<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
September 23, 1996
--------------------------------------------------
Date of Report (Date of earliest event reported)
U.S. OFFICE PRODUCTS COMPANY
----------------------------------------------------
(Exact name of registrant specified in its charter)
Delaware 0-25372 52-1906050
- --------------------------------------------------------------------------------
(State or other juris- (Commission (I.R.S. Employer
diction of incorporation) File No.) Identification No.)
1440 New York Avenue, N.W., Suite 310, Washington, D.C. 20005
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(202) 628-9500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER INFORMATION
The following financial statements are included as part of this report:
(a) Consolidated financial statements of U.S. Office Products Company
as of April 30, 1996 and 1995 and for the years ended April 30, 1996,
1995 and 1994 and as of July 27, 1996 and for the three months ended
July 27, 1996 and July 31, 1995 (unaudited)
(b) Unaudited pro forma financial information as of July 27, 1996 and
for the years ended April 30, 1996, 1995 and 1994 and for the three
months ended July 27, 1996 and July 31, 1995
(c) Financial statements of Raleigh Office Supply Company,
Inc. as of August 31, 1995 and for the year then ended and as of
February 28, 1996 and for the six months ended February 28, 1996
and 1995 (unaudited)
(d) Financial statements of Emmons-Napp Office Products, Inc.--Commercial
Division as of December 31, 1995 and 1994 and for the years then ended
(e) Consolidated financial statements of American Loose Leaf/Business
Products, Inc. and subsidiary as of September 30, 1995 and for the
year ended and as of June 30, 1996 and for the nine months ended
June 30, 1996 and 1995 (unaudited)
(f) Consolidated financial statements of Pear Commercial Interiors,
Inc. and subsidiary as of December 31, 1995 and for the year then
ended and as of June 30, 1996 and for the six months ended June 30,
1996 and 1995 (unaudited)
(g) Financial statements of International Interiors, Inc. as of September
30, 1995 and 1994 and for the years then ended and as of March 31,
1996 and for the six months ended March 31, 1996 and 1995 (unaudited)
(h) Financial statements of The Office Furniture Store, Inc. as of
December 31, 1995 and for the year then ended and as of June 30,
1996 and for the six months ended June 30, 1996 and 1995
(unaudited)
(i) Financial statements of Ausdoc Office Pty Ltd as of June 30, 1996
and 1995 and for the years then ended
(j) Financial statements of H & P Stationery Pty Ltd as of June 30, 1996
and 1995 and for the years then ended
(k) Financial statements of Canberra Wholesale Stationers Pty Ltd as of
June 30, 1996 and 1995 and for the years then ended
(l) Financial statements of Perth Stationery Supplies Pty Ltd as of
June 30, 1996 and 1995 and for the years then ended
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
(i) Consent of Price Waterhouse LLP
(ii) Consent of Swink, Fiehler & Hoffman
(iii) Consent of Erhardt Keefe Steiner & Hottman PC
(iv) Consent of Petherbridge, Davis & Company, P.A.
(v) Consent of Day Neilson
(vi) Consent of Day Neilson
(vii) Consent of Day Neilson
(viii) Consent of Day Neilson
(ix) Consent of Ernst & Young LLP
<PAGE>
FINANCIAL STATEMENTS
-2-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
U.S. Office Products Company
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of U.S. Office Products Company and
its subsidiaries at April 30, 1996 and 1995 and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
April 30, 1996, in conformity with generally accepted accounting principles.
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 did not audit the financial statements of School Specialty,
Inc. and Re-Print Corporation (wholly owned subsidiaries) which statements
reflect total assets of approximately $44.3 million at December 31, 1994 and
total revenues of $150.5 million, $119.5 million and $21.4 million for the years
ended December 31, 1995, 1994 and 1993, respectively. Those statements were
audited by other auditors whose reports thereon have been furnished to us, and
our opinion expressed herein, insofar as it relates to the amounts included for
School Specialty, Inc. and Re-Print Corporation, is based solely on the
reports of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
May 31, 1996, except as to the third paragraph
of Note 3 which is as of July 27, 1996
and Note 15 which is as of July 10, 1996
1
<PAGE>
Report of Independent Auditors
Board of Directors
School Specialty, Inc.
We have audited the balance sheets of School Specialty, Inc. (formerly known
as EDA Corporation) (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, changes in shareholders' deficit and cash
flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 2, 1996
2
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30,
---------------------- JULY 27,
1995 1996 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 11,543 $ 170,592 $ 98,947
Accounts receivable, less allowance for doubtful
accounts of $598, $2,911, and $4,234,
respectively.................................. 88,605 147,907 230,385
Lease receivables............................... 24,808 29,561
Inventories..................................... 48,398 103,312 190,665
Prepaid expenses and other current assets....... 8,356 24,317 28,407
---------- ---------- ------------
Total current assets.......................... 156,902 470,936 577,965
Property and equipment, net....................... 28,848 65,736 145,687
Intangible assets, net............................ 25,174 141,364 396,835
Lease receivables................................. 47,005 46,232
Other assets...................................... 3,142 16,614 25,117
---------- ---------- ------------
Total assets.................................. $ 214,066 $ 741,655 $ 1,191,836
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................. $ 48,280 $ 114,065 $ 155,838
Accounts payable................................ 38,875 83,221 142,493
Accrued compensation............................ 9,298 14,758 16,983
Other accrued liabilities....................... 11,930 22,164 49,029
---------- ---------- ------------
Total current liabilities..................... 108,383 234,208 364,343
Long-term debt.................................... 19,035 178,529 427,138
Notes payable to related parties.................. 8,181
Deferred income taxes............................. 4,411 6,910 6,427
Other long-term liabilities....................... 1,339 1,686 3,199
---------- ---------- ------------
Total liabilities............................. 141,349 421,333 801,107
---------- ---------- ------------
Minority interest................................. 6,023 2,557
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares
authorized, none outstanding..................
Common stock, $.001 par value 100,000,000 shares
authorized, 21,285,588, 35,874,355 and
38,614,209 shares issued and outstanding,
respectively.................................. 21 36 39
Additional paid-in capital...................... 48,149 291,109 356,423
Cumulative translation adjustment............... 482 2,626
Retained earnings............................... 24,547 22,672 29,084
---------- ---------- ------------
Total stockholders' equity.................... 72,717 314,299 388,172
---------- ---------- ------------
Total liabilities and stockholders' equity.... $ 214,066 $ 741,655 $ 1,191,836
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE FISCAL YEAR ENDED MONTHS ENDED
APRIL 30, --------------------
------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................................. $ 436,480 $ 579,539 $ 968,008 $ 166,742 $ 352,638
Cost of revenues......................................... 310,051 426,426 709,871 124,785 253,017
--------- --------- --------- --------- ---------
Gross profit..................................... 126,429 153,113 258,137 41,957 99,621
Selling, general and administrative expenses............. 114,661 134,652 224,454 41,033 82,561
Nonrecurring acquisition costs........................... 8,057 4,671 1,656
Discontinuation of printing division at subsidiary....... 682
--------- --------- --------- --------- ---------
Operating income (loss) ......................... 11,768 18,461 24,944 (3,747) 15,404
Other (income) expense:
Interest expense....................................... 3,683 5,641 12,405 2,082 6,949
Interest income........................................ (266) (504) (3,272) (142) (4,185)
Minority interest in net income of subsidiary.......... -- -- 671 206
Other.................................................. (964) (409) (1,066) (99) (222)
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes.......... 9,315 13,733 16,206 (5,588) 12,656
Provision (benefit) for income taxes..................... 1,618 2,171 5,414 (1,469) 5,152
--------- --------- --------- --------- ---------
Net income (loss)........................................ $ 7,697 $ 11,562 $ 10,792 $ (4,119) 7,504
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding............... 28,922 22,468 38,458
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share.............................. $0.37 $(.18) $0.20
--------- --------- ---------
--------- --------- ---------
Unaudited pro forma net income (loss) (see Note 9)....... $ 5,813 $ 9,471 $ 8,117 $ (3,072) 7,107
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Unaudited pro forma net income (loss) per share.......... $0.28 $(.14) $0.18
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Balance at April 30, 1993............... 12,781,525 $ 13
Transactions of Combined Companies:
Dividends...........................
Purchase of treasury stock..........
Adjustment to conform fiscal year-ends
of certain Combined Companies.......
Other.................................
Dividends of certain Pooled
Companies...........................
Net income............................
------------ ------------
Balance at April 30, 1994............... 12,781,525 13
Transactions of Combined Companies:
Issuance of common stock............
Capital contributed by principal
stockholder.......................
Dividends...........................
Issuance of common stock in
conjunction with the formation of
U.S. Office Products................ 800,000 1
Issuance of common stock in the
initial public offering, net of
offering expenses of $4,686......... 3,737,500 3
Issuance of common stock to the
stockholders of the Combined
Companies........................... 3,078,000 3
Distributions to the stockholders of
the Combined Companies..............
Issuance of common stock in
acquisition......................... 875,000 1
Adjustment to conform the year-ends of
certain Pooled Companies............
Adjustment to stockholders' equity
accounts to reflect the Mergers.....
Conversion of warrants to equity of
certain Pooled Companies............ 13,563
Issuance of stock by certain Pooled
Companies...........................
Dividends of certain Pooled
Companies...........................
Net income............................
------------ ------------
Balance at April 30, 1995............... 21,285,588 21
<CAPTION>
ADDITIONAL CUMULATIVE
PAID-IN TRANSLATION RETAINED TREASURY TOTAL
CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1993............... $ 16,356 $ 18,974 $ (5,048) $ 30,295
Transactions of Combined Companies:
Dividends........................... (115) (115)
Purchase of treasury stock.......... (2,514) (2,514)
Adjustment to conform fiscal year-ends
of certain Combined Companies....... 273 273
Other................................. 612 612
Dividends of certain Pooled
Companies........................... (4,187) (4,187)
Net income............................ 7,697 7,697
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1994............... 16,968 22,642 (7,562) 32,061
Transactions of Combined Companies:
Issuance of common stock............ 251 251
Capital contributed by principal
stockholder....................... 1,814 1,814
Dividends........................... (222) (222)
Issuance of common stock in
conjunction with the formation of
U.S. Office Products................ 1
Issuance of common stock in the
initial public offering, net of
offering expenses of $4,686......... 32,686 32,689
Issuance of common stock to the
stockholders of the Combined
Companies........................... (3)
Distributions to the stockholders of
the Combined Companies.............. (11,300) (11,300)
Issuance of common stock in
acquisition......................... 8,749 8,750
Adjustment to conform the year-ends of
certain Pooled Companies............ 2,235 2,235
Adjustment to stockholders' equity
accounts to reflect the Mergers..... (12,597) 5,035 7,562
Conversion of warrants to equity of
certain Pooled Companies............ 201 201
Issuance of stock by certain Pooled
Companies........................... 80 80
Dividends of certain Pooled
Companies........................... (5,405) (5,405)
Net income............................ 11,562 11,562
------------ ------------ ------------ ------------ ------------
Balance at April 30, 1995............... 48,149 24,547 72,717
</TABLE>
5
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE FISCAL YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Balance at April 30, 1995............... 21,285,588 21
Issuance of warrants by Pooled
Companies...........................
Exercise of warrants by Pooled
Companies........................... 473,750 1
Options issued by Pooled Companies.... 178,865
Issuance of common stock in the second
public offering, net of offering
expenses of $3,902.................. 4,025,000 4
Issuance of common stock in the third
public offering, net of offering
expenses of $7,594.................. 5,543,045 6
Issuance of common stock in
acquisitions........................ 3,885,349 4
Issuance of common stock for stock
options exercised, including tax
benefits............................ 63,350
Issuance of common stock to repay
indebtedness........................ 419,408
Adjustment to conform the year-ends of
certain Pooled Companies............
Capital contribution by former
shareholders of pooled company......
Conversion of Pooled Company preferred
stock upon acquisition..............
Purchase of treasury stock by Pooled
Companies...........................
Issuance of stock by certain Pooled
Companies...........................
Dividends of certain Pooled
Companies...........................
Cumulative translation adjustment.....
Net income............................
------------ ------------
<CAPTION>
ADDITIONAL CUMULATIVE
PAID-IN TRANSLATION RETAINED TREASURY TOTAL
CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1995............... $ 48,149 $ 24,547 $ 72,717
Issuance of warrants by Pooled
Companies........................... 672 672
Exercise of warrants by Pooled
Companies........................... 784 785
Options issued by Pooled Companies.... 296 296
Issuance of common stock in the second
public offering, net of offering
expenses of $3,902.................. 53,450 53,454
Issuance of common stock in the third
public offering, net of offering
expenses of $7,594.................. 121,277 121,283
Issuance of common stock in
acquisitions........................ 60,363 60,367
Issuance of common stock for stock
options exercised, including tax
benefits............................ 1,023 1,023
Issuance of common stock to repay
indebtedness........................ 3,855 3,855
Adjustment to conform the year-ends of
certain Pooled Companies............ (5,785) (5,785)
Capital contribution by former
shareholders of pooled company...... 1,152 1,152
Purchase of treasury stock by Pooled
Companies........................... (92) (92)
Issuance of stock by certain Pooled
Companies........................... 180 180
Dividends of certain Pooled
Companies........................... (6,882) (6,882)
Cumulative translation adjustment..... $ 482 482
Net income............................ 10,792 10,792
------------ ------------ ------------ ------------ ------------
</TABLE>
6
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE FISCAL YEARS ENDED APRIL 30, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
SHARES AMOUNT
------------ ------------
<S> <C> <C>
Balance at April 30, 1996............. 35,874,355 $ 36
Issuance of common stock in
acquisitions........................ 2,101,796 2
Exercise of stock options............. 152,327
Exercise of stock warrants............ 166,750
Retirement of treasury stock.......... 68,205
Issuance of common stock for building
at Pooled Company................... 37,096 1
Capital contribution by former
shareholders of Pooled Companies.... 105,560
Issuance of common stock for stock
options............................. 39,475
Windfall tax benefit associated with
exercise of stock options...........
Issuance of common stock for employee
stock purchase plan, net of expenses
of $25.............................. 68,645
Equity adjustments to conform fiscal
year-ends of certain Pooled
Companies...........................
Dividends paid of certain Pooled
Companies...........................
Cumulative translation adjustment.....
Net income............................
------------ ------------
Balance at July 27, 1996 (unaudited).... 38,614,209 $ 39
------------ ------------
------------ ------------
<CAPTION>
ADDITIONAL CUMULATIVE
PAID-IN TRANSLATION RETAINED TREASURY TOTAL
CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1996............. $ 291,109 $ 482 $ 22,672 $ 314,299
Issuance of common stock in
acquisitions........................ 57,003 57,005
Exercise of stock options............. 780 780
Exercise of stock warrants............ 1,200 1,200
Retirement of treasury stock.......... 34 (34)
Issuance of common stock for building
at Pooled Company................... 1,103 1,104
Capital contribution by former
shareholders of Pooled Companies.... 3,204 3,204
Issuance of common stock for stock
options............................. 453 453
Windfall tax benefit associated with
exercise of stock options........... 388 388
Issuance of common stock for employee
stock purchase plan, net of expenses
of $25.............................. 1,149 1,149
Equity adjustments to conform fiscal
year-ends of certain Pooled
Companies........................... (81) (81)
Dividends paid of certain Pooled
Companies........................... (977) (977)
Cumulative translation adjustment..... 2,144 2,144
Net income............................ 7,504 7,504
------------ ------------ ------------ ------------ ------------
Balance at July 27, 1996 (unaudited).... $ 356,423 $ 2,626 $ 29,084 $ -- $ 388,172
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE FISCAL YEAR MONTHS ENDED
ENDED APRIL 30, ------------------------
--------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
--------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 7,697 $ 11,562 $ 10,792 $ (4,119) $ 7,504
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 7,235 8,675 11,917 1,794 4,782
Amortization of deferred revenue................... (402) (150) 2,958
Amortization of subordinated debt.................. 71 324
Deferred income taxes.............................. (54) 239 (600) (55) 888
Deferred compensation.............................. 178 178 177 (1,501)
Gain on disposal of equipment...................... 181 20 (30)
Minority interest in net income of subsidiary...... 671 221
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations):
Accounts receivable.............................. (4,196) (16,849) 8,669 12,032 (24,066)
Lease receivables................................ (17,654) (3,087)
Inventories...................................... (1,862) 2,779 867 (5,338) (1,879)
Prepaid expenses and other current assets........ (1,972) (4,364) (6,114) (2,528) 1,547
Accounts payable................................. 2,384 (1,866) 3,219 4,399 3,900
Accrued liabilities.............................. 1,328 3,555 3,338 (354) 4,974
--------- ---------- ---------- --------- -----------
Net cash provided by (used in) operating
activities................................... 10,517 3,850 15,576 5,831 (3,759)
--------- ---------- ---------- --------- -----------
Cash flows from investing activities:
Additions to property and equipment.................. (4,361) (5,747) (11,026) (1,277) (9,683)
Proceeds from (collections of) notes receivable...... (815) 583
Cash paid in acquisitions, net of cash received...... (18,099) (95,574) (5,389) (205,458)
Investment in affiliate.............................. (5,603)
(Payment) refund of S corporation deposit............ 602
Decrease (increase) in note receivable from
stockholder........................................ (145) 145
Deposits............................................. 6 165
Other................................................ (840) 120 (39) (1,519) (1,139)
--------- ---------- ---------- --------- -----------
Net cash used in investing activities.......... (5,559) (22,992) (112,077) (8,185) (216,280)
--------- ---------- ---------- --------- -----------
</TABLE>
8
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE FISCAL YEAR MONTHS ENDED
ENDED APRIL 30, ------------------------
--------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
--------- ---------- ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock............... 630 32,793 174,765
Proceeds from issuance of long-term debt............. 2,757 3,361 144,699 2,519 225,000
Payments of long-term debt........................... (5,249) (7,441) (17,563) (2,137) (54,384)
Proceeds from (payments of) short-term debt, net..... 2,422 5,354 (40,959) 1,153 (25,638)
Payments of dividends................................ (1,919) (2,647) (6,889) (573) (978)
Proceeds from exercise of stock options.............. 597 1,980
Proceeds from issuance of common stock in employee
stock purchase plan and exercise of stock
options............................................ 1,602
Capital contributed by Combined Company
stockholder........................................ 2,752 469 729
Payments to stockholders of Combined Companies....... (27) (11,330) (42)
Distributions to stockholders........................ (2,000) (2,500)
Net change in cash due to conforming fiscal year-end
of certain Combined Companies...................... 230
Purchases of treasury stock.......................... (715) (92)
Loan to officer of Combined Company.................. 174 375
Net change in cash due to conforming fiscal year-end
of certain Pooled Companies........................ 601 300 (370) (78)
--------- ---------- ---------- --------- -----------
Net cash provided by (used in) financing
activities................................... (3,697) 20,943 255,660 592 148,233
--------- ---------- ---------- --------- -----------
Effect of exchange rates on cash and cash
equivalents.......................................... (110) 161
Net increase in cash and cash equivalents.............. 1,261 1,801 159,049 (1,762) (71,645)
Cash and cash equivalents at beginning of period....... 8,481 9,742 11,543 2,625 170,592
--------- ---------- ---------- --------- -----------
Cash and cash equivalents at end of period............. $ 9,742 $ 11,543 $ 170,592 $ 863 $ 98,947
--------- ---------- ---------- --------- -----------
--------- ---------- ---------- --------- -----------
Supplemental disclosure of cash flow information:
Interest paid........................................ $ 3,616 $ 5,054 $ 10,938 $ 809 $ 1,646
Income taxes paid.................................... 1,378 1,173 7,305 987 1,297
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
The Company issued common stock, notes payable and cash in connection with
certain business combinations in fiscal years ended April 30, 1996, 1995 and
1994. The fair values of the assets and liabilities of the acquired companies at
the dates of the acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE FISCAL YEAR MONTHS ENDED
ENDED APRIL 30, ----------------------
-------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
---------- --------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accounts receivable..................................... $ -- $ 23,462 $ 72,231 $ 1,812 $ 51,941
Inventories............................................. 20,074 51,425 1,667 84,987
Prepaid expenses and other current assets............... 1,779 8,914 408 5,706
Property and equipment.................................. 5,459 34,978 4,536 74,144
Intangible assets....................................... 21,079 118,422 3,268 252,250
Lease receivables....................................... 55,095
Other assets............................................ 339 1,257 156 2,027
Short-term debt......................................... (15,038) (105,814) (3,781) (65,695)
Accounts payable........................................ (15,627) (38,357) (274) (56,886)
Accrued liabilities..................................... (4,958) (16,244) (225) (12,389)
Long-term debt.......................................... (6,283) (17,949) (2,178) (73,622)
Deferred income taxes................................... (1,635)
Other long-term liabilities............................. (437) (247)
Minority interest....................................... (5,349)
---------- --------- ---------- --------- ----------
Net assets acquired............................. $ -- $ 29,849 $ 156,727 $ 5,389 $ 262,463
---------- --------- ---------- --------- ----------
---------- --------- ---------- --------- ----------
The acquisitions were funded as follows:
Common stock.......................................... $ -- $ 8,750 $ 60,367 $ 57,005
Notes payable......................................... 3,000 786
Cash.................................................. 18,099 95,574 $ 5,389 205,458
---------- --------- ---------- --------- ----------
$ -- $ 29,849 $ 156,727 $ 5,389 $ 262,463
---------- --------- ---------- --------- ----------
---------- --------- ---------- --------- ----------
</TABLE>
Noncash transactions:
- - During fiscal 1996, one Pooled Company converted $1,385 of notes payable to
common stock.
- - During fiscal 1996, the Company issued 194,447 shares of common stock to repay
$2,470 of indebtedness.
- - During fiscal 1996, the Company recorded additional paid-in capital of
approximately $483 related to the tax benefit on stock options exercised.
- - During fiscal 1994, one Combined Company issued $1,800 of debt in exchange for
nonvoting shares of common stock.
10
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--BUSINESS ORGANIZATION
U.S. Office Products Company ("U.S. Office Products" or the "Company") was
founded in October 1994 to create a nationwide office products supplier,
primarily to corporate, commercial and industrial customers.
Concurrent with the closing of its initial public offering (the "IPO") in
February 1995, the Company acquired four companies for a combination of its
common stock and cash which are referred to herein as the "Combined Companies"
and acquired two companies in business combinations accounted for under the
purchase method. The six companies are referred to as the "Founding Companies."
Simultaneously with the closing of the IPO, U.S. Office Products acquired
by merger each of the Combined Companies (the "Mergers"). The assets and
liabilities of the Combined Companies are reflected at their historical
amounts. Capital stock of the Combined Companies is included in additional
paid-in capital. The Combined Companies previously reported on fiscal years
ending other than April 30. Commencing on May 1, 1994, the fiscal year-ends
were changed to April 30 which resulted in an adjustment to retained earnings
during fiscal 1994 of $273 which resulted from revenues of $8,983 and
expenses of $8,710.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of U.S. Office Products,
the Combined Companies and the companies acquired in business combinations
accounted for under the purchase method (the "Purchased Companies") from their
respective acquisition dates and give retroactive effect to the results of the
companies acquired in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") for all periods presented.
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, "fiscal 1994," "fiscal 1995" and "fiscal
1996" refer to the Company's fiscal years ended April 30, 1994, 1995 and 1996,
respectively.
11
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company invests a portion of its cash in highly
rated corporate commercial paper with original maturities of 30 days or less and
in overnight investments collateralized by U.S. government securities.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of product held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 5 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases are being amortized over the lesser of their useful lives or their lease
terms.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Goodwill is amortized on a straight
line basis over an estimated useful life of 40 years. Management periodically
evaluates the recoverability of goodwill, which would be adjusted for a
permanent decline in value, if any, by comparing anticipated undiscounted future
cash flows from operations to net book value.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.
12
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's majority owned foreign subsidiary has entered into forward
foreign currency exchange contracts (the "Exchange Contracts") with
counterparties to hedge the exposure to foreign currency fluctuations to the
extent permissible by hedge accounting requirements. At April 30, 1996, the
Exchange Contracts, in the notional amount of $4,616, hedge approximately $5,292
of foreign currency denominated assets. Discounts or premiums on the Exchange
Contracts are amortized over the life of the contracts.
The Company's majority owned foreign subsidiary has also entered into
interest rate swap agreements (the "Swap Agreements") with counterparties to
convert the interest rates associated with certain outstanding debt from
variable rates to fixed rates. The notional amount of the Swap Agreements was
$43,000 at April 30, 1996. The market risks associated with these Swap
Agreements result from short-term fluctuations in interest rates. The credit
risks related to non-performance of the Swap Agreements by the counterparties
are not deemed to be significant; however, non-performance would result in the
Company terminating the Swap Agreements and recognizing a gain or loss,
depending on the fair market value of the Swap Agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure About Fair Value of Financial Instruments," the Company has
estimated the fair value of its financial instruments using the following
methods and assumptions:
- The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value;
- The fair value of the 5 1/2% Convertible Subordinated Notes due 2001 is
based on quoted market prices;
- The carrying amounts of the Company's debt, other than the 5 1/2%
Convertible Subordinated Notes due 2001, approximates fair value,
estimated by discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," except for one Combined Company and certain
Pooled Companies which were organized as subchapter S corporations prior to
being acquired by the Company. The asset and liability approach used in SFAS 109
requires the recognition of deferred tax assets and liabilities for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of subsidiary
companies which the Company controls but does not include in the consolidated
federal income tax return since it is management's practice and intent to
permanently reinvest the earnings.
13
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized upon the delivery of office products to customers. The
Company also leases equipment to customers under both short-term and long-term
lease agreements. Revenue related to the short-term leases is recognized on a
monthly basis over the life of the lease. Certain long-term leases qualify as
sales-type leases and accordingly the present value of the future lease payments
are recognized as income upon delivery of the equipment to the customer.
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included as an increase to cost of revenues.
NONRECURRING ACQUISITION COSTS
Nonrecurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, investment banking fees,
recognition of transaction related obligations and various other acquisition
related costs.
DISCONTINUATION OF PRINTING DIVISION AT SUBSIDIARY
During fiscal 1996, the Company discontinued the printing division at one of
its subsidiaries and incurred a one time charge of $682, which consisted
primarily of the writedown of printing division assets to their estimated market
value.
NET INCOME PER SHARE
Net income per share for fiscal 1996 is calculated by dividing net income by
the weighted average number of common shares outstanding during the year
including common stock equivalents, if dilutive.
Net income per share for fiscal 1994 and fiscal 1995 has not been presented
as it is not considered meaningful due to the Mergers and the IPO in conjunction
with the formation of the Company during fiscal 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation." SFAS 123 establishes a fair value
based method of accounting for employee stock based compensation plans and
encourages companies to adopt that method. However, it also allows companies to
continue to apply the intrinsic value based method currently prescribed under
APB Opinion No. 25, provided certain pro forma disclosures are made. SFAS 123 is
not required to be adopted by the Company until fiscal 1997. The Company
currently intends to continue to apply the accounting method prescribed by APB
Opinion 25 and, accordingly, the adoption of SFAS 123 will not have a material
impact on the Company.
In March, 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires
14
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. SFAS 121 is not required to be adopted by the Company until fiscal
1997. The Company does not anticipate that SFAS 121 will have a material effect
on the Company's operating results.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of July 27, 1996 and the results of
operations and of cash flows for the three months ended July 31, 1995 and July
27, 1996 as presented in the accompanying unaudited consolidated financial
statements.
NOTE 3--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1996, the Company issued 8,440,852 shares of common stock to
acquire 14 companies in acquisitions accounted for under the
pooling-of-interests method. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. Certain of the Pooled Companies previously reported on fiscal
years ending other than April 30. The results of these Pooled Companies were
previously reported on June 30, September 30 and December 31 year-ends.
The accounts of these Pooled Companies for the years ended December 31, 1993
and 1994, for the years ended June 30, 1994 and 1995 and for the years ended
September 30, 1994 and 1995 have been combined with the accounts of U.S. Office
Products for the years ended April 30, 1994 and 1995, respectively. Commencing
on May 1, 1995, the year-ends of these companies were changed to April 30,
resulting in an increase to retained earnings of $2,235 during fiscal 1995.
Between April 30, and July 27, 1996, the Company issued 5,006,851 shares of
common stock to acquire 10 companies in acquisitions accounted for under the
pooling-of-interests method. The Company's consolidated financial statements
give retroactive effect to the acquisitions of these Pooled Companies for all
periods presented. Certain of these Pooled Companies previously reported on
fiscal years ending other than April 30. The results of these Pooled Companies
were previously reported on January 31, May 31 and December 31 year-ends.
The accounts of these Pooled Companies for the years ended December 31, 1994
and 1995, for the years ended January 31, 1995 and 1996 and for the years ended
May 31, 1995 and 1996 have been combined with the accounts of U.S. Office
Products for the years ended April 30, 1995 and 1996, respectively. Commencing
on May 1, 1996, the year-ends of these Companies were changed to April 30,
resulting in a reduction to retained earnings of $5,785 and $81 during fiscal
1996 and for the three months
15
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
ended July 27, 1996, respectively. Following is a summary of the results related
to the adjustments to retained earnings for these Pooled Companies:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30, FOR THE THREE
-------------------- MONTHS ENDED
1995 1996 JULY 27, 1996
--------- --------- -------------
<S> <C> <C> <C>
Revenues.................................................................. $ 55,126 $ 61,359 $ 1,378
Costs and expenses........................................................ 52,891 67,144 1,297
--------- --------- ------
Net income (loss)................................................... $ 2,235 $ (5,785) $ 81
--------- --------- ------
--------- --------- ------
</TABLE>
The separate results of operations of U.S. Office Products Company and the
Pooled Companies for periods prior to the mergers are presented below:
<TABLE>
<CAPTION>
U.S. OFFICE POOLED
FOR THE YEAR ENDED APRIL 30, PRODUCTS COMPANIES COMBINED
- ----------------------------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
1996
Revenue.................................................................... $ 488,670 $ 479,338 $ 968,008
Net income................................................................. $ 7,828 $ 2,964 $ 10,792
1995
Revenue.................................................................... $ 120,479 $ 459,060 $ 579,539
Net income................................................................. $ 1,514 $ 10,048 $ 11,562
1994
Revenue.................................................................... $ 76,641 $ 359,839 $ 436,480
Net income................................................................. $ 1,114 $ 6,583 $ 7,697
</TABLE>
PURCHASE METHOD
In fiscal 1996, the Company made 27 acquisitions accounted for under the
purchase method for an aggregate purchase price of $156,727 consisting of
$95,574 of cash, $786 of notes payable and 3,885,349 shares of common stock
with a market value of $60,367. The total assets related to these 27
acquisitions were $342,322, including goodwill of $118,422. The results of
these acquisitions have been included in the Company's results from their
respective dates of acquisition.
In fiscal 1995, in addition to the Mergers, the Company made six
acquisitions accounted for under the purchase method for an aggregate
purchase price of $29,849, consisting of $18,099 of cash, $3,000 of notes
payable and 875,000 shares of common stock with a market value of $8,750. The
total assets related to these six acquisitions were $72,192, including
goodwill of $21,079. The results of these acquisitions have been included in
the Company's results from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the fiscal years ended April 30, 1995 and 1996 as if the purchase
acquisitions described above had been consummated as of the beginning of fiscal
1995. The results presented below include certain pro forma
16
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
adjustments to reflect the amortization of intangible assets, adjustments in
executive compensation and the inclusion of a federal income tax provision:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revenues.......................................................... $ 1,080,121 $ 1,275,962
Net income........................................................ 12,244 13,843
Net income per share.............................................. 0.34 0.39
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1995 or the
results which may occur in the future.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Land...................................................................................... $ 2,417 $ 3,725
Buildings................................................................................. 11,383 21,654
Furniture and fixtures.................................................................... 15,975 34,805
Warehouse equipment....................................................................... 18,050 26,686
Equipment under capital leases............................................................ 3,924 6,894
Leasehold improvements.................................................................... 5,989 6,529
---------- ----------
57,738 100,293
Less: Accumulated depreciation............................................................ (28,890) (34,557)
---------- ----------
Net property and equipment................................................................ $ 28,848 $ 65,736
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the fiscal years ended April 30, 1994, 1995 and
1996 was $5,813, $7,256 and $8,844, respectively.
17
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5--INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------- JULY 27,
1995 1996 1996
--------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill.................................................................. $ 21,708 $ 140,384 $ 362,174
Other..................................................................... 7,596 7,475 42,472
--------- ---------- -----------
29,304 147,859 404,646
Less: Accumulated amortization............................................ (4,130) (6,495) (7,811)
--------- ---------- -----------
$ 25,174 $ 141,364 $ 396,835
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
Amortization expense for the fiscal years ended April 30, 1994, 1995 and
1996 was $1,422, $1,419 and $3,073, respectively.
NOTE 6--LEASE RECEIVABLES
Lease receivables represent the present value of future lease payments
related to equipment sold to customers as sales type leases. The future minimum
lease payments to be received are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 34,146
1998.............................................................. 29,885
1999.............................................................. 17,181
2000.............................................................. 5,800
2001 and thereafter............................................... 1,647
---------
Total lease receivable............................................ 88,659
Less: Amounts representing interest............................... (16,846)
---------
Present value of net lease receivable............................. $ 71,813
---------
---------
</TABLE>
NOTE 7--OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Investment............................................................... $ 6,575
Debt issue costs, net.................................................... 5,167
Cash surrender value of life insurance................................... $ 886 961
Investments.............................................................. 475
Other.................................................................... 2,256 3,436
--------- ---------
$ 3,142 $ 16,614
--------- ---------
--------- ---------
</TABLE>
The investment is recorded at cost, which approximates market value.
18
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Bank lines of credit, secured by accounts receivable and inventory, interest rates ranging
from prime to prime plus 2.25% (9.0% to 10.0% at April 30, 1996). ....................... $ 39,497 $ 8,515
Annual renewal loans provided by banks and other financial institutions of foreign
subsidiary secured by lease receivables of foreign subsidiary. Interest rates ranging
from 7.8% to 10.2% at April 30, 1996. ................................................... 80,949
Bank lines of credit of foreign subsidiary operations secured by assets of those
operations. Interest rates ranging from 9.2% to 9.8% at April 30, 1996. ................. 12,731
Other...................................................................................... 1,717 2,249
Current maturities of long-term debt....................................................... 7,066 9,621
--------- ----------
Total short-term debt................................................................ $ 48,280 $ 114,065
--------- ----------
--------- ----------
</TABLE>
The Company currently has a line of credit with a bank that provides the
Company with a $50 million credit facility bearing interest, at the Company's
option, at the prime rate in effect from time to time or a eurodollar rate
plus 2.0%. The line of credit is secured by the Company's inventory and
receivables and contains customary covenants, including financial covenants
with respect to the Company's net worth and fixed charge coverage ratios, and
customary default provisions related to non-payment of principal and
interest, default under other debt agreements and bankruptcy. It also
provides for a default in the event that there is a change in control of the
Company. The Comapny was in compliance with or obtained waivers relating to
these covenants as of April 30, 1996. The amount that is available to be
borrowed under the line of credit varies from time to time, depending upon
the level of receivables and inventory available to collateralize borrowings.
Since April 30, 1996, the Company has not provided certain information
required by this facility and has not requested certain consents in respect
of actions taken by the Company since April 30, 1996, which, if not
corrected, could limit the Company's ability to draw funds against this line
of credit. No amounts were outstanding against this facility at April 30,
1996. The Company believes that, if necessary, the information required by
the line of credit facility could be provided and the necessary consents
could be obtained to enable the Company to utilize this source of financing
although there can be no assurances in this regard.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates ranging from 8.0%
to 10.0%, maturities from October 1996 through 2003...................................... $ 12,432
Convertible Subordinated Notes due 2001, interest at 5 1/2%, convertible into shares of
common stock at any time prior to maturity at a conversion price of $28.50 per share,
subject to adjustment in certain events.................................................. $ 143,750
Debt facility payable over five years secured by lease receivables of the Company's foreign
subsidiaries. Interest rates ranging from 11.0% to 12.0% at April 30, 1996. ............. 8,943
Other...................................................................................... 20,558 30,611
Capital lease obligations.................................................................. 1,292 4,846
--------- ----------
34,282 188,150
Less: Current maturities of long-term debt................................................. (7,066) (9,621)
--------- ----------
Total long-term debt................................................................. $ 27,216 $ 178,529
--------- ----------
--------- ----------
</TABLE>
The 5 1/2% Convertible Subordinated Notes due 2001 (the "Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after February 3, 1998, but may not be redeemed prior to February
2, 1999 unless the closing price of the common stock is at least 150% of the
conversion price for a period of time prior to the notice of redemption. Costs
incurred in connection with the issuance of the Notes are included in other
assets and are being amortized over the five year period of maturity. The fair
value of the Notes at April 30, 1996, based upon quoted market prices, totaled
$211,313.
19
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $ 9,621
1998.............................................................. 11,479
1999.............................................................. 12,151
2000.............................................................. 1,637
2001.............................................................. 144,501
Thereafter........................................................ 8,761
---------
$ 188,150
---------
---------
</TABLE>
NOTE 9--INCOME TAXES
U.S. Office Products will file a consolidated federal income tax return for
periods subsequent to the Mergers described in Note 3. Each of the Combined
Companies and Pooled Companies will file "short-period" federal tax returns
through the dates of the Mergers and business combinations.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income taxes currently payable:
Federal............................................................................ $ 1,416 $ 1,467 $ 3,944
State.............................................................................. 256 465 1,385
Foreign taxes currently payable.................................................... 685
--------- --------- ---------
1,672 1,932 6,014
--------- --------- ---------
Deferred income tax expense (benefit)................................................ (54) 239 (600)
--------- --------- ---------
Total provision for income taxes............................................... $ 1,618 $ 2,171 $ 5,414
--------- --------- ---------
--------- --------- ---------
</TABLE>
20
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9--INCOME TAXES (CONTINUED)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Inventory.............................................................. $ 137 $ 259
Allowance for doubtful accounts........................................ 90 821
Accrued liabilities.................................................... 256 50
--------- ---------
Total current deferred tax assets.................................. 483 1,130
--------- ---------
Long-term deferred tax liabilities:
Property and equipment................................................. (1,028) (2,701)
Internal Revenue Service tax assessment................................ (3,383) (3,383)
Other.................................................................. (826)
--------- ---------
Total long-term deferred tax liabilities........................... (4,411) (6,910)
--------- ---------
Net deferred tax asset (liability)................................. $ (3,928) $ (5,780)
--------- ---------
--------- ---------
</TABLE>
The Internal Revenue Service ("IRS") tax assessment relates to the deferral
of a gain on the sale of land and building by a subsidiary of the Company. The
IRS has determined that a portion of the gain recorded by the subsidiary does
not qualify for deferral and has required that the Company pay additional taxes.
The subsidiary has recorded a deferred tax liability as a result of the
assessment and the related interest. The Company has filed an appeal with the
IRS relating to the above assessment; however, the IRS has not yet responded to
the appeal.
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED APRIL
30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal statutory rate............................................................... 34.0% 34.0% 35.0%
State income taxes, net of federal income tax benefit..................................... 4.0 4.1 5.4
Subchapter S corporation income not subject to corporate level taxation................... (23.6) (24.9) (14.2)
Foreign earnings not subject to U.S. taxes................................................ (.6)
Minority interest in foreign taxes........................................................ 2.5
Nondeductible goodwill.................................................................... 1.4 2.6
Other..................................................................................... 3.0 1.2 2.7
--------- --------- ---------
Effective tax rate........................................................................ 17.4% 15.8% 33.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
One Combined Company and certain Pooled Companies were organized as
subchapter S corporations prior to the closing of their acquisitions by the
Company and, as a result, the federal tax on their income was the responsibility
of their individual stockholders. Accordingly, the Combined Company and the
specific Pooled Companies provided no federal income tax expense prior to these
acquisitions by the Company.
21
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9--INCOME TAXES (CONTINUED)
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the Combined Company and the specific Pooled
Companies had been subject to federal income taxes for the entire periods
presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE FISCAL YEAR
ENDED APRIL 30, --------------------
------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income (loss) per consolidated statement of income........ $ 7,697 $ 11,562 $ 10,792 $ (4,119) $ 7,504
Pro forma income tax provision (benefit) adjustment........... 1,884 2,091 2,675 (1,047) 397
--------- --------- --------- --------- ---------
Pro forma net income (loss)................................... $ 5,813 $ 9,471 $ 8,117 $ (3,072) $ 7,107
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NOTE 10--LEASE COMMITMENTS
The Company leases various types of retail, warehouse and office space and
equipment, furniture and fixtures under noncancellable lease agreements which
expire at various dates. Future minimum lease payments under noncancellable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1997........................................................................................ $ 1,771 $ 12,870
1998........................................................................................ 1,283 10,548
1999........................................................................................ 702 9,450
2000........................................................................................ 428 8,528
2001........................................................................................ 320 7,368
Thereafter.................................................................................. 2,541 26,781
--------- -----------
Total minimum lease payments................................................................ 7,045 $ 75,545
-----------
-----------
Less: Amounts representing interest......................................................... (2,199)
---------
Present value of net minimum lease payments................................................. $ 4,846
---------
---------
</TABLE>
Rent expense for all operating leases for the fiscal years ended April 30,
1994, 1995 and 1996 was $8,472, $9,851 and $15,450, respectively.
NOTE 11--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position or results of
operations or cash flows of the Company.
22
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or 1995
related to these agreements.
NOTE 12--EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company have qualified defined contribution
benefit plans, which allow for voluntary pre-tax contributions by the employees.
The subsidiaries pay all general and administrative expenses of the plans and in
some cases make matching contributions on behalf of the employees. For the
fiscal years ended April 30, 1994, 1995 and 1996, the subsidiaries incurred
expenses totaling $220, $450 and $683, respectively, related to these plans.
One Combined Company entered into agreements with three officers which
provided for future compensation to those officers subsequent to termination of
employment with the Combined Company for a period of five years. The future
compensation would not be received, however, in the event that an officer
received payment under that Company's Restricted Stock Purchase Plan (the
"Purchase Plan") in excess of the purchase price of the stock paid by the
officer. No compensation expense was recorded with respect to the agreement
related to two of the officers, as it was probable that they would receive
payment under the Restricted Stock Purchase Plan. Future compensation expense of
approximately $1,030 was being recognized as expense for the third officer over
the estimated term of the officer's service to the Company of approximately
eleven years. The compensation expense equaled $95 in fiscal 1994 and $71 in
fiscal year 1995. The agreements were terminated upon closing of the Merger.
The Purchase Plan was considered to be compensatory, for the benefit of
certain officers. Two of these officers each purchased 1,000 shares of stock for
$1 under the Purchase Plan. The stock was restricted and could only be purchased
by the Combined Company at specified prices that varied upon the occurrence of
certain events. As a result, the Combined Company's future compensation expense
of $1,398, under this Purchase Plan, was being recognized as expense over the
expected periods of the officers' future service to the Combined Company of 20
and 28 years. Compensation expense of approximately $60 and $45 was recognized
in fiscal 1994 and fiscal 1995, respectively. The Plan was terminated upon
closing of the Merger.
NOTE 13--STOCKHOLDERS' EQUITY
LONG-TERM COMPENSATION PLAN
In October 1994, the Board of Directors and the Company's stockholders
approved the Company's 1994 Long-Term Compensation Plan (the "Plan"). The
purpose of the Plan is to provide directors, officers, key employees and
consultants with additional incentives by increasing their ownership interests
in the Company. The maximum number of options to purchase Common Stock granted
in any calendar or fiscal year under the Plan is equal to the greater of 855,000
shares or 15% of the aggregate number of shares of the Common Stock outstanding
at the time an award is granted, less, in each case, the number of shares
subject to previously outstanding awards under the Plan.
23
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 13--STOCKHOLDERS' EQUITY (CONTINUED)
Under the provisions of the Plan, non-qualified stock options and other
stock awards are granted at prices not less than fair market value at the date
of grant. A summary of option transactions follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER RANGE PER EXPIRATION
OF SHARES SHARE DATE
---------- ----------------- -------------
<S> <C> <C> <C>
Outstanding at April 30, 1994...................................... -- -- --
Granted.......................................................... 629,500 $8.00--$10.00 2004
Cancelled........................................................ (7,000) $10.00 2004
---------- ----------------- -------------
Outstanding at April 30, 1995...................................... 622,500 $8.00--$10.00 2004
Granted.......................................................... 2,764,591 $11.31--$31.75 2004--2006
Exercised........................................................ (63,350) $8.00--$10.00 2004
Cancelled........................................................ (16,200) $10.00--$17.13 2004--2005
---------- ----------------- -------------
Outstanding at April 30, 1996...................................... 3,307,541 $8.00--$31.75 2004--2006
---------- ----------------- -------------
---------- ----------------- -------------
Exercisable at April 30, 1996...................................... 132,867 $8.00--$10.00 2004
---------- ----------------- -------------
---------- ----------------- -------------
</TABLE>
Non-qualified options are generally exercisable beginning one year from the
date of grant in cumulative yearly amounts of 25% of the shares under option and
generally expire ten years from the date of grant.
Subsequent to year-end, the Company granted options to purchase 1,087,550
shares of common stock at exercise prices ranging from $36.00 to $44.875 per
share.
COMMON STOCK
In November 1994, the Board of Directors of the Company approved a one
thousand-for-one split of the Company's common stock and changed the par value
of common stock from $1 per share to $.001 per share. The consolidated financial
statements have been adjusted to reflect the stock split. In February 1995, the
stockholders approved the amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 25,000,000 to 100,000,000 shares.
24
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS
----------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 166,742 $ 224,977 $ 274,426 $ 301,863 $ 968,008
Gross profit......................................... 41,957 57,703 72,931 85,546 258,137
Operating income..................................... (3,747) 6,325 15,280 7,086 24,944
Net income (loss).................................... (4,118) 3,165 10,360 1,385 10,792
Pro forma net income (loss) (see Note 9)............. (3,097) 2,380 7,792 1,042 8,117
Net income (loss) per share.......................... (.18) .11 .36 .04 .37
Pro forma net income (loss) per share................ (.14) .08 .27 .03 .28
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995 QUARTERS
----------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 109,454 $ 127,844 $ 176,337 $ 165,904 $ 579,539
Gross profit......................................... 30,208 34,841 46,775 41,289 153,113
Operating income..................................... 2,636 4,463 9,757 1,605 18,461
Net income (loss).................................... 1,557 2,930 7,405 (330) 11,562
Pro forma net income (loss) (see Note 9)............. 1,501 2,577 5,936 (543) 9,471
</TABLE>
NOTE 15--SUBSEQUENT EVENTS
BUSINESS COMBINATIONS SUBSEQUENT TO YEAR-END
Between April 30, 1996 and July 10, 1996 the Company acquired 14 companies
and the remaining 49% of Blue Star in business combinations accounted for under
the purchase method for $65,333, consisting of 1,663,692 shares of common stock
with a market value of $44,149 and cash of $21,184. In addition, as of July 10,
1996, the Company considered the consummation to be probable of a total of 46
additional businesses (the "Pending Acquisitions"). The Pending Acquisitions
provide for consideration of $286,740, consisting of 7,206,323 shares of
common stock with a market value of $254,659 and cash of $32,081.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1996 as if the acquisitions described above had been
consummated as of the beginning of fiscal 1996. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, reductions in executive compensation, the inclusion of a federal income
tax provision and the removal of certain restructuring costs:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 30, 1996
----------------
<S> <C>
Revenues.................................................................... $ 1,735,166
Net income.................................................................. 28,152
Net income per share........................................................ $ .71
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1996, or the
results which may occur in the future.
25
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 15--SUBSEQUENT EVENTS (CONTINUED)
ISSUANCE OF CONVERTIBLE SUBORDINATED NOTES
In May 1996, the Company completed an offshore offering and a concurrent
private placement of $230,000, principal amount of 5 1/2% Convertible
Subordinated Notes due 2003, including the underwriters' over-allotment option
of $30,000. The underwriters exercised their over-allotment option in June 1996.
The net proceeds to the Company, after deducting underwriting discounts and
commissions and offering expenses, were approximately $223,000.
REVOLVING CREDIT FACILITY
In June 1996, the Company entered into a commitment letter with a bank,
subject to the satisfaction of a number of conditions, including execution of a
definitive credit agreement and related documentation, pursuant to which a
syndicate of financial institutions with the bank, as agent, will provide a
$250,000 revolving credit facility (the "Credit Facility") bearing interest, at
the Company's option, at the bank's base rate, plus an applicable margin of up
to 1.25%, or a eurodollar rate plus an applicable margin of up to 2.5%. The
Credit Facility is expected to be secured by all of the assets of the Company
and is expected to contain customary covenants, including financial covenants
with respect to the Company's net worth and fixed charges coverage ratio and
customary default provisions relating to non-payment of principal and interest,
default under other debt agreements, bankruptcy and change in control events.
NOTE 16--SUBSEQUENT EVENTS (UNAUDITED)
During the first quarter of fiscal 1997, the Company completed a total of 28
business combinations, 10 accounted for under the pooling-of-interests method
and 18 accounted for under the purchase method. Included in the business
combinations completed during the first quarter of fiscal 1997 was the
purchase acquisition of Whitcoulls Group Limited ("Whitcoulls"), the largest
contract stationer/office products company in the Australia-New Zealand
Market. As the acquisition of Whitcoulls was completed on the last day of
the quarter, the consolidated results of operations for the three months
ended July 27, 1996 do not reflect any impact from Whitcoulls, however, the
balance sheet of Whitcoulls is included in the Company's July 27, 1996
consolidated balance sheet.
Subsequent to July 27, 1996, the Company has completed 11 business
combinations for an aggregate purchase price of $65.4 million, consisting of
approximately $16.1 million of cash and 1,709,778 shares of the Company's
common stock with a market value of approximately $49.3 million.
In August 1996, the Company entered into an agreement with Bankers Trust
Company (the "Bank"), whereby the Bank, or a syndicate of financial
institutions including the Bank, will provide a $500 million revolving credit
facility (the "Credit Facility") bearing interest, at the Company's option,
at the Bank's base rate plus an applicable margin of up to 1.25%, or a
eurodollar rate plus an applicable margin of up to 2.5%. The availability
under the Credit Facility is subject to certain sublimits including $100
million for working capital loans and $400 million for acquisition loans,
with $180 million of the acquisition loan sublimit available and expected to
be used to refinance certain outstanding indebtedness of the Company in
Australia and New Zealand. The Credit Facility is secured by a majority of
the assets of the Company and contains customary convenants, including
financial covenants with respect to the Company's leverage and interest
coverage ratios, capital expenditures, payment of dividends and purchases
and sales of assets, and customary default provisions, including provisions
related to non-payment of principal and interest, default under other debt
agreements and bankruptcy.
In August 1996, at the Company's Annual Meeting of Stockholders, the
stockholders approved, among other things, a proposal by the Board of
Directors of the Company to adopt an amendment to Article Four of the
Company's Restated Certificate of Incorporation to increase the number of
shares of the Company's Common Stock, par value $.001 per share, authorized
for issuance from 100,000,000 shares to 500,000,000 shares.
On August 20, 1996, the Company's Board of Directors approved a change in the
Company's fiscal year-end, effective for the 1997 fiscal year, from April 30
to the last Saturday of April.
26
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined balance sheet gives effect to the
businesses acquired by the Company after July 27, 1996 (the "Fiscal 1997
Completed Acquisitions"), and the 21 acquisitions the Company considers
probable to occur (the "Fiscal 1997 Pending Acquisitions") as if all such
acquisitions had occurred as of the Company's most recent balance sheet date,
July 27, 1996. The unaudited pro forma combined balance sheet also gives
effect to the sale by the Company in September 1996 (the September Stock
Sale) of 1,250,000 shares of the Company's common stock (the "Common Stock")
as if such sale had been made on July 27, 1996.
The pro forma combined statement of income for the year ended April 30,
1996 gives effect to (i) the acquisitions completed during fiscal 1996 in
business combinations accounted for under the purchase method of accounting
(the "Fiscal 1996 Purchased Companies") as if all such acquisitions had been
made on May 1, 1995; (ii) the Fiscal 1997 Completed Acquisitions and the
Fiscal 1997 Pending Acquisitions as if all such acquisitions had been made on
May 1, 1995; (iii) the sales completed by the Company in August 1995 of
4,025,000 shares of Common Stock (the "Second Offering") as if such sales had
been made on May 1, 1995; (iv) the sales by the Company in February and March
1996 (the "February Offerings") of 5,543,045 shares of Common Stock and
5-1/2% Convertible Subordinated Notes due 2001 (the "February Notes") in the
principal amount of $143.75 million as if such sales had been made on May 1,
1995; and (v) the sales by the Company of 5-1/2% Convertible Subordinated
Notes due 2003 (the "May Notes") in May and June 1996 as if such sales had
been made on May 1, 1995.
The historical financial statements of the Company give retroactive
effect to the results of companies acquired by the Company in fiscal 1997 and
1996 in business combinations accounted for under the pooling-of-interests
method.
The pro forma combined statement of income for the year ended April 30,
1996 includes (i) the audited financial information of the Company for the
year ended April 30, 1996, (ii) the unaudited financial information of the
businesses acquired during fiscal 1996 in business combinations accounted for
under the purchase method of accounting (the "Fiscal 1996 Purchased
Companies") for the period from May 1, 1995 to the consummation date and
(iii) the unaudited financial information of the Fiscal 1997 Completed
Acquisitions and the Fiscal 1997 Pending Acquisitions for the most recently
completed fiscal year, except that unaudited financial information for the
year ended April 30, 1996 is included for each such acquisition, accounted
for or to be accounted for under the purchase method, where the entity's
fiscal year end is not within 93 days of the Company's year end.
The pro forma combined statement of income for the three months ended
July 27, 1996 gives effect to the Fiscal 1997 Completed Acquisitions and the
Fiscal 1997 Pending Acquisitions for the three months ended July 27, 1996 and
includes the unaudited interim financial information of the Company.
The pro forma combined statement of income for the three months ended July
31, 1995 gives effect to the Fiscal 1996 Purchased Companies, the Fiscal 1997
Completed Acquisitions and the Fiscal 1997 Pending Acquisitions for the three
months ended July 31, 1995, and includes the unaudited financial information
of the Company.
The pro forma combined statement of income for the years ended April 30,
1995 and 1994 gives effect to the Fiscal 1997 Pending Acquisitions which will
be accounted for under the pooling-of-interests method.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport
to represent the results the Company would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of
the period, as assumed, or the future results of the Company. The pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Report and
in other reports filed by the Company.
27
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED BALANCE SHEET
JULY 27, 1996
(000's)
<TABLE>
<CAPTION>
Fiscal Year 1997
---------------------------
U.S. Office
Products Completed Pending Pro Forma Pro Forma
Company Acquisitions Acquisitions Adjustments Combined
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 98,947 $ 1,867 $ 6,187 $(58,869) (b) $ 44,948
38,125 (a)
(41,309) (b)
Accounts receivable 230,385 10,330 16,532 - 257,247
Lease receivable 29,561 29,561
Inventory 190,665 6,465 10,326 - 207,456
Prepaid and other current assets 28,407 1,911 1,871 - 32,189
---------- ------- ------- -------- ----------
Total current assets 577,965 20,573 34,916 (62,053) 571,401
Property and equipment, net 145,687 8,648 13,914 - 168,249
Intangible assets, net 396,835 1,261 9,572 115,710 (b) 523,378
Lease receivables 46,232 46,232
Other assets 25,117 845 1,975 - 27,937
---------- ------- ------- -------- ----------
Total assets $1,191,836 $31,327 $60,377 $ 53,657 $1,337,197
---------- ------- ------- -------- ----------
---------- ------- ------- -------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 155,838 $ 4,300 $ 2,953 $ - $ 163,091
Accounts payable 142,493 6,336 13,352 - 162,181
Accrued compensation 16,983 1,076 606 - 18,665
Other accrued liabilities 49,029 1,495 13,941 - 64,465
---------- ------- ------- -------- ----------
Total current liabilities 364,343 13,207 30,852 - 408,402
Long-term debt 427,138 2,352 3,957 (41,309) (b) 392,138
Notes payable to related parties - 1,746 7,581 - 9,327
Deferred income taxes 6,427 934 221 - 7,582
Other long -term liabilities 3,199 421 487 - 4,107
---------- ------- ------- -------- ----------
Total liabilities 801,107 18,660 43,098 (41,309) 821,556
Minority Interest 2,557 - - - 2,557
Stockholders' equity
Common stock 39 155 227 (379) (b) 43
1 (a)
Additional paid-in capital 356,423 - 58 80,168 (b) 474,773
38,124 (a)
Cumulative Translation Adjustment 2,626 - - - 2,626
Retained earnings 29,084 1,391 5,167 - 35,642
Equity of Purchased Companies 11,121 11,827 (22,948) (b) -
---------- ------- ------- -------- ----------
Total stockholders' equity 388,172 12,667 17,279 94,966 513,084
---------- ------- ------- -------- ----------
Total liabilities and
stockholders' equity $1,191,836 $31,327 $60,377 $ 53,657 $1,337,197
---------- ------- ------- -------- ----------
---------- ------- ------- -------- ----------
</TABLE>
28
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1996
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Year 1997
Fiscal Year ---------------------------
U.S. Office 1995
Products Purchased Completed Pending Pro Forma Pro Forma
Company Companies Acquisitions Acquisitions Adjustments Combined
------------ ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $968,008 $307,954 $681,902 $211,446 $ - $2,169,310
Cost of revenues 709,871 214,072 458,784 146,518 - 1,529,245
-------- -------- -------- -------- ------- ----------
Gross profit 258,137 93,882 223,118 64,928 - 640,065
Selling, general and
administrative expenses 224,454 84,070 181,298 56,133 8,007 (c) 543,561
(7,869) (d)
(2,532) (e)
Nonrecurring acquisition
costs 8,057 - - - (8,057) (e) -
Nonrecurring restructuring
costs 8,092 - - 8,092
Discontinuation of printing
division at subsidiary 682 - - - 682
-------- -------- -------- -------- ------- ----------
Operating income 24,944 1,720 41,820 8,795 10,451 87,730
Other (income) expense:
Interest expense 12,405 2,761 8,015 604 6,399 (f) 30,184
Interest income (3,272) - (343) (106) 2,750 (f) (971)
Other (1,066) (24) (403) (95) - (1,588)
Minority Interest in
subsidiaries 671 - 69 - (671) (g) 69
-------- -------- -------- -------- ------- ----------
Income (loss) before
provision for income taxes 16,206 (1,017) 34,482 8,392 1,973 60,036
Provision for income taxes 5,414 45 10,187 2,156 8,320 (h) 26,122
-------- -------- -------- -------- ------- ----------
Net income (loss) 10,792 (1,062) 24,295 6,236 (6,347) 33,914
-------- -------- -------- -------- ------- ----------
-------- -------- -------- -------- ------- ----------
Weighted average shares
outstanding 42,330 (i)
Net income per share $ 0.80
----------
----------
</TABLE>
29
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JULY 27, 1996
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Year 1997
---------------------------
U.S. Office
Products Completed Pending Pro Forma Pro Forma
Company Acquisitions Acquisitions Adjustments Combined
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues $352,638 $137,074 $45,281 $ - $534,993
Cost of revenues 253,017 89,341 31,487 - 373,845
-------- -------- ------- ------- --------
Gross profit 99,621 47,733 13,794 - 161,148
Selling, general and
administrative expenses 82,561 40,320 12,731 1,609 (c) $135,254
(1,967) (d)
Nonrecurring acquisition costs 1,657 - - (1,657) (e) -
Nonrecurring restructuring costs - - - -
Discontinuation of printing
division at subsidiary - - - -
-------- -------- ------- ------- --------
Operating income 15,403 7,413 1,063 2,015 25,894
Other (income) expense:
Interest expense 6,949 1,717 274 976 (f) 9,916
Interest income (4,185) (67) (47) 2,300 (f) (1,999)
Other 206 (67) (69) - 70
Minority Interest in subsidiary (222) - - - (222)
-------- -------- ------- ------- --------
Income (loss) before provision
for income taxes 12,655 5,830 905 (1,261) 18,129
Provision for income taxes 5,151 2,388 228 119 (h) 7,886
-------- -------- ------- ------- --------
Net income (loss) 7,504 3,442 677 (1,380) 10,243
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
Weighted average shares outstanding 43,018 (i)
Net income per share $ 0.24
--------
--------
</TABLE>
30
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JULY 31, 1995
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
Fiscal Year 1997
Fiscal Year ---------------------------
U.S. Office 1996
Products Purchased Completed Pending Pro Forma Pro Forma
Company Companies Acquisitions Acquisitions Adjustments Combined
------------ ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $166,742 $125,549 $158,780 $51,894 $ - $502,965
Cost of revenues 124,785 89,904 115,167 34,934 - 364,790
-------- -------- -------- -------- ------- ----------
Gross profit 41,957 35,645 43,613 16,960 - 138,175
Selling, general and
administrative expenses 41,033 30,067 40,672 15,141 2,277 (c) $128,033
(1,157) (d)
Nonrecurring acquisition
costs 4,671 - - - (4,671) (e) -
Nonrecurring restructuring
costs - - - -
Discontinuation of printing
division at subsidiary - - - -
-------- -------- -------- -------- ------- ----------
Operating income (3,747) 5,578 2,941 1,819 3,551 10,142
Other (income) expense:
Interest expense 2,082 1,170 2,371 165 3,111 (f) 8,899
Interest income (142) (5) (29) (214) - (390)
Other (99) 1,164 (142) (162) - 761
Minority Interest in
subsidiary - - (2) - (2)
-------- -------- -------- -------- ------- ----------
Income (loss) before
provision for income taxes (5,588) 3,249 741 2,032 440 874
Provision for income taxes (1,469) 1,032 1,127 493 (803) (h) 380
-------- -------- -------- -------- ------- ----------
Net income (loss) (4,119) 2,217 (386) 1,539 1,243 494
-------- -------- -------- -------- ------- ----------
-------- -------- -------- -------- ------- ----------
Weighted average shares
outstanding 41,980 (i)
Net income per share $ 0.01
----------
----------
</TABLE>
31
<PAGE>
U. S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1995
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
Pending
U.S. Office 1997 Pro-Forma
Products Poolings Adjustments Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 579,539 $ 43,439 $ - $ 622,978
Cost of revenues 426,426 30,153 - 456,579
------------- ------------- ------------- -------------
Gross profit 153,113 13,286 - 166,399
Selling, general and administrative expenses 134,652 13,378 - 148,030
------------- ------------- ------------- -------------
Operating income 18,461 (92) - 18,369
Other (income) expense:
Interest expense 5,641 21 - 5,662
Interest income (504) (24) - (528)
Other (409) (289) - (698)
------------- ------------- ------------- -------------
Income before provision for income taxes 13,733 200 - 13,933
Provision for income taxes 2,171 (94) 4,054 (j) 6,131
------------- ------------- ------------- -------------
Net income $ 11,562 $ 294 $ (4,054) $ 7,802
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
32
<PAGE>
U. S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1994
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
Pending
U.S. Office 1997 Pro-Forma
Products Poolings Adjustments Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 436,480 $ 45,213 $ - $ 481,693
Cost of revenues 310,051 32,787 - 342,838
------------- ------------- ------------- -------------
Gross profit 126,429 12,426 - 138,855
Selling, general and administrative expenses 114,661 12,769 - 127,430
------------- ------------- ------------- -------------
Operating income 11,768 (343) - 11,425
Other (income) expense:
Interest expense 3,683 42 - 3,725
Interest income (266) (51) - (317)
Other (964) (299) - (1,263)
------------- ------------- ------------- -------------
Income before provision for income taxes 9,315 (35) - 9,280
Provision for income taxes 1,618 51 2,414 (j) 4,083
------------- ------------- ------------- -------------
Net income $ 7,697 $ (86) $ (2,414) $ 5,197
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
33
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reflect $38,125 of proceeds from the sale of 1,250,000
shares of Common Stock in the September Stock Sale.
(b) Adjustment to reflect purchase price adjustments and repayment of certain
long-term debt associated with the Fiscal 1997 Completed Acquisitions
and the Fiscal 1997 Pending Acquisitions noted below. The portion of the
consideration assigned to goodwill in transactions accounted for as
purchases represents the excess of the cost over the fair value of the net
assets acquired. The Company amortizes goodwill over a period of 40
years. The recoverability of the unamortized goodwill will be assessed
on an ongoing basis by comparing anticipated undiscounted future cash
flows from operations to net book value.
<TABLE>
<CAPTION>
STOCK
------------------------
COMPANY CONSIDERATION CASH SHARES VALUE GOODWILL
- ---------------------------------------- ------------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal 1997 Completed Acquisitions
Significant .......................... $ 39,430 $ 7,886 1,106,807 $ 31,544 $ 31,074
Other ................................ 22,042 8,245 602,971 13,797 19,277
------------- --------- ------------ ---------- ----------
Total............................... 61,472 16,131 1,709,778 45,341 50,351
Fiscal 1997 Pending Acquisitions........ 93,136 42,738 1,528,145 50,398 65,359
------------- --------- ------------ ---------- ----------
Total .................................. $ 154,608 $ 58,869 3,237,923 $ 95,739 $ 115,710
------------- --------- ------------ ---------- ----------
------------- --------- ------------ ---------- ----------
</TABLE>
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(c) Adjustment to reflect the increase in amortization expense relating to
the goodwill recorded in purchase accounting related to the 1996
Purchased Companies, the Fiscal 1997 Completed Acquisitions, and the
Fiscal 1997 Pending Acquisitions accounted for or to be accounted for
under the purchase method of accounting. The goodwill is being
amortized over an estimated life of 40 years.
<TABLE>
<CAPTION>
YEAR ENDED FOR THE THREE MONTHS ENDED
APRIL 30, JULY 27, JULY 31,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
1996 Purchased Companies .................................... $ 1,570 -- 668
Fiscal 1997 Completed Acquisitions .......................... 4,657 1,164 1,164
Fiscal 1997 Pending Acquisitions ............................ 1,780 445 445
----------- ----------- -----------
$ 8,007 1,609 2,277
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(d) Adjustment to reflect the reduction in executive compensation, as a
result of the elimination of certain executive positions and the
renegotiation of executive compensation arrangements.
34
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
(e) Adjustment to reflect the reduction of (i) nonrecurring acquisition
costs related to pooling-of-interests business combinations of $8,057
for the year ended April 30, 1996, $1,657 and $4,671 for the three months
ended July 27, 1996 and July 31, 1995, respectively, and (ii) certain
other restructuring charges from certain acquisitions.
(f) Adjustment to reflect an increase in interest expense resulting from
the utilization of the proceeds from the sales of the February Notes
and the May Notes to effect acquisitions as if such debt had been
outstanding for the entire period. In addition, the adjustment reflects an
increase in interest expense resulting from the amortization of debt issue
costs over the terms of the February Notes and May Notes. The increase is
offset by a reduction of interest expense resulting from refinancing of
existing debt of the Fiscal 1997 Completed Acquisitions and the Fiscal 1997
Pending Acquisitions. Adjustment also reflects a decrease in interest
income resulting from the utilization of a portion of the proceeds from
the issuance of Commmon Stock and the February Notes in the February
Offerings to effect certain transactions and refinance existing debt.
(g) Adjustment to reflect the elimination of the minority interest
representing 49% of the net income of Blue Star for the year ended
April 30, 1996.
(h) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 44%.
The difference between the effective tax rate of 44% and the statutory
tax rate of 35% relates primarily to state income taxes and
non-deductible goodwill.
(i) The weighted average shares outstanding used to calculate pro forma
earnings per share is based on 42,330, 43,018, and 41,980 shares of Common
Stock and Common Stock equivalents outstanding for the year ended April 30,
1996 and the three months ended July 27, 1996 and July 31, 1995,
respectively. The amounts are comprised of 38,614 shares outstanding for
each of the periods, 1,710 shares issued for Fiscal 1997 completed
acquisitions, 1,528 shares to be issued for the Fiscal 1997 Pending
Acquisitions and 478, 1,166, and 128 common stock equivalents considered to
be outstanding related to stock options, for the year ended April 30,
1996, and the three month periods ended July 27, 1996 and July 31, 1995,
respectively.
(j) Adjustment to reflect the income taxes for certain acquisitions
accounted for under the poolings-of-interests method which were taxed as
subchapter S corporations as if these companies had been subject to
taxation as C corporations. As a result of being subchapter S corporations,
any tax liabilities prior to acquisition were the responsibility of the
individual company stockholders.
35
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Raleigh Office Supply Company, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Raleigh Office Supply Company,
Inc. at August 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for the opinion expressed above.
As described in Note 12 to the financial statements, on March 6, 1996 the
Company's shareholders entered into a letter of intent to sell all of its
issued and outstanding shares of common stock to U.S. Office Products Company.
Price Waterhouse LLP
Minneapolis, Minnesota
March 8, 1996
1
<PAGE>
Raleigh Office Supply Company, Inc.
Balance Sheet
<TABLE>
<CAPTION>
August 31, February 28,
1995 1996
------ -----
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash, including interest-bearing deposits $1,906,070 $ 800,478
Accounts receivable -- trade 3,341,272 3,610,594
Accrued interest receivable 17,057 --
Current portion notes receivable -- related parties 35,920 --
Inventories 2,182,999 2,768,672
--------- ---------
Total current assets 7,483,318 7,179,744
Property and equipment, net 835,715 792,079
Notes receivable -- related parties 74,080 128,265
Excise tax deposit 84,150 84,150
Other assets 185,623 10,885
---------- ---------
Total assets $8,662,886 $8,195,123
----------- ----------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 628,228 $ 551,369
Accrued profit-sharing contribution 165,000 --
Deposit from customers 53,893 --
Accrued liabilities:
Salaries and wages 321,095 200,891
Sales tax 76,055 51,054
Other liabilities 35,086 1,703
---------- ----------
Total current liabilities 1,279,357 805,017
---------- ----------
Commitments
Shareholders' equity:
Class A common stock, par value $10 per share; 1,000 shares
authorized, and 922 shares issued and outstanding 9,220 9,220
Class B common stock, par value $10 per share; 199,000
shares authorized, and 9,677 shares issued and outstanding 96,770 96,770
Additional paid-in capital 269,540 269,540
Retained earnings 7,007,999 7,014,576
---------- ----------
Total shareholders' equity 7,383,529 7,390,106
---------- ----------
Total liabilities and shareholders' equity $8,662,886 $8,195,123
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Raleigh Office Supply Company, Inc.
Statement of Operations
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
August 31, February 28,
1995 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Sales $28,003,087 $13,739,623 $13,464,204
Cost of sales 21,817,362 10,230,792 9,961,242
----------- ----------- -----------
Gross profit 6,185,725 3,508,831 3,502,962
Selling, general and administrative expenses 5,335,977 3,211,787 2,993,695
---------- ---------- ----------
Operating income 849,748 297,044 509,267
Interest expense 191 -- --
Other income, net of other expense (56,659) (38,296) (298,828)
---------- ---------- -----------
Net income $ 906,216 $ 335,340 $ 808,095
---------- ---------- -----------
Unaudited pro forma net income (see
Note 12) $ 543,730 $ 201,204 $ 484,857
---------- ----------- -----------
</TABLE>
3
<PAGE>
Raleigh Office Supply Company, Inc.
Statement of Cash Flows
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
August 31, February 28,
1995 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 906,216 $ 335,340 $ 808,095
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 232,439 115,558 105,000
Gain on sale of investments (15,806) -- --
Loss on disposal of property and equipment 107,026 -- --
(Increase) decrease in assets:
Accounts receivable - trade (226,656) (660,875) (216,345)
Inventories 136,413 (171,642) (585,673)
Excise tax deposit (6,349) -- --
Other assets (9,769) (284,180) 120,553
Interest receivable (17,057) -- --
Increase (decrease) in liabilities:
Accounts payable (125,262) 77,741 (76,859)
Accrued profit sharing contributions 1,300 (89,893) (285,204)
Deposit from customer (22,788) -- --
Accrued liabilities 85,061 (39,484) (112,277)
---------- ---------- -----------
Net cash provided by (used in)
operating activities 1,044,768 (717,435) (242,710)
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures (318,769) (317,435) (61,364)
Proceeds from sale of marketable securities 1,000,000 -- --
Proceeds from disposal of property and equipment 13,635 -- --
Receipts on notes receivable - officers 10,000 -- --
Advances to related parties (100,000) -- --
---------- ----------- ------------
Net cash provided by (used in)
investing activities 604,866 (317,653) (61,364)
---------- ----------- ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (25,600) -- --
Dividends paid to stockholders (400,000) (392,880) (801,518)
----------- ----------- ------------
Net cash used in financing activities (425,600) (392,880) (801,518)
----------- ----------- ------------
Net increase (decrease) in cash 1,224,034 (1,427,968) (1,105,592)
Cash at beginning of period 682,036 1,706,572 1,906,070
---------- ---------- ------------
Cash at end of period $1,906,070 $ 278,604 $ 800,478
---------- ---------- -------------
Supplemental information:
Interest paid $ 191 $ -- $ --
---------- ----------- -----------
</TABLE>
4
<PAGE>
Raleigh Office Supply Company, Inc.
Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Additional
COMMON STOCK Paid-in Retained
CLASS A CLASS B CAPITAL EARNINGS TOTAL
------- ------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1994 $9,220 $96,770 $ 269,540 $6,501,783 $6,877,313
Distribution to shareholders (400,000) (400,000)
Net income 906,216 906,216
------ ------- ---------- ----------- ---------
Balance at August 31, 1995 9,220 96,770 269,540 7,007,999 7,383,529
Distribution to shareholders (801,518) (801,518)
Net income (unaudited) 808,095 808,095
-------- -------- ----------- ----------- ---------
Balance at February 28,
1996 (unaudited) $ 9,220 $96,770 $ 269,540 $ 7,014,576 $7,390,106
------- ------- ---------- ----------- ----------
</TABLE>
5
<PAGE>
Raleigh Office Supply Company, Inc.
Notes to Financial Statements
Note 1 -- Business Organization
Raleigh Office Supply Company, Inc. (the "Company") is a retailer and
distributor of office supplies and office furnishings in North Carolina. The
Company's operations are segregated into two divisions, Raleigh Office Supply
and Carolina Office Supply.
Note 2 -- Summary of Significant Accounting Principals
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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK -- The Company sells office supplies and office
furniture to companies located primarily in the Raleigh-Durham-Chapel Hill
area of North Carolina. Financial instruments which potentially subject the
Company to credit risk consist primarily of accounts receivable. The Company
grants credit to customers in the ordinary course of business. No customer
represents a significant concentration of credit risk.
REVENUE RECOGNITION -- Revenues are recognized upon the delivery of office
products to customers.
ACCOUNTS RECEIVABLE -- Management has determined that accounts receivable are
fully collectible; therefore, no allowance for doubtful accounts has been
provided.
INVENTORIES -- Inventories of office supplies and furnishings are stated at
the lower of cost or market with cost determined by the first-in, first-out
("FIFO") method and consist primarily of product held for sale.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are
depreciated over their estimated useful lives primarily utilizing accelerated
methods.
CLASSIFICATION OF PROPERTY ESTIMATED USEFUL LIFE
Buildings and improvements 7 -- 31.5 years
Vehicles 3-5 years
Furniture and equipment 3-7 years
6
<PAGE>
Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized. Upon
disposition of property and equipment, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain or loss is
reflected in operations for the period.
INCOME TAXES -- The Company is a Subchapter S Corporation for income tax
purposes and, accordingly, any income tax liabilities are the responsibility
of the stockholders. The Company's Subchapter S Corporation status will
terminate on consummation of the Merger discussed in Note 12.
UNAUDITED INTERIM FINANCIAL STATEMENTS -- In the opinion of management, the
Company has made all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial condition of the
Company as of February 28, 1996 and the results of operations and cash flows
for the six months ended February 28, 1996 and 1995, as presented in the
accompanying unaudited financial statements.
Note 3 -- Interest Bearing Deposits
Cash includes interest bearing deposits of $1,853,000 at August 31, 1995 with
original maturities of three months or less.
Note 4 -- Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
August 31,
1995
----
<S> <C>
Land $ 114,740
Buildings 1,120,629
Furniture and fixtures 854,576
Autos and trucks 762,791
----------
2,852,736
Less: Accumulated depreciation and amortization (2,017,021)
----------
Net property and equipment $ 835,715
----------
</TABLE>
7
<PAGE>
Note 5 -- Notes Receivable and Related Party Transactions
The Company had 7.6% notes receivable from officers totaling $10,000 at
August 31, 1995, collateralized by liens on real estate. Final payment on
these notes will be in September, 1995. Interest income related to these
notes totaled $775 in 1995.
During 1995, the Company loaned $100,000 to Village Book and Stationery,
Inc., a company affiliated by common ownership. Subsequent to year-end the
Company loaned Village Book and Stationery, Inc. an additional $30,000. The
note carries interest at 8.75% and calls for monthly payments of principal
and interest of $2,683 beginning in October, 1995 through September, 2000.
Note 6 -- Credit Facilities
At August 31, 1995, the Company maintained an unsecured line of credit with
First Citizens Bank, NC allowing for borrowings of up to $500,000. No draws
were made on this line during 1995.
Note 7 -- Capital Stock
Class A common shareholders have the exclusive right to vote at all meetings
of shareholders. Class B common shareholders have the same rights as Class A
common shareholders except that the Class B common shares are non-voting
shares, except as provided by statute. Dividends are based on total
outstanding shares of Class A and B common stock.
Note 8 -- Lease Obligations
During 1995, the Company renegotiated its lease for retail and storage space
at its Durham location. Under the terms of the new one year lease, which was
effective in August, 1995, the Company is required to pay a base annual rent
of $60,000 for a one-year term ending August, 1996.
Rental expense related to this lease was $103,255 in 1995.
8
<PAGE>
Note 9 -- Profit Sharing Plan
The Company maintains a profit-sharing plan for full-time employees who meet
eligibility requirements regarding term of service and age. The annual
contribution to the plan is at the discretion of the Board of Directors with
a maximum allowable by the Internal Revenue Service of fifteen percent of the
salaries of eligible participants. For 1995 the Board elected to make a
contribution of $165,000.
Note 10 -- Self-insured Health Plan
The Company maintains a self-insured health insurance plan for substantially
all full-time employees. Under the terms of the plan, employee medical
expenses over a specified deductible amount are paid by the Company. The
Company maintains separate insurance for individual medical expenses in
excess of $25,000. For 1995 group insurance costs and unreimbursed medical
expenses were $266,206.
Note 11 -- Unaudited Pro Forma Income Tax Information
The following unaudited pro forma tax information is presented as if the
Company had been a subchapter C corporation subject to federal and state
income taxes throughout the periods presented and had accounted for income
taxes in accordance with Statement of Financial Accounting Standard No. 109.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
August 31, February 28,
1995 1995 1996
----- ---- -----
<S> <C> <C> <C>
Net income per statement of operations $ 906,216 $ 335,340 $ 808,095
Pro forma income tax provision adjustment 362,486 134,136 323,238
------------ ----------- -------------
Pro forma net income $ 543,730 $ 201,204 $ 484,857
------------ ------------ -------------
</TABLE>
Note 12 -- Subsequent Events
On March 6, 1996, the Company and its shareholders entered into a letter of
intent with U. S. Office Products Company ("U. S. Office Products") pursuant
to which the Company's shareholders agreed to merge the Company with U. S.
Office Products. Pursuant to the Merger Agreement, all of the outstanding
shares of the Company's common stock would be purchased by U. S. Office
Products.
9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Emmons-Napp Office Products, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, divisional equity and of cash flows present fairly, in all
material respects, the financial position of Emmons-Napp Office Products,
Inc. --Commercial Division (a division of Emmons -- Napp Office Products,
Inc. (the Company)) at December 31, 1995 and December 31, 1994, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Division's and the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in note 1 to the Financial Statements, on January 15, 1996
the Company sold certain assets and liabilities to U.S. Office Products.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
May 15, 1996
1
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash.............................................................................. $ -- $ 2,410
Accounts receivable:
Trade receivables, less allowance for doubtful accounts of $67,000 and $117,000,
respectively.................................................................. 2,811,195 $2,675,932
Accounts Receivable from Related Party.......................................... -- 1,152,874
Other receivables............................................................... 397,995 --
Inventories..................................................................... 1,084,832 854,122
Prepaid expenses................................................................ 54,700 422,481
------------ ------------
Total current assets.......................................................... 4,348,722 5,107,819
Property and equipment, net....................................................... 964,131 1,187,786
Goodwill, net of accumulated amortization of $80,238 and $101,309, respectively... 107,485 --
Other assets...................................................................... 12,882 18,382
------------ ------------
Total assets.................................................................. $5,433,220 $6,313,987
------------ ------------
------------ ------------
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable................................................................ $1,642,130 $1,835,480
Accrued expenses................................................................ 741,365 682,136
Current portion of capital lease obligations.................................... 90,781 51,016
------------ ------------
Total current liabilities..................................................... 2,474,276 2,568,632
Bank debt......................................................................... 675,013 --
Capital lease obligations......................................................... 273,517 130,988
------------ ------------
Total liabilities............................................................. 3,422,806 2,699,620
------------ ------------
------------ ------------
Commitments and contingencies (Note 6 and 7)
Divisional equity................................................................. 2,010,414 3,614,367
------------ ------------
Total liabilities and divisional equity....................................... $5,433,220 $6,313,987
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
<S> <C> <C>
Revenues........................................................................ $ 25,822,855 $ 27,016,701
Cost of sales................................................................... 19,717,414 20,671,424
------------- -------------
Gross margin.................................................................. 6,105,441 6,345,277
Selling, general and administrative expenses.................................... 4,270,002 4,056,876
------------- -------------
Operating income................................................................ 1,835,439 2,288,401
Interest expense................................................................ 120,039 44,448
------------- -------------
Net income.................................................................. $ 1,715,400 $ 2,243,953
------------- -------------
------------- -------------
Unaudited pro forma net income (see Note 9)..................................... $ 1,029,400 $ 1,305,824
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DIVISIONAL
EQUITY
------------
<S> <C>
Balance at December 31, 1993........................................................................ $ 845,014
Net income........................................................................................ 1,715,400
Dividends paid.................................................................................... (550,000)
------------
Balance at December 31, 1994........................................................................ 2,010,414
Net income........................................................................................ 2,243,953
Dividends paid.................................................................................... (640,000)
------------
Balance at December 31, 1995........................................................................ $ 3,614,367
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 1,715,400 $ 2,243,953
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 169,729 329,373
Increase (decrease) in cash resulting from changes in:
Accounts receivable.......................................................... (721,490) 533,258
Accounts receivable from Related Party....................................... -- (1,152,874)
Inventories.................................................................. 61,539 230,710
Prepaid expenses............................................................. (8,683) (373,281)
Accounts payable............................................................. 356,304 193,350
Accrued expenses............................................................. 107,585 (59,229)
------------- -------------
Total adjustments.......................................................... (35,016) (298,693)
------------- -------------
Net cash provided by operating activities.................................. 1,680,384 1,945,260
------------- -------------
Cash flows from financing activities:
Purchases of property and equipment............................................ (314,300) (445,543)
Cash paid in acquisitions...................................................... (42,009) --
Changes in other noncurrent assets............................................. (690) --
------------- -------------
Net cash used for investing activities..................................... (356,999) (445,543)
------------- -------------
Cash flows from financing activities:
Payments on bank debt.......................................................... (698,001) (767,192)
Principal payments under capital leases........................................ (75,384) (90,115)
Dividends to stockholders...................................................... (550,000) (640,000)
------------- -------------
Net cash used for financing activities..................................... (1,323,385) (1,497,307)
------------- -------------
Net (decrease) increase in cash.................................................. 0 2,410
Cash, beginning of period........................................................ 0 0
------------- -------------
Cash, end of period.............................................................. $ 0 $ 2,410
------------- -------------
------------- -------------
Supplemental disclosures
Cash paid for:
Interest....................................................................... $ 119,755 $ 54,985
</TABLE>
A capital lease obligation of $260,737 was incurred during 1994 when the
Division entered into a lease for new furniture and fixtures.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements represent the accounts of Emmons-Napp
Office Products, Inc. -- Commercial Division (the Division) of Emmons-Napp
Office Products, Inc. (the Company).
The Division is not a separate legal or historical reporting entity, but
rather represents the activities and resulting account balances of certain
activities of the Company. These activities consist primarily of wholesale
supply of office supplies and office furniture and retail sale of office
supplies through retail stores located in Wisconsin and Michigan.
The Division represents approximately 40% and 69% of the Company's assets at
December 31, 1994 and December 31, 1995, respectively, and 73% and 77% of its
net sales for the years ended December 31, 1994 and 1995, respectively.
Certain expenses of the Company, including sales commissions, wages,
utilities and rent, are directly identifiable to the Division's operations. The
Company's methodology for allocating various other general and administrative
expenses to the Division vary based on sales volume, employee head count,
operating expense levels, and management's judgement. These allocations consider
the incremental costs associated with operating the Division and management
believes that the allocations of such costs to the Division is reasonable.
Allocations of general and administrative expenses to the Division approximated
$1.1 million for the year ended December 31, 1994 and $310,000 for the year
ended December 31, 1995.
Substantially all of the Company's bank debt is attributable to operations
other than the Division's. Bank debt is allocated based upon working capital
requirements. Interest expense related to the debt is allocated based on the
average outstanding debt balance. Interest expense on the debt allocated to the
Division totalled $91,000 for the year ended December 31, 1994 and $21,000 for
the year ended December 31, 1995.
On January 15, 1996 the Company sold certain assets and liabilities of
the Division to U.S. Office Products Company for $14.2 million consisting of
$9 million of cash and 315,152 shares of common stock with a market value of
$5.2 million. The business combination will be accounted for using the
purchase method.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE REECOGNITION
Revenues are recognized upon the delivery of office products to customers.
TRADE RECEIVABLES
The Division performs on-going credit evaluations of its customers and
generally does not require collateral on trade receivables. The Division
believes that trade receivables are well diversified, thereby reducing potential
credit risk, and that an adequate allowance for any uncollectible trade
receivables is maintained.
At December 31, 1994 and December 31, 1995 the Division did not have a
significant concentration of sales or accounts receivable with any single
customer.
INVENTORIES
Inventories, are stated at the lower of cost or market with cost being
determined on the first in, first out method and consists primarily of products
held for sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over the
estimated useful lives ranging from six to fifteen years using the straight-line
method. Expenditures which substantially increase an asset's value or extend its
useful life are capitalized. Property and equipment leased under capital leases
are being
6
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amortized over the lessor of their useful lives or their lease terms which are
five years. Expenditures for maintenance and repairs are charged against income
as incurred. When items of property are sold or otherwise disposed of, cost and
related accumulated depreciation are eliminated from the accounts. Any gain or
loss is reflected in income.
GOODWILL
Goodwill represents the excess of cost over the fair value of assets
acquired in business combinations accounted for under the purchase method.
Goodwill is amortized on a straight-line basis over estimated useful lives of 10
years.
The recoverability of unamortized goodwill is assessed by the Division on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net carrying values. At December 31, 1994 and December 31, 1995,
the Division believes that no impairment of goodwill has occurred and that no
revision of estimated useful lives is required.
INCOME TAXES
The Company has elected under the Internal Revenue Code to be treated as an
S Corporation. In lieu of corporate income taxes for federal and most state
income tax purposes, the shareholders of the Company are taxed on their
proportionate share of the taxable income and utilize their proportionate share
of the Company's tax credits. Therefore, no provision or liability for income
taxes exists at the Company or Divisional level as any income taxes are the
responsibility of the Company's shareholders.
NOTE 3 -- OTHER RECEIVABLES
Other receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Rebates receivable............................................ $ 375,099 $ 400,232
Other......................................................... 22,896 --
------------ ------------
$ 397,995 $ 400,232
------------ ------------
------------ ------------
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Furniture and fixtures........................................ $ 895,909 $ 955,792
Autos and trucks.............................................. 386,970 412,456
Leasehold improvements........................................ 42,739 122,836
------------ ------------
1,325,618 1,491,084
Less: Accumulated depreciation and amortization............... 361,487 303,298
------------ ------------
Net property and equipment.................................... $ 964,131 $1,187,786
------------ ------------
------------ ------------
</TABLE>
Depreciation and amortization expense was approximately $154,000 and
$190,000 for the years ended December 31, 1994 and 1995, respectively.
7
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- BANK DEBT
The Company has a revolving line of credit with a bank maturing at January
25, 1996 and provides for the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Maximum borrowings............................................ $4,000,000 $3,000,000
Interest rate:
Prime plus .375% per annum.................................. 8.875%
Prime per annum............................................. 8.5%
</TABLE>
Maximum borrowings under this agreement are secured by and may not exceed
50% and 75% of the Company's inventory and accounts receivable, respectively.
Division inventory and accounts receivable secure this debt beyond the amount of
debt included in the Division's financial statements. Total Company borrowings
under this agreement were $2,180,000 and 0 at December 31, 1994 and December 31,
1995, respectively. The agreement contains various restrictive covenants,
including the maintenance of minimum working capital, tangible net worth and
current ratio amounts and a maximum debt to net worth ratio as well as
limitations on capital expenditures. At December 31, 1994 and 1995, the Company
had violated certain financial ratio covenants relative to the agreement;
however, management obtained covenant waivers from the bank effective through
January 25, 1996.
NOTE 6 -- LEASE COMMITMENTS
The Division leases certain vehicles and computer equipment, and office,
stores and warehouse space under various non-cancelable lease arrangements which
have been accounted for as capital or operating leases, as appropriate. Future
minimum lease payments required under the leases in effect at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
---------- ---------- ------------
<S> <C> <C> <C>
Year ending December 31,
1996........................................................... $ 64,488 $ 185,384 $ 249,872
1997........................................................... 64,488 152,385 216,873
1998........................................................... 64,488 133,561 198,049
1999........................................................... 16,119 117,036 133,155
2000........................................................... -- 91,779 91,779
Thereafter..................................................... -- -- --
---------- ---------- ------------
Total future minimum lease payments............................ $ 209,583 $ 680,145 $ 889,728
---------- ------------
---------- ------------
Less imputed interest.......................................... 27,579
----------
Present value of future minimum lease payments................. 182,004
Less current portion........................................... 51,016
---------- ----------
Long-term capitalized lease obligation......................... $ 130,988
---------- ----------
---------- ----------
</TABLE>
Assets under capital lease with a cost of approximately $260,737 and net
book values of approximately $221,623 and $169,471 at December 31, 1994 and
December 31, 1995, respectively, are included in property and equipment in the
accompanying balance sheet. Amortization of the related lease obligations is
included with depreciation expense.
Rental expense for operating leases approximated $393,000 and $260,000 for
the year ended December 31, 1994 and 1995, respectively.
8
<PAGE>
EMMONS-NAPP OFFICE PRODUCTS, INC.
COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LEASE COMMITMENTS (CONTINUED)
The Division leases office, warehouse, and store space from four
companies whose owners are stockholders of the Company. The amounts paid to
these companies for the years ended December 31, 1994 and 1995 were
approximately $120,000 and $89,000, respectively.
NOTE 7 -- CONTINGENCIES
The Company has established a self-funded health insurance plan for its
employees including those of the Division. The plan administrators are
responsible for the approval, processing and payment of claims, after which
they bill the Division for reimbursement. The Division is also responsible
for a monthly administrative fee. As part of the health care coverage of the
plan, the Division purchases stop-loss coverage which pays claims in excess
of $20,000 per plan participant. The Division has recorded a $31,000 reserve
at December 31, 1994 and 1995 for reported and unreported claims which were
incurred and not paid on or before the respective dates. Management believes
the established reserve is adequate and resolution of these contingencies
will not have a material impact on the Division's financial statements.
NOTE 8 -- EMPLOYEE BENEFIT PLAN
The Company maintains a qualified defined contribution 401(k) plan
covering substantially all Divisional employees meeting age, length of
service and full time status requirements. The plan provides for voluntary
contributions by plan participants of up to 15% of their compensation.
Expense under the plan in the years ended December 31, 1994 and 1995 was
$37,000 and $26,000, respectively.
NOTE 9 -- UNAUDITED PRO FORMA INCOME TAX INFORMATION
The following unaudited pro forma tax information is presented as if the
Company had been a subchapter C corporation subject to federal and state income
taxes throughout the periods presented and had accounted for income taxes in
accordance with Statement of Financial Accounting Standard No. 109 (SFAS 109).
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ -------------
<S> <C> <C>
Net income before pro forma adjustments...................... $1,715,400 $ 2,176,373
Provision for income taxes................................... 686,000 870,549
------------ -------------
Pro forma net income......................................... $1,029,400 $ 1,305,824
------------ -------------
------------ -------------
</TABLE>
9
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of American Loose Leaf/Business Products, Inc.:
We have audited the accompanying consolidated balance sheet of American Loose
Leaf/Business Products, Inc. and subsidiary as of September 30, 1995 and the
related consolidated statement of income and retained earnings, and
consolidated cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Loose Leaf/Business Products, Inc. and subsidiary as of September 30, 1995,
and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
June 26, 1996 /s/ Swink, Fiehler & Hoffman
1
<PAGE>
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(SEE NOTE 12)
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, 1996
ASSETS NOTES 1995 (UNAUDITED)
- ------ ----- ------------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 1 $ 302,722 $ 295,563
Accounts receivable:
Trade (net of allowance for doubtful
accounts of $35,000) 1,5 6,885,862 6,496,699
Other 156,419
Income taxes 1,7 7,850
Inventory 1,2 3,380,925 3,639,703
Deferred income tax asset 1,7 142,000 142,000
Prepaid expenses 72,434 719,686
----------- -----------
Total current assets 10,948,212 11,293,651
PROPERTY AND EQUIPMENT-NET 1,3,6 4,246,293 4,158,981
OTHER ASSETS 1,4 570,624 810,781
----------- -----------
TOTAL $15,765,129 $16,263,413
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit 5 $ 1,300,000 $
Current maturities of long-term debt 6 357,195 1,103,903
Accounts payable 3,263,750 4,096,751
Accrued liabilities 944,495 831,989
Income taxes payable 1,7 26,701
----------- -----------
Total current liabilities 5,892,141 6,032,643
DEFERRED INCOME TAX LIABILITY 1 746,000 711,500
LONG-TERM DEBT 6,10 986,275 672,500
----------- -----------
Total liabilities 7,624,416 7,416,643
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 3,000 shares
authorized, 1,719 shares issued and outstanding 171,900 171,900
Paid in capital 40 40
Retained earnings 1 7,968,773 8,674,830
----------- -----------
Total stockholders' equity 8,140,713 8,846,770
----------- -----------
TOTAL $15,765,129 $16,263,413
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(SEE NOTE 12)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, JUNE 30, 1995 JUNE 30, 1996
NOTES 1995 (UNAUDITED) (UNAUDITED)
----- ------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES 1 $49,194,648 $35,544,683 $42,549,403
COST OF SALES 36,421,239 26,339,993 32,098,233
----------- ----------- -----------
GROSS PROFIT 12,773,409 9,204,690 10,451,170
----------- ----------- -----------
EXPENSES:
Warehousing and purchasing 1,483,459 1,113,643 1,341,097
Delivery 1,150,921 836,470 998,192
Selling and customer service 5,242,656 3,807,932 3,685,483
Occupancy 488,301 355,893 442,844
Office and data processing 1,254,259 918,448 1,678,832
Administrative 812,308 587,204 1,073,351
----------- ----------- -----------
Total 10,431,904 7,619,590 9,219,799
----------- ----------- -----------
OPERATING INCOME 2,341,505 1,585,100 1,231,371
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 12,453 9,607 4,300
Interest expense 5,6 (192,242) (136,590) (174,544)
Miscellaneous - net 66,925 51,605 108,770
----------- ----------- -----------
Total (112,864) (75,378) (61,474)
----------- ----------- -----------
NET INCOME BEFORE INCOME TAXES 2,228,641 1,509,722 1,169,897
PROVISION FOR INCOME TAXES 1,7 881,000 586,000 463,840
----------- ----------- -----------
NET INCOME 1,347,641 923,722 706,057
RETAINED EARNINGS,
BEGINNING OF PERIOD 1 6,621,132 6,621,132 7,968,773
----------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 7,968,773 $ 7,544,854 $ 8,674,830
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(SEE NOTE 12)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, JUNE 30, 1995 JUNE 30, 1996
1995 (UNAUDITED) (UNAUDITED)
------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,347,641 $ 923,722 $ 706,057
----------- ----------- ---------
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 363,230 243,109 273,200
Gain on sale of assets (1,055) (11,309)
Deferred income tax provision 33,000 --
Decrease (increase) in current assets:
Accounts receivable (574,082) 45,580 389,163
Inventory (430,083) (1,092,366) (258,778)
Prepaid expenses 21,379 (92,900) (452,048)
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 940,865 163,479 693,794
Income taxes payable (19,207) -- --
----------- ----------- ---------
Total adjustments 334,047 (733,098) 634,022
----------- ----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,681,688 190,624 1,340,079
----------- ----------- ---------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Business acquisitions (2,231,547) (1,367,557) (275,000)
Proceeds from sale of assets 1,055 100,438
Property additions (295,827) (204,477) (305,609)
(Increase) decreaes in other assets 5,568
----------- ----------- ---------
NET CASH USED BY INVESTING ACTIVITIES (2,520,751) (1,572,034) (480,171)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit borrowings - net 1,100,000 1,316,643 (553,292)
Payments of long-term debt (210,000) (157,500) (313,775)
----------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 890,000 1,159,143 (867,067)
(USED) ----------- ----------- ---------
NET INCREASE IN CASH 50,937 (222,267) (7,159)
(DECREASE)
CASH, BEGINNING OF PERIOD 251,785 251,785 302,722
----------- ----------- ---------
CASH, END OF PERIOD $ 302,722 $ 29,518 $ 295,563
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, JUNE 30, 1995 JUNE 30, 1996
1995 (UNAUDITED) (UNAUDITED)
------------- -------------- --------------
<S> <C> <C> <C>
Interest $ 187,149 $ 123,562 $ 191,734
----------- ----------- ---------
----------- ----------- ---------
Income taxes $ 875,057 $ 555,529 $ 791,791
----------- ----------- ---------
----------- ----------- ---------
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
The Company obtained seller financing for business acquisitions in 1995 and
1996 in the approximate amounts of $300,000 and $100,000, respectively.
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
American Loose Leaf/Business Products, Inc. (the "Company") is a
manufacturer of loose leaf binders, data binders and presentation
folders, and a distributor of office supply products and furniture
primarily for business use. The Company sells its products to customers
on credit throughout the United States with a majority of its customers
located in Missouri and Illinois.
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 these
estimates.
CHANGE IN BASIS OF ACCOUNTING
Prior to 1995, the Company prepared its financial statements using the
income tax basis of accounting which is a comprehensive basis of accounting
other than generally accepted accounting principles. Beginning in 1995,
the Company adopted generally accepted accounting principles for financial
reporting purposes. The Company has recorded certain assets and liabilities
required by generally accepted accounting principles and has increased
retained earnings as of October 1, 1994 by $606,589 for the cumulative
effect of the basis of accounting change.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company's wholly owned
subsidiary, Forty-Fifteen Papin Redevelopment Corporation. Significant
intercompany transactions have been eliminated.
CASH EQUIVALENTS
For purposes of the statement of cash flow, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of LIFO (last-in, first-out) cost or
market. The effect of the LIFO method was to decrease net income in 1995
by approximately $162,000.
6
<PAGE>
PROPERTY
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method based on
the estimated useful lives of the assets ranging from five to forty years.
GOODWILL
Goodwill and other intangibles acquired in purchase transactions are being
amortized over 15 years using the straight-line method.
FINANCING FEES
Costs incurred in connection with the obtaining of long-term debt have been
capitalized and are being amortized on a straight-line basis over the life
of the related debt agreement and are included in other assets for
financial reporting purposes.
INCOME TAXES
Deferred income taxes are determined on the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Deferred income taxes arise from temporary differences
between the tax basis of assets and liabilities and their reported amounts
in the financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited financial statements for the
nine months ended June 30, 1996 and 1995 include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows. Operating results for the nine months ended June 30, 1996 and
1995 are not necessarily indicative of the results that may be expected for
the years ending September 30, 1996 and 1995.
2. INVENTORY
Inventory consists of the following at September 30, 1995:
1995
----
Raw materials and work-in-progress $ 658,942
Finished goods 3,253,364
----------
Total 3,912,306
Less LIFO reserve 531,381
----------
Inventory - net $3,380,925
----------
----------
7
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 1995:
1995
----
Land $ 130,207
Buildings 3,242,981
Machinery and equipment 1,576,744
Furniture and fixtures 254,063
Computer equipment 303,250
Autos and trucks 284,268
----------
Total 5,791,513
Less accumulated depreciation 1,545,220
----------
Property - net $4,246,293
----------
----------
4. OTHER ASSETS
Other assets consist of the following at September 30, 1995:
1995
----
Goodwill and noncompetition agreements - net $ 201,219
Cash surrender value of life insurance 141,971
Financing costs - net 23,534
Buying co-op preferred stock 78,900
Deposits 125,000
----------
Total $ 570,624
----------
----------
5. BANK LINE OF CREDIT
The Company has a $3,000,000 operating line of credit with a lending bank
that is due December 31, 1995, with interest at the bank's daily federal
funds rate plus 190 basis points (8.65% at September 30, 1995). On January
1, 1996, the operating line of credit was renewed for one year and
increased to $3,500,000.
Trade accounts receivable are collateral under the credit agreement. The
credit agreement requires the company to comply with certain restrictive
covenants including, but not limited to: maintenance of specified
financial ratios such as indebtedness to net worth, minimal working capital
and a minimum net worth.
8
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of industrial revenue bonds that were issued in
December 1985 in the amount of $3,050,000, and refinanced in 1989 and 1994.
The bonds are payable in monthly installments of $17,500 plus interest at
7.4%. Maturities of the bonds are as follows: 1996, $210,000; 1997,
$210,000; 1998, $210,000; 1999, $212,000; 2000, $198,000.
The bonds are collateralized by a first deed of trust on various real
estate of the Company, and the guarantee of the Company. Additionally, the
loan agreements contain restrictive covenants including, but not limited
to: maintenance of specified financial ratios such as indebtedness to net
worth, additional indebtedness, limitations on capital expenditures and
maintenance of a minimum net worth.
The Company also obtained seller financing in the acquisition of the assets
of a business in 1995 in the amount of $303,471. The note is payable
$13,450 monthly including interest at 6% through September 1997.
7. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following for the year ended
September 30, 1995:
1995
----
Current $848,000
Deferred:
Current (44,000)
Noncurrent 77,000
--------
Total $881,000
--------
--------
A reconciliation between the federal income tax rate of 34% and the
Company's effective tax rate is as follows:
1995
----
AMOUNT %
------ ---
Expected income tax $757,740 34.0
State and city income taxes, net
of federal income tax effect 71,320 3.2
Non-deductible expenses and other-net 51,940 2.3
-------- -----
Provision for income taxes $881,000 39.5
-------- -----
-------- -----
8. LEASE COMMITMENTS
The Company is obligated for minimum lease payments under noncancelable
operating-type leases for sales offices and delivery vehicles. Rental
expense for the year ended September 30, 1995 on the above lease
commitments was approximately $151,000. Minimum lease payments for the
remainder of the initial lease terms are approximately as follows: 1996,
$153,000; 1997, $121,000; 1998, $50,000, 1999, $27,000; 2000, $12,000.
9
<PAGE>
9. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution profit sharing plan 401(K) covering
substantially all employees in which the Company matches a certain percent
contributed by the employee. Total expense relating to the plan for the
year ended September 30, 1995 was approximately $71,000.
The Company offers health care benefits for employees and their families
under a program of partial self-insurance. The Company pays covered claims
up to $60,000 per individual per year. Stop loss coverage has been
obtained for any claims in excess of $60,000 per individual and 125% of the
expected aggregate covered claims. A provision of $70,000 has been
estimated and accrued for claims incurred but not paid as of September 30,
1995. Net health care cost for the year ended September 30, 1995 was
approximately $222,000.
10. BUSINESS ACQUISITIONS
The Company acquired certain assets of two separate businesses in 1995
that were accounted for as purchase transactions in the aggregate amount of
approximately $2,535,000. Seller financing of approximately $300,000 was
obtained in 1995 for one transaction and has been included in notes payable
at September 30, 1995.
11. COMMITMENTS
The Company is obligated to purchase 597 shares of its common stock from a
minority shareholder, upon the shareholder's death, for a predetermined
price of $558,800 pursuant to a shareholder agreement dated June 10, 1988.
12. SUBSEQUENT EVENTS
On January 15, 1996, the Company acquired certain assets of an office
products distributor that was accounted for as a purchase transaction in
the amount of approximately $523,000.
On May 31, 1996, the Company signed a letter of intent with respect to a
proposed merger of the Company into a wholly-owned subsidiary of U.S.
Office Products, Inc., ("USOP"). The merger is subject to the approval of
the Board of Directors of both the Company and USOP, the approval of the
shareholders of the Company and certain other considerations, including
receipt of the opinion of counsel that the merger will qualify as a
tax-free reorganization. Management believes the merger will be
consummated on or before July 31, 1996.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Board of Directors
Pear Commercial Interiors, Inc. and Subsidiary
Boulder, Colorado
We have audited the accompanying consolidated balance sheet of Pear
Commercial Interiors, Inc. and Subsidiary as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pear
Commercial Interiors, Inc. and Subsidiary as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
July 3, 1996
Denver, Colorado
1
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash $ 221,724 $ (83,970)
Trade accounts receivable (Note 4) 1,079,383 1,264,901
Employee receivable 19,036 33,846
Inventories (Note 4) 326,158 357,123
Deposits 45,248 6,244
Prepaid expenses 15,891 19,480
------------ -----------
Total current assets 1,707,440 1,597,624
------------ -----------
Property and equipment (Note 3)
Leasehold improvements 147,346 147,930
Furniture, fixtures and equipment 380,810 392,760
------------ -----------
528,156 540,690
Less accumulated depreciation (251,081) (282,962)
------------ -----------
Net property and equipment 277,075 257,728
------------ -----------
Other assets
Security deposits 8,501 9,636
------------ -----------
Total $ 1,993,016 $ 1,864,988
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 458,336 $ 305,555
Accrued sales and property taxes 38,208
Accrued payroll, taxes and employee benefits 64,900 98,559
Accrued commissions 80,831
Line-of-credit (Note 4) 450,000 600,000
Current portion of long-term debt (Note 2) 10,895
Current portion of capital lease obligation (Note 3) 22,361
Other current liabilities -- 138,156
------------ -----------
Total current liabilities 1,125,531 1,142,270
------------ -----------
Long-term portion of capital lease obligation (Note 3) 47,091 36,405
Commitments (Notes 5 and 7)
Stockholder's equity
Preferred stock 50,000,000 shares authorized and none outstanding - -
Common stock, $.001 par value, 150,000,000 shares authorized,
100,000 shares issued and outstanding 100 100
Additional paid in capital 19,562 19,562
Retained earnings 800,732 666,651
------------ -----------
Total stockholder's equity 820,394 686,313
------------ -----------
Total $ 1,993,016 $ 1,864,988
============ ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------------------
1995 1995 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net sales $ 13,180,695 $ 6,259,802 $ 6,075,318
Cost of goods sold 10,533,958 4,981,515 4,995,862
------------ ------------ ------------
Gross profit 2,646,737 1,278,287 1,079,456
------------ ------------ ------------
Operating expenses
Selling 698,595 355,268 399,226
General and administrative 1,700,138 631,349 837,474
------------ ------------ ------------
Total operating expenses 2,398,733 986,617 1,236,700
------------ ------------ ------------
Income (loss) before other income (expense) 248,004 291,670 (157,244)
------------ ------------ ------------
Other income (expense)
Interest expense (42,451) (8,524) (24,179)
Other income 150,755 - 52,716
------------ ------------ ------------
Total other - net 108,304 (8,524) 28,537
------------ ------------ ------------
Net income (loss) $ 356,308 $ 283,146 $ (128,707)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
TOTAL
COMMON PAID IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
-------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 100 $ 19,562 $ 681,709 $ 701,371
Net income - 356,308 356,308
Distribution to stockholder - (237,285) (237,285)
-------- --------- ---------- -------------
Balance at December 31, 1995 100 19,562 800,732 820,394
Net (loss) (unaudited) - - (128,707) (128,707)
Distribution to stockholder (5,374) (5,374)
-------- --------- ---------- -------------
Balance at June 30, 1996
(unaudited) 100 $ 19,562 $ 666,651 $ 686,313
======== ========= ========== =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------------------
1995 1995 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 356,308 $ 283,148 $ (128,707)
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 67,548 16,251 36,555
Loss on sale of assets 1,617 - -
Changes in assets and liabilities
Receivables 1,042,984 737,955 (200,328)
Inventories (146,759) (170,987) (30,965)
Prepaid expenses 7,395 547 (3,589)
Other assets 41,740 (1,760) 37,869
Accounts payable (989,507) (1,071,153) (152,781)
Accrued expenses (159,391) (124,371) 52,776
------------ ------------ ------------
(134,373) (613,518) (260,463)
------------ ------------ ------------
Net cash provided by (used in) operating
activities 221,935 (330,372) (389,170)
------------ ------------ ------------
Cash flows from investing activities
Purchase of furniture and equipment (43,118) (69,363) (17,208)
------------ ------------ ------------
Net cash used in investing activities (43,118) (69,363) (17,208)
------------ ------------ ------------
Cash flows from financing activities
Net advances on line-of-credit 330,000 440,000 150,000
Payments (proceeds) on long-term debt and lease obligations (52,538) 40,144 (43,942)
Distribution to stockholder (237,285) (79,624) (5,374)
------------ ------------ ------------
Net cash provided by financing activities 40,177 400,520 100,684
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 218,994 785 (305,694)
Cash and cash equivalents at beginning of period 2,730 2,730 221,724
------------ ------------ ------------
Cash and cash equivalents at end of period $ 221,724 $ 3,515 $ (83,970)
============ ============ ============
Supplemental disclosure of cash flow information:
The Company paid $42,451 (December 31, 1995), for interest.
Supplemental disclosure of noncash financing and investing activities:
During 1995, the Company acquired assets for $63,986 under capital lease obligations.
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company is an office furniture dealer and manufacturer, incorporated on
January 1, 1988.
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The consolidated financial statements include the accounts of Pear Commercial
Interiors, Inc. (PCI) and its 79% owned subsidiary Pear Custom Furniture,
Inc. (PCF) (collectively the "Company"). PCF was incorporated in November,
1995. All material intercompany accounts and transactions have been
eliminated. The 21% minority interest related to PCF is not significant and
is included in the consolidated financial statements.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
INVENTORIES
Inventories consist primarily of used furniture and are stated at the lower
of cost or market on a specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation of property and
equipment is calculated using various methods. Leasehold improvements are
depreciated over the life of the associated lease using the straight-line
method. All property and equipment is depreciated over their estimated
useful lives which range from 5 to 10 years.
REVENUE RECOGNITION
The Company recognizes revenue as the product is shipped and installed.
CONCENTRATION OF CREDIT RISK
During the normal course of business, the Company grants credit to businesses
located in the Colorado front range area.
6
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK (CONTINUED)
At year end and throughout the year, the Company had cash on deposit at a
financial institution in excess of FDIC insurable limits.
The Company currently purchases approximately 60% of the products it sells
from one supplier. Although there are other manufacturers of similar type
products, a change in suppliers could result in a loss of sales which would
affect operating results.
In 1995, the Company has one customer which represents 11% of total sales.
Management believes the loss of this customer will not significantly effect
operating results.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code of 1986. Under these provisions, the Company does
not pay Federal or state corporate income taxes on its taxable income. All
revenue and expenses of the Company flow through to the stockholder.
USE OF ESTIMATES
The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited consolidated financial statements
for the six months ended June 30, 1995 and 1996 include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows. Operating results for the six months ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year.
7
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
1995
------------
Note payable to a bank - paid in full during 1996. $ 10,895
Less current portion (10,895)
------------
Total long-term debt, net of current portion $ -
============
NOTE 3 - CAPITAL LEASE OBLIGATIONS
The Company owns various equipment under capital lease obligations.
Capital lease obligation consists of the following:
DECEMBER 31,
1995
------------
Various leases payable with monthly installments
from $144 to $794 including interest at rates
from 8.9% to 21.25%, collateralized by equipment,
maturing February 1997 through April 2000. $ 69,452
Less current portion (22,361)
------------
Long-term lease obligation - net of current portion $ 47,091
============
Minimum lease payments as of December 31, 1995 are as follows:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
1996 $ 31,238
1997 25,248
1998 13,329
1999 12,096
2000 6,829
--------
88,740
Less interest (19,288)
--------
69,452
Less current portion (22,361)
--------
Long-term capital lease obligation $ 47,091
========
8
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - CAPITAL LEASE OBLIGATIONS (CONTINUED)
Net book value of leased assets at December 31, 1995 was $73,851.
NOTE 4 - LINE-OF-CREDIT
The Company has a $800,000 line-of-credit with a bank. The line-of-credit is
due April 30, 1997. Interest is at 1% over the bank's prime rate (8.5% at
December 31, 1995). The line-of-credit is collateralized by inventory and
accounts receivable of the Company and a $250,000 life insurance policy on
the life of the sole stockholder. The note is also individually guaranteed
by the stockholder. The balance on this line-of-credit was $450,000 at
December 31, 1995.
NOTE 5 - LEASES
The Company leases office and warehouse space in two locations under
long-term leases. The first lease requires monthly payments of $6,325
adjusted for cost of living increases. The lease expires October 2000. The
second lease requires monthly payments of $2,402 per month until June 30,
1996, and $2,507 per month thereafter. The lease expires on December 31,
1997.
During the year ended December 31, 1995, rent expense for both leases was
$105,108, which includes reimbursements to the landlord for taxes, insurance
and common area maintenance. One of the leases is guaranteed by the
stockholder.
Obligations over the remaining terms of both leases as of December 31, 1995
are:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
1996 $ 105,360
1997 105,990
1998 75,900
1999 75,900
2000 63,250
----------
$ 426,400
==========
The Company entered into a sublease for a portion of the building space on
one of the leases. The sublease expires in October 1998. Rent of $1,000 a
month is received from the subleasee.
9
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LEASES (CONTINUED)
Minimum rent due under the terms of the sublease as of December 31, 1995 are
as follows:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
1996 $ 12,000
1997 12,000
1998 10,000
--------
$ 34,000
========
NOTE 6 - 401(K) PLAN
The Company has a 401(k) retirement plan for its employees. Any plan
contributions by the Company are discretionary. No contributions were made
by the Company.
NOTE 7 - SUBSEQUENT EVENTS (UNAUDITED)
In June 1996, the Company entered into an agreement to merge with U.S. Office
Products Company. The merger will be accounted for as a pooling of
interests. All the outstanding shares of common stock of the Company will be
exchanged for approximately 74,000 shares of U.S. Office Products Company
common stock.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
International Interiors, Inc.
Jacksonville, Florida
We have audited the accompanying balance sheets of International Interiors,
Inc., as of September 30, 1995 and 1994, and the related statements of income,
accumulated deficit, and cash flows for the years then ended. 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 report dated November 10, 1995, we expressed an opinion that the 1995
financial statements did not fairly present financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles because the Company accounted for commissions that it earned on
government sales by recording the gross sale and cost of sale amounts to yield
the respective commission earned. As described in Note 10, the Company has
changed its method of accounting for that item and has restated its 1995
financial statements to conform with generally accepted accounting principles.
Accordingly, our present opinion on the 1995 financial statements, as presented
herein, is different from that expressed in our previous report.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Interiors, Inc.
as of September 30, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
1
<PAGE>
To the Board of Directors of
International Interiors, Inc.
Page Two
As described in Note 11, on May 31, 1996, the Company entered into an agreement
whereby the Company's stock was converted into shares of stock of U. S. Office
Products Company.
PETHERBRIDGE, DAVIS & COMPANY, P.A.
Certified Public Accountants
November 10, 1995, except for Notes 10 and 11 as to which the date is
July 11, 1996.
Jacksonville, Florida
2
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
BALANCE SHEETS
September 30, 1995 and 1994
ASSETS
1994 1995 March 31, 1996
---- ---- --------------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1) $ 468,776 $ 21,540 $ (6,780)
Accounts receivable - trade less
allowance for doubtful accounts
of $1,000 in 1994 and 1995 956,983 955,176 990,666
Advances - employees 1,523 1,125
Loan to stockholder 10,000 --
Inventory (Note 1) 718,819 1,186,540 1,001,244
Prepaid expense 1,125 -- 75,111
Deferred tax asset (Note 2) 101,752 60,618
---------- ---------- ---------
Total Current Assets 2,258,978 2,224,999 2,060,241
- --------- ---------- ---------
Property and Equipment: (Notes 1 and 4)
Automotive equipment 126,474 158,738 158,738
Leasehold improvements 92,827 92,827 92,827
Office furniture 57,270 57,270 57,270
Office equipment 56,012 65,340 71,678
Warehouse equipment 15,608 16,739 16,739
Capitalized lease - computer 164,762 164,762 164,762
---------- ---------- ----------
Total Property and Equipment 512,953 555,676 562,014
Less: Accumulated Depreciation 217,373 329,721 (365,963)
---------- ---------- ----------
Net Property and Equipment 295,580 225,955 196,051
---------- ---------- ----------
Other Assets 5,538 3,633 3,634
---------- ---------- ----------
Total Assets $2,560,096 $2,454,587 $2,259,926
========== ========== ==========
</TABLE>
Read accompanying notes and auditors' report.
3
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
BALANCE SHEETS
September 30, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1994 1995 March 31, 1996
---- ---- --------------
(Unaudited)
<S> <C> <C> <C>
Current Liabilities:
Accounts payable, trade $ 331,552 $ 623,587 $ 407,909
Accrued liabilities 77,784 58,190 84,894
Income taxes payable 2,514 --
Customer deposits 2,450 24,621
Notes payable, current portion (Note 6) 23,415 23,415 51,761
Capitalized lease obligation (Note 4) 31,520 33,771
Loan from stockholder 142,000 --
---------- ---------- ----------
Total Current Liabilities 611,235 763,584 544,564
---------- ---------- ----------
Long-term Liabilities:
Notes payable, due after one
year (Note 6) 31,220 7,805 40,267
Capitalized lease obligation, due
after one year (Note 4) 91,920 58,150
Deferred tax credit (Note 2) 15,455 17,186 17,186
---------- ---------- ----------
Total Long-term Liabilities 138,595 83,141 57,453
---------- ---------- ----------
Total Liabilities 749,830 846,725 602,017
---------- ---------- ----------
Stockholders' Equity:
Preferred stock, 8% cumulative,
$10,000 par value,
196.5 shares authorized,
issued and outstanding in 1995,
181.7 shares in 1994 (Note 5) 1,817,236 1,964,936 --
Common stock, $1 par value, 30,000
shares authorized, 10,000 shares
issued and outstanding 10,000 10,000 2,186,124
Additional paid in capital 1,095,048 1,095,048 1,095,048
Accumulated deficit (1,112,018) (1,462,122) (1,623,263)
---------- ---------- ----------
Total Stockholders' Equity 1,810,266 1,607,862 1,657,909
---------- ---------- ----------
Total Liabilities
and Stockholders' Equity $2,560,096 $2,454,587 $2,259,926
========== ========== ==========
</TABLE>
Read accompanying notes and auditors' report.
4
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF INCOME
Years Ended September 30, 1995 and 1994
Six months ended
March 31,
----------------------------
1994 1995 1994 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Sales (Note 10) $8,159,392 $7,931,071 $3,436,005 $4,715,124
Cost of sales (Note 10) 5,481,795 5,437,640 2,511,813 3,813,572
---------- ---------- --------- ---------
Gross profit 2,677,597 2,493,431 924,192 901,552
Operating expenses (Note 9) 2,153,033 2,357,846 834,439 869,350
---------- ---------- --------- ---------
Income from operations 524,564 135,585 89,753 32,202
---------- ---------- --------- ---------
Other income (expense):
Interest income 4,288 3,201 1,578 226
Miscellaneous income (expense) (4,824) 15,813 1,665 20,625
Interest expense (15,356) (29,138) (18,504) (3,006)
Loss on retirement of equipment (6,054) --
---------- ---------- --------- ---------
Total other income (expense) (21,946) (10,124) (15,261) 17,845
---------- ---------- --------- ---------
Income before income taxes and
cumulative effect of change in
accounting principle 502,618 125,461 74,492 50,047
Provision for income taxes (Note 2) 175,198 42,865 -- --
---------- ---------- --------- ---------
Income before cumulative effect of
change in accounting principle 327,420 82,596 -- --
Cumulative effect of change in
accounting principle (Note 2) 258,981 --
---------- ---------- --------- ---------
Net income $ 586,401 $ 82,596 $ 74,492 $ 50,047
========== ========== ========= =========
</TABLE>
Read accompanying notes and auditors' report.
5
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF ACCUMULATED DEFICIT
Years Ended September 30, 1995 and 1994 and
for the six month period ended March 31, 1996
1994 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Accumulated deficit balance at
beginning of year $1,353,040 $1,112,018 $1,462,122
Less: Net income 586,401 82,596 50,047
Plus: Common stock dividends 345,379 285,000 --
Plus: Preferred stock dividends
(Note 5) -- 147,700 211,188
---------- ---------- ---------
Accumulated deficit balance at
end of the period $1,112,018 $1,462,122 $1,623,263
========== ========== =========
</TABLE>
Read accompanying notes and auditors' report.
6
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1995 and 1994
Six months ended
March 31,
-----------------------------
1994 1995 1995 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 586,401 $ 82,596 $ 74,492 $ 50,047
Adjustments to reconcile net income to
net cash provided by operating
activities:
Basis of in use assets returned to
inventory, refurbished and sold 24,773 --
Depreciation 82,077 80,085 44,032 36,242
Loss on retirement of equipment 6,054 --
Net change in deferred tax assets and
credits after cumulative effect of
change in accounting principle (86,297) 42,865
(Increase) decrease in:
Accounts receivable (223,346) 1,807 (89,888) (38,284)
Stockholder and employee advances 11,097 10,398
Inventory 135,246 (467,721) (29,000) 184,296
Prepaid expenses 15,922 1,125
Other assets 4,310 1,905
Increase (decrease) in:
Accounts payable 79,721 292,034 (118,973) (238,975)
Accrued liabilities and income tax 47,025 (22,108) (142,866) 15,807
Customer deposits (250,767) 22,170
---------- ---------- --------- ---------
Net cash provided by operating
activities 432,216 45,156 (262,203) 9,133
---------- ---------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (79,940) (10,459) (10,459) (6,339)
---------- ---------- --------- ---------
Net cash used in investing
activities (79,940) (10,459) (10,459) (6,339)
---------- ---------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from borrowing:
Long-term debt (36,488) (31,114)
Notes payable, vehicle installment
contracts 70,246 --
Loan from stockholder 142,000 --
Proceeds from issuance of common stock (161,250)
Debt reduction:
Long-term debt 2,251
Notes payable, vehicle installment
contracts (15,611) (23,414)
Loan from stockholder -- (142,000)
Capitalized lease (29,418) (31,519)
Dividends paid (345,378) (285,000)
---------- ---------- --------- ---------
Net cash used by financing
activities $ (178,161) $ (481,933) $(195,487) $( 31,114)
---------- ---------- --------- ---------
</TABLE>
Read accompanying notes and auditors' report.
7
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30, 1995 and 1994
Six months ended
March 31,
------------------------
1994 1995 1995 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents $ 174,115 $(447,236) $(468,149) $(28,320)
Cash and cash equivalents at
beginning of period 294,661 468,776 468,776 21,540
-------- -------- -------- -------
Cash and cash equivalents at
end of period $468,776 $ 21,540 627 (6,780)
======= ======== ======== =======
Supplemental Disclosures:
Operating Activities reflect:
Interest paid $ 15,356 $ 29,138 $ 18,504 $ 2,560
Income taxes paid $ -- $ 2,514
Noncash Financing Activities:
During the 1995 fiscal year,
dividends on preferred stock
were paid by issuing 147.7 shares $ -- $ 147,700
</TABLE>
Read accompanying notes and auditors' report.
8
<PAGE>
INTERNATIONAL INTERIORS, INC.
Notes to the Financial Statements
September 30, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS
International Interiors, Inc. (the Company) operations consist of
sales of office furniture, accessories, and supplies (new and refurbished).
The Company operates primarily in the Northeast Florida area. Most sales
are on account and are billed monthly. The Company is incorporated in the
State of Florida.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation for fiscal
years 1995 and 1994 in the amount of $80,085 and $82,077, respectively, was
computed using the straight-line method. Estimated lives used to compute
depreciation for property and equipment are as follows:
Years
-----
Automotive equipment 5-7
Leasehold improvements 5-7
Office furniture 5-7
Office equipment 5-7
Warehouse equipment 5-7
Replacements and betterments are capitalized, while expenses for
maintenance and repairs are expensed as incurred.
INVENTORY
Inventory as of September 30, 1995 and 1994 consists of furniture and
accessories (new and used) and office supplies stated at the lower of cost
or market determined on a first-in, first-out basis as follows:
1994 1995
---- ----
New Furniture and accessories
(1994 includes used) $420,421 $ 427,083
Used Furniture and
accessories -- 341,422
Office Supplies 298,398 418,035
--------- ----------
Total Inventory $718,819 $1,186,540
--------- ----------
--------- ----------
Read accompanying auditors' report.
9
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
2. INCOME TAX
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The
cumulative effect of the change in accounting for income tax for prior
years is included in the year ended September 30, 1994.
The provision for income taxes consists of:
1994 1995
---- ----
Current $ 2,514 $ --
Deferred 172,684 42,865
-------- --------
Total $175,198 $ 42,865
-------- --------
-------- --------
The income tax provision differs from the expense that would result
from applying federal and state statutory rates to income before income
taxes, primarily because deferred income taxes are calculated using a flat
rate.
As of September 30, 1995 the Company has a $61,205 net operating loss
carryforward available to offset future taxable income through 2010. At
September 30, 1995 the Company has general business credits in the amount
of $38,967 available to offset income tax expense in future years from 1996
through 2008.
Deferred income taxes result from differences in the timing of
reporting income and expenses for financial statement and income tax
purposes. The differences relate primarily to depreciable assets (use of
different depreciation methods and lives for financial statement and income
tax purposes) and net operating loss carryforwards.
10
<PAGE>
2. INCOME TAX (continued)
At September 30, 1995 and 1994, deferred tax liabilities recognized
for taxable temporary differences totaled $17,186 and $15,455,
respectively. Deferred tax assets recognized for deductible temporary
differences and net operating loss carryforwards totaled $60,618 and
$101,752 respectively, at September 30, 1995 and 1994.
3. RELATED PARTY TRANSACTIONS
Jones College, a not for profit organization, owns the majority of the
common stock of the Company. Under the terms of an agreement between the
Company and its stockholders, dated April 21, 1984, Jones College loaned
funds to the Company for the purpose of providing working capital. Jones
College owns all of the preferred stock of the Company. (See Note 5)
Jones College purchases office equipment and supplies from the
Company. Sales to Jones College for the years ended September 30, 1994 and
1995 amounted to approximately $59,891 and $81,240, respectively. Accounts
receivable from Jones College at September 30, 1994 and 1995 amounted to
$11,420 and $21,006, respectively.
The Company has related party leases. (See Note 4)
4. LEASES
The Company leases, from its majority stockholder and also from
members of its Board of Directors, the buildings in which it maintains
offices and showrooms. The lease is on a month to month basis, totaling
$6,825 per month. On an annual basis, the Company leases warehouse storage
space for $4,721 per month plus accessories which average $748 per month.
Total rent expense for offices, showrooms, and inventory space for the
years ended September 30, 1994 and 1995 amounted to $146,231 and $147,532,
respectively.
On an as needed basis the Company rents trucks and other equipment
used in delivery. Equipment rental for September 30, 1994 and 1995 was
$20,805 and $24,337, respectively.
11
<PAGE>
4. LEASES (continued)
The Company will incur future minimum lease payments regarding its
non-cancelable operating leases over the next 5 years as follows:
1996 $36,105
1997 14,464
1998 7,987
1999 --
2000 --
During 1993, the Company leased new computer equipment under a capital
lease. The obligation under the capital lease has been recorded in the
accompanying financial statements at the present value of the future
minimum lease payments, discounted at 7%. The capitalized cost of $164,762
less accumulated depreciation of $37,072 and $70,024 at September 30, 1994
and 1995, respectively is included in property and equipment. Depreciation
for this equipment for the period ended September 30, 1994 and 1995 was
$32,953 each year.
The future minimum lease payments under the capital lease for the next
5 years and the net present value of the future minimum lease payments are
as follows:
Year Ending
September 30 Amount
1996 $ 39,074
1997 39,074
1998 22,452
1999 --
2000 --
--------
100,600
Less amount representing interest 8,680
---------
$ 91,920
---------
---------
The property is being depreciated over a five year period using the
straight-line method.
12
<PAGE>
5. PREFERRED STOCK
The holder of the preferred stock is entitled to a dividend of 8% of
the par value beginning on the last day of December, 1988 and each year
thereafter as long as the stock is outstanding. The preferred stock is
redeemable by the corporation at its election and in whole or in part at
face value plus any unpaid accumulation of dividends. The stock is
convertible into common shares of the Company if it is not retired by
October 1, 1998.
The 1993 dividend on preferred stock in the amount of $145,379 was
paid in the form of cash during the 1994 fiscal year. The 1994 dividend on
preferred stock in the amount of $147,700 was paid by issuing additional
preferred stock during the 1995 fiscal year. As of September 30, 1995 and
1994, there were $49,989 of accumulated, but undeclared dividends on
preferred stock.
6. NOTES PAYABLE
Notes payable consist of automobile installment contracts payable to
G.M.A.C. with principal and interest due monthly in the amount of $2,205
for 36 months beginning February 28, 1994, including interest at 7.9%.
Principal due for each of the next 5 years is as follows:
1996 $23,415
1997 7,805
1998 --
1999 --
2000 --
7. PENSION PLAN
During 1993, the Company implemented a 401-K type pension plan for all
eligible employees. Employees are eligible to participate in the plan if
they have been employed by the Company for one year and work at least 20
hours per week. Generally, employees can defer up to 15% of their gross
bi-weekly salary into the plan. The employer can make a matching
discretionary contribution for the employee, not to exceed 25% of the first
6% of the employees' annual contribution. Employer contributions for the
plan for fiscal year 1994 and 1995 were $5,983 and $5,073, respectively.
13
<PAGE>
8. CONCENTRATION OF CREDIT RISK
The company maintains cash balances at several financial institutions
located in Jacksonville, Florida. Accounts at each institution are insured
by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At
September 30, 1994, the Company's uninsured cash balances totaled $233,749.
9. SALES TAX AUDIT
The Company was under audit by the State of Florida, Department of
Revenue, Sales Tax Division as of November 4, 1994. No provision was made
for additional taxes for the year ended September 30, 1994. The audit was
concluded during the 1995 fiscal year. Additional taxes in the amount of
$38,048 were paid by the Company during the 1995 fiscal year and are
included in operating expenses for the year ended September 30, 1995.
10. RESTATED FINANCIAL STATEMENTS
These financial statements have been restated to reflect a newly
adopted accounting principle which will be the same as the one expected to
be used in future periods.
During the 1995 fiscal year the Company participated with its
wholesale factories on governmental sales which fall within the Company's
jurisdiction and which require a government bidding process. Title to the
goods pass directly from the factory to the government purchasing unit.
The Company in most cases coordinates the sales process, handles customer
service follow-up and often provides installation services.
The Company earns a net commission on the sale, usually 10% of
the sale amount. For 1995 such commissions amounted to $42,466.
Previously, the Company recorded the effect of the net commission by
recording the gross sale amount in its revenue. The difference between
the gross sale amount and the net commission earned was recorded as
purchases. For the years ended September 30, 1994 and 1995, revenue and
cost of sales have been restated and have been decreased by $358,007 and
$400,473, respectively. The net effect of the difference of $42,466
commissions has been added to sales.
14
<PAGE>
11. SUBSEQUENT EVENT
On May 31, 1996 the Company entered into an agreement whereby the
outstanding shares of preferred and common stock were converted into shares
of U. S. Office Products Company.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNAUDITED INTERIM FINANCIAL STATEMENTS
The Company has prepared the accompanying unaudited interim
financial statements. In the opinion of management, the Company has made
all adjustments, consisting only of normal recurring accruals, necessary
for a fair presentation of the financial condition of the Company as of
March 31, 1996 and the results of operations and of cash flows for the
six months ended March 31, 1995 and 1996 as presented in the accompanying
unaudited consolidated financial statements.
15
<PAGE>
Report of Independent Accountants
To the Stockholders of
The Office Furniture Store, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in stockholders' equity and of cash flows presents fairly, in
all material respects, the financial position of The Office Furniture Store,
Inc. (the Company) at December 31, 1995 and the results of its operations and
its cash flows for the year ended December 31, 1995 in conformity with generally
accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As described in Note 1 to the financial statements, on May 23, 1996 the Company
entered into a letter of intent to sell all of its issued and outstanding shares
of common stock to the U.S. Office Products Company.
Price Waterhouse LLP
Cincinnati, Ohio
August 16, 1996
1
<PAGE>
THE OFFICE FURNITURE STORE, INC.
BALANCE SHEET
- --------------------------------------------------------------------------------
December 31, June 30,
1995 1996
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash $ 75,961 $ 176,362
Investments 35,700 -
Accounts receivable - trade 661,854 490,700
Accounts receivable - other 105,535 113,069
Inventory 476,110 489,438
Other current assets 26,737 29,981
------------- ------------
Total current assets 1,381,897 1,299,550
Plant and equipment, net 285,308 320,516
Other assets 16,385 21,385
------------- ------------
Total assets $ 1,683,590 $ 1,641,451
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 442,510 $ 333,725
Accrued compensation 299,117 81,768
Sales and other taxes payable 101,108 145,922
Customer deposits 83,067 80,614
Current portion of notes payable 11,714 8,542
------------- ------------
Total current liabilities 937,516 650,571
------------- ------------
Notes payable 8,596 33,037
------------- ------------
Contingencies (Note 8)
Stockholders' equity:
Common stock, no par; 750 shares authorized,
100 shares issued and outstanding 500 500
Retained earnings 723,561 957,343
Unrealized gain on investments 13,417 -
------------- ------------
Total stockholders' equity 737,478 957,843
------------- ------------
Total liabilities and stockholders' equity $ 1,683,590 $ 1,641,451
------------- ------------
------------- ------------
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
THE OFFICE FURNITURE STORE, INC.
STATEMENT OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six months ended
December 31, June 30, June 30,
1995 1995 1996
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Revenues $ 7,442,059 $ 3,688,212 $ 4,304,822
Cost of sales 5,169,085 2,562,202 2,975,283
------------- ------------ ------------
Gross margin 2,272,974 1,126,010 1,329,539
Selling, general and administrative expenses 1,955,340 793,477 985,393
------------- ------------ ------------
Operating income 317,634 332,533 344,146
Other (income) expense:
Interest expense 8,509 5,881 2,356
Other income, net (25,918) (8,635) (23,510)
------------- ------------ ------------
Income before taxes 335,043 335,287 365,300
Income taxes 139,930 137,471 131,518
------------- ------------ ------------
Net income $ 195,113 $ 197,816 $ 233,782
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
THE OFFICE FURNITURE STORE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained Gain/(Loss) on
Shares Amount Earnings Investments Total
------ ------ -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 100 $ 500 $ 533,448 $ (16,422) $ 517,526
Net income 195,113 195,113
Stockholder distributions (5,000) (5,000)
Net unrealized gain on investments 29,839 29,839
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 100 500 723,561 13,417 737,478
Net income (unaudited) 233,782 233,782
Reversal of unrealized gain on investments
(unaudited) (13,417) (13,417)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 (unaudited) 100 $ 500 $ 957,343 $ - $ 957,843
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
THE OFFICE FURNITURE STORE, INC.
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
year ended For the six months ended
December 31, June 30, June 30,
1995 1995 1996
------------ ---- ----
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 195,113 $ 197,816 $ 233,782
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 51,716 21,580 21,732
Gain on sale of investments (11,901) (1,872) (31,772)
Changes in assets and liabilities:
Accounts receivable - trade 10,156 (43,067) 171,154
Accounts receivable - other (6,070) (19,871) (7,534)
Inventory (115,904) (93,323) (13,328)
Other assets (2,957) (118,333) (8,244)
Accounts payable 79,432 (16,091) (108,785)
Other liabilities (79,683) (32,791) (174,988)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 119,902 (105,952) 82,017
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (41,617) (32,646) (56,940)
Proceeds from sale of investments 85,465 56,960 54,055
----------- ----------- -----------
Net cash provided by (used in)
investing activities 43,848 24,314 (2,885)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - - 30,045
Payments on notes payable (313,118) (262,137) (8,776)
Net borrowings on bank line of credit - 120,000 -
Distributions to stockholders (5,000) - -
----------- ----------- -----------
Net cash provided by (used in)
financing activities (318,118) (142,137) 21,269
----------- ----------- -----------
Net change in cash (154,368) (223,775) 100,401
Cash at beginning of period 230,329 230,329 75,961
----------- ----------- -----------
Cash at end of period $ 75,961 $ 6,554 $ 176,362
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure:
Taxes paid $ 123,948 $ 66,134 $ 52,522
----------- ----------- -----------
----------- ----------- -----------
Interest paid $ 8,509 $ 5,881 $ 2,356
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
THE OFFICE FURNITURE STORE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS ORGANIZATION AND ACQUISITION
The Office Furniture Store, Inc. (OFS or the Company) is a distributor of
office furniture and accessories in the Cincinnati, Ohio metropolitan area.
On May 23, 1996, the Company entered into a letter of intent with U.S.
Office Products Company (U.S. Office Products) whereby the Company agreed
to merge with U.S. Office Products. Pursuant to the letter of intent, the
Company's stockholders will exchange all of the outstanding shares of the
Company's common stock for 171,034 shares of U.S. Office Products' common
stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION AND CREDIT RISK
Revenues are recognized upon shipment when all risks and rewards of
ownership have passed to the customer. The Company sells its products to a
wide group of industries in the Cincinnati area and its credit risks are
well distributed. The Company monitors its credit risk by establishing
credit limits and monitoring its outstanding accounts receivable.
Management has not provided an allowance for doubtful accounts as all
receivables are considered to be collectible.
Other receivables represent rebates and credits due from the Company's
suppliers.
INVESTMENTS
The Company has investments in certain equity securities which it has
classified as available for sale. Unrealized gains and losses on
investments held for sale are included in a separate component of equity.
Realized gains and losses are determined based on the specific
identification method.
INVENTORY
Inventory consists solely of finished goods and is stated at the lower of
cost or market. Cost is determined utilizing the average cost basis.
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Depreciation expense is computed
using the straight-line method over the estimated useful lives of the
assets, as follows: leasehold improvements - 20 years, furniture and
fixtures - seven years, computer equipment - five years and vehicles - five
years. Maintenance and repair costs which do not enhance efficiency or
increase the useful life of the asset are expensed as incurred.
6
<PAGE>
THE OFFICE FURNITURE STORE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed," which is required
to be adopted by the Company in 1996. The implementation of this Statement
is not anticipated to have a material impact on the Company's financial
statements.
FINANCIAL INSTRUMENTS
The carrying amount of the Company's monetary assets and liabilities is a
reasonable estimate of fair value because of the liquid, short-term and
variable nature of these financial instruments.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this statement, deferred income taxes
are provided, to the extent considered realizable by management, for the
basis differences of assets and liabilities for financial reporting and
income tax purposes. Gross deferred income tax assets and liabilities are
not significant.
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 amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
SOURCES OF SUPPLY
In order to receive volume discounts the Company currently purchases
approximately 60% of its inventory from one vendor. Management believes
that other suppliers could provide similar products at comparable prices.
UNAUDITED FINANCIAL INFORMATION
In the opinion of management, the unaudited financial information as of and
for the six months ended June 30, 1996 and comparable information for the
six months ended June 30, 1995 contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the results for
the periods presented.
7
<PAGE>
THE OFFICE FURNITURE STORE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. PLANT AND EQUIPMENT
Plant and equipment consist of the following at December 31, 1995:
Leasehold improvements $ 220,641
Furniture and fixtures 111,142
Computer equipment 67,972
Vehicles 117,342
------------
517,097
Less: Accumulated depreciation 231,789
------------
$ 285,308
------------
------------
4. NOTES PAYABLE
At December 31, 1995, the Company had two variable interest rate notes
payable outstanding with an average borrowing rate of 6.45%. The notes
payable, which are secured by delivery trucks with a net book value of
$36,423 at December 31, 1995, require monthly principal and interest
payments. Principal payments due on borrowings for 1996 and 1997 are
$11,714 and $8,596, respectively.
The Company has a bank line of credit of $600,000 which is secured by the
personal guarantees of the stockholders and expires in February 1997.
5. RELATED PARTY TRANSACTIONS
The Company leases its office building and warehouse from the Company's
stockholders under an operating lease which expires in 2009. The lease
requires monthly payments of $15,000. The Company has guaranteed the
stockholders' debt related to the purchase of the office building and
warehouse. The future minimum payments under noncancelable leases as of
December 31, 1995 are as follows:
Year Ending December 31,
------------------------
1996 $ 180,000
1997 180,000
1998 180,000
1999 180,000
2000-2009 1,680,000
------------
Total $ 2,400,000
8
<PAGE>
Included in 1995 other income is consulting fee revenue totalling $12,000
for services provided by the Company's stockholder and president to another
company in which the stockholder maintains an equity interest.
6. EMPLOYEE BENEFITS
The Company sponsors a defined contribution savings and profit sharing plan
(the Plan) for Company employees who meet certain age and service
requirements. The Plan allows participants to make contributions up to the
maximum allowable percentages of their earnings by salary reduction
pursuant to Section 401(k) of the Internal Revenue Code. The Plan provides
for discretionary employer contributions which totalled $90,000 in 1995.
7. INCOME TAXES
Income taxes, which consist primarily of taxes currently payable, were as
follows for the year ended December 31, 1995:
Provision for income taxes:
Federal $ 111,366
State and local 28,564
------------
$ 139,930
------------
------------
OFS's effective tax rate for 1995 differs from the statutory income tax
rate as follows:
Statutory U.S. federal income tax rate 34.0%
State and local taxes, net of federal benefit 5.6
Non-deductible stockholder compensation 2.3
Other (0.1)
------------
Effective income tax rate 41.8%
------------
------------
8. CONTINGENCIES
The Company may, from time to time, be subjected to claims or other legal
actions in the normal course of business. Management does not believe that
these matters would have a material impact on the Company's operations or
financial condition.
-10-
<PAGE>
AUSDOC OFFICE PTY LTD
ACN 001 844 819
DIRECTORS' REPORT
- --------------------------------------------------------------------------------
The Directors of AUSDOC Office Pty Ltd resolved to make the following report
with respect to the profit and loss and the state of affairs of the Company as
at 30 June, 1996.
1. The names of the Directors of the Company in office at the date of this
report are:
PETER T. REILLY
JAMES E. WALSH
2. The principal activity of the Company during the year was the sale of
commercial office products.
3. The loss of the Company for the year after providing for income tax was
$121,135. (1995 - Profit of $136,316)
4. No dividends were paid during the year.
5. On 5 February 1996 the Company purchased the business and assets of
Complete Office Supplies (W.A.) No other significant change in the state
of affairs of the Company occurred during the year.
6. The company has contracted to sells its entire office products business to
Blue Star Group Pty Ltd effective 30 September 1996. The company will
receive $25.6 million for goodwill plus the book value of operating assets.
A profit after tax on sale of approximately $10 million will be realised on
the transaction. No other matters or circumstances have arisen since the
end of the financial year which significantly affected, or may
significantly affect, the operations of the Company, the results of those
operations or the state of affairs of the Company in financial years
subsequent to the financial year ended 30 June, 1996.
7. No information is included on the likely developments in the operations of
the Company and the expected results of those operations, as it is the
opinion of the Directors of the Company, that this information would
prejudice the interests of the Company if included in this report.
8. No Director, since 30 June, 1995 has received or become entitled to receive
a benefit (other than a benefit included in the aggregate amount of
emoluments received or due and receivable by Directors shown in Note 19
of the Accounts, or the fixed salary of a full time employee of the
Company) by reason of a contract made by the Company or related
corporation with any Director or with a firm of which a Director is a
member or with a company in which a Director is a member or with a company
in which a Director has a substantial financial interest.
SIGNED in accordance with a resolution of the Directors of AUSDOC
Office Pty Ltd
DATED this 23rd day of September 1996.
PETER T. REILLY JAMES E. WALSH
DIRECTOR DIRECTOR
1
<PAGE>
AUSDOC OFFICE PTY LTD
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Operating revenue 2 21,633,507 11,541,659
----------- -----------
----------- -----------
Operating profit/(loss) before income tax 3 (3,345) 149,953
Abnormal items 4 (75,000) -
Income tax attributable
to operating profit 5 (42,790) (13,637)
----------- -----------
Operating profit after income tax (121,135) 136,316
Dividends paid 17 - (170,000)
Retained profits at the beginning
of the financial year 12,801 46,485
----------- -----------
Retained profits at the end
of the financial year (108,334) 12,801
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
2
<PAGE>
AUSDOC OFFICE PTY LTD
BALANCE SHEET AS OF 30 JUNE 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
CURRENT ASSETS
Cash 246,709 324,724
Receivables 6 3,817,263 2,700,869
Inventories 7 3,099,976 2,507,284
----------- -----------
Total Current Assets 7,163,948 5,532,877
----------- -----------
NON CURRENT ASSETS
Receivables 6 - 47,838
Property, plant and equipment 8 1,229,305 1,125,847
Intangibles 9 3,659,890 3,569,496
Other 10 157,137 126,048
----------- -----------
Total Non Current Assets 5,046,332 4,869,229
----------- -----------
TOTAL ASSETS 12,210,280 10,402,106
----------- -----------
CURRENT LIABILITIES
Creditors and borrowings 11 4,076,146 2,860,398
Provisions 12 389,205 317,835
----------- -----------
Total Current Liabilities 4,465,351 3,178,233
----------- -----------
NON CURRENT LIABILITIES
Creditors and borrowings 11 7,877,133 7,221,569
Provisions 12 81,628 95,001
----------- -----------
Total Non Current Liabilities 7,958,761 7,316,570
----------- -----------
TOTAL LIABILITIES 12,424,112 10,494,803
----------- -----------
NET ASSETS/(LIABILITIES) (213,832) (92,697)
----------- -----------
----------- -----------
SHAREHOLDERS' EQUITY/(DEFICIENCY)
Share capital 13 2 2
Reserves 14 (105,500) (105,500)
Retained profits (108,334) 12,801
----------- -----------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIENCY) (213,832) (92,697)
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
3
<PAGE>
AUSDOC OFFICE PTY LTD
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Cash flows from operating activities
Receipts from customers 20,424,362 9,641,440
Interest received 5,627 4,743
Payments to suppliers (20,059,632) (10,000,921)
Interest paid (427,028) (101,389)
Income taxes paid (66,076) (102,798)
----------- -----------
Net cash provided by operating activities 21 (122,747) (558,925)
----------- -----------
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 56,296 85,450
Payments for property, plant and equipment (328,320) (108,258)
Payments for business acquisitions (377,000) (4,703,474)
----------- -----------
Net cash provided by investing activities (649,024) (4,726,282)
----------- -----------
Cash flows from financing activities
Dividends paid - (170,000)
Finance lease payments (9,646) (1,498)
Loan from related companies 703,402 5,766,212
----------- -----------
Net cash provided by financing activities 693,756 5,594,714
----------- -----------
Net increase in cash held (78,015) 309,507
Cash at beginning of the financial year 324,724 15,217
----------- -----------
Cash at end of the financial year 246,709 324,724
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
4
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1. STATEMENT OF ACCOUNTING POLICIES
The accounts are a general purpose financial report prepared in accordance with
Accounting Standards, Urgent Issues Group Consensus Views and the requirements
in Schedule 5 to the Corporations Regulations. The accounts have been prepared
on the basis of historical costs and do not take into account changing money
values or, except where stated, current valuations of non-current assets. The
accounting policies have been consistently applied, unless otherwise stated.
The following is a summary of the significant accounting policies adopted by the
Company in the preparation of the accounts.
(a) Receivables
A provision is raised for any doubtful debts based on a review of all
outstanding amounts at year end. Bad debts are written off during the
period in which they are identified.
(b) Inventories
Inventories are valued at the lower of cost and net realisable value.
Costs have been assigned to inventory quantities on hand at balance date
using the first-in-first-out and weighted average cost basis.
(c) Property, Plant and Equipment
Property, plant and equipment are included at cost. All property, plant
and equipment other than land are depreciated over their estimated useful
lives commencing from the time the asset is held ready for use.
(d) Comparative Figures
Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.
(e) Goodwill
Goodwill, representing the excess of purchase consideration over the fair
value of identifiable net assets acquired arising upon the acquisition of
a business entity is shown as an intangible asset. Goodwill is amortised
on a straight line basis over the period of expected benefit, that period
not exceeding 20 years. For the years ended June 1988 and 1989, acquired
goodwill was written off in full via the profit and loss account. An
offsetting entry was posted from the "Acquired goodwill written off
reserve."
5
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 2. OPERATING REVENUE
1996 1995
$ $
Sales revenue 20,606,082 11,303,126
Other revenue
Licence fee and other charges from related
corporations 515,826 87,437
Interest received 5,627 4,743
Gross proceeds on sale of property,
plant and equipment 56,296 85,450
Sundries 449,676 60,903
----------- -----------
Total operating revenue 21,633,507 11,541,659
----------- -----------
----------- -----------
NOTE 3. OPERATING PROFIT
Operating profit before tax has been
determined after:
(a) Charging as expenses:
Amortisation of goodwill 184,514 45,694
Amortisation of leased assets 8,000 1,624
Auditors' remuneration:
For auditing the accounts of
the company 28,300 16,900
Bad debts written off 10,851 746
Depreciation of fixed assets 285,037 115,114
Interest paid - related corporation 416,000 95,000
Interest paid - other 5,405 1,047
Finance lease charges 5,623 2,996
Loss on disposal of non-current assets - 1,470
Management charges 200,000 135,000
Operating lease rentals 717,036 495,036
Contributions to superannuation fund 162,956 85,726
Transfers to provisions for:
employee benefits 50,194 31,953
doubtful benefits 19,977 8,000
(b) Crediting as revenue:
Interest received 5,627 4,743
Profit on sale of non current assets 22,419 10,079
6
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 4. ABNORMAL ITEMS
1996 1995
$ $
Business rationalisation costs
(Tax credit applicable $27,000) 75,000 -
----------- -----------
----------- -----------
NOTE 5. INCOME TAX
Operating profit/(loss) (78,345) 149,953
----------- -----------
----------- -----------
Prima facie income tax expense
calculated at 36% (1995: 33%) (28,204) 49,485
Tax effect of permanent differences 70,994 (29,270)
Under provision from prior year - -
Increase/(decrease) in net deferred tax
liability due to increase in tax rate - (6,578)
----------- -----------
42,790 13,637
----------- -----------
----------- -----------
Comprising:
Increase in income tax provision 72,603 69,308
Increase in future income tax benefits (31,089) (71,380)
Increase in provision for deferred
income tax 1,276 15,709
----------- -----------
42,790 13,637
----------- -----------
----------- -----------
NOTE 6. RECEIVABLES
Current:
Trade debtors 3,361,733 2,572,905
Less provision for doubtful debts 40,127 20,150
----------- -----------
3,321,606 2,552,755
Other debtors and prepayments 495,657 148,114
----------- -----------
3,817,263 2,700,869
----------- -----------
----------- -----------
Non current:
Loan to related company - 47,838
----------- -----------
----------- -----------
NOTE 7. INVENTORIES
Finished goods 3,099,976 2,507,284
----------- -----------
----------- -----------
7
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
1996 1995
$ $
Plant and equipment:
At cost 931,551 244,720
Less accumulated depreciation 306,195 22,574
----------- -----------
625,356 222,146
----------- -----------
Office furniture, equipment and machines:
At cost 558,896 632,674
Less accumulated depreciation 305,694 177,151
----------- -----------
253,202 455,523
----------- -----------
Fixtures and fittings:
At cost - 233,986
Less accumulated depreciation - 194,310
----------- -----------
- 39,676
----------- -----------
Motor vehicles:
At cost 464,289 454,562
Less accumulated depreciation 154,494 95,012
----------- -----------
309,795 359,550
----------- -----------
Leased assets:
At cost 64,948 64,948
Less accumulated amortisation 23,996 15,996
----------- -----------
40,952 48,952
----------- -----------
Total property, plant and equipment 1,229,304 1,125,847
----------- -----------
----------- -----------
NOTE 9. INTANGIBLES
Goodwill acquired 3,890,138 3,615,190
Less accumulated amortisation 230,248 45,694
----------- -----------
3,659,890 3,569,496
----------- -----------
----------- -----------
NOTE 10. OTHER NON CURRENT ASSETS
Future income tax benefit 157,137 126,048
----------- -----------
----------- -----------
8
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 11. CREDITORS AND BORROWINGS
NOTE 1996 1995
$ $
Current:
Trade creditors 3,770,381 2,181,433
Other creditors 294,891 669,319
Lease liability 10,874 9,646
----------- -----------
4,076,146 2,860,398
----------- -----------
----------- -----------
Non current:
Amount payable to related corporation 7,845,349 7,178,911
Lease liability 31,784 42,658
----------- -----------
7,877,133 7,221,569
----------- -----------
----------- -----------
NOTE 12. PROVISIONS
Current:
Income tax 55,276 48,749
Employee benefits 333,929 269,086
----------- -----------
389,205 317,835
----------- -----------
----------- -----------
Non current:
Employee benefits 33,248 47,897
Provision for deferred income tax 48,380 47,104
----------- -----------
81,628 95,001
----------- -----------
----------- -----------
9
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 13. SHARE CAPITAL
NOTE 1996 1995
$ $
Authorised capital:
10,000 ordinary shares of
$1.00 each 10,000 10,000
----------- -----------
----------- -----------
Issued and paid up capital:
2 ordinary shares of
$1.00 each fully paid 2 2
----------- -----------
----------- -----------
NOTE 14. RESERVES
Acquired goodwill written off reserve (105,500) (105,500)
----------- -----------
----------- -----------
NOTE 15. CAPITAL AND LEASING COMMITMENTS
Finance lease commitments:
Payable not later than one year 15,269 15,269
Payable between one and two years 33,035 15,269
Payable between two and five years - 33,035
----------- -----------
48,304 63,573
Deduct future finance charges 5,646 11,269
----------- -----------
Total lease liability 42,658 52,304
----------- -----------
----------- -----------
Representing lease liabilities:
Current 11 10,874 9,646
Non current 11 31,784 42,658
----------- -----------
42,658 52,304
----------- -----------
----------- -----------
Operating lease commitments:
Payable not later than one year 601,083 382,997
Payable between one and two years 352,850 321,734
Payable between two and five years 129,855 194,917
----------- -----------
Operating lease liability 1,083,788 899,648
----------- -----------
----------- -----------
There are no capital commitments as at 30 June 1996.
10
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 16. CONTINGENT LIABILITIES
At balance date the Company is a cross guarantor for a $40.5m loan facility
available to the ultimate chief entity.
NOTE 17. DIVIDENDS
1996 1995
$ $
Ordinary dividends paid
Interim - fully franked - 100,000
Final - fully franked - 70,000
----------- -----------
Total dividend paid - 170,000
----------- -----------
----------- -----------
NOTE 18. RELATED PARTY INFORMATION
(a) Directors
P.T. Reilly and J.E. Walsh held office as a director of the Company
throughout the year ended 30 June, 1996.
(b) Controlling Entities
The immediate chief entity is Australian Document Exchange Pty Ltd The
ultimate chief entity is AUSDOC Group Limited, a company incorporated in
Australia.
(c) Other related corporations in the AUSDOC Group Limited group are:
H & P Stationery Pty Ltd
Mullaly & Byrne Pty Ltd
Canberra Wholesale Stationers Pty Ltd
Data Security Services Pty Ltd
Dart Couriers (Aust.) Pty Ltd
Stronghold Security Services Pty Ltd
AUSDOC Funds Management Pty Ltd
AUSDOC Employee Share Plan Pty Ltd
Electronic Document Exchange Pty Ltd
Perth Stationery Supplies Pty Ltd
During the year the Company received licensing fees from Perth Stationery
Supplies Pty Ltd. These fees totalled $310,000. The Company provides
equipment to Perth Stationery Supplies Pty Ltd. Equipment rentals are
charged via an intercompany loan account. The Company performs
administrative duties for H & P Stationery Pty Ltd by providing employees,
debtor collection and creditor payment services. These services are
reimbursed via an intercompany loan account.
There are no other material intercompany transactions or balances between
related parties other than as disclosed within these accounts.
11
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 19. DIRECTORS' REMUNERATION
Amounts received or due and receivable
by the Directors of the Company:
1996 1995
$ $
From the Company - -
From related bodies corporate 335,000 295,000
The numbers of Directors whose income
from the Company or related bodies
corporate was within the specified bands
are as follows:
$000 $000
110 - 120 - 1
130 - 140 1 -
170 - 180 - 1
190 - 200 1 -
The above information is presented in accordance with the requirements of clause
25 of Schedule 5 to the Corporations Regulations. The company has been relieved
from compliance with the corresponding requirements of Accounting Standard AASB
1017 "Related Party Disclosures" by a class order issued by the Australian
Securities Commission dated 13 October 1994.
NOTE 20. SUBSEQUENT EVENTS
The company has contracted to sells its entire office products business to Blue
Star Group Pty Ltd effective 30 September 1996. The company will receive $25.6
million for goodwill plus the book value of operating assets. A profit after
tax on sale of approximately $10 million will be realised on the transaction.
No other matters or circumstances have arisen since the end of the financial
year which significantly affected, or may significantly affect, the operations
of the Company, the results of those operations or the state of affairs of the
Company in financial years subsequent to the financial year ended 30 June, 1996.
12
<PAGE>
AUSDOC OFFICE PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 21. CASH FLOW INFORMATION
1996 1995
$ $
Reconciliation of net cash provided by operating
activities to operating profit after income tax
Operating profit after income tax (121,135) 136,316
Depreciation and amortisation 477,591 162,432
Loss on sale of property, plant and equipment - 1,470
Profit on sale of property, plant and equipment (22,419) (10,079)
Increase/(decrease) in taxes payable (23,286) (89,161)
Bad debts 10,851 746
Doubtful debts 19,977 8,000
Increase in employee provisions 50,194 34,793
Increase in receivables (1,147,222) (1,908,417)
Increase in inventory (592,692) (1,022,365)
Increase in creditors and borrowings 1,225,393 2,127,340
----------- -----------
Net cash provided by operating activities (122,748) (558,925)
----------- -----------
----------- -----------
During the year the Company acquired the
business of Complete Office Supplies (W.A.)
Details are as follows:
Consideration
Plant and equipment 102,052 954,862
Inventory - 282,000
Employee entitlements - (113,000)
Goodwill on acquisition 274,948 3,615,190
Future income tax benefit - 18,224
Lease liability - (53,802)
----------- -----------
Cash consideration 377,000 4,703,474
----------- -----------
Outflow of cash to acquire entities
net of cash acquired:
Cash consideration 377,000 4,703,474
Less balances acquired - -
----------- -----------
Outflow of cash 377,000 4,703,474
----------- -----------
13
<PAGE>
AUSDOC OFFICE PTY LTD
STATEMENT BY DIRECTORS
- --------------------------------------------------------------------------------
In accordance with a resolution of the Board of Directors of AUSDOC Office Pty
Ltd in the opinion of the Directors:
(a) the accounts of the Company are drawn up so as to give a true and fair
view of the result of the Company for the year ended 30 June 1996 and the
state of affairs of the Company as at 30 June 1996.
(b) at the date of this statement there are reasonable grounds to believe that
the Company will be able to pay its debts as and when they fall due.
(c) the accounts of the Company have been made out in accordance with
Divisions 4, 4A and 4B of Part 3.6 of the Corporations Law, applicable
accounting standards and Urgent Issues Group Consensus Views.
For and on behalf of the Board by:
This 23rd day of September 1996.
PETER T. REILLY
DIRECTOR
JAMES E. WALSH
DIRECTOR
14
<PAGE>
AUDITORS' REPORT
TO THE MEMBERS OF AUSDOC OFFICE PTY LTD
- --------------------------------------------------------------------------------
SCOPE
We have audited the accounts of AUSDOC Office Pty Ltd for the year ended 30
June, 1996 as set out on pages 2 to 14. The Company's Directors are responsible
for the preparation and presentation of the accounts and the information they
contain. We have conducted an independent audit of these accounts in order to
express an opinion on them to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance as to whether the accounts are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the accounts, and the evaluation
of accounting policies and significant accounting estimates. These procedures
have been undertaken to form an opinion as to whether, in all material respects,
the accounts are presented fairly in accordance with Australian accounting
standards, other mandatory professional reporting requirements, being Urgent
Issues Group Consensus Views and the Corporations Law so as to present a view of
the Company which is consistent with our understanding of its state of affairs,
results of operations and cashflows.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION
In our opinion, the accounts of AUSDOC Office Pty Ltd are properly drawn up:
(a) so as to give a true and fair view of:
(i) the Company's state of affairs as at 30 June, 1996 and of its result
for the year ended on that date; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part 3.6 of
the Corporations Law to be dealt with in the accounts;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other mandatory
professional reporting requirements.
Signed at Melbourne,
This 23rd day of September 1996.
DAY NEILSON
Chartered Accountants
J.J. GAVENS,
Partner
15
<PAGE>
H & P STATIONERY PTY LTD
ACN 004 103 262
DIRECTORS' REPORT
- --------------------------------------------------------------------------------
The Directors of H & P Stationery Pty. Ltd. formally resolved to submit the
following report with respect to the profit and loss and the state of affairs
of the Company as at 30 June, 1996.
1. The names of the Directors of the Company in office at the date of this
report are:
PETER T. REILLY
JAMES E. WALSH
2. The principal activities of the Company during the year were that of
stationers.
3. The profit of the Company for the year after providing for income tax and
abnormal items was $620,480 (1995: $319,113 profit).
4. Dividends of $626,993 were paid during the year.
5. No significant change in the state of affairs of the Company occurred
during the year.
6. The company has contracted to sells its entire office products business to
Blue Star Group Pty Ltd as of 30 September 1996. The company will receive
consideration of $2.8 million for goodwill plus the book value of operating
assets. A profit after tax of approximately $1.8 million will be realised
on the transaction. No other matters or circumstances have arisen since
the end of the financial year which significantly affected, or may
significantly affect, the operations of the Company, the results of those
operations or the state of affairs of the Company in financial years
subsequent to the financial year ended 30 June, 1996.
7. No information is included on the likely developments in the operations of
the Company and the expected results of those operations, as it is the
opinion of the Directors of the Company, that this information would
prejudice the interests of the Company if included in this report.
8. No Director, since 30 June, 1995 has received or become entitled to receive
a benefit (other than a benefit included in the aggregate amount of
emoluments received or due and receivable by Directors shown in Note 18 in
the Accounts, or the fixed salary of a full time employee of the Company)
by reason of a contract made by the Company or related corporation with
any Director or with a firm of which a Director is a member or with a
company in which a Director is a member or with a company in which a
Director has a substantial financial interest.
SIGNED in accordance with a resolution of the Directors of H & P
Stationery Pty. Ltd.
DATED this 23rd day of September 1996.
PETER T. REILLY JAMES E. WALSH
DIRECTOR DIRECTOR
1
<PAGE>
H & P STATIONERY PTY LTD
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Operating revenue 2 3,876,317 8,157,565
----------- -----------
----------- -----------
Operating profit before abnormals
and income tax 3 260,414 160,482
Abnormal items 4 169,581 238,958
----------- -----------
Operating profit before income tax 429,995 399,440
Income tax attributable
to operating profit 5 190,485 (80,327)
----------- -----------
Operating profit after income tax 620,480 319,113
Dividends paid 16 (626,993) (150,000)
Transfer from Reserves 13 219,595 -
Retained profits at the beginning of
the financial year 177,237 8,124
----------- -----------
Retained profits at the end
of the financial year 390,319 177,237
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
2
<PAGE>
H & P STATIONERY PTY LTD
BALANCE SHEET AS AT 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
CURRENT ASSETS
Cash 8,283 108,008
Receivables 6 122,207 966,431
Inventories 7 458,428 426,581
----------- -----------
Total Current Assets 588,918 1,501,020
----------- -----------
NON CURRENT ASSETS
Receivables 6 1,094,960 953,310
Property, plant and equipment 8 60,088 372,949
Other 9 279,393 30,381
----------- -----------
Total Non Current Assets 1,434,441 1,356,640
----------- -----------
TOTAL ASSETS 2,023,359 2,857,660
----------- -----------
CURRENT LIABILITIES
Creditors and borrowings 10 11,941 466,811
Provisions 11 57,549 49,549
----------- -----------
Total Current Liabilities 69,490 516,360
----------- -----------
NON CURRENT LIABILITIES
Creditors and borrowings 10 1,142,090 1,516,839
Provisions 11 4,770 10,939
----------- -----------
Total Non Current Liabilities 1,146,860 1,527,778
----------- -----------
TOTAL LIABILITIES 1,216,350 2,044,138
----------- -----------
NET ASSETS 807,009 813,522
----------- -----------
----------- -----------
SHAREHOLDERS' EQUITY
Share capital 12 42,200 42,200
Reserves 13 374,490 594,085
Retained profits 390,319 177,237
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 807,009 813,522
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
3
<PAGE>
H & P STATIONERY PTY LTD
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 3,692,002 7,909,668
Interest received 18,571 4,917
Payments to suppliers (3,580,014) (7,227,966)
Interest paid and finance costs - (6,924)
Income taxes paid (19,305) (65,485)
----------- -----------
Net cash provided by operating activities 20 111,254 614,210
----------- -----------
Cash flows from investing activities
Proceeds from sale of business 543,960 25,000
Proceeds from sale of non current assets 576,129 45,500
Payments for non current assets (49,832) (29,053)
----------- -----------
Net cash provided by investing activities 1,070,257 41,447
----------- -----------
Cash flows from financing activities
Dividends paid (626,993) (150,000)
Advance to related companies (628,096) (538,866)
Loan from related company - 159,794
Repayment of finance lease and hire
purchase liabilities (26,147) (84,830)
----------- -----------
Net cash provided by financing activities (1,281,236) (613,902)
----------- -----------
Net increase/(decrease) in cash held (99,725) 41,755
Cash at beginning of the financial year 108,008 66,253
----------- -----------
Cash at end of the financial year 8,283 108,008
----------- -----------
----------- -----------
The accompanying notes form an integral part of the accounts.
4
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1. STATEMENT OF ACCOUNTING POLICIES
The accounts are a general purpose financial report prepared in accordance with
Accounting Standards, Urgent Issues Group Consensus Views and the requirements
in Schedule 5 to the Corporations Regulations. The accounts have been prepared
on the basis of historical costs and do not take into account changing money
values or, except where stated, current valuations of non current assets. The
accounting policies have been consistently applied, unless otherwise stated.
The following is a summary of the significant accounting policies adopted by the
Company in the preparation of the accounts.
(a) Goodwill
Goodwill, representing the excess of purchase consideration over the fair
value of identifiable net assets acquired arising upon the acquisition of a
business entity is shown as an intangible asset. Goodwill is amortised on
a straight line basis over the period of expected benefit, that period not
exceeding 20 years. For the years ended June 1988 and 1989, acquired
goodwill was written off in full via the profit and loss account. An
offsetting entry was posted from the "Acquired goodwill written off
reserve."
(b) Receivables
A provision is raised for any doubtful debts based on a review of all
outstanding amounts at year end. Bad debts are written off during the
period in which they are identified.
(c) Inventories
Inventories are valued at the lower of cost and net realisable value. Costs
have been assigned to inventory quantities on hand at balance date using
the first-in-first-out and weighted average cost basis or under the retail
inventory method.
(d) Property, plant and equipment
Property, plant and equipment are included at cost. All property, plant and
equipment, other than land are depreciated over their estimated useful
lives using the straight line method commencing from the time the asset is
held ready for use.
(e) Comparatives
Where necessary, comparative figures have been adjusted to conform with
changes in presentation in the current year.
5
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 2. OPERATING REVENUE:
1996 1995
$ $
Sales revenue 3,261,680 7,346,926
Other revenue:-
Interest 18,571 4,917
Discounts - 1,840
Rent 2,500 -
Proceeds on sale of business, property,
plant and equipment 576,129 778,899
Sundry income 17,437 24,983
----------- -----------
3,876,317 8,157,565
----------- -----------
----------- -----------
NOTE 3. OPERATING PROFIT
The operating profit before income
tax has been determined after:
Charging as expenses:
Bad debts written off 1,576 9,927
Transfers to/(from) provisions for:-
Employee benefits (37,391) (34,194)
Doubtful debts - 3,554
Stock obsolescence - (12,000)
Depreciation of plant and equipment 40,675 75,782
Auditors' remuneration:
For auditing the accounts of
the company 700 10,000
For other services - 200
Amortisation of leased assets 6,673 34,260
Finance lease charges - 6,924
Hire purchase charges - -
Operating lease rentals - 348,199
Management charges 200,000 30,000
Loss on sale of property, plant
and equipment 7,506 -
Contributions to superannuation fund - 78,940
Crediting as revenue:
Interest received 18,571 4,917
Profit on sale of property, plant
and equipment 30,709 273,123
6
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 4. ABNORMAL ITEMS
1996 1995
$ $
Profit on sale of property
(Tax expense applicable $Nil) 212,581 -
Profit on sale of business
(Tax expense applicable $Nil) 25,000 238,958
Business closure costs
(Tax credit applicable $24,480) (68,000) -
----------- -----------
169,581 238,958
----------- -----------
----------- -----------
NOTE 5. INCOME TAX
Operating profit 429,993 399,440
----------- -----------
Prima facie income tax expense
calculated at 36% (1995: 33%) 154,797 131,815
Add: permanent differences (79,888) (49,845)
Recognition of capital losses carried forward (266,073) -
Increase/(decrease) in net deferred tax
liability due to increase in tax rate - (1,620)
Over provision of tax in prior year 679 (23)
----------- -----------
Income tax expense (190,485) 80,327
----------- -----------
----------- -----------
Comprising
Increase in income tax
provisions 64,696 25,255
Increase/(decrease) in provision
for deferred tax (6,169) (14,936)
(Increase)/decrease in future income
tax benefits (249,012) 70,008
----------- -----------
(190,485) 80,327
----------- -----------
----------- -----------
7
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 6. RECEIVABLES
1996 1995
$ $
Current:
Trade debtors 22,510 419,712
Less provision for doubtful debts 22,510 12,000
----------- -----------
0 407,712
Other debtors and prepayments 133,697 558,719
Less provision for diminution in loan 14,490 -
----------- -----------
122,207 966,431
----------- -----------
----------- -----------
Non current:
Unsecured loans to holding company 1,094,960 841,613
Loan to Nowton Pty Ltd - 136,697
Less provision for diminution in loan - 25,000
----------- -----------
- 111,697
----------- -----------
1,094,960 953,310
----------- -----------
----------- -----------
NOTE 7. INVENTORIES
Raw material - -
Work in progress - -
Finished goods 458,428 426,581
----------- -----------
458,428 426,581
----------- -----------
----------- -----------
8
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 8. PROPERTY, PLANT AND EQUIPMENT
1996 1995
$ $
Land and buildings:
Freehold land (at Directors' valuation 1986) - 180,000
Freehold buildings (at Directors' valuation 1986) - 100,000
Less accumulated depreciation - 17,167
----------- -----------
- 82,833
----------- -----------
- 262,833
----------- -----------
Plant and machinery (at cost) - -
Less accumulated depreciation - -
----------- -----------
- -
----------- -----------
Furniture, fittings and office equipment (at cost) - -
Less accumulated depreciation - -
----------- -----------
- -
----------- -----------
Shop fittings (at cost) 334,555 279,254
Less accumulated depreciation 274,467 206,070
----------- -----------
60,088 73,184
----------- -----------
Staff amenities (at cost) - -
Less accumulated depreciation - -
----------- -----------
- -
----------- -----------
Motor vehicles (at cost) - -
Less accumulated depreciation - -
----------- -----------
- -
----------- -----------
Leased assets (at cost) - 74,480
Less accumulated amortisation - 37,548
----------- -----------
- 36,932
----------- -----------
Total property, plant and equipment 60,088 372,949
----------- -----------
----------- -----------
9
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 9. OTHER NON-CURRENT ASSETS
NOTE 1996 1995
$ $
Future income tax benefit 279,393 30,381
----------- -----------
----------- -----------
NOTE 10. CREDITORS AND BORROWINGS
Current:
Trade creditors and accrued expenses 11,941 440,664
Lease liabilities 14 - 26,147
----------- -----------
11,941 466,811
----------- -----------
----------- -----------
Non current:
Lease liabilities 14 - -
Unsecured loans from related companies 1,142,090 1,516,839
----------- -----------
1,142,090 1,516,839
----------- -----------
----------- -----------
NOTE 11. PROVISIONS
Current:
Income tax 57,549 12,158
Employee benefits - 37,391
----------- -----------
57,549 49,549
----------- -----------
----------- -----------
Non current:
Employee benefits - -
Provision for deferred tax 4,770 10,939
----------- -----------
4,770 10,939
----------- -----------
----------- -----------
Aggregate employee entitlements:
Current - 37,391
Non current - -
----------- -----------
- 37,391
----------- -----------
----------- -----------
NOTE 12. SHARE CAPITAL
Authorised capital:
100,000 ordinary shares of $2.00 each 200,000 200,000
----------- -----------
----------- -----------
Issued and paid up capital:
21,100 ordinary shares of $2.00 each fully paid 42,200 42,200
----------- -----------
----------- -----------
10
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 13. RESERVES
NOTE 1996 1995
$ $
Capital profit reserve 10,186 10,186
General reserve 1,378,499 1,378,499
Asset revaluation reserve - 219,595
Acquired goodwill written off reserve (1,014,195) (1,014,195)
----------- -----------
374,490 594,085
----------- -----------
----------- -----------
Movement in Reserves
Asset Revaluation Reserve
Opening Balance 219,595 219,595
Transfer to Retained Earnings (219,595) -
----------- -----------
Closing Balance - 219,595
----------- -----------
----------- -----------
NOTE 14. CAPITAL AND LEASING COMMITMENTS
Operating lease commitments:
Payable not later than one year 219,444 230,587
Payable between one and two years 39,879 154,900
Payable between two and five years - 13,150
----------- -----------
Operating lease liability 259,323 398,637
----------- -----------
----------- -----------
Finance lease commitments:
Payable not later than one year - 27,242
Payable between one and two years - -
----------- -----------
- 27,242
Deduct future finance charges - 1,095
----------- -----------
Provided for as a liability - 26,147
----------- -----------
----------- -----------
Representing lease liabilities
Current 10 - 26,147
Non current 10 - -
----------- -----------
- 26,147
----------- -----------
----------- -----------
11
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 15. CONTINGENT LIABILITIES
At balance date the Company is a cross guarantor for a $44.55m loan facility
available to the ultimate chief entity.
1996 1995
$ $
NOTE 16. DIVIDENDS
Ordinary dividends paid
Interim 100,000 50,000
Final 526,993 100,000
----------- -----------
Total dividends paid 626,993 150,000
----------- -----------
----------- -----------
NOTE 17. RELATED PARTY INFORMATION
a) Directors
P.T. Reilly and J.E. Walsh each held office as a director of the Company
throughout the year ended 30 June, 1996.
b) Controlling Entities
The immediate chief entity is Australian Document Exchange Pty Ltd. The
ultimate chief entity is AUSDOC Group Limited, a company incorporated in
Australia.
c) Other related and associated corporations
AUSDOC Office Pty Ltd
Canberra Wholesale Stationers Pty Ltd
Data Security Services Pty Ltd
Dart Couriers (Aust.) Pty Ltd
Mullaly and Byrne Pty Ltd
Stronghold Security Services Pty Ltd
AUSDOC Employee Share Plan Pty Ltd
AUSDOC Funds Management Pty Ltd
Electronic Document Exchange Pty Ltd
Perth Stationery Supplies Pty Ltd
12
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 17. RELATED PARTY INFORMATION (CON'TD)
d) Related party transactions and balances
There are no material intercompany transactions or balances between related
parties other than as disclosed within these accounts.
1996 1995
$ $
NOTE 18. DIRECTORS' REMUNERATION
Amounts received or due and receivable
by the Directors of the Company:
From the Company - -
From related bodies corporate 335,000 295,000
The numbers of Directors whose income
from the Company or related bodies
corporate was within the specified bands
are as follows:
$000 $000
110 - 120 - 1
130 - 140 1 -
170 - 180 - 1
190 - 200 1 -
The above information is presented in accordance with the requirements of clause
25 of Schedule 5 to the Corporations Regulations. The company has been relieved
from compliance with the corresponding requirements of Accounting Standard AASB
1017 "Related Party Disclosures" by a class order issued by the Australian
Securities Commission dated 13 October 1994.
NOTE 19. SUBSEQUENT EVENTS
The company has contracted to sells its entire office products business to Blue
Star Group Pty Ltd as of 30 September 1996. The company will receive
consideration of $2.8 million for goodwill plus the book value of operating
assets. A profit after tax of approximately $1.8 million will be realised on
the transaction. No other matters or circumstances have arisen since the end of
the financial year which significantly affected, or may significantly affect,
the operations of the Company, the results of those operations or the state of
affairs of the Company in financial years subsequent to the financial year ended
30 June, 1996.
13
<PAGE>
H & P STATIONERY PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 20. CASHFLOW INFORMATION
1996 1995
$ $
Reconciliation of operating profit after
income tax to net cash provided by operating
activities
Operating profit after income tax 620,480 319,113
Depreciation and amortisation 47,348 110,042
Bad debts 1,576 9,927
Cost of sales writeback - (21,375)
Doubtful debts provision - 3,554
Stock obsolescence provision - (12,000)
Loss on sale of non current assets 7,506 -
Profit on sale of non current assets (268,290) (273,123)
Increase/(Decrease) in taxes payable (209,790) 14,842
Increase/(Decrease) in employee provisions (37,391) (34,194)
Decrease/(Increase) in receivables 410,385 445,919
Decrease/(Increase) in inventory (31,847) 387,048
Increase/(Decrease) in creditors & borrowings (428,723) (335,543)
----------- -----------
Net cash provided by operating activities 111,254 614,210
----------- -----------
----------- -----------
14
<PAGE>
H & P STATIONERY PTY LTD
STATEMENT BY DIRECTORS
- --------------------------------------------------------------------------------
In accordance with a resolution of the Board of Directors of H & P Stationery
Pty. Ltd. in the opinion of the Directors:
(a) the accounts of the Company are drawn up so as to give a true and fair view
of the result of the Company for the year ended 30 June 1996 and the state
of affairs of the Company as at 30 June 1996.
(b) at the date of this statement there are reasonable grounds to believe that
the Company will be able to pay its debts as and when they fall due.
(c) the accounts of the Company have been made out in accordance with Divisions
4, 4A and 4B of Part 3.6 of the Corporations Law, applicable accounting
standards and Urgent Issues Group Consensus Views.
For and on behalf of the Board by:-
Dated this 23rd day of September 1996.
PETER T. REILLY
DIRECTOR
JAMES E. WALSH
DIRECTOR
15
<PAGE>
AUDITORS' REPORT
TO THE MEMBERS OF H & P STATIONERY PTY. LTD.
- --------------------------------------------------------------------------------
SCOPE
We have audited the accounts of H & P Stationery Pty. Ltd. for the year ended 30
June, 1996 as set out on pages 2 to 15. The Company's Directors are responsible
for the preparation and presentation of the accounts and the information they
contain. We have conducted an independent audit of these accounts in order to
express an opinion on them to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance as to whether the accounts are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the accounts, and the evaluation
of accounting policies and significant accounting estimates. These procedures
have been undertaken to form an opinion as to whether, in all material respects,
the accounts are presented fairly in accordance with Australian accounting
standards, other mandatory professional reporting requirements, being Urgent
Issues Group Consensus Views and the Corporations Law so as to present a view of
the Company which is consistent with our understanding of its state of affairs,
results of operations and cashflows.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION
In our opinion, the accounts of H & P Stationery Pty. Ltd. are properly drawn
up:
(a) so as to give a true and fair view of:
(i) the Company's state of affairs as at 30 June, 1996 and of its
result for the year ended on that date; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part 3.6
of the Corporations Law to be dealt with in the accounts;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other mandatory
professional reporting requirements.
Signed at Melbourne,
This 23rd day of September 1996.
DAY NEILSON
Chartered Accountants
J.J. GAVENS
Partner
16
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
ACN 008 606 559
DIRECTORS' REPORT
- --------------------------------------------------------------------------------
The Directors of Canberra Wholesale Stationers Pty Ltd resolved to make the
following report with respect to the profit and loss and the state of affairs
of the Company as at 30 June, 1996.
1. The names of the Directors of the Company in office at the date of this
report are:
PETER T. REILLY
JAMES E. WALSH
2. The principal activity of the Company during the year was the sale of
commercial office products.
3. The profit of the Company for the year after providing for income tax was
$539,849 (1995 - $541,762 profit).
4. Dividends of $651,260 were paid during the year.
5. No significant change in the state of affairs of the Company occurred
during the year.
6. The company has contracted to sells its entire office products business to
Blue Star Group Pty Ltd as of 30 September 1996. The company will receive
consideration of $4.62 million for goodwill plus the book value of
operating assets. A profit after tax of approximately $2.9 million will be
realised on the transaction. No other matter or circumstances have arisen
since the end of the financial year which significantly affected, or may
significantly affect, the operations of the Company, the results of those
operations or the state of affairs of the Company in financial years
subsequent to the financial year ended 30 June, 1996.
7. No information is included on the likely developments in the operations of
the Company and the expected results of those operations, as it is the
opinion of the Directors of the Company, that this information would
prejudice the interests of the Company if included in this report.
8. No Director, since 30 June, 1995 has received or become entitled to receive
a benefit (other than a benefit included in the aggregate amount of
emoluments received or due and receivable by Directors shown in Note 15 of
the Accounts, or the fixed salary of a full time employee of the Company)
by reason of a contract made by the Company or related corporation with
any Director or with a firm of which a Director is a member or with a
company in which a Director is a member or with a company in which a
Director has a substantial financial interest, except as disclosed in Note
17 of the accounts.
SIGNED in accordance with a resolution of the Directors of Canberra
Wholesale Stationers Pty Ltd.
DATED this 23rd day of September 1996.
PETER T. REILLY JAMES E. WALSH
DIRECTOR DIRECTOR
1
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Operating revenue 2 12,302,663 11,449,024
----------- -----------
----------- -----------
Operating profit before income tax 3 848,440 805,257
Income tax attributable
to operating profit 4 (308,591) (263,495)
----------- -----------
Operating profit after income tax 539,849 541,762
Dividends paid 12 (651,260) (370,000)
Retained profits/(losses) at the
beginning of the financial year 241,272 69,510
----------- -----------
Retained profits at the end
of the financial year 129,861 241,272
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
2
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
BALANCE SHEET AS AT 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
CURRENT ASSETS
Cash 15,264 61,615
Receivables 5 1,077,011 942,966
Inventories 6 1,039,393 1,226,938
----------- -----------
Total Current Assets 2,131,668 2,231,519
----------- -----------
NON CURRENT ASSETS
Receivables 5 581,303 122,020
Property, plant and equipment 7 336,084 363,978
Other 8 65,508 57,307
----------- -----------
Total Non Current Assets 982,895 543,305
----------- -----------
TOTAL ASSETS 3,114,563 2,774,824
----------- -----------
CURRENT LIABILITIES
Creditors and borrowings 9 1,564,212 1,807,437
Provisions 10 361,865 319,806
----------- -----------
Total Current Liabilities 1,926,077 2,127,243
----------- -----------
NON CURRENT LIABILITIES
Creditors and borrowings 9 1,021,260 370,000
Provisions 10 37,353 36,297
----------- -----------
Total Non Current Liabilities 1,058,613 406,297
----------- -----------
TOTAL LIABILITIES 2,984,690 2,533,540
----------- -----------
NET ASSETS 129,873 241,284
----------- -----------
----------- -----------
SHAREHOLDERS' EQUITY
Share capital 11 12 12
Retained profits 129,861 241,272
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 129,873 241,284
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
3
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Cash flows from operating activities
Receipts from customers 12,144,702 11,252,342
Interest received 9,236 21,596
Payments to suppliers
(purchases/expenses) (11,352,937) (10,855,949)
Interest and finance charges paid (15,701) (14,592)
Income taxes paid (305,489) (229,090)
----------- -----------
Net cash provided by operating activities 18 479,811 174,307
----------- -----------
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 14,680 37,375
Payments for property, plant and equipment (68,182) (165,943)
----------- -----------
Net cash provided by investing activities (53,502) (128,568)
----------- -----------
Cash flows from financing activities
Dividends paid (651,260) (370,000)
Lease finance and hire purchase
principal repayments (13,377) (14,271)
Repayment and advance of
loan to holding company 191,977 394,712
----------- -----------
Net cash provided by financing activities (472,660) 10,441
----------- -----------
Net increase/(decrease) in cash held (46,351) 56,180
Cash at beginning of the financial year 61,615 5,435
----------- -----------
Cash at end of the financial year 15,264 61,615
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
4
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1. STATEMENT OF ACCOUNTING POLICIES
The accounts are a general purpose financial report prepared in accordance with
Accounting Standards, Urgent Issues Group Consensus Views and the requirements
in Schedule 5 to the Corporations Regulations. The accounts have been prepared
on the basis of historical costs and do not take into account changing money
values or, except where stated, current valuations of non-current assets. The
accounting policies have been consistently applied, unless otherwise stated.
The following is a summary of the significant accounting policies adopted by the
Company in the preparation of the accounts.
(a) Receivables
A provision is raised for any doubtful debts based on a review of all
outstanding amounts at year end. Bad debts are written off during the
period in which they are identified.
(b) Inventories
Inventories are valued at the lower of cost and net realisable value. Costs
are assigned on a first in first out basis; and include an appropriate
share of both variable and fixed costs.
(c) Property, Plant and Equipment
Property, plant and equipment are included at cost. All property, plant
and equipment other than land are depreciated over their estimated useful
lives using the straight line method commencing from the time the asset is
held ready for use.
(d) Comparative Figures
Where necessary comparative figures in the notes to the accounts have been
altered to conform with the current year's presentation and to give more
meaningful comparisons. The comparatives in the accounts remain unaltered.
5
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 2. OPERATING REVENUE
1996 1995
$ $
Sales revenue 12,278,747 11,357,708
Other revenue
Interest received from related party 404 15,260
Interest received from other corporations 8,832 6,336
Sundries - 32,345
Proceeds from sale of non current assets 14,680 37,375
----------- -----------
Total operating revenue 12,302,663 11,449,024
----------- -----------
----------- -----------
NOTE 3. OPERATING PROFIT
Operating profit before tax has been
determined after:
Charging as expenses:
Auditors' remuneration:
- For auditing the accounts of
the Company 9,000 9,000
- For other services 200 200
Amortisation of leased assets 2,432 9,904
Depreciation of fixed assets 92,526 98,591
Interest paid:
Related corporations 14,323 11,217
Other 291 172
Operating lease rentals 120,706 124,808
Loss on disposal of property, plant
and equipment - 740
Finance charges re finance leases 1,087 3,203
Transfers to provisions for:
Employee benefits 31,812 22,356
Management charges 100,000 50,000
Contributions to superannuation fund 72,191 45,786
Crediting as revenue:
Interest received - related party 404 15,260
Interest received - other 8,832 6,336
Profit on disposal of property, plant
and equipment 13,562 1,780
6
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 4. INCOME TAX
1996 1995
$ $
Operating profit 848,440 805,257
----------- -----------
----------- -----------
Prima facie income tax expense
calculated at 36% (1995: 33%) 305,438 265,735
Tax effect of permanent differences 3,153 2,536
Increase/(decrease) in net deferred tax
liability due to increase in tax rate - (4,776)
----------- -----------
Income tax expense on operating profit 308,591 263,495
----------- -----------
----------- -----------
Comprising
Current tax provision increase 315,457 281,046
Provision for deferred tax increase 1,335 -
Future income tax benefit increase (8,201) (17,551)
----------- -----------
308,591 263,495
----------- -----------
----------- -----------
NOTE 5. RECEIVABLES
Current:
Trade debtors 1,024,578 933,304
Less provision for doubtful debts 5,000 5,000
----------- -----------
1,019,578 928,304
Other debtors and prepayments 57,433 14,662
----------- -----------
1,077,011 942,966
----------- -----------
----------- -----------
Non current:
Loan to related company 581,303 122,020
----------- -----------
----------- -----------
NOTE 6. INVENTORIES
Finished goods 1,039,393 1,226,938
----------- -----------
----------- -----------
7
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
NOTE 1996 1995
$ $
Plant and machinery:
At cost 84,127 83,227
Less accumulated depreciation 56,313 50,536
----------- -----------
27,814 32,691
----------- -----------
Furniture, fixtures and equipment:
At cost 446,347 420,952
Less accumulated depreciation 287,864 247,578
----------- -----------
158,483 173,374
----------- -----------
Motor vehicles:
At cost 295,968 257,580
Less accumulated depreciation 146,181 102,099
----------- -----------
149,787 155,481
----------- -----------
Leased assets:
At cost - 29,200
Less accumulated amortisation - 26,768
----------- -----------
- 2,432
----------- -----------
Total property, plant and equipment 336,084 363,978
----------- -----------
----------- -----------
NOTE 8. OTHER NON CURRENT ASSETS
Future income tax benefit 65,508 57,307
----------- -----------
----------- -----------
NOTE 9. CREDITORS AND BORROWINGS
Current:
Trade creditors 1,307,443 1,509,905
Other creditors and accruals 256,769 284,155
Lease liability 13 - 13,377
----------- -----------
1,564,212 1,807,437
----------- -----------
----------- -----------
Non current:
Lease liability 13 - -
Unsecured loan - related company 1,021,260 370,000
----------- -----------
1,021,260 370,000
----------- -----------
----------- -----------
8
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 10. PROVISIONS
1996 1995
$ $
Current:
Income tax 245,196 235,228
Employee benefits 116,669 84,578
----------- -----------
361,865 319,806
----------- -----------
----------- -----------
Non current:
Employee benefits 36,018 36,297
Provision for deferred income tax 1,335 -
----------- -----------
37,353 36,297
----------- -----------
----------- -----------
Aggregate employee entitlements:
Current 116,669 84,578
Non current 36,018 36,297
----------- -----------
152,687 120,875
----------- -----------
----------- -----------
NOTE 11. SHARE CAPITAL
Authorised capital:
500,000 ordinary "A"
class shares of $1.00 each 500,000 500,000
500,000 ordinary "B"
class shares of $1.00 each 500,000 500,000
----------- -----------
1,000,000 1,000,000
----------- -----------
----------- -----------
Issued and paid up capital:
8 ordinary "A" class
shares of $1.00 each fully paid 8 8
4 ordinary "B" class
shares of $1.00 each fully paid 4 4
----------- -----------
12 12
----------- -----------
----------- -----------
NOTE 12. DIVIDENDS
Ordinary dividends paid 651,260 370,000
----------- -----------
----------- -----------
9
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 13. CAPITAL AND LEASING COMMITMENTS
NOTE 1996 1995
$ $
Operating lease commitments:
Payable not later than one year 115,126 119,253
Payable later than one, not later
than two years 115,126 119,253
Payable later than two, not later
than five years 98,509 191,509
Payable later than five years - 24,253
----------- -----------
328,761 454,268
----------- -----------
----------- -----------
Finance lease commitments:
Payable not later than one year - 14,082
Payable later than one, not later
than two years - -
Payable later than two, not later
than five years - -
Payable later than five years - -
----------- -----------
- 14,082
Less future finance charges - 705
----------- -----------
Provided for as a liability - 13,377
----------- -----------
----------- -----------
Representing lease liabilities
Current 9 - 13,377
Non-current 9 - -
----------- -----------
- 13,377
----------- -----------
----------- -----------
NOTE 14. CONTINGENT LIABILITIES
At balance date the company is a cross guarantor for a $44.55m loan facility
available to the ultimate chief entity.
10
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 15. DIRECTORS' REMUNERATION
1996 1995
$ $
Amounts received or due and receivable
by the Directors of the Company:
From the Company - -
From related bodies corporate 335,000 295,000
The numbers of Directors whose income
from the Company or related bodies
corporate was within the specified bands
are as follows:
$000 $000
110 - 120 - 1
130 - 140 1 -
170 - 180 - 1
190 - 200 1 -
The above information is presented in accordance with the requirements of clause
25 of Schedule 5 to the Corporations Regulations. The company has been relieved
from compliance with the corresponding requirements of Accounting Standard AASB
1017 "Related Party Disclosures" by a class order issued by the Australian
Securities Commission dated 13 October 1994.
NOTE 16. SUBSEQUENT EVENTS
The company has contracted to sells its entire office products business to Blue
Star Group Pty Ltd as of 30 September 1996. The company will receive
consideration of $4.62 million for goodwill plus the book value of operating
assets. A profit after tax of approximately $2.9 million will be realised on
the transaction. No other matter or circumstances have arisen since the end of
the financial year which significantly affected, or may significantly affect,
the operations of the Company, the results of those operations or the state of
affairs of the Company in financial years subsequent to the financial year ended
30 June, 1996.
NOTE 17. RELATED PARTY INFORMATION
a) Directors
P.T. Reilly and J.E. Walsh each held office as a Director of the Company
throughout the year ended 30 June, 1996.
11
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (CONT'D)
- --------------------------------------------------------------------------------
NOTE 17. RELATED PARTY INFORMATION (CONT'D)
b) Controlling Entities
The immediate chief entity is Australian Document Exchange Pty Ltd. The
ultimate chief entity is AUSDOC Group Limited, a company incorporated in
Australia.
Other related companies are:
AUSDOC Office Pty Ltd
H & P Stationery Pty Ltd
Data Security Services Pty Ltd
Dart Couriers (Aust.) Pty Ltd
Mullaly and Byrne Pty Ltd
Stronghold Security Services Pty Ltd
AUSDOC Employee Share Plan Pty Ltd
AUSDOC Funds Management Pty Ltd
Electronic Document Exchange Pty Ltd
Perth Stationery Supplies Pty Ltd
c) Related party transactions and balances
There are no material intercompany transactions or balances between related
parties other than as disclosed within these accounts.
NOTE 18. CASHFLOW INFORMATION
1996 1995
$ $
Reconciliation of operating profit after
income tax to net cash provided by operating
activities.
Operating profit after income tax 539,849 541,762
Depreciation and amortisation 94,958 108,495
Gain on disposal of property,
plant and equipment (13,562) (1,780)
Loss on disposal of property,
plant and equipment - 740
Increase/(decrease) in taxes payable 3,102 34,405
Increase in employee provisions 31,812 22,356
Increase in receivables (134,045) (137,711)
Decrease/(Increase) in inventory 187,545 (599,695)
(Decrease)/Increase in creditors and borrowings (229,848) 205,735
----------- -----------
Net cash provided by operating activities 479,811 174,307
----------- -----------
----------- -----------
12
<PAGE>
CANBERRA WHOLESALE STATIONERS PTY LTD
STATEMENT BY DIRECTORS
- --------------------------------------------------------------------------------
In accordance with a resolution of the Board of Directors of Canberra Wholesale
Stationers Pty Ltd, in the opinion of the Directors:
(a) the accounts of the Company are drawn up so as to give a true and fair
view of the result of the Company for the year ended 30 June 1996 and the
state of affairs of the Company as at 30 June 1996.
(b) at the date of this statement there are reasonable grounds to believe that
the Company will be able to pay its debts as and when they fall due.
(c) the accounts of the Company have been made out in accordance with
Divisions 4, 4A and 4B of Part 3.6 of the Corporations Law, applicable
accounting standards and Urgent Issues Group Consensus Views.
For and on behalf of the board by:
This 23rd day of September 1996.
PETER T. REILLY
DIRECTOR
JAMES E. WALSH
DIRECTOR
13
<PAGE>
AUDITORS' REPORT
TO THE MEMBERS OF CANBERRA WHOLESALE STATIONERS PTY LTD
- --------------------------------------------------------------------------------
SCOPE
We have audited the accounts of Canberra Wholesale Stationers Pty Ltd for the
year ended 30 June, 1996 as set out on pages 2 to 13. The Company's Directors
are responsible for the preparation and presentation of the accounts and the
information they contain. We have conducted an independent audit of these
accounts in order to express an opinion on them to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance as to whether the accounts are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the accounts, and the evaluation
of accounting policies and significant accounting estimates. These procedures
have been undertaken to form an opinion as to whether, in all material respects,
the accounts are presented fairly in accordance with Australian accounting
standards, other mandatory professional reporting requirements, being Urgent
Issues Group Consensus Views and the Corporations Law so as to present a view
of the Company which is consistent with our understanding of its state of
affairs, results of operations and cashflows.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION
In our opinion, the accounts of Canberra Wholesale Stationers Pty Ltd are
properly drawn up:
(a) so as to give a true and fair view of:
(i) the Company's state of affairs as at 30 June, 1996 and of its result
for the year ended on that date; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part 3.6 of
the Corporations Law to be dealt with in the accounts;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other mandatory
professional reporting requirements.
Signed at Melbourne,
This 23rd day of September 1996.
DAY NEILSON
Chartered Accountants
J.J. GAVENS,
Partner
14
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
ACN 068 217 630
DIRECTORS' REPORT
- --------------------------------------------------------------------------------
The Directors of Perth Stationery Supplies Pty Ltd resolved to submit the
following report with respect to the profit and loss and the state of affairs
of the Company as at 30 June, 1996.
1. The names of the Directors of the Company in office at the date of this
report are:
PETER T. REILLY
JAMES E. WALSH
2. The principal activity of the Company since incorporation was that of
commercial stationers.
3. The loss of the Company for the period after providing for income tax was
$46,781. (1995: $18,962 profit)
4. No dividends were paid during the period.
5. No significant change in the state of affairs of the Company occurred
during the period.
6. The Company has contracted to sell its business and operating assets at
book value to Blue Star Group Pty Ltd effective from 30 September 1996. No
other matters or circumstances have arisen since the end of the financial
year which significantly affected, or may significantly affect, the
operations of the Company, the results of those operations or the state of
affairs of the Company in financial years subsequent to the financial
period ended 30 June, 1996.
7. No information is included on the likely developments in the operations of
the Company and the expected results of those operations, as it is the
opinion of the Directors of the Company, that this information would
prejudice the interests of the Company if included in this report.
8. No Director, since incorporation has received or become entitled to receive
a benefit (other than a benefit included in the aggregate amount of
emoluments received or due and receivable by Directors shown in Note 15 in
the Accounts, or the fixed salary of a full time employee of the Company)
by reason of a contract made by the Company or related corporation with
any Director or with a firm of which a Director is a member or with a
company in which a Director is a member or with a company in which a
Director has a substantial financial interest.
SIGNED in accordance with a resolution of the Directors of Perth
Stationery Supplies Pty Ltd.
DATED this 23rd day of September 1996.
PETER T. REILLY JAMES E. WALSH
DIRECTOR DIRECTOR
1
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95
PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Operating revenue 2 6,248,439 983,728
----------- -----------
----------- -----------
Operating profit/(loss) before income tax 3 (71,396) 10,574
Income tax benefit attributable
to operating profit/(loss) 4 24,615 8,388
----------- -----------
Operating profit/(loss) after income tax (46,781) 18,962
Retained profits at the beginning of the
financial year 18,962 -
----------- -----------
Retained profits/(losses) at the end
of the financial year (27,819) 18,962
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
2
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
BALANCE SHEET AS AT 30 JUNE, 1996
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
CURRENT ASSETS
Cash 253,876 90,602
Receivables 5 1,151,796 791,056
Inventories 6 538,589 417,751
----------- -----------
Total Current Assets 1,944,261 1,299,409
----------- -----------
NON CURRENT ASSETS
Other 7 38,552 13,759
----------- -----------
Total Non Current Assets 38,552 13,759
----------- -----------
TOTAL ASSETS 1,982,813 1,313,168
----------- -----------
CURRENT LIABILITIES
Creditors and borrowings 8 1,137,510 740,363
Provisions 9 42,801 21,579
----------- -----------
Total Current Liabilities 1,180,311 761,942
----------- -----------
NON CURRENT LIABILITIES
Creditors and borrowings 8 803,167 510,252
Provisions 9 27,152 22,010
----------- -----------
Total Non Current Liabilities 830,319 532,262
----------- -----------
TOTAL LIABILITIES 2,010,630 1,294,204
----------- -----------
NET ASSETS (27,817) 18,964
----------- -----------
----------- -----------
SHAREHOLDERS' EQUITY
Share capital 10 2 2
Retained profits (27,819) 18,962
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (27,817) 18,964
----------- -----------
----------- -----------
The accompanying notes form an integral part of these accounts.
3
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95 PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 1996 1995
$ $
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 5,874,536 230,485
Interest received 8,214 582
Payments to suppliers (purchases/expenses) (5,942,318) (323,096)
Interest paid and finance costs - -
Income taxes paid (330) -
----------- -----------
Net cash provided by operating activities 16 (59,898) (92,029)
----------- -----------
Cash flows from financing activities
Loan from holding company 223,172 182,631
----------- -----------
Net cash provided by financing activities 223,172 182,631
----------- -----------
Net increase in cash held 163,274 90,602
Cash at beginning of the financial year 90,602 -
----------- -----------
Cash at end of the financial year 253,876 90,602
----------- -----------
----------- -----------
The accompanying notes form an integral part of the accounts.
4
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95 PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 1. STATEMENT OF ACCOUNTING POLICIES
The accounts are a general purpose financial report prepared in accordance with
Accounting Standards, Urgent Issues Group Consensus Views and the requirements
in Schedule 5 to the Corporations Regulations. The accounts have been prepared
on the basis of historical costs and do not take into account changing money
values or, except where stated, current valuations of non-current assets. The
accounting policies have been consistently applied, unless otherwise stated.
The following is a summary of the significant accounting policies adopted by the
Company in the preparation of the accounts.
(a) Inventories
Inventories are valued at the lower of cost and net realisable value. Costs
have been assigned to inventory quantities on hand at balance date using
the first-in-first-out and weighted average cost basis and under the retail
inventory method.
(b) Receivables
A provision is raised for any doubtful debts based on a review of all
outstanding amounts at year end. Bad debts are written off during the
period in which they are identified.
(c) Comparative Figures
Where necessary, comparative figures have been adjusted to conform with
changes in presentations in the current year.
5
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95 PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 2. OPERATING REVENUE
1996 1995
$ $
Sales revenue 6,192,434 983,146
Other revenue:-
Discount 4,668 -
Interest 8,214 582
Sundry 43,123 -
----------- -----------
6,248,439 983,728
----------- -----------
----------- -----------
NOTE 3. OPERATING PROFIT
The operating profit/(loss) before income
tax has been determined after:
Charging as expenses:
Transfers to/(from) provisions for:-
Employee benefits 11,258 3,841
Operating lease rentals 103,426 24,553
Licence fees 310,000 80,000
Contributions to superannuation fund 140,069 10,087
Bad Debts 4,949 -
Auditors renumeration 5,500 -
Crediting as revenue:
Interest received 8,214 582
6
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95 PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 4. INCOME TAX
1996 1995
$ $
Operating profit/(loss) (71,396) 10,574
----------- -----------
Prima facie income tax expense
calculated at 36% (1995: 33%) (25,702) 3,489
Permanent differences 1,087 (11,150)
Increase/(decrease) in net deferred tax
liability due to increase in tax rate - (727)
----------- -----------
Income tax expense/(credit) (24,615) (8,388)
----------- -----------
----------- -----------
Comprising
Increase in income tax provisions - 330
Increase in provision for deferred tax 179 5,041
Increase in future income tax benefits (24,794) (13,759)
----------- -----------
(24,615) (8,388)
----------- -----------
----------- -----------
NOTE 5. RECEIVABLES
Current:
Trade debtors 1,111,500 752,661
Less provision for doubtful debts - -
----------- -----------
1,111,500 752,661
Other debtors and prepayments 40,296 38,395
----------- -----------
1,151,796 791,056
----------- -----------
----------- -----------
NOTE 6. INVENTORIES
Finished goods 538,589 417,751
----------- -----------
----------- -----------
NOTE 7. OTHER NON CURRENT ASSETS
Future income tax benefit 38,552 13,759
----------- -----------
----------- -----------
7
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95 PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 8. CREDITORS AND BORROWINGS
1996 1995
$ $
Current:
Trade creditors 1,108,772 363,550
Other creditors and accruals 28,738 376,813
----------- -----------
1,137,510 740,363
----------- -----------
----------- -----------
Non current:
Unsecured loans from
related companies 803,167 510,252
----------- -----------
803,167 510,252
----------- -----------
----------- -----------
NOTE 9. PROVISIONS
Current:
Income tax - 330
Employee benefits 42,801 21,249
----------- -----------
42,801 21,579
----------- -----------
----------- -----------
Non current:
Employee benefits 21,932 16,969
Provision for deferred tax 5,220 5,041
----------- -----------
27,152 22,010
----------- -----------
----------- -----------
Aggregate employee entitlements:
Current 42,801 21,249
Non current 21,932 16,969
----------- -----------
64,733 38,218
----------- -----------
----------- -----------
NOTE 10. SHARE CAPITAL
Authorised capital:
1,000,000 ordinary shares of
$1.00 each 1,000,000 1,000,000
----------- -----------
----------- -----------
Issued and paid up capital:
2 ordinary shares of
$1.00 each fully paid 2 2
----------- -----------
----------- -----------
8
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95 PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 11. CAPITAL AND LEASING COMMITMENTS
1996 1995
$ $
Operating lease commitments:
Payable not later than one year 160,000 70,000
Payable between one and two years 136,180 70,000
Payable between two and five years 41,895 58,333
Payable later than five years - -
----------- -----------
Operating lease liability 338,075 198,333
----------- -----------
----------- -----------
NOTE 12. CAPITAL COMMITMENTS
There were no capital commitments at 30 June 1996.
NOTE 13. RELATED PARTY INFORMATION
a) Directors
P.T. Reilly and J.E. Walsh each held office as a Director of the Company
throughout the year ended 30 June, 1996.
b) Controlling Entities
The immediate chief entity is Australian Document Exchange Pty Ltd. The
ultimate chief entity is AUSDOC Group Limited, a company incorporated in
Australia.
c) Other related and associated corporations
AUSDOC Office Pty Ltd
Canberra Wholesale Stationers Pty Ltd
Data Security Services Pty Ltd
Dart Couriers (Aust.) Pty Ltd
Mullaly and Byrne Pty Ltd
Stronghold Security Services Pty Ltd
AUSDOC Employee Share Plan Pty Ltd
AUSDOC Funds Management Pty Ltd
Electronic Document Exchange Pty Ltd
H & P Stationery Pty Ltd
d) Related party transactions and balances
There are no other material intercompany transactions or balances between
related parties other than as disclosed within these accounts.
9
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE, 1996 (14/02/95-30/06/95 PRIOR YEAR)
- --------------------------------------------------------------------------------
NOTE 14. SUBSEQUENT EVENTS
The Company has contracted to sell its business and operating assets at book
value to Blue Star Group Pty Ltd effective from 30 September 1996. No other
matters or circumstances have arisen since the end of the financial year which
significantly affected, or may significantly affect, the operations of the
Company, the results of those operations or the state of affairs of the Company
in financial years subsequent to the financial period ended 30 June, 1996.
NOTE 15. DIRECTORS' REMUNERATION
Amounts received or due and receivable
by the Directors of the Company:
1996 1995
$ $
From the Company - -
From related bodies corporate 335,000 295,000
The numbers of Directors whose income
from the Company or related bodies
corporate was within the specified bands
are as follows:
$000 - $000
110 - 120 - 1
130 - 140 1 -
170 - 180 - 1
190 - 200 1 -
The above information is presented in accordance with the requirements of clause
25 of Schedule 5 to the Corporations Regulations. The company has been relieved
from compliance with the corresponding requirements of Accounting Standard AASB
1017 "Related Party Disclosures" by a class order issued by the Australian
Securities Commission dated 13 October 1994.
NOTE 16. CASHFLOW INFORMATION
Reconciliation of net cash provided by operating
activities to operating profit/(loss) after income tax
Operating profit/(loss) after income tax (46,781) 18,962
Bad debts 4,949 -
Increase/(Decrease) in taxes payable (24,945) (8,388)
Increase/(Decrease) in employee provisions 11,258 3,841
Increase in receivables (365,689) (791,056)
Increase in inventory (35,838) (55,751)
Increase in creditors and borrowings 397,148 740,363
----------- -----------
Net cash provided by operating activities (59,898) (92,029)
----------- -----------
----------- -----------
10
<PAGE>
PERTH STATIONERY SUPPLIES PTY LTD
STATEMENT BY DIRECTORS
- --------------------------------------------------------------------------------
In accordance with a resolution of the Board of Directors of Perth Stationery
Supplies Pty Ltd, in the opinion of the Directors:
(a) the accounts of the Company are drawn up so as to give a true and fair
view of the result of the Company for the year ended 30 June, 1996 and the
state of affairs of the Company as at 30 June 1996.
(b) at the date of this statement there are reasonable grounds to believe that
the Company will be able to pay its debts as and when they fall due.
(c) the accounts of the Company have been made out in accordance with
Divisions 4, 4A and 4B of Part 3.6 of the Corporations Law, applicable
accounting standards and Urgent Issues Group Consensus Views.
For and on behalf of the Board by:-
Dated this 23rd day of September 1996.
PETER T. REILLY
DIRECTOR
JAMES E. WALSH
DIRECTOR
11
<PAGE>
AUDITORS' REPORT
TO THE MEMBERS OF PERTH STATIONERY SUPPLIES PTY LTD
- --------------------------------------------------------------------------------
SCOPE
We have audited the accounts of Perth Stationery Supplies Pty Ltd for the year
ended 30 June, 1996 as set out on pages 2 to 11. The Company's Directors are
responsible for the preparation and presentation of the accounts and the
information they contain. We have conducted an independent audit of these
accounts in order to express an opinion on them to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing Standards to
provide reasonable assurance as to whether the accounts are free of material
misstatement. Our procedures included examination, on a test basis, of evidence
supporting the amounts and other disclosures in the accounts, and the evaluation
of accounting policies and significant accounting estimates. These procedures
have been undertaken to form an opinion as to whether, in all material respects,
the accounts are presented fairly in accordance with Australian accounting
standards, other mandatory professional reporting requirements, being Urgent
Issues Group Consensus Views and the Corporations Law so as to present a view of
the Company which is consistent with our understanding of its state of affairs,
results of operations and cashflows.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION
In our opinion, the accounts of Perth Stationery Supplies Pty Ltd are properly
drawn up:
(a) so as to give a true and fair view of:
(i) the Company's state of affairs as at 30 June, 1996 and of its
result for the period ended on that date; and
(ii) the other matters required by Divisions 4, 4A and 4B of Part 3.6
of the Corporations Law to be dealt with in the accounts;
(b) in accordance with the provisions of the Corporations Law; and
(c) in accordance with applicable accounting standards and other
mandatory professional reporting requirements.
Signed at Melbourne,
This 23rd day of September 1996.
DAY NEILSON
Chartered Accountants
J.J. GAVENS
Partner
12
<PAGE>
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.
U.S. OFFICE PRODUCTS COMPANY
Dated: September 24, 1996 By: /s/ Mark D. Director
-------------------------
Mark D. Director
Executive Vice President,
General Counsel and
Secretary
-3-
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Swink, Fiehler & Hoffman
23.3 Consent of Erhardt Keefe Steiner & Hottman PC
23.4 Consent of Petherbridge, Davis & Company, P.A.
23.5 Consent of Day Neilson
23.6 Consent of Day Neilson
23.7 Consent of Day Neilson
23.8 Consent of Day Neilson
23.9 Consent of Ernst & Young LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of U.S.
Office Products Company of our reports as of the dates, and related
financial statements of the companies, listed below which appear in this
Current Report on Form 8-K of U.S. Office Products Company.
Company Date
------- ----
U.S. Office Products Company May 31, 1996, except as
to the third paragraph of
Note 3, which is as of July
27, 1996 and Note 15 which
is as of July 10, 1996
Raleigh Office Supply Company, Inc. March 8, 1996
Emmons-Napp Office Products, Inc. - Commercial
Division May 15, 1996
The Office Furniture Store, Inc. August 16, 1996
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
September 23, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of U.S. Office
Products Company of our report dated June 26, 1996, relating to the financial
statements of American Loose Leaf/Business Products, Inc., which appear in
this Current Report on Form 8-K of U.S. Office Products Company.
/s/ Swink, Fiehler & Hoffman
St. Louis, Missouri
September 23, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of U.S.
Office Products Company of our report dated July 3, 1996 relating to the
financial statements of Pear Commercial Interiors, Inc. which appear in
this Current Report on Form 8-K of U.S. Office Products Company.
/s/ Erhardt Keefe Steiner & Hottman PC
September 23, 1996
Denver, Colorado
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of U.S. Office
Products Company of our report dated November 10, 1995, except for Notes 10
and 11 as to which the date is July 11, 1996, relating to the financial
statements of International Interiors, Inc., which appear in the Current
Report on Form 8-K, of U.S. Office Products Company.
/s/ Petherbridge, Davis & Company
Petherbridge, Davis & Company, P.A.
Jacksonville, Florida
September 23, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of US Office
Products Company of our report dated 23 September 1996, relating to the
financial statements of Ansdoc Office Pty Ltd which appear in this Current
Report on Form 8-K, of US Office Products Company.
/s/ Ross Fraser
Partner
Day Neilson
Chartered Accountants
Geelong, Australia
23 September 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of US Office
Products Company of our report dated 23 September 1996, relating to the
financial statements of H & P Stationery Pty Ltd which appear in this Current
Report on Form 8-K, of US Office Products Company.
/s/ Ross Fraser
Partner
Day Neilson
Chartered Accountants
Geelong, Australia
23 September 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of US Office
Products Company of our report dated 23 September 1996, relating to the
financial statements of Canberra Wholesale Stationers Pty Ltd which appear
in this Current Report on Form 8-K, of US Office Products Company.
/s/ Ross Fraser
Partner
Day Neilson
Chartered Accountants
Geelong, Australia
23 September 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574) and on Form S-4 (333-1928) of US Office
Products Company of our report dated 23 September 1996, relating to the
financial statements of Perth Stationery Supplies Pty Ltd which appear in
this Current Report on Form 8-K, of US Office Products Company.
/s/ Ross Fraser
Partner
Day Neilson
Chartered Accountants
Geelong, Australia
23 September 1996
<PAGE>
CONSENT OF ERNST & YOUNG LLP. INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-01574) and on Form S-4 (No. 333-1928) of
U.S. Office Products Company of our report dated February 2, 1996,
relating to the Financial Statements of School Specialty, Inc. which
appear in this Current Report on Form 8-K of U.S. Office Products
Company.
Milwaukee, Wisconsin ERNST & YOUNG LLP
September 24, 1996
