<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934
Date of Report (Date of earliest event report): October 19, 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 August 1, 1998 (see (A) 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 August 1, 1998 other than the addition of Note 9 -
Supplemental Guarantor Information.
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 (B) below) and (ii) unaudited financial statements of DDI
for the quarter ended September 30, 1997 (see (C) below). DDI was acquired by
the Registrant on November 26, 1997.
-2-
<PAGE>
(A) CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIOD ENDED AUGUST 1,
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 August 1, 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 August 1, 1998 other than the addition of Note 9-
Supplemental Guarantor Information.
-3-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
August 1, January 31,
1998 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,327 $ 44,362
Trade accounts receivable, net of allowance
of $14,687 and $14,523, respectively 653,190 616,574
Notes and other receivables 91,286 86,687
Inventories 269,535 251,108
Deferred income taxes 34,922 40,729
Other current assets 46,607 41,713
----------- -----------
Total current assets 1,125,867 1,081,173
Property and equipment:
Land 17,424 17,540
Buildings and leasehold improvements 133,872 126,006
Furniture and equipment 370,756 339,577
----------- -----------
522,052 483,123
Less accumulated depreciation (150,266) (131,756)
----------- -----------
371,786 351,367
Goodwill, net of $70,130 and $57,558 of accumulated
amortization, respectively 856,680 847,544
Other assets, net 100,609 69,575
----------- -----------
Total assets $ 2,454,942 $ 2,349,659
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED BALANCE SHEETS, Continued
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 1, January 31,
1998 1998
------------- --------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 360,745 $ 354,915
Accounts payable - acquisitions 985 6,106
Accrued payroll and benefits 58,504 61,308
Accrued purchase costs 8,968 9,378
Accrued merger and related costs 10,323 15,512
Other accrued liabilities 88,170 80,214
Current portion of long-term debt and capital leases 64,433 36,264
------------- --------------
Total current liabilities 592,128 563,697
Capital lease obligations 7,556 9,414
Long-term debt 1,183,289 753,829
Deferred income taxes 61,175 52,515
Minority interest in subsidiaries 19,147 20,791
Other non-current liabilities 16,591 16,980
------------- --------------
Total liabilities 1,879,886 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, 143,172,963 and 142,392,845 shares
issued and outstanding, respectively 29 28
Common stock, non-voting, $.0002 par value, 3,000,000
shares authorized, none issued or outstanding - -
Additional paid-in capital 858,498 852,507
Retained earnings 114,392 91,887
Accumulated other comprehensive expense (13,883) (11,989)
------------- --------------
959,036 932,433
Less:
Treasury stock, at cost, 35,430,000 shares at August 1, 1998 (383,980) -
------------- --------------
Total shareholders' equity 575,056 932,433
Total liabilities and shareholders' equity $ 2,454,942 $ 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)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,118,162 $ 925,084 $ 2,226,222 $ 1,846,538
Cost of sales 858,683 708,560 1,708,973 1,412,210
----------- --------- ----------- -----------
Gross profit 259,479 216,524 517,249 434,328
Warehouse operating and selling expenses 180,262 160,426 363,087 321,183
Corporate general and administrative expenses 33,771 26,618 66,873 55,712
----------- --------- ----------- -----------
Operating profit 45,446 29,480 87,289 57,433
Interest expense and other, net 21,787 9,530 34,578 18,483
----------- --------- ----------- -----------
Income before income taxes 23,659 19,950 52,711 38,950
Income tax expense 10,623 8,298 23,667 15,798
----------- --------- ----------- -----------
Income before minority interest 13,036 11,652 29,044 23,152
Minority interest expense (income) 761 (612) 957 (1,522)
----------- --------- ----------- -----------
Income before extraordinary item 12,275 12,264 28,087 24,674
Extraordinary item, net of tax:
Loss on early extinguishment of debt 4,477 - 5,581 -
----------- --------- ----------- -----------
Net income $ 7,798 $ 12,264 $ 22,506 $ 24,674
=========== ========= =========== ===========
Net income per share - Basic:
Net income before extraordinary item $ 0.11 $ 0.10 $ 0.23 $ 0.19
Extraordinary item (0.04) - (0.04) -
----------- --------- ----------- -----------
Net income $ 0.07 $ 0.10 $ 0.19 $ 0.19
=========== ========= =========== ===========
Net income per share - Diluted:
Net income before extraordinary item $ 0.11 $ 0.09 $ 0.22 $ 0.19
Extraordinary item (0.04) - (0.04) -
----------- --------- ----------- -----------
Net income $ 0.07 $ 0.09 $ 0.18 $ 0.19
=========== ========= =========== ===========
Weighted average common shares outstanding:
Basic 107,869 128,389 121,142 127,268
Diluted 112,863 134,700 125,156 133,015
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
-6-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Treasury
------------------------ Paid-In Comprehensive Retained Stock
Shares Amount Capital Income (Expense) Earnings Amount
------ ------ ------- ---------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1998 142,392,845 $ 28 $ 852,507 $ (11,989) $ 91,887
Issuance of common stock 780,118 1 5,706
Repurchase of 35,430,000 shares
common stock (383,980)
Tax benefit on non-qualified
stock options exercised 285
Net income 22,505
Other comprehensive income (1,894)
----------------------- ----------- ----------------- ---------- -------------
Balance, August 1, 1998 143,172,963 $ 29 $ 858,498 $ (13,883) $114,392 $ (383,980)
======================= =========== ================= ========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE>
CORPORATE EXPRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
August 1, August 2,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 22,506 $ 24,674
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 25,860 19,734
Amortization 13,751 10,973
Loss on early extinguishment of debt 5,581 -
Minority interest (income) expense 957 (1,522)
Other 2,632 2,098
Changes in assets and liabilities, excluding acquisitions:
(Increase) decrease in accounts receivable (13,190) 10,768
(Increase) decrease in inventory (11,798) (9,778)
(Increase) decrease in other current assets (7,905) 3,250
(Increase) decrease in other assets (1,880) (541)
Increase (decrease) in accounts payable (17,704) (10,307)
Increase (decrease) in accrued liabilities 8,642 (26,147)
--------- ---------
Net cash provided by operating activities 27,452 23,202
--------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 1,146 1,837
Capital expenditures (46,878) (53,609)
Payment for acquisitions, net of cash acquired (25,664) (20,484)
Investment in marketable securities (270) (3,870)
Other, net (606) (43)
--------- ---------
Net cash used in investing activities (72,272) (76,169)
--------- ---------
Cash flows from financing activities:
Issuance of common stock 2,412 10,907
Repurchase of common stock (383,980) -
Debt issuance costs (32,188) (273)
Proceeds from long-term borrowings 616,012 20,929
Repayments of long-term borrowings (20,470) (33,402)
Proceeds from short-term borrowings 5,392 4,011
Repayments of short-term borrowings (1,218) (6,749)
Net proceeds from (payments on) line of credit (61,497) 26,802
Cash paid to retire bonds (93,747) -
Other (9) 163
--------- ---------
Net cash provided by financing activities 30,707 22,388
--------- ---------
Effect of foreign currency exchange rate changes on cash 78 (572)
--------- ---------
(Decrease) increase in cash and cash equivalents (14,035) (31,151)
Cash and cash equivalents, beginning of period 44,362 58,993
--------- ---------
Cash and cash equivalents, end of period $ 30,327 $ 27,842
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
-8-
<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 second quarter have been restated to conform to
the new fiscal year and, accordingly, reflect the three-month and six-month
periods ended August 2, 1997. Certain reclassifications have been made to the
consolidated financial statements for the three-month and six-month periods
ended August 2, 1997 to conform to the three-month and six-month periods ended
August 1, 1998 presentation. These reclassifications had no impact on net
income.
The Company capitalizes certain internal and external software acquisition
and development costs that benefit future years. The amortization commencement
is dependent on when the software is placed in service (for purchased software)
or when the software is ready for its intended use (for internally developed
software). All software is amortized over its economic useful life, which is
three to seven years, using the straight-line method. Capitalized costs include,
primarily, payments to outside firms for purchased software and for direct
services related to the development of proprietary software (external costs),
salaries and wages of individuals dedicated to the development of software
(internal costs), and capitalized interest. The following table summarizes the
periodic changes to capitalized software costs:
<TABLE>
<CAPTION>
External Internal Interest Gross Amortization Net
-------- -------- -------- -------- ------------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1998 $62,469 $27,143 $6,070 $ 95,682 $(10,330) $ 85,352
Additions 9,629 8,676 2,393 20,698 (4,886) 15,812
------- ------- ------ -------- -------- --------
Balance, August 1, 1998 $72,098 $35,819 $8,463 $116,380 $(15,216) $101,164
</TABLE>
New Accounting Standards:
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income:" Comprehensive income consists of net income, the change in the foreign
currency translation adjustment and an unrealized holding gain or loss on
marketable securities. Total comprehensive income for the three-month and six
month-periods ended August 1, 1998 and August 2, 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Net income $7,798 $12,264 $22,506 $24,674
Other comprehensive income:
Unrealized foreign currency translation loss (5,944) (4,252) (3,202) (6,192)
Unrealized gain (loss) on securities (254) 2,973 2,144 (1,066)
Income tax expense related to items of other
comprehensive income 99 (1,159) (836) 416
------ ------ ------- -------
Total comprehensive income (SFAS No. 130) $1,699 $9,826 $20,612 $17,832
====== ====== ======= =======
</TABLE>
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
-9-
<PAGE>
Corporate Express, Inc.
Notes to Consolidated Financial Statements
guidance regarding what constitutes a reportable operating segment. The Company
is currently evaluating disclosures under SFAS No. 131 compared to current
disclosures.
The Company is required to adopt the disclosure requirements of SFAS No.
132, "Employer's Disclosures about Pensions and Other Postretirement Benefits,"
in the fourth quarter of fiscal 1998. SFAS No. 132 revises disclosure
requirements for such pension and postretirement benefit plans to, among other
things, standardize certain disclosures and eliminate certain other disclosures
no longer deemed useful. SFAS No. 132 does not change the measurement or
recognition criteria for such plans.
On March 4, 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position ("SOP") 98-1 providing guidance on accounting for
the costs of computer software developed or obtained for internal use. The
effective date of this pronouncement is for fiscal years beginning after
December 15, 1998. The Company 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 Data Documents Incorporated ("DDI")
consolidation plans.
The following table sets forth activity in the Company's accrued purchase
costs liability account for the six months ended August 1, 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 1,840 217 494 1,095 34
Payments/Utilization (2,250) (179) (719) (1,035) (317)
-------- ----- ------ ------- ------
Balance, August 1, 1998 $ 8,968 $ 502 $2,903 $ 4,460 $1,103
======== ===== ====== ======= ======
</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.
-10-
<PAGE>
Corporate Express, Inc.
Notes to Consolidated Financial Statements
The following table sets forth activity in the Company's accrued merger and
other non-recurring charges liability account for the six months ended August 1,
1998:
<TABLE>
<CAPTION>
Balance Cash Non- Balance
1/31/98 Payments Cash Usage 8/1/98
-------- -------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C>
Merger transaction costs (1) $ 611 $ (322) $ 289
Employee severance and
termination costs (2) 9,696 (3,431) 6,265
Facility closure and consolidation costs (3) 5,205 (1,436) 3,769
-------- ------- -------
Accrued merger and related costs, balance 15,512 (5,189) 10,323
Other asset write-downs and costs (4) 2,759 --- $(265) 2,494
-------- ------- ----- -------
Total $ 18,271 $(5,189) $(265) $12,817
======== ======= ----- =======
</TABLE>
There were no reversals of accrued merger and other non-recurring charges
during the six months ended August 1, 1998.
(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, 830 have been terminated as of August 1, 1998. The
Company expects to complete the facility closures and related terminations
for the fiscal 1995 charge, which balance totals $1,396,000, and the fiscal
1996 charge, which balance totals $649,000, 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 $4,220,000, 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 planned to be closed or consolidated, 152
have been closed or consolidated as of August 1, 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 and six-month periods ended August 2, 1997
and is further adjusted to reflect goodwill amortization, revaluation of debt
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.
-11-
<PAGE>
Corporate Express, Inc.
Notes to Consolidated Financial Statements
Three Months Ended Six Months Ended
August 2, 1997 August 2, 1997
-------------------- ------------------
(In thousands, except per share amounts)
(Unaudited)
Net sales $989,152 $1,974,455
Net income 14,494 28,884
Net income per share - Basic 0.10 0.21
Net income per share Diluted 0.10 0.20
5. REPURCHASE OF COMMON STOCK
On April 10, 1998 the Company closed the Dutch Auction tender offer and
purchased 35,000,000 shares tendered at a price of $10.75 per share. The
35,000,000 treasury shares resulting from this transaction are reflected on the
balance sheet at cost of $376,250,000 plus applicable fees and expenses of
approximately $3,000,000.
The Company's Board of Directors recently authorized the repurchase of
shares of common stock from time to time in open market transactions, block
purchases, privately negotiated transactions and otherwise, at prevailing
prices. Financing for such purchases is available through the Senior Secured
Credit Facility (see Note 6), as well as from cash flow from operations.
Accordingly, as of August 31, 1998, the Company purchased approximately
2,473,000 shares of its issued and outstanding common stock, par value $.0002
per share, of which 430,000 shares were purchased in the second fiscal quarter
of 1998, and the balance was purchased in August 1998. These treasury shares are
reflected on the balance sheet at cost. The Company intends to periodically
purchase additional shares in open market transactions.
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
-12-
<PAGE>
Corporate Express, Inc.
Notes to Consolidated Financial Statements
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.
The Company settled an interest rate hedging contract based on $300,000,000
of U.S. Treasury notes related to the completed offering of the 9 5/8% Notes.
The cost of the settlement of the contract was $7,271,000 and will be amortized
over the ten-year term of the 9 5/8% Notes, bringing the effective interest rate
of the debt instrument to 9.83%.
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 "9 5/8% Notes"). The 9
5/8% Notes are guaranteed by all material domestic subsidiaries of the Company
and are subordinated in right of payment to all senior debt, which totals
approximately $540,000,000 on August 1, 1998. On or after June 1, 2003 through
maturity, the 9 5/8% 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 9 5/8% 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 the 9 5/8% 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 ("the 9
1/8% Notes") and to repay $245,000,000 on the Senior Secured Credit Facility.
As a result of the early extinguishment of the 9 1/8% Notes, the Company
recorded an extraordinary loss of $4,477,000, net of tax of $2,862,000, in the
second quarter of fiscal 1998.
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:
<TABLE>
<CAPTION>
(unaudited)
-----------------------------------------------
Three Months Ended Six Months Ended
----------------------- ----------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
----------------------- ----------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator for basic and diluted EPS:
Income before extraordinary item $ 12,275 $ 12,264 $ 28,087 $ 24,674
Extraordinary item 4,477 --- 5,581 --
----------- -------- ---------- --------
Net income $ 7,798 $ 12,264 $ 22,506 $ 24,674
=========== ======== ========== ========
Basic EPS Calculation:
Denominator:
Average common shares outstanding 107,869 (1) 128,389 121,142(1) 127,268
=========== ======== ========== ========
Earnings per common share:
Income before extraordinary item $ 0.11 $ 0.10 $ 0.23 $ 0.19
Extraordinary item (0.04) -- (0.04) --
----------- -------- ---------- --------
Net income $ 0.07 $ 0.10 $ 0.19 $ 0.19
=========== ======== ========== ========
Diluted EPS Calculation:
Denominator (2):
Basic shares 107,869 128,389 121,142 127,268
Dilutive stock options and warrants 4,994 6,311 4,014 5,747
----------- -------- ---------- --------
Diluted shares 112,863 134,700 125,156 133,015
=========== ======== ========== ========
Earnings per common share:
Income before extraordinary item $ 0.11 $ 0.09 $ 0.22 $ 0.19
Extraordinary item (0.04) --- (0.04) --
----------- -------- ---------- --------
</TABLE>
Corporate Express, Inc.
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C> <C>
Net income $ 0.07 $ 0.09 $ 0.18 $ 0.19
=========== ======== ========== ========
</TABLE>
(1) Reflects the shares repurchased on the April 10, 1998 and June 16, 1998
purchase dates.
(2) The number of antidilutive stock options omitted from the denominator was
approximately 5,278,000 and 6,714,000 for the three-month periods ended
August 1, 1998 and August 2, 1997, respectively, and approximately
5,964,000 and 7,221,000 for the corresponding six-month periods. 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.
-13-
<PAGE>
CORPORATE EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 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 August 1, 1998 and condensed consolidating
statements of operations and cash flows for the three and six months ended
August 1, 1998 and August 2, 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 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.
-14-
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
August 1, 1998
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
--------- ---------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 2,196 $ 22,914 $ 5,217 - $ 30,327
Trade accounts receivable, net - - 484,837 168,353 - 653,190
Notes and other receivables - - 76,196 15,090 - 91,286
Inventories - - 209,923 59,612 - 269,535
Deferred income taxes - - 28,689 6,233 - 34,922
Other current assets 3,431 - 35,378 7,798 - 46,607
-------- ---------- ------------ ------------ -------------- -------------
Total current assets 3,431 2,196 857,937 262,303 - 1,125,867
Property and Equipment:
Land - - 16,082 1,342 - 17,424
Buildings and leasehold
improvements - - 120,592 13,280 - 133,872
Property and equipment - - 331,209 39,547 - 370,756
-------- ---------- ------------ ------------ -------------- -------------
- - 467,883 54,169 - 522,052
Less accumulated depreciation - - (134,849) (15,417) - (150,266)
-------- ---------- ------------ ------------ -------------- -------------
Net property and equipment - - 333,034 38,752 - 371,786
Goodwill, net - - 663,155 193,525 - 856,680
Net investment in and advances
to subsidiaries 894,260 1,635,996 130,627 (130,627) (2,530,256) -
Other assets, net 3,648 60,454 24,381 12,126 - 100,609
-------- ---------- ------------ ------------ -------------- -------------
Total assets $901,339 $1,698,646 $ 2,009,134 $ 376,079 $ (2,530,256) $ 2,454,942
======== ========== ============ ============ ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade - - 257,452 103,293 - 360,745
Accounts payable - acquisition - - 133 852 - 985
Accrued payroll and benefits - - 50,031 8,473 - 58,504
Accrued purchase costs - - 3,055 5,913 - 8,968
Accrued merger and related costs - - 9,849 474 - 10,323
Other accrued liabilities 1,283 6,415 55,507 24,965 - 88,170
Current portion of long-term debt
and capital leases - 2,500 10,288 51,645 - 64,433
-------- ---------- ------------ ------------ -------------- -------------
Total current liabilities 1,283 8,915 386,315 195,615 - 592,128
Capital lease obligations - - 4,822 2,734 - 7,556
Long-term debt 325,000 794,786 32,277 31,226 - 1,183,289
Deferred tax liability - 685 60,138 352 - 61,175
Minority interest - - 116 19,031 - 19,147
Other non-current liabilities - - 7,915 8,676 - 16,591
-------- ---------- ------------ ------------ -------------- -------------
Total liabilities 326,283 804,386 491,583 257,634 - 1,879,886
Total shareholders' equity 575,056 894,260 1,517,551 118,445 (2,530,256) 575,056
-------- ---------- ------------ ------------ -------------- -------------
Total liabilities and
shareholders' equity $901,339 $1,698,646 $ 2,009,134 $ 376,079 $ (2,530,256) $ 2,454,942
======== ========== ============ ============ ============== =============
</TABLE>
-15-
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended August 1, 1998
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
--------- -------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ - $ - $ 896,438 $ 221,724 $ - $ 1,118,162
Cost of sales - - 683,837 174,846 - 858,683
Equity in subsidiary
earnings 10,084 22,472 - - (32,556) -
--------- -------- ---------- ---------- ------------ ------------
Gross profit 10,084 22,472 212,601 46,878 (32,556) 259,479
Warehouse operating and
selling expenses - - 144,136 36,126 - 180,262
Corporate general and
administrative expenses - - 28,427 5,344 - 33,771
--------- -------- ---------- ---------- ------------ ------------
Operating profit 10,084 22,472 40,038 5,408 (32,556) 45,446
Interest expense and other,
net 4,114 14,201 387 3,085 - 21,787
--------- -------- ---------- ---------- ------------ ------------
Income before income
taxes 5,970 8,271 39,651 2,323 (32,556) 23,659
Income tax expense
(benefit) (1,828) (6,290) 17,596 1,145 - 10,623
--------- -------- ---------- ---------- ------------ ------------
Income before minority
interest 7,798 14,561 22,055 1,178 (32,556) 13,036
Minority interest expense - - - 761 - 761
--------- -------- ---------- ---------- ------------ ------------
Income before
extraordinary items 7,798 14,561 22,055 417 (32,556) 12,275
Extraordinary item:
Loss on early
extinguishment of
debt - 4,477 - - - 4,477
--------- -------- ---------- ---------- ------------ ------------
Net income $ 7,798 $ 10,084 $ 22,055 $ 417 $(32,556) $ 7,798
========= ======== ========== ========== ============ ============
</TABLE>
-16-
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended August 2, 1997
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
--------- -------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ - $ - 751,841 173,243 - 925,084
Cost of sales - - 574,847 133,713 - 708,560
Equity in subsidiary earnings 14,851 16,374 - - (31,225) -
--------- -------- ---------- ---------- ------------ ------------
Gross profit 14,851 16,374 176,994 39,530 (31,225) 216,524
Warehouse operating and selling
expenses - - 127,511 32,915 - 160,426
Corporate general and
administrative expenses - - 22,043 4,575 - 26,618
--------- -------- ---------- ---------- ------------ ------------
Operating profit 14,851 16,374 27,440 2,040 (31,225) 29,480
Interest expense and other, net 4,285 2,525 664 2,056 - 9,530
--------- -------- ---------- ---------- ------------ ------------
Income before income taxes 10,566 13,849 26,776 (16) (31,225) 19,950
Income tax expense (benefit) (1,698) (1,002) 10,626 372 - 8,298
--------- -------- ---------- ---------- ------------ ------------
Income before minority
interest 12,264 14,851 16,150 (388) (31,225) 11,652
Minority interest expense (income) - - - (612) - (612)
--------- -------- ---------- ---------- ------------ ------------
Net income $ 12,264 $14,851 $ 16,150 $ 224 $ (31,225) $ 12,264
========= ======== ========== ========== ============ ============
</TABLE>
-17-
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended August 1, 1998
<TABLE>
<CAPTION>
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
--------- -------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ - $ - $ 1,782,571 $ 443,651 $ - $ 2,226,222
Cost of sales - - 1,358,869 350,104 1,708,973
Equity in subsidiary earnings 27,109 43,493 - - (70,602) -
--------- -------- ----------- --------- ------------ ------------
Gross profit 27,109 43,493 423,702 93,547 (70,602) 517,249
Warehouse operating and selling
expenses - - 291,317 71,770 - 363,087
Corporate general and administrative
expenses - - 56,201 10,672 - 66,873
--------- -------- ----------- --------- ------------ ------------
Operating profit 27,109 43,493 76,184 11,105 (70,602) 87,289
Interest expense and other, net 8,248 19,361 1,217 5,752 - 34,578
--------- -------- ----------- --------- ------------ ------------
Income before income taxes 18,861 24,132 74,967 5,353 (70,602) 52,711
Income tax expense (benefit) (3,645) (8,558) 33,116 2,754 - 23,667
--------- -------- ----------- --------- ------------ ------------
Income before minority interest 22,506 32,690 41,851 2,599 (70,602) 29,044
Minority interest expense - - - 957 - 957
--------- -------- ----------- --------- ------------ ------------
Income before extraordinary items 22,506 32,690 41,851 1,642 (70,602) 28,087
Extraordinary item, net of tax:
Loss on early extinguishment of
debt - 5,581 - - - 5,581
--------- -------- ----------- --------- ------------ ------------
Net income $ 22,506 $ 27,109 $ 41,851 $ 1,642 $ (70,602) $ 22,506
========= ======== =========== ========= ============ ============
</TABLE>
-18-
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended August 2, 1997
<TABLE>
<CAPTION>
Subsidiary
Parent Issuer Subsidiary Non
Guarantor of Notes Guarantors Guarantors Eliminations Consolidated
----------- ---------- ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ - $ - $ 1,498,605 $ 347,933 $ - $ 1,846,538
Cost of sales - - 1,144,683 267,527 - 1,412,210
Equity in subsidiary
earnings 29,651 32,726 - - (62,377) -
----------- ---------- ------------ ------------ -------------- --------------
Gross profit 29,651 32,726 353,922 80,406 (62,377) 434,328
Warehouse operating and
selling expenses - - 254,088 67,095 - 321,183
Corporate general and
administrative expenses - - 46,029 9,683 - 55,712
----------- ---------- ------------ ------------ -------------- --------------
Operating profit 29,651 32,726 53,805 3,628 (62,377) 57,433
Interest expense and other,
net 8,188 5,059 367 4,869 - 18,483
----------- ---------- ------------ ------------ -------------- --------------
Income before income taxes 21,463 27,667 53,438 (1,241) (62,377) 38,950
Income tax expense (benefit) (3,211) (1,984) 20,958 35 - 15,798
----------- ---------- ------------ ------------ -------------- --------------
Income before minority
interest 24,674 29,651 32,480 (1,276) (62,377) 23,152
Minority interest income - - - 1,522 - 1,522
----------- ---------- ------------ ------------ -------------- --------------
Net income $ 24,674 $ 29,651 $ 32,480 $ 246 $ (62,377) $ 24,674
=========== ========== ============ ============ ============== ==============
</TABLE>
-19-
<PAGE>
CORPORATE EXPRESS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended August 1, 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 $ (11,385) $ (7,351) $ 25,011 $ 21,177 $ 27,452
--------- -------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of assets - - 944 202 1,146
Capital expenditures - - (42,583) (4,295) (46,878)
Payment for acquisitions, net of cash acquired - - (3,207) (22,457) (25,664)
Investment in marketable securities - (270) - (270)
Other, net - - (734) 128 (606)
--------- -------- ---------- ---------- -----------
Net cash used in investing activities - (270) (45,580) (26,422) (72,272)
--------- -------- ---------- ---------- -----------
Cash flows from financing activities:
Issuance of common stock 2,412 - - 2,412
Repurchase of common stock (383,980) - - (383,980)
Debt issuance costs - (32,171) (17) (32,188)
Proceeds from long-term borrowings - 600,000 797 15,215 616,012
Repayments of long-term borrowings - (625) (10,714) (9,131) (20,470)
Proceeds from short-term borrowings - - - 5,392 5,392
Repayments of short-term borrowings - - 809 (2,027) (1,218)
Net proceeds from (payments on) line of credit - (57,331) 11,224 (15,390) (61,497)
Cash paid to retire bonds - (93,747) - - (93,747)
Net activity in investment in and advances - - - -
to (from) subsidiaries 392,953 (406,682) 8,018 5,711 -
Other - - (9) - (9)
--------- -------- ---------- --------- -----------
Net cash provided by (used in) financing activities 11,385 9,444 10,108 (230) 30,707
--------- -------- ---------- --------- -----------
Effect of foreign currency exchange rates changes
on cash - - (467) 545 78
--------- -------- ---------- --------- -----------
Increase (decrease) in cash and cash equivalents - 1,823 (10,928) (4,930) (14,035)
Cash and cash equivalents, beginning of period - 372 33,843 10,147 44,362
--------- -------- ---------- --------- ------------
Cash and cash equivalents, end of period $ - $ 2,195 $ 22,915 $ 5,217 $ 30,327
========= ========= ========== ========= ============
</TABLE>
-20-
<PAGE>
CORPORATE EXPRESS, INC
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended August 2, 1997
<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 $ (4,102) $ (2,765) $ 8,602 $ 21,467 $ 23,202
--------- -------- ---------- ---------- ------------
Cash flows from investing activities:
Proceeds from sale of assets - - 1,627 210 1,837
Capital expenditures - - (43,202) (10,407) (53,609)
Payment for acquisitions, net of cash acquired - - (4,398) (16,086) (20,484)
Investment in marketable securities - - (2,965) (905) (3,870)
Investment in foreign subsidiaries - - 2,561 (2,561) -
Other, net - - 737 (780) (43)
--------- -------- ---------- ---------- ------------
Net cash used in investing activities - - (45,640) (30,529) (76,169)
Cash flows from financing activities: - - - - -
Issuance of common stock 10,907 - - - 10,907
Purchase of treasury stock - - - - -
Debt issuance costs (246) (32) 5 - (273)
Proceeds from long-term borrowings - - 2,898 18,031 20,929
Repayments of long-term borrowings - - (7,983) (25,419) (33,402)
Proceeds from short-term borrowings - - 272 3,739 4,011
Repayments of short-term borrowings - - (5,307) (1,442) (6,749)
Net proceeds from (payments on) line of credit - 10,020 4,734 12,048 26,802
Other - - 133 30 163
Intercompany (6,559) (5,028) 11,587 - -
--------- -------- ---------- ---------- ------------
Net cash provided by financing activities 4,102 4,960 6,339 6,987 22,388
Effect of foreign currency exchange rates changes on
cash - - (303) (269) (572)
--------- -------- ---------- ---------- ------------
Increase (decrease) in cash and cash equivalents - 2,195 (31,002) (2,344) (31,151)
Cash and cash equivalents, beginning of period - - 52,617 6,376 58,993
--------- -------- ---------- ---------- ------------
Cash and cash equivalents, end of period $ - $ 2,195 $ 21,615 $ 4,032 $ 27,842
========= ======== ========== ========== ============
</TABLE>
-21-
<PAGE>
(B) 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.
-22-
<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.
-23-
<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.
-24-
<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.
-25-
<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.
-26-
<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>
-27-
<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.
-28-
<PAGE>
(C) 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.
-29-
<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: October 19, 1998 /s/ Sam R. Leno
-----------------------------------
By: Sam R. Leno
Title: Chief Financial Officer and
Executive Vice President
