<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934
Date of Report (Date of earliest event report): July 27, 1998
-----------------
CORPORATE EXPRESS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-24642 84-0978360
- ------------------ ------------- -------------
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
1 Environmental Way
Broomfield, CO 80021
----------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 664-2000
--------------
<PAGE>
Item 5 - Other Events
- ---------------------
On May 29, 1998, CEX Holdings, Inc. ("CEX Holdings"), 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.
In connection with a proposed exchange offer involving the Notes and the
filing of a Registration Statement on Form S-4 (the "Form S-4") with respect to
such exchange offer, and pursuant to the requirements of Staff Accounting
Bulletin Paragraph G and H of Topic 1 (SAB No. 53), the Registrant has added a
footnote to its previously filed consolidated financial statements for the
quarterly period ended May 2, 1998 (see (A) below) and the transition period
from March 2, 1997 to January 31, 1998 (see (B) below) which includes condensed
consolidating financial statement information for the Parent Guarantor, CEX
Holdings, the Subsidiary Guarantors and the Subsidiary Non-Guarantors.
There has been no change to the previously filed consolidated financial
statements contained in the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended May 2, 1998 or the Registrant's Annual Report on Form 10-
K for the transition period from March 2, 1997 to January 31, 1998, other than
the addition of Note 10 - Supplemental Guarantor Information and Note 19 -
Supplemental Guarantor Information, respectively.
Also in connection with the proposed exchange offer involving the Notes and
the Form S-4, the Registrant has included in this report, for the purpose of
incorporating by reference into the Form S-4, the previously filed (i) audited
financial statements of Data Documents Incorporated ("DDI") for the year ended
December 31, 1996 (see (C) below) and (ii) unaudited financial statements of DDI
for the quarter ended September 30, 1997 (see (D) below). DDI was acquired by
the Registrant on November 26, 1997.
-2-
<PAGE>
(A) CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED MAY 2,
1998 - ADDITIONAL FOOTNOTE
In connection with a proposed exchange offer involving the Notes and the
filing of a Registration Statement on Form S-4 with respect to such exchange
offer, and pursuant to the requirements of Staff Accounting Bulletin Paragraph G
and H of Topic 1 (SAB No. 53), the Registrant has added a footnote to its
previously filed consolidated financial statements for the quarterly period
ended May 2, 1998 which includes condensed consolidating financial statement
information for the Parent Guarantor, CEX Holdings, the Subsidiary Guarantors
and the Subsidiary Non-Guarantors.
There has been no change to the previously filed consolidated financial
statements contained in the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended May 2, 1998 other than the addition of Note 10-
Supplemental Guarantor Information.
-3-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS
May 2, January 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,906 $ 44,362
Trade accounts receivable, net of allowance
of $15,292 and $14,523, respectively 647,467 616,574
Notes and other receivables 79,356 86,687
Inventories 275,453 251,108
Deferred income taxes 37,506 40,729
Other current assets 40,896 41,713
----------- -----------
Total current assets 1,117,584 1,081,173
Property and equipment:
Land 17,564 17,540
Buildings and leasehold improvements 129,839 126,006
Furniture and equipment 356,258 339,577
----------- -----------
503,661 483,123
Less accumulated depreciation (140,873) (131,756)
----------- -----------
362,788 351,367
Goodwill, net of $64,369 and $57,558 of accumulated
amortization, respectively 860,357 847,544
Other assets, net 88,192 69,575
----------- -----------
Total assets $ 2,428,921 $ 2,349,659
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 378,982 $ 354,915
Accounts payable - acquisitions 2,264 6,106
Accrued payroll and benefits 56,750 61,308
Accrued purchase costs 9,087 9,378
Accrued merger and related costs 12,846 15,512
Other accrued liabilities 96,975 80,214
Current portion of long-term debt and capital leases 34,359 36,264
----------- -----------
Total current liabilities 591,263 563,697
Capital lease obligations 7,381 9,414
Long-term debt 1,161,281 753,829
Deferred income taxes 57,127 52,515
Minority interest in subsidiaries 19,654 20,791
Other non-current liabilities 16,919 16,980
----------- -----------
Total liabilities 1,853,625 1,417,226
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, 143,002,580 and 142,392,845 shares
issued and outstanding, respectively 28 28
Common stock, non-voting, $.0002 par value, 3,000,000
shares authorized, none issued or outstanding -- --
Additional paid-in capital 855,944 852,507
Retained earnings 106,595 91,887
Accumulated other comprehensive expense (8,021) (11,989)
----------- -----------
954,546 932,433
Less:
Treasury stock, at cost, 35,000,000 shares at May 2, 1998 (379,250) --
----------- -----------
Total shareholders' equity 575,296 932,433
Total liabilities and shareholders' equity $ 2,428,921 $ 2,349,659
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
May 2, May 3,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Net sales $ 1,108,061 $ 921,455
Cost of sales 850,291 703,650
----------- -----------
Gross profit 257,770 217,805
Warehouse operating and selling expenses 182,825 160,757
Corporate general and administrative expenses 33,102 29,098
----------- -----------
Operating profit 41,843 27,950
Interest expense and other, net 12,791 8,953
----------- -----------
Income before income taxes 29,052 18,997
Income tax expense 13,044 7,500
----------- -----------
Income before minority interest 16,008 11,497
Minority interest expense (income) 196 (911)
----------- -----------
Income before extraordinary item 15,812 12,408
Extraordinary item, net of tax:
Loss on early extinguishment of debt 1,104 --
----------- -----------
Net income $ 14,708 $ 12,408
=========== ===========
Net income per share - Basic:
Net income before extraordinary item $ 0.12 $ 0.10
Extraordinary item (0.01) --
----------- -----------
Net income $ 0.11 $ 0.10
=========== ===========
Net income per share - Diluted:
Net income before extraordinary item $ 0.12 $ 0.09
Extraordinary item (0.01) --
----------- -----------
Net income $ 0.11 $ 0.09
=========== ===========
Weighted average common shares outstanding:
Basic 134,410 126,067
Diluted 136,729 131,268
</TABLE>
-6-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
May 2, May 3,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,708 $ 12,408
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 12,004 9,579
Amortization 6,916 5,458
Non-cash portion of merger and restructuring charge -- 1,396
Loss on early extinguishment of debt 1,104 --
Minority interest (income) expense 196 (911)
Other 678 95
Changes in assets and liabilities, excluding acquisitions:
(Increase) decrease in accounts receivable 2,797 17,465
(Increase) decrease in inventory (17,014) (6,400)
(Increase) decrease in other current assets 3,662 (4,131)
(Increase) decrease in other assets (2,812) (939)
Increase (decrease) in accounts payable (1,706) (29,688)
Increase (decrease) in accrued liabilities 11,281 (22,283)
--------- ---------
Net cash provided by (used in) operating activities 31,814 (17,951)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 703 637
Capital expenditures (21,501) (30,542)
Payment for acquisitions, net of cash acquired (21,047) (10,854)
Investment in marketable securities (994) 572
Other, net (71) 13
--------- ---------
Net cash used in investing activities (42,910) (40,174)
--------- ---------
Cash flows from financing activities:
Issuance of common stock 156 8,641
Repurchase of common stock (379,250) --
Debt issuance costs (15,150) (151)
Proceeds from long-term borrowings 252,179 11,515
Repayments of long-term borrowings (6,936) (29,539)
Proceeds from short-term borrowings 1,188 358
Repayments of short-term borrowings (2,075) (1,997)
Net proceeds from (payments on) line of credit 153,752 49,778
Other (77) 86
--------- ---------
Net cash provided by financing activities 3,787 38,691
--------- ---------
Effect of foreign currency exchange rate changes on cash (147) (303)
--------- ---------
(Decrease) increase in cash and cash equivalents (7,456) (19,737)
Cash and cash equivalents, beginning of period 44,362 58,993
========= =========
Cash and cash equivalents, end of period $ 36,906 $ 39,256
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL 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. Acquisitions accounted for as purchases are included in the
accounts and operations as of the effective date of the acquisition 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 acquisition is effective. The Company accounts for its investments in less
than 50% owned entities using the equity or cost methods. All intercompany
balances and transactions have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company's Annual Report on
Form 10-K for the eleven months ended January 31, 1998.
In January 1998 the Company changed its fiscal year end from the end of
February to January 31, 1998. The consolidated financial statements for the
previously reported prior year first quarter have been restated to conform to
the new fiscal year and accordingly reflect the three-month period ended May 3,
1997. Certain reclassifications have been made to the consolidated financial
statements for the three-month period ended May 3, 1997 to conform to the three-
month period ended May 2, 1998 presentation. These reclassifications had no
impact on net income.
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 first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Comprehensive income, consisting of net income, the change in the foreign
currency translation adjustment and an unrealized holding gain or loss on
marketable securities, totaled $18,676,000 for the three months ended May 2,
1998 and $8,004,000 for the three months ended May 3, 1997.
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 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 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.
-8-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. ACCRUED PURCHASE COSTS
In conjunction with acquisitions accounted for as purchases, the Company
accrues certain of the direct external costs associated with closing redundant
facilities of acquired companies, and severance and relocation payments for the
acquired companies' employees. All consolidation projects are planned to be
completed within two years of the acquisition date. Remaining balances
primarily represent international and the recent Data Documents Incorporated
("DDI") consolidation plans.
The following table sets forth activity in the Company's accrued purchase
costs liability account for the three months ended May 2, 1998:
<TABLE>
<CAPTION>
Disposition
Facility Redundant of Assets
Total Exit Costs Facilities Severance & Other
------------ ----------- ----------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1998 $ 9,378 $ 464 $3,128 $4,400 $1,386
Additions 712 -- 152 544 16
Payments (1,003) (128) (301) (382) (192)
------------ ----------- ----------- ---------- -----------
Balance, May 2, 1998 $ 9,087 $ 336 $ 2,979 $ 4,562 $ 1,210
============ =========== =========== ========== ===========
</TABLE>
3. MERGER AND OTHER NONRECURRING CHARGES
The Company accrues, among other things, costs to complete pooling of
interests transactions, costs of merging and closing redundant facilities, and
costs associated with personnel reductions and centralizing certain
administrative functions.
The following table sets forth activity in the Company's accrued merger and
other non-recurring charges liability account for the three months ended May 2,
1998:
<TABLE>
<CAPTION>
Balance Cash Non- Balance
1/31/98 Payments Cash Usage 5/2/98
--------- -------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Merger transaction costs (1) $ 611 $ (299) $ 312
Employee severance and
termination costs (2) 9,696 (1,690) 8,006
Facility closure and consolidation costs (3) 5,205 (677) 4,528
-------- ------- -------
Accrued merger and related costs, balance 15,512 (2,666) 12,846
Other asset write-downs and costs (4) 2,759 --- $(203) 2,556
-------- ------- ---------- -------
Total $ 18,271 $(2,666) $(203) $15,402
======== ======= ---------- =======
</TABLE>
-9-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Merger transaction costs are the direct costs from the pooling of interests
transactions and those direct costs incurred by DDI, and include legal,
accounting, investment banking, printing, contract buy-outs and other
related costs.
(2) Employee severance and 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 planned
to be terminated, 782 have been terminated as of May 2, 1998. The Company
expects to complete the facility closures and related terminations for the
fiscal 1995 charge, which balance totals $1,589,000 and the fiscal 1996
charge, which balance totals $1,009,000, 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 balance totals $5,408,000, 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 planned to be closed or consolidated, 144
have been closed or consolidated as of May 2, 1998. The remaining
facilities included in the fiscal 1995 and 1996 charges, and the facilities
identified in the fiscal 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 expected 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.
4. 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.
The operating results of DDI are included in the Company's consolidated
statement of operations from the effective date of the acquisition. The
following pro forma financial information assumes the DDI acquisition occurred
at the beginning of the three-month period ended May 3, 1997 and primarily
reflects goodwill amortization, debt retirement and the issuance of shares.
These results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the transaction
occurred at the beginning of the period, or of results which may occur in the
future.
<TABLE>
<CAPTION>
Three Months Ended
May 3, 1997
-----------
(In thousands, except per share amounts)
(Unaudited)
<S> <C>
Net sales $985,304
Net income 14,388
Net income per share - Basic 0.11
Net income per share Diluted 0.10
</TABLE>
5. REPURCHASE OF COMMON STOCK
On February 5, 1998 the Company commenced 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
-10-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 not purchased
because of proration were returned to shareholders. The 35,000,000 treasury
shares resulting from this transaction are reflected on the balance sheet at
cost plus applicable fees and expenses of approximately $3,000,000.
6. DEBT
On April 22, 1998 the Company executed a new $1 billion Senior Secured
Credit Facility ("Senior Secured Credit Facility") consisting of a $250,000,000,
seven-year term loan and a $750,000,000 five-year revolving credit facility and
terminated the existing $500,000,000 Credit Facility ("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 Senior Credit
Facility and for general corporate and working capital requirements. The Senior
Secured Credit Facility is guaranteed by substantially all domestic subsidiaries
of the Company 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 convenants customary for this type of facility
including restrictions on dividends, additional borrowings and certain financial
covenants. Approximately $1,810,000 of deferred financing costs related to the
terminated Senior Credit Facility were expensed in the first quarter of fiscal
1998 and are reflected as an extraordinary item of $1,104,000, net of tax of
$706,000.
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. 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.
8. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated as follows:
Three Months Three Months
Ended Ended
May 2, 1998 May 3, 1997
------------ ------------
(In thousands, except per share data)
Numerator for basic and diluted EPS:
Income before extraordinary item $ 15,812 $ 12,408
Extraordinary item (1,104) ---
----------- -----------
Net income $ 14,708 $ 12,408
=========== ===========
Basic EPS Calculation:
Denominator:
Average common shares outstanding 134,410(1) 126,067
=========== ===========
Earnings per common share:
Income before extraordinary item $ 0.12 $ 0.10
Extraordinary item (0.01) --
----------- -----------
-11-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
Net income $ 0.11 $ 0.10
========= ========
Diluted EPS Calculation:
Denominator (2):
Basic shares 134,410 126,067
Dilutive stock options and warrants 2,319 5,201
-------- --------
Diluted shares 136,729 131,268
======== ========
Earnings per common share:
Income before extraordinary item $ 0.12 $ 0.09
Extraordinary item (0.01) ---
-------- --------
Net income $ 0.11 $ 0.09
======== ========
</TABLE>
(1) Reflects the shares repurchased only from the April 10, 1998 purchase date.
(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.
9. SUBSEQUENT EVENTS
On May 29, 1998 the Company issued at par $350,000,000 principal amount of
unsecured 9 5/8% Senior Subordinated Notes due 2008. The notes are guaranteed
by all material domestic subsidiaries of the Company and are subordinated in
right of payment to all senior debt including the Senior Secured Credit
Facility. On or after June 1, 2003 through maturity the notes may be redeemed
at the option of the Company, in whole or in part, at redemption rates ranging
from 104.813% to 100%. At any time on or before June 1, 2001 the Company may
redeem up to 35% of the notes with the net cash proceeds of one or more public
equity offerings at a redemption price equal to 109.625% of the principal amount
thereof, subject to certain restrictions. Semi-annual interest payments are due
on June 1 and December 1 commencing on December 1, 1998. A portion of the
proceeds from the sale of these notes was used to repay prior to maturity
substantially all of the $90,000,000 9 1/8% Senior Subordinated Notes Series B
due 2004 and to repay a portion of the Senior Secured Credit Facility. As a
result of this repayment, the Company will record an extraordinary loss of
approximately $5,000,000, net of tax, in the second quarter of fiscal 1998.
During the fourth quarter of 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 has completed. The cost of the settlement of the contract will be
amortized over the ten-year term of the Senior Secured Credit Facility as an
adjustment to the effective interest rate of the debt agreement.
10. 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 May 2, 1998 and condensed consolidating statements
of operations and cash flows for the three months ended May 2, 1998 and May 3,
1997. 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
-12-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
-13-
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
MAY 2, 1998
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors
------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 3,169 25,964 7,773
Trade accounts receivable, net 439,847 207,620
Notes and other receivables 63,056 16,300
Inventories 179,941 95,512
Deferred income taxes 706 31,081 5,719
Other current assets 28,726 12,170
------------- ------------ --------------- --------------
Total current assets 3,875 768,615 345,094
Property and equipment:
Land 10,684 6,880
Buildings and leasehold improvements 96,534 33,305
Property and equipment 287,084 69,174
------------- ------------ --------------- --------------
394,302 109,359
Less accumulated depreciation (125,025) (15,848)
------------- ------------ --------------- --------------
269,277 93,511
Goodwill, net 646,916 213,441
Net investment in and advances to subsidiaries 943,767 1,629,319 (187,999)
Other assets, net 4,115 46,358 23,925 13,794
------------- ------------ --------------- --------------
Total assets 947,882 1,679,552 1,708,733 477,841
============= ============ =============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 33,962 223,376 121,644
Accounts payable - acquisition 1,440 824
Accrued payroll and benefits 44,678 12,072
Accrued purchase costs 2,661 6,426
Accrued merger and related costs 12,028 818
Other accrued liabilities 13,624 2,679 47,545 33,127
Current portion of long-term debt and
capital leases 8,616 25,743
------------- ------------ --------------- --------------
Total current liabilities 47,586 2,679 340,344 200,654
Capital lease obligations 5,676 1,705
Long-term debt 325,000 733,106 22,418 80,757
Deferred income taxes 56,777 350
Minority interest 19,654
Other non-current liabilities 6,207 10,712
------------- ------------ --------------- --------------
Total liabilities 372,586 735,785 431,422 313,832
Total shareholders' equity 575,296 943,767 1,277,311 164,009
------------- ------------ --------------- --------------
Total liabilities and shareholders' equity 947,882 1,679,552 1,708,733 477,841
============= ============ =============== ==============
<CAPTION>
Eliminations Consolidated
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents 36,906
Trade accounts receivable, net 647,467
Notes and other receivables 79,356
Inventories 275,453
Deferred income taxes 37,506
Other current assets 40,896
---------------- ----------------
Total current assets 1,117,584
Property and equipment:
Land 17,564
Buildings and leasehold improvements 129,839
Property and equipment 356,258
---------------- ----------------
503,661
Less accumulated depreciation (140,873)
---------------- ----------------
362,788
Goodwill, net 860,357
Net investment in and advances to subsidiaries (2,385,087)
Other assets, net 88,192
---------------- ----------------
Total assets (2,385,087) 2,428,921
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 378,982
Accounts payable - acquisition 2,264
Accrued payroll and benefits 56,750
Accrued purchase costs 9,087
Accrued merger and related costs 12,846
Other accrued liabilities 96,975
Current portion of long-term debt and
capital leases 34,359
---------------- ----------------
Total current liabilities 591,263
Capital lease obligations 7,381
Long-term debt 1,161,281
Deferred income taxes 57,127
Minority interest 19,654
Other non-current liabilities 16,919
---------------- ----------------
Total liabilities 1,853,625
Total shareholders' equity (2,385,087) 575,296
---------------- ----------------
Total liabilities and shareholders' equity (2,385,087) 2,428,921
================ ================
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY 2, 1998
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
------------- ---------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 813,981 294,080 1,108,061
Cost of sales 620,945 229,346 850,291
Equity in subsidiary earnings 17,025 21,021 (38,046)
----------- --------- ---------- --------- ----------- ----------
Gross profit 17,025 21,021 193,036 64,734 (38,046) 257,770
Warehouse operating and selling expenses 137,157 45,668 182,825
Corporate general and administrative
expenses 27,595 5,507 33,102
----------- --------- ---------- --------- ----------- ----------
Operating profit 17,025 21,021 28,284 13,559 (38,046) 41,843
Interest expense and other, net 4,134 5,160 532 2,965 12,791
----------- --------- ---------- --------- ----------- ----------
Income before income taxes 12,891 15,861 27,752 10,594 (38,046) 29,052
Income tax expense (benefit) (1,817) (2,268) 12,196 4,933 13,044
----------- --------- ---------- --------- ----------- ----------
Income before minority interest 14,708 18,129 15,556 5,661 (38,046) 16,008
Minority interest expense 196 196
----------- --------- ---------- --------- ----------- ----------
Income before extraordinary item 14,708 18,129 15,556 5,465 (38,046) 15,812
Extraordinary item:
Loss on early extinguishment of debt 1,104 1,104
----------- --------- ---------- --------- ----------- ----------
Net income
14,708 17,025 15,556 5,465 (38,046) 14,708
=========== ========= ========== ========= =========== ==========
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MAY
3, 1997
<TABLE>
<CAPTION>
Parent Issuer Subsidiary
Guarantor of Notes Guarantors
---------------- ---------------- --------------------
<S> <C> <C> <C>
Net sales 746,765
Cost of sales 569,836
Equity in earnings of subsidiaries 14,798 16,350
---------------- ---------------- --------------------
Gross profit 14,798 16,350 176,929
Warehouse operating and selling expenses 126,577
Corporate general and administrative expenses 23,990
---------------- ---------------- ----------------------
Operating profit 14,798 16,350 26,362
Interest expense and other, net 3,903 2,534 (297)
---------------- ---------------- ----------------------
Income before income taxes 10,895 13,816 26,659
Income tax expense (benefit) (1,513) (982) 10,332
---------------- ---------------- ----------------------
Income before minority interest 12,408 14,798 16,327
Minority interest (income) expense
---------------- ---------------- ----------------------
Net income 12,408 14,798 16,327
================ ================ ======================
<CAPTION>
Subsidiary
Non
Guarantors Eliminations Consolidated
--------------------- -------------------- ---------------------
<S> <C> <C> <C>
Net sales 174,690 921,455
Cost of sales 133,814 703,650
Equity in earnings of subsidiaries (31,148)
--------------------- -------------------- ---------------------
Gross Profit 40,876 (31,148) 217,805
Warehouse operating and selling expenses 34,180 160,757
Corporate general and administrative expenses 5,108 29,098
--------------------- -------------------- ---------------------
Operating profit 1,588 (31,148) 27,950
Interest expense and other, net 2,813 8,953
--------------------- -------------------- ---------------------
Income before income taxes (1,225) (31,148) 18,997
Income tax expense (benefit) (337) 7,500
--------------------- -------------------- ---------------------
Income before minority interest (888) (31,148) 11,497
Minority interest (income) expense (911) (911)
--------------------- -------------------- ---------------------
Net income 23 (31,148) 12,408
===================== ==================== =====================
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MAY 2, 1998
<TABLE>
<CAPTION>
Parent Issuer Subsidiary
Guarantor of Notes Guarantors
------------- ------------- --------------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities (18,956) (19,430) 87,299
------------- ------------- --------------
Cash flows from investing activities:
Proceeds from sale of assets 597
Capital expenditures (18,781)
Payment for acquisitions, net of cash acquired (1,687)
Investment in marketable securities
Other, net (71)
------------- ------------- --------------
Net cash used in investing activities (19,942)
------------- ------------- --------------
Cash flows from financing activities:
Issuance of common stock 156
Purchase of treasury stock (379,250)
Debt issuance costs (15,150)
Proceeds from long-term borrowings 250,000
Repayments of long-term borrowings (4,344)
Proceeds from short-term borrowings
Repayments of short-term borrowings (4)
Net proceeds from (payments on) line of credit 139,068 (10,743)
Net activity in investment in and advances to
(from) subsidiaries 398,050 (351,691) (59,387)
Other (77)
------------- ------------- --------------
Net cash provided by (used in) financing activities 18,956 22,227 (74,555)
------------- ------------- --------------
Effect of foreign currency exchange rates changes on cash
------------- ------------- --------------
Increase (decrease) in cash and cash equivalents 2,797 (7,198)
Cash and cash equivalents, beginning of period 372 33,162
------------- ------------- --------------
Cash and cash equivalents, end of period 3,169 25,964
============= ============= ==============
<CAPTION>
Subsidiary
Non
Guarantors Consolidated
---------------- ---------------
<S> <C> <C>
Net cash provided by (used in) operating activities (17,099) 31,814
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of assets 106 703
Capital expenditures (2,720) (21,501)
Payment for acquisitions, net of cash acquired (19,360) (21,047)
Investment in marketable securities (994) (994)
Other, net (71)
---------------- ---------------
Net cash used in investing activities (22,968) (42,910)
---------------- ---------------
Cash flows from financing activities:
Issuance of common stock 156
Purchase of treasury stock (379,250)
Debt issuance costs (15,150)
Proceeds from long-term borrowings 2,179 252,179
Repayments of long-term borrowings (2,592) (6,936)
Proceeds from short-term borrowings 1,188 1,188
Repayments of short-term borrowings (2,071) (2,075)
Net proceeds from (payments on) line of credit 25,427 153,752
Net activity in investment in and advances to
(from) subsidiaries 13,028
Other (77)
---------------- -----------------
Net cash provided by (used in) financing activities 37,159 3,787
---------------- -----------------
Effect of foreign currency exchange rates changes on cash (147) (147)
---------------- -----------------
Increase (decrease) in cash and cash equivalents (3,055) (7,456)
Cash and cash equivalents, beginning of period 10,828 44,362
---------------- ---------------
Cash and cash equivalents, end of period 7,773 36,906
================ ===============
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MAY 3, 1997
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Consolidated
----------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net cash used in operating activities (35,411) (3,376) 28,822 (7,986) (17,951)
----------- ---------- ------------ ------------ --------------
Cash flows from investing activities:
Proceeds from sale of assets 467 170 637
Capital expenditures (24,126) (6,416) (30,542)
Payment for acquisitions, net of cash acquired 4,486 (15,340) (10,854)
Investment in marketable securities 572 572
Other, net (2,407) 2,420 13
----------- ---------- ------------ ------------ --------------
Net cash used in investing activities (21,580) (18,594) (40,174)
----------- ---------- ------------ ------------ --------------
Cash flows from financing activities:
Issuance of common stock 8,641 8,641
Debt issuance costs (151) (151)
Proceeds from long-term borrowings 2,898 8,617 11,515
Repayments of long-term borrowings (14,616) (14,923) (29,539)
Proceeds from short-term borrowings 358 358
Repayments of short-term borrowings (929) (1,068) (1,997)
Net proceeds from (payments on) line of credit 38,500 (380) 11,658 49,778
Net activity in investment in and advances to from
subsidiaries 26,770 (33,827) (13,981) 21,038
Other 159 (73) 86
----------- ---------- ------------ ------------ --------------
Net cash provided by (used in) financing activities 35,411 4,522 (26,491) 25,249 38,691
----------- ---------- ------------ ------------ --------------
Effect of foreign currency exchange rates changes on
cash (303) (303)
----------- ---------- ------------ ------------ --------------
Increase (decrease) in cash and cash equivalents 1,146 (19,249) (1,634) (19,737)
Cash and cash equivalents, beginning of period 52,617 6,376 58,993
----------- ---------- ------------ ------------ --------------
Cash and cash equivalents, end of period 1,146 33,368 4,742 39,256
=========== ========== ============ ============ ==============
</TABLE>
<PAGE>
(B) CONSOLIDATED FINANCIAL STATEMENTS FOR THE TRANSITION PERIOD FROM MARCH 2,
1997 TO JANUARY 31,1998 - ADDITIONAL FOOTNOTE
In connection with a proposed exchange offer involving the Notes and the
filing of a Registration Statement on Form S-4 with respect to such exchange
offer, and pursuant to the requirements of Staff Accounting Bulletin Paragraph G
and H of Topic 1 (SAB No. 53), the Registrant has added a footnote to its
previously filed consolidated financial statements for the transition period
from March 2, 1997 to January 31, 1998 which includes condensed consolidating
financial statement information for the Parent Guarantor, CEX Holdings, the
Subsidiary Guarantors and the Subsidiary Non-Guarantors.
There has been no change to the previously filed consolidated financial
statements contained in the Registrant's Annual Report on Form 10-K for the
transition period from March 2, 1997 to January 31, 1998 other than the addition
of Note 19-Supplemental Guarantor Information.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholders of
Corporate Express, Inc.:
We have audited the accompanying consolidated financial statements 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. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We 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.
/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
July 17, 1998
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
<TABLE>
<CAPTION>
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.
<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.
<PAGE>
CORPORATE EXPRESS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Eleven
Months Ended Years 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.
<PAGE>
CORPORATE EXPRESS, INC.
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)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, February 28, 1994 26,980,000 $ 7,502 38,378,246 $ 8
Issuance of common stock 31,602,150 6
Conversion of common stock 100,000 (112,500)
Conversion of preferred stock (19,580,000) (2) 22,027,500 4
Redemption of preferred stock (7,500,000) (7,500)
Preferred stock dividend
S Corporation dividends and other equity
transactions of pooled companies
Net income
Foreign currency translation adjustment
----------- -------- ----------- ------
Balance, February 25, 1995 - - 91,895,396 18
Issuance of common stock 20,058,954 4
Young capital contribution
Adjustment to conform fiscal year ends
of certain pooled companies
S Corporation dividends and other equity
transactions of pooled companies
Net income
Foreign currency translation adjustment
----------- -------- ----------- ------
Balance, March 2, 1996 - - 111,954,350 22
Issuance of common stock 14,217,117 3
Tax benefit on non-qualified stock
options exercised
Adjustment to conform fiscal year
ends of certain pooled companies
S Corporation dividends and other
equity transactions of pooled companies
Net income
Foreign currency translation adjustment
----------- -------- ----------- ------
Balance, March 1, 1997 - - 126,171,467 $ 25
Issuance of common stock 16,221,378 $ 3
Tax benefit on non-qualified
stock option exercised
Equity transactions of pooled companies
Net income
Foreign currency translation adjustment - - - -
----------- -------- ----------- ------
Balance, January 31, 1998 - $ - 142,392,845 $ 28
=========== ======== =========== ======
<CAPTION>
Foreign
Additional Currency
Paid-in Translation Retained
Capital Adjustment Earnings
---------- ---------- ----------
<S> <C> <C> <C>
Balance, February 28, 1994 $ 115,805 $ 9 $ (6,963)
Issuance of common stock 138,300
Conversion of common stock -
Conversion of preferred stock (2)
Redemption of preferred stock
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 254,220 59 5,025
Issuance of common stock 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 513,358 196 8,200
Issuance of common stock 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 $ 646,536 $ (1,176) $ 48,222
Issuance of common stock 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 $ 852,507 $ (11,989) $ 91,887
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Eleven
Months Ended Years 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 operations (12) 61 (222) (600)
--------- --------- --------- ---------
Effect of foreign currency exchange rate changes on cash (834) (445) (1,159) 25
--------- --------- --------- ---------
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.
<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
Months Ended Years 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
<PAGE>
14,610,000 shares of common stock upon conversion of its Series A, B and C
preferred stock on a two for one basis, 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.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED 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.
<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 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
straight-line method.
Capitalized internally developed software balances were $83,474,000,
$50,658,000 and $16,790,000 at January 31, 1998, March 1, 1997, and March 2,
1996, respectively. Capitalized costs include, primarily, payments to outside
firms for direct services related to the development of the software, salaries
and wages of individuals dedicated to the development of the software, and
capitalized interest. Software amortization expense was $2,259,000 and $476,000
for the periods ending January 31, 1998 and March 1, 1997, respectively. There
was no amortization expense in the period ended March 2, 1996.
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.
<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.
<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 income, as reported in the Consolidated Statement of
Operations, plus the net changes in the foreign currency translation component
of stockholders' equity.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
========== ==========
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.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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:
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<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>
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
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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:
<TABLE>
<CAPTION>
Period Net Sales Net Income
------ --------- ----------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
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 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
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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:
<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
-------- -------- ------------------ ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
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
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 pressure-
sensitive labels for large corporate customers, purchased for approximately
10,740,000 shares of common stock.
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
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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%.
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
companys' 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:
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Prior to EITF 95-3:
<TABLE>
<CAPTION>
Warehouse Disposition
& System Redundant of Assets
Total Integrations Facilities Severance & Other
----- ------------ ---------- --------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, 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.
After adoption of EITF 95-3:
<TABLE>
<CAPTION>
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.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 --
$500,000,000 unsecured multi-currency revolving line of credit
(Senior Credit Facility). Interest rates at LIBOR plus .75%,
(approximately 6.4% at January 31, 1998), or at a base rate
(8.5%) 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 -- --
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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>
The annual maturities of debt for succeeding years are as follows:
<TABLE>
<CAPTION>
Fiscal Year (In thousands)
----------- -------------
<S> <C>
1998 $ 30,795
1999 26,230
2000 331,722
2001 5,641
2002 5,122
Thereafter 385,114
--------
Total $784,624
========
</TABLE>
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.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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:
<TABLE>
<CAPTION>
Fiscal Year (In thousands)
----------- -------------
<S> <C>
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
========
</TABLE>
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.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Future minimum lease payments required under these capital leases are as
follows:
<TABLE>
<CAPTION>
Fiscal Year (In thousands)
----------- --------------
<S> <C>
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
=======
</TABLE>
Contingencies
In the normal course of business, the Company is subject to certain legal
proceedings. In the opinion of management, the outcome of such litigation will
not have a material adverse effect on the Company's financial position or
operating results. 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>
Eleven Months Years Ended
------------------------------------
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.
<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.
The reconciliation of the differences between the Company's expense (benefit)
for income taxes and taxes at the statutory rate is as follows:
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Eleven Months Years Ended
-----------------------------------
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. 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 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")
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
</TABLE>
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
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C>
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. Accordingly, no compensation cost has been recognized for
its fixed stock-based 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 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
Months Ended Year 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
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.
Outstanding warrants to purchase Delivery common stock are vested and
exercisable into shares of Corporate Express common stock, effective with the
merger with Corporate Express on March 1, 1996, at an exchange ratio as defined
in the merger agreement. As of January 31, 1998, warrants to purchase 36,000
shares of Corporate Express common stock were outstanding at a price of $9.44
per share.
Concurrent with the DDI merger on November 26, 1997, outstanding warrants
to purchase DDI common stock were vested and exercisable into 135,411 shares of
Corporate Express stock.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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>
<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
Months Ended Years 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.
(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.
<PAGE>
CORPORATE EXPRESS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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
FISCAL YEAR ENDED FEBRUARY 25, 1995
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
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
GEOGRAPHICAL SEGMENTS
<TABLE>
<CAPTION>
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>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)(A)
<TABLE>
<CAPTION>
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
</TABLE>
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 1, 1997
<S> <C> <C> <C> <C>
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:
<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.
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(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.
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>
Parent Issuer Subsidiary
Guarantor of Notes Guarantors
------------------ ---------------------- ---------------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents 372 33,162
Trade accounts receivable, net 435,346
Notes and other receivables 71,751
Inventories 167,184
Deferred income taxes 30,691
Other current assets 29,361
------------------ ---------------------- ---------------------
Total current assets 372 767,495
Property and equipment:
Land 10,679
Buildings and leasehold improvements 93,341
Property and equipment 272,723
------------------ ---------------------- ---------------------
376,743
Less accumulated depreciation (117,907)
------------------ ---------------------- ---------------------
258,836
Goodwill, net 650,545
Net investment in and advances to
subsidiaries 1,317,540 1,634,064
Other assets, net 4,583 31,384 22,818
------------------ ---------------------- ---------------------
Total assets 1,322,123 1,665,820 1,699,694
================== ====================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 59,121 173,987
Accounts payable - acquisition 1,440
Accrued payroll and benefits 50,084
Accrued purchase costs 3,183
Accrued merger and related costs 14,545
Other accrued liabilities 5,569 4,243 44,545
Current portion of long-term debt
and capital leases 8,810
------------------ ---------------------- ---------------------
Total current liabilities 64,690 4,243 296,594
Capital lease obligations 5,996
Long-term debt 325,000 344,037 22,899
Deferred income taxes 46,445
Minority interest
Other non-current liabilities 6,928
------------------ ---------------------- ---------------------
Total liabilities 389,690 348,280 378,862
Total shareholders' equity 932,433 1,317,540 1,320,832
------------------ ---------------------- ---------------------
Total liabilities and
Shareholders' equity 1,322,123 1,665,820 1,699,694
=================== ====================== =====================
<CAPTION>
Subsidiary
Non
Guarantors Eliminations Consolidated
-------------------- -------------------- --------------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents 10,828 44,362
Trade accounts receivable, net 181,228 616,574
Notes and other receivables 14,936 86,687
Inventories 83,924 251,108
Deferred income taxes 10,038 40,729
Other current assets 12,352 41,713
-------------------- --------------------- --------------------
Total current assets 313,306 1,081,173
Property and equipment:
Land 6,861 17,540
Buildings and leasehold improvements 32,665 126,006
Property and equipment 66,854 339,577
-------------------- --------------------- --------------------
106,380 483,123
Less accumulated depreciation (13,849) (131,756)
-------------------- --------------------- --------------------
92,531 351,367
Goodwill, net 196,999 847,544
Net investment in and advances to
subsidiaries (164,841) (2,786,763)
Other assets, net 10,790 69,575
-------------------- --------------------- --------------------
Total assets 448,785 (2,786,763) 2,349,659
==================== ===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade 121,807 354,915
Accounts payable - acquisition 4,666 6,106
Accrued payroll and benefits 11,224 61,308
Accrued purchase costs 6,195 9,378
Accrued merger and related costs 967 15,512
Other accrued liabilities 25,857 80,214
Current portion of long-term debt an
capital leases 27,454 36,264
-------------------- --------------------- --------------------
Total current liabilities 198,170 563,697
Capital lease obligations 3,418 9,414
Long-term debt 61,893 753,829
Deferred income taxes 6,070 52,515
Minority interest 20,791 20,791
Other non-current liabilities 10,052 16,980
-------------------- --------------------- --------------------
Total liabilities 300,394 1,417,226
Total shareholders' equity 148,391 (2,786,763) 932,433
-------------------- --------------------- --------------------
Total liabilities and
Shareholders' equity 448,785 (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
--------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net sales 2,857,298 716,013
Cost of sales 2,177,549 555,759
Equity in subsidiary earnings 53,291 59,553 (112,844)
-------- -------- --------- ---------- ----------
Gross profit 53,291 59,553 679,749 160,254 (112,844)
Warehouse operating and selling expenses 481,216 124,027
Corporate general and administrative expenses 85,487 19,568
Merger and other nonrecurring charges 8,996 5,894
-------- -------- ---------- ---------- ----------
Operating profit 53,291 59,553 104,050 10,765 (112,844)
Interest expense and other, net 15,164 10,686 2,781 8,642
-------- -------- ---------- -------- ----------
Income before income taxes 38,127 48,867 101,269 2,123 (112,844)
Income tax expense (benefit) (6,277) (4,424) 41,920 3,238
-------- ------- ---------- -------- ----------
Income before minority interest 44,404 53,291 59,349 (1,115) (112,844)
Minority interest (income) expense (1,319)
-------- -------- ---------- -------- ----------
Net income 44,404 53,291 59,349 204 (112,844)
======== ======== ========== ======== ==========
<CAPTION>
Consolidated
------------
<S> <C>
Net sales 3,573,311
Cost of sales 2,733,308
Equity in subsidiary earnings
----------
Gross profit 840,003
Warehouse operating and selling expenses 605,243
Corporate general and administrative expenses 105,055
Merger and other nonrecurring charges 14,890
----------
Operating profit 114,815
Interest expense and other, net 37,273
----------
Income before income taxes 77,542
Income tax expense (benefit) 34,457
----------
Income before minority interest 43,085
Minority interest (income) expense (1,319)
----------
Net income 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) 49,779 (16,283) 26,916
--------- --------- ---------- ---------- ------------
Cash flows from investing activities:
Proceeds from sale of assets 15,111 5,989 21,100
Capital expenditures (69,667) (13,292) (82,959)
Payment for acquisitions, net of cash acquired (19,024) (14,345) (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) (68,819) (17,462) (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 1,394 8,847 10,241
Repayments of long-term borrowings (14,264) (17,311) (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) 13,711 95,231
Other (33) 11 (22)
--------- --------- ---------- ---------- ------------
Net cash provided by financing activities 49 16,067 6,479 36,643 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 (12,573) 2,064 (10,137)
Cash and cash equivalents, beginning of period 45,735 8,764 54,499
--------- --------- ---------- ---------- ------------
Cash and cash equivalents, end of period 372 33,162 10,828 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>
(C) DDI CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997
There has been no change to the previously filed consolidated financial
statements contained in DDI's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. - FINANCIAL STATEMENTS
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------
1997 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,371 $ 11,151
Accounts receivable, net of allowance of $506,000 and $311,000 36,817 31,459
Inventories (Note B) 39,480 37,979
Other current assets 1,474 898
--------- ---------
Total Current Assets 79,142 81,487
PROPERTY, PLANT AND EQUIPMENT 43,632 37,328
GOODWILL, net of accumulated amortization of $3,039,000 and $2,689,000 18,437 9,837
DEFERRED FINANCING COSTS AND OTHER ASSETS 5,441 5,325
--------- ---------
$ 146,652 $ 133,977
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 20,165 $ 18,566
Accrued compensation 3,584 3,453
Accrued interest payable 2,071 4,072
Current maturities of long-term obligations 3,892 934
Current and deferred income taxes 243 1,017
--------- ---------
Total Current Liabilities 29,955 28,042
POST-RETIREMENT BENEFITS 1,905 1,881
LONG-TERM OBLIGATIONS, net of current maturities 65,578 63,965
DEFERRED INCOME TAXES 3,040 2,413
COMMITMENTS AND CONTINGENCIES (Note C)
COMMON STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $0.001 par value; 15,000,000 shares authorized; 9,979,833 and
9,564,831 shares issued; 9,710,226 and 9,295,224 shares outstanding, respectively 10 10
Additional paid-in capital 32,024 32,020
Retained earnings 14,328 5,881
Stockholder notes receivable (188) (235)
Treasury stock, 269,607 shares acquired at no cost -- --
--------- ---------
Total Common Stockholders' Equity 46,174 37,676
--------- ---------
$ 146,652 $ 133,977
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES $ 65,687 $ 59,794 $ 192,081 $ 184,472
COST OF GOODS SOLD 48,677 43,638 142,015 135,880
----------- ----------- ----------- -----------
Gross Profit 17,010 16,156 50,066 48,592
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,927 9,484 28,936 28,286
----------- ----------- ----------- -----------
Operating Income 7,083 6,672 21,130 20,306
DEBT EXPENSE, including amortization of
$203,000, $206,000, $602,000 and $621,000 2,326 2,416 6,933 7,376
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,757 4,256 14,197 12,930
INCOME TAX EXPENSE 1,932 1,726 5,750 5,246
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 2,825 2,530 8,447 7,684
EXTRAORDINARY ITEM, net of tax (Note D) -- -- -- (54)
----------- ----------- ----------- -----------
NET INCOME $ 2,825 $ 2,530 $ 8,447 $ 7,630
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE:
Primary:
Income before extraordinary item $ 0.28 $ 0.25 $ 0.85 $ 0.77
Extraordinary item -- -- -- --
----------- ----------- ----------- -----------
Net Income $ 0.28 $ 0.25 $ 0.85 $ 0.77
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 10,050,942 9,955,759 9,987,460 9,940,141
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,447 $ 7,630
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation 3,080 3,123
Amortization of intangibles 1,236 1,091
Extraordinary item -- 37
Provision for deferred income taxes (482) (309)
Gain on sale of property, plant and equipment (16) (65)
Changes in operating assets and liabilities (net of effects from purchase
of Moore Labels, Inc.):
Accounts receivable (3,954) 2,710
Inventories (787) 994
Other current assets (177) (370)
Accounts payable and accrued liabilities 1,272 1,297
Accrued interest (2,001) (1,884)
Current taxes on income and other (337) 402
Other assets (283) 380
-------- --------
Net cash flows from operating activities 5,998 15,036
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,819) (3,222)
Proceeds from the sale of property, plant and equipment 28 117
Investment in Moore Labels, Inc. - net of cash acquired (13,972) --
-------- --------
Net cash flows from investing activities (17,763) (3,105)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 2,790 --
Payment of debt (724) (1,239)
Change in liability for outstanding checks (132) (3,034)
Payments for stock registration costs -- (142)
Proceeds from exchange of stock options and warrants 4 --
Principal receipts on stockholder notes receivable 47 23
-------- --------
Net cash flows from financing activities 1,985 (4,392)
-------- --------
NET CHANGE IN CASH (9,780) 7,539
CASH AND CASH EQUIVALENTS, Beginning of period 11,151 2,024
-------- --------
CASH AND CASH EQUIVALENTS, End of period $ 1,371 $ 9,563
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,719 $ 8,822
======== ========
Income taxes $ 6,573 $ 4,986
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
A. MANAGEMENT STATEMENTS
The consolidated financial statements of DATA DOCUMENTS INCORPORATED (Data
Documents) include the accounts of its wholly-owned subsidiaries Data
Documents, Inc. (DDI), PBF Washington, Inc. (PBF), Cal Emblem Labels, Inc.
(Cal Emblem) and Moore Labels, Inc. (Moore Labels). The summarized
financial information of DDI (see Note E) include the accounts of its
wholly-owned subsidiaries PBF, Cal Emblem and Moore Labels. All significant
intercompany transactions and accounts have been eliminated during
consolidation.
The consolidated financial statements of the Company contained herein
should be read in conjunction with the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal and recurring adjustments) that are,
in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods. The results of operations and cash flows for the nine months ended
September 30, 1997 are not necessarily indicative of the results for the
year ending December 31, 1997.
Certain reclassifications have been made to the 1996 financial statements
to conform to those classifications used in 1997.
B. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
Finished goods $ 29,832 $ 28,739
Work in process 1,397 1,264
Raw materials 7,243 7,032
Supplies and spare parts 1,008 944
--------- --------
$ 39,480 $ 37,979
========= ========
</TABLE>
Substantially all inventories were valued using the LIFO method. If the
FIFO method of inventory accounting had been used, inventories would have
been lower than reported by $4,676,000 and $3,500,000 at September 30, 1997
and December 31, 1996, respectively. On a FIFO basis, operating income
would have been lower by $890,000 and $710,000, respectively, for the three
months ended September 30, 1997 and September 30, 1996, and $1,176,000 and
$1,852,000 for the nine months ended September 30, 1997 and September 30,
1996. The FIFO cost of inventories approximates replacement cost.
C. COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits and claims which arise out of the normal
course of its business. In the opinion of management, the disposition of
such claims will not have a material adverse effect on the Company's
financial position or results of operations.
<PAGE>
D. EXTRAORDINARY ITEM
In June 1996, the Company incurred an extraordinary charge of $54,000, net
of income tax benefit of $34,000, for the write-off of unamortized deferred
financing costs, unamortized original issue discount, and certain premium
on reacquisition associated with the repurchase of $500,000 of Senior
Notes.
E. SUMMARIZED FINANCIAL INFORMATION
Following is the summarized financial information of DDI and its
subsidiaries (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-----------------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
Current assets $ 79,142 $ 81,487
Noncurrent assets $ 67,510 $ 52,490
Current liabilities $ 29,955 $ 28,042
Noncurrent liabilities $ 70,523 $ 68,259
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 65,687 $ 59,794 $ 192,081 $ 184,472
Gross profit $ 17,010 $ 16,156 $ 50,066 $ 48,592
Net income $ 2,825 $ 2,530 $ 8,447 $ 7,630
</TABLE>
Following is the summarized financial information of PBF and Cal Emblem
(wholly-owned subsidiaries of DDI), which are guarantors of the Senior
Notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------------------
1997 1996
(UNAUDITED)
<S> <C> <C>
Current assets $ 6,977 $ 6,849
Noncurrent assets $ 9,312 $ 8,813
Current liabilities $ 7,523 $ 7,474
Noncurrent liabilities $ 629 $ 883
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 8,069 $ 8,489 $ 24,814 $ 25,169
Gross profit $ 1,577 $ 1,866 $ 4,950 $ 5,114
Net income $ 229 $ 368 $ 832 $ 755
</TABLE>
<PAGE>
F. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
established accounting and reporting standards for such transfers. The
Company has adopted SFAS No. 125 effective January 1, 1997 as required. The
impact on the Company's financial position and results of operations was
not material.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which specifies the computation, presentation and
disclosure requirements for earnings per share. SFAS No. 128 is applicable
for fiscal years ending after December 15, 1997. The objective of the
statement is to simplify the computation of earnings per share and replaces
primary and fully diluted earnings per share, as disclosed under certain
pronouncements, with basic and diluted earnings per share. Pro forma basic
earnings per share for the three months and nine months ended September 30,
1997 and 1996 are $0.29, $0.26, $0.85 and $0.77, respectively. Pro forma
diluted earnings per share for the three months and nine months ended
September 30, 1997 and 1996 are $0.28, $0.25, $0.85 and $0.77,
respectively.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
established presentation of financial data based on the "management
approach". SFAS No. 131 is applicable for fiscal years beginning after
December 15, 1997. The Company is currently in the process of reviewing
this new presentation requirement.
G. ACQUISITION
In July 1997, the Company acquired Moore Labels, Inc. (Moore Labels) of
Wichita, Kansas, a privately held supplier of pressure-sensitive labels
used in the pharmaceutical, food, plastics and miscellaneous manufacturing
industries. The aggregate consideration for the transfer of the capital
stock of Moore Labels was approximately $14.4 million paid in cash. The
consideration paid was supplied by excess cash and the use of approximately
$5.0 million of the Revolving Credit Facility. This acquisition was not
material to the Company.
H. MERGER AGREEMENT
In September 1997, the Company entered a Merger Agreement with Corporate
Express, Inc. (Corporate Express), a multi-national corporation
headquartered in Broomfield, Colorado. Corporate Express is a publicly
traded company traded on the Nasdaq National Market (Nasdaq) and is a
provider of non-production goods and services to large corporations. The
exchange ratio for the merger has been fixed so that each outstanding share
of Data Documents' common stock will be converted into 1.1 shares of
Corporate Express common stock. The merger has been approved by the
respective Boards of Directors of the companies and is subject to Data
Documents stockholders' approval. Data Documents would become a wholly
owned subsidiary of Corporate Express upon completion of the merger.
I. SUBSEQUENT EVENT
A special meeting of stockholders of Data Documents will be held on
November 25, 1997 at 10:00 a.m., at which time the stockholders will be
asked to approve and accept the Merger Agreement discussed in Note H.
<PAGE>
(D) DDI CONSOLIDATED FINANCIAL STATEMENTS FOR THE ANNUAL PERIOD ENDED DECEMBER
31, 1996.
There has been no change to the previously filed consolidated financial
statements contained in DDI's Annual Report on Form 10-K for the twelve months
ended December 31, 1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Data Documents Incorporated
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Data Documents
Incorporated and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Data Documents Incorporated and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 6, 1997
Omaha, Nebraska
F-1
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note G) $ 11,151 $ 2,024
Accounts receivable, net of allowances of
$311,000 and $458,000 (Note H) 31,459 31,569
Inventories (Note D) 37,979 36,048
Other current assets 898 1,788
------------ ------------
Total Current Assets 81,487 71,429
PROPERTY, PLANT AND EQUIPMENT, net (Notes E and H) 37,328 37,502
GOODWILL, net of accumulated amortization of $2,689,000 and $2,273,000 9,837 10,248
DEFERRED FINANCING COSTS AND OTHER ASSETS 5,325 6,546
------------ ------------
$ 133,977 $ 125,725
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note G) $ 18,566 $ 19,326
Accrued compensation 3,453 3,579
Accrued interest payable 4,072 3,877
Current maturities of long-term obligations (Note H) 934 1,169
Current and deferred income taxes (Note F) 1,017 462
------------ ------------
Total Current Liabilities 28,042 28,413
POST-RETIREMENT BENEFITS (Note M) 1,881 1,805
LONG-TERM OBLIGATIONS (Note H) 63,965 65,212
DEFERRED INCOME TAXES (Note F) 2,413 2,871
CONTINGENCIES (Notes H, K and L)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued -- --
Common stock, $0.001 par value; 15,000,000 shares authorized;
9,564,831 and 8,873,016 shares issued; 9,295,224 and 8,603,409 shares outstanding 10 9
Additional paid-in capital 32,020 32,162
Retained earnings (deficit) 5,881 (4,489)
Stockholder notes receivable (235) (258)
Treasury stock, acquired at no cost, 269,607 shares -- --
------------ ------------
Total Stockholders' Equity 37,676 27,424
------------ ------------
$ 133,977 $ 125,725
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(COLUMNAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 246,496 $ 242,238 $ 193,626
COST OF GOODS SOLD 181,058 186,011 148,797
------------ ------------ ------------
Gross Profit 65,438 56,227 44,829
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 38,177 35,334 32,729
STOCK COMPENSATION CHARGE (Note N) -- 156 --
------------ ------------ ------------
Operating Income 27,261 20,737 12,100
DEBT EXPENSE, Including amortization of
$828,000, $1,312,000 and $1,072,000 9,751 13,335 8,735
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 17,510 7,402 3,365
INCOME TAX EXPENSE (Note F) 7,086 3,127 1,533
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 10,424 4,275 1,832
EXTRAORDINARY ITEM, net of tax (Note P) (54) (2,921) (2,795)
------------ ------------ ------------
NET INCOME (LOSS) 10,370 1,354 (963)
LESS PREFERRED DIVIDENDS -- -- 620
------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ 10,370 $ 1,354 $ (1,583)
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Primary:
Income before extraordinary item $ 1.05 $ 0.61 $ 0.13
Extraordinary item $ (0.01) $ (0.40) $ (0.30)
------------ ------------ ------------
Net Income (Loss) $ 1.04 $ 0.21 $ (0.17)
============ ============ ============
Fully diluted:
Income before extraordinary item $ 1.05 $ 0.61 $ 0.11
Extraordinary item (0.01) (0.40) (0.17)
------------ ------------ ------------
Net Income (Loss) $ 1.04 $ 0.21 $ (0.06)
============ ============ ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 9,939,454 7,333,864 9,453,494
============ ============ ============
Fully Diluted 9,943,754 7,333,864 16,911,580
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED STOCKHOLDER
COMMON PAID-IN EARNINGS NOTES
STOCK CAPITAL (DEFICIT) RECEIVABLE TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 $ 5 $ 1,276 $ (4,260) $ -- $ (2,979)
Acquisition of 710,190 shares of treasury stock
in exchange at no cost -- -- -- -- --
Preferred dividends -- -- (620) -- (620)
407,947 shares issued from treasury stock in
exchange for notes receivable -- 226 -- (226) --
Redemption of warrants (Note J) -- (581) -- -- (581)
Net loss -- -- (963) -- (963)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994 5 921 (5,843) (226) (5,143)
48,954 shares issued for cash (Note N) -- 142 -- -- 142
32,636 shares issued from treasury stock in
exchange for note receivable (Note N) -- 95 -- (55) 40
Warrant reclassification (Note J) -- 3,087 -- -- 3,087
Payment on stockholders' notes -- -- -- 23 23
Issuance of 3,400,000 common shares (Note C) 4 27,917 -- -- 27,921
Net income -- -- 1,354 -- 1,354
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 9 32,162 (4,489) (258) 27,424
691,815 shares issued on 61,233 warrants
exercised (Note J) 1 -- -- -- 1
Warrant registration costs -- (142) -- -- (142)
Payment on stockholders' notes -- -- -- 23 23
Net income -- -- 10,370 -- 10,370
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1996 $ 10 $ 32,020 $ 5,881 $ (235) $ 37,676
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 10,370 $ 1,354 $ (963)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation 4,062 7,552 6,992
Amortization of intangibles 1,490 1,804 1,504
Stock compensation charge -- 156 --
Extraordinary item 37 1,975 2,941
Provision for deferred income taxes (296) (1,375) (1,743)
(Gain) loss on sale of property, plant and equipment (65) (4) 46
Changes in operating assets and liabilities:
Accounts receivable 110 (2,181) (3,695)
Inventories (1,931) (3,468) (1,545)
Other current assets 168 144 (265)
Accounts payable and accrued liabilities 2,579 (3,513) 3,291
Accrued interest 195 2,744 141
Current taxes on income and other 1,176 131 (445)
Other assets 259 (438) 96
----------- ----------- -----------
Net cash flows from operating activities 18,154 4,881 6,355
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,940) (3,955) (6,972)
Proceeds from the sale of property, plant and equipment 117 58 193
Investment in Cal Emblem -- (2,403) --
----------- ----------- -----------
Net cash flows from investing activities (3,823) (6,300) (6,779)
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(COLUMNAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt -- -- $ 85,000
Payment of debt $ (1,697) $ (30,227) (56,673)
Principal payments of lease finance obligation -- -- (12,608)
Change in liability for outstanding checks (3,389) 1,347 512
Dividends paid -- -- (620)
Preferred stock redemptions -- -- (6,829)
Debt issuance and related costs -- -- (4,651)
Payment for stock registration costs - net (141) -- --
Proceeds from sale of common stock -- 27,947 --
Principal receipts on stockholder notes receivable 23 23 --
----------- ----------- -----------
Net cash flows from financing activities (5,204) (910) 4,131
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 9,127 (2,329) 3,707
CASH AND CASH EQUIVALENTS, Beginning of period 2,024 4,353 646
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of period $ 11,151 $ 2,024 $ 4,353
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,031 $ 9,639 $ 7,522
=========== =========== ===========
Income taxes $ 6,084 $ 2,759 $ 1,941
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Termination agreement (Note H) $ 1,349
===========
Exchange of common stock purchase warrants with
exchangeable warrants (Note J) $ 581
===========
Issuance of 32,636 and 407,947 shares of common stock for
stockholder notes receivable $ 55 $ 226
=========== ===========
Acquisition of treasury stock at no cost in 1994 --
===========
Issuance of promissory notes to the former stockholders of
Cal Emblem Labels, Inc. (Note B) $ 2,245
==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DATA DOCUMENTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Data Documents Incorporated (the "Company") was
formed for the purpose of acquiring Data Documents, Inc. The Company
designs, manufactures, and markets business forms, pressure-sensitive
label products and supplies, specialized direct mail products and
software-based services. A substantial portion of the Company's forms
sales are made in connection with its proprietary forms management system.
The principal markets for the business forms are primarily located in the
geographic markets of mid-America, the southwest and the northwest. The
principal markets for the labels and direct mail business are nationwide.
CONSOLIDATION - The consolidated financial statements of the Company
include the accounts of its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated during
consolidation. All operating activities, assets and liabilities are those
of the Company's subsidiaries.
CASH AND CASH EQUIVALENTS - All highly liquid investments, purchased with
a maturity of three months or less are considered cash equivalents.
INVENTORIES - Inventories are valued at the lower of cost, determined by
the last-in, first-out (LIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost and are depreciated using the straight-line method over the
estimated useful life of the asset, which are as follows: buildings, 30
years; leased facilities and leasehold improvements, life of the lease;
machinery and equipment, 3 to 12 years; and furniture and fixtures, 4 to
10 years.
GOODWILL - Goodwill represents the excess of costs over the value of net
tangible assets acquired in the acquisition of Data Documents, Inc., PBF
Washington, Inc., and Cal Emblem Labels, Inc. This cost is being amortized
on a straight-line basis over 30 years. Recoverability of this asset is
evaluated periodically based on management's estimate of future
undiscounted operating income of the businesses acquired.
DEFERRED FINANCING COSTS - Deferred financing costs represents the cost of
securing debt financing. The cost is being amortized over the estimated
periods of outstanding principal amounts of the related obligations.
OTHER ASSETS - Subscriber installation costs for the Company's
software-based Odyssey Integrated Services program are capitalized and
amortized over the initial period of the subscriber agreement, generally 3
years.
REVENUE RECOGNITION - Sales and related cost of goods sold are recognized
upon shipment of products.
F-7
<PAGE>
INCOME TAXES - The Company and its wholly-owned subsidiaries file a
consolidated income tax return. The Company uses an asset and liability
approach for the financial reporting of income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 - Accounting
for Income Taxes. Deferred income taxes arise from temporary differences
between financial and tax reporting.
OTHER POSTRETIREMENT BENEFITS - The Company accounts for postretirement
benefits in accordance with SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions. The Company has elected to
recognize the transition obligation relating to prior service cost in its
statement of operations over a 20-year period beginning in 1993.
STOCK SPLIT - The Company's Board of Directors declared a 6.52715097-to-1
stock split in August 1995 and the financial statements presented herein
reflect the split for all periods presented.
EARNINGS PER SHARE - The earnings per share calculation is based upon net
income less preferred dividends and the weighted average number of shares
of common stock outstanding and warrants and options when dilutive. The
calculation on a fully-diluted basis assumes conversion of the convertible
preferred stock at the beginning of the period.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1996, the Financial Accounting
Standards Board issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities which
established accounting and reporting standards for such transfers. The
Company will adopt SFAS No. 125 effective January 1, 1997 as required. The
impact on the Company's financial position and results of operations is
not expected to be material.
USE OF ESTIMATES - 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 prior
year financial statements to conform to the 1996 presentation.
B. ACQUISITION
On August 25, 1995, the Company acquired all of the outstanding stock of
Cal Emblem Labels, Inc. ("Cal Emblem") for $4.5 million, plus replacement
of Cal Emblem's bank debt, which was funded through borrowings of
approximately $5.9 million under the Company's existing revolving credit
facility and the issuance of five-year term promissory notes in the
aggregate principal amount of $2.2 million to the former owners. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets and liabilities and results of operations of Cal
Emblem are included in the Company's consolidated financial statements
subsequent to the acquisition date. The purchase price has been allocated
to the underlying assets and liabilities of Cal Emblem based on their
respective fair values at the date of acquisition. The excess cost over
the fair market value of net assets acquired of $4,122,000 is being
amortized over a 30-year period on a straight-line basis.
F-8
<PAGE>
The following unaudited pro forma financial information shows the results
of operations of the Company as though the acquisition occurred as of
January 1, 1994.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1994
(UNAUDITED)
<S> <C> <C>
Net sales $ 256,030 $ 216,244
Income from continuing operations 4,174 2,026
Net income (loss) available for common stock 1,253 (1,389)
Earnings per common share before
extraordinary item:
Primary $ 0.60 $ 0.15
Fully diluted 0.60 0.12
</TABLE>
C. INITIAL PUBLIC OFFERING
In October 1995, the Company completed an initial public offering (the
"Offering") of 3,400,000 shares of common stock of the Company at an
offering price of $9.00 per share. The net proceeds of the offering were
used to redeem approximately $24,000,000 in aggregate principal amount of
Data Documents, Inc.'s 13 1/2% Senior Notes.
D. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Finished goods $ 28,739 $ 26,888
Work in process 1,264 1,287
Raw materials 7,032 6,860
Supplies and spare parts 944 1,013
----------- -----------
$ 37,979 $ 36,048
=========== ===========
</TABLE>
Substantially all inventories were valued using the LIFO method. If the
FIFO method of inventory accounting had been used, inventories at December
31, 1996 and 1995 would have been lower than reported by $3,500,000, and
$712,000, respectively. On a FIFO basis, operating income would have been
higher (lower) by $(2,788,000), $2,057,000, and $390,000, respectively,
for fiscal years 1996, 1995, 1994. The FIFO cost of inventories
approximates replacement cost.
F-9
<PAGE>
E. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
<S> <C> <C>
Land $ 5,336 $ 5,336
Buildings 18,835 18,517
Leasehold improvements 1,205 1,146
Machinery and equipment 57,790 57,531
Furniture and fixtures 1,608 1,572
----------- -----------
84,774 84,102
Less accumulated depreciation and amortization 47,446 46,600
----------- -----------
$ 37,328 $ 37,502
=========== ===========
</TABLE>
F. INCOME TAXES
The provision for income taxes on income from continuing operations
consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Current provision:
Federal $ 6,330 $ 3,792 $ 2,265
State 1,052 710 399
Deferred (296) (1,375) (1,131)
----------- ----------- -----------
$ 7,086 $ 3,127 $ 1,533
=========== =========== ===========
</TABLE>
The following represents a reconciliation between the actual income tax
expense and income taxes computed by applying the statutory Federal income
tax rate to income before income taxes from continuing operations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Statutory rate 35.0% 34.0% 34.0%
State income tax effect 3.8 4.0 5.0
Amortization of excess of purchase
price over net assets acquired 0.9 1.6 3.2
Other 0.8 1.5 3.3
Expense of change in estimate of
deferred income tax liabilities - 1.1 -
---- ---- ----
40.5% 42.2% 45.5%
==== ==== ====
</TABLE>
F-10
<PAGE>
Deferred income tax assets (liabilities) are comprised of the following
at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
<S> <C> <C>
Deferred income tax assets:
Acquired net operating loss of Cal Emblem $ 506 $ 653
Non-deductible accrued liabilities 747 498
Non-deductible bad debt reserve 121 179
Other -- 167
--------- ---------
1,374 1,497
--------- ---------
Valuation allowance (506) (653)
--------- ---------
Deferred income tax liabilities:
Basis of property and equipment (2,534) (2,647)
Basis of inventory (1,108) (1,143)
Accrual for pension costs (129) (387)
Other (73) --
--------- ---------
(3,844) (4,177)
--------- ---------
Net deferred income tax liability ($ 2,976) ($ 3,333)
========= =========
</TABLE>
In connection with the Company's acquisition of Cal Emblem, the Company
acquired a net operating loss carryforward. At December 31, 1996, the loss
carryforward was $1,307,000 and expires through the year 2009. A valuation
allowance has been established for the deferred tax asset related to the
loss carryforward. If realized, the loss carryforward will result in a
decrease in goodwill.
G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A cash management system is utilized under which deposits are made to
cover only those checks presented to the bank for payment. Checks not yet
presented to the bank for payment in the amounts of $3,946,000, and
$7,336,000 at December 31, 1996 and 1995, respectively, are included in
accounts payable and accrued liabilities.
F-11
<PAGE>
H. LONG-TERM OBLIGATIONS
Long-term obligations consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------- ----------
1996 1995
<S> <C> <C>
Senior Secured Notes, 13 1/2%, due 2002, less unamortized
discount of $1,128,000 and $1,343,000 $ 59,372 $ 59,657
Mortgage note, 10.5%, (due in monthly installments with balloon
payment in 2002) 2,414 2,469
Promissory notes, 10%, to former Cal Emblem stockholders
due in annual installments through August 2000 1,684 2,245
Obligation under termination agreement payable in monthly
installments through December 1, 2002, less unamortized
discount of $661,000 and $848,000 1,205 1,288
Note payable, 10.125%, Pierce County, Washington
(due in varying amounts through 1997) 170 570
Other 54 152
---------- ----------
64,899 66,381
Less current maturities of debt 934 1,169
---------- ----------
$ 63,965 $ 65,212
========== ==========
</TABLE>
In November 1994, the Company issued 85,000 units, each consisting of
$1,000 aggregate principal amount of 13 1/2% senior secured notes of Data
Documents, Inc. due 2002 (the "Senior Notes") and common stock purchase
warrants to purchase common stock of Data Documents Incorporated. Interest
is due semi-annually on January 15 and July 15. The Senior Notes are
guaranteed by the Company and its subsidiaries. On or after July 15, 1999,
the Senior Notes are redeemable, at the option of the Company, in whole or
in part at the redemption prices of 104.2% in 1999 decreasing to 100% in
2001. Upon the change of control, the Company is required to offer to
repurchase all outstanding Senior Notes at 101% of the principal amount
plus accrued interest to the date of redemption. The restrictions on
redemption do not limit the ability of the Company to purchase Senior
Notes on the open market.
In November 1995, the net proceeds of the Offering were used to redeem $24
million of the Company's Senior Notes at a redemption price of 111.4%.
In June 1996, the Company repurchased from the open market $500,000 of the
Senior Notes at a price of 110%.
The Senior Notes are collateralized by a first priority security interest
in substantially all assets other than accounts receivable. The Senior
Notes contain certain restrictive covenants which limit, subject to
certain exceptions; the incurrence of additional debt, the payment of
dividends on and redemption of stock of the Company, asset sales,
consolidations, mergers or transfers of all or substantially all of the
Company's assets, certain transactions with affiliates including
intercompany dividends, and liens, among other things.
F-12
<PAGE>
A surety agreement for the benefit of the holders of the Pierce County,
Washington debt obligation was allowed to expire in 1995 and payment of
$2,030,000 principal was made. The remaining principal of $170,000 will be
paid under scheduled maturities without the benefit of a surety agreement.
In November 1994, the Company terminated an agreement for management,
advisory and consulting services. The termination agreement is payable in
monthly installments of $21,667 (increasing each January 1 by 4%) to
December 1, 2002. The obligation has been recorded at its present value
using a 15% discount rate over the seven year term.
The Company has a revolving credit facility with a maximum credit line of
the lesser of $20,000,000 or 80% of eligible accounts receivables, which
are pledged as collateral. No amounts under this credit facility were
outstanding at December 31, 1996 or 1995. On February 5, 1997, the Company
replaced the previous revolving credit facility with a new revolving
facility which expires in July, 1999. Debt covenants under this revolving
credit facility require maintenance of minimum amounts of net worth.
Interest under the revolving facility is paid monthly at .75% above prime
and .25% per annum on the unused line available.
At December 31, 1996, a contingent liability to a financial institution
exists for outstanding letters of credit in the amount of $358,000.
FAIR VALUE - The fair value of the Company's long-term debt is based on
quoted market prices or on the current rates offered to the Company for
debt of similar maturities. At December 31, 1996, the carrying amount of
the Company's debt was $64,899,000 and the estimated fair value was
$73,590,000. At December 31, 1995, the carrying value was $66,381,000 and
estimated fair value was $71,871,000.
Aggregate maturities of long-term obligations in each of the next five
years are as follows:
<TABLE>
<S> <C>
1997 $ 934
1998 786
1999 808
2000 296
2001 352
</TABLE>
I. PREFERRED STOCK
On September 7, 1995, the Company amended its articles of incorporation to
authorize issuance of 5,000,000 shares of preferred stock having a par
value of $0.01 per share. None of the shares of the authorized preferred
stock have been issued. The Board of Directors, without further action by
the holders of common stock, may issue shares of preferred stock and may
fix or alter the voting rights, redemption provisions, dividend rights,
dividend rates, liquidation preferences, conversion rights and the
designation of and number of shares constituting any wholly-unissued
series of preferred stock.
F-13
<PAGE>
Prior to November 23, 1994, the two classes of preferred stock of the
Company were entitled to quarterly dividends at the rate of $10 per annum.
Dividends were cumulative, if not declared. In November 1994, all of the
outstanding preferred stock was repurchased at face value.
J. WARRANTS
In connection with the 1994 issuance of the Senior Notes, the Company
issued warrants to purchase its common stock (the "Warrants"). Each
Warrant, when exercised, entitles the holder thereof to receive the number
of shares of common stock as set forth on the Warrant at $.002 per share.
Prior to the completion of the Offering, the Warrants were exercisable at
any time on or after November 28, 1995 and unless exercised, automatically
expire on July 15, 2002. The Warrants entitle the holders to purchase in
the aggregate 960,344 shares of common stock, or approximately 10% of the
outstanding common stock on a fully-diluted basis. During 1996, 61,233
Warrants were exercised for 691,815 shares of common stock.
Also in 1994, upon the issuance of the Senior Notes, the Company canceled
all previously existing common stock purchase warrants outstanding at that
date and replaced them with additional Warrants to purchase in the
aggregate 320,111 shares of common stock or approximately 3% of the
outstanding common stock on a fully-diluted basis and which are
exchangeable under the same terms as described above. All these warrants
remain outstanding at December 31, 1996.
Under specified conditions the warrants were redeemable for cash or Senior
Notes. In 1995, the warrants became solely exchangeable for shares of
common stock, and the warrants were reclassified to additional paid in
capital.
K. CONTINGENCIES
The Company is subject to lawsuits and claims which arise out of the
normal course of its business. In the opinion of management, the
disposition of such claims will not have a material adverse effect on the
Company's financial position or results of operations.
L. LEASES
Sales offices, certain manufacturing facilities, certain transportation
and other equipment are leased under long-term noncancellable leases.
Substantially all of the leases are net leases which require payment of
property taxes, insurance and maintenance costs in addition to rental
payments.
At December 31, 1996, the future minimum lease payments under
noncancellable operating leases with rental terms of more than one year
amount to:
<TABLE>
<S> <C>
1997 $ 2,223
1998 1,790
1999 877
2000 380
2001 218
Later Years 812
-------
Total minimum obligation $ 6,300
=======
</TABLE>
F-14
<PAGE>
Rent expenses relating to all operating leases were $2,692,000,
$2,537,000, and $2,328,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
M. EMPLOYEE BENEFIT PLANS
Pension Plans -- The Company and its subsidiaries have defined benefit
retirement plans for eligible salaried and hourly employees. Benefits are
based on years of credited service and average compensation for each year
of service. For 1996, 1995 and 1994, the Company's funding policy is to
contribute the minimum amount deductible for federal income tax purposes.
Plan assets are invested in common trust funds administered by a corporate
trustee.
Net periodic pension cost of the defined benefit plans includes the
following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
<S> <C> <C> <C>
Service cost $ 690 $ 571 $ 632
Interest cost on projected benefit obligation 1,015 881 800
Return on plan assets (1,906) (1,911) 180
Net amortization and deferral 866 892 (1,206)
------- ------- -------
Net periodic pension cost $ 665 $ 433 $ 406
======= ======= =======
</TABLE>
The following table sets forth the plan's funded status and the amount
recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 12,592 $ 11,494
Nonvested benefit obligation 363 360
----------- -----------
Accumulated benefit obligation $ 12,955 $ 11,854
=========== ===========
Projected benefit obligation for services rendered to date $ 15,069 $ 13,690
Plan assets at fair value 14,170 11,734
----------- -----------
Plan assets less than projected benefit obligation (899) (1,956)
Unrecognized net loss 1,276 2,191
Unrecognized prior service cost (48) (74)
----------- -----------
Prepaid pension cost $ 329 $ 161
=========== ===========
</TABLE>
The projected benefit obligation is determined using a weighted average
discount rate of 7.5% for 1996 and 1995, and a 3.5% rate of increase in
future compensation levels for 1996 and 1995.
The Company and its subsidiaries are also participants in multi-employer
pension plans covering union employees. Costs associated with these plans
aggregate approximately $68,000, $66,000 and $62,000 for 1996, 1995 and
1994, respectively.
F-15
<PAGE>
SAVINGS PLAN - The Company has a Salary Deferral Savings Plan which
permits employees to make salary reduction contributions from 1% to 18%.
The Plan is a defined contribution pension plan which became effective
July 1, 1988. The administrative expenses related to the Plan are paid by
the Company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Company accounts for
postretirement benefits in accordance with SFAS No. 106. The Company
accrues the estimated cost of retiree benefit payments during the years
the employee provides services. The Company has elected to recognize the
initial obligation of approximately $1,637,000 over a period of twenty
years.
Certain medical and dental benefits are provided to qualifying employees.
The following table sets forth the medical and dental plans' funded
status:
Accumulated postretirement benefits obligation:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
<S> <C> <C>
Retirees $ 605 $ 741
Fully eligible plan participants 1,011 983
----------- -----------
Accumulated postretirement benefit obligations in excess
of plan assets (1,616) (1,724)
Unrecognized transition obligation (included in other assets) 1,310 1,391
Unrecognized net gain (265) (81)
----------- -----------
Accrued postretirement benefit cost $ (571) $ (414)
=========== ===========
</TABLE>
Net postretirement benefit cost consisted of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
<S> <C> <C> <C>
Service cost of benefits earned $ 127 $ 87 $ 115
Interest cost on accumulated postretirement benefit
obligation 129 131 116
Amortization of transition obligation 81 82 81
--------- --------- ---------
Net postretirement benefit cost $ 337 $ 300 $ 312
========= ========= =========
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of January 1, 1993 was 12% for 1993,
decreasing gradually to a 6% annual growth rate after 12 years and
remaining at a 6% annual rate thereafter. A one-percentage point increase
in the assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation by approximately $218,000 as of December
31, 1996 and would increase net postretirement health care cost by $10,000
for the year ended December 31, 1996. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% for
the years ended December 31, 1996 and 1995.
F-16
<PAGE>
N. STOCK COMPENSATION PLANS
The Company accounts for its stock-based compensation under the provisions
of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, which utilizes the intrinsic value method. Compensation cost
related to stock-based compensation was $0 and $156,000 for the years
ended December 31, 1996 and 1995, respectively.
The Board of Directors of the Company adopted the 1995 Employee Stock
Incentive Plan (the "Plan") pursuant to which the Board may award options
to purchase, in aggregate, 500,000 shares of common stock. Options vest
and become exercisable over a one to three year period after date of grant
and generally expire no later than ten years from the date of grant. The
exercise price per share is no less than the fair market value on the date
each option is granted.
In connection with the Company's acquisition of Cal Emblem in August,
1995, the Company granted options for 195,815 shares to a former
stockholder of Cal Emblem at the initial public offering price of $9.00.
During the second quarter of 1995, the Company recorded a noncash expense
of $156,000 relating to the sale of common shares to a director and an
employee. The amount represents the excess of the estimated fair value of
the common shares over consideration received. Such shares have been
considered outstanding for all periods presented in the computation of
earnings per share.
If compensation cost for the Company's stock-based compensation plan had
been determined based on the fair value at the grant dates for awards
under the plan consistent with the method of SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net income (loss) and earnings
(loss) per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Net Income (loss) As reported $ 10,370 $ 1,354 $ (963)
Pro forma $ 10,190 $ 833 $ (963)
Primary earnings (loss) per share As reported $ 1.04 $ 0.21 $ (0.17)
Pro forma $ 1.02 $ 0.14 $ (0.17)
Fully Diluted earnings (loss) per share As reported $ 1.04 $ 0.21 $ (0.06)
Pro forma $ 1.02 $ 0.14 $ (0.06)
</TABLE>
The fair market value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: dividend yield of
0.0 percent, expected volatility of 39.9 percent, risk-free interest rates of
6.3 percent and expected lives of 5 years for all the years presented.
F-17
<PAGE>
A summary of the status of the Company's stock option plans as of December
31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ---------------------------------
Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price
------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 324,615 $ 9.03 0 N/A
Granted 187,650 $ 10.44 324,615 $ 9.03
Exercised 0 N/A 0 N/A
Forfeited (5,000) $ 10.43 0 N/A
------- -------
Outstanding at end-of-year 507,265 $ 9.54 324,615 $ 9.03
======= =======
Options exerciseable at year-end 258,082 195,815
======= =======
Weighted-average fair value of options
granted during the year $ 4.68 $ 4.05
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exerciseable
-------------------------------------------------------------- ---------------------------------------
Range of Number Weighted-Average Number
Exercise Outstanding at Remaining Weighted-Average Exerciseable at Weighted-Average
Prices 12/31/96 Contractual Life Exercise Price 12/31/96 Exercise Price
------------------- -------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$ 9.00 - $ 9.99 332,615 6.8 years $ 9.06 258,082 $ 9.01
$ 10.00 - $ 10.99 100,000 9.8 years $ 10.00 0 N/A
$ 11.00 - $ 11.99 74,650 9.7 years $ 11.07 0 N/A
------- -------
$ 9.00 - $ 11.99 507,265 7.8 years $ 9.54 258,082 $ 9.01
======= =======
</TABLE>
F-18
<PAGE>
O. RELATED PARTY TRANSACTIONS
In February 1988, the Company entered into an agreement for management,
advisory and consulting services through 1998 with Raebarn Corporation
whose principals are common stockholders and/or directors of the Company.
The agreement provided in the event that the Company, at any time during
the term of the agreement, engaged in certain transactions, Raebarn
Corporation had the right to act as the Company's financial advisors.
Payments to Raebarn totaled $250,000 in 1994. In November 1994, the
Company terminated its agreement with Raebarn in exchange for monthly
payments to Raebarn through December 2002 the present value of which has
been accrued (See Note H).
P. EXTRAORDINARY ITEMS
In June 1996, the Company incurred an extraordinary charge of $54,000, net
of income tax benefit of $34,000, for the write-off of unamortized
deferred financing costs, unamortized original issue discount, and certain
premium on reacquisition associated with the purchase and retirement of
$500,000 of Senior Notes.
In November 1995, the Company incurred an extraordinary charge of
$2,921,000 net of income tax benefit of $1,790,000, for the write-off of
unamortized deferred financing costs, unamortized original issue discount
and prepayment fees associated with the prepayment of $24,000,000 of
Senior Notes.
In November 1994, the Company incurred an extraordinary charge of
$2,795,000, net of income tax benefit of $1,787,000, for the write-off of
unamortized deferred financing costs, unamortized original issue discount
and certain termination fees and costs associated with the early
termination of debt.
Q. SUMMARIZED FINANCIAL INFORMATION
Following is the summarized financial information of Data Documents, Inc.
and subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
<S> <C> <C>
Current assets $81,487 $71,429
Noncurrent assets $52,490 $54,296
Current liabilities $28,042 $28,413
Noncurrent liabilities $68,259 $69,888
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net sales $246,496 $242,238 $193,626
Gross profit $ 65,438 $ 56,227 $ 44,829
Net income (loss) $ 10,370 $ 1,354 $ (963)
</TABLE>
Following is the summarized combined financial information of PBF
Washington, Inc. and Cal Emblem Labels, Inc. (wholly-owned subsidiaries of
Data Documents, Inc.), guarantors of the Senior Notes. The information
presented for Cal Emblem Labels, Inc. is as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and from August 25, 1995 (date of
acquisition) through December 31, 1995:
F-19
<PAGE>
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
<S> <C> <C>
Current assets $ 6,849 $ 7,948
Noncurrent assets $ 8,813 $ 10,581
Current liabilities $ 7,474 $ 11,301
Noncurrent liabilities $ 883 $ 1,140
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 33,438 $ 23,455 $ 14,486
Gross profit $ 6,854 $ 4,204 $ 2,394
Net income $ 1,075 $ 608 $ 217
</TABLE>
F-20
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
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 hereunto duly authorized.
CORPORATE EXPRESS, INC.
(Registrant)
Date: July 23, 1998 /s/ Sam R. Leno
-----------------------------------
By: Sam R. Leno
Title: Chief Financial Officer and
Executive Vice President
