-month periods ended November 29, 1997 and November 30, 1996 to
reclassify the Data Documents Incorporated ("DDI") acquisition from a pooling of
interests transaction to a purchase acquisition. Subsequent to the merger with
DDI, the Company announced its intention to repurchase up to 35,000,000 shares
of its common stock and, in accordance with current accounting practices, such
announcement precludes the Company from recording the DDI merger as a pooling of
interests transaction. The following table summarizes the changes to the
previously reported amounts.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
November 29, November 30, November 29, November 30,
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Income before income taxes, minority
interest, and extraordinary item:
As previously reported $ 29,198 $ 25,345 $ 78,426 $ 75,750
As revised 27,355 21,865 68,225 64,936
Extraordinary item:
As previously reported (7,108) -- (7,108) --
As revised -- -- -- --
Pro forma net income:
As previously reported 7,709 10,974 37,255 40,100
As revised 14,523 8,918 39,106 33,760
Pro forma net income per common share:
Continuing operations:
As previously reported 0.10 0.08 0.30 0.29
As revised 0.10 0.07 0.29 0.26
Extraordinary item:
As previously reported (0.05) -- (0.05) --
As revised -- -- -- --
Net income:
As previously reported 0.05 0.08 0.25 0.29
As revised $ 0.10 $ 0.07 $ 0.29 $ 0.26
Weighted average common shares:
As previously reported 150,636 142,235 146,789 140,321
As revised 139,999 131,283 135,932 129,387
November 29, March 1,
1997 1997
------------- ------------
<S> <C> <C>
Total Assets
As previously reported 2,151,053 1,973,258
As revised 2,289,655 1,843,977
Total Equity
As previously reported 788,958 727,150
As revised 923,254 693,607
</TABLE>
-8-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
3. Accrued Purchase Costs
In conjunction with purchase acquisitions, the Company accrues certain of the
direct costs associated with closing redundant facilities of acquired companies,
and severance and relocation payments for the acquired company's employees.
The following table sets forth activity in the Company's accrued purchase
costs liability account for the nine months ended November 29, 1997:
<TABLE>
<CAPTION>
Disposition
Facility Redundant of Assets
Total Exit Costs Facilities Severance & Other
------------ ----------- ----------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, March 1, 1997 $12,888 $ 1,845 $ 3,269 $ 6,149 $1,625
Additions/Adjustments 5,578 724 1,349 3,494 11
Payments (7,275) (1,525) (1,065) (4,420) (265)
Reversals to goodwill (263) -- (72) (166) (25)
------- ------- ------- ------- ------
Balance, November 29, 1997 $10,928 $ 1,044 $ 3,481 $ 5,057 $1,346
======= ======= ======= ======= ======
</TABLE>
4. Merger and Other Nonrecurring Charges
During the third quarter of fiscal 1997, the Company recorded a net merger and
other nonrecurring charge of $15,009,000. This net charge is comprised of
$18,073,000 in merger and other nonrecurring charges in connection with the
Company's acquisition of DDI, the continued integration of delivery and certain
provisions for reductions in force and facility closures at other locations,
offset by $3,064,000 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 contract buyouts and
delays in closing certain facilities and disposition of related assets. The
current quarter charge includes the closure of 34 facilities and the reduction
of approximately 720 employees.
During the second quarter of fiscal 1997, the Company incurred $754,000 of
merger transaction costs related to second quarter acquisitions accounted for as
immaterial poolings of interests. Additionally, the Company reduced previous
charges by $874,000 to reflect actual exit costs to be incurred.
During the third and fourth quarters of fiscal 1996, the Company recorded an
estimated net merger and other nonrecurring charge of $19,840,000 in connection
with the Company's acquisition of UT, Nimsa, HMI and Sofco.
During the fourth quarter of fiscal 1995, the Company recorded a merger and
other nonrecurring charge primarily in conjunction with the U.S. Delivery
Systems, Inc. ("Delivery") and Richard Young Journal, Inc. acquisitions. This
liability was adjusted in fiscal 1996 to reflect the actual merger transaction
costs incurred and revised plans primarily as a result of the integration of UT
with Delivery. The Company expected to complete this plan within two years;
however, due to the acquisition of UT in the third quarter of fiscal 1996, the
revised exit plan is expected to be completed by the end of the first quarter of
fiscal 1998. The following table summarizes the merger and other nonrecurring
charges and sets forth their usage for the nine months ended November 29, 1997:
-9-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
<TABLE>
<CAPTION>
Balance FY 97 Cash Non-Cash Balance
3/1/97 Net Charge Payments Usage 11/29/97
------- ---------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Merger transaction costs (1) $ 4,082 $ 4,485 $(3,444) $ 5,123
Severance and terminations (2) 7,665 7,745 (3,732) 11,678
Facility closure and consolidation (3) 6,737 463 (1,539) 5,661
------- ------- ------- ---------
Accrued merger and related costs, balance 18,484 12,693 (8,715) 22,462
Other asset write-downs and costs (4) 4,152 2,197 -- $(1,955) 4,394
------- ------- ------- ------- ---------
Total $22,636 $14,890 $(8,715) $(1,955) $ 26,856
======= ======= ======= ======= =========
</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.
Remaining merger transactions costs for the fiscal 1996 charge are
primarily for the UT acquisition and include contract buy-outs for certain
employees which are expected to be resolved by the end of fiscal 1997.
(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 1,717 employees
currently planned to be terminated, 392 have been terminated as of November
29, 1997. The Company expects to complete the facility closures and
related terminations for the fiscal 1995 charge, which totals $1,839,000,
by the end of the first quarter in fiscal 1998 and the fiscal 1996 charge,
which totals $2,879,000, 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 $6,960,000, 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. One hundred thirty four of the 215 facilities currently
planned to be closed or consolidated have been closed or consolidated. The
remaining facilities in the fiscal 1995 charge are expected to be closed by
the end of the first quarter in fiscal 1998, the remaining facilities in
the fiscal 1996 charge are expected to be closed by the end of fiscal 1998,
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. Pro Forma Acquisition Results
Effective November 26, 1997, the Company issued approximately 10,740,000
shares of common stock in exchange for all of the outstanding stock of DDI, a
provider of forms management services and systems, custom business forms and
pressure-sensitive labels for large corporate customers. This acquisition was
originally accounted for as a pooling of interest transaction. Subsequent to
completing this merger, the Company announced its intention to repurchase up to
35,000,000 shares of its common stock and in accordance with current accounting
practices, this announcement precluded the Company from accounting for the DDI
acquisition as a pooling of interests transaction. This amended Form 10-Q
reflects the DDI acquisition as a purchase transaction; accordingly, the excess
of the purchase price over the fair market value of the net tangible assets
acquired was allocated to goodwill and is amortized over 40 years.
On May 15, 1996, the Company acquired all of the outstanding capital stock of
ASAP Software Express, Inc. ("ASAP"), a leading distributor of software to large
corporations, for a purchase price of approximately $98,000,000. In addition,
the Company purchased all of the outstanding capital stock of Boulevard Produits
De Bureau, Inc. ("Boulevard"), a seller of office supplies, furniture and
equipment, for a net cash purchase price of
-10-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED STATEMENTS
$16,102,000. The Company also repaid $9,498,000 of Boulevard promissory notes
with cash of $731,900 and 356,832 shares of the Company's common stock. The
excess of the purchase price over the fair market value of the net tangible
assets acquired in both acquisitions was allocated to goodwill and is being
amortized over 40 years.
The operating results of DDI, ASAP and Boulevard are included in the Company's
consolidated statement of operations from the effective date of each
acquisition. The following pro forma financial information assumes the DDI,
ASAP and Boulevard acquisitions occurred at the beginning of the nine-month
period ended November 30, 1996. These results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the transactions occurred at the beginning of the period, or of results
which may occur in the future. The pro forma results listed below are unaudited
and reflect purchase price adjustments.
<TABLE>
<CAPTION>
Nine months Ended
----------------------------------------
November 29, 1997 November 30, 1996
------------------- -------------------
(In thousands, except per share amounts)
<S> <C> <C>
Net sales $3,048,124 $2,532,520
Net income 46,648 38,647
Net income per share 0.32 0.28
</TABLE>
6. Pro Forma Net Income:
The pro forma net income and pro forma net income per share reflect the tax
adjustment for a fiscal 1996 acquisition accounted for as a pooling of interests
that was previously an S corporation for income tax purposes, as if the acquired
company had filed a C corporation tax return for all periods presented. The
effect is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, 1996 November 30, 1996
------------------ -----------------
<S> <C> <C>
Net income before pro forma adjustments, per
consolidated statements of operations $9,290 $34,789
Pro forma provision for income taxes 372 1,029
------ -------
Pro forma net income $8,918 $33,760
====== =======
</TABLE>
7. Contingencies
In the normal course of business, the Company is subject to certain legal
proceedings. In the opinion of management, the outcome of such litigation will
not have a material adverse effect on the Company's financial position or
operating results.
-11-
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net Sales. Consolidated net sales increased 12.0% to $996,160,000 in the
three months ended November 29, 1997 from $889,566,000 in the same period last
year and 24.2% to $2,851,133,000 from $2,295,442,000 for the respective nine-
month periods. Net sales for the Company's product distribution business
increased 15.5% to $791,383,000 in the three months ended November 29, 1997 from
$685,446,000 in the same period last year, while net sales in the service
business were $204,777,000 approximately even with the $204,120,000 reported in
the same period last year. Net sales for the Company's product distribution
business increased 27.5% to $2,225,870,000 in the nine months ended November 29,
1997 from $1,745,921,000 in the same period last year, while net sales in the
service business increased 13.8% to $625,263,000 from $549,521,000 for the
respective nine-month periods. These increases were primarily attributable to
internal growth reflecting increased market penetration in domestic product
distribution and acquisitions completed since November 30, 1996. This growth
was partially offset by the discontinuance of some non-strategic distribution
channels, the elimination of low margin customers, and the effect of
consolidating or closing facilities.
International operations accounted for 19.2% of consolidated net sales, or
$191,676,000, in the three months ended November 29, 1997 and 19.4% of
consolidated net sales, or $172,236,000, in the same period last year and 18.7%
of consolidated net sales, or $532,406,000, for the nine months ended November
29, 1997 compared to 17.0% of consolidated net sales, or $390,632,000, for the
same period last year. The Company has expanded its international operations
since November 30, 1996 by expanding into Italy and Ireland.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Gross profit as a percentage of sales was 24.3% for the three months
ended November 29, 1997 and 24.4% for the same period last year compared to
23.8% and 24.6% for the respective nine-month periods. The decrease in the
gross profit percentage is primarily attributable to the service business, which
has experienced reduced gross profit margins as a result of consolidation costs,
increases in driver and vehicle related costs, and pricing. Also affecting
gross profit were lower international gross margins primarily as a result of
increased competitive pressures, offset by increased vendor rebates reflecting
improved programs due to the integration of acquisitions to common vendors.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses as a percentage of sales decreased to 16.3% for the three months ended
November 29, 1997 from 16.9% for the same period last year and to 16.9% from
17.4% for the respective nine-month periods. The improvement in operating
expenses as a percentage of sales primarily reflects the recent consolidation
cost savings and elimination of duplicative administrative functions in the
service and international segments. Warehouse operating and selling expenses
increased to $161,878,000 in the three months ended November 29, 1997 from
$150,546,000 in the same period last year and to $482,781,000 from $399,830,000
for the respective nine-month periods. This dollar increase is primarily
attributable to the net sales increase in the periods.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include central expenses incurred to provide corporate
oversight and support for regional operations and goodwill amortization.
Corporate general and administrative expenses were 2.8% of sales in the three
months ended November 29, 1997 and in the same period last year, and improved to
2.9% from 3.0% for the respective nine-month periods. Corporate general and
administrative expenses increased to $27,695,000 in the three months ended
November 29, 1997 from $24,931,000 in the same period last year and to
$83,300,000 from $69,056,000 for the respective nine-month periods. This
increase reflects the costs associated with developing a larger corporate staff
to support the expanded operations, including an expanded information systems
staff, and increased amortization of goodwill resulting from purchase
acquisitions since November 1996.
Merger and Other Nonrecurring Charges. For the three-month period ended
November 29, 1997, the Company recorded a net $15,009,000 in merger and other
nonrecurring charges compared to a net charge of $12,368,000 for the same three-
month period ended November 30, 1996. The charges in the three-month period
ended November 29, 1997 include the transaction costs incurred by DDI, the
continued integration of the service business and certain provisions for
reductions in the work force and facility closures at other locations.
-12-
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Profit. Consolidated operating profit, before merger related and
other nonrecurring charges, was $52,362,000, or 5.3% of net sales, for the three
months ended November 29, 1997 compared to consolidated operating profit of
$41,726,000, or 4.7% of net sales, for the same period last year. Consolidated
operating profit, before merger related and other nonrecurring charges, was
$112,307,000, or 3.9% of net sales, for the nine months ended November 29, 1997
compared to consolidated operating profit of $95,460,000, or 4.2% of net sales,
for the same period last year. Consolidated operating profit, including the
merger related and other nonrecurring charges, of $37,353,000 for the three
months ended November 29, 1997 increased 27.2% compared to operating profit of
$29,358,000 for the three months ended November 30, 1996, and 17.2% for the
respective nine-month periods to $97,417,000 from $83,092,000. Consolidated
operating profit, including the merger related and other nonrecurring charges,
as a percentage of net sales increased to 3.7% for the three months ended
November 29, 1997 from 3.3% for the three months ended November 30, 1996, and
decreased to 3.4% from 3.6% for the respective nine-month periods. Operating
profit, before merger related and other nonrecurring charges, for the product
distribution segment increased as a percentage of sales to $46,492,000, or 5.9%
of product distribution net sales, in the three months ended November 29, 1997
from $30,664,000, or 4.5% of product distribution net sales, in the same period
last year, and to $93,238,000, or 4.2% of product distribution net sales, from
$68,561,000, or 3.9% of product distribution net sales, for the corresponding
nine-month periods. The increase in operating profit as a percentage of product
distribution net sales primarily reflects successful consolidations of
operations which decreased expenses and improved focus on vendor support.
Operating profit, before merger related and other nonrecurring charges, for the
service segment decreased to $5,870,000, or 2.9% of service net revenues, in the
three months ended November 29, 1997 from $11,062,000, or 5.4% of service net
sales, in the same period last year, and decreased to $19,069,000 or 3.0% of
service net sales, from $26,899,000, or 4.9% of service net sales, for the
corresponding nine-month periods. The decrease in operating profit for the
service segment reflects restructuring efforts and weak performance at several
delivery locations, partially offset by some cost savings from consolidation
efforts and the elimination of duplicative personnel.
Operating profit, before merger related and other nonrecurring charges, for
international operations increased to 3.5% of net international sales in the
three months ended November 29, 1997 from 1.8% in the same period last year, and
to 2.0% from 1.3% in the respective nine-month periods, reflecting operating
profits in all countries other than the United Kingdom, which had a small
operating loss. Recent consolidations in the United Kingdom have negatively
impacted operating profits.
Interest Expense. Net interest expense of $9,998,000 in the three months
ended November 29, 1997 increased from $7,493,000 in the same period last year
primarily due to increased debt for acquisitions and capital expenditures. For
the nine-month period, net interest expense of $29,192,000 increased from
$18,156,000 in the same period last year due to the Company's $325,000,000
principal amount of 4.5% convertible notes which were issued on June 24, 1996
(the "Convertible Notes").
Minority Interest. Minority interest loss of $28,000 in the three months
ended November 29, 1997 compares to minority interest income of $360,000 in the
same period last year, and to income of $1,014,000 from $462,000 for the
respective nine-month periods. The minority interest loss for the three months
ended November 29, 1997 reflects the 47.6% minority interest in the operating
profits at Corporate Express Australia ("CEA"). The minority interest income for
the nine months ended November 29, 1997 reflects the minority interest in CEA
and the 49% minority interest in the operating losses at Corporate Express
United Kingdom ("CEUK") through June 30, 1997. On July 1, 1997, the Company
acquired the remaining 49% interest in CEUK.
Net Income. Net income, before merger and other nonrecurring charges,
increased $5,315,000, or 26.5% to $25,335,000 from $20,020,000 for the three-
month periods ended November 29, 1997 and November 30, 1996, respectively, and
increased $4,280,000, or 9.4%, to $49,799,000 from $45,519,000 for the
respective nine-month periods. Including the merger and other nonrecurring
charges, net income was $14,523,000 and $9,290,000 for the three-month periods
ended November 29, 1997 and November 30, 1996, respectively, and was $39,106,000
and $34,789,000 for the respective nine-month periods. Net income reflects a
decrease in the effective tax rate to 46.8% for the three months ended November
29, 1997 from 59.2% for the three months ended November 30, 1996 and to 44.2%
for the nine months ended November 29, 1997 from 47.1% for the nine months ended
November 30, 1996.
-13-
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Other. Goodwill at November 29, 1997 of $838,734,000 increased from
$671,967,000 at March 1, 1997, reflecting net additions from acquisitions,
primarily DDI, offset by current year amortization.
Accrued purchase costs at November 29, 1997 of $10,928,000 decreased by
$1,960,000 from the March 1, 1997 balance of $12,888,000. This decrease
reflects acquisition additions of $5,578,000, usage of $7,275,000 and reversals
to goodwill of $263,000. The remaining balance primarily represents the current
estimate for costs to be incurred in conjunction with planned consolidation
projects in Canada, the United Kingdom, Italy, Germany, and certain domestic
locations. (See Note 3 to the Consolidated Financial Statements.)
The accrued merger and related costs balance at November 29, 1997 of
$22,462,000 increased by $3,978,000 from the March 1, 1997 balance of
$18,484,000, reflecting the fiscal 1997 net merger charge of $12,693,000 and
usage of $8,715,000. (See Note 4 to the Consolidated Financial Statements.)
Liquidity and Capital Resources
Historically, the Company has financed its operations through internally
generated funds and borrowings from commercial banks and has financed its
acquisitions through the use of such funds and the issuance of equity and debt
securities.
On June 24, 1996, the Company issued the Convertible Notes, which are
convertible into shares of Common Stock of the Company at a conversion price of
$33.33 per share, subject to certain conditions. A portion of the proceeds from
the sale of the Convertible Notes was used to repay the Company's revolving
credit facility (the "Senior Credit Facility") and an acquisition note payable
with the remaining proceeds being used to fund acquisitions and for other
general corporate purposes.
Effective December 15, 1997 the 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. The Senior Credit Facility was previously
amended and restated on November 26, 1996 to increase the borrowing capacity
from $90,000,000 to $350,000,000, extend the facility termination date to March
31, 2000, release the assets of the Company (the previous facility was secured
by substantially all of the assets, including accounts receivable and inventory
of the Company and its United States subsidiaries), and to make certain other
changes.
Subsequent to November 29, 1997, the Company entered into an interest rate
hedging transaction with respect to $300,000,000 of treasury notes in
anticipation of a potential private debt financing. The Company expects to
complete the debt financing in the second fiscal quarter of 1998.
During the nine months ended November 29, 1997, the Company invested
$14,546,000 net cash and approximately 13,887,842 shares of common stock in its
acquisition program. Total liabilities assumed in connection with these
acquisitions were $146,800,000. In addition, the Company made payments of
approximately $7,147,000 and issued approximately 61,932 shares of common stock
related to acquisitions completed in prior fiscal years.
During the nine months ended November 29, 1997, the Company had capital
expenditures of $64,125,000 for computer systems and software, warehouse
reconfigurations, telecommunications equipment, delivery vehicles, leasehold
improvements and investments in facilities. The Company continues to invest in
the development of its proprietary computer software and the upgrade of its
computer systems.
Significant uses of cash in the nine months ended November 29, 1997 were as
follows: capital expenditures of $64,125,000, cash paid for acquisitions of
$21,693,000, and net debt repayments of $17,738,000, retirement of DDI bonds of
$62,178,000, and net other uses of $9,386,000, partially offset by cash provided
by
-14-
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
net borrowings on lines of credit of $110,558,000, operating activities of
$13,696,000, proceeds from the sale of assets of $20,200,000, issuance of common
stock of $7,513,000, and issuance of subsidiary common stock of $2,434,000.
On February 5, 1998 the Company announced that it will commence 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 invite 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. The Company will, subject to the terms and conditions of the
offer, determine the lowest single per share price (not greater than $11.50 nor
less than $10.00 per share) net to the seller in cash that will allow it to
purchase 35,000,000 shares pursuant to the offer. Such lowest single per share
price will be the purchase price the Company will pay for all shares validly
tendered at prices at or below such purchase price and not withdrawn, subject to
the terms and conditions of the offer. Shares tendered at prices in excess of
the purchase price and shares not purchased because of proration will be
returned at the Company's expense. The Company will fund the purchase of such
shares and the payment of related fees and expenses through a new $1.0 billion
senior secured bank credit facility. The borrowings under the new credit
facility will be used to repay and terminate its existing bank credit facility
and for general corporate and working capital requirements. The new credit
facility will consist of a $250 million seven-year senior secured term loan
facility and a $750 million five-year senior secured revolving credit facility.
The Company plans to refinance a portion of the borrowings with proceeds from
the sale of debt securities in the near future.
The Company believes that the borrowing capacity under the Senior Credit
Facility, together with proceeds from future debt and equity financings, in
addition to the Company's cash on hand, capital resources and cash flows, will
be sufficient to fund the Company's ongoing operations, anticipated capital
expenditures and acquisition activity for the next twelve months. However,
actual capital needs may change, particularly in connection with acquisitions
which the Company may complete in the future.
Inflation
Certain of the Company's product offerings, particularly paper products,
have been and are expected to continue to be subject to significant price
fluctuations due to inflationary and other market conditions. The Company
generally is able to pass such increased costs on to its customers through price
increases, although it may not be able to adjust its prices immediately.
Significant increases in fuel costs in the future could affect the Company's
profitability if these costs cannot be passed on to customers. In general, the
Company does not believe that inflation has had a material effect on its results
of operations in recent years. However, there can be no assurance that the
Company's business will not be affected by inflation in the future.
-15-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on September 17, 1997
Form 8-K filed on November 14, 1997
-16-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORPORATE EXPRESS, INC.
By: /s/ Sam R. Leno
----------------------
Sam R. Leno
Executive Vice President and Chief Financial
Officer
Date: April 3, 1998 (Principal Financial Officer and Duly
Authorized Officer)
-17-
<PAGE>
Exhibit 11.1
Corporate Express, Inc.
Statement Regarding Computation of Net Income Per Share
Primary Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- --------------------------------------
November 29, November 30, November 29, November 30,
1997 1996 1997 1996
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Pro forma net income $ 14,523 $ 8,918 $ 39,106 $ 33,760
================= ================ ================= =================
Pro forma net income per share $ 0.10 $ 0.07 $ 0.29 $ 0.26
================= ================ ================= =================
Weighted average shares outstanding 130,675 123,530 129,122 120,791
Common Stock Equivalents:
Stock options and warrants 9,324 7,753 6,810 8,596
----------------- ---------------- ----------------- -----------------
Total weighted average shares outstanding 139,999 131,283 135,932 129,387
================= ================ ================= =================
</TABLE>
Fully Diluted Earnings Per Share
Fully diluted earnings per share differs from primary earnings per share by less
than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> NOV-29-1997
<CASH> 33,779
<SECURITIES> 0
<RECEIVABLES> 634,621
<ALLOWANCES> 15,353
<INVENTORY> 242,414
<CURRENT-ASSETS> 1,041,386
<PP&E> 467,008
<DEPRECIATION> 128,819
<TOTAL-ASSETS> 2,289,655
<CURRENT-LIABILITIES> 529,399
<BONDS> 745,709
0
0
<COMMON> 28
<OTHER-SE> 923,226
<TOTAL-LIABILITY-AND-EQUITY> 2,289,655
<SALES> 2,851,133
<TOTAL-REVENUES> 2,851,133
<CGS> 2,172,740
<TOTAL-COSTS> 580,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,192
<INCOME-PRETAX> 68,230
<INCOME-TAX> 30,138
<INCOME-CONTINUING> 39,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,106
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
