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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1996
REGISTRATION NO. 333-13133
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
U.S. OFFICE PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 5112 52-1906050
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
1440 NEW YORK AVENUE, N.W.
SUITE 310
WASHINGTON, D.C. 20005
(202) 628-9500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
JONATHAN J. LEDECKY
CHAIRMAN OF THE BOARD
U.S. OFFICE PRODUCTS COMPANY
1440 NEW YORK AVENUE, N.W., SUITE 310
WASHINGTON, D.C. 20005
(202) 628-9500
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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<S> <C>
Mark D. Director, Esq. Linda L. Griggs, Esq.
Executive Vice President, Morgan, Lewis & Bockius LLP
General Counsel and Secretary 1800 M Street, N.W.
U.S. Office Products Company Washington, D.C. 20036-5869
1440 New York Avenue, N.W., Suite 310 (202) 467-7000
Washington, D.C. 20005
(202) 628-9500
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
BE REGISTERED REGISTERED OFFERING PRICE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per
share............................... 30,000,000 $33.375(1) $1,001,250,000(1) $303,409.09(2)
Common Stock, $.001 par value per
share............................... 7,290,474 $28.375 $206,865,781 $71,333.03(3)
Common Stock, $.001 par value per
share............................... 361,474 $15.563 $5,625,439.10 $1,939.81(4)
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) and based on the average high and low sale prices of
the Common Stock reported on the Nasdaq National Market on September 26,
1996.
(2) Previously paid.
(3) Pursuant to Rule 429 under the Securities Act of 1933, as amended, 7,290,474
shares and the filing fee of $71,333.03 are being carried forward from the
Registration Statement No. 333-1928 to this Registration Statement.
(4) Pursuant to Rule 429 under the Securities Act of 1933, as amended, 361,474
shares and the filing fee of $1,939.81 are being carried forward from the
Registration Statement No. 33-80117 to this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
[LOGO]
37,651,898 SHARES
COMMON STOCK
------------------
This Prospectus covers 37,651,898 shares of common stock, par value $.001
per share (the "Common Stock"), which may be offered and issued by U.S. Office
Products Company (the "Company" or "U.S. Office Products") from time to time in
connection with the acquisition by the Company of other businesses, assets or
securities. It is expected that the terms of the acquisitions involving the
issuance of securities covered by this Prospectus will be determined by direct
negotiations with the owners or controlling persons of the businesses or assets
to be acquired by the Company. No underwriting discounts or commissions will be
paid, although finder's fees may be paid in cash or in shares of Common Stock
from time to time with respect to specific mergers or acquisitions. Any person
receiving such fees may be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the "Securities Act").
As of September 17, 1996, the Company had 41,726,449 shares of Common Stock
outstanding. The Common Stock is traded on the Nasdaq National Market under the
symbol "OFIS." On September 27, 1996, the last reported sale price for the
Common Stock on the Nasdaq National Market was $35.88 per share.
All expenses of this offering will be paid by the Company. The Company is a
Delaware corporation and all references herein to the Company refer to the
Company and its subsidiaries. The executive offices of the Company are located
at 1440 New York Avenue, N.W., Suite 310, Washington, D.C. 20005 and its
telephone number is (202) 628-9500.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1996
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents of the Company filed with the Securities and
Exchange Commission (the "Commission") (File No. 0-25372) are incorporated
herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1996 filed with the Commission on July 16, 1996;
(b) The Company's Quarterly Report on Form 10-Q for the interim period
ended July 27, 1996 filed with the Commission on September 10, 1996;
(c) The Company's Current Reports on Form 8-K dated September 23, 1996,
August 20, 1996, July 26, 1996 (as amended), July 23, 1996, July 16, 1996
and May 2, 1996 (as amended); and
(d) The description of the Company's Common Stock under the caption
"Description of Registrant's Securities to be Registered" in the Company's
Amendment No. 1 to Registration Statement on Form 8-A, dated February 13,
1995, and the Company's Quarterly Report on Form 10-Q for the interim period
ended July 27, 1996 disclosing, among other things, an amendment to the
Company's Restated Certificate of Incorporation.
In addition, all reports and other documents filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to the date of
effectiveness of the Registration Statement of which this Prospectus is a part
and prior to the termination of the offering made hereby, shall be deemed to be
incorporated by reference into this Prospectus. Any statement contained herein
or incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY BY CONTACTING MARK D. DIRECTOR, 1440 NEW YORK AVENUE, N.W., SUITE
310, WASHINGTON, D.C. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD ALLOW AT LEAST FIVE (5) BUSINESS DAYS FOR DELIVERY.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Incorporation of Certain Information by Reference.......................................................... 2
Available Information...................................................................................... 3
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 7
Price Range of Common Stock................................................................................ 11
Dividend Policy............................................................................................ 11
Selected Financial Data.................................................................................... 12
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 14
Business................................................................................................... 20
Management................................................................................................. 30
Executive Compensation..................................................................................... 35
Certain Transactions....................................................................................... 38
Principal Stockholders..................................................................................... 39
Description of Capital Stock............................................................................... 40
Plan of Distribution....................................................................................... 42
Restrictions on Resale..................................................................................... 42
Legal Matters.............................................................................................. 42
Experts.................................................................................................... 42
Index to Financial Statements.............................................................................. F-1
</TABLE>
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-4 under the Securities Act, with respect to the securities
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto on file with the Commission
pursuant to the Securities Act and the rules and the regulations of the
Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. The Company is subject
to the informational requirements of the Exchange Act, and, in accordance
therewith, files reports, proxy statements, and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison Avenue,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or from the Commission's Internet
web site at http://www.sec.gov. In addition, such materials also may be
inspected and copied at the offices of the Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY
REFERENCE HEREIN. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCKS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "U.S. OFFICE PRODUCTS" OR THE "COMPANY" REFER TO U.S. OFFICE
PRODUCTS COMPANY, A DELAWARE CORPORATION, AND ITS SUBSIDIARIES AND PREDECESSORS.
ALL REFERENCES TO YEARS, UNLESS OTHERWISE NOTED, REFER TO THE COMPANY'S FISCAL
YEAR, WHICH ENDED ON APRIL 30 OF EACH YEAR UNTIL YEARS BEGINNING WITH THE 1997
FISCAL YEAR, WHICH END ON THE LAST SATURDAY IN APRIL. STATEMENTS CONTAINED
HEREIN OR IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE MAY BE DEEMED TO BE
FORWARD LOOKING. ACTUAL RESULTS MAY DIFFER FROM THOSE DISCUSSED IN SUCH FORWARD
LOOKING STATEMENTS, WHICH ARE INHERENTLY UNCERTAIN, FOR THE REASONS, AMONG
OTHERS, SET FORTH UNDER THE HEADING "RISK FACTORS," AS MODIFIED OR SUPERSEDED BY
STATEMENTS INCLUDED IN DOCUMENTS THAT ARE SUBSEQUENTLY FILED AND INCORPORATED BY
REFERENCE HEREIN. THIS PROSPECTUS ALSO CONTAINS PRO FORMA FINANCIAL INFORMATION
THAT GIVES EFFECT TO CERTAIN EVENTS. SUCH INFORMATION IS NOT NECESSARILY
INDICATIVE OF THE RESULTS THAT THE COMPANY WOULD HAVE ATTAINED HAD THE EVENTS
OCCURRED AT THE BEGINNING OF THE PERIOD PRESENTED, AS ASSUMED, OR OF THE FUTURE
RESULTS OF THE COMPANY.
THE COMPANY
U.S. Office Products is one of the world's largest and fastest growing
suppliers of a broad range of office products to corporate, commercial,
industrial and educational customers. From its inception through October 7,
1996, the Company had acquired 101 companies (the "Completed Acquisitions"). In
addition, as of October 7, 1996, the Company believed that the acquisition of an
additional 17 companies that sell a variety of office supplies, office furniture
and coffee and breakroom supplies and services was probable (the "Pending
Acquisitions"). The Company is actively negotiating additional acquisitions,
both in the United States and internationally, that, as of October 7, 1996, the
Company believed were not probable. While the Company expects to complete
acquisitions in addition to the Pending Acquisitions, there can be no assurances
in this regard.
The Company's objective is to be the leading single source supplier of a
broad array of office and educational products and services for its corporate,
commercial, industrial and educational customers. The Company generally has
acquired and seeks to acquire companies with established sales presences and
brand names in given geographic markets and seeks to achieve operating
efficiencies through consolidated purchasing of products and services and
implementation of operational improvements. Currently, the Company sells a full
range of over 28,000 office and educational products to customers in the United
States, New Zealand and Australia.
The Company operates with a decentralized management strategy rather than a
standardized national model in an effort to provide superior customer service
and retain the historical customers of acquired businesses while achieving the
operating efficiencies of a large organization. The Company believes that many
customers purchase office products based on an established long-term business
relationship with one primary supplier. The Company seeks to foster such
long-term relationships by preserving the authority of the local, experienced
management who have the responsibility to provide customers with superior
customer service. The Company believes that its decentralized management
strategy, coupled with operating efficiencies, enables it to compete effectively
in its target markets. The Company has initiated strategies designed to achieve
operating efficiencies by: (i) generating cost savings through volume purchasing
of office products; (ii) combining certain general and administrative functions
at the corporate level and eliminating redundant facilities; (iii) implementing
improved technology and operating systems; (iv) producing a Company-wide
proprietary catalog in order to increase the percentage of office supplies
purchased directly from manufacturers; and (v) increasing sales opportunities by
broadening the complement of products and services it offers.
4
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The Company has an aggressive acquisition program utilizing a "hub and
spoke" strategy for expansion into and around its targeted metropolitan areas.
This strategy involves the acquisition of (i) a larger established, high quality
local company, or hub, and (ii) additional smaller companies, or spokes, in
secondary markets surrounding the hubs. Where possible, the operations of the
acquired spokes are integrated into the operations of existing hubs, thereby
eliminating a portion of the operating expenses of the acquired spokes. The
Company also has begun to develop regional consolidation and integration plans
to enable certain operational activities, such as warehousing, to be shared
among the hubs and spokes that are located within a specific geographic area.
The Company expects this regional approach will permit the elimination of
duplicative facilities and costs. The Company believes that its decentralized
management strategy, which includes the retention of local management, sales
personnel and the names of the acquired companies, and other operating
strategies described below, facilitate the identification of acquisition
candidates and make it an attractive acquiror.
As of October 7, 1996, the following are the principal markets that are
served by the Company:
DOMESTIC OFFICE SUPPLIES. The Company sells office and related supplies and
equipment in the domestic office contract stationer market from locations in 27
states. The Pending Acquisitions include six companies that sell supplies in
this market.
OFFICE COFFEE SERVICES. The Company sells coffee, food, beverages and
related supplies for the breakroom. The Pending Acquisitions include six
companies serving this market.
OFFICE FURNITURE. The Company sells contract, remanufactured and catalog
furniture to the office furniture market.
SCHOOL SUPPLIES AND SCHOOL FURNITURE. The Company sells school and office
supplies and school furniture to the kindergarten through 12th grade educational
market through its School Specialty, Inc. subsidiary, which recently acquired
five companies in this market. The Pending Acquisitions include two companies
that focus on the school supplies and school furniture market.
INTERNATIONAL OFFICE PRODUCTS. In addition to its domestic operations, the
Company sells office and educational products and equipment and certain other
products and services in New Zealand and Australia through Blue Star Group
Limited ("Blue Star"), acquired by the Company in February and June 1996, and
Whitcoulls Group Limited ("Whitcoulls"), which Blue Star acquired in July 1996.
See "Recent Developments." Through its subsidiaries, Whitcoulls also operates
numerous retail book and stationery stores throughout New Zealand and Australia
and manufactures commercial, scholastic and household stationery products. The
Pending Acquisitions include three companies that are located in New Zealand and
Australia.
The Company is a Delaware corporation. Its executive offices are located at
1440 New York Avenue, N.W., Suite 310, Washington, D.C. 20005, and its telephone
number is 202-628-9500.
RECENT DEVELOPMENTS
ACQUISITION ACTIVITY. From the beginning of fiscal 1997 through October 7,
1996, the Company had acquired 53 businesses, of which 26 are contract
stationers, seven are office coffee services companies, eight are furniture
companies, six are school supplies and school furniture companies and six are
office product companies in New Zealand and Australia. On July 26, 1996, the
Company completed its largest acquisition since its inception when it purchased
all of the outstanding stock of New Zealand-based Whitcoulls for total cash
consideration of $220 million. Whitcoulls operates nine principal subsidiaries
that it has acquired during the past six years. Through its subsidiaries,
Whitcoulls sells a broad array of office, educational and printing products and
services to the commercial, retail, government and school supply markets
throughout New Zealand. In addition, Whitcoulls operates numerous stationery and
book stores (including franchised stores) in New Zealand and Australia and
manufactures commercial, scholastic and
5
<PAGE>
household stationery products. Whitcoulls had revenues of U.S. $450 million and
earnings before interest and taxes of approximately U.S. $31.5 million for its
fiscal year ended June 30, 1996. If the Company had acquired Whitcoulls as well
as the other Completed Acquisitions and the Pending Acquisitions at the
beginning of fiscal 1996, the Company's operations in New Zealand and Australia
would have accounted for approximately 34.0% of the Company's fiscal 1996 pro
forma revenues.
CREDIT FACILITY. 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 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 sub-limits including $100 million for working capital loans
and $400 million for acquisition loans, with $180 million of the acquisition
loan sub-limit 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 covenants, 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.
SALE OF COMMON STOCK. In September 1996, the Company sold, in a privately
negotiated transaction, 1,250,000 shares of Common Stock for $38.1 million to
Quantum Partners LDC, a Cayman Islands-based investment vehicle advised by Soros
Fund Management. The proceeds from the sale were used to reduce outstanding
indebtedness and to fund acquisitions.
STARBUCKS COFFEE. In September 1996, the Company entered into a multi-year,
exclusive agreement with Starbucks Coffee Company ("Starbucks") whereby the
Company will be the only contract stationer and office products retailer
authorized to distribute Starbucks fresh roasted coffee and related products to
offices in the United States, Puerto Rico and Canada.
6
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RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the following risk factors, as well as the other information in this
Prospectus or incorporated herein by reference, in evaluating an investment in
the Common Stock.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
One of the Company's strategies is to increase its revenues and the markets
it serves through the acquisition of additional businesses offering a broad
array of office and educational products and services. From its inception
through October 7, 1996, the Company made 101 acquisitions. The Company intends
to continue to make additional acquisitions, including the 17 Pending
Acquisitions. There can be no assurance that acquisitions will occur at the same
pace or be available to the Company on favorable terms, if at all. For example,
if the price of a share of Common Stock declines over a sustained period, the
owners of potential acquisition targets may not be willing to receive shares of
Common Stock in exchange for their businesses, thereby adversely affecting the
pace of the Company's acquisition program. Such an effect on the pace of the
Company's acquisition program could further reduce the price of a share of
Common Stock, to the further detriment of the Company's acquisition strategy. In
addition, the consolidation of the domestic contract stationer industry has
reduced the number of larger companies available for sale, which could lead to
higher prices being paid for the acquisition of the remaining domestic,
independent companies.
The Company's ability to manage an aggressive consolidation program in
markets other than the domestic contract stationer market, including furniture,
office coffee services and school supplies and school furniture, has not yet
been fully tested. In addition, there can be no assurance that companies that
have been acquired or that may be acquired in the future will achieve sales and
profitability that justify the investment therein. Acquisitions may involve a
number of special risks that could have a material adverse effect on the
Company's operations and financial performance, including adverse short-term
effects on the Company's reported operating results; diversion of management's
attention; difficulties with the retention, hiring and training of key
personnel; risks associated with unanticipated problems or legal liabilities;
and amortization of acquired intangible assets.
There can be no assurance that definitive agreements for any of the Pending
Acquisitions will be executed or that the Pending Acquisitions will be
consummated. The Company is in discussions with additional acquisition
candidates and expects that it will enter into definitive agreements with
respect to the acquisition of such businesses from time to time.
INTEGRATION OF ACQUISITIONS AND LIMITED COMBINED OPERATING HISTORY
U.S. Office Products was founded in October 1994 and conducted no operations
prior to the acquisition of its founding companies in February 1995. From its
inception through October 7, 1996, U.S. Office Products acquired 101 companies,
and it intends to continue to make acquisitions. In most cases, the managers of
the acquired companies have continued to operate their companies after being
acquired by U.S. Office Products. There can be no assurance that the Company
will be able to successfully integrate these companies within U.S. Office
Products' operations without substantial costs, delays or other problems. In
addition, there can be no assurance that the Company's executive management
group will be able to oversee the combined entity and effectively implement the
Company's operating or growth strategies in each of the markets that the Company
serves. Finally, there can be no assurance that the pace of the Company's
acquisitions will not adversely affect the Company's efforts to integrate
acquisitions and manage those acquisitions profitably.
7
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INTERNATIONAL EXPANSION
As of October 7, 1996, the Company's international operations were in New
Zealand and Australia. The Company recently expanded its international
operations significantly with the acquisition of the remaining 49% of Blue Star
in June 1996 and Blue Star's acquisition of Whitcoulls in July 1996. In addition
to their contract stationery, office furniture, and school supply and school
furniture operations, Blue Star and its subsidiaries, including Whitcoulls, have
other operations that the Company's domestic operations currently do not have,
including retail book and stationery stores, printing operations, the
manufacturing of office products and the sale, leasing, maintenance and design
of telecommunications and office automation equipment and products. If the
Company had acquired Whitcoulls as well as the other Completed Acquisitions and
the Pending Acquisitions at the beginning of fiscal 1996, the Company's
international operations would have accounted for approximately 34.0% of the
Company's fiscal 1996 pro forma revenues. In fiscal 1996, international
operations constituted approximately 6% of actual 1996 revenues. The Company is
making additional acquisitions in New Zealand and Australia, both directly and
through Blue Star, and plans to enter other international markets, including
England. The Company intends to focus significant attention and resources on
international expansion in the future and expects foreign sales to represent a
significant proportion of the Company's total sales. Expansion into
international markets involves additional risks relating to currency exchange
rates, new and different legal, regulatory and competitive requirements,
difficulties in staffing and managing foreign operations, different business
lines and other factors.
DEPENDENCE ON IMPLEMENTATION AND OPERATION OF SYSTEMS
The Company believes that the successful operation of the businesses that it
has acquired and intends to acquire depends in part on the implementation of
inventory management and financial systems. The Company may experience delays,
complications or expenses in implementing, integrating and operating these
systems, any of which could have a material adverse effect on the Company's
results of operations and financial performance. In addition, interruptions or
disruptions in systems operations could adversely affect the financial results
of particular locations. Finally, while the Company believes that its operating
and technology systems will be adequate for its current needs, such systems will
require modification, improvement or replacement as the Company expands or as
new technologies make the Company's systems obsolete. Such modifications,
improvements or replacements may require substantial expenditures to design and
implement and may require interruptions in operations during periods of
implementation, any of which could have a material adverse effect on the
Company's results of operations and financial performance.
SUBSTANTIAL COMPETITION
The Company operates in a highly competitive environment. In the markets in
which the Company operates, the Company generally competes with a large number
of smaller, independent companies, many of which are well-established in their
markets. In addition, in the contract stationer market, the Company currently
competes with five large office products companies, each of which has
significant financial resources. Several of the Company's large competitors
operate in many of the Company's geographic and product markets, and other
competitors may choose to enter the Company's geographic and product markets in
the future. In addition, as a result of this competition, the Company may lose
customers or have difficulty acquiring new customers. As a result of competitive
pressures on the pricing of products, the Company's revenues and/or margins may
decline.
INCREASES IN PRICES OF PAPER AND COFFEE
The prices of paper and coffee fluctuate. Although the Company believes
that, to date, it generally has been able to increase its prices to its
customers to reflect increases in paper and coffee costs, it may not be able to
do so in the future. In addition, timing differences between increases in paper
and coffee prices
8
<PAGE>
paid by the Company and the implementation of price increases to the Company's
customers may have an adverse effect on the Company's operating margins.
CONSIDERATION FOR OPERATING COMPANIES EXCEEDS ASSET VALUE
The purchase prices of the Company's acquisitions have not been established
by independent appraisals, but generally have been determined through
arm's-length negotiations between the Company and representatives of such
companies. The consideration for each such company has been based primarily on
the value of such company as a going concern and not on the value of the
acquired assets. Valuations of these companies determined solely by appraisals
of the acquired assets would have been less than the consideration paid (or to
be paid) for the companies. No assurance can be given that the future
performance of such companies will be commensurate with the consideration paid.
Moreover, the Company has incurred and expects to continue to incur significant
amortization charges resulting from consideration paid in excess of the fair
value of the net assets of the companies acquired in business combinations
accounted for under the purchase method of accounting.
EFFECT OF QUARTERLY FLUCTUATIONS IN OPERATING RESULTS ON PRICE OF COMMON STOCK
The Company's business is subject to seasonal influences. The Company's
historical sales and profitability in its core office products business have
been lower in the first two quarters of its fiscal year, primarily due to the
lower level of business activity in North America during the summer months. The
seasonality of the core office products business, however, is expected to be
impacted by the seasonality of its other operations, which have been expanding
through acquisitions. For example, the sales and profitability of the Company's
school supplies and school furniture business have been higher during the
Company's first and second quarters and significantly lower in its third and
fourth quarters, and the sales and profitability of the Company's operations in
New Zealand and Australia have generally been higher in the Company's third
quarter. As the Company's mix of businesses evolves through future acquisitions,
these seasonal fluctuations may continue to change. In addition, quarterly
results also may be materially affected by the timing of acquisitions, the
timing and magnitude of costs related to such acquisitions, variations in the
prices paid by the Company for the products it sells, the mix of products sold
and general economic conditions. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent fiscal quarter or for a full fiscal year. Fluctuations caused by
variations in quarterly operating results may adversely affect the market price
of the Common Stock.
NEED FOR ADDITIONAL FINANCING TO CONTINUE ACQUISITION STRATEGY
The Company has financed most acquisitions, and intends to finance future
acquisitions in the United States, by using cash and shares of Common Stock.
This Prospectus and a prior shelf registration statement filed by the Company
with the Commission relate to the offering of 49,174,375 shares of Common Stock
to be used as consideration for acquisitions by the Company, of which
approximately 39,644,894 shares will remain available assuming consummation of
the Pending Acquisitions on their original terms. In addition, the Company has
sold debt and equity securities to raise cash proceeds for acquisitions. In May
and June 1996, the Company completed the sales of $230 million in aggregate
principal amount of 5 1/2% Convertible Subordinated Notes due 2003 (the "May
Notes"). The proceeds from the sale of the May Notes were used for general
corporate purposes, including to pay the cash consideration ($220 million) for
the acquisition of Whitcoulls. In addition, in September 1996, the Company
completed the sale of 1,250,000 shares of Common Stock for $38.1 million in a
privately negotiated transaction. The proceeds from such sale were used to
reduce outstanding indebtedness and to fund acquisitions. The Company expects
that future acquisitions outside the United States may be for cash
consideration. See "Recent Developments."
Assuming that the current pace of the Company's acquisitions continues, the
Company will need additional debt or equity financing in order to continue its
acquisition program. There can be no assurance
9
<PAGE>
that the Company will be able to obtain such financing if and when it is needed
or that any such financing will be available on terms the Company deems
acceptable. In August 1996, the Company entered into the $500 million Credit
Facility. The amount available to be borrowed under the Credit Facility for
acquisitions will vary from time to time depending on the level of, on a pro
forma basis reflecting consummated acquisitions, the Company's consolidated
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
the Company's total indebtedness and related interest expense. If the Company
does not have sufficient cash resources to pay the cash consideration for
acquisitions, or if potential acquisition candidates are unwilling to accept the
Common Stock as part of the consideration for the sale of their businesses
because the Common Stock does not maintain sufficient value or for other
reasons, the Company may be unable to continue the current pace of its
aggressive acquisition program, which could have a material adverse impact on
the Company and the market price of its Common Stock.
RELIANCE ON KEY PERSONNEL
The Company's operations depend on the continued efforts of Jonathan J.
Ledecky, its Chairman of the Board and Chief Executive Officer, Timothy J.
Flynn, its President and Chief Operating Officer, its other executive officers
and the senior management of its subsidiaries. Furthermore, the Company will
likely depend on the senior management of companies that may be acquired in the
future. If any of these people become unable to continue in their present roles,
or if the Company is unable to attract and retain other skilled employees, the
Company's business would be adversely affected. The Company currently does not
intend to obtain key man life insurance covering any of its executive officers
or other members of senior management.
CONTROL BY MANAGEMENT AND STOCKHOLDERS
As of September 17, 1996, officers and directors of the Company and its
subsidiaries beneficially own approximately 28.4% of the outstanding shares of
Common Stock. Assuming consummation of all of the Pending Acquisitions and the
issuance of the expected number of shares of Common Stock in such acquisitions,
the officers and directors of the Company and its subsidiaries will beneficially
own 27.5% of the outstanding shares of Common Stock. These stockholders acting
together may be able to elect a sufficient number of directors to control the
Board of Directors and to approve or disapprove any matter submitted to a vote
of stockholders.
RISKS RELATED TO UNIONIZED EMPLOYEES
A small number of the Company's employees are members of labor unions. If
unionized employees were to engage in a strike or other work stoppage, or if
other employees were to become unionized, the Company could experience a
disruption of operations or higher labor costs.
POTENTIAL EFFECT OF SHARES ISSUED IN ACQUISITIONS ON PRICE OF COMMON STOCK
As of September 17, 1996, there were 41,726,449 shares of Common Stock of
the Company outstanding, of which approximately 4,900,328 shares are subject to
contractual restrictions on the transfer thereof (other than restrictions
relating to shares issued in transactions accounted for under the pooling-
of-interests method of accounting, described below). These contractual
restrictions expire at various times, generally up to two years from the date of
issuance of the shares. The contractual restrictions on 2,321,800 shares will
expire at various dates up to February 23, 1997.
The Company has an aggressive acquisition program under which it
periodically makes, and expects to continue to make, acquisitions that are
accounted for under the pooling-of-interests method of accounting. Under the
pooling-of-interests method of accounting, the affiliates of the acquired
companies, which are generally all of the stockholders of the companies acquired
by U.S. Office Products, must be free to sell or otherwise transfer shares of
the Common Stock received in the acquisition, subject to their compliance
10
<PAGE>
with federal securities laws, as soon as the Company releases results of
operations that reflect the combined operations of the Company and the acquired
company for a minimum of 30 days. For example, the Company has issued, and
expects to issue, approximately 3,829,431 shares of Common Stock in connection
with acquisitions that were recently completed or are Pending Acquisitions
expected to be completed in the near future and that were or will be accounted
for under the pooling-of-interests method of accounting. Such shares, will
become freely transferable at the time the Company publicly announces results of
operations for its second quarter of fiscal 1997, subject to certain volume and
other restrictions of Rule 145(d) of the Securities Act applicable to affiliates
of the acquired companies. In addition, the Company expects to complete
additional acquisitions in the future that will be accounted for under the
pooling-of-interests method. If a significiant number of shares of Common Stock
are issued in acquisitions that are consummated in close proximity to each
other, such shares will become freely tradeable at the same time. If a large
number of shares are sold by stockholders in the market as soon as their shares
became freely transferable, the price of the Common Stock could be adversely
affected.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
without stockholder action. The existence of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise.
PRICE RANGE OF COMMON STOCK
The Common Stock has traded on the Nasdaq National Market since February 15,
1995. On September 27, 1996, the last sale price of the Common Stock was $35.88
per share. On September 17, 1996, there were approximately 423 shareholders of
record of the Company's Common Stock. The following table sets forth the range
of high and low sale prices for the Common Stock, as reported on the Nasdaq
National Market, for the period from February 15, 1995, the date of the
Company's initial public offering, through September 27, 1996.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1995
Fourth fiscal quarter.................................................. $ 15.50 $ 10.00(1)
FISCAL YEAR 1996
First fiscal quarter................................................... $ 15.875 $ 10.50
Second fiscal quarter.................................................. $ 18.125 $ 13.50
Third fiscal quarter................................................... $ 26.375 $ 16.25
Fourth fiscal quarter.................................................. $ 40.00 $ 22.00
FISCAL YEAR 1997
First fiscal quarter................................................... $ 45.50 $ 24.50
Second fiscal quarter through September 27, 1996....................... $ 36.00 $ 24.75
</TABLE>
- ------------------------
(1) Represents the initial public offering price.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its shares of
Common Stock in the foreseeable future because it intends to retain its
earnings, if any, to finance the expansion of its business and for general
corporate purposes. Any payment of future dividends will be at the discretion of
the Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that the Company's Board of Directors deems relevant. Further, the
Company's Credit Facility prohibits the payment of dividends without the
lender's consent.
11
<PAGE>
SELECTED FINANCIAL DATA (1)
The Selected Financial Data for the fiscal years ended April 30, 1994, 1995
and 1996 (except pro forma amounts) have been derived from the Company's
consolidated financial statements that have been audited by Price Waterhouse LLP
and are included elsewhere in this Prospectus. The Selected Financial Data for
the fiscal year ended April 30, 1992 and 1993 have been derived from unaudited
combined financial statements. The financial statements for the 1992 and 1993
fiscal years are not included elsewhere in this Prospectus or incorporated
herein by reference. The Selected Financial Data for the three months ended July
31, 1995 and July 27, 1996 (except pro forma amounts) have been derived from
unaudited consolidated financial statements that appear elsewhere in this
Prospectus. The unaudited combined financial statements have been prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented.
The pro forma data gives effect, as applicable, to (i) the acquisitions
completed by the Company since May 1, 1995 and the Pending Acquisitions as if
all of such acquisitions had been made on May 1, 1995, (ii) the sales by the
Company of 4,025,000 shares of Common Stock in the second offering in August
1995 as if such sales had been made on May 1, 1995, (iii) the sales by the
Company in February and March 1996 of 5,543,045 shares of Common Stock and
5 1/2% Convertible Subordinated Notes due 2001 in the principal amount of
$143.75 million as if such sales had been made on May 1, 1995, (iv) the sales by
the Company in May and June 1996 of the May Notes in the principal amount of
$230 million as if such sales had been made on May 1, 1995, and (v) the sale by
the Company in September 1996 (the "September Stock Sale") of 1,250,000 shares
of Common Stock as if such sale had been made on July 27, 1996. In addition, the
pro forma information is based on available information and certain assumptions
and adjustments. The Selected Financial Data provided herein should be read in
conjunction with the historical financial statements, including the notes
thereto, of U.S. Office Products Company and the other companies whose financial
statements appear elsewhere in this Prospectus, the pro forma financial
statements, including the notes thereto, and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that appear elsewhere
in this Prospectus.
12
<PAGE>
SELECTED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, JULY 27, 1996 AND JULY 31, 1995
------------------------------------------------------------ -----------------------------------------
PRO FORMA PRO FORMA PRO FORMA
STATEMENT OF INCOME DATA: 1992 1993 1994 1995 1996 1996(2) 1995 1996 1995(2) 1996(2)
-------- -------- -------- -------- -------- ---------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $314,972 $380,051 $436,480 $579,539 $968,008 $2,169,310 $166,742 $352,638 $502,965 $534,993
Cost of Revenues......... 224,144 270,528 310,051 426,426 709,871 1,529,245 124,785 253,017 364,790 373,845
-------- -------- -------- -------- -------- ---------- -------- -------- --------- ---------
Gross Profit............. 90,828 109,523 126,429 153,113 258,137 640,065 41,957 99,621 138,175 161,148
Selling general and
administrative
expenses............... 84,546 104,231 114,661 134,652 224,454 543,561 41,033 82,561 128,033 135,254
One time non-recurring
acquisition costs...... -- -- 8,057 4,671 1,656
Non-recurring
restructuring costs.... 8,092
Discontinuation of
Printing Division at
subsidiary............. -- -- -- -- 682 682 -- -- -- --
-------- -------- -------- -------- -------- ---------- -------- -------- --------- ---------
Operating Income
(loss)................. 6,282 5,292 11,768 18,461 24,944 87,730 (3,747) 15,404 10,142 25,894
Interest Expense......... 2,828 3,537 3,683 5,641 12,405 30,183 2,082 6,949 8,899 9,916
Interest Income.......... (210) (124) (266) (504) (3,272) (971) (142) (4,185) (390) (1,999)
Minority Interest in
Subsidiary............. -- -- -- 671 69 -- 206 (2) 206
Other (income) expense... (2,169) (1,337) (964) (409) (1,066) (1,587) (99) (222) 761 (358)
-------- -------- -------- -------- -------- ---------- -------- -------- --------- ---------
Income (loss) before
taxes.................. 5,833 3,216 9,315 13,733 16,206 60,036 (5,588) 12,656 874 18,129
Provision for income
taxes.................. 747 1,390 1,618 2,171 5,414 26,122 (1,469) 5,152 380 7,886
-------- -------- -------- -------- -------- ---------- -------- -------- --------- ---------
Net income (loss)........ $ 5,086 $ 1,826 $ 7,697 $ 11,562 $ 10,792(3) $ 33,914 $ (4,119 (3) $ 7,504(3) $ 494 $ 10,243
-------- -------- -------- -------- -------- ---------- -------- -------- --------- ---------
-------- -------- -------- -------- -------- ---------- -------- -------- --------- ---------
Net income (loss) per
share.................. $ 0.37(3) $ 0.80 $ (.18 (3) $ 0.20(3) $ 0.01 $ 0.24
-------- ---------- -------- -------- --------- ---------
-------- ---------- -------- -------- --------- ---------
Weighted Average Shares
Outstanding............ 28,922 42,330(4) 22,468 38,458 41,980(4) 43,018(4)
-------- ---------- -------- -------- --------- ---------
-------- ---------- -------- -------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JULY 27, 1996
APRIL 30, --------------------
------------------------------------------- PRO
BALANCE SHEET DATA: 1992 1993 1994 1995 1996 ACTUAL FORMA(5)
------ ------- ------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Working Capital.............................. 25,447 25,539 29,681 $ 48,519 236,728 213,622 162,999
Total Assets................................. 97,236 115,089 122,867 214,066 741,655 1,191,836 1,337,197
Long-term debt less current portion.......... 18,724 321,036 21,270 27,216 178,529 427,138 401,465
Stockholders' Equity......................... 30,153 30,197 32,883 72,717 314,299 388,172 513,084
</TABLE>
- ----------------------------------
(1) As a result of the substantial continuing interests in the Company of the
former stockholders of the four companies acquired by the Company for a
combination of Common Stock and cash concurrent with the closing of its
initial public offering (the "IPO") (the "Combined Companies"), the
historical financial information of the Combined Companies and the
historical financial information of the businesses that were acquired after
the closing of the IPO in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") have been combined on a
historical cost basis in accordance with generally accepted accounting
principles ("GAAP") to present this financial data as if the Combined
Companies and the Pooled Companies had always been members of the same
operating group. The financial information of the businesses acquired in
business combinations accounted for under the purchase method (the
"Purchased Companies") is included from the dates of their respective
acquisitions.
(2) Gives effect to: (i) the acquisitions completed by the Company since May 1,
1995 and the acquisitions that the Company considers probable to occur (the
"Pending Acquisitions") as if all of such acquisitions had been made on May
1, 1995; (ii) the sales by the Company in August 1995 of 4,025,000 shares of
Common Stock as if such sales had been made on May 1, 1995; (iii) the sales
by the Company in February and March 1996 of 5,543,045 shares of Common
Stock and 5 1/2% Convertible Subordinated Notes due 2001 in the principal
amount of $143.75 million as if such sales had been made on May 1, 1995; and
(iv) the sales by the Company in May and June 1996 of 5 1/2% Convertible
Subordinated Notes due 2003 in the principal amount of $230.0 million as if
such sales had been made on May 1, 1995.
(3) Net income (loss) and net income (loss) per share include nonrecurring
acquisition costs incurred in conjunction with the business combinations
with the Pooled Companies and the costs associated with the discontinuation
of the printing division at a subsidiary. GAAP requires the Company to
expense all costs related to acquisitions accounted for under the
pooling-of-interests method.
(4) For calculation of the pro forma weighted average shares outstanding for the
year ended April 30, 1996 and the three months ended July 31, 1995 and July
27, 1996, see Note 2(i) of Notes to Pro Forma Combined Financial Statements
included herein.
(5) Gives effect to: (i) acquisitions completed after July 27, 1996 and the
Pending Acquisitions as if such acquisitions had been made on July 27, 1996;
(ii) the sale by the Company in September 1996 of 1,250,000 shares of Common
Stock as if such sale had been made on July 27, 1996.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's revenues have been derived primarily from the sale of a wide
variety of office supplies, office furniture and other office and educational
products to corporate, commercial, educational and industrial customers. The
cost of revenues represents the purchase price of office supplies, office
furniture and other office products. Cost of revenues includes occupancy and
delivery expenses and is reduced by rebates and discounts on inventory
purchases.
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
the three fiscal years ended April 30, 1996 and for the three months ended July
27, 1996 and July 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED ------------------------
------------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.......................................................... 100.0 100.0 100.0% 100.0% 100.0%
Cost of revenues.................................................. 71 73.6 73.3 74.8 71.7
--------- --------- --------- ----------- -----------
Gross margin.................................................... 29 26.4 26.7 25.2 28.3
Selling, general and administrative expense....................... 26.3 23.2 23.2 24.6 23.4
Nonrecurring acquisition costs.................................... 0.8 2.8 0.5
Discontinuation of printing division at subsidiary................ .1
Operating income (loss)......................................... 2.7 3.2 2.6 (2.2) 4.4
--------- --------- --------- ----------- -----------
Other (income) expense:
Interest expense................................................ 0.8 1.0 1.3 1.2 2.0
Interest income................................................. (0.1) (0.1) (0.3) (1.2)
Minority interest in net income of subsidiary................... 0.1 0.1
Other........................................................... (0.2) (0.1) (0.1) (0.1)
--------- --------- --------- ----------- -----------
Income (loss) before provision benefit for income taxes........... 2.2 2.4 1.6 (3.4) 3.6
Provision (benefit) for income taxes.............................. 0.4 0.4 0.5 (0.9) 1.5
--------- --------- --------- ----------- -----------
Net income (loss)................................................. 1.8 2 1.1 (2.5) 2.1
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
THREE MONTHS ENDED JULY 27, 1996 COMPARED TO THREE MONTHS ENDED JULY 31,
1995
Historical revenues increased 111.5%, from $166.7 million for the three
months ended July 31, 1995 to $352.6 million for the three months ended July 27,
1996. This increase was primarily due to the inclusion of revenues from 43
companies acquired in business combinations accounted for under the purchase
method (the "43 Purchased Companies") during the last three quarters of fiscal
1996 and the first quarter of fiscal 1997 in the revenues for the three months
ended July 27, 1996 and the exclusion of those revenues for the three months
ended July 31, 1995.
Gross profit increased 137.4%, from $42.0 million, or 25.2% of revenues, for
the three months ended July 31, 1995 to $99.6 million, or 28.3% of revenues for
the three months ended July 27, 1996. The increase in gross profit as a
percentage of revenues was due primarily to a shift in revenue mix resulting in
a higher proportion of revenues in traditionally higher margin products, such as
office coffee services, school supplies and school furniture and the Company's
products sold in Australia and New Zealand.
Selling, general and administrative expenses increased 101.2%, from $41.0
million, or 24.6% of revenues, for the three months ended July 31, 1995 to $82.6
million, or 23.4% of revenues for the three
14
<PAGE>
months ended July 27, 1996. The increase in selling, general and administrative
expenses is due primarily to the inclusion of the 43 Purchased Companies. The
decrease in selling, general and administrative expenses as a percentage of
revenues is due primarily to the inclusion of the 43 Purchased Companies, which
had lower selling, general and administrative expenses as a percentage of
revenues.
The Company incurred nonrecurring acquisition costs of approximately $1.7
million and $4.7 million during the three months ended July 27, 1996 and July
31, 1995, respectively, in conjunction with business combinations that were
accounted for under the pooling-of-interests method. Generally accepted
accounting principles ("GAAP") require the Company to expense all acquisition
costs related to the business combinations accounted for under the
pooling-of-interests method. The Company expects to continue to consummate
additional acquisitions accounted for under the pooling-of-interests method.
Interest expense increased 233.8% from $2.1 million for the three months
ended July 31, 1995 to $6.9 million for the three months ended July 27, 1996.
This increase was due primarily to the increase in the Company's borrowings
through the issuance of an aggregate of $373.75 million of the February Notes
and the May Notes during the fourth quarter of fiscal 1996 and the first quarter
of fiscal 1997. The increase in interest expense was partially offset by an
increase in interest income of $4.0 million for the three months ended July 27,
1996 compared to the three months ended July 31, 1995. The increase in interest
income was primarily the result of the investment by the Company of a portion of
the proceeds from the issuance of the February Notes and the May Notes at a time
when it did not need the cash for working capital or acquisition purposes.
Minority interest in net income of subsidiary represents the 49% minority
interest in the net income of Blue Star, as the Company owned 51% of Blue Star
until June 1996, when it acquired the remaining 49%.
Provision for income taxes increased from a benefit of $1.5 million for the
three months ended July 31, 1995 to a provision of $5.2 million for the three
months ended July 27, 1996, reflecting an effective tax benefit of 26.3% for the
three months ended July 31, 1995 and an effective tax rate of 40.7% for the
three months ended July 27, 1996. The high effective rate for the three months
ended July 27, 1996, compared to the federal statutory rate of 34.0% plus state,
local and foreign taxes is primarily the result of non-deductible expenses,
primarily non-deductible goodwill, resulting from stock acquisitions accounted
for under the purchase method.
YEAR ENDED APRIL 30, 1996 COMPARED TO THE YEAR ENDED APRIL 30, 1995
Revenues increased by 67.0%, from $579.5 million in fiscal 1995 to $968.0
million in fiscal 1996. This increase was due primarily to the 26 acquisitions
completed during fiscal 1996 and accounted for under the purchase method of
accounting, and the five acquisitions completed during fiscal 1995 that were
accounted for under the purchase method of accounting and were included for the
entire 1996 fiscal year (collectively, the "1996 Purchased Companies").
Gross profit increased by 68.6%, from $153.1 million in fiscal 1995 to
$258.1 million in fiscal 1996. Gross profit as a percentage of revenues
increased from 26.4% in fiscal 1995 to 26.7% in fiscal 1996.
Selling, general and administrative expenses increased by 66.7%, from $134.7
million in fiscal 1995 to $224.5 million in fiscal 1996. The increase in
selling, general and administrative expenses is due primarily to the inclusion
of the 1996 Purchased Companies.
During fiscal 1996, the Company incurred $8.7 million in one-time charges,
which represented 0.9% of revenues. These charges consisted of $8.1 million in
nonrecurring acquisition costs incurred in conjunction with the 14 business
combinations completed during fiscal 1996 that were accounted for under the
pooling-of-interests method of accounting (the "Pooled Companies") and $682,000
associated with the discontinuation of the printing division at a subsidiary,
which consisted primarily of the write-down of printing division assets to their
estimated market value. GAAP requires the Company to expense all
15
<PAGE>
acquisition expenses related to the combinations accounted for under the
pooling-of-interests method of accounting.
Interest expense increased by 119.9%, from $5.6 million in fiscal 1995 to
$12.4 million in fiscal 1996. The increase was due primarily to the increase in
the Company's borrowings. The increase in interest expense was partially offset
by an increase in interest income of $2.8 million for fiscal 1996 compared to
fiscal 1995. The increase in interest income was primarily the result of the
investment by the Company of a portion of the proceeds from the sales of
5,543,045 shares of Common Stock at $23.25 per share, including the
underwriters' over-allotment option of 610,000 shares, and the issuance of
$143.75 million principal amount of the February Notes, including the
underwriters' over-allotment option of $18.75 million, at a time when it did not
need to borrow under its line of credit.
Minority interest in net income of subsidiary represents the 49% minority
interest in the net income of the Company's 51% owned subsidiary, Blue Star,
from February 1996, the date of acquisition by the Company. The Company owned
51% of Blue Star until June 1996, when it acquired the remaining 49%.
Other income increased by $657,000 from $409,000 in fiscal 1995 to other
income of $1.1 million in fiscal 1996.
Provision for income taxes increased by 149.4%, from $2.2 million in fiscal
1995 to $5.4 million in fiscal 1996, reflecting an effective income tax rate of
15.8% in fiscal 1995 and 33.4% in fiscal 1996. The increase in income taxes was
primarily due to increased pre-tax income resulting from the inclusion of the
Purchased Companies. The increase in the effective income tax rate is due
primarily to the fact that the pre-tax income of the Pooled Companies that had
elected to be treated as subchapter S corporations prior to their acquisition by
the Company constituted a higher proportion of the total pre-tax income during
fiscal 1995 and to the addition of non-deductible expenses, primarily
non-deductible goodwill relating to the 1996 Purchased Companies.
YEAR ENDED APRIL 30, 1995 COMPARED TO THE YEAR ENDED APRIL 30, 1994
Revenues increased by 32.8%, from $436.5 million in fiscal 1994 to $579.5
million in fiscal 1995. This increase was due primarily to the inclusion of the
five Purchased Companies acquired during fiscal 1995 (the "1995 Purchased
Companies").
Gross profit increased by 21.1%, from $126.4 million in fiscal 1994 to
$153.1 million in fiscal 1995. Gross profit as a percentage of revenues
decreased from 29.0% in fiscal 1994 to 26.4% in fiscal 1995. The decrease as a
percentage of revenues was primarily due to the inclusion of the 1995 Purchased
Companies, which had a higher proportion of sales of traditionally lower margin
product lines, such as business machines and office furniture.
Selling, general and administrative expenses increased by 17.4%, from $114.7
million in fiscal 1994 to $134.7 million in fiscal 1995. Selling, general and
administrative expenses as a percentage of revenues decreased from 26.3% in
fiscal 1994 to 23.2% in fiscal 1995. This decrease was primarily due to the
inclusion of the 1995 Purchased Companies, which had lower selling, general and
administrative expenses as a percentage of revenues.
Interest expense increased by 53.2%, from $3.7 million in fiscal 1994 to
$5.6 million in fiscal 1995. The increase in interest expense was primarily due
to incremental interest expense incurred by the 1995 Purchased Companies and to
higher interest rates. The interest expense was partially offset by an increase
in interest income of $238,000.
Other income decreased by 57.6% from $964,000 in fiscal 1994, to $409,000 in
fiscal 1995. The primary component of this change was a decrease in the
amortization of deferred revenue associated with a covenant not to compete of
one company, which was amortized using an accelerated method.
16
<PAGE>
The provision for income taxes increased by 34.2%, from $1.6 million in
fiscal 1994 to $2.2 million in fiscal 1995, reflecting an effective income tax
rate of 17.4% in fiscal 1994 and 15.8% in fiscal 1995. This increase in income
taxes is due primarily to increased pre-tax income. The low effective income tax
rates for fiscal 1994 and fiscal 1995, compared to the federal statutory rate of
34.0% plus state and local taxes, are the result of the election by certain
companies included in the results to be treated as subchapter S corporations
prior to their acquisitions by the Company in transactions accounted for under
the pooling of interests method of accounting.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996, the Company had cash of $170.6 million and working
capital of $236.7 million. The Company's capitalization at April 30, 1996 was
$492.8 million.
In May and June 1996, the Company completed the sales, in an offshore
offering and in a concurrent private placement in the United States, of the May
Notes in the principal amount of $230 million, including the manager's
over-allotment option of $30 million principal amount of May Notes. The net
proceeds from the sale of the May Notes, after deducting the manager's discounts
and commissions and offering expenses, were approximately $223.1 million and
were used for working capital and to pay the cash consideration for the
acquisition of Whitcoulls, including the repayment of higher interest rate debt
assumed in business combinations.
In August 1996, the Company entered into an agreement, whereby the Bank, or
a syndicate of financial institutions including the Bank, will provide the $500
million 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 sub-limits including $100 million for working capital loans
and $400 million for acquisition loans, with $180 million of the acquisition
loan sub-limit 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 covenants, 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.
During the three months ended July 27, 1996, net cash used in operating
activities was $3.8 million. Net cash used in investing activities was $216.3
million, including $205.5 million used for acquisitions and $9.7 million used
for additions to property and equipment. Net borrowings increased $145.0 million
during the three months ended July 27, 1996.
During the three months ended July 31, 1995, net cash provided by operating
activities was $5.8 million. Net cash used in investing activities was $8.2
million, including $5.4 million used for acquisitions and $1.3 used for
additions to property and equipment. Net borrowings increased $1.5 million
during the three months ended July 31, 1995.
Subsequent to July 27, 1996, the Company has completed 25 business
combinations for an aggregate purchase price of approximately $142.5 million,
consisting of approximately $66.9 million of cash and 2,559,399 shares of Common
Stock with a market value of $75.6 million. In addition, in September 1996, the
Company sold, in a privately negotiated transaction, 1,250,000 shares of Common
Stock for $38.1 million to Quantum Partners LDC. The proceeds from the sale were
used to reduce outstanding indebtedness and to fund acquisitions.
The Company anticipates that its current cash on hand, cash flow from
operations and additional financing available under the Credit Facility will be
sufficient to meet the Company's liquidity requirements for its operations
through the end of fiscal 1997. However, the Company intends to continue
pursuing acquisitions, including the Pending Acquisitions, which are expected to
be funded through a
17
<PAGE>
combination of cash and Common Stock. The timing and size and the associated
capital commitments of such acquisitions are not known. Assuming that the
current pace of the Company's acquisitions continues, the Company will need
additional debt or equity financing in order to continue its acquisition
program. There can be no assurance that the Company will be able to obtain such
financing if and when it is needed or that any such financing will be available
on terms the Company deems acceptable.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's business is subject to seasonal influences. The Company's
historical sales and profitability in its core office products business have
been lower in the first two quarters of its fiscal year, primarily due to the
lower level of business activity in North America during the summer months. The
seasonality of the core office products business, however, is expected to be
impacted by the seasonality of its other operations, which have been expanding
through acquisitions. For example, the sales and profitability of the Company's
school supplies and school furniture business have been higher during the
Company's first and second quarters and significantly lower in its third and
fourth quarters, and the sales and profitability of the Company's operations in
New Zealand and Australia have generally been higher in the Company's third
quarter. As the Company's mix of businesses evolves through future acquisitions,
these seasonal fluctuations may continue to change. In addition, quarterly
results also may be materially affected by the timing of acquisitions, the
timing and magnitude of costs related to such acquisitions, variations in the
prices paid by the Company for the products it sells, the mix of products sold
and general economic conditions. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent fiscal quarter or for a full fiscal year.
The following tables set forth certain unaudited consolidated quarterly
financial data for the fiscal years ended April 30, 1996 and 1995 (in thousands,
except for per share amounts). The information has been derived from unaudited
consolidated financial statements that in the opinion of management reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of such quarterly information.
<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 (1)....................... (3,747) 6,325 15,280 7,086 24,944
Net income (loss) (1)...................... (4,118) 3,165 10,360 1,385 10,792
Net income (loss) per share (1)............ (0.18) 0.11 0.36 0.04 0.37
<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................................. 1,557 2,930 7,405 (330) 11,562
</TABLE>
- ------------------------
(1) Includes one-time charges of $4,671, $599, $1,505 and $1,964 for the first,
second, third and fourth quarters of fiscal 1996, respectively. These
charges consist of nonrecurring acquisition costs incurred in connection
with business combinations accounted for under the pooling-of-interests
method of accounting and costs associated with the discontinuation of the
printing division at one subsidiary. Under GAAP, acquisition costs incurred
in conjunction with pooling-of-interests combinations must be recorded as
expense.
18
<PAGE>
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during fiscal 1994, 1995 or 1996.
FACTORS AFFECTING THE COMPANY'S BUSINESS
The future operating results of the Company may be affected by a number of
factors, including the matters discussed below:
The Company has an aggressive acquisition strategy that has involved, and is
expected to continue to involve, the acquisition of a significant number of
additional companies in related lines of businesses. There can be no assurance,
however, that acquisitions will occur at the same pace or be available to the
Company on favorable terms, if at all. For example, if the price of a share of
Common Stock declines, the owners of potential acquisition targets may not be
willing to receive shares of Common Stock in exchange for their businesses,
thereby adversely affecting the pace of the Company's acquisition program. Such
an effect on the pace of the Company's acquisition program could further reduce
the price of a share of common stock, to the further detriment of the Company's
acquisition strategy. In addition, the consolidation of the contract stationer
industry has reduced the number of larger companies available for sale, which
could lead to higher prices being paid to acquire such companies. The failure to
acquire additional businesses and to acquire such businesses on favorable terms
in accordance with the Company's growth strategy could have a material adverse
impact on future sales and profitability.
The Company's acquisition strategy has resulted in a significant increase in
sales, employees, facilities and distribution systems. While the Company's
decentralized management strategy, together with operating efficiencies
resulting from the elimination of duplicative functions and economies of scale,
may present opportunities to reduce costs, such strategies may initially
necessitate costs and expenditures to expand operational and financial systems
and corporate management and administration. These various costs and possible
cost-savings strategies may make historical operating results not indicative of
future performance. In addition, there can be no assurance that the pace of the
Company's acquisitions will not adversely affect the Company's efforts to
implement its cost-savings strategies and to manage its acquisitions
profitability.
The Company operates in a highly competitive environment. Some of the
Company's current and potential competitors are larger than the Company and have
greater financial resources. No assurances can be given that competition will
not have an adverse effect on the Company's business.
The Company also expects to focus significant attention and resources on
future international expansion. In addition to the factors described above that
may impact the Company's domestic operations, the Company's operations in
foreign markets are subject to a number of inherent risks, including currency
exchange rates, new and different legal and regulatory requirements,
difficulties in staffing and managing foreign operations, risks specific to
different business lines that the Company may enter, and other factors.
For a more complete discussion of the above factors, see "Risk Factors."
19
<PAGE>
BUSINESS
U.S. Office Products is one of the world's largest and fastest growing
suppliers of a broad range of office products to corporate, commercial,
industrial and educational customers. From its inception through October 7,
1996, the Company has acquired the 101 Completed Acquisitions. In addition, as
of October 7, 1996, the Company believed that the acquisition of the 17 Pending
Acquisitions that sell a variety of office supplies, office furniture and coffee
and breakroom supplies and services was probable. The Company is actively
negotiating additional acquisitions, both in the United States and
internationally, that, as of October 7, 1996, the Company believed were not
probable. While the Company expects to complete acquisitions in addition to the
Pending Acquisitions, there can be no assurances in this regard.
The Company's objective is to be the leading single source supplier of a
broad array of office and educational products and services for its corporate,
commercial, industrial, and educational customers. The Company generally has
acquired and seeks to acquire companies with established sales presences and
brand names in given geographic markets, and seeks to achieve operating
efficiencies through consolidated purchasing of products and services and
implementation of operational improvements. Currently, the Company sells a full
range of over 28,000 office and educational products to customers in the United
States, New Zealand and Australia.
The Company has an aggressive acquisition program utilizing a "hub and
spoke" strategy for expansion into and around its targeted metropolitan areas.
This strategy involves the acquisition of (i) a larger established, high quality
local company, or hub, and (ii) additional smaller companies, or spokes, in
secondary markets surrounding the hub. Where possible, the operations of the
acquired spokes are integrated into operations of existing hubs, thereby
eliminating a portion of the operating expenses of the acquired spokes. The
Company also has begun to develop regional consolidation and integration plans
to enable certain operational activities, such as warehousing, to be shared
among the hubs and spokes that are located within a specific geographic area.
The Company expects this regional approach will permit the elimination of
duplicative facilities and costs. The Company believes that its decentralized
management strategy, which includes the retention of local management, sales
personnel and the names of the acquired companies, and other operating
strategies described below, facilitate the identification of acquisition
candidates and make the Company an attractive acquiror. See "--Acquisition
Strategy."
PRINCIPAL PRODUCTS AND SERVICES
The Company offers a broad array of office products, equipment and services
to its corporate, commercial, industrial, and educational customers. Through its
ongoing acquisition program (including the Pending Acquisitions), the Company
has expanded and will further expand its capabilities in the office supplies,
office coffee services, office furniture, school supplies and school furniture
markets, both domestically and internationally.
The Company believes that these markets are interrelated because they are
served through similar and sometimes overlapping distribution channels. For
example, many of the companies in the markets in which the Company operates
provide products and services in other markets through the same sales force and
delivery personnel. The Company believes that many of the markets that the
Company serves are fragmented and are currently undergoing consolidation.
Moreover, the Company believes that by participating in this consolidation, it
will be able to leverage its existing sales, warehousing, and distribution
capabilities in various related markets because of the similarity of
distribution systems and route structures and the commonality of customers.
20
<PAGE>
As of October 7, 1996, the following are the principal markets that are
served by the Company:
DOMESTIC OFFICE SUPPLIES
The Company sells office and related supplies and equipment in the domestic
office contract stationer market. As of October 7, 1996, the Company served this
market from 34 hubs and 37 spokes located in 27 states. The Pending Acquisitions
include six spokes that sell supplies in the domestic office contract stationer
market.
The traditional office supplies market in the United States generates
approximately $60 billion in annual sales. The companies servicing this market
include: (i) discount superstore retailers; (ii) mail order marketers; (iii)
traditional retail stores; and (iv) contract stationers. Independent estimates
indicate that the aggregate size of the retail and mail order markets is
approximately $30 billion in annual sales and that the size of the contract
stationer market is also approximately $30 billion in annual sales. The Company
believes that the office supplies market can be classified by customer type into
three segments: the large corporate segment, the medium corporate segment and
the small office segment.
The LARGE CORPORATE SEGMENT is comprised of companies with 500 or more
employees. These customers often negotiate contract pricing on many of the
office products they routinely purchase and demand a high level of service,
including free, next-day delivery, account relationship managers, credit terms,
and customized billing and information services. This segment has historically
been served by contract stationers.
The MEDIUM CORPORATE SEGMENT is comprised of companies with more than 20,
but fewer than 500, employees. This segment historically has been served
primarily by contract stationers, and, to a much lesser extent, by mail order
marketers and traditional retail dealers. Discount superstore chains and mail
order marketers have attempted to gain market share in this segment by providing
delivery services and allowing credit card purchases. However, the Company
believes that discount superstores and mail order marketers have achieved only
limited penetration because they do not provide the level of service required by
customers in this segment.
The SMALL OFFICE SEGMENT consists of home offices and small businesses with
20 or fewer employees. These customers historically have purchased office
supplies from retail dealers at or near manufacturers' list prices. Discount
superstores and mail order marketers have captured an increasing share of sales
to this segment primarily by offering lower prices and providing a better
product selection than retail dealers.
The Company operates primarily in the medium and large corporate segments of
the office supplies market. A small number of the Company's subsidiaries, also
operate retail office supply outlets. Historically, the corporate office
supplies segment has been characterized by numerous contract stationers, most of
which operate in only one metropolitan area and have annual sales of less than
$15 million. However, as the office products industry undergoes rapid
consolidation, the Company believes that many smaller office supply companies
will be unable to compete because, in part, of their inability to service
national accounts and either will be acquired by larger companies or closed. The
Company believes that it has five competitors with revenues in excess of $500
million supplying office products to the corporate segments, that none of these
competitors has a market share in excess of 10% and that their combined market
share is less than 30%. See "--Competition."
OFFICE COFFEE SERVICES
The Company sells coffee, food, beverages, and related supplies for the
breakroom through two hubs and six spokes. The Pending Acquisitions include six
companies serving this market.
Office coffee services ("OCS") businesses typically provide and install
coffee brewing equipment in a customer's office at no charge but require
customers to purchase, on an ongoing basis, a minimum volume of coffee and
related items from the OCS business. OCS businesses generally also offer a wide
assortment
21
<PAGE>
of both coffee and related products, including creamers, sugar, stirrers,
beverages, coffees, teas, sodas, juices and bottled waters, as well as snack
items and all other items that are likely to be found in an employee "breakroom"
or lunch room, including plastic flatware, napkins, paper cups, straws and
similar items. The Company believes that the OCS industry in the United States
generates approximately $2.3 billion in annual sales. The Company believes that
this industry is also highly fragmented, with most companies in the industry
having sales of under $10 million.
OFFICE FURNITURE
The Company sells catalog, contract and remanufactured furniture to the
office furniture market, both through its office supplies businesses and through
six subsidiaries that principally serve the furniture market.
The Company sells furniture to three different types of customers. The
retail customer typically purchases furniture such as lower-priced chairs and
file cabinets from the Company's office supplies catalogs. The mid-market
customer typically purchases furniture of higher quality and functionality, and
the large customer buys high-quality furniture of a more sophisticated design
and tends to make project-oriented purchases. The Company also sells refurbished
and remanufactured furniture specially designed for contract and mid-market
customers. To a lesser extent, the Company rents furniture to various customers
on a short-term basis.
The Company believes that there are thousands of companies selling contract
furniture to the corporate, commercial and industrial markets. The Company
believes that the contract office furniture market in North America had sales of
approximately $9.5 billion in 1995.
SCHOOL SUPPLIES AND SCHOOL FURNITURE
The Company sells school and office supplies and school furniture to the
kindergarten through 12th grade educational market primarily through its School
Specialty, Inc. subsidiary, which recently has acquired five companies serving
this market. The Pending Acquisitions include two companies that focus on the
school supplies and school furniture market.
The Company's school supplies and school furniture business focuses on the
approximately 106,000 private and public schools that serve approximately 49.8
million kindergarten through 12th grade students in the United States.
Categories of sales in the educational market include classroom, art, office and
instructional materials (excluding textbooks), and desks, chairs, tables and
other furniture for classroom, cafeteria, library, locker and laboratory use.
The Company believes that this highly fragmented industry of over 1,000
independent dealers generated sales totaling over $3.0 billion in 1995.
INTERNATIONAL OFFICE PRODUCTS
The Company sells office and educational products and equipment and certain
other products and services in New Zealand and Australia through Blue Star and
Whitcoulls and their subsidiaries. See "Recent Developments." The Pending
Acquisitions include three additional companies in New Zealand and Australia.
The Company's operations in New Zealand and Australia currently include, in
addition to the office products business, the sale and leasing of
telecommunications and office automation equipment and products, as well as the
provision of related maintenance and system design and implementation services,
stationery and book stores, manufacturing of commercial, scholastic and
household stationery products and printing operations.
The Company believes that the international office supplies industry is
highly fragmented, and that, like the office supplies industry in the United
States, it represents a consolidation opportunity for the Company. According to
independent research estimates, annual sales in the contract stationer market in
developed countries excluding the United States exceed $70 billion. The Company
intends to focus significant attention and resources on international expansion
and expects foreign sales to represent an increasing proportion of the Company's
total sales. The Company's initial acquisition efforts outside of the United
States are expected to focus on companies in English-speaking countries.
22
<PAGE>
ACQUISITION STRATEGY
The Company has an aggressive acquisition program utilizing a "hub and
spoke" strategy for expansion into and around its targeted metropolitan areas.
This strategy involves the acquisition of (i) a larger established, high quality
local company, or hub, in each metropolitan area and (ii) additional smaller
companies, or spokes, in secondary markets surrounding the hub.
In most instances, the Company expects to retain the management, sales
personnel and name of the acquired hub while seeking to improve the Company's
profitability by implementing its operating strategies, rather than bringing in
outside management and converting the local operation to a standardized national
business model. The Company believes that its decentralized management strategy
and other operating strategies make it an attractive acquiror of additional
hubs, particularly for those companies whose owners desire to remain involved in
the day-to-day operations of their companies. The Company also intends to
continue to acquire additional smaller companies, or spokes, in secondary
markets surrounding its hubs. Where possible, the operations of the acquired
spokes are integrated into the operations of existing hubs, thereby eliminating
a portion of the operating expenses of the acquired spokes. See "Operating
Strategy." The Company believes that its decentralized management strategy and
local presence facilitate the identification of spoke acquisition candidates.
As consideration for future acquisitions, the Company intends to continue to
use various combinations of shares of Common Stock and cash.
The Company is actively negotiating to acquire additional office and
educational products and equipment businesses, both in the United States and
internationally, consistent with its strategy of pursuing an aggressive
acquisition program. While the Company expects to complete acquisitions in
addition to the Pending Acquisitions, there can be no assurances in this regard.
OPERATING STRATEGY
The Company believes that its decentralized management strategy, coupled
with operating efficiencies, enables it to compete effectively in its target
markets. The Company has implemented strategies designed to achieve operating
efficiencies by: (i) increasing sales opportunities by broadening the complement
of products and services it offers; (ii) generating cost savings through volume
purchasing of office products; (iii) combining certain general and
administrative functions at the corporate level and eliminating redundant
facilities; (iv) installing improved operating and technology systems; and (v)
producing a Company-wide proprietary office supplies catalog in order to
increase the percentage of office supplies purchased directly from
manufacturers.
DECENTRALIZED MANAGEMENT. The Company operates with a decentralized
management strategy, rather than a standardized national model. The Company
believes that many customers purchase products based on an established long-term
business relationship with one primary supplier. The Company typically empowers
its experienced local management to foster these long-term relationships and
provide superior customer service. The local management also typically is
empowered to make decisions relating to the day-to-day operations of a
particular location and is primarily responsible for the profitability and
growth of its local business. Local management also participates actively in the
identification of acquisition candidates and the process of integrating newly
acquired companies into U.S. Office Products. The Company believes that this
decentralized management philosophy results in better customer service by
allowing local management the flexibility to implement policies and make
decisions based on the needs and desires of local customers. The Company
encourages its local managers to work collaboratively within geographic regions
and to share successful operating strategies.
BROADENING OFFERED PRODUCTS AND SERVICES. The Company intends to continue
to broaden the complement of products and services it offers at its locations to
increase its sales to existing customers. The Company believes that many of its
subsidiaries can maximize their sales, warehousing and distribution
23
<PAGE>
capabilities by offering a broader array of products or services to their
customers. For example, many of the Company's subsidiaries offer to the same
customers office supplies, contract furniture, and coffee, beverage and snack
products and services. Outside of the United States, the Company currently also
expects to enter into businesses that offer a broad array of products and
services to corporate, commercial, industrial and educational customers. Some of
the Company's current and future subsidiaries (including, for example, the
Company's school supply subsidiaries), however, are likely to continue to focus
on providing a distinct group of products or services to their customers. Such
businesses may operate through sales forces and distribution systems that are
separate from the ones used by the Company's core office products businesses.
VOLUME PURCHASING. Office product manufacturers historically have offered
more favorable prices and rebates to high volume purchasers. As it has grown,
the Company has negotiated certain additional discounts and rebates with its
suppliers and vendors and believes that it will be able to increase the
discounts and rebates in the future.
COMBINING FUNCTIONS AND FACILITIES. The Company believes that it will be
able to achieve operating efficiencies available to a large company by
eliminating redundant facilities and by combining certain general and
administrative functions at the regional corporate level to reduce overhead. For
example, the Company has begun to combine at the corporate level: (i) purchasing
programs for office products; (ii) development, implementation and purchasing of
computer systems; (iii) purchasing or leasing of delivery vehicles; and (iv)
accounting, insurance, financial management, marketing and legal support. The
Company has also begun to develop regional consolidation and integration plans
to enable certain operational activities, such as warehousing, to be shared
among the hubs and spokes that are located within a specific geographic area. In
addition, the Company believes that the expansion of operations and the
integration of existing operations and facilities with those acquired in the
future will offer significant opportunities to achieve operating efficiencies.
OPERATING AND TECHNOLOGY SYSTEMS. Certain subsidiaries have developed
operating and technology systems designed to improve and enhance their
operations, including computerized inventory management and order processing
systems and warehouse management and distribution systems. Through a custom
bar-coding system, two of the Company's larger subsidiaries process orders and
track inventory and order fulfillment on a real-time basis, forecast demand by
specific inventory item or stock keeping unit ("SKU") and generate customized
usage and billing reports for their customers. The Company believes that this
bar-coding system has significantly increased the speed and accuracy of order
processing and fulfillment at these subsidiaries, while reducing their inventory
investment by increasing inventory turns. To the extent that the expense can be
justified, the Company intends to implement this system at other subsidiaries.
PRODUCTION OF A PROPRIETARY CATALOG. Most office products companies provide
customers with catalogs produced by wholesalers, bearing the name of the office
products company, and listing between 15,000 and 24,000 SKUs. Prior to their
acquisition by the Company, certain subsidiaries published proprietary catalogs
that included the best selling items that they regularly maintained in stock.
These proprietary catalogs have assisted the subsidiaries in reducing their
reliance on wholesalers and enabling them to purchase more items directly from
manufacturers at lower cost. The Company publishes and distributes on a Company-
wide basis a proprietary catalog of its office products including approximately
5,000 SKUs which is being used in conjunction with wholesaler produced catalogs.
Consistent with the Company's decentralized operating approach, the Company-wide
catalog is customized for each subsidiary so that the cover bears the name of
the subsidiary and the initial pages provide information specifically about that
subsidiary.
OPERATIONS
The discussion that follows focuses on the development of the Company's
operations in its core domestic contract stationer businesses. Through the end
of fiscal 1996, these businesses accounted for the vast majority of the
Company's operations and continue to account for a vast majority of Company's
24
<PAGE>
operations in the United States. Many of the operating plans and strategies
discussed below have been applied to the Company's growing OCS businesses, which
were integrated with its contract stationer operations during fiscal 1996. The
Company expects that many of the OCS businesses acquired in the future will be
integrated with the contract stationer operations; however, the Company may
operate some OCS businesses on a stand-alone basis, at least for a period of
time. The Company also expects that some office furniture businesses will be
operated on a stand-alone basis, while others will be integrated with contract
stationer businesses. The Company is operating the majority of its school
supplies and school furniture business separately from its contract stationer
businesses. The Company generally intends to apply to other product and service
markets its hub and spoke approach to acquisitions and intends to emphasize its
decentralized management strategy and obtain efficiencies through the
implementation of programs and systems that are similar, or in some cases
identical, to those being used in the Company's domestic contract stationer
businesses. There can be no assurance that these strategies will prove
successful in other product and service markets.
During fiscal 1996, the Company sold a wide variety of office supplies,
office furniture and other office products directly to corporate, commercial and
industrial customers through a catalog-based system. In addition, the Company
sold coffee, food, beverages and related supplies for the breakroom to these
customers.
The Company generally provides next-day delivery of ordered items and, on
request, same-day delivery. This "just in time" service enables certain
customers to reduce overhead cost by reducing inventory and the associated
personnel and space requirements. The Company believes that many of its
customers purchase office products based on an established long-term business
relationship with one primary supplier. Accordingly, the Company's operations,
and the improvements and enhancements that the Company has begun implementing,
are primarily focused on achieving superior customer satisfaction, as well as
operating efficiencies.
The Company obtains office products from many sources, including
manufacturers and wholesalers, and maintains warehouses from which ordered items
are delivered to customers. With respect to office supplies, approximately
one-third of ordered items are not kept in inventory but are obtained by the
Company from wholesalers with which the Company has relationships. The Company
does not believe that its ability to deliver goods to its customers is dependent
on any particular wholesaler.
MERCHANDISING AND PRODUCTS
The Company sells a full complement of brand name office products, including
paper products, desktop accessories, writing instruments, business machines,
office furniture and breakroom supplies. The Company provides its customers with
one or more catalogs containing full color photographs and descriptions of
offered items.
The Company publishes and distributes to its customers a uniform
Company-wide proprietary catalog of office products including approximately
5,000 best-selling SKUs that it regularly maintains in inventory. See
"--Operating Strategy--Production of a Proprietary Catalog." Items will be
included or deleted from this proprietary catalog annually, based on an analysis
of the highest selling items. In addition, the Company's subsidiaries provide
customers with additional catalogs that are produced by wholesalers, bear the
name of the Company's local operation, and list between 15,000 and 24,000 SKUs.
Customers are able to select items from either the Company's proprietary catalog
or a wholesaler catalog and receive next-day delivery of ordered items. Because
the Company purchases most of the items listed in the proprietary catalog
directly from the manufacturer at lower costs than from the wholesaler, the
Company is able to offer lower prices to its customers for items in the
proprietary catalog. The Company believes that the proprietary catalog has begun
to improve inventory management, reduce costs by centralizing catalog production
for its subsidiaries, focus its customers on the Company's in-stock items, and
provide an alternative to wholesaler produced catalogs.
25
<PAGE>
ORDER PROCESSING
Orders are received by the Company's sales personnel primarily by telephone
or facsimile. In addition, the Company uses an electronic data interchange
("EDI") system between the Company and certain of its customers. Using this
system, customers are able to place orders directly into the Company's computer
systems, manage their own inventory and generate customized usage reports and
invoices.
Orders to be filled are routed to either the Company's warehouse or, if the
ordered item is not stocked by the Company at its local warehouse, to a
wholesaler. At certain facilities, the Company's order processing system, which
is electronically linked to local wholesalers, determines on a real-time basis
if an ordered item is to be filled from the Company's warehouse or from a
wholesaler. When a customer order needs to be filled from a wholesaler, the
system automatically generates a corresponding order for the wholesaler. The
Company has begun to implement similar systems at additional facilities.
ORDER FULFILLMENT AND DISTRIBUTION
After receiving a customer order, the Company fills the order (excluding
items to be supplied by wholesalers) by "picking" the goods from the Company's
warehouse. At certain facilities, the Company's computer systems automatically
generate "picking" orders arranged according to the location of ordered items
within the Company's warehouse, improving the efficiency of warehouse personnel
in filling orders. The Company also has installed conveyer systems at these
facilities to move orders through the Company's warehouses more efficiently.
When orders have been picked, they are combined with the wholesaler portion of
the order, if required. Finally, delivery-ready orders are staged and loaded
onto trucks on a first-in, last-out basis, based on delivery routes. At these
facilities, staging and loading of trucks and delivery routes are computer
generated to improve delivery and distribution efficiency. The warehouses of two
of the Company's larger subsidiaries have had improved fulfillment rates using
these technology systems. Therefore, the Company intends to implement these
systems as it consolidates additional warehouses.
The Company delivers ordered items using Company-owned trucks, leased trucks
and unaffiliated delivery companies.
INVENTORY MANAGEMENT
The Company has made a substantial investment in developing an extensive
custom bar-coding system at two subsidiaries and believes that it is among the
first office products companies to implement such an extensive bar-coding
system. This technology enables the Company to track inventory through prompt
recording of both received inventory and outgoing orders, permitting the Company
to restock on a daily basis and further reducing the Company's reliance on
wholesalers. In addition, this system enables the Company to forecast product
demand by SKU, enabling it to select the highest selling items for its
proprietary catalog. The Company believes that this bar-coding system has been a
significant factor in reducing its inventory investment over a multi-year period
by increasing annualized inventory turns at these two subsidiaries from
approximately eight, prior to implementation of this system, to approximately 14
after implementation. The subsidiaries that do not use the Company's bar-coding
system track inventory by manually entering into their computer systems
inventory received and shipped. The Company intends to implement this bar-coding
system as it consolidates warehouses.
SALES AND MARKETING
The Company believes that its ability to maintain and grow its customer and
revenue base will depend, in part, on its ability to maintain a high level of
customer satisfaction, as well as competitive prices. The Company believes that
its customers typically purchase office products based on an established
long-term business relationship with one primary supplier. The Company
establishes and maintains its relationships with customers by assigning a sales
representative to most customers. Sales representatives, who are compensated
almost exclusively on a commission and/or incentive basis, have frequent contact
with their
26
<PAGE>
customers and share responsibility for increasing account penetration and
providing customer service. Sales representatives also are responsible for
marketing efforts directed to prospective customers and for responding to all
bid and/or contract requests for their existing and prospective customers. The
Company emphasizes a team approach, and generally integrates management, sales,
customer service, purchasing and other personnel into the relationship with each
customer. The Company believes that its decentralized management strategy offers
it a competitive advantage because, by not adhering to a standardized national
model, it has greater flexibility to respond to the needs of each local customer
while achieving the buying power and operating efficiencies of a large company.
The Company focuses its marketing efforts on the medium and large corporate
segments of the office products industry. The Company believes that a
significant opportunity exists in the medium corporate segment and that the
larger office products companies with which the Company competes have focused
more on the large corporate segment. The Company sells primarily through direct
contact with customers and potential customers and does not conduct significant
mass market advertising.
The Company continues to leverage its expertise in operations that are not
typical of traditional contract stationers, such as office coffee service
operations, by training its sales personnel in these different areas and
emphasizing a full service approach to its sales. The Company believes that, by
integrating its office products operations with these other related operations,
it can leverage its sales, warehousing and distribution capabilities, while
offering its corporate, commercial industrial and educational customers a single
source vendor for more of their office requirements.
NON-COMPETITION AGREEMENTS
When acquiring businesses, the Company has required the controlling
stockholders of the selling companies to agree not to compete with the Company
or solicit its customers or employees for up to four years from the date on
which the Company acquired their companies. Selling stockholders who enter into
employment agreements with the Company enter into similar restrictive covenants
that continue for the period of employment plus up to two years after
termination.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors in the markets that it serves are generally smaller, independent
companies, many of which are well-established in their markets. In addition, in
the contract stationer market, the Company competes with five large office
products companies, each of which is believed to have annual sales in excess of
$500 million: Boise Cascade Office Products Corporation; Corporate Express,
Inc.; Office Depot, Inc.; BT Office Products International, Inc.; and Staples,
Inc. Two of these five competitors are divisions of discount superstore chains
and two others are owned in substantial portion by large manufacturers of office
products. In addition, Office Depot, Inc. and Staples, Inc. recently announced a
proposed merger between the two companies.
In the contract stationer market, as well as the other markets that it
serves or proposes to serve, the Company believes that customers not only are
concerned with the overall reduction of their office products costs but also
place an emphasis on dependability, superior levels of service and flexible
delivery capabilities. The Company believes that it competes favorably with the
five large companies in the contract stationer market on the basis of service
and price. However, some of these companies have greater financial resources
than the Company.
The Company faces significant competition to acquire additional businesses
as the office products industry undergoes continuing consolidation. Significant
competition exists, or is expected to develop, in the other markets that the
Company serves or is planning to enter, as consolidation occurs (or accelerates)
in those markets. A number of the Company's major competitors are actively
pursuing acquisitions outside of the United States. These companies, or other
large companies, may compete with the Company for
27
<PAGE>
acquisitions in markets other than the market for office products. Such
competition could lead to higher prices being paid for acquired companies. The
Company believes that its decentralized management strategy and other operating
strategies make it an attractive acquiror of other companies. However, no
assurance can be given that the Company's acquisition program will be successful
in the future.
EMPLOYEES
As of July 27, 1996, the Company had approximately 11,000 full-time
employees, a small number of which are members of labor unions. The Company
considers its relations with its employees to be satisfactory.
PROPERTIES
As of July 27, 1996, the Company operated 591 facilities in various states
and in New Zealand and Australia, including one facility located in Washington,
D.C. for its corporate headquarters. Of these facilities, 566 are leased and 25
are owned. The facilities are used for retail, warehouse and office purposes, or
a combination of these functions. The aggregate square footage for all of the
facilities is approximately 7,009,505 square feet, consisting of 1,737,204
square feet for retail use, 3,929,034 square feet for warehouse use, and
1,343,267 square feet for office use. At this time, the Company believes its
facilities are suitable for its purposes, having adequate productive capacity
for the Company's present and anticipated needs.
28
<PAGE>
The following table sets forth the locations of all the Company's facilities as
of July 27, 1996:
<TABLE>
<CAPTION>
NUMBER OF
LOCATION FACILITIES
- ------------------------------------------------------------------------ -------------
<S> <C>
DOMESTIC
Alabama............................................................... 11
Arizona............................................................... 2
California............................................................ 34
Colorado.............................................................. 1
District of Columbia.................................................. 1
Florida............................................................... 14
Georgia............................................................... 6
Illinois.............................................................. 18
Indiana............................................................... 8
Iowa.................................................................. 3
Kansas................................................................ 1
Kentucky.............................................................. 4
Louisiana............................................................. 13
Maryland.............................................................. 6
Massachusetts......................................................... 1
Michigan.............................................................. 9
Minnesota............................................................. 8
Mississippi........................................................... 13
Missouri.............................................................. 8
Nebraska.............................................................. 1
New Jersey............................................................ 3
New Mexico............................................................ 2
North Carolina........................................................ 14
Ohio.................................................................. 14
Oklahoma.............................................................. 1
Oregon................................................................ 5
Pennsylvania.......................................................... 11
South Carolina........................................................ 4
Tennessee............................................................. 9
Texas................................................................. 3
Virginia.............................................................. 7
Wisconsin............................................................. 20
DOMESTIC TOTAL.......................................................... 255
---
---
INTERNATIONAL
New Zealand........................................................... 243
Australia............................................................. 93
INTERNATIONAL TOTAL..................................................... 336
---
---
</TABLE>
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial condition, results of
operations or cash flows of the Company.
29
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning each of the
directors, executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --------- ----------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Jonathan J. Ledecky 38 Chief Executive Officer and Chairman of the Board
Timothy J. Flynn 41 President and Chief Operating Officer; Director
Donald H. Platt 49 Senior Vice President, Chief Financial Officer and Treasurer
Mark D. Director 38 Executive Vice President, General Counsel and Secretary
Martin S. Pinson 50 Executive Vice President
Executive Vice President; President--General Office Products Company
Thomas J. Reaser 47 ("GOP"); Director
John K. Burgess 40 President--Burgess, Anderson & Tate, Inc. ("BAT"); Director
President--Dameron-Pierson Company, Limited ("Dameron- Pierson");
Jack L. Becker, Jr. 45 Director
David C. Gezon 43 President--C.W. Mills Acquisition Corp. ("C.W. Mills"); Director
Senior Vice President--The Smith-Wilson Co. ("Smith- Wilson");
David C. Copenhaver 32 Director
Mark A. Sorgenfrei 43 President--OSCO Acquisition Corp. ("OSCO"); Director
Clifton B. Phillips 36 Director
Milton H. Kuyers 58 Director
Allon H. Lefever 48 Director
Edward J. Mathias 53 Director
John A. Quelch 43 Director
KEY EMPLOYEES*
Roger L. Choquette 47 President--Furniture Group
Daniel P. Spalding 41 President--School Supply Division
H. Steve Swink 54 President--Coffee and Beverage Division
Kevin J. Thimjon 30 Vice President and Corporate Controller, Assistant Treasurer
Edward J. Walper 52 Vice President, Merchandising
Eric J. Watson 37 President--International Division
</TABLE>
- ------------------------
* Such individuals are not executive officers for purposes of Section 16 under
the Exchange Act.
JONATHAN J. LEDECKY founded the Company in October 1994 and has served since
then as its Chairman of the Board and Chief Executive Officer. Prior to founding
the Company, Mr. Ledecky served from 1989 to 1991 as the President of The Legacy
Fund, Inc. and from 1991 until September 1994 as President and Chief Executive
Officer of Legacy Dealer Capital Fund, Inc., a wholly owned subsidiary of
Steelcase Inc., the nation's largest manufacturer of office furniture products.
While at Legacy Dealer Capital Fund,
30
<PAGE>
Mr. Ledecky was responsible for providing corporate advisory services for
Steelcase's network of office products distributors. Mr. Ledecky served on the
Board of Directors of GOP from July 1993 through September 1994 and again since
November 1994. In addition, Mr. Ledecky has served as a director of several
other office products companies, including DeKalb Office Environments, Inc.,
Franklin Interiors, Inc. in Pittsburgh, Pennsylvania, Officescapes, Inc. in
Denver, Colorado, Wilson Interiors, Ltd. in Dallas, Texas and McWaters, Inc. in
Columbia, South Carolina. Mr. Ledecky has also served as a corporate advisor and
operating consultant to several other office products companies. Prior to his
tenure at The Legacy Fund, Inc., Mr. Ledecky was a partner at Adler and Company
and a Senior Vice President at Allied Capital Corporation, a publicly traded
investment management company. Mr. Ledecky is a graduate of Harvard College and
Harvard Business School.
TIMOTHY J. FLYNN is a Director and the President and Chief Operating Officer
of the Company. Mr. Flynn held a variety of positions at Andrews Office Supply
and Equipment Company ("Andrews"), including President, Executive Vice President
and Chief Operating Officer between 1987 and 1996. Mr. Flynn joined Andrews in
1986 after being employed for 10 years in the commercial sales division of M.S.
Ginn and Company, an office products supplier in Washington, D.C. Mr. Flynn is a
former member of the board of directors of the National Purchasing Association
("NPA"), an association of office products companies, and the former Vice
Chairman of the Commercial Dealer Division of the Business Products
International Association (formerly known as the National Office Products
Association ("NOPA")). Mr. Flynn received his undergraduate degree and a Masters
in Administration from the University of Maryland.
DONALD H. PLATT has served as the Senior Vice President and Chief Financial
Officer of the Company since August 1995 and as Treasurer since August 1996.
From April 1995 until August 1995, Mr. Platt served as the Company's Senior Vice
President--Corporate Development. From 1990 through 1993, Mr. Platt served as
Dealer Business Consultant and, from January 1994 through April 1995, as Vice
President of Dealer Financing for Steelcase Financial Services, Inc., a finance
subsidiary of Steelcase. Mr. Platt was responsible for 22 acquisitions and
divestitures of independent Steelcase dealerships in the U.S. and Canada from
January 1994 through April 1995. Mr. Platt has served as a director of 10
different office furniture dealerships, several of which were also prominent
office products dealers. Mr. Platt is a graduate of Stanford University and the
Stanford Graduate School of Business.
MARK D. DIRECTOR joined the Company as its Executive Vice President, General
Counsel and Assistant Secretary in February 1996. In August 1996, he was
appointed Secretary of the Company. From 1990 through February 1995, Mr.
Director was a principal of the law firm of Fields & Director, P.C., located in
Washington, D.C., which he founded after his association with the law firm of
Debevoise & Plimpton. From February 1995 to September 1995, he served as Vice
President, General Counsel and Assistant Secretary of Radio Movil Digital
Americas, Inc. ("RMD"), a company that owns and operates specialized mobile
radio networks throughout South America. From September 1995 to February 1996,
Mr. Director served as to Executive Vice President of RMD. Mr. Director received
his undergraduate degree from Harvard College and his law degree from Harvard
Law School.
MARTIN S. PINSON has served as Executive Vice President of the Company since
the Company's organization. He previously served as Secretary of the Company
from October 1994 through August 1996 and as Chief Financial Officer from
October 1994 to August 1995. From 1991 to 1994, Mr. Pinson was the President and
Chief Executive Officer of Pinson and Associates, a Washington, D.C. firm
providing consulting and corporate finance services to private and publicly held
corporations. Prior to forming Pinson and Associates, Mr. Pinson was Senior Vice
President at Greater Washington Investors, Inc., a publicly traded venture
capital investment company located in Washington, D.C. Mr. Pinson has served on
the board of directors of more than 15 private and publicly held companies. He
received his undergraduate degree from Union College and his law degree from
Georgetown University.
31
<PAGE>
THOMAS J. REASER is a Director and Executive Vice President of the Company
and the President of GOP. Mr. Burgess has served since July 1993 as the
President of GOP. For more than five years prior to his becoming the President
of GOP, Mr. Reaser held a variety of positions at GOP, including Vice President,
Sales and Marketing. Mr. Reaser is a past governor of NOPA and currently serves
as the President and a director of American Office Products Distributors, a
national trade organization of office products companies.
JOHN K. BURGESS is a Director of the Company and the President of BAT. Mr.
Burgess has served since April 1993 as the Chief Operating Officer of BAT. From
April 1990 through March 1993, Mr. Burgess served as Vice President--Sales and
Marketing for BAT. Prior to April 1990, Mr. Burgess held a variety of positions
at BAT. Mr. Burgess is currently the Vice President of NPA. Mr. Burgess received
a bachelor's degree in business management from Florida Southern College.
JACK L. BECKER, JR. is a Director of the Company and the President of
Dameron-Pierson. Mr. Becker has served as the President of Dameron-Pierson since
May 1992. From 1989 through April 1992, Mr. Becker served as Executive Vice
President of Dameron-Pierson, with responsibility for sales and office furniture
operations. Mr. Becker is a former member of the board of directors of NPA and a
member of the dealer councils of Office Furniture USA and Krueger International,
each of which is an office products trade organization. Mr. Becker received a
bachelor's degree in management from the University of New Orleans.
DAVID C. GEZON is a Director of the Company and the President of C.W. Mills.
Mr. Gezon has worked for C.W. Mills since 1970 and has served as its President
since 1988. Mr. Gezon received an undergraduate degree from Calvin College and a
Masters in Business Administration ("M.B.A.") from Western Michigan University.
DAVID C. COPENHAVER is a Director of the Company. Mr. Copenhaver has served
as Senior Vice President--Smith-Wilson since Copenhaver Holdings, Incorporated
purchased Smith-Wilson in 1989. Mr. Copenhaver received both his undergraduate
degree and an M.B.A. from the University of Virginia. Mr. Copenhaver is the
brother of Preston S. Copenhaver, III, the President of Smith-Wilson.
MARK A. SORGENFREI is a Director of the Company and President of OSCO. Mr.
Sorgenfrei has worked for OSCO since 1984 in the capacities of corporate
controller and Chief Financial Officer. In December 1994, Mr. Sorgenfrei assumed
the position of President and Chief Operating Officer of OSCO. Mr. Sorgenfrei
has been a member of the Board of Directors and the Executive Committee of OSCO
since 1988. Mr. Sorgenfrei served as Secretary-Treasurer of NPA from 1988 until
1994, and he is the current President of NPA. Mr. Sorgenfrei is a certified
public accountant and received his undergraduate degree from Millsaps College in
Jackson, Mississippi.
CLIFTON B. PHILLIPS is a Director of the Company. Mr. Phillips served as
President of Mills Morris Arrow, Inc. ("Mills Morris Arrow") from 1993 to May
1996. For more than four years prior to becoming President of Mills Morris
Arrow, he held a variety of positions at Mills Morris Arrow including President
of Mills Morris Business Interiors and General Manager of Arrow Business
Products. Mr. Phillips received his undergraduate degree from Columbia
University and an M.B.A. from The University of Pennsylvania.
MILTON H. KUYERS is a Director of the Company. Mr. Kuyers is a part owner
and executive officer of a number of privately held companies, including Zero
Zone Refrigeration Manufacturing Co., a manufacturer of commercial refrigeration
units; Desert Air Corp., a manufacturer of commercial dehumidification
equipment; Northwest Coatings, Inc., a manufacturer of coating products;
Grayline, Inc., a manufacturer of tubing used in the appliance and electrical
industries; Barch Communications, Inc., a distributor of business telephone
systems and cellular telephones; and Faustel, Inc., a manufacturer of custom
coating equipment. Prior to 1993, Mr. Kuyers served as the President of Star
Sprinkler Corp., a manufacturer of sprinkler heads for fire protection systems.
He serves on the board of directors of Medical Advances, Inc., a manufacturer of
parts for medical diagnostic applications. Prior to its acquisition by the
Company,
32
<PAGE>
Mr. Kuyers also served as a director of H.H. West. He holds an undergraduate
degree in Business Administration and a M.B.A. from the University of Michigan.
ALLON H. LEFEVER is a Director of the Company. Mr. Lefever has served as
Vice President of the Affiliated Companies for High Industries, Inc. since April
1988. Prior to its acquisition by the Company, Mr. Lefever served as the
Chairman of the Board and Chief Executive Officer of The Office Works, Inc.
since 1988, and currently serves on the boards of directors of several private
companies. Mr. Lefever is a director of the Lancaster Chamber of Commerce and
serves on the Business Advisory Board of Millersville State University. Mr.
Lefever received his undergraduate degree from Millersville State University and
a Masters in Economics from Pennsylvania State University.
EDWARD J. MATHIAS is a Director of the Company. Mr. Mathias is currently a
Managing Director of The Carlyle Group, a Washington, D.C. based merchant bank.
From 1971 through 1993, Mr. Mathias was with T. Rowe Price Associates, Inc., a
major investment management organization, most recently as a Managing Director.
He also served on the board of directors of T. Rowe Price and was a member of
its management committee. While at T. Rowe Price, Mr. Mathias served as Chairman
of various equity mutual funds, including the New Horizons Fund from 1982
through 1993. Mr. Mathias is the Chairman of the Board of Visitors at American
University's Kogod School of Business Administration and serves on the board of
overseers at The University of Pennsylvania's School of Arts and Sciences. Mr.
Mathias presently serves on the board of directors of Sirrom Capital
Corporation, a publicly traded small business investment company, and on the
boards of directors of several private companies. Mr. Mathias holds an
undergraduate degree from The University of Pennsylvania and an M.B.A. from
Harvard Business School.
JOHN A. QUELCH is a Director of the Company. Dr. Quelch is the Sebastian S.
Kresge Professor of Marketing at the Harvard Business School. Dr. Quelch is the
author of 12 books on marketing, and is widely published in leading American
business publications. Dr. Quelch serves on the boards of directors of Reebok
International Ltd., a worldwide manufacturer and distributor of athletic
footwear and apparel, and WPP Group plc, a marketing services company that
includes Ogilvy & Mather, J. Walter Thompson and Hill & Knowlton. Dr. Quelch
received an undergraduate degree from Oxford University in England, an M.B.A.
from The University of Pennsylvania, and M.S. and Doctor of Business
Administration degrees from Harvard College.
ROGER CHOQUETTE is the President--Furniture Division of the Company. Prior
to joining the Company, Mr. Choquette spent 17 years in the contract office
furniture industry, serving in a variety of management and officer level
assignments with Steelcase, the world's largest office furniture manufacturer.
In his capacity as Vice-President--Dealer Alliances, from 1992 to 1993, Mr.
Choquette was responsible for managing Steelcase's extensive network of
approximately 450 independently owned contract office furniture dealers, several
of which were also prominent office products dealers. In 1994, Mr. Choquette was
promoted to Executive Vice President--Sales and Marketing, where he had direct
responsibility for managing approximately $2 billion in contract office
furniture and office products sales by Steelcase. Mr. Choquette received his
B.A. from American International College.
DANIEL P. SPALDING has served as the President of the School Supply Division
of the Company since May 1996 and has served as the President and Chief
Executive Officer of School Specialty since 1988. From 1984 to 1988, Mr.
Spalding was the Division President (and one of the co-founders) of JanSport, a
manufacturer of sports apparel and backpacking equipment and a division of Blue
Bell. Mr. Spalding is currently the President Elect and a director of the
National School Supply and Equipment Association ("NSSEA"). He will serve as
President of NSSEA beginning in November 1996.
H. STEVE SWINK has served as President of the Coffee and Beverage Division
of the Company since August 1995. Prior to joining the Company, Mr. Swink served
for 18 years as the Vice President and Chief Operating Officer, and then
President of Coffee Butler Service, Inc. ("Coffee Butler") during which time he
guided the operations and growth of Coffee Butler into 10 branches located
throughout the Southeast and Mid-Atlantic regions. Under his leadership and
direction, Coffee Butler became one of the top three
33
<PAGE>
independently owned companies in the coffee service industry. In addition, Mr.
Swink has served as Chairman, Division of Business and Coordinator, Center for
Management Training at DeKalb Community College in Georgia and as an Instructor
of Business Education at Georgia State University. Mr. Swink currently serves on
the Board of Directors of the American Heart Association/Northern Virginia
Chapter, the Cultural Alliance of Washington, The Fairfax Symphony Orchestra,
the Fairfax County Chamber of Commerce and the Northern Virginia Community
Foundation. Mr. Swink received his Bachelor of Science and Master of Education
degrees from Mississippi State University and received a Doctorate of Philosophy
from Georgia State University.
KEVIN J. THIMJON has served as Vice President and Corporate Controller since
joining the Company in August 1995. From January 1993 to July 1995, Mr. Thimjon
was an Audit Manager at Price Waterhouse LLP. From September 1991 to December
1992, he was the assistant controller for Centran Resource Group, Inc., a
natural gas marketing company. Prior to September 1991, Mr. Thimjon was employed
by Price Waterhouse LLP. Mr. Thimjon is a certified public accountant and a
graduate of Concordia College in Moorhead, Minnesota.
EDWARD J. WALPER has served as Vice President--Merchandising of the Company
since October 1995. From June 1994 to October 1995, Mr. Walper served as Chief
Operating Officer of Allied Strauss Office Products, a major East Coast office
supply dealership. Prior to that, he was Vice President of Purchasing and
Operations of Andrews since 1987. Mr. Walper has more than 27 years in the
office products industry and was instrumental in the development and
implementation of bar-coding systems at Andrews.
ERIC J. WATSON has served as President of the International Division of the
Company since May 1996. Mr. Watson has served as the President of Blue Star
since 1991. Mr. Watson has substantial experience in company restructuring,
acquisition and management, particularly within the office products and
automation industry. Previously, he held general and divisional management
positions at Xerox Corporation, where he was responsible for operations in
Australia and New Zealand, and Whitcoulls Group. Mr. Watson is a graduate of the
General Management Programme of the University of Auckland.
At each annual meeting of stockholders, directors are elected by the holders
of the Common Stock for a term of one year to succeed those directors whose
terms are expiring. All officers serve at the discretion of the Board of
Directors.
DIRECTORS' REMUNERATION
During the fiscal year ended April 30, 1996, fees for all directors
aggregated $30,000, including amounts paid for committee participation.
Beginning May 1, 1996, non-employee directors of the Company receive an annual
retainer of $25,000 and are reimbursed for all expenses relating to attendance
at meetings. Previously, the annual retainer for non-employee directors was
$10,000. In addition, each non-employee director who agreed to serve as such
prior to the consummation of the Company's initial public offering of its Common
Stock in February 1995 (Messrs. Lefever, Mathias and Quelch) received an option
to acquire 15,000 shares of Common Stock, exercisable in three equal
installments, commencing on the date of the grant and on each anniversary
thereof, at an exercise price per share of $8.00. Under the U.S. Office Products
Company 1996 Non-Employee Directors' Stock Plan (the "Directors' Plan"), non-
employee directors will receive options to acquire 21,000 shares of Common Stock
upon their initial election as a member of the Board of Directors and, in each
subsequent year that they are re-elected, if any, will receive options to
acquire 6,000 shares. In connection with the recent adoption of the Directors'
Plan, all four of the non-employee directors who served as directors during the
1996 fiscal year received upon their re-election options for 21,000 shares and
will receive, for the 1997 fiscal year, options for 6,000 shares (options for a
total of 27,000 shares). Directors who are employees of the Company do not
receive additional compensation for serving as directors. No non-employee member
of the Board of Directors was paid compensation during the 1996 fiscal year for
his service as a director of the Company other than pursuant to the standard
compensation arrangement described above. Messrs. Burgess, Copenhaver, Gezon and
Sorgenfrei receive compensation for their services as employees of the Company
pursuant to
34
<PAGE>
employment agreements providing for annual base salary amounts of $93,000,
$85,000, $113,000 and $150,000, respectively.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides, for the periods indicated, certain summary
information concerning the cash and non-cash compensation earned by or awarded
to (i) the Company's Chief Executive Officer and (ii) each of the Company's
other executive officers during or at the end of the Company's 1996 fiscal year
(collectively, the "named executive officers"). The Company was organized in
October 1994 and did not conduct any operations prior to February 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION --------------------
---------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) OPTIONS/SARS (#)(4)
- ----------------------------------------- --------- ---------- ---------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Jonathan J. Ledecky...................... 1996 $ 250,000 -- -- 500,000
Chief Executive Officer and 1995 145,833 -- -- 100,000
Chairman of the Board
Timothy J. Flynn......................... 1996 250,000 $ 75,000 -- 310,000
President and Chief Operating Officer 1995 45,912 -- -- 25,000
Donald H. Platt.......................... 1996 150,000 125,000 $ 45,300 250,000
Senior Vice President--Chief 1995 -- -- -- --
Financial Officer
Martin S. Pinson......................... 1996 150,000 25,000 -- 100,000
Executive Vice President and Secretary 1995 57,757 -- -- 25,000
Mark D. Director......................... 1996 38,061 75,000 -- 100,000
Executive Vice President, General 1995 -- -- -- --
Counsel and Assistant Secretary
Thomas J. Reaser......................... 1996 150,000 -- -- 25,000
Executive Vice President 1995 23,958 -- -- 25,000
</TABLE>
- ------------------------
(1) The salary for Mr. Director for fiscal 1996 represents less than one full
year's compensation as he commenced employment with the Company during
fiscal 1996. Each salary shown for fiscal 1995 represents less than one full
year's compensation. No compensation was paid to any named executive officer
prior to February 23, 1995. With respect to Messrs. Ledecky and Pinson, the
salary listed for fiscal 1995 includes $99,921 and $30,000, respectively,
for services rendered prior to the commencement of operations by the
Company.
(2) In addition to bonuses related to 1996, the Company granted options in
fiscal 1997 as bonuses for fiscal 1996 to Messrs. Flynn, Platt, Pinson,
Director and Reaser to purchase 75,000, 75,000, 25,000, 75,000 and 25,000
shares of Common Stock, respectively, at an exercise price of $38.00 per
share.
(3) Includes $5,300 of automobile related expenses and $40,000 in moving related
expenses.
(4) Represents options granted during fiscal 1996 with respect to the stated
number of shares of Common Stock.
35
<PAGE>
EMPLOYMENT AGREEMENTS
Each named executive officer has entered into an employment agreement with
the Company. Pursuant to such employment agreement, the named executive officer
receives an annual base salary (which is reviewed and subject to upward
adjustment by the Compensation Committee of the Board of Directors on an annual
basis). In addition, each such officer is eligible to earn additional year-end
bonus compensation in an amount up to 100% of such employee's base salary,
payable out of a bonus pool determined by the Compensation Committee of the
Board of Directors. Bonuses are determined by measuring such officer's
performance and the Company's overall performance against target performance
levels, typically based on the following criteria: (i) the Company's overall
profit; (ii) the Company's internal revenue growth; and (iii) the Company's
revenue growth due to acquisitions. Each employment agreement is for an initial
term of four years and automatically renews at the end of the second year and
each succeeding year for an additional year, such that the remaining term of
such agreements is at all times more than two years, unless terminated or not
renewed by the Company or the employee.
Each of the employment agreements provides that, in the event of a
termination of employment by the Company without cause, such employee shall be
entitled to receive from the Company such employee's then current salary for
whatever period is remaining under the term of the agreement. In the event of a
change in control of the Company (involving a change in the ownership of a
majority of the voting stock of the Company, a change in the majority of the
Board of Directors without approval of the current Board, a merger,
consolidation, recapitalization, reorganization or reverse stock split in which
the stockholders of the Company prior to such transaction do not continue to own
at least 75% of the stock of the Company following such transaction or the
approval by the stockholders of a plan of complete liquidation or disposition of
more than 50% of the Company's assets), the employee may elect to terminate his
employment and shall be entitled to receive his base salary at the rate then in
effect for the remaining term of the agreement or two years, whichever is
greater.
Each employment agreement contains a covenant not to compete with the
Company for a period equal to the longer of: (i) two years immediately following
the termination of employment; or (ii) in the case of a termination without
cause pursuant to which such employee is entitled to continue to receive his
base salary, for so long as the Company continues to pay such salary. Applicable
law may reduce the scope of the covenant not to compete. In the event that the
term of any such covenant is reduced in accordance with applicable law, the
compensation to which such employee is entitled shall be paid to the employee
only for such reduced period of time as the employee is so prohibited from
competing or is not so competing.
36
<PAGE>
OPTION GRANTS IN FISCAL 1996
The following tables set forth certain information concerning the grant and
exercise of options to purchase Common Stock of the Company during the last
completed fiscal year to each of the named executive officers. All of such
options vest in four equal annual installments, commencing on the first
anniversary of the date of grant.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL OPTIONS ANNUAL RATES OF STOCK PRICE
GRANTED TO APPRECIATION FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 0% 5% 10%
- -------------------------------- ---------- ------------- ----------- ------------ --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jonathan J. Ledecky............. 100,000 3.6% $ 12.50 6/12/2005 $ -- $ 786,118 $ 1,992,178
150,000 5.4% $ 14.25 10/12/2005 -- 1,344,262 3,406,625
250,000 9.0% $ 23.75 2/06/2006 -- 3,734,062 9,462,846
Timothy J. Flynn................ 75,000 2.7% $ 12.50 6/12/2005 -- 589,589 1,494,134
115,000 4.2% $ 14.25 10/12/2005 -- 1,030,601 2,611,745
120,000 4.3% $ 23.75 2/06/2006 -- 1,792,350 4,542,166
Donald H. Platt................. 100,000 3.6% $ 12.53 5/01/2005 -- 788,084 1,997,159
75,000 2.7% $ 14.25 10/12/2005 -- 672,131 1,703,312
75,000 2.7% $ 23.75 2/06/2006 -- 1,120,219 2,838,854
Martin S. Pinson................ 25,000 0.9% $ 12.50 6/12/2005 -- 196,530 498,045
50,000 1.8% $ 14.25 10/12/2005 -- 448,087 1,135,542
25,000 0.9% $ 23.75 2/06/2006 -- 373,406 946,285
Mark D. Director................ 100,000 3.6% $ 16.31 12/05/2005 -- 1,025,884 2,599,792
Thomas J. Reaser................ 25,000 0.9% $ 12.50 6/12/2005 -- 196,530 498,045
All Optionees................... 2,764,591 100.0% $ 18.83 Various -- 32,738,524 82,965,847
</TABLE>
- ------------------------
(1) The options granted are non-qualified stock options, which are exercisable
at the market price on the date of grant beginning one year from the date of
grant in cumulative yearly amounts of 25% of the shares and expire ten years
from the date of grant. The options become fully exercisable upon a change
in control, as defined in the Incentive Plan.
(2) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock price appreciation of zero percent (0%), five
percent (5%) and ten percent (10%). These assumed rates of growth were
selected by the Securities and Exchange Commission for illustration purposes
only. They are not intended to forecast possible future appreciation, if
any, of the Company's stock price. No gain to the optionees is possible
without an increase in stock prices, which will benefit all stockholders. A
zero percent (0%) gain in stock price will result in a zero percent (0)%
benefit to optionees.
37
<PAGE>
OPTION EXERCISES IN FISCAL 1996 AND VALUE OF OPTIONS AT APRIL 30, 1996
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT FISCAL IN-THE-MONEY(3) OPTIONS AT
SHARES ACQUIRED VALUE YEAR END (#) FISCAL YEAR END ($)(4)
ON EXERCISE REALIZED -------------------------- --------------------------
NAME (#)(1) ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- --------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jonathan J. Ledecky................ -- -- 25,000 575,000 $ 700,000 $ 10,775,000
Timothy J. Flynn................... -- -- 6,250 328,750 175,000 6,258,750
Donald H. Platt.................... -- -- -- 250,000 -- 4,897,000
Martin S. Pinson................... -- -- 6,250 118,750 175,000 2,506,250
Mark D. Director................... -- -- -- 100,000 -- 1,968,750
Thomas J. Reaser................... -- -- 6,250 43,750 175,000 1,112,500
</TABLE>
- ------------------------
(1) Represents the number of shares received upon exercise or, if no shares were
received, the number of shares with respect to which the options were
exercised.
(2) The value of exercised options represents the difference between the
exercise price of such options and the closing market price of the Company's
Common Stock on the date of exercise.
(3) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options.
(4) The value of unexercised options represents the difference between the
exercise price of such options and $36.00, the closing market price of the
Company's Common Stock at April 30, 1996.
CERTAIN TRANSACTIONS
In connection with the acquisition by the Company of businesses, the Company
may issue shares of Common Stock to persons who become directors, executive
officers or holders of 5% of the Common Stock of the Company. During the 1996
fiscal year, the Company issued shares of Common Stock as consideration for
shares of the businesses sold to the Company by the following persons who became
directors of the Company: Mr. Copenhaver--116,906 shares; Mr. Gezon--119,512
shares; and Mr. Phillips--1,333,857 shares. In addition, in February and June
1996, the Company issued an aggregate of 2,200,145 shares of Common Stock
(equivalent to 5.3% of the outstanding shares as of the September 17, 1996) to
Eric Watson, who is the president of the Company's international division, as
consideration for his interests in Blue Star. The Company acquired 51% of the
shares of stock of Blue Star in February 1996 for $10 million in cash and
1,212,121 shares of Common Stock with a market value of $20 million and acquired
the remaining 49% of the shares of stock of Blue Star in June 1996 in exchange
for 1,052,632 shares of Common Stock.
The Company leases office, warehouse and retail store space from two
partnerships, a principal partner of which is Mr. Kuyers, a director of the
Company. The Company believes that such leases are on terms not less favorable
than would be obtainable in an arm's-length transaction from an unaffiliated
third party. The amounts paid to these partnerships by The H.H. West Company, a
wholly owned subsidiary of the Company, for the 1996 fiscal year was
approximately $406,900, and, pursuant to the terms of the lease agreement, will
increase by five percent (5%) for fiscal 1997.
Mr. Phillips entered into an employment agreement with the Company on August
2, 1995 pursuant to which he is paid $24,000 per year for consulting services
rendered to the Company in connection with acquisitions and the operations of
Mills Morris Arrow, Inc., a wholly owned subsidiary of the Company.
38
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 17, 1996, information with
respect to beneficial ownership of the Company's Common Stock by (i) each
director, (ii) each executive officer, (iii) the executive officers and
directors as a group, and (iv) each person known to the Company who beneficially
owns 5% or more of the outstanding shares of the Common Stock. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ---------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Jonathan J. Ledecky(1)............................................................ 1,706,250 4.1%
Clifton B. Phillips............................................................... 1,245,857 3.0%
Timothy J. Flynn(2)............................................................... 499,931 1.1%
Thomas J. Reaser.................................................................. 220,649 *
Edward J. Mathias(3).............................................................. 191,250 *
David C. Copenhaver............................................................... 117,149 *
David C. Gezon.................................................................... 115,820 *
Martin S. Pinson(4)............................................................... 125,624 *
Milton H. Kuyers.................................................................. 109,721 *
Jack L. Becker, Jr.(5)............................................................ 30,398 *
John K. Burgess(6)................................................................ 22,194 *
Donald H. Platt(7)................................................................ 44,649 *
Allon H. Lefever(8)............................................................... 27,900 *
John A. Quelch(8)................................................................. 10,000 *
Mark A. Sorgenfrei................................................................ 0 0
Mark D. Director.................................................................. 0 0
All executive officers and directors as a group (16) persons...................... 4,467,392 12.9%
5% STOCKHOLDERS
Pilgrim Baxter & Associates(9).................................................... 2,426,000 7.0%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1950
Eric Watson(10)................................................................... 2,200,145 6.4%
c/o Blue Star Group Limited
Level 22, Coopers & Lybrand Building
23-19 Albert Street
P.O. Box 1335
Auckland, New Zealand
Putnam Investment Management(11).................................................. 2,001,100 5.8%
One Post Office Square
Boston, MA 02109-2137
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 87,500 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days.
(2) Includes 53,750 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days.
(3) Includes 10,000 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days and 50,000
shares owned by Mr. Mathias' wife.
39
<PAGE>
(4) Includes 100,000 shares owned by the Pinson and Associates Profit Sharing
Plan of which Mr. Pinson is the trustee and beneficiary, and 25,000 shares
which may be acquired by Mr. Pinson upon the exercise of options which
currently are exercisable or are exercisable within 60 days.
(5) Includes 25,000 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days.
(6) Includes 18,750 Shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days.
(7) Includes 43,750 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days.
(8) Includes 10,000 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days.
(9) Reporting person claims shared voting power with respect to all of the
shares.
(10) Mr. Watson is the President of the Company's International Division and
Chief Executive Officer of Blue Star Group Limited, a wholly-owned
subsidiary of the Company.
(11) Reporting person claims sole voting power with respect to 71,600 shares, no
voting power with respect to 1,929,500 shares and shared investment power
with respect to all of the shares.
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of September 17, 1996, the Company's authorized capital stock consists of
500,000,000 shares of Common Stock, par value $.001 per share, and 500,000
shares of preferred stock, par value $.001 per share (the "Preferred Stock"). As
of September 17, 1996, the Company had outstanding approximately 41,726,449
shares of Common Stock and no shares of Preferred Stock. As of September 17,
1996, there were approximately 423 record holders of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared in
the discretion of the Board of Directors out of funds legally available
therefor. See "Dividend Policy." The holders of Common Stock are entitled to
share ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued by the Company upon conversion of the
Offered Notes will be, upon payment therefor, fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including
40
<PAGE>
dividend rights (including whether dividends are cumulative), dividend rates,
terms of redemption (including sinking fund provisions), redemption prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of the Preferred Stock, in each case without any further action
or vote by the stockholders. The Company has no current plans to issue any
shares of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation if such affiliate or associate was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaws or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Amended and Restated Certificate of Incorporation or Amended
and Restated Bylaws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Amended and Restated Certificate of Incorporation
and under Delaware law, directors of the Company are not liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
41
<PAGE>
PLAN OF DISTRIBUTION
The Company will issue the Common Stock from time to time in connection with
acquisition by the Company of other businesses, assets or securities. It is
expected that the terms of the acquisitions involving the issuance of securities
covered by this Prospectus will be determined by direct negotiations with the
owners or controlling persons of the businesses, assets or securities to be
acquired by the Company. No underwriting discounts or commissions will be paid,
although finder's fees may be paid from time to time with respect to specific
mergers or acquisitions. Any person receiving such fees may be deemed to be an
underwriter within the meaning of the Securities Act.
RESTRICTIONS ON RESALE
The Common Stock offered hereby is registered under the Securities Act, but
this registration does not cover resale or distribution by the person who
receives Common Stock issued by the Company in its acquisition. Affiliates of
entities acquired by the Company who do not become affiliates of the Company may
not resell Common Stock registered under the Registration Statement to which
this Prospectus relates except pursuant to an effective registration statement
under the Securities Act covering such shares, or in compliance with Rule 145
promulgated under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Generally, Rule 145 permits
such affiliates to sell such shares immediately following the acquisition in
compliance with certain volume limitations and manner of sale requirements.
Under Rule 145, sales by such affiliates during any three-month period cannot
exceed the greater of (i) 1% of the shares of Common Stock of the Company
outstanding and (ii) the average weekly reported volume of trading of such
shares of Common Stock on all national securities exchanges during the four
calendar weeks preceding the proposed sale. These restrictions will cease to
apply under most other circumstances if the affiliate has held the Common Stock
for at least two years, provided that the person or entity is not then an
affiliate of the Company. Individuals who are not affiliates of the entity being
acquired and do not become affiliates of the Company will not be subject to
resale restrictions under Rule 145 and, unless otherwise contractually
restricted, may resell Common Stock immediately following the acquisition
without an effective registration statement under the Securities Act. The
ability of affiliates to resell shares of the Common Stock under Rule 145 will
be subject to the Company having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered by this Prospectus
has been passed upon for the Company by Morgan, Lewis & Bockius LLP, 1800 M
Street, N.W., Washington, D.C. 20036.
EXPERTS
The consolidated financial statements of the Company as of April 30, 1996
and 1995, and for each year in the three year period ended April 30, 1996,
except as they relate to School Specialty, Inc. and Re-Print Corporation, wholly
owned subsidiaries of the Company, have been audited by Price Waterhouse LLP,
independent accountants, whose report relies upon the reports of Ernst & Young
LLP and BDO Seidman, LLP and are included herein together with the reports of
Ernst & Young, LLP and BDO Seidman, LLP. Such financial statements have been
included herein in reliance upon the reports of such independent accountants
given on the authority of such firms as experts in auditing and accounting. The
consolidated financial statements of Copenhaver Holdings, Incorporated as of and
for the year ended September 30, 1994; the financial statements of Emmons-Napp
Office Products, Inc. as of December 31, 1995 and 1994 and for the years then
ended; the financial statements of Raleigh Office Supply Company as of August
31, 1995 and for the year then ended; the financial statements of McWhorter
Stationery Co. as of March 31, 1996 and for the year then ended; the financial
statements of Mark's Office Furniture as of March 31, 1996 and for the year then
ended; the financial statements of David's Office Supply and Furniture Company,
Inc. as of May 31, 1996 and for the year then ended; the financial statements of
Mile
42
<PAGE>
High Office Supply, Inc. as of December 31, 1995 and 1994 and for the years then
ended; the financial statements of WBT Holdings, Inc. (d.b.a. Office Furniture
Distributors) as of December 31, 1995 and for the year then ended; the financial
statements of Carolina Office Equipment Company as of March 31, 1996 and for the
year then ended; and the financial statements of The Office Furniture Store,
Inc. as of December 31, 1995 and for the year then ended, have been included
herein or incorporated herein by reference in reliance on the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of Blue Star as of March 31, 1995 and for the year
then ended included herein have been so included in reliance on the report of
Price Waterhouse (Auckland, New Zealand), independent accountants, given on the
authority of such firm as experts in auditing and accounting.
The financial statements of the MISSCO Commercial Division as of March 31,
1995 and 1994, and for the year ended March 31, 1995, the nine-month period
ended March 31, 1994 and the year ended June 30, 1993 have been included herein
in reliance on the reports of KPMG Peat Marwick LLP, independent certified
public accountants, also included herein, and upon the authority of said firm as
experts in auditing and accounting.
The financial statements of Oak Brook Office Supply and Equipment
Corporation as of August 31, 1995 and 1994 and for each of the years then ended
have been included herein in reliance on the report of Crowe, Chizek and Company
LLP, independent accountants, given on the authority of such firm as experts in
auditing and accounting.
The financial statements of U-Bix Business Machines Limited as of June 30,
1995 and 1994 and for the years then ended have been included herein in reliance
on the report of KPMG Peat Marwick (Auckland, New Zealand), independent
accountants, given on the authority of such firm as experts in auditing and
accounting.
The financial statements of New Office Plus, Inc as of December 31, 1995 and
for the year then ended, have been included herein in reliance on the report of
Shinners, Hucovski & Co., independent accountants, given on the authority of
such firm as experts in auditing and accounting.
The financial statements of American Loose Leaf/Business Products, Inc. as
of September 30, 1995 and for the year then ended, have been included herein in
reliance on the report of Swink, Fiehler and Hoffman, PC, independent
accountants, given on the authority of such firm as experts in auditing and
accounting.
The financial statements of Re-Print Corporation as of December 31, 1995 and
1994 and for the years then ended, have been incorporated herein by reference in
reliance on the report of BDO Seidman, LLP, independent accountants, given on
the authority of such firm as experts in auditing and accounting.
The financial statements of Pear Commercial Interiors as of December 31,
1995 and for the year then ended, have been included herein in reliance on the
report of Ehrhardt Keefe Steiner & Hottman P.C., independent accountants, given
on the authority of such firm as experts in auditing and accounting.
The financial statements of Arbuckle Foods, Inc. as of December 31, 1995 and
for the year then ended, have been included herein in reliance on the report of
Thorne Little, independent accountants, given on the authority of such firm as
experts in auditing and accounting.
The financial statements of Prudential of Florida, Inc. as of December 31,
1995 and for the year then ended, have been incorporated herein by reference in
reliance on the report of Joel S. Baum P.A., independent accountant, given on
the authority of such firm as experts in auditing and accounting.
The financial statements of Wang of New Zealand as of June 30, 1995 and for
the year then ended, have been included herein in reliance on the report of
Ernst & Young (Auckland, New Zealand), independent accountants, given on the
authority of such firm as experts in auditing and accounting.
43
<PAGE>
The financial statements of Whitcoulls Group Limited as of June 30, 1995,
1994, and 1993 and for the years then ended included herein have been audited by
Deloitte Touche Tohmatsu, independent auditors, as stated in the report
appearing herein, and are included in reliance upon the reports of such firm
given upon this authority as experts in accounting and auditing.
The balance sheet of Thompson Book and Supply Company as of December 31,
1995 has been incorporated herein by reference in reliance on the report of
Hamilton & Associates, independent accountants, given on the authority of such
firm as experts in audited and accounting.
The financial statements of International Interiors, Inc. as of September
30, 1995 and 1994 and for the years then ended have been included herein in
reliance on the report of Petherbridge, Davis & Company, PA, independent
accountants, given on the authority of such firm as experts in auditing and
accounting.
The financial statements of Ausdoc Office Pty Ltd as of June 30, 1996 and
1995 and for the years then ended; the financial statements of Canberra
Wholesale Stationers Pty Ltd as of June 30, 1996 and 1995 and for the years then
ended; the financial statements of H & P Stationery Pty Ltd as of June 30, 1996
and 1995 and for the years then ended; and the financial statements Perth
Stationery Supplies Pty Ltd as of June 30, 1996 and 1995 and for the years then
ended, have been included herein in reliance upon the report of Day Neilson,
independent accountants, given on the authority of such firm as experts in
auditing and accounting.
44
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
U.S. OFFICE PRODUCTS COMPANY
Report of Price Waterhouse LLP, Independent Accountants................................................ F-7
Report of Ernst & Young, LLP, Independent Auditors..................................................... F-8
Report of BDO Seidman, LLP Independent Auditors........................................................ F-9
Consolidated Balance Sheet as of April 30, 1995 and 1996 and July 27, 1996 (unaudited)................. F-10
Consolidated Statement of Operations for the years ended April 30, 1994, 1995 and 1996 and for the
three months ended July 31, 1995 (unaudited) and July 27, 1996 (unaudited)........................... F-11
Consolidated Statement of Stockholders' Equity for the fiscal years ended April 30, 1994, 1995 and 1996
and the three months ended July 27, 1996 (unaudited)................................................. F-12
Consolidated Statement of Cash Flows for the years ended April 30, 1994, 1995 and 1996 and for the
three months ended July 31, 1995 (unaudited) and July 27, 1996 (unaudited)........................... F-16
Notes to Consolidated Financial Statements............................................................. F-19
Introduction to Pro Forma Financial Information........................................................ F-36
Pro Forma Combined Balance Sheet at July 27, 1996 (unaudited).......................................... F-38
Pro Forma Combined Statement of Operations for the three months ended July 27, 1996 (unaudited)........ F-39
Pro Forma Combined Statement of Operations for the three months ended July 31, 1995 (unaudited)........ F-40
Pro Forma Combined Statement of Operations for the year ended April 30, 1996 (unaudited)............... F-41
Pro Forma Combined Statement of Operations for the year ended April 30, 1995 (unaudited)............... F-42
Pro Forma Combined Statement of Operations for the year ended April 30, 1994 (unaudited)............... F-43
Notes to Pro Forma Combined Financial Statements....................................................... F-44
MISSCO CORPORATION COMMERCIAL DIVISION
Report of KPMG Peat Marwick LLP, Independent Auditors.................................................. F-46
Balance Sheets as March 31, 1994 and 1995 and September 30, 1995 (unaudited)........................... F-47
Statements of Operations for the year ended June 30, 1993, the nine months ended March 31, 1994 and the
year ended March 31, 1995 and for the six months ended September 30, 1994 (unaudited) and 1995
(unaudited).......................................................................................... F-48
Statements of Divisional Equity (Deficit) for the year ended June 30, 1993, the nine months ended March
31, 1994 and the year ended March 31, 1995, and for the six months ended September 30, 1995
(unaudited).......................................................................................... F-49
Statements of Cash Flows for the year ended June 30, 1993, the nine months ended March 31, 1994 and the
year ended March 31, 1995 and for the six months ended September 30, 1994 (unaudited) and 1995
(unaudited).......................................................................................... F-50
Notes to Financial Statements.......................................................................... F-51
</TABLE>
F-1
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
Report of Price Waterhouse LLP, Independent Accountants................................................ F-59
Consolidated Balance Sheet as of September 30, 1994 and June 30, 1995 (unaudited)...................... F-60
Consolidated Statement of Operations for the year ended September 30, 1994 and for the nine months
ended June 30, 1994 (unaudited) and 1995 (unaudited)................................................. F-61
Consolidated Statement of Stockholders' Equity for the year ended September 30, 1994 and the nine
months ended June 30, 1995(unaudited)................................................................ F-62
Consolidated Statement of Cash Flows for the year ended September 30, 1994 and for the nine months
ended June 30, 1994 (unaudited) and 1995 (unaudited)................................................. F-63
Notes to Consolidated Financial Statements............................................................. F-64
EMMONS-NAPP OFFICE PRODUCTS, INC. COMMERCIAL DIVISION
Report of Price Waterhouse LLP, Independent Accountants................................................ F-62
Balance Sheet as of December 31, 1994 and 1995......................................................... F-63
Statement of Operations for the years ended December 31, 1994 and 1995................................. F-64
Statement of Divisional Equity for the years ended December 31, 1994 and 1995.......................... F-65
Statement of Cash Flows for the years ended December 31, 1994 and 1995................................. F-66
Notes to Consolidated Financial Statements............................................................. F-67
OAK BROOK OFFICE SUPPLY AND EQUIPMENT CORPORATION
Report of Crowe, Chizek and Company, Independent Auditors.............................................. F-69
Balance Sheet as of August 31, 1994 and 1995 and November 30, 1995 (Unaudited)......................... F-70
Statement of Income and Retained Earnings for the year ended August 31, 1994 and 1995 and for the three
months ended November 30, 1994 unaudited and 1995 (Unaudited)........................................ F-71
Statement of Cash Flows for the year ended August 31, 1994 and 1995 and for the three months ended
November 30, 1994 (unaudited) and 1995 (Unaudited)................................................... F-72
Notes to Financial Statements.......................................................................... F-73
BLUE STAR GROUP LIMITED
Report of Price Waterhouse, Independent Accountants.................................................... F-76
Consolidated Balance Sheet as of March 31, 1995 and December 31, 1995 (unaudited)...................... F-77
Consolidated Statement of Operations for the year ended March 31, 1995 and for the nine months ended
December 31, 1994 (unaudited) and 1995 (unaudited)................................................... F-78
Consolidated Statement of Shareholders' Equity for the year ended March 31, 1995 and for the nine
months ended December 31, 1995 (unaudited)........................................................... F-79
Consolidated Statement of Cash Flows for the year ended March 31, 1995 and for the nine months ended
December 31, 1994 (unaudited) and 1995 (unaudited)................................................... F-80
Notes to Consolidated Financial Statements............................................................. F-81
RALEIGH OFFICE SUPPLY COMPANY
Price Waterhouse LLP, Independent Accountants.......................................................... F-87
Balance Sheet as of August 31, 1995 and February 28, 1996 (unaudited).................................. F-88
Statement of Operations for the year ended August 31, 1995 and for the six months ended February 28,
1995 (unaudited) and 1996 (unaudited)................................................................ F-89
Statement of Shareholders' Equity at August 31, 1995 and at February 28, 1996 (unaudited).............. F-90
Statement of Cash Flows for the year ended August 31, 1995 and for the six months ended February 28,
1995 (unaudited) and 1996 (unaudited)................................................................ F-91
Notes to Financial Statements.......................................................................... F-92
</TABLE>
F-2
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
U-BIX BUSINESS MACHINES LIMITED
Report of KPMG Peat Marwick (Auckland, New Zealand), Independent Accountants........................... F-97
Statement of Earnings for the year ended June 30, 1995 and 1994........................................ F-98
Balance Sheet as of June 30, 1995 and 1994............................................................. F-99
Statement of Cash Flows for the year ended June 30, 1995 and 1994...................................... F-101
Statement of Movements in Equity as of June 30, 1995 and 1994.......................................... F-103
Notes to the Financial Statements...................................................................... F-104
Condensed Statement of Financial Position as of December 31, 1995 and June 30, 1995.................... F-114
Condensed Statement of Financial Performance for the year ended June 30, 1995 and for the six months
ended December 31, 1995.............................................................................. F-115
Condensed Statement of Cash Flows for the year ended June 30, 1995 and for the six months ended
December 31, 1995.................................................................................... F-116
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
Report of Swink, Fiehler & Hoffman, Independent Auditor's Report....................................... F-116
Consolidated Balance Sheets as of September 30, 1995 and June 30, 1996 (unaudited)..................... F-117
Consolidated Statement of Income and Retained Earnings for the year ended September 30, 1995 and for
the nine months ended June 30, 1995 (unaudited) and 1996 (unaudited)................................. F-118
Consolidated Statements of Cash Flows for the year ended September 30, 1995 and for the nine months
ended June 30, 1995 (unaudited) and 1996 (unaudited)................................................. F-119
Notes to the Consolidated Financial Statements......................................................... F-121
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
Report of Ehrhardt Keefe Steiner & Hottman PC, Independent Auditors' Report............................ F-126
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)...................... F-127
Consolidated Statements of Operations for the year ended December 31, 1995 and for the six months ended
June 30, 1995 (unaudited) and 1996 (unaudited)....................................................... F-128
Consolidated Statement of Stockholder's Equity for the year ended December 31, 1995 and the six months
ended June 30, 1996 (unaudited)...................................................................... F-129
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and the six months ended
June 30, 1995 (unaudited) and 1996 (unaudited)....................................................... F-130
Notes to Consolidated Financial Statements............................................................. F-131
NEW OFFICE PLUS, INC.
Report of Shinners, Hucovski and Company, S.C. Independent Auditor's Report............................ F-136
Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited).................................. F-137
Statements of Income for the year ended December 31, 1995 and for the three months ended March 31, 1996
(unaudited) and 1995 (unaudited)..................................................................... F-139
Statements of Retained Earnings for the year ended December 31, 1995 and for the three months ended
March 31, 1996 (unaudited)........................................................................... F-140
Statements of Cash Flows for the year ended December 31, 1995 and three months ended March 31, 1996
(unaudited) and 1995 (unaudited)..................................................................... F-141
Notes to Financial Statements.......................................................................... F-143
</TABLE>
F-3
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CAROLINA OFFICE EQUIPMENT COMPANY
Report of Price Waterhouse LLP, Independent Accountants................................................ F-149
Balance Sheet as of March 31, 1996..................................................................... F-150
Statement of Operations for the year ended March 31, 1996.............................................. F-151
Statement of Cash Flows for the year ended March 31, 1996.............................................. F-152
Statement of Shareholders' Equity at March 31, 1996.................................................... F-154
Notes to Financial Statements.......................................................................... F-155
INTERNATIONAL INTERIORS, INC.
Report of Petherbridge, Davis & Company, P.A., Independent Auditors' Report............................ F-159
Balance Sheets as of September 30, 1994 and 1995 and March 31, 1996 (unaudited)........................ F-161
Statements of Income for the years ended September 30, 1994 and 1995 and for the six months ended March
31, 1995 (unaudited) and 1996 (unaudited)............................................................ F-163
Statements of Accumulated Deficit for the years ended September 30, 1994 and 1995 and for the six
months ended March 31, 1996 (unaudited).............................................................. F-164
Statements of Cash Flows for the years ended September 30, 1994 and 1995 and for the six months ended
March 31, 1995 (unaudited) and 1996 (unaudited)...................................................... F-165
Notes to the Financial Statements...................................................................... F-167
ARBUCKLE FOODS, INC.
Report of Thorne Little, Independent Auditors.......................................................... F-174
Balance Sheet as of August 31, 1995 and 1994 (unaudited) and May 31,1996 (unaudited)................... F-175
Statement of Income for the year ended August 31, 1995 and 1994 (unaudited) and for the nine months
ended May 31, 1996 (unaudited)....................................................................... F-176
Statement of Retained Earnings for the year ended August 31, 1995 and 1994 (unaudited) and for the nine
months ended May 31, 1996 (unaudited)................................................................ F-177
Statement of Changes in Financial Position for the year ended August 31, 1995 and 1994 (unaudited) and
for the nine months ended May 31, 1996 (unaudited)................................................... F-178
Notes to Financial Statements.......................................................................... F-179
WANG OF NEW ZEALAND
Report of Ernst & Young, Independent Auditors.......................................................... F-186
Statement of Profit and Loss and Retained Earnings for the year ended June 30, 1995 and 1994........... F-187
Balance Sheet as of June 30, 1995 and 1994............................................................. F-188
Notes to the Financial Statements...................................................................... F-189
Consolidated Statement of Financial Performance for the six months ended December 31, 1995 (unaudited)
and 1994 (unaudited) and for the twelve months ended June 30, 1995................................... F-193
Consolidated Statement of Movements in Equity for the six months ended December 31, 1995 (unaudited)
and 1994 (unaudited) and for the twelve months ended June 30, 1995................................... F-193
Consolidated Statement of Financial Position for the six months ended December 31, 1995 (unaudited) and
1994 (unaudited) and for the twelve months ended June 30, 1995....................................... F-194
Consolidated Statement of Cash Flows for the six months ended December 31, 1995 (unaudited) and 1994
(unaudited) and for the twelve months ended June 30, 1995............................................ F-195
</TABLE>
F-4
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
WHITCOULLS GROUP LIMITED
Consolidated Statement of Financial Performance for the six months ended December 31, 1995 (unaudited)
and 1994 (unaudited) and for the year ended June 30, 1995 (unaudited)................................ F-197
Consolidated Statement of Movements in Equity for the six months ended December 31, 1995 (unaudited)
and 1994 (unaudited) and for the year ended June 30, 1995 (unaudited)................................ F-197
Consolidated Statement of Financial Position as at December 31, 1995 (unaudited) and 1994 (unaudited)
and June 30, 1995 (unaudited)........................................................................ F-198
Consolidated Statement of Cash Flows for the six months ended December 31, 1995 (unaudited) and 1994
(unaudited) and for the year ended June 30, 1995 (unaudited)......................................... F-199
Reconciliation of Consolidated Net Profit After Taxation to Net Cash Flows from Operating Activities
for the six months ended December 31, 1995 (unaudited) and 1994 (unaudited) and for the year ended
June 30, 1995 (unaudited)............................................................................ F-200
Notes to the Unaudited Financial Statements............................................................ F-201
Report of Deloitte Touche Tohmatsu, Independent Auditors............................................... F-203
Consolidated Profit and Loss Account for the years ended June 30, 1995 and 1994........................ F-204
Consolidated Balance Sheet as of June 30, 1995 and 1994................................................ F-205
Consolidated Statement of Cash Flows for the years ended June 30, 1995 and 1994........................ F-206
Reconciliation of Net Cash Flows from Operating Activities to Net Profit After Taxation for the years
ended June 30, 1995 and 1994......................................................................... F-207
Notes to the Financial Statements...................................................................... F-208
Report of Deloitte Touche Tohmatsu, Independent Auditors............................................... F-225
Consolidated Profit and Loss Account for the years ended June 30, 1994 and 1993........................ F-226
Consolidated Balance Sheet as of June 30, 1994 and 1993................................................ F-227
Consolidated Statement of Cash Flows for the years ended June 30, 1994 and 1993........................ F-228
Reconciliation of Net Cash Flows from Operating Activities to Net Profit After Taxation for the years
ended June 30, 1994 and 1993......................................................................... F-229
Notes to the Financial Statements...................................................................... F-231
THE OFFICE FURNITURE STORE
Report of Price Waterhouse LLP, Independent Accountants................................................ F-247
Balance Sheet as of December 31, 1995 and June 30, 1996 (unaudited).................................... F-248
Statement of Income for the year ended December 31, 1995 and for the six months ended June 30, 1995
(unaudited) and 1996 (unaudited)..................................................................... F-249
Statement of Changes in Stockholders' Equity at December 31, 1995 and June 30, 1996 (unaudited)........ F-250
Statement of Cash Flows for the year ended December 31, 1995 and for the six months ended June 30, 1995
(unaudited) and 1996 (unaudited)..................................................................... F-251
Notes to Financial Statements.......................................................................... F-252
AUSDOC OFFICE PTY LTD
Directors' Report...................................................................................... F-256
Profit and Loss Account for the years ended June 30, 1996 and 1995..................................... F-257
Balance Sheet as of June 30, 1996 and 1995............................................................. F-258
Statement of Cash Flows for the years ended 1996 and 1995.............................................. F-259
Notes to and Forming Part of the Accounts.............................................................. F-260
Statement by Directors................................................................................. F-269
Report of Day Neilson, Independent Auditors'........................................................... F-270
</TABLE>
F-5
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
H&P STATIONERY PTY LTD
Directors' Report...................................................................................... F-271
Profit and Loss Account for the years ended June 30, 1996 and 1995..................................... F-272
Balance Sheet as at June 30, 1996 and 1995............................................................. F-273
Statement of Cash Flows for the years ended 1996 and 1995.............................................. F-274
Notes to and Forming Part of the Accounts.............................................................. F-275
Statement by Directors................................................................................. F-285
Report of Day Neilson, Independent Auditors'........................................................... F-286
CANBERRA WHOLESALE STATIONERS PTY LTD
Directors' Report...................................................................................... F-287
Profit and Loss Account for the years ended June 30, 1996 and 1995..................................... F-288
Balance Sheet as at June 30, 1996 and 1995............................................................. F-289
Statement of Cash Flows for the years ended 1996 and 1995.............................................. F-290
Notes to and Forming Part of the Accounts.............................................................. F-291
Statement by Directors................................................................................. F-299
Report of Day Neilson, Independent Auditors'........................................................... F-300
PERTH STATIONERY SUPPLIES PTY LTD
Directors' Report...................................................................................... F-301
Profit and Loss Account for the years ended June 30, 1996 and 1995..................................... F-302
Balance Sheet as at June 30, 1996 and 1995............................................................. F-303
Statement of Cash Flows for the years ended 1996 and 1995.............................................. F-304
Notes to and Forming Part of the Accounts.............................................................. F-305
Statement by Directors................................................................................. F-311
Report of Day Neilson, Independent Auditors'........................................................... F-312
MARKS OFFICE FURNITURE
Report of Price Waterhouse, Independent Accountants.................................................... F-313
Balance Sheet as of March 31, 1996..................................................................... F-314
Statement of Operations for the twelve months ended March 31, 1996..................................... F-315
Statement of Changes in Owner's Equity for the twelve months ended March 31, 1996...................... F-316
Statement of Cash Flows for the twelve months ended March 31, 1996..................................... F-317
Notes to Financial Statements.......................................................................... F-319
</TABLE>
F-6
<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.
/s/ Price Waterhouse LLP
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
F-7
<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
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Re-Print Corporation
Birmingham, Alabama
We have audited the accompanying balance sheets of The Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for three years ended December 31, 1995,
1994, and 1993 (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 audits 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 Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for three years ended December 31, 1995, 1994, and 1993 in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
Atlanta, Georgia
February 8, 1996
F-9
<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.
F-10
<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.
F-11
<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 ADDITIONAL CUMULATIVE
------------------------- PAID-IN TRANSLATION RETAINED TREASURY TOTAL
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ----------- ---------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1993................. 12,781,525 $ 13 $ 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
------------ --- ---------- ----------- ---------- --------- ----------
</TABLE>
F-12
<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 ADDITIONAL CUMULATIVE
------------------------- PAID-IN TRANSLATION RETAINED TREASURY TOTAL
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ----------- ---------- ----------- ---------- --------- ----------
Balance at April 30, 1994................. 12,781,525 13 16,968 22,642 (7,562) 32,061
<S> <C> <C> <C> <C> <C> <C> <C>
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................ 800,000 1 1
Issuance of common stock in the
initial public offering, net of
offering expenses of $4,686......... 3,737,500 3 32,686 32,689
Issuance of common stock to the
stockholders of the Combined
Companies........................... 3,078,000 3 (3)
Distributions to the stockholders of
the Combined Companies.............. (11,300) (11,300)
Issuance of common stock in
acquisition......................... 875,000 1 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............ 13,563 201 201
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................. 21,285,588 21 48,149 24,547 72,717
</TABLE>
F-13
<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 ADDITIONAL CUMULATIVE
------------------------- PAID-IN TRANSLATION RETAINED TREASURY TOTAL
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ----------- ---------- ----------- ---------- --------- ----------
Balance at April 30, 1995................. 21,285,588 $ 21 $ 48,149 $ 24,547 $ 72,717
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of warrants by Pooled
Companies............................. 672 672
Exercise of warrants by Pooled
Companies............................. 473,750 1 784 785
Options exercised by Pooled Companies... 178,865 296 296
Issuance of common stock in the second
public offering, net of offering
expenses of $3,902.................... 4,025,000 4 53,450 53,454
Issuance of common stock in the third
public offering, net of offering
expenses of $7,594.................... 5,543,045 6 121,277 121,283
Issuance of common stock in
acquisitions.......................... 3,885,349 4 60,363 60,367
Issuance of common stock for stock
options exercised, including tax
benefits.............................. 63,350 1,023 1,023
Issuance of common stock to repay
indebtedness.......................... 419,408 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
Conversion of Pooled Company preferred
stock upon acquisition................
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>
F-14
<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 ADDITIONAL CUMULATIVE
------------------------- PAID-IN TRANSLATION RETAINED TREASURY TOTAL
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ----------- ---------- ----------- ---------- --------- ----------
Balance at April 30, 1996................. 35,874,355 $ 36 $ 291,109 $ 482 $ 22,672 $ 314,299
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock in
acquisitions.......................... 2,101,796 2 57,003 57,005
Exercise of stock options............... 152,327 780 780
Exercise of stock warrants.............. 166,750 1,200 1,200
Retirement of treasury stock............ 68,205 34 (34)
Issuance of common stock for building at
Pooled Company........................ 37,096 1 1,103 1,104
Capital contribution by former
shareholders of Pooled Companies...... 105,560 3,204 3,204
Issuance of common stock for stock
options............................... 39,475 453 453
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................................ 68,645 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)...... 38,614,209 $ 39 $ 356,423 $ 2,626 $ 29,084 $ -- $ 388,172
------------ --- ---------- ----------- ---------- --------- ----------
------------ --- ---------- ----------- ---------- --------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<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>
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>
F-16
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE FISCAL YEAR ENDED MONTHS ENDED
APRIL 30, -------------------
---------------------------- JULY 31, JULY 27,
1994 1995 1996 1995 1996
------- -------- --------- -------- --------
(UNAUDITED)
Cash flows from financing activities:
<S> <C> <C> <C> <C> <C>
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.
F-17
<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 ENDED MONTHS 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.
F-18
<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.
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.
F-19
<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)
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 operations accounts are translated
using the average exchange rate for the year. Translation adjustments are
recorded as a separate component of stockholders' equity.
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
F-20
<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)
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 then 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 1/3% 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.
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
F-21
<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)
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
rimarily 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 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.
F-22
<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)
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 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 FOR THE THREE
ENDED APRIL 30, MONTHS ENDED
-------------------- JULY 27,
1995 1996 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>
F-23
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
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 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.
F-24
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
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>
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.
F-25
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
F-26
<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.
F-27
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--CREDIT FACILITIES (CONTINUED)
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.
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>
F-28
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9--INCOME TAXES
U.S. Office Products files 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>
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.
F-29
<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 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.
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>
F-30
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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.
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
F-31
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12--EMPLOYEE BENEFIT PLANS (CONTINUED)
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.
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.
F-32
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 13--STOCKHOLDERS' EQUITY (CONTINUED)
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.
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
F-33
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 15--SUBSEQUENT EVENTS (CONTINUED)
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.
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.
F-34
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 16--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
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.
F-35
<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 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.
F-36
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
F-37
<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>
F-38
<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............ 1,656 -- - (1,656)(e) --
Nonrecurring restructuring costs.......... -- -- -- -
Discontinuation of printing division at
subsidiary.............................. -- -- -- -
----------- ----------- ----------- ------------- ---------------
Operating income.......................... 15,404 7,413 1,063 2,014 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................................... (222) (67) (69) -- (358)
Minority Interest in subsidiary......... 206 -- -- - 206
----------- ----------- ----------- ------------- ---------------
Income (loss) before provision for income
taxes................................... 12,656 5,830 905 (1,262) 18,129
Provision for income taxes................ 5,152 2,388 228 118(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>
F-39
<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 FISCAL YEAR 1997
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>
F-40
<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>
F-41
<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>
F-42
<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>
F-43
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 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>
NOTE 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, ----------------------------
1996 JULY 27, 1996 JULY 31, 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.
(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, $1,656 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-44
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
ADJUSTMENTS (CONTINUED)
(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.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MISSCO Corporation:
We have audited the accompanying balance sheets of MISSCO
Corporation--Commercial Division as of March 31, 1994 and 1995 and the related
statements of operations, divisional equity (deficit) and cash flows for the
year ended June 30, 1993, the nine-month period ended March 31, 1994 and the
year ended March 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MISSCO
Corporation--Commercial Division at March 31, 1994 and 1995 and the results of
its operations and its cash flows for the year ended June 30, 1993, the
nine-month period ended March 31, 1994 and the year ended March 31, 1995, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Jackson, Mississippi
June 30, 1995, except as to the penultimate
paragraph of note 4, which is as of
August 4, 1995 and note 13, which
is as of August 16, 1995
F-46
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
BALANCE SHEETS
MARCH 31, 1994 AND 1995 AND SEPTEMBER 30, 1995
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 30,
1994 1995 1995
----------- ----------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:..............................................................
Cash and cash equivalents.................................................. $ -- $ 1,589 $ 1,215
Receivables (notes 4 and 8):...............................................
Trade accounts........................................................... 9,575 9,273 11,304
Employee and other....................................................... 419 712 447
----------- ----------- -------------
9,994 9,985 11,751
Less allowance for doubtful receivables (note 12)........................ 191 548 176
----------- ----------- -------------
Net receivables........................................................ 9,803 9,437 11,575
----------- ----------- -------------
Net investment in sales-type leases, current portion (notes 2 and 4)......... 730 701 709
Inventories (note 4):
Merchandise................................................................ 7,656 8,191 7,733
Materials and supplies..................................................... 307 322 314
----------- ----------- -------------
Total inventories...................................................... 7,963 8,513 8,047
----------- ----------- -------------
Prepaid expenses........................................................... 325 318 567
----------- ----------- -------------
Total current assets................................................... 18,821 20,558 22,113
----------- ----------- -------------
Property, plant and equipment, at cost (notes 2, 3 and 4).................... 10,070 11,504 11,876
Less accumulated depreciation and amortization............................. 4,881 5,754 6,260
----------- ----------- -------------
Net property, plant and equipment...................................... 5,189 5,750 5,616
----------- ----------- -------------
Other assets:................................................................
Net investment in sales-type leases, non-current portion (notes 2 and 4)... 668 1,090 1,102
Investment in marketable securities (note 6)............................... 878 675 675
Cash surrender value of life insurance (note 4)............................ 112 123 123
Interdivisional receivables, net........................................... 677 -- --
Other...................................................................... 342 407 133
----------- ----------- -------------
Total other assets..................................................... 2,677 2,295 2,033
----------- ----------- -------------
$ 26,687 $ 28,603 $ 29,762
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND DIVISIONAL EQUITY (DEFICIT)
Current liabilities:.........................................................
Book overdraft in bank account............................................. $ 22 $ -- $ --
Notes payable to officers and employees (note 11).......................... 1,415 1,845 --
Current instalments of long-term debt (note 4)............................. 2,074 1,568 14,519
Current instalments of capital lease obligations (note 7).................. 6 24 --
Accounts payable........................................................... 6,983 5,566 6,333
Accrued expenses........................................................... 1,792 2,050 2,078
Deferred revenue on maintenance contracts.................................. 399 394 430
----------- ----------- -------------
Total current liabilities.............................................. 12,691 11,447 23,360
----------- ----------- -------------
Deferred compensation (note 6)............................................... 878 675 675
Long-term debt, excluding current instalments (note 4)....................... 10,938 16,074 5,403
Capital lease obligations, excluding current instalments (note 7)............ 20 34 --
Interdivisional payables, net................................................ -- 1,050 1,138
----------- ----------- -------------
Total liabilities...................................................... 24,527 29,280 30,576
Divisional equity (deficit).................................................. 2,160 (677) (814)
----------- ----------- -------------
Commitments and contingencies (notes 6 and 7)................................
----------- ----------- -------------
$ 26,687 $ 28,603 $ 29,762
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1993, NINE-MONTH PERIOD ENDED MARCH 31, 1994,
YEAR ENDED MARCH 31, 1995 AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1994 AND
1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH SIX-MONTH PERIOD ENDED
YEAR ENDED PERIOD YEAR ENDED ------------------------
JUNE 30, ENDED MARCH MARCH 31, SEPTEMBER SEPTEMBER
1993 31, 1994 1995 30, 1994 30, 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 42,911 $ 40,986 $ 61,542 $ 29,799 $ 37,552
Cost of sales (including occupancy
and delivery costs).............. 32,540 32,116 47,751 23,539 29,156
----------- ----------- ----------- ----------- -----------
Gross profit................... 10,371 8,870 13,791 6,260 8,396
Selling, general and administrative
expenses (note 10)............... 10,295 9,316 15,746 6,973 8,184
----------- ----------- ----------- ----------- -----------
Operating income (loss)........ 76 (446) (1,955) (713) 212
Interest, rent and other income.... 375 154 225 120 129
Interest expense (note 10)......... 452 455 1,168 437 540
----------- ----------- ----------- ----------- -----------
Loss before income tax
benefit...................... (1) (747) (2,898) (1,030) (199)
Income tax benefit (note 5)........ -- (299) (898) (319) (62)
----------- ----------- ----------- ----------- -----------
Net loss....................... $ (1) $ (448) $ (2,000) $ (711) $ (137)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
STATEMENTS OF DIVISIONAL EQUITY (DEFICIT)
YEAR ENDED JUNE 30, 1993, NINE-MONTH PERIOD ENDED MARCH 31, 1994,
YEAR ENDED MARCH 31, 1995 AND SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEDUCTIONS
--------------------------------------- ADDITIONS
BALANCE AT ACQUISITION ------------------------
BEGINNING CASH AND RETIREMENT ISSUANCE NET
OF PERIOD DIVIDENDS OF STOCK NET LOSS OF STOCK EARNINGS
----------- ----------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended June 30, 1993................ $ 3,250 $ (155) $ (631) $ (1) $ -- $ --
Nine-month period ended March 31,
1994.................................. 2,463 (112) (143) (448) 400 --
Year ended March 31, 1995............... 2,160 (82) (755) (2,000) -- --
Unaudited:
Six-month period ended September 30,
1995.................................. (677) -- -- (137) -- --
<CAPTION>
BALANCE AT
END OF
PERIOD
-----------
<S> <C>
Year ended June 30, 1993................ $ 2,463
Nine-month period ended March 31,
1994.................................. 2,160
Year ended March 31, 1995............... (677)
Unaudited:
Six-month period ended September 30,
1995.................................. (814)
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1993, NINE-MONTH PERIOD
ENDED MARCH 31, 1994, YEAR ENDED MARCH 31, 1995 AND
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH SIX-MONTH PERIOD ENDED
YEAR ENDED PERIOD ENDED YEAR ENDED ----------------------------
JUNE 30, MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1994 1995
----------- ------------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (1) $ (448) $ (2,000) $ (711) $ (137)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization................. 754 526 884 422 481
Gain on sale of assets........................ (220) (1) (21) -- --
Increase (decrease) in compensation
deferrals................................... 6 51 (203) 22 --
Changes in operating assets and liabilities:
Receivables................................. (1,391) (3,045) 366 (42) (2,138)
Net investment in sales-type leases......... (75) (204) (393) (260) (20)
Inventories................................. (678) (790) (550) (746) 466
Prepaid expenses............................ (316) 173 7 (83) (249)
Other assets................................ (60) (248) (93) (285) 274
Interdivisional receivables/payables........ 1,769 84 1,727 (3,408) 88
Accounts payable and accrued expenses....... 1,528 2,075 (1,159) 1,613 795
Deferred revenue on maintenance contracts... (8) (28) (5) -- 36
----------- ------------- ----------- ------------- -------------
Net cash provided (used) by operating
activities.............................. 1,308 (1,855) (1,440) (3,478) (404)
----------- ------------- ----------- ------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment...... (768) (3,003) (1,429) (1,004) (347)
Proceeds from sale of assets.................... 677 4 33 -- --
Increase in cash surrender value of life
insurance..................................... (6) (13) (11) -- --
Purchases of marketable securities.............. (847) (58) (1,219) (22) --
Proceeds from sales of marketable securities.... 848 -- 1,422 -- --
----------- ------------- ----------- ------------- -------------
Net cash used by investing activities..... (96) (3,070) (1,204) (1,026) (347)
----------- ------------- ----------- ------------- -------------
Cash flows from financing activities:
Increase (decrease) in book overdraft in bank
account....................................... (108) 22 (22) 508 --
Proceeds from long-term debt.................... 1,653 6,950 3,003 412 --
Repayment of long-term debt..................... (834) (1,686) (5,236) (3,053) (331)
Increase in capital lease obligations........... -- 25 44 -- --
Repayment of capital lease obligations.......... (484) (5) (12) (4) (58)
Increase (decrease) in borrowings under line of
credit, net................................... (787) (617) 6,863 7,161 2,611
Increase (decrease) in notes payable to officers
and employees................................. 201 24 430 (17) (1,845)
Dividends on common and preferred stock......... (155) (112) (82) (60) --
Acquisition and retirement of common and
preferred stock............................... (631) (143) (755) (443) --
Proceeds from sale of common stock.............. -- 400 -- -- --
----------- ------------- ----------- ------------- -------------
Net cash provided (used) by financing
activities.............................. (1,145) 4,858 4,233 4,504 377
----------- ------------- ----------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents............................. 67 (67) 1,589 -- (374)
Cash and cash equivalents at beginning of
period.......................................... -- 67 -- -- 1,589
----------- ------------- ----------- ------------- -------------
Cash and cash equivalents at end of period........ $ 67 $ -- $ 1,589 $ -- $ 1,215
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
Supplemental disclosure--interest paid............ $ 457 $ 368 $ 1,092 $ 454 $ 660
----------- ------------- ----------- ------------- -------------
----------- ------------- ----------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) REPORTING EQUITY
The accompanying financial statements include the accounts of the office
products, leasing and corporate segments of MISSCO Corporation (the Company)
which have been combined for reporting purposes as MISSCO
Corporation--Commercial Division (the Division). The Division is not a separate
legal or historical reporting entity.
The office products segment includes the Company's commercial locations
selling primarily office supplies, furniture and machines. The leasing segment
leases, as lessor, office furniture and equipment and data processing equipment
to commercial customers. The corporate segment, where substantially all debt and
the various equity components of the Company are recorded, provides
administrative and management support to all of the Company's segments.
The Division, as aggregated, represents approximately 68% of the Company's
assets at March 31, 1995 and 57% of its fiscal 1995 net sales.
All significant intradivisional balances and transactions have been
eliminated.
(b) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
net realizable value.
(c) INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. Deferred income taxes are included in the
Company's financial statements and reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by enacted tax rules and regulations.
The income tax benefits allocated to the Division are based on the Company's
actual tax rate for the periods presented. All income tax assets and liabilities
have been reclassified to interdivisional receivables/ payables in the
accompanying balance sheets.
(d) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repairs
are charged to expense as incurred, while improvements and renovations are
capitalized.
Depreciation of plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Assets under capital
leases are amortized on the straight-line method over the shorter of the lease
term or estimated useful life of the asset.
(e) INVESTMENTS
Investments in marketable securities are carried at cost, which approximates
fair value. The Company has not implemented Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The effect of implementation would not have a material effect on
the accompanying financial statements.
F-51
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) RECEIVABLES
Trade receivables are primarily concentrated with various commercial
customers. The Company performs on-going credit evaluations of its customers and
generally does not require collateral on trade receivables. The Company 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 March 31, 1994 and 1995, the Division did not have a significant
concentration of sales or accounts receivable with any single customer.
(g) OTHER ASSETS
Goodwill is being amortized over 5 or 15 years using the straight-line
method. The net carrying value of goodwill was $147 and $185 at March 31, 1994
and 1995, respectively. A covenant not-to-compete is being amortized over 5
years using the straight-line method. The net carrying value of the covenant
not-to-compete was $46 and $36 at March 31, 1994 and 1995, respectively.
The recoverability of unamortized intangible assets is assessed by the
Company on an ongoing basis by comparing anticipated undiscounted future cash
flows from operations to net carrying values. At March 31, 1994 and 1995, the
Company believes that no impairment of intangible assets has occurred and that
no revision of estimated useful lives is required.
(h) CASH EQUIVALENTS
The Company considers temporary investments with a maturity of three months
or less when purchased to be cash equivalents.
(i) MAINTENANCE CONTRACTS
Revenues related to maintenance contracts, which have terms that do not
exceed one year, are amortized into income over the contract term using the
straight-line method.
(j) UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of the Company's management, all adjustments, consisting only
of normal recurring adjustments that are necessary for a fair presentation, have
been included in the Division's unaudited financial information for the interim
periods ended September 30, 1994 and 1995.
NOTE 2--LEASING ACTIVITIES
Substantially all customer leases have terms of one to five years. The
carrying value of items leased to customers under operating leases was $93 and
$92 (net of accumulated depreciation of $52 and $53) at March 31, 1994 and 1995,
respectively.
F-52
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 2--LEASING ACTIVITIES (CONTINUED)
Components of the net investment in sales-type leases follow:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1994 1995
----------- -----------
<S> <C> <C>
Total minimum lease payments to be received................................... $ 1,631 $ 2,066
Less allowance for doubtful receivables....................................... 8 30
----------- -----------
Net minimum lease payments receivable......................................... 1,623 2,036
Estimated unguaranteed residual value of leased property...................... 34 110
Less unearned income.......................................................... 259 355
----------- -----------
Total net investment in sales-type leases................................. 1,398 1,791
Less current portion.......................................................... 730 701
----------- -----------
Total net investment in sales-type leases, non-current
portion................................................................. $ 668 $ 1,090
----------- -----------
----------- -----------
</TABLE>
Executory costs such as insurance, maintenance and taxes are borne directly
by the lessees. There are no contingent rentals. Certain leases are pledged as
collateral on indebtedness (note 4).
NOTE 3--PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1994 1995
----------- -----------
<S> <C> <C>
Land.......................................................................... $ 724 $ 724
Buildings and improvements.................................................... 3,766 4,589
Store fixtures................................................................ 333 342
Machinery, tools and equipment................................................ 1,541 1,617
Warehouse and office equipment................................................ 3,489 4,165
Assets under capital leases (note 7).......................................... 42 67
Construction in progress...................................................... 175 --
----------- -----------
$ 10,070 $ 11,504
----------- -----------
----------- -----------
</TABLE>
Certain items of property, plant and equipment are pledged as collateral on
indebtedness (note 4).
F-53
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 4--LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1994 1995
----------- -----------
<S> <C> <C>
Notes payable under bank line of credit................................................. $ 3,167 $ 10,030
10% notes payable, due annually in varying amounts through 1999, with interest payable
semiannually; issued in connection with the Company's purchase of its common stock.... 233 194
7.5%-11% notes payable, due in various monthly installments through 2000, collateralized
by equipment and assignment of sales-type leases...................................... 1,053 1,476
Note payable to bank with interest at the prime rate plus 1/2%, due in monthly
installments of $17 plus interest through April 2001; collateralized by property
located in Jackson, Mississippi and all accounts receivable and inventories of the
Company............................................................................... 1,417 1,217
Note payable to bank with interest at the prime rate plus 1/2%, due in monthly
installments of $33 plus interest through April 1996; collateralized by all accounts
receivable and inventories of the Company. This note was repaid in fiscal 1995. ...... 833 --
5-6% notes payable to insurance companies, collateralized by cash surrender value of
life insurance........................................................................ 11 11
7.5% note payable, due in monthly installments of $4 through March 2003; issued in
connection with the Company's purchase of its common stock............................ 313 288
7.5% note payable to bank, due in monthly installments of $5 through March 1997;
collateralized by property located in Mobile, Alabama................................. 156 108
7.5% note payable to bank, due in monthly installments of $12 through December 1996;
collateralized by various property located in Jackson, Mississippi.................... 352 230
Note payable to bank with interest at the prime rate plus 1/2%, due in monthly
installments of $50 plus interest through November 1998; collateralized by all
accounts receivable and inventories of the Company. This note was repaid in fiscal
1995.................................................................................. 2,800 --
7.68% note payable, due in monthly installments of $6 through January 1999;
collateralized by equipment and inventories........................................... 271 223
7.5% note payable, due in monthly installments of $4 through May 2004; issued in
connection with the Company's purchase of its common stock............................ -- 303
Note payable to bank with interest at the prime rate plus 1/2%, due in monthly
installments of $8 through April 2001; collateralized by various property located in
Jackson, Mississippi.................................................................. -- 572
8.5% note payable, due in monthly installments of $4 through November 1997;
collateralized by equipment........................................................... -- 124
</TABLE>
F-54
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 4--LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1994 1995
----------- -----------
<S> <C> <C>
9.25% note payable, due in monthly installments of $13 through December 1999;
collateralized by furniture and equipment............................................. -- 595
Unsecured 7% note payable, due in annual installments through 1998; issued in connection
with the Company's purchase of Crawford, Inc. (note 9)................................ 250 157
7.5% note payable to bank, due in monthly installments of $9 through January 1999;
collateralized by furniture and fixtures located in Birmingham, Alabama............... 454 368
6.78% note payable to bank, due in monthly installments of $14 through January 2004;
collateralized by building located in Birmingham, Alabama............................. 1,702 1,746
----------- -----------
13,012 17,642
Less current installments of long-term debt............................................. 2,074 1,568
----------- -----------
Long-term debt, excluding current installments.......................................... $ 10,938 $ 16,074
----------- -----------
----------- -----------
</TABLE>
In September 1994, the Company executed a new line of credit agreement with
another commercial bank and terminated the existing line of credit agreement.
The new $13,000 line of credit agreement is secured by all accounts receivable
and inventories of the Company. Interest is payable monthly at the bank's prime
rate. On August 4, 1995, the Company's primary lender committed to renew the
line of credit agreement, which was scheduled to expire in August 1995, until
August 1996. Borrowings under the line of credit agreements are classified as
long-term debt in the March 31, 1994 and 1995 balance sheets.
A summary of long-term debt maturities follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
- -------------------------------------------------------------------------
<S> <C>
1996..................................................................... $ 1,568
1997..................................................................... 11,492
1998..................................................................... 1,087
1999..................................................................... 813
2000..................................................................... 585
Thereafter............................................................... 2,097
---------
$ 17,642
---------
---------
</TABLE>
NOTE 5--INCOME TAXES
The Company files consolidated Federal and state income tax returns. While
the Division does not have a formal tax-sharing and allocation agreement with
the Company, the income tax benefits allocated to the Division are based on the
Company's actual tax rate of 39% for the year ended June 30, 1993, 40% for the
nine-month period ended March 31, 1994 and 31% for the year ended March 31,
1995.
F-55
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 6--EMPLOYEE BENEFIT PLANS
The Company has a contributory profit sharing plan which covers
substantially all employees. Participant contributions may be matched by the
Company at rates established each year by the Board of Directors. A matching
contribution has not been adopted by the Board of Directors. In addition, the
plan provides for a non-contributory stock ownership arrangement. Contributions
made by the Company for the purpose of acquiring its common stock are at the
discretion of the Board of Directors.
No contributions were made during the years ended June 30, 1993 or March 31,
1995; a $120 contribution was made to the plan by the Company during the
nine-month period ended March 31, 1994. The plan provides participants a 60 day
option to have the Company purchase distributed common stock at the most recent
appraised value.
The Company also has a deferred compensation plan covering selected
employees. Participants may elect to defer receipt of a portion of their
compensation until retirement, death or disability. The Company has segregated
investments in marketable securities to fund this obligation, but those assets
are not restricted. Earnings accrue to participants on the deferred compensation
obligation at amounts agreed to by the Company, currently the earnings of the
segregated assets.
NOTE 7--LEASED ASSETS AND LEASE COMMITMENTS
The following schedule summarizes assets recorded under capital leases:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1994 1995
------------- -------------
<S> <C> <C>
Automobiles and equipment........................................... $ 42 $ 67
Less accumulated amortization....................................... 18 26
--- ---
Net assets under capital leases..................................... $ 24 $ 41
--- ---
--- ---
</TABLE>
A summary of future minimum lease payments follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING MARCH 31 LEASES LEASES
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1996.................................................................. $ 26 $ 734
1997.................................................................. 24 569
1998.................................................................. 8 427
1999.................................................................. 6 230
2000.................................................................. -- 41
--- -----------
Total future minimum lease payments............................... 64 $ 2,001
-----------
-----------
Less imputed interest at approximately 10.5%.......................... 6
---
Present value of future minimum lease payments........................ 58
Less current installments............................................. 24
---
Capital lease obligations, excluding current installments............. $ 34
---
---
</TABLE>
Division rental expense on operating leases was $581, $468 and $798,
respectively, for the year ended June 30, 1993, the nine-month period ended
March 31, 1994 and the year ended March 31, 1995. Most of the leases require the
payment of taxes, maintenance, insurance and certain other operating expenses
F-56
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 7--LEASED ASSETS AND LEASE COMMITMENTS (CONTINUED)
applicable to leased premises and equipment. There are no material contingent
rentals or subleases under the lease arrangements.
Management expects that in the normal course of business expired leases will
be renewed or replaced by other leases.
NOTE 8--PERFORMANCE GUARANTIES
The Company periodically has an independent party guarantee its performance
under contractual obligations. At March 31, 1995, the Company had pledged to the
guarantor Division trade accounts receivable with a carrying value of $519. This
pledge is the first lien on these receivables.
NOTE 9--ACQUISITION
In November 1993, the Company purchased certain assets associated with
Crawford, Inc., a commercial furniture dealer located in Birmingham, Alabama,
for approximately $850. This transaction was accounted for using the purchase
method, and the purchase price was primarily allocated to equipment, inventories
and goodwill.
NOTE 10--INTERDIVISIONAL ALLOCATIONS
The corporate segment of the Company provides both warehouse (purchasing,
receiving, storage and distribution) and administrative (accounting, computer
and management support) services to various Company segments and locations.
Allocation methods for warehouse and administrative expenses have varied based
on sales volume, operating expense levels and management's judgment during the
three periods ended March 31, 1995. Warehouse and administrative allocations to
the Division approximated $1,960 (50% of the total incurred) for the year ended
June 30, 1993; $1,680 (53%) for the nine-month period ended March 31, 1994; and
$2,790 (56%) for the year ended March 31, 1995.
Substantially all of the debt of the Company is recorded at the corporate
segment. Borrowings and related interest specific to a particular segment are
not subject to allocation. Interest expense related to general short-term
borrowings is allocated to the various Company segments and locations based on
trade accounts receivable outstanding more than thirty days. Interest expense on
general short-term debt allocated to the Division totaled $126 during the year
ended June 30, 1993, $144 during the nine-month period ended March 31, 1994 and
$323 during the year ended March 31, 1995.
NOTE 11--NOTES PAYABLE TO OFFICERS AND EMPLOYEES
Notes payable to officers and employees consist of demand notes bearing
interest at or near the prime rate. Subsequent to March 31, 1995, all of these
notes were repaid.
F-57
<PAGE>
MISSCO CORPORATION--COMMERCIAL DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993 AND MARCH 31, 1994 AND 1995
(IN THOUSANDS)
NOTE 12--ALLOWANCE FOR DOUBTFUL RECEIVABLES
The changes in the Division's allowance for doubtful receivables for the
year ended June 30, 1993, the nine-month period ended March 31, 1994 and the
year ended March 31, 1995 are as follows:
<TABLE>
<CAPTION>
ADDITIONS-
BALANCE AT AMOUNTS DEDUCTIONS- BALANCE
BEGINNING CHARGED TO ACCOUNTS AT END
OF PERIOD EXPENSE WRITTEN OFF OF PERIOD
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended June 30, 1993.............................. $ 65 $ 131 $ 62 $ 134
Nine-month period ended March 31, 1994................ 134 89 32 191
Year ended March 31, 1995............................. 191 489 132 548
</TABLE>
NOTE 13--SUBSEQUENT EVENT
On August 16, 1995, the Company entered into a definitive agreement whereby
U. S. Office Products Company will pay the Company $22,700 in cash and buy
certain assets and assume certain liabilities of the Division. The business
combination will be accounted for using the purchase method. Management believes
the transaction will be consummated on or around September 29, 1995.
F-58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Copenhaver Holdings, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Copenhaver
Holdings, Inc. and Subsidiary (the "Company") at September 30, 1994, and the
results of their operations and their 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 11 to the financial statements, effective August 16,
1995, the Company entered into an agreement to be acquired by U.S. Office
Products Company.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
August 31, 1995
F-59
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents............. $ 158,551 $ --
Accounts receivable, less allowance
for doubtful accounts of $28,728 at
June 30, 1995 and $27,793 in 1994... 1,390,426 1,945,907
Inventories........................... 597,538 743,784
Prepaid expenses...................... 47,239 58,236
Deferred tax asset.................... 10,459 10,810
----------- -----------
Total current assets................ 2,204,213 2,758,737
----------- -----------
Property and equipment, net............. 417,627 489,784
Intangible assets, net.................. 1,535,264 1,502,050
Investment.............................. 1,500 1,500
Deposits................................ 4,175 14,175
----------- -----------
1,958,566 2,007,509
----------- -----------
Total assets........................ $4,162,779 $ 4,766,246
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $1,006,348 $ 1,229,582
Accrued expenses...................... 237,569 110,103
Accrued income taxes.................. 205,204 128,061
Customer deposits..................... 7,000 11,777
Line of credit........................ -- --
Current portion of long-term debt..... 189,009 180,141
----------- -----------
Total current liabilities........... 1,645,130 1,659,664
----------- -----------
Long-term debt, less current
maturities............................ 109,296 111,069
Deferred tax liability.................. 29,391 35,375
----------- -----------
Total noncurrent liabilities.......... 138,687 146,444
----------- -----------
Stockholders' equity:
Common stock, $10 par value, 1,000
shares authorized, issued and
outstanding......................... 1,000 1,000
Preferred stock,...................... 1,300,101 1,300,101
Additional paid-in capital............ 779,000 779,000
Retained earnings..................... 298,861 880,037
----------- -----------
Total stockholders' equity.......... 2,378,962 2,960,138
----------- -----------
Total liabilities and stockholders'
equity............................ $4,162,779 $ 4,766,246
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
SEPTEMBER ENDED JUNE ENDED JUNE
30, 1994 30, 1994 30, 1995
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Sales........................................ $ 13,210,509 $9,589,528 $ 12,397,542
Cost of sales................................ 10,167,960 7,334,586 9,677,166
------------ ----------- ------------
Gross profit................................. 3,042,549 2,254,942 2,720,376
Selling, general and administrative
expenses................................... 2,091,876 1,444,188 1,683,794
------------ ----------- ------------
950,673 810,754 1,036,582
Other income (expenses):
Interest expense........................... (32,289) (26,077 ) (27,592)
Other income............................... 2,460 2,460 --
------------ ----------- ------------
Total other income (expense)............. (29,829) (23,617 ) (27,592)
------------ ----------- ------------
Income before income taxes................... 920,844 787,137 1,008,990
Income taxes................................. 364,622 303,316 397,814
------------ ----------- ------------
Net income............................... $ 556,222 $ 483,821 $ 611,176
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PREFERRED PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
----------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1993....................... $ 1,000 $ 1,300,101 $ 779,000 $ (257,361) $ 1,822,740
Net income..................................... -- -- -- 556,222 556,222
----------- ------------ ---------- ----------- ------------
Balance at September 30, 1994.................... 1,000 1,300,101 779,000 298,861 2,378,962
Net income (unaudited)......................... -- -- -- 611,176 611,176
Dividends (unaudited).......................... -- -- -- (30,000) (30,000)
----------- ------------ ---------- ----------- ------------
Balance at June 30, 1995 (unaudited)............. $ 1,000 $ 1,300,101 $ 779,000 $ 880,037 $ 2,960,138
----------- ------------ ---------- ----------- ------------
----------- ------------ ---------- ----------- ------------
</TABLE>
F-62
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
SEPTEMBER ENDED JUNE ENDED JUNE
30, 1994 30, 1994 30, 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net income........................................... $ 556,222 $ 483,821 $ 611,176
Adjustments to reconcile to net cash used by
operating activities:
Depreciation and amortization...................... 159,964 110,496 137,204
Gain on disposal of assets......................... (1,500) (1,750)
Change in deferred income taxes.................... 12,458 5,633
(Increase) decrease in:
Accounts receivable.............................. (271,992) (130,293) (555,481)
Inventory........................................ (183,355) (99,218) (146,246)
Prepaid expenses................................. (7,531) (18,095) (10,997)
Deposits......................................... 1,816 1,816 (10,000)
Increase (decrease) in:
Accounts payable................................... 149,115 35,817 223,234
Income taxes payable............................... 185,405 174,214 (77,143)
Accrued expenses................................... 93,934 815 (127,466)
Customer deposits.................................. (5,947) 12,032 4,777
----------- ----------- -----------
Net cash provided by operating activities...... 688,589 569,655 54,691
----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment, net of
retirements........................................ (183,592) (99,431) (176,147)
Proceeds from sale of property and equipment......... 1,500 1,750 --
----------- ----------- -----------
Net cash used for investing activities......... (182,092) (97,681) (176,147)
----------- ----------- -----------
Cash flows from financing activities
Net repayment on notes payable and capital lease
obligations........................................ 52,608 26,779 (7,095)
Net repayment of line of credit...................... (400,954) (400,954) --
Dividends paid....................................... -- (30,000)
----------- ----------- -----------
Net cash used for financing activities......... (348,346) (374,175) (37,095)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... 158,151 97,799 (158,551)
Cash and cash equivalents at beginning of year......... 400 400 158,551
----------- ----------- -----------
Cash and cash equivalents at end of year....... $ 158,551 $ 98,199 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND SEPTEMBER 30, 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Copenhaver
Holdings, Inc. and its wholly-owned subsidiary, The Smith-Wilson Company (the
"Company"). Smith-Wilson Company sells and distributes office supplies and
furniture within the Central Florida area.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.
REVENUE RECOGNITION
Revenues are recognized upon delivery of office products to the customers.
INVENTORIES
Inventories are stated at the lower of cost or market withcost determined on
the first-in, first-out (FIFO) basis, and consist primarily of product
held-for-sale.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation, including
amortization of leasehold improvements, is computed using the straight-line and
accelerated methods over the estimated useful lives of the assets. When assets
are retired or otherwise disposed, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is recognized in
income for the period. The cost of maintenance and repairs is charged to income
when incurred; significant renewals and betterments are capitalized.
INCOME TAXES
Deferred income taxes are provided for temporary differences resulting from
assets and liabilities that have a tax basis different from their recorded value
for financial statement purposes. The only significant temporary differences
result from depreciation expense and increases or decreases to the allowance for
doubtful accounts receivable.
CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and trade accounts receivable. The
cash balance at September 30, 1994 is deposited in one financial institution and
exceeds the federal deposit insurance limit. Concentrations of credit risk due
to trade accounts receivable are limited due to the large number of customers
and their dispersion throughout all Central Florida areas. At September 30,
1994, the Company had no significant concentrations of credit risks.
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
F-64
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
June 30, 1995 and the results of operations and cash flows for the nine months
ended June 30, 1994 and 1995 as presented in the accompanying unaudited interim
financial statements.
NOTE 2--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Office supplies................................... $ 521,846 $ 642,556
Furniture......................................... 75,692 101,228
----------- -----------
$ 597,538 $ 743,784
----------- -----------
----------- -----------
</TABLE>
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Machinery and equipment........................... $ 373,675 $ 449,487
Furniture and fixtures............................ 68,172 76,141
Vehicles.......................................... 224,009 316,283
Leasehold improvements............................ 67,936 67,936
----------- -----------
Total......................................... 733,792 909,847
Less: Accumulated depreciation.................... (316,165) (420,063)
----------- -----------
Property and equipment, net....................... $ 417,627 $ 489,784
----------- -----------
----------- -----------
</TABLE>
NOTE 4--INTANGIBLE ASSETS
Intangible assets consist of goodwill, which represents the excess of cost
over fair value of assets acquired in business acquisitions accounted for under
the purchase method. The goodwill relates to the acquisition of the Smith-Wilson
Co. in May 1989. The goodwill is amortized on a straight-line basis over an
estimated useful life of 40 years. The recoverability of unamortized intangible
assets is assessed on an ongoing basis by comparing anticipated undiscounted
future cash flows from operations to net book value. Intangible assets consist
of the following:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1994 1995
----------- ---------
(UNAUDITED)
<S> <C> <C>
Goodwill.......................................... $1,771,462 $1,771,462
Less: accumulated amortization.................... (236,198) (269,413)
----------- ---------
Net intangible assets............................. $1,535,264 $1,502,049
----------- ---------
----------- ---------
</TABLE>
NOTE 5--INVESTMENT
The investment is one share of common stock in NDS/Basic, Inc. and is
carried at cost. NDS/ Basic, Inc. is an office supply cooperative that is a
major vendor of the Company.
F-65
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LINE OF CREDIT
The Company has a revolving line-of-credit agreement with a commercial bank.
The maximum loan amount is $900,000, with interest payable monthly at the bank's
prime interest rate plus 1%. All assets of the Company now owned or acquired are
pledged as collateral. The note is due on demand with an annual review on
January 31, 1995. There were no outstanding draws on the line at September 30,
1994 or June 30, 1995.
This agreement includes certain loan covenants requiring maintenance of
working capital of not less than $75,000, net worth of $925,000, as well as
specified minimum financial ratios and a maximum loan limit based upon a
prescribed formula. In addition, it prohibits the pledging of assets and
restricts borrowing, loans and leases. As of September 30, 1994, the Company is
not in compliance with all of the covenants. In January 1995, the bank waived
the violations. At June 30, 1995, the Company was in compliance with all
covenants.
NOTE 7--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1994 1995
----------- ---------
(UNAUDITED)
<S> <C> <C>
Notes payable due in monthly installments of $8,055 including
interest from 6.5% to 8.75%. Certain vehicles and equipment are
pledged as collateral. Maturity dates September 1996 through
June 1998....................................................... $ 155,045 $ 169,543
Lifetime annuity agreement with a former stockholder. Annual
payments of $16,000, discounted at 8% interest.................. 82,838 76,846
Note payable to a former stockholder. Due in annual installments
of $2,600 plus interest at 6%. Matures in 2000.................. 15,204 13,204
----------- ---------
Total......................................................... 253,087 259,593
Less current maturities........................................... (165,643) (159,769)
----------- ---------
Total Long-term debt.......................................... $ 87,444 $ 99,824
----------- ---------
----------- ---------
</TABLE>
Maturities on long-term debt as of September 30, 1994 are follows:
<TABLE>
<S> <C>
1995.............................................. $ 165,643
1996.............................................. 10,598
1997.............................................. 10,598
1998.............................................. 10,598
1999.............................................. 10,598
Thereafter........................................ 45,052
---------
$ 253,087
---------
---------
</TABLE>
NOTE 8--LEASES
The Company leases its facilities and certain office equipment under
long-term lease agreements. The leases covering the office equipment expire in
various years through December 1996, and are classified as capital leases.
The lease on the operating facilities expires in April 1996, with a renewal
option of five years with no predetermined terms. The terms of the lease call
for the Company to pay all executory costs. The lease is classified as an
operating lease.
F-66
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LEASES (CONTINUED)
Rental expense for operating leases amounted to $178,080 and $133,560 for
the year ended September 30, 1994 and the nine month period ended June 30, 1995,
respectively.
Property and equipment include the following leased property under capital
lease by major classes:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Machinery and equipment........................... $ 76,873 $ 76,873
Less accumulated depreciation..................... (46,878) (53,537)
----------- -----------
$ 29,995 $ 23,336
----------- -----------
----------- -----------
</TABLE>
The following is a schedule of future minimum lease payments for capital
lease and for noncancelable operating leases (with initial or remaining terms in
excess of one year) as of September 30, 1994:
<TABLE>
<CAPTION>
NONCANCELABLE
CAPITAL OPERATING
LEASES LEASES
--------- -------------
<S> <C> <C>
Year ending September 30,
1995............................................................. $ 23,375 $ 181,440
1996............................................................. 23,375 105,707
1997............................................................. 5,844 --
1998............................................................. -- --
1999............................................................. -- --
--------- -------------
Total minimum lease payments..................................... 52,594 $ 287,147
-------------
-------------
Less Amount representing interest................................ (7,376)
---------
Present value of net minimum lease payments...................... $ 45,218
---------
---------
</TABLE>
The following is a schedule of future minimum lease payments for capital
lease and for noncancelable operating leases (with initial or remaining terms in
excess of one year) as of June 30, 1995:
<TABLE>
<CAPTION>
NONCANCELABLE
CAPITAL OPERATING
LEASES LEASES
--------- -------------
<S> <C> <C>
Year ending June 30,
1996............................................................. $ 23,375 $ 151,067
1997............................................................. 11,688 --
1998............................................................. -- --
1999............................................................. -- --
2000............................................................. -- --
--------- -------------
Total minimum lease payments..................................... $ 35,063 $ 151,067
-------------
-------------
Less: Amount representing interest............................... (3,455)
---------
Present value of Minimum Lease Payments.......................... $ 31,608
---------
---------
</TABLE>
NOTE 9--INCOME TAXES
As of September 30, 1994, the Company had fully utilized all of its net
operating loss carryovers and, therefore, have no remaining tax benefit to be
recognized in the future years. The provision for income taxes is primarily
current. The effective tax rate is not significantly different from expected tax
rates.
F-67
<PAGE>
COPENHAVER HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1994 1995 1994
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash paid for interest................................ $ 32,289 $ 27,592 $ 26,077
Cash paid for income taxes............................ 165,842 469,299 129,102
</TABLE>
NOTE 11--SUBSEQUENT EVENTS
On August 16, 1995, the Company and its stockholders signed a merger
agreement with U.S. Office Products Company for the sale of all outstanding
shares of the Company's common stock. Pursuant to the merger agreement, all of
the outstanding shares of the Company's common stock will be purchased by U.S.
Office Products Company for $10,000,000, consisting of $5,000,000 of cash and
promissory notes and 322,581 shares of U.S. Office Products common stock.
F-68
<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
F-62
<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.
F-63
<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.
F-64
<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.
F-65
<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.
F-66
<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
F-67
<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.
F-68
<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.
F-69
<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>
F-70
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Directors and Shareholders
Oak Brook Office Supply and
Equipment Corporation
Oak Brook, Illinois
We have audited the accompanying balance sheets of Oak Brook Office Supply
and Equipment Corporation as of August 31, 1995 and 1994, and the related
statements of income and retained earnings 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 opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oak Brook Office Supply and
Equipment Corporation as of August 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.
CROWE, CHIZEK AND COMPANY
Oak Brook, Illinois
October 26, 1995
F-69
<PAGE>
OAK BROOK OFFICE SUPPLY AND EQUIPMENT CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1995 1994
NOVEMBER 30, ------------ ------------
1995
------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash................................................................. $ 459,484 $ 1,009,782 $ 337,624
Accounts receivable
Trade, net of allowance for doubtful accounts of $42,500, $42,500
and $40,000, respectively (Note 7)............................... 3,149,352 3,561,365 3,031,535
Other.............................................................. 4,270 42,639 65,201
Inventory, net of reserve for obsolescence of $80,000 for all
periods............................................................ 3,140,267 2,354,995 2,381,839
Prepaid expenses..................................................... 22,709 72,041 49,842
Deferred income taxes................................................ 56,000 56,000 56,000
------------ ------------ ------------
Total current assets............................................... 6,832,082 7,096,822 5,922,041
Property and equipment
Leasehold improvements............................................... 100,204 100,204 100,204
Machinery and equipment.............................................. 388,196 388,196 388,196
Furniture and fixtures............................................... 324,660 324,660 332,243
Transportation equipment............................................. 182,511 194,703 165,351
------------ ------------ ------------
995,571 1,007,763 985,994
Accumulated depreciation............................................. 860,051 861,428 809,912
------------ ------------ ------------
135,520 146,335 176,082
------------ ------------ ------------
$6,967,602 $ 7,243,157 $ 6,098,123
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term bank loans (Note 2)....................................... $2,070,466 $ 2,094,263 $ 1,893,492
Current maturities of long-term debt (Note 3)........................ 31,000 31,277 29,631
Accounts payable (Notes 5 and 7)..................................... 2,625,252 2,814,130 2,040,483
Deferred service contract revenue.................................... 59,698 67,530 89,342
Salaries, wages and other compensation payable....................... 152,998 113,058 153,780
Profit sharing plan contribution payable............................. 60,000 60,000 20,000
Income taxes payable................................................. 16,761 68,620 38,000
Other current liabilities............................................ 12,854 62,821 31,136
------------ ------------ ------------
Total current liabilities.......................................... 5,029,029 5,311,699 4,295,864
Long-term debt (Note 3)................................................ 27,777 34,779 42,353
Shareholders' equity
Common stock, $5 par value; 20,000 shares authorized; 80 shares
issued and outstanding............................................. 400 400 400
Retained earnings.................................................... 1,910,396 1,896,279 1,759,506
------------ ------------ ------------
1,910,796 1,896,679 1,759,906
------------ ------------ ------------
$6,967,602 $ 7,243,157 $ 6,098,123
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
OAK BROOK OFFICE SUPPLY AND EQUIPMENT CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED 3 MONTHS ENDED
AUGUST 31, NOVEMBER 30,
---------------------------- --------------------------
1995 1994 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales................................................ $ 41,959,258 $ 33,993,504 $ 8,735,318 $ 9,870,730
Cost of sales...................................... 36,261,217 28,829,993 7,538,250 8,578,412
------------- ------------- ------------ ------------
Gross profit......................................... 5,698,041 5,163,511 1,197,068 1,292,318
Operating expenses
Selling............................................ 2,059,995 1,886,430 433,707 541,325
General and administrative......................... 3,259,835 3,070,483 707,625 778,649
------------- ------------- ------------ ------------
5,319,830 4,956,913 1,141,332 1,319,974
------------- ------------- ------------ ------------
Income (loss) from operations........................ 378,211 206,598 55,736 (27,656)
Other income (expense)
Interest expense................................... (194,926) (114,107) (45,228) (40,497)
Miscellaneous income............................... 41,488 24,206 10,609 13,612
------------- ------------- ------------ ------------
(153,438) (89,901) (34,619) (26,885)
------------- ------------- ------------ ------------
Income (loss) before income taxes.................... 224,773 116,697 21,117 (54,541)
Provision for income taxes (Note 4)................ 88,000 50,294 7,000 (18,000)
------------- ------------- ------------ ------------
Net income (loss).................................... 136,773 66,403 14,117 (36,541)
Retained earnings at beginning of period........... 1,759,506 1,693,103 1,896,279 1,759,506
------------- ------------- ------------ ------------
Retained earnings at end of period................... $ 1,896,279 $ 1,759,506 $ 1,910,396 $ 1,722,965
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE>
OAK BROOK OFFICE SUPPLY AND EQUIPMENT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED 3 MONTHS ENDED
AUGUST 31, NOVEMBER 30,
------------------------- ------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)....................................... $ 136,773 $ 66,403 $ 14,117 $ (36,541)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization......................... 72,738 60,026 10,815 12,636
Deferred income taxes................................. -- 545 -- (9,000)
Loss on sale of equipment............................. 803 2,037 -- --
Change in assets and liabilities
Accounts receivable................................. (507,268) (557,943) 450,382 (285,318)
Inventory........................................... 26,844 (44,555) (785,272) (10,814)
Prepaid expenses.................................... (22,199) (12,753) 49,332 7,077
Accounts payable.................................... 773,647 267,314 (188,878) 664,545
Other current liabilities........................... 39,771 31,477 (69,718) (88,361)
------------ ----------- ----------- -----------
Net cash provided by (used in) operating
activities...................................... 521,109 (187,449) (519,222) 254,224
Cash flows from investing activities
Capital expenditures.................................... (43,794) (55,688) -- --
Proceeds from sale of equipment......................... -- 16,489 -- --
------------ ----------- ----------- -----------
Net cash used in investing activities................. (43,794) (39,199) -- --
Cash flows from financing activities
Net borrowings on short-term bank loans................. 200,771 388,643 (23,797) 261,254
Proceeds from long-term debt............................ 25,000 -- -- --
Payments on long-term debt.............................. (30,928) (39,532) (7,279) (7,340)
------------ ----------- ----------- -----------
Net cash provided by (used in) financing activities... 194,843 349,111 (31,076) 253,914
------------ ----------- ----------- -----------
Net change in cash........................................ 672,158 122,463 (550,298) 508,138
Cash at beginning of period............................... 337,624 215,161 1,009,782 337,624
------------ ----------- ----------- -----------
Cash at end of period..................................... $ 1,009,782 $ 337,624 $ 459,484 $ 845,762
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest.............................................. $ 194,926 $ 110,260 $ 45,228 $ 40,497
Income taxes.......................................... 57,380 31,047 59,000 9,000
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE>
OAK BROOK OFFICE SUPPLY AND EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Oak Brook Office Supply and Equipment Corporation (the Company) sells office
equipment, supplies and computer equipment at wholesale and retail in the
Metropolitan Chicago area.
INVENTORY
Inventory consists of products held for resale and is stated at the lower of
cost or market. Cost is determined on the average cost method. In addition, the
Company discounts the value of its rental, demo, in-use and parts inventories.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are being depreciated on an
accelerated method over the estimated useful lives of the related assets. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and repairs is
charged to income as incurred; significant renewals and betterments are
capitalized.
SERVICE CONTRACT REVENUE
The Company has service contracts on various equipment which normally are
for a one-year period. Service contract payments which are received in advance
by the Company are amortized to income over a twelve-month period.
INCOME TAXES
The Company records income tax expense based on the amount of taxes due on
its tax return plus deferred taxes computed based on the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, using enacted tax rates.
PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all of its
employees. The amount of contributions to the plan are determined by management,
but may not exceed the amount allowable by the Internal Revenue Code. The
Company recorded a $60,000 and a $20,000 contribution to the plan for the years
ended August 31, 1995 and August 31, 1994, respectively.
UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, the Company has made all adjustments necessary
for a fair presentation of the financial condition of the Company as of November
30, 1995 and the results of operations and cash flows for each of the three
months ended November 30, 1995 and 1994, as presented in the accompanying
unaudited interim financial information.
NOTE 2--SHORT-TERM BANK LOANS
Short-term bank loans represent borrowings under the Company's $3,500,000
line of credit. The line of credit bears interest at the bank's prime rate of
interest and is secured by the Company's accounts receivable and inventory.
F-73
<PAGE>
OAK BROOK OFFICE SUPPLY AND EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--LONG-TERM DEBT OBLIGATIONS
Long-term debt obligations consist of two installment loans payable in
monthly installments of $1,812 and $795 through August 1997 and September 1998,
respectively. The loans bear interest at 8% and 8.75%, respectively, and are
secured by certain telephone and transportation equipment. Maturities of
installment notes subsequent to August 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................... $ 31,277
1997............................................... 29,465
1998............................................... 5,314
</TABLE>
NOTE 4--INCOME TAXES
The provision for income taxes for the years ended August 31, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current federal and state tax expense................................ $ 88,000 $ 49,749
Deferred tax expense................................................. -- 545
--------- ---------
Total tax expense................................................ $ 88,000 $ 50,294
--------- ---------
--------- ---------
</TABLE>
A reconciliation of the provision for income taxes at the statutory federal
income tax rate of 34% with amounts reported in the statements of income and
retained earnings is as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Federal income taxes computed at statutory rates..................... $ 76,000 $ 40,000
State income taxes, net of federal tax benefit....................... 13,000 6,000
Effect of graduated income tax rates................................. (5,000) (14,000)
Permanent differences and other...................................... 4,000 18,294
--------- ---------
$ 88,000 $ 50,294
--------- ---------
--------- ---------
</TABLE>
Deferred tax assets are comprised of the following at August 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Inventory temporary differences...................................... $ 39,000 $ 39,000
Allowance for doubtful accounts...................................... 13,000 13,000
Other................................................................ 4,000 4,000
--------- ---------
$ 56,000 $ 56,000
--------- ---------
--------- ---------
</TABLE>
NOTE 5--CONTINGENCIES AND COMMITMENTS
The Company purchases inventory products for resale through certain of their
vendors' finance companies. The inventory purchases are secured by the related
inventory. Total amounts outstanding at August 31, 1995 and 1994, included in
accounts payable approximated $1,586,000 and $1,130,000, respectively.
The Company is a guarantor on the majority shareholder's $125,000 note on
the purchase of the Company's office and warehouse space.
NOTE 6--LEASES
The Company leases its warehouse and office space from its majority
shareholder and has various leases for its retail operations. All leases are
classified as operating leases.
F-74
<PAGE>
OAK BROOK OFFICE SUPPLY AND EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--LEASES (CONTINUED)
The office and warehouse lease requires monthly payments varying from
$12,000 to $13,000 and expires on September 30, 1997, while the leases for its
retail operations have various lease terms through July 31, 2000. The terms of
the leases provide for minimum rentals plus additional amounts determined under
cost escalation provisions in the leases. Generally, the leases provide that the
Company will pay executory costs such as insurance and maintenance.
The Company's rental expense under all operating leases approximated
$395,000 and $401,000 for the years ended August 31, 1995 and 1994,
respectively.
The minimum future rental payments under noncancelable leases in effect at
August 31, 1995, are as follows:
<TABLE>
<S> <C>
1996.................................... $ 359,029
1997.................................... 352,362
1998.................................... 154,268
1999.................................... 94,766
2000.................................... 86,869
------------
$ 1,047,294
------------
------------
</TABLE>
Included in the minimum future rental payments under noncancelable leases is
$303,766 due to the majority shareholder of the Company.
NOTE 7--RELATED PARTY TRANSACTIONS
Oak Brook Office Supply and Equipment Corporation engages in various
transactions with Kanak and Sons, Inc. which is a related party through common
ownership. The companies combine their purchasing requirements to take advantage
of quantity discounts, and transactions between the companies are at cost.
During the years ended August 31, 1995 and 1994, the Company had the following
activity with Kanak and Sons, Inc.:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Sales.............................................................. $ 260,696 $ 341,832
Purchases.......................................................... 172,099 104,402
Accounts receivable................................................ 36,928 62,779
Accounts payable................................................... 8,261 1,993
</TABLE>
The Company leases its office and warehouse space from its majority
shareholder as discussed in Note 6. Total rental payments made to the
shareholder amounted to $158,704 in 1995 and $156,396 in 1994.
NOTE 8--INDUSTRY CONCENTRATION
The Company's main source of revenue is from sales of computers and computer
related equipment. Total sales of computer products amounted to approximately
91% and 86% of total net revenue for the years ended August 31, 1995 and 1994,
respectively.
NOTE 9--SUBSEQUENT EVENT
Subsequent to August 31, 1995, the shareholders of the Company began
negotiations for a possible merger with a public company.
F-75
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Blue Star Group Limited
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Blue Star
Group Limited and its subsidiaries as of March 31, 1995, and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States 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, the Company and its
shareholders tentatively agreed to sell their outstanding shares of stock to
U.S. Office Products Company.
PRICE WATERHOUSE
Auckland, New Zealand
August 4, 1995, except as to Note 12,
which is as of December 11, 1995
F-76
<PAGE>
BLUE STAR GROUP LIMITED
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1995
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash.......................................................... $ -- $ --
Accounts receivable, less allowance for doubtful accounts of
$128,700.................................................... 10,430,265 24,831,841
Inventories................................................... 5,462,645 12,476,823
------------- -------------
Total current assets........................................ 15,892,910 37,308,664
Property and equipment, net................................... 14,659,205 11,491,424
Deferred taxes................................................ 166,616 209,680
Long-term lease receivables................................... 2,674,129 8,498,898
Investments................................................... 1,628,983 2,131,700
Intangible assets, net........................................ 2,459,895 2,908,081
------------- -------------
Total assets................................................ $ 37,481,738 $ 62,548,447
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Commercial bills.............................................. 11,082,510 18,904,350
Short-term debt............................................... 1,694,023 2,653,837
Accounts payable.............................................. 6,359,859 12,961,119
Income taxes payable.......................................... 681,095 1,993,740
Other accrued expenses........................................ 2,521,093 2,992,527
------------- -------------
Total current liabilities................................... 22,338,580 39,505,573
Long-term debt.................................................. 2,991,185 9,228,688
Minority interest............................................... 159,699 275,364
Subordinated shareholder advances............................... 10,327,419 9,368,644
------------- -------------
Total liabilities........................................... 35,816,883 58,378,269
------------- -------------
Commitments and contingencies
Shareholders' equity
Common stock, no par value; 6,250,000 shares authorized,
issued and outstanding...................................... 347,750 347,750
Foreign currency translation.................................. 118,359 92,965
Retained earnings............................................. 1,198,746 3,729,463
------------- -------------
Total shareholders equity................................... 1,664,855 4,170,178
------------- -------------
Total liabilities and shareholders' equity.................. $ 37,481,738 $ 62,548,447
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-77
<PAGE>
BLUE STAR GROUP LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ------------------------
ENDED DECEMBER DECEMBER
MARCH 31, 31, 31,
1995 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $45,685,329 $30,409,119 $73,227,004
Cost of sales....................................... (31,605,613) (19,365,651) (44,715,154)
----------- ----------- -----------
Gross profit........................................ 14,079,716 11,043,468 28,511,850
Selling, general and administrative expenses........ (11,716,810) (8,480,827) (24,349,783)
----------- ----------- -----------
Operating income.................................... 2,362,906 2,562,641 4,162,067
Other (income) expense:
Interest expense.................................. 562,827 406,407 1,334,396
Other expense, net................................ 67,614 33,467 (1,144,216)
Minority interest................................... (33,775) 607,331 115,193
----------- ----------- -----------
Income before provision for income taxes............ 1,766,240 1,515,436 3,856,694
Provision for income taxes.......................... 489,745 536,424 1,325,977
----------- ----------- -----------
Net income.......................................... $ 1,276,495 $ 979,012 $ 2,530,717
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-78
<PAGE>
BLUE STAR GROUP LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
CURRENCY
NUMBER SHARE TRANSLATION RETAINED
OF SHARES CAPITAL RESERVE EARNINGS TOTAL$
---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994....................... 5,000,000 $ 266,500 $ 20,134 $ (77,749) $ 208,885
Net income.................................... 1,276,495 1,276,495
Issue of share capital........................ 1,250,000 81,250 81,250
Movement on foreign currency transaction
reserve..................................... 98,225 98,225
---------- ---------- ----------- ------------ ------------
Balance at March 31, 1995....................... 6,250,000 347,750 118,359 1,198,746 1,664,855
Net income.................................... 2,530,717 2,530,717
Movement on foreign currency transaction
reserve..................................... (25,394) (25,394)
---------- ---------- ----------- ------------ ------------
Balance at December 31, 1995 (unaudited)........ 6,250,000 $ 347,750 $ 92,965 $ 3,729,463 $ 4,170,178
---------- ---------- ----------- ------------ ------------
---------- ---------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-79
<PAGE>
BLUE STAR GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR -----------------------
ENDED MARCH DECEMBER DECEMBER
31, 1995 31, 1994 31, 1995
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 1,276,495 $ 979,012 $ 2,530,717
Adjustments to reconcile net income to net cash
provided by operating activities
Foreign exchange movement............................ 65,086 46,804 (33,079)
Depreciation and amortization........................ 1,054,100 541,759 5,927,907
Loss on disposal of equipment........................ 141,748 5,842 --
Minority interest.................................... (71,767) 672,556 114,928
Increase (decrease) in cash resulting from changes
in:
Accounts receivable................................ (7,586,941) (1,223,366) (18,491,854)
Inventories........................................ (1,825,185) (895,029) (4,798,993)
Accounts payable and accrued liabilities........... 4,316,020 2,194,873 5,862,811
Income tax payable................................. 281,358 475 1,267,207
----------- ---------- -----------
Total adjustments................................ (3,625,581) 1,343,914 (10,151,073)
----------- ---------- -----------
Net cash provided by (used for) operating activities... (2,349,086) 2,322,926 (7,620,356)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.................. (11,221,998) (1,049,025) (1,967,194)
Cash paid in acquisition............................. (2,745,343) (2,713,666) (2,159,201)
Proceeds from disposal of equipment.................. 504,173 38,177 --
Purchase of investments.............................. (812,977) (711,522) (495,198)
----------- ---------- -----------
Net cash used for investing activities................. (14,276,145) (4,436,036) (4,621,593)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from commercial bills....................... 6,792,500 1,895,375 7,770,700
Increases to long-term debt.......................... 3,776,190 -- 6,157,070
Loans and advances................................... 6,103,484 781,041 (1,684,007)
Purchase of treasury stock........................... (109,849) -- --
Proceeds from issuance of common stock............... 81,250 -- --
----------- ---------- -----------
Net cash provided by (used for) financing activities... 16,643,575 2,676,416 12,243,763
----------- ---------- -----------
NET (DECREASE) INCREASE IN CASH
CASH, beginning of period.............................. 18,344 563,306 1,814
Foreign exchange movements............................. (18,344) (16,798) (1,814)
----------- ---------- -----------
CASH, end of period.................................... $ -- $ 546,508 $
----------- ---------- -----------
----------- ---------- -----------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest........................................... $ 476,745 $ 455,775 $ 1,167,843
Taxes.............................................. 218,990 54,235 56,396
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-80
<PAGE>
BLUE STAR GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BUSINESS ORGANIZATION
Blue Star Group Limited and its subsidiaries ("the Company") is a wholesale
supplier of office supplies, office furniture, and computer equipment and retail
operator of office supply retail stores located in New Zealand. The consolidated
financial statements include the accounts of the Company and all its
subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--These financial statements have been prepared in
accordance with the accounting principles generally accepted in the United
States. The information included in these financial statements is presented in
U.S. dollars. The Company maintains its financial information in New Zealand
dollars and then translates this information into U.S. dollars for purposes of
these financial statements. Amounts denominated in New Zealand dollars at the
balance sheet dates are translated into U.S. dollars at the rate of exchange
prevailing at these dates. Transactions denominated in New Zealand dollars
during the year have been translated into U.S. dollars at rates approximating
the monthly average exchange rate.
REVENUE RECOGNITION--Revenues related to office products are recognized upon
the delivery of the products to the customer. The Company also leases equipment
to customers under both short term and long term lease agreements. Revenue
realted 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.
INVENTORIES--Inventories are stated at the lower of cost or net realisable
value and consist of products held for sale. Cost is determined using the
first-in, first-out (FIFO) method.
FIXED ASSETS--All fixed assets are initially recorded at cost. Fixed assets
other than land are depreciated at rates considered adequate to write off the
cost of assets over their estimated economic lives. Leasehold improvements are
depreciated over the shorter of 20% diminishing value or the term of the lease.
For other assets the following rates are used:
<TABLE>
<S> <C>
Buildings.............................................. 2% straight line
Motor vehicles......................................... 25% diminishing value
Plant and equipment.................................... 9.5%-40% diminishing value
Fixtures and fittings.................................. 9.5%-20% diminishing value
Telecommunications equipment........................... 16.7% straight line
</TABLE>
Expenditures for maintenance and repairs are charged against income as
incurred. When items of property are sold or otherwise disposed of, the cost and
related accumulated depreciation are eliminated from the accounts. Any gain or
loss is reflected in income.
Assets acquired under capital leases are included as fixed assets in the
balance sheet. Capital leases effectively transfer from the lessor to the lessee
substantially all the risks and benefits of ownership of the leased property.
Where assets are acquired by means of capital leases, the lower of the present
value of minimum lease payments or fair value is recognised as an asset at the
beginning of the lease term and depreciated over the expected useful life of the
leases asset on a basis consistent with similar assets. A corresponding
liability is also established and each lease payment is allocated between the
liability and interest expense.
Other leases where all the risks and benefits of ownership are effectively
retained by the lessor are classified as operating leases. Operating lease
payments are charged to expense over the periods of expected benefit.
F-81
<PAGE>
BLUE STAR GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment leased to customers under short term operating leases are included
as fixed assets in the balance sheet and depreciated over their expected useful
lives.
INCOME TAXES--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No.109, "Accounting of Income
Taxes". 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.
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 September 30, 1995 and 1994 and the results of operations and cash flows for
the six months then ended as presented in the accompanying unaudited interim
financial statements.
INVESTMENTS--are considered available for sale and are stated at market
value using the quoted price on the New Zealand Stock Exchange at the close of
business on the last day of the year. Changes in market value during the year
were insignificant.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
1995
-------------
<S> <C>
Freehold land.................................................................. $ 25,631
Buildings...................................................................... 1,599,043
Leasehold improvements......................................................... 571,659
Plant and equipment............................................................ 2,336,596
Furniture and fittings......................................................... 656,591
Motor vehicles................................................................. 369,613
Telecommunications equipment................................................... 10,429,033
-------------
15,988,166
Less: accumulated depreciation and amortization................................ (1,328,961)
-------------
Net property and equipment..................................................... $ 14,659,205
-------------
-------------
</TABLE>
Depreciation expense was approximately $986,486 for the year ended March 31,
1995.
NOTE 4--INTANGIBLE ASSETS
Intangible assets consist 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. The recoverability of unamortized goodwill
is assessed on an ongoing basis by comparing anticipated undiscounted future
cash flows from operations to net book value. Goodwill consists of the
following:
<TABLE>
<CAPTION>
MARCH 31,
1995
------------
<S> <C>
Goodwill........................................................................ $ 2,539,977
Less: Accumulated amortization.................................................. (80,082)
------------
$ 2,459,895
------------
------------
</TABLE>
Amortization expense was approximately $67,614 for the year ended March 31,
1995.
F-82
<PAGE>
BLUE STAR GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--LONG-TERM LEASE RECEIVABLES
<TABLE>
<CAPTION>
MARCH 31,
1995
------------
<S> <C>
Gross lease receivables......................................................... $ 5,156,855
Less unearned interest.......................................................... (928,855)
------------
4,228,000
Less current portion............................................................ 1,553,871
------------
Non-current receivables......................................................... $ 2,674,129
------------
------------
</TABLE>
NOTE 6--BUSINESS COMBINATIONS
During the year ended March 31, 1995, the Comapny completed several
acquisitions which were individually immaterial. The aggregate consideration
paid for these businesses approximated $3.1 millon which included cash of $2.7
million and borrowings of $.4 million. The net assets acquired approximated $1.6
million which resulted in the recognition of goodwill of $1.5 million. The
operating results of the businesses have been included in the Company's
financial statements from the effective date of the acquisitions.
NOTE 7--CREDIT FACILITIES
SHORT-TERM DEBT
Short term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1995
-------------
<S> <C>
Commercial bills payable to a bank, secured by the assets of the Company, excluding
finance receivables. Interest is charged at 11%. The facility has a review date of July
1996................................................................................... $ 11,082,501
Bank overdraft........................................................................... 393,002
Current maturities of long-term debt..................................................... 1,694,023
-------------
$ 13,169,526
-------------
-------------
</TABLE>
The bank overdraft bears interest at 12.4%. This facility is technically
repayable on demand and is due to be reviewed in July 1996. The overdraft is
secured by the Company's assets, excluding the finance receivables.
F-83
<PAGE>
BLUE STAR GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CREDIT FACILITIES (CONTINUED)
LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1995
-------------
<S> <C>
Draw down facility with a finance company to finance the sale of office equipment and
automation products. Facility capped at $6,500,000. Interest is payable at a rate of
12% and capital is repaid in accordance with the lease contract. The facility is
secured by the Company's lease receivables............................................. $ 3,070,488
Finance leases payable over the term of the contracts ranging from 1-5 years at an
interest rate of 12.5%................................................................. 466,441
Other loans partly secured over certain group properties at an average interest rate of
11.5%.................................................................................. 1,148,279
Less: Current maturities................................................................. (1,694,023)
-------------
$ 2,991,185
-------------
-------------
</TABLE>
Future annual maturities of long-term debt at March 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................. 1,694,023
1997............................................. 1,715,821
1998............................................. 1,170,045
1999............................................. 105,319
---------
4,685,208
---------
---------
</TABLE>
The bank borrowings have restricted covenants attached which necessitate a
minimum interest cover of 2.5 and maximum gearing levels.
SHAREHOLDER ADVANCES
Advances from shareholders of $10,327,419 are due on demand by the
shareholders but are subordinated to the amounts owed to the Bank and cannot be
called until the Bank has been repaid. These advances do not accrue an interest
charge.
F-84
<PAGE>
BLUE STAR GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LEASE OBLIGATIONS
The Company leases certain vehicle and office, store and warehouse space
under various non-cancellable lease arrangements which have been accounted for
as capital or operating leases, as appropriate. Future minimum, lease payments
required under long-term leases in effect at March 31, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL
(NET OF
IMPUTED
INTEREST OPERATING TOTAL
--------------- ------------ ------------
<S> <C> <C> <C>
1996.............................................. $ 103,772 $ 872,561 $ 976,333
1997.............................................. 128,675 747,331 876,006
1998.............................................. 128,675 747,331 876,006
1999.............................................. 105,319 510,693 616,012
2000.............................................. -- 272,321 272,321
--------------- ------------ ------------
466,441 $ 3,150,237 $ 3,616,678
------------ ------------
------------ ------------
Less current portion.............................. (103,772)
---------------
Long-term capitalized lease obligations........... $ 362,669
---------------
---------------
</TABLE>
Assets under capital lease with a cost of $405,219 and net book value of
$367,160 at March 31, 1995, are included in property and equipment in the
accompanying balance sheet. Amortization of the related lease obligations is
included within depreciation expense.
Rental expense for operating leases was $592,288 for the year ended March
31, 1995.
NOTE 9--INCOME TAXES
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
MARCH 31,
1995
-----------
<S> <C>
Current expense.................................................................. $ 656,361
Deferred (benefit)............................................................... (166,616)
-----------
$ 489,745
-----------
-----------
</TABLE>
The effective tax rate differs from the statutory tax rate as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
MARCH 31,
1995
-------------
<S> <C>
Statutory tax rate................................................................ 33.0%
Minority interest................................................................. (1.0)
Other--net........................................................................ (4.3)
---
27.7%
---
---
</TABLE>
Deferred income taxes of $166,616 as of March 31, 1995 relate to differences
in the amounts of depreciation recognized for income tax, as opposed to
financial reporting, purposes.
NOTE 10--COMMITMENTS AND CONTINGENCIES
There are no contingent liabilities outstanding at March 31, 1995.
F-85
<PAGE>
BLUE STAR GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
On March 31, 1995 a deposit had been paid on the purchase of a business from
Keycom Central Limited. The total purchase price had been agreed as $123,523.
There are no other commitments at March 31, 1995.
NOTE 11--FINANCIAL INSTRUMENTS
The Company is party to a number of financial instruments in the ordinary
course of business including lease and trade payables, lease and trade
receivables, bank overdrafts and investments. The group is not party to any
contracts with off balance sheet exposure. Financial instruments which
potentially subject the company to concenrations of credit risk consist of cash
and receivables.
LEASE RECEIVABLES
The Company has entered into lease arrangements with customers comprising
principal and interest receivables. The Company has a credit policy through
which credit risk is managed. Under this policy management have assessed the
collectability of debtors and this is represented by a due allowance for
doubtful accounts. The maximum exposure of credit risk on receivables due from
customers is equal to the principal and unearned interest outstanding.
TRADE RECEIVABLES
The maximum credit risk is the book value of these financial instruments.
<TABLE>
<S> <C>
Total lease receivables...................... 5,156,855
Total trade receivables...................... 8,266,585
-----------
Total credit risk............................ 13,423,440
-----------
-----------
</TABLE>
Concentrations of credit risk with respect to trade and other receivables
are limited due to the relatively low value owed by any single customer.
NOTE 12--SUBSEQUENT EVENT
On December 11, 1995 the US Office Products Company ("US Office Products")
entered into an agreement with Blue Star Group Limited pursuant to which US
Office Products will acquire a 51% interest in Blue Star Group Limited.
F-86
<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
F-87
<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.
F-88
<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>
F-89
<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>
F-90
<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) (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) (244,056) 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 (693,117) (242,710)
--------- --------- ----------
Cash flows from investing activities:
Capital expenditures (318,769) (317,435) (61,364)
Proceeds from sale of marketable securities 1,000,000 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 604,866 682,565 (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 (403,432) (1,105,592)
Cash at beginning of period 682,036 682,036 1,906,070
---------- ---------- ------------
Cash at end of period $1,906,070 $ 278,604 $ 800,478
---------- ---------- -------------
Supplemental information:
Interest paid $ 191 $ -- $ --
---------- ----------- -----------
</TABLE>
F-91
<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
F-92
<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>
F-93
<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.
F-94
<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.
F-95
<PAGE>
FOR THE YEAR ENDED 30 JUNE 1995
- -------------------------------------------------------------------------------
KPMG PEAT MARWICK
To the shareholders of U-Bix Business Machines Limited
We have audited the financial statements on pages 13 to 28. The financial
statements provide information about the past financial performance and
financial position of the company and group as at 30 June 1995. This information
is stated in accordance with the accounting policies set out on page 19.
DIRECTORS' RESPONSIBILITIES
The Directors are responsible for the preparation of financial statements
which give a true and fair view of the financial position of the company and
group as at 30 June 1995 and of the results of their operations and cash flows
for the year ended 30 June 1995.
AUDITORS' RESPONSIBILITIES
It is our responsibility to express an independent opinion on the financial
statements presented by the Directors and report our opinion to you.
BASIS OF OPINION
An audit includes examining, on a test basis, evidence relevant to the
amounts and disclosures in the financial statements. It also includes assessing:
- - the significant estimates and judgments made by the Directors in the
preparation of the financial statements, and
- - whether the accounting policies are appropriate to the company and group
circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with generally accepted auditing standards
in New Zealand. We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in order to provide
us with sufficient evidence to give reasonable assurance that the financial
statements are free from material misstatements, whether caused by fraud or
error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
Our firm carries out other assignments for the company and certain of its
subsidiaries in the area of special consultancy projects. Partners and employees
of our firm also deal with the company and group on normal terms withing the
ordinary course of trading activities of the business of the company and group.
The firm has no other interest in the company or any of its subsidiaries.
UNQUALIFIED OPINION
We have obtained all the information and explanations we have required.
IN OUR OPINION:
- - proper accounting records have been kept by the company as far as appears
from our examination of those records; and
- - the financial report on pages 13 to 28:
-- complies with generally accepted accounting practice;
-- gives a true and fair view of the financial position of the company and
group as at 30 June 1995 and the results of their operations and cash
flows for the year ended on that date.
Our audit was completed on 9 August 1995 and our unqualified opinion is
expressed as at that date.
Auckland
- ------------------------------------------------------------------------------
F-97
<PAGE>
STATEMENT OF EARNINGS
- ------------------------------------------------------------------------------
FOR THE YEAR ENDED 30 JUNE 1995
<TABLE>
<CAPTION>
Consolidated Parent
1995 1994 1995 1994
NOTES $000 $000 $000 $000
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Revenues 113,525 107,992 106,193 100,486
- --------------------------------------------------------------------------------------------------------------------
Earnings Before Taxation And Non Recurring Items 2a 4,524 6,403 3,318 4,578
Less Non Recurring Items:
Restructuring Costs -- 754 -- 754
Provision For Future Losses On Existing Copyplan
Contracts -- 820 -- 820
Provision for Contract Risk 2b 908 -- 908 --
- --------------------------------------------------------------------------------------------------------------------
Earnings Before Tax After Non Recurring Items 3,616 4,829 2,410 3,004
Less:
Provision For Taxation 3 1,352 1,756 1,174 1,157
- --------------------------------------------------------------------------------------------------------------------
Earnings After Taxation 2,264 3,073 1,236 1,847
Retained Earnings Brought Forward 17,450 17,013 15,575 16,364
- --------------------------------------------------------------------------------------------------------------------
19,714 20,086 16,811 18,211
Less:
Dividends 4 1,854 2,636 1,854 2,636
- --------------------------------------------------------------------------------------------------------------------
Retained Earnings Carried Forward $ 17,860 $ 17,450 $ 14,957 $ 15,575
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTE ON PAGE 19 TO 28 FORM PART OF AND SHOULD BE READ IN CONJUNCTION
WITH THESE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
F-98
<PAGE>
BALANCE SHEETS
AS AT 30 JUNE 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Parent
1995 1994 1995 1994
Notes $000 $000 $000 $000
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Operations Excluding Financing Activities
CURRENT ASSETS:
Cash at Bank 4 7,939 -- 7,914
Accounts Receivable 13,448 12,859 13,307 12,773
Inventory 5 18,155 14,227 18,092 14,207
Prepayments And Other Receivables 551 494 551 494
Tax Receivable 723 523 722 526
Due From Subsidiaries -- -- 18,942 11,334
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets: 32,881 36,042 51,614 47,248
- --------------------------------------------------------------------------------------------------------------------
Investments In Subsidiaries -- -- 2,377 2,603
Fixed Assets 6 5,753 5,400 5,721 5,369
Goodwill On Consolidation 1,774 2,002 --
- --------------------------------------------------------------------------------------------------------------------
Total Assets Excluding Financing Activities 40,408 43,444 59,712 55,222
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash At Bank: 1,127 2,041 -- --
Lease Receivables 7 82,085 72,288 -- --
Prepayments 247 -- -- --
Tax Receivable 28254 12636 -- --
- --------------------------------------------------------------------------------------------------------------------
Total Assets Financing Activities 83,741 74,341 -- --
- --------------------------------------------------------------------------------------------------------------------
Total Assets $ 124,149 $ 117,785 $ 59,712 $ 55,222
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTE ON PAGE 19 TO 28 FORM PART OF AND SHOULD BE READ IN CONJUNCTION
WITH THESE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
F-99
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Consolidated Parent
1995 1994 1995 1994
Notes $000 $000 $000 $000
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Operations Excluding Financing Activities
CURRENT LIABILITIES
Bank Overdraft 2,789 2,789
Accounts Payable 10,686 7,8719 10,601 7,8013
Unearned Interest--Parent -- 5,201 5,874
Bills Payable 4,056 3,280 4,056 3,280
Provision for Dividends 4 870 1,466 870 1,466
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities: 18,401 12,617 23,517 18,421
- --------------------------------------------------------------------------------------------------------------------
Deferred Taxation 3 4,552 5,093 4,552 5,093
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities Excluding Financing Activities 22,953 17,710 28,069 23,514
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES -- -- 2,377 2,603
Borrowings 8 66,650 66,000 --
Accrued Charges -- 492 --
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities Financing Activities 66,650 66,492 -- --
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 89,603 84,202 28,069 23,514
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Issued Capital 9 497 489 497 489
Share Premium Reserve 10 16,189 15,644 16,189 15,644
Retained Earnings 17,860 17,450 14,957 15,575
- --------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 34,546 33,583 31,643 31,708
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 124,149 $ 117,785 $ 59,712 $ 55,222
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Director Director
On behalf of the board
9 August 1995
THE NOTE ON PAGE 19 TO 28 FORM PART OF AND SHOULD BE READ IN CONJUNCTION
WITH THESE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
F-100
<PAGE>
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 1995 STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Consolidated Parent
1995 1994 1995 1994
$000 $000 $000 $000
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
CASH WAS PROVIDED FROM:
Receipts from Customers 103,204 96,877 105,837 101,016
CASH WAS APPLIED TO:
Payments to Suppliers and Employees 101,806 93,314 101,144 92,185
Goods and Services Tax 1,856 1,471 1,837 1,463
Income Taxes Paid 2,343 2,311 1,890 1,560
Interest Paid 5,650 4,565 231 289
- --------------------------------------------------------------------------------------------------------------------
111,655 101,661 105,102 95,497
- --------------------------------------------------------------------------------------------------------------------
Net Cash Flows From Operating Activities (8,451) (4,784) 735 5,519
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
CASH WAS PROVIDED FROM:
Proceeds from Sales of Fixed Assets 4 169 4 13
CASH WAS APPLIED TO:
Acquisition of Fixed Assets 1,944 3,192 1,937 3,107
Advances to Subsidiary Companies -- -- 7,608 1,341
- --------------------------------------------------------------------------------------------------------------------
1,944 3,1921 9,545 4,448
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,940) (3,023) (9,541) (4,435)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTE ON PAGE 19 TO 28 FORM PART OF AND SHOULD BE READ IN CONJUNCTION
WITH THESE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
F-101
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Consolidated Parent
1995 1994 1995 1994
$000 $000 $000 $000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
CASH WAS PROVIDED FROM:
Issue Of Shares -- 10,057 -- 10,507
New Borrowings 650 11,000 --
- --------------------------------------------------------------------------------------------------------------------
650 21,057 -- 10,057
CASH WAS APPLIED TO:
Dividends Paid 1,897 1,582 1,897 1,582
- --------------------------------------------------------------------------------------------------------------------
Net Cash from Financing Activities (1,247) 19,475 (1,897) 8,475
- --------------------------------------------------------------------------------------------------------------------
Net Increase/Decrease In Cash Held (11,638) 11,668 (10,703) 9,559
Add Opening Cash Brought Forward 9,980 1,688 7,914 1,645
- --------------------------------------------------------------------------------------------------------------------
Ending Cash Carried Forward $ (1,658) 59,980 $ (2,789) $ 7,914
- --------------------------------------------------------------------------------------------------------------------
MADE UP AS FOLLOWS:
Cash at Bank 1,131 9,980 -- 7,914
Bank at Overdraft (2,789) -- (2,789)
- --------------------------------------------------------------------------------------------------------------------
$ (1,658) $ 9,980 $ (2,789) $ 7,914
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
Earnings After Taxation 2,264 3,073 1,236 1,847
ADD NON CASH ITEMS:
Depreciation and Loss on Sale of Fixed Assets 1,587 1,274 1,581 1,204
Goodwill Written Off 228 203 228 203
Decrease in Deferred Taxation (541) 428 (541) 428
- --------------------------------------------------------------------------------------------------------------------
3,538 4,978 2,504 3,682
ADJUSTMENT FOR OTHER ITEMS:
Increase In Lease Receivables 9,797) (12,760) --
Increase In Reconciliation (646) 1,668 (787) 439
Increase In Inventory (3,928) 483 (3,885) 17
Increase in Payables 2,382 827 2,903 1,361
Cash Flows from Operating Activities $ (8,451) $ (4,784) $ 735 $ 5,519
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTE ON PAGE 19 TO 28 FORM PART OF AND SHOULD BE READ IN CONJUNCTION
WITH THESE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
F-102
<PAGE>
STATEMENT OF MOVEMENTS IN EQUITY
FOR THE YEAR ENDED 30 JUNE 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Consolidated Parent
1995 1994 1995 1994
$000 $000 $000 $000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Shareholders' Equity At 1 July 1994 33,583 22,043 31,708 21,394
Net Profit After Tax 2,264 3,073 1,236 1,847
Issue of Shares -- 10,057 -- 10,057
- --------------------------------------------------------------------------------------------------------------------
35,847 35,173 32,944
1995 Dividends Paid in Cash And Payable at 30 June 1995 (1,301) (1,590) (1,301) (1,590)
- --------------------------------------------------------------------------------------------------------------------
Shareholders' Equity at 30 June 1995 $ 34,546 $ 33,583 $ 31,643 $ 31,708
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTE ON PAGE 19 TO 28 FORM PART OF AND SHOULD BE READ IN CONJUNCTION
WITH THESE FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
F-103
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1995
- --------------------------------------------------------------------------------
1. STATEMENT OF ACCOUNTING POLICIES
GENERAL ACCOUNTING POLICIES
The general accounting policies, as recommended by the New Zealand Society
of Accountants, for the measurement and reporting of results and financial
position under the historical cost method have been followed in the preparation
of the financial statements.
Accrual accounting has been applied. Reliance is placed on the fact that the
company is a going concern.
These accounts have been prepared under the statutory base of the Companies Act
1955 and the Financial Reporting Act 1993.
PARTICULAR ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the parent and all its subsidiaries and have been prepared using the purchase
method.
The significant subsidiary which is 100 per cent owned by the company is U-Bix
Finance Limited. All inter company transactions have been eliminated.
Goodwill arising on consolidation is being amortised on a straight line basis
over 10 years.
DEPRECIATION
Fixed assets have been depreciated on a straight line basis at rates which
will write off cost less estimated residual values, over their estimated
economic lives.
Furniture, fittings and equipment 3 - 5 years
Leasehold improvements 5 years
ACCOUNTS RECEIVABLE
Accounts receivable are stated after due allowance for doubtful debts.
LEASE RECEIVABLE
Lease receivables represent the total amounts due from customers after due
allowance for doubtful debts, unearned interest income and Goods and Services
Tax not yet collected. Interest income on these receivables is recognised on an
actuarial basis.
INVENTORY
Inventory is valued at the lower of cost and net realisable value with an
appropriate provision for damage or obsolescence.
Cost has been identified using either the first in first out method or the
weighted average cost method, and includes all those costs associated with
bringing the items to their existing condition and location.
FOREIGN CURRENCY
Foreign currency transactions throughout the year have been converted to
local currencies at the ruling rate of exchange at the date of payment. Foreign
currency assets and liabilities at year end are converted at rates of exchange
ruling at balance date. Realised and unrealised gains and losses are charged
against profit in the year in which they arise.
F-104
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 1995
- --------------------------------------------------------------------------------
OFF BALANCE SHEET FINANCIAL ITEMS
The group has entered into off balance sheet forward exchange contracts and
interest rate swap agreement for the purpose of reducing its exposure to
fluctuations in foreign exchange rates and interest rates.
For forward exchange rates the differential between the spot rate and the
forward exchange rate is recognised in the Statement of Earnings. For interest
rate swaps the differential between the interest rate received and the interest
paid is recognised in the Statement of Earnings.
BONDS
Bonds issued are recorded at the value received and interest payable is
calculated on an accrual basis. Premiums or discounts arising on the issue of
bonds are recognised on a straight line basis.
TAXATION
The company recognises both current and deferred tax. The provision for
current income tax is the net amount of the estimated tax liability in respect
of taxable income after all allowable deductions have been made. The
comprehensive liability method is used for calculating timing differences.
STATEMENT OF CASH FLOWS
Investing activities comprise the acquisition and disposal of fixed assets
and subsidiaries which can be used in the operations of the company.
Financing activities comprise the change in equity capital of the company and
cost of servicing the equity capita. They also now include the cash flows from
financing of the Company's lease receivables in accordance with the requirement
of FRS10.
Operating activities comprise all other activities.
CHANGES IN ACCOUNTING POLICIES
There have been no changes in accounting policies during the year other than
the presentation of borrowings in the statement of cash flows as noted above.
F-105
<PAGE>
- --------------------------------------------------------------------------------
2a. EARNINGS BEFORE TAXATION
<TABLE>
<CAPTION>
CONSOLIDATED PARENT
---------------------- ------------------
1995 1994 1995 1994
$000 $000 $000 $000
---------- ---------- --------- -------
<S> <C> <C> <C> <C>
EARNINGS BEFORE TAXATION ARE ARRIVED AT
AFTER CHARGING CREDITINGS:
Audit Fees 92 78 92 78
Depreciation 1,587 1,274 1,581 1,204
Directors' Fees 95 -- 95 --
Lease And Rental Costs 3,441 3,096 3,441 3,096
Interest Received (12,515) (11,451) (5,519) (5,337)
INTEREST PAID:
Borrowings 5,957 4,399 -- --
Other 161 289 231 289
Goodwill Written Off 228 203 228 203
- ---------------------------------------------------------------------------------------------
</TABLE>
2b. NON RECURRING ITEMS
An assessment has been made of the potential future losses on all existing
contracts with customers. These losses encompass all expected exposure including
potential losses on residual value, and contracts which may not run for full
term.
F-106
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 1995
- --------------------------------------------------------------------------------
3. TAXATION
<TABLE>
<CAPTION>
CONSOLIDATED PARENT
-------------------- --------------------
1995 1994 1995 1994
$000 $000 $000 $000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings Before Taxation Cash was provided from: 3,616 4,829 2,410 3,004
Plus Non Deductible Expenditure 577 407 707 465
--------- --------- --------- ---------
4,193 5,236 3,177 3,469
--------- --------- --------- ---------
Taxation At Applicable Rates 1,384 1,728 1,029 1,145
(Over)/Under Provision Prior Year (32) 28 145 12
--------- --------- --------- ---------
$ 1,352 $ 1,756 $ 1,174 $ 1,157
--------- --------- --------- ---------
--------- --------- --------- ---------
THIS AMOUNT CONSISTS OF:
Current Taxation 1,893 1,328 1,715 729
Deferred Taxation (541) 428 (541) 428
--------- --------- --------- ---------
$ 1,352 $ 1,756 $ 1,174 $ 1,157
--------- --------- --------- ---------
--------- --------- --------- ---------
RECONCILIATION OF DEFERRED TRANSACTION BALANCE
Balance As At 1 July 1994 5,093 4,665 5,093 4,665
Current Year Change (541) 428 (541) 428
--------- --------- --------- ---------
Balance as At 30 June 1995 $ 4,552 $ 5,093 $ 4,552 $ 5,093
--------- --------- --------- ---------
--------- --------- --------- ---------
IMPUTATION TAXATION CREDIT ACCOUNT
Balance as At 1 July 1994 6,652 5,537 5,554 5,190
Income Taxes Paid 2,343 2,311 1,890 1,560
Dividends Paid to Shareholders (1,207) (1,196) (1,207) (1,196)
Impact Of Shareholding Change (7,788) -- (6,237) --
--------- --------- --------- ---------
Balance As At 30 June 1995 -- $ 6,652 -- $ 5,554
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Since balance date there has been a change in shareholding which has resulting
in the balance of the imputation taxation credit account being lost.
F-107
<PAGE>
- --------------------------------------------------------------------------------
4. DIVIDENDS
<TABLE>
<CAPTION>
CONSOLIDATED AND
PARENT
--------------------
1995 1994
$000 $000
--------- ---------
<S> <C> <C>
DIVIDENDS PAID OR PROVIDED DURING THE YEAR:
1995 Interim Dividend 986 971
1995 Final Dividend Proposed 870 1,466
Under/(Over) Provision Of Dividend In Prior Years (2) (2)
1 For 1 Bonus Issue On 21 October 1993 -- 201
--------- --------
$ 1,854 $ 2,636
--------- --------
--------- --------
</TABLE>
A proposed final dividend of $870,000 has been announced which represents 3.5
cents per share giving a total dividend for the year of 7.5 cents per share.
The company has a scheme to issue fully paid ordinary shares to shareholders who
elect to receive shares in lieu of cash dividends. The company will recognise
the shares when they are issued.
5. INVENTORY
<TABLE>
<CAPTION>
CONSOLIDATED PARENT
-------------------- --------------------
1995 1994 1995 1994
$000 $000 $000 $000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INVENTORY COMPRISES THE FOLLOWING:
Finished Goods 17,629 13,926 17,566 13,906
Inventory in Transit 526 301 526 301
--------- --------- --------- ---------
$ 18,155 $ 14,227 $ 18,092 $ 14,207
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. FIXED ASSETS
<TABLE>
<CAPTION>
CONSOLIDATED PARENT
-------------------- --------------------
1995 1994 1995 1994
$000 $000 $000 $000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Furniture, Fittings and Equipment Cost 9,894 8,222 9,847 8,182
Less Accumulated Depreciation 4,361 2,946 4,346 2,937
--------- --------- --------- ---------
5,533 5,276 5,501 5,245
--------- --------- --------- ---------
Leasehold Improvements Cost 861 708 861 708
Less Accumulated Depreciation 641 584 641 584
--------- --------- --------- ---------
220 124 220 124
--------- --------- --------- ---------
$ 5,753 $ 5,400 $ 5,721 $ 5,369
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-108
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 1995
- --------------------------------------------------------------------------------
7. LEASE RECEIVABLES
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------
1995 1994
$000 $000
---------- ---------
<S> <C> <C>
Lease Receivables 100,672 90,415
Less Provision for Unearned Income 18,587 18,127
---------- ---------
$ 82,085 $ 72,288
---------- ---------
---------- ---------
THE LEASE RECEIVABLES ARE DUE TO MATURE AS FOLLOWS:
Within 1 Year 27,581 21,282
1 -- 2 Years 14,842 12,187
2 -- 5 Years 39,662 38,819
---------- ---------
$ 82,085 $ 72,288
---------- ---------
---------- ---------
</TABLE>
8. BORROWINGS
(A) OPERATIONS EXCLUDING FINANCING ACTIVITIES
The Company has a bank overdraft facility securities by a first debenture
floating charge over certain assets of the Parent Company.
(B) FINANCING ACTIVITIES
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------
1995 1994
$000 $000
--------- ---------
<S> <C> <C>
Borrowings are secured by floating rate
debenture stock issued by U-Bix
Finance Limited under its Trust Deed dated
31 May 1991 $ 66,650 $ 66,000
--------- ---------
--------- ---------
</TABLE>
The debenture stock is secured over the lease receivables.
Facilities have been provided by a number of financiers and have terms that vary
between 1 - 3 years with annual rights of renewal. The average current interest
rate is 10.3% (1994: 8%).
THE FACILITIES ARE DUE TO MATURE AS FOLLOWS:
<TABLE>
<CAPTION>
CONSOLIDATED
--------------------
1995 1994
$000 $000
--------- ---------
<S> <C> <C>
Within 1 Year 50,000 18,000
1 -- 2 Years 12,000 15,000
2 -- 3 Years 4,650 33,000
--------- ---------
$ 66,650 $ 66,000
--------- ---------
--------- ---------
</TABLE>
F-109
<PAGE>
- --------------------------------------------------------------------------------
9. SHARE CAPITAL
<TABLE>
<CAPTION>
CONSOLIDATED AND
PARENT
--------------------
1995 1994
$000 $000
--------- ---------
<S> <C> <C>
(A) AUTHORISED CAPITAL
500,000,000 ordinary shares of 2 cents each $ 10,000 201
--------- ---------
--------- ---------
(B) ISSUED
As a 1 July 1994, 24,434,589 ordinary shares of 2 cents each 489 201
In lieu of 1994 final dividend 221,260 ordinary shares of 2 cents each 4 3
1 for 1 bonus issued of 10,057,297 ordinary shares of 2 cents each on 15 October 1993 - 201
1 for 5 cash issue of 4,022,768 ordinary shares of 2 cents each on 15 October 1993 - 81
In lieu of 1995 interim dividend 202,910 ordinary shares of 2 cents each 4 3
--------- ---------
Issued and paid up capital as at 30 June 1995 24,858,759 ordinary shares of 2 cents each $ 497 $ 489
--------- ---------
--------- ---------
</TABLE>
(C) SHARE OPTIONS
The Annual General Meeting on 21 October 1994 approved a new Executive
Share Option Plan. This plan proposed that up to 1,400,000 options be
issued to Senior Executives of the Company with each option conferring the
right of the holder to subscribe for one fully paid share in the Company in
accordance with the provisions of the plan. As at 30 June 1995 820,000
options have been issued, (including 400,000 issued to Mr. K.R. Doddrell,
The Managing Director). In accordance with the plan, none of these options
were eligible to be exercised.
The 420,000 Share options issued pursuant to the Employee Share Option
Scheme approved at the 1992 Annual General Meeting lapsed on 30 June 1995,
none of which were exercised.
10. SHARE PREMIUM RESERVE
<TABLE>
<CAPTION>
CONSOLIDATED AND
PARENT
--------------------
1995 1994
$000 $000
--------- ---------
<S> <C> <C>
Balance As At 1 July 1994 15,644 4,829
MOVEMENTS RELATING TO SHARES ISSUED IN LIEU OF:
1 for 5 Cash Issue - 9,976
1994 Final Dividend 313 468
1995 Interim Dividend 232 371
--------- ---------
Balance As At 30 June 1995 $ 16,189 $ 15,644
--------- ---------
--------- ---------
</TABLE>
F-110
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 1995
- --------------------------------------------------------------------------------
11. COMMITMENTS
<TABLE>
<CAPTION>
CONSOLIDATED AND
PARENT
--------------------
1995 1994
$000 $000
--------- ---------
<S> <C> <C>
LEASE AND RENTAL COMMITMENTS UNDER OPERATING LEASES ARE:
Current 2,424 2,164
1 - 2 Years 1,347 1,325
2 - 3 Years 1,308 1,274
3 - 4 Years 1,112 1,246
4 - 5 Years 1,095 1,063
5 and Over Years 2,618 3,546
--------- ---------
$ 9,904 $ 10,619
--------- ---------
--------- ---------
</TABLE>
There are no capital expenditure commitments for the group as at 30 June 1995
(1994 - Nil).
12. CONTINGENT LIABILITIES
In 1994, the Company entered into an agreement with Ericsson Communications
Limited for the sale of Cellular lease receivables. As a condition of the
agreement, the Company had an obligation to make a specified number of
connections to the Cellular Network for the year to 30 June 1995. Additionally
the Company had an obligation to sell a minimum quantity of Ericsson
Communications Limited products. The Company did not meet its obligations under
these agreements and has provided in the Financial Statements for a sum which it
expects will represent its maximum obligation to Ericsson Communications
Limited. Accordingly, the Directors do not foresee any further contingent
liability exists.
F-111
<PAGE>
- --------------------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS
The group is party to a number of financial instruments in the ordinary
course of business including bonds issued, lease and trade payables, lease and
trade receivables, bank overdrafts, forward exchange contracts and interest rate
swaps.
The purpose of these financial instruments is to meet financing requirements
and reduce exposure to movements in exchange rates and interest rates.
CREDIT RISK
The group has entered into off balance sheet foreign exchange contracts and
interest rate swaps with Trading Banks. The notional principal amounts under
these arrangements are as follows:
<TABLE>
<CAPTION>
1995 1994
$000 $000
--------- ---------
<S> <C> <C>
Interest Rate Swaps 32,500 5,000
Foreign Exchange Contracts 2,111 4,123
</TABLE>
The credit risk arising from the potential non performance of these contracts is
limited to the differential between the contract rates and the market rates
prevailing at the maturity of the contract. The company does not expect
non-performance of the obligations due to the credit rating of the counterparts
concerned.
The group has entered into lease arrangements with customers comprising
principal and interest receivables. The group has a credit policy which is used
to manage exposure to the associated credit risk. Under this policy management
have assessed the collectibility of debtors and this is represented by a due
allowance for doubtful debts.
The maximum exposure to credit risk on receivables due from customers is equal
to the sum of principal and unearned interest outstanding less Goods and
Services Tax not yet collected as follows:
<TABLE>
<S> <C> <C>
Lease Receivables 100,672 90,415
Accounts Receivable 13,431 12,334
--------- ---------
114,103 102,749
--------- ---------
--------- ---------
</TABLE>
The proportion of receivables owed by the five largest parties represents 7% of
the total receivables and are expected to be fully recoverable.
F-112
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 1995
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
It is the opinion of the directors that the carrying value of financial
instruments approximates the fair value for all on balance sheet financial
instruments and interest rate swaps.
The estimated fair value of the company's off balance sheet financial
instruments are as follows:
<TABLE>
<CAPTION>
1995 1995 1994 1994
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
$000 $000 $000 $100
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Off Balance Sheet
Foreign Currency Forward Exchange Contracts -- 40 -- 133
Interest Rate Swaps -- 44 -- 150
</TABLE>
14. PRINCIPAL ACTIVITIES
The group's principal activity is the sale, financing and servicing of
business machines and other associated office products. These activities are
primarily carried out in New Zealand.
F-113
<PAGE>
UBIX BUSINESS MACHINES LIMITED
CONDENSED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
As At As At
31/12/95 30/6/95
(Audited) (Audited)
$000 $000
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash at Bank 1,082 1,131
Accounts Receivable 9,291 14,749
Lease Receivables 27,795 26,801
Inventory 17,607 18,155
Prepayments and other receivables 1,141 1,803
NET CURRENT ASSETS
Fixed Assets 6,003 5,753
Goodwill on Consolidation -- 1,774
Lease Receivables 51,933 52,963
---------- ----------
57,996 60,490
---------- ----------
TOTAL ASSETS 114,912 123,129
---------- ----------
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Bank overdraft 6,743 6,105
Accounts payable 8,714 10,406
Current borrowing 70,300 50,000
Provisions for dividend -- 870
---------- ----------
87,757 67,381
NON CURRENT LIABILITIES
Deferred Tax 1,742 4,552
---------- ----------
Term borrowing -- 16,650
---------- ----------
1,742 21,202
---------- ----------
TOTAL LIABILITIES 87,499 88,583
---------- ----------
---------- ----------
EQUITY
Issued capital 507 497
Share Premium Reserve 16,655 16,189
Retained Earnings 10,251 34,546
---------- ----------
TOTAL EQUITY 27,413 34,546
---------- ----------
114,912 123,129
---------- ----------
---------- ----------
</TABLE>
F-114
<PAGE>
UBIX BUSINESS MACHINES LIMITED
CONDENSED STATEMENT OF FINANCIAL PERFORMANCE
<TABLE>
<CAPTION>
6 months to 12 months to
31/12/95 30/6/95
(Audited) (Audited)
$000 $000
<S> <C> <C>
Revenues 50,221 113,525
------------- -------------
------------- -------------
Net Profit/(Loss) before taxation and non recurring items
(Note 6) (1,625) 4,524
Non-recurring items (8,585) (908)
------------- -------------
Net Profit/(Loss) before taxation (10,210) 3,616
Provision for taxation 2,601 (1,352)
------------- -------------
Net Profit/(Loss) after taxation (7,609) 2,264
Retained Earnings brought forward 17,860 17,450
------------- -------------
10,251 19,714
Less Dividends -- 1,854
------------- -------------
Retained Earnings carried forward 10,251 17,860
------------- -------------
------------- -------------
</TABLE>
F-115
<PAGE>
UBIX BUSINESS MACHINES LIMITED
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
6 months to 12 months to
31/12/95 30/6/95
(Audited) (Audited)
$000 $000
<S> <C> <C>
Cash Flows from Operating Activities (2,837) (8,451)
Cash Flows used in Investing Activities (1,106) (1,940)
Cash Flows from Financing Activities 3,256 (1,247)
------------- -------------
Net Increase/(Decrease) in Cash Held (687) (11,638)
------------- -------------
------------- -------------
</TABLE>
F-116
<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
F-116
<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.
F-117
<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.
F-118
<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.
F-119
<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.
F-120
<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.
F-121
<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
----------
----------
F-122
<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.
F-123
<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.
F-124
<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.
F-125
<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
F-126
<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.
F-127
<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.
F-128
<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.
F-129
<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.
F-130
<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.
F-131
<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.
F-132
<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
========
F-133
<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.
F-134
<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.
F-135
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
New Office Plus, Inc.
Green Bay, Wisconsin
We have audited the accompanying balance sheet of New Office Plus, Inc.
as of December 31, 1995, and the related statements of income, retained
earnings and cash flows for the year 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 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 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 audit provides 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 New Office Plus,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
SHINNERS, HUCOVSKI AND COMPANY, S.C.
July 3, 1996
F-136
<PAGE>
NEW OFFICE PLUS, INC.
BALANCE SHEETS
December 31, 1995 and March 31, 1996
<TABLE>
<CAPTION>
(unaudited)
December 31, March 31,
ASSETS 1995 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 64,889 $ 65,280
Receivables:
Trade, less allowance for
uncollectible accounts of
$5,000 1,305,076 1,445,409
Rebates 147,800 138,661
Inventories (note 2) 905,985 946,720
Prepaid expenses - 11,397
Notes receivable - stockholders 18,200 18,200
------------ -----------
Total current assets 2,441,950 2,625,667
OTHER ASSETS
Cash value of life insurance 60,259 60,259
Investment (note 3) 17,200 17,200
------------ -----------
77,459 77,459
PROPERTY AND EQUIPMENT
Office furniture and equipment 334,496 334,496
Vehicles 442,407 442,407
Leased machines 89,974 89,974
Computer equipment 268,852 269,014
Leasehold improvements 93,428 93,428
------------ -----------
1,229,157 1,229,319
Less accumulated depreciation 813,639 848,040
------------ -----------
415,518 381,279
------------ -----------
$ 2,934,927 $ 3,084,405
============ ===========
</TABLE>
See Notes to Financial Statements.
F-137
<PAGE>
<TABLE>
<CAPTION>
(unaudited)
December 31, March 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Note payable - line of credit (note 4) $ 52,000 $ 312,000
Current maturities of long-term debt
(note 5) 83,000 50,000
Accounts payable 514,265 547,182
Accrued expenses:
Sales tax 44,509 44,401
Real estate taxes 31,935 9,006
Payroll and payroll taxes 111,784 80,826
Interest 1,317 1,317
Vacation 55,000 55,000
Deferred revenue on service contracts 250,000 250,000
------------ -----------
Total current liabilities 1,143,810 1,349,732
LONG-TERM DEBT, less current maturities
(note 5) 180,314 209,307
COMMITMENT
STOCKHOLDERS' EQUITY
Common stock, par value $100 per share;
authorized 750 shares; issued and
outstanding 500 shares 50,000 50,000
Retained earnings 1,560,803 1,475,366
------------ -----------
1,610,803 1,525,366
------------ -----------
$ 2,934,927 $ 3,084,405
============ ===========
</TABLE>
F-138
<PAGE>
NEW OFFICE PLUS, INC.
STATEMENTS OF INCOME
Year Ended December 31, 1995 and
Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
(unaudited)
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1995 1996 1995
------------ ---- ----
<S> <C> <C> <C>
Sales $13,187,410 $3,595,727 $3,282,187
Cost of sales 8,738,412 2,389,586 2,159,703
----------- ---------- ----------
Gross profit 4,448,998 1,206,141 1,122,484
Operating expenses 4,051,438 1,081,560 997,472
----------- ---------- ----------
Operating income 397,560 124,581 125,012
Other income (expense):
Miscellaneous income 15,264 64 1,192
Interest income 7,754 1,420 2,882
Interest expense (56,704) (8,257) (15,057)
----------- ---------- ----------
(33,686) (6,773) (10,983)
----------- ---------- ----------
Net income $ 363,874 $ 117,808 $ 114,029
----------- ---------- ----------
----------- ---------- ----------
Pro forma net income
(note 10) $ 222,874 $ 71,800 $ 70,000
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-139
<PAGE>
NEW OFFICE PLUS, INC.
STATEMENTS OF RETAINED EARNINGS
Year Ended December 31, 1995 and
Three Months Ended March 31, 1996
RETAINED
EARNINGS
--------
Balance, January 1, 1995 $1,291,649
Net income 363,874
Distributions to stockholders (94,720)
----------
Balance, December 31, 1995 1,560,803
Net income (unaudited) 117,808
Distributions to stockholders
(unaudited) (203,245)
----------
Balance, March 31, 1996
(unaudited) $1,475,366
----------
----------
See Notes to Financial Statements.
F-140
<PAGE>
NEW OFFICE PLUS, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31, 1995 and
Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
(unaudited)
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1995 1996 1995
------------ ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 363,874 $ 117,808 $ 114,029
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 183,524 34,401 47,360
Gain on sale of equipment (2,828) -- --
Changes in operating assets and
liabilities:
Trade receivables (135,142) (140,333) (141,938)
Rebates receivable (23,500) 9,139 --
Inventories (62,391) (40,735) (205,598)
Prepaid expenses -- (11,397) (16,812)
Accounts payable 211,104 32,917 93,473
Accrued expenses 16,062 (53,995) (63,948)
Deferred revenue on service
contracts 15,000 -- --
--------- -------- --------
Net cash provided by (used in)
operating activities 565,703 (52,195) (173,434)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (115,785) (162) (52,509)
Purchase of investment (17,200) -- --
Increase in cash value of life
insurance (3,334) -- --
Proceeds from sale of equipment 3,835 -- --
--------- -------- --------
Net cash used in investing
activities (132,484) (162) (52,509)
--------- -------- --------
--------- -------- --------
</TABLE>
See Notes to Financial Statements.
F-141
<PAGE>
<TABLE>
<CAPTION>
(unaudited)
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------
1995 1996 1995
------------ ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line
of credit (248,000) 260,000 300,000
Principal payments on long-term
borrowings (89,503) (4,007) (12,119)
Distributions to stockholders (94,720) (203,245) (34,824)
-------- -------- --------
Net cash provided by (used in)
financing activities (432,223) 52,748 253,057
-------- -------- --------
Increase in cash 996 391 27,114
Cash:
Beginning 63,893 64,889 61,483
-------- -------- --------
Ending $ 64,889 $ 65,280 $ 88,597
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash payments for interest $ 56,516 $ 8,257 $ 15,057
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITY
Purchase of equipment through
long-term debt $ 33,981 $ -- $ --
-------- -------- --------
-------- -------- --------
</TABLE>
F-142
<PAGE>
NEW OFFICE PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The Company's operations are in the retail sales of office
supplies, furniture and equipment and in the service and maintenance
of office equipment. The Company extends credit to its customers
located in northeastern Wisconsin.
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.
A summary of the Company's significant accounting policies follows:
Revenue recognition:
Revenue from sales of office supplies are recognized upon
shipment to customers. Revenues from sales of office furniture
are recognized upon delivery to customers. Revenues from service
contracts are recognized over the contract period.
Inventories:
Inventories are stated at the lower of cost (last-in, first-out
method), or market and represent products held for sale.
Property and equipment:
Property and equipment is stated at cost. Depreciation is
calculated using the straight-line method over the following
estimated useful lives:
YEARS
-------
Office furniture and equipment 5-8
Vehicles 4-6
Leased machines 3-8
Computer equipment 5-8
Leasehold improvements 7-20
F-143
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
(continued)
Income taxes:
The Company has elected to be taxed as an S corporation.
Accordingly, income taxes have not been provided for in the
financial statements as the stockholders report the Company's
earnings on their personal income tax returns.
The Company anticipates that it will make cash distributions to
its stockholders to fund the individual income taxes
attributable to the inclusion of Company income on their
personal income tax returns.
Fair value of financial instruments:
The carrying value of financial instruments, including cash,
accounts receivable, accounts payable and notes payable,
approximates fair value.
Unaudited interim financial statements:
In the opinion of management, the Company has made all
adjustments, consisting 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
cash flows for the three months ended March 31, 1996 and 1995,
as presented in the accompanying unaudited interim financial
statements.
Note 2. Inventories
Inventories are summarized as follows:
DECEMBER 31,
1995
------------
Inventories (on a FIFO basis):
Supplies $451,488
Furniture 105,754
Machines 303,818
Service parts 133,976
Other 4,804
--------
999,840
F-144
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 2. Inventories (continued)
Less allowance to adjust
the carrying value of
inventories to last-in,
first-out (LIFO) basis 93,855
--------
Inventories at LIFO $905,985
--------
--------
Note 3. Investment
Investment consists of the following:
DECEMBER 31,
1995
------------
Independent Stationers, Inc.,
Class A common stock $17,200
--------
--------
The above investment is stated at cost, which is not in excess of
market.
Independent Stationers, Inc. is the Company's major supplier of office
supplies. Agreements between the Company and Independent Stationers,
Inc. are transacted on terms available to other owners of
Independent Stationers, Inc.
Note 4. Note Payable - Line of Credit
In accordance with a loan and security agreement with a bank, the
Company can borrow, on a demand basis, up to $800,000. Borrowings
under this agreement provide for interest at 1/2% over the bank's
prime rate, adjusted quarterly, and are secured by substantially all
assets of the Company.
Other information on the line of credit is as follows:
DECEMBER 31,
1995
------------
Interest rate 9%
Balance outstanding $52,000
F-145
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 5. Long-Term Debt
Long-term debt consists of the following:
DECEMBER 31,
1995
------------
9 1/2%*, note payable to bank,
collateralized by specific
assets of the Company, due
in monthly installments of
$1,997 including interest
through March, 1999 $ 72,181
8 3/4%, note payable to bank,
collateralized by specific
assets of the Company, due
in monthly installments of
$175 including interest
through September, 1997 3,203
9 3/4%, note payable to bank,
collateralized by specific
assets of the Company, due
in monthly installments of
$127 including interest
through February, 1998 2,812
9 3/4%, note payable to bank,
collateralized by specific
assets of the Company, due
in monthly installments of
$280 including interest
through August, 1999 9,907
9%, unsecured note payable to
a stockholder, due May, 1997 20,000
9%, unsecured note payable to
a stockholder, due March, 1997 21,000
9%, unsecured note payable
to an individual, due
November, 1997 12,000
2.9% to 9%, notes payable
to finance companies,
collateralized by specific
vehicles, due in various
monthly installments of $222
to $643 including interest
through September, 1999 122,211
--------
263,314
Less current maturities 83,000
--------
$180,314
--------
--------
F-146
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 5. Long-Term Debt (continued)
* Interest is subject to adjustment, based on the bank's prime rate
plus 1%.
Long-term debt payable over the next four years is as follows:
YEAR ENDING
DECEMBER 31,
------------
1996 $ 83,000
1997 110,000
1998 43,000
1999 27,314
Note 6. Operating Leases
The Company leases its Green Bay facilities and a warehouse on a
month-to-month basis from a partnership consisting of family members
of the Company's stockholders and from a stockholder, respectively.
The Company is required to pay executory costs such as property
taxes, maintenance and insurance.
The Company leases its Appleton facilities from an employee under a
noncancellable agreement which expires January, 1998. The Company's
annual minimum lease payments are $40,800 per year through January,
1998. The Company is required to pay utility costs.
Rent expense associated with the above operating leases for the year
ended December 31, 1995 was $142,800.
Note 7. Profit-Sharing Plan
The Company has adopted a qualified, contributory, defined
contribution profit-sharing plan covering substantially all
full-time employees who have completed at least one full year of
employment. The Plan allows employees to defer a percentage of their
salaries. The Company contributes, on behalf of the participants, an
amount equal to 50% of the employee's contribution up to 3% of the
employee's gross wage. Additional contributions can be made to the
Plan at the discretion of the Board of Directors. The Company's
contribution to the Plan was $39,973 for 1995.
F-147
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 8. Subsequent Events
During 1995, the Company and its stockholders entered into a letter
of intent with U.S. Office Products Company ("U.S. Office Products")
pursuant to which the Company would merge with U.S. Office Products.
The letter of intent calls for the exchange of all of the
outstanding shares of the Company's common stock for shares of U.S.
Office Products common stock.
Note 9. Acquisition/Commitment
On January 3, 1995, the Company purchased certain assets and the
rights to certain businesses of Landers Office Products, Inc. of
Appleton, Wisconsin. Landers is a retail supplier of office
supplies, furniture and machines. The purchase price of $241,208
including $53,280 for inventory, $148,033 for accounts receivable,
$38,895 for equipment and $1,000 for intangibles, was paid in cash.
In connection with the acquisition, the Company has entered into an
agreement whereby the former owner is to receive 10% of the gross
profit earned on the acquired accounts. For the year ended December
31, 1995, operating expenses includes $26,694 expensed in connection
with this agreement.
Note 10. Unaudited Pro Forma Net Income Tax Information
The following unaudited pro forma income tax information is
presented as if the Company had been a subchapter C corporation
subject to federal and state income taxes throughout the period
presented. In this presentation, income taxes have been accounted
for in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes":
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------
1995 1996 1995
------------ ---- ----
Net income before
pro forma tax
adjustments $363,874 $117,808 $114,029
Provision for
income taxes 141,000 46,008 44,029
-------- -------- --------
Pro forma net
income $222,874 $ 71,800 $ 70,000
-------- -------- --------
-------- -------- --------
F-148
<PAGE>
Report of Independent Accountants
July 10, 1996
To the Board of Directors and Shareholders of
Carolina Office Equipment Company
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 Carolina Office Equipment Company
at March 31, 1996, 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 7 to the financial statements, effective May 28, 1996 the
Company entered into a definitive agreement to sell all of its issued and
outstanding shares of common stock to U.S. Office Products Company.
Price Waterhouse LLP
Minneapolis, Minnesota
F-149
<PAGE>
CAROLINA OFFICE EQUIPMENT COMPANY
BALANCE SHEET
March 31,
1996
---------
Assets
Current assets:
Cash $503,495
Trade receivables net of an allowance
for doubtful accounts of $40,385 1,587,059
Rebates receivable 112,866
Prepaids 9,386
Inventories 1,276,230
Notes receivable 358,720
----------
Total current assets 3,847,756
Property and equipment, net 294,183
Other assets 40,600
----------
Total assets $4,182,539
----------
Liabilities and Shareholders' Equity
Current liabilities:
Revolving line of credit $ 98,800
Accounts payable 603,287
Other accrued expenses 318,966
Notes payable 48,701
Due to affiliates 20,884
Taxes payable 187,255
----------
Total liabilities 1,277,893
----------
Commitments (Note 5)
Shareholders' equity:
Common stock, $0.01 par value, 10,000,000 shares authorized,
issued and outstanding 100,000
Paid in capital 172,532
Treasury stock (197,823)
Retained earnings 2,829,937
----------
Total shareholders' equity 2,904,646
----------
Total liabilities and shareholders' equity $4,182,539
----------
F-150
<PAGE>
CAROLINA OFFICE EQUIPMENT COMPANY
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
March 31,
1996
----
Sales $12,023,096
Cost of sales 8,438,047
----------
Gross profit 3,585,049
Selling, general and administrative expenses 2,868,291
----------
Operating income 761,758
Interest expense (51,047)
Interest income 116,956
----------
Income before income taxes 782,667
Income taxes 294,546
----------
Income from continuing operations 488,121
----------
Income from discontinued operations (net of taxes of $115,565) 163,140
----------
Net income $651,261
----------
F-151
<PAGE>
CAROLINA OFFICE EQUIPMENT COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED
March 31,
1996
----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $651,261
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 130,357
Increase (decrease) in cash resulting from changes:
Accounts and other receivable (311,399)
Inventories (177,083)
Other current assets (23,355)
Due from affiliates 467,114
Taxes payable 200,261
Accounts payable (345,176)
Notes receivable 122,872
Accrued liabilities 149,600
----------
Net cash provided by operating activities 864,452
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (177,307)
Intangible purchases (42,000)
----------
Net cash used for investing activities (219,307)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of stockholder loans (157,855)
Proceeds from long-term debt 81,081
Payments on long-term debt (140,511)
Net change in revolving line of credit (70,000)
----------
Net cash used for financing activities (287,285)
----------
Cash carved out to Systems (351,471)
----------
NET INCREASE IN CASH 6,389
Beginning of period 497,106
----------
End of period $503,495
----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $116,956
----------
F-152
<PAGE>
Cash paid for taxes $249,149
----------
NON-CASH TRANSACTIONS:
Dividends amounting to $1,047,720 were paid via the extinguishment of certain
intercompany and related party balances. See Note 1 for a discussion of assets
and liabilities carved out of the Company.
F-153
<PAGE>
CAROLINA OFFICE EQUIPMENT COMPANY
STATEMENT OF SHAREHOLDERS' EQUITY
Total Equity
------------
Balance at March 31, 1995 $ 4,953,740
Net income 651,261
Dividends
In form of amounts paid via extinguishment of
intercompany balances (1,047,720)
In form of spin-off of systems division assets (1,652,635)
----------
Balance at March 31, 1996 $2,904,646
----------
F-154
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business Organization
The accompanying financial statements represent the accounts of Carolina Office
Equipment Company, Inc. ("COECO"). COECO is the successor company to Carolina
Office Equipment Company of Wilson, Inc., Carolina Office Equipment Company of
Greenville, Inc., Your Office By the Sea, Inc. and Carolina Office Equipment
Company, Inc. which were merged into one legal entity on March 31, 1996.
COECO's activities primarily consist of the sale of office furniture and
supplies throughout Eastern North Carolina. Prior to the merger COECO was also
engaged in the sale and service of office equipment and machinery. Effective
March 31, 1996 these equipment and machinery businesses were carved out into a
separate legal entity (COECO Office Systems of Rocky Mount ["Systems"]). The
assets obtained by and liabilities assumed by Systems have been excluded from
the March 31, 1996 balance sheet. The assets and liabilities carved out were
determined using specific identification where possible, and in the alternate
were allocated to Systems based on historical relationships between Systems and
the remaining COECO units.
In connection with the carve out of Systems assets amounting to approximately
$1,860,000 and liabilities of $208,000 have been excluded from COECO's March 31,
1996 balance sheet. Directly identifiable revenues and expenses related to
Systems have been reflected in discontinued operations additionally certain
other allocatable expenses such as occupation cost, taxes, and other "overhead"
cost have been allocated to System's operations based on historical
relationships between Systems and the remaining COECO units. These revenues and
expenses have been reflected on the income statement as income from discontinued
operations.
The net assets of the Systems division were comprised as follows:
Cash $351,471
Other current assets 1,435,260
Long-term assets 74,065
Liabilities (208,161)
----------
Net assets $1,652,635
----------
Note 2 - Summary of Significant Accounting Policies
FISCAL YEAR -- The Company's fiscal year ends on March 31.
REVENUE RECOGNITION -- Revenues are recognized upon the delivery of office
products to customers.
TRADE RECEIVABLES -- Trade receivables are concentrated with various commercial
customers. The Company performs on-going credit evaluations of its customers
and believes that trade receivables are well diversified, thereby reducing
potential credit risk.
REBATES RECEIVABLE -- Rebates receivable represent group and annual wholesaler
rebates earned by the Company as well as certain cooperative advertising claims
as of March 31, 1996.
F-155
<PAGE>
INVENTORIES -- Inventories are stated at the lower of cost or market value with
cost determined on the first-in, first-out (FIFO) method and consists primarily
of product held for sale.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are
depreciated over estimated useful lives ranging from five to eight years using
the accelerated methods. Expenditures which substantially increase asset value
or extend useful life are capitalized. Expenditures for maintenance and repairs
are charged against income as incurred. When items of property are sold or
otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts. Any gain or loss is reflected in income.
INTANGIBLE ASSETS -- Intangible assets, comprised entirely of franchise fees
paid during the current year, are amortized on a straight line basis over the
life of the underlying agreements (15 years). The recoverability of these
assets is assessed by management on an ongoing basis.
INCOME TAXES -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." 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 carrying amounts and the tax basis of
existing assets and liabilities. No tax assets or liabilities have been
established as of March 31, 1996 due to the lack of material differences between
the tax bases of the Company's assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amount of cash, accounts
receivables, accounts payable, and notes payable approximates fair value because
of the short maturity of those instruments.
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 certain assets and
liabilities and disclosure of contingencies at the date of the financial
statements and the related reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Management
believes that the estimates used are reasonable.
F-156
<PAGE>
Note 3 - Property and Equipment
Property and equipment consist of the following:
March 31,
1996
----------
Leasehold improvements $ 95,804
Furniture, fixtures and equipment 328,342
Autos and trucks 246,812
Data processing equipment and machinery 98,252
Machinery and equipment 641,364
----------
1,410,574
Less: accumulated depreciation and amortization 1,116,391
----------
Net property and equipment $ 294,183
----------
Note 4 - Credit Facilities
The Company's revolving line of credit with a bank provides for borrowings up to
$1,000,000, matures on November 6, 1996, and bears interest at prime. These
borrowings are secured by a first lien on the Company's accounts receivable.
Notes payable consists of amounts due a bank, payable in monthly principal and
interest instalments of $3,731 payable through June, 1997. Secured by furniture
and fixtures used for rental purposes.
Note 5 - Commitments
The Company leases store and warehouse space from its shareholders. All such
leases are classified as operating leases. Future annual minimum lease payments
required under long-term leases in effect at March 31, 1996 are as follows:
Operating
---------
Fiscal 1997 $232,560
1998 223,710
1999 155,970
2000 104,400
2001 104,400
----------
$821,040
----------
For the year ended March 31, 1996 rental expense under all operating leases
amounted to approximately $260,000.
F-157
<PAGE>
Note 6 - Employee Benefit Plans
The Company maintains a qualified defined contribution 401(k) savings plan
covering substantially all employees. The plan provides for voluntary
contributions by plan participants of up to the legal limit of their
compensation. The Company makes discretionary matching contributions. For the
period ended March 31, 1996, the Company accrued contributions amounting to
approximately $40,000.
Note 7 - Subsequent Events
On May 28, 1996, the Company and its shareholders entered into a definitive
agreement with U. S. Office Products Company ("U. S. Office Products") pursuant
to which all of the outstanding shares of the Company's common stock were
purchased by U. S. Office Products for 271,186 shares of common stock.
F-158
<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.
F-159
<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
F-160
<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.
F-161
<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.
F-162
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF INCOME
Years Ended September 30, 1995 and 1994
Six months ended
March 31,
----------------------------
1994 1995 1995 1996
---- ---- ---- ----
(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.
F-163
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF ACCUMULATED DEFICIT
Years Ended September 30, 1994 and 1995 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.
F-164
<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.
F-165
<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.
F-166
<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.
F-167
<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.
F-168
<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.
F-169
<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.
F-170
<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.
F-171
<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.
F-172
<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.
F-173
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Arbuckle Foods Inc.
We have audited the balance sheet of Arbuckle Foods Inc. as at August 31, 1995
and the statements of income, retained earnings and changes in financial
position for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at August 31, 1995 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles applied
on a basis consistent with that of the preceding year.
Thorne Little
Clearbrook, B.C. CHARTERED ACCOUNTANTS
July 5, 1996
F-174
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
BALANCE SHEET
as at August 31, 1995
ASSETS
May
1995 1994 1996
---- ---- ----
[Unaudited] [Unaudited]
<S> <C> <C> <C>
CURRENT
Accounts receivable (notes 4 and 7) $ 733,840 $ 592,616 780,326
Inventory (notes 4 and 7) 275,208 299,016 353,560
Prepaid expenses 151,567 102,499 135,375
Due from affiliated company 121,729 109,661 124,674
1,282,344 1,103,792 1,393,935
CAPITAL ASSETS (notes 2, 4 and 7) 1,867,019 1,877,083 1,848,156
OTHER ASSETS (note 3) 981,785 1,045,212 948,170
---------- ---------- ----------
$4,131,148 $4,026,087 4,190,261
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES
CURRENT
Bank indebtedness (note 4) $ 542,754 $ 531,711 655,740
Accounts payable (note 5) 645,838 592,001 610,503
Income taxes payable 276,404 332,457 301,100
Current portion of long-term debt (note 7) 822,611 492,000 400,503
---------- ---------- ----------
2,287,607 1,948,169 1,967,846
SHAREHOLDER ADVANCES (note 6) 186,838 126,159 150,664
LONG-TERM DEBT (note 7) 146,848 813,536 245,769
DEFERRED INCOME TAX 109,700 102,100 109,700
---------- ---------- ----------
2,730,993 2,989,964 2,473,979
---------- ---------- ----------
---------- ---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 8) 30,198 30,198 30,198
CONTRIBUTED SURPLUS 79,692 79,692 79,692
RETAINED EARNINGS 1,290,265 926,233 1,606,392
---------- ---------- ----------
1,400,155 1,036,123 1,716,282
---------- ---------- ----------
$4,131,148 $4,026,087 4,190,261
---------- ---------- ----------
---------- ---------- ----------
CONTINGENT LIABILITY (note 11)
</TABLE>
F-175
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
STATEMENT OF INCOME
for the year ended August 31, 1995
Nine months
ended
May 31
1995 1994 1996
[Unaudited] [Unaudited]
----------- ----------- -----------
<S> <C> <C> <C>
SALES $7,618,925 $5,825,826 5,991,695
COST OF SALES 3,640,942 2,475,350 2,866,663
----------- ----------- -----------
GROSS PROFIT 3,977,983 3,350,476 3,125,032
----------- ----------- -----------
EXPENSES
Accounting and legal 23,652 34,998 22,305
Advertising and promotion 72,602 57,827 186,367
Amortization 277,438 284,811 204,030
Bad debts (3,506) 55,629 10,422
Computer expense 9,529 12,490 12,212
Insurance 96,088 79,769 102,162
Interest - other 72,905 52,626 49,465
Interest - long-term debt 33,482 58,323 33,186
Management fees (note 10) 238,782 238,691 188,305
Office and miscellaneous 194,640 132,151 99,890
Rent and utilities, net 308,585 284,007 234,583
Repairs and maintenance 142,668 128,425 104,224
Telephone 29,254 24,205 23,534
Travel 86,587 51,915 76,006
Vehicle operation and lease 127,737 139,307 126,774
Wages and costs 1,438,147 1,282,367 1,076,840
Gain on sale of vehicle - (1,500) -
----------- ----------- -----------
3,148,590 2,916,041 2,550,305
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 829,393 434,435 574,727
PROVISION FOR INCOME TAXES
Current 377,921 211,124 258,600
Deferred 7,600 (20,100) -
----------- ----------- -----------
385,521 191,024 258,600
----------- ----------- -----------
NET INCOME FOR THE YEAR $ 443,872 $ 243,411 316,127
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-176
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
STATEMENT OF RETAINED EARNINGS
for the year ended August 31, 1995
Nine Months
ended
May 31
1995 1994 1996
[Unaudited] [Unaudited]
----------- ----------- -----------
<S> <C> <C> <C>
RETAINED EARNINGS, beginning of year $ 926,233 $ 682,822 1,290,265
Dividends paid 79,840 - -
----------- ----------- -----------
846,393 682,822 1,290,265
NET INCOME FOR THE YEAR 443,872 243,411 316,127
RETAINED EARNINGS, end of year $1,290,265 $ 926,233 1,606,392
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-177
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
for the year ended August 31, 1995
Nine Months
ended
May 31
1995 1994 1996
[Unaudited] [Unaudited]
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income for the year $ 443,872 $ 243,411 316,127
Add item not involving cash
Loss (gain) on sale of vehicle 1,470 (1,500) -
Amortization 277,438 284,811 204,030
----------- ----------- -----------
722,780 526,722 520,157
Net change in non-cash working capital
balances related to operations 149,843 (123,080) (544,338)
----------- ----------- -----------
872,623 403,642 (24,181)
----------- ----------- -----------
FINANCING ACTIVITIES
Dividends paid (79,840) - -
Decrease in long-term debt (873,031) (595,726) -
Increase in long-term debt 206,342 304,483 98,921
Increase (decrease) in deferred income tax 7,600 (20,100) -
Advances to shareholders, net 60,679 (10,042) (36,174)
Proceeds on disposal of capital assets 19,607 23,089 -
----------- ----------- -----------
(658,643) (298,296) 62,747
----------- ----------- -----------
INVESTING ACTIVITIES
Advances from affiliated companies - 3,801 -
Purchase of fixed assets (246,630) (180,970) (153,802)
Purchase of goodwill - (25,000) -
Decrease in deposits 21,607 37,345 2,250
----------- ----------- -----------
(225,023) (164,824) (151,552)
----------- ----------- -----------
INCREASE IN BANK INDEBTEDNESS DURING THE YEAR 11,043 59,478 112,986
BANK INDEBTEDNESS, beginning of year 531,711 472,233 542,754
----------- ----------- -----------
BANK INDEBTEDNESS, end of year $ 542,754 $ 531,711 655,740
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-178
<PAGE>
ARBUCKLE FOODS INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
a) Inventory
Inventory is stated at the lower of cost and replacement cost which is
not in excess of net realizable value. Cost is determined on a first-
in, first-out basis.
b) Amortization
Amortization is provided at the following annual rates:
Automotive equipment 30% diminishing balance basis
Computer equipment 30% diminishing balance basis
Equipment 10% & 20% diminishing balance basis
Furniture and fixtures 20% diminishing balance basis
Leasehold improvements 10% straight-line basis
c) Other Assets
Amortization of goodwill is provided on a straight line basis between
22 and 40 years.
d) Deferred Income Taxes
The company follows the deferral method of income tax allocation.
Deferred income taxes result from differences between amounts claimed
for tax purposes and the amounts charged in the accounts.
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------- ------------
Accumulated Net Book Net Book
Cost Amortization Value Value
----------- -------------- ---------- ------------
[Unaudited]
<S> <C> <C> <C> <C>
Automotive equipment $ 148,055 $ 123,342 $ 24,713 $ 20,550
Computer equipment 274,756 207,781 66,975 44,043
Equipment 4,277,191 2,653,479 1,623,712 1,640,282
Furniture and fixtures 437,871 304,943 132,928 150,475
Leasehold improvements 30,422 11,731 18,691 21,733
---------- ---------- ---------- ----------
$5,168,295 $3,301,276 $1,867,019 $1,877,083
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-179
<PAGE>
ARBUCKLE FOODS INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1995
<TABLE>
<CAPTION>
3. OTHER ASSETS 1995 1994
---------- ----------
[Unaudited]
<S> <C> <C>
Goodwill $1,223,221 $1,223,221
Accumulated amortization 261,686 219,866
---------- ----------
961,535 1,003,355
Deposits 20,250 41,857
---------- ----------
$ 981,785 $1,045,212
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
4. BANK INDEBTEDNESS 1995 1994
---------- ----------
[Unaudited]
<S> <C> <C>
Bank indebtedness, interest at prime plus 1.25% $ 542,754 $ 531,711
---------- ----------
---------- ----------
</TABLE>
The bank indebtedness is secured by a Registered Security Agreement
creating a security interest on all chattels and property, including
accounts receivable and inventory.
<TABLE>
<CAPTION>
5. ACCOUNTS PAYABLE 1995 1994
---------- ----------
[Unaudited]
<S> <C> <C>
Trade $ 522,958 $ 511,826
Related company 122,880 80,175
---------- ----------
---------- ----------
$ 645,838 $ 592,001
---------- ----------
---------- ----------
</TABLE>
6. SHAREHOLDER ADVANCES
These amounts bear interest as determined annually and are without specific
terms of repayment.
<TABLE>
<CAPTION>
7. LONG-TERM DEBT 1995 1994
---------- ----------
[Unaudited]
<S> <C> <C>
Hong Kong Bank of Canada - repayable at $8,000
per month plus interest at prime plus 1.25%.
Secured by a Registered Security Agreement creating
a security interest in all chattels and property,
including accounts receivable and inventory.
$ 30,000 $ 126,000
Leases and contracts - repayable in various
monthly amounts including interest at varying rates;
secured by various fixed assets 214,383 118,110
Promissory note - J. Baker, 10% interest, no
specific repayment terms 25,000 25,000
Promissory note - R. Lumsden, repayable in various
monthly amounts, without interest. Due May 1, 1996 700,076 1,036,426
---------- ----------
Sub-total 969,459 1,305,536
</TABLE>
F-180
<PAGE>
ARBUCKLE FOODS INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1995
<TABLE>
<CAPTION>
7. LONG-TERM DEBT (continued) 1995 1994
---------- ----------
[Unaudited]
<S> <C> <C>
Carried forward $ 969,459 $1,305,536
Current portion 822,611 492,000
---------- ----------
$ 146,848 $ 813,536
---------- ----------
---------- ----------
</TABLE>
Principal payments due in next three years are as follows:
1995 $822,611
1996 109,677
1997 12,171
<TABLE>
<CAPTION>
8. SHARE CAPITAL 1995 1994
---------- ----------
[Unaudited]
<S> <C> <C>
Authorized and Issued
998 common shares of $1 each par value $ 998 $ 998
400 Class A preferred shares of $1 each par value 400 400
28,800 Class B preferred shares of $1 each par value 28,800 28,800
---------- ----------
$ 30,198 $ 30,198
---------- ----------
---------- ----------
</TABLE>
9. COMMITMENTS
The company has leased office and warehouse space expiring in 2001, at an
annual rate of $236,400.
10. RELATED PARTY TRANSACTION
During the year the company paid management fees to Marsed Holdings Inc.,
an affiliated company, in the amount of $236,255 (1994 - $236,450).
11. CONTINGENT LIABILITY
The company has guaranteed bank loans of a related company. As at
August 31, 1995 the balance of the loans totalled $226,047.
12. SUBSEQUENT EVENT
On May 22, 1996 the Company's shareholders entered into a letter of intent
with U.S. Office Products Company in which the shareholders will exchange
all of their issued and outstanding shares of the Company for shares of
U.S. Office Products company.
F-181
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
BALANCE SHEET
as at May 31, 1996
(Unaudited)
ASSETS
1996 1995
---------- ----------
<S> <C> <C>
CURRENT
Accounts receivable $ 780,326 $ 691,527
Inventory 353,560 258,500
Prepaid expenses 135,375 120,667
Due from affiliated company 124,674 114,794
---------- ----------
1,393,935 1,185,488
CAPITAL ASSETS 1,848,156 1,841,107
OTHER ASSETS 948,170 992,240
---------- ----------
$4,190,261 $4,018,835
---------- ----------
---------- ----------
LIABILITIES
CURRENT
Bank indebtedness $ 655,740 $ 579,033
Accounts payable 610,503 558,554
Income taxes payable 301,100 244,594
Current portion of long-term debt 400,503 867,588
---------- ----------
1,967,846 2,249,769
SHAREHOLDER ADVANCES 150,664 190,821
LONG-TERM DEBT 245,769 169,244
DEFERRED INCOME TAX 109,700 102,100
---------- ----------
2,473,979 2,711,934
---------- ----------
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL 30,198 30,198
CONTRIBUTED SURPLUS 79,692 79,692
RETAINED EARNINGS 1,606,392 1,197,011
---------- ----------
1,716,282 1,306,901
---------- ----------
$4,190,261 $4,018,835
---------- ----------
---------- ----------
</TABLE>
F-182
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
STATEMENT OF INCOME
for the nine months ended May 31, 1996
(Unaudited)
Nine months
ended
May 31,
1996 1995
------------ ------------
<S> <C> <C>
SALES $ 5,991,695 $ 5,672,060
COST OF SALES 2,866,663 2,693,141
------------ ------------
GROSS PROFIT 3,125,032 2,978,919
------------ ------------
EXPENSES
Accounting and legal 22,305 16,877
Advertising and promotion 186,367 57,011
Amortization 204,030 205,065
Bad debts 10,422 11,727
Computer expense 12,212 7,919
Insurance 102,162 71,949
Interest - other 49,465 55,565
Interest - long-term debt 33,186 26,472
Management fees 188,305 183,111
Office and miscellaneous 99,890 115,236
Rent and utilities, net 234,583 233,861
Repairs and maintenance 104,224 112,265
Telephone 23,534 21,248
Travel 76,006 74,099
Vehicle operation and lease 126,774 95,326
Wages and costs 1,076,840 1,053,670
------------ ------------
2,550,305 2,341,401
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 574,727 637,518
PROVISION FOR INCOME TAXES 258,600 286,900
------------ ------------
NET INCOME FOR THE PERIOD $ 316,127 $ 350,618
------------ ------------
------------ ------------
</TABLE>
F-183
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
STATEMENT OF RETAINED EARNINGS
for the nine months ended May 31, 1996
(Unaudited)
Nine months
ended
May 31,
1996 1995
------------ ------------
<S> <C> <C>
RETAINED EARNINGS, beginning of period $ 1,290,265 $ 926,233
Dividends paid - 79,840
------------ ------------
1,290,265 846,393
NET INCOME FOR THE PERIOD 316,127 350,618
------------ ------------
RETAINED EARNINGS, end of period $1,606,392 $1,197,011
------------ ------------
------------ ------------
</TABLE>
F-184
<PAGE>
<TABLE>
<CAPTION>
ARBUCKLE FOODS INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
for the nine months ended May 31, 1996
(Unaudited)
Nine months
ended
May 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net income for the period $ 316,127 $ 350,618
Add item not involving cash
Amortization 204,030 205,065
------------ ------------
520,157 555,683
Net change in non-cash working capital
balances related to operations (544,338) 172,582
------------ ------------
(24,181) 728,265
------------ ------------
FINANCING ACTIVITIES
Dividends paid - (79,840)
Increase in long-term debt 98,921 (644,292)
Advances to shareholders, net (36,174) 64,662
------------ ------------
62,747 (659,470)
------------ ------------
INVESTING ACTIVITIES
Purchase of fixed assets (153,802) (137,724)
Decrease in deposits 2,250 21,607
------------ ------------
(151,552) (116,117)
------------ ------------
INCREASE IN BANK INDEBTEDNESS
DURING THE PERIOD 112,986 47,322
BANK INDEBTEDNESS, beginning of period 542,754 531,711
------------ ------------
BANK INDEBTEDNESS, end of period $ 655,740 $ 579,033
------------ ------------
------------ ------------
</TABLE>
F-185
<PAGE>
[LETTERHEAD]
AUDITOR'S REPORT
TO THE SHAREHOLDERS OF WANG NEW ZEALAND LIMITED
We have audited the financial statements as set out in the Current Report on
Form 8-K. The financial statements provide information about the past
financial performance and financial position of the company and group as at
30 June 1995. This information is stated in accordance with the accounting
policies.
DIRECTORS' RESPONSIBILITIES
The directors are responsible for the preparation of financial statements
which comply with generally accepted accounting practice and give a true and
fair view of the financial position of the company and group as at 30 June
1995 and of the results of their operations and cash flows for the year ended
on that date.
AUDITOR'S RESPONSIBILITIES
It is our responsibility to express an independent opinion on the financial
statements presented by the directors and report our opinion to you.
BASIS OF OPINION
An audit includes examining on a test basis, evidence relevant to the amounts
and disclosures in the financial statements. It also includes assessing:
- - the significant estimates and judgements made by the directors in the
preparation of the financial statements; and
- - whether the accounting policies are appropriate to the company and group
circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with generally accepted auditing
standards in New Zealand. We planned and performed our audit so as to obtain
all the information and explanations which we considered necessary in order
to provide us with sufficient evidence to give reasonable assurance that the
financial statements are free from material misstatements, whether caused by
fraud or error. In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements.
Order than in our capacity as auditor and taxation advisor, we have no
relationship with, or interest in, the company.
UNQUALIFIED OPINION
We have obtained all the information and explanations we have required.
In our opinion:
- - proper accounting records have been kept by the company as far as appears
from our examination of those records; and
- - the financial statements as set out in the Current Report on
Form 8-K:
- comply with generally accepted accounting practice; and
- give a true and fair view of the financial position of the company and
group as at 30 June 1995 and the results of their operations and cash
flows for the year ended on that date.
Our audit was completed on 28 July 1995 and our unqualified opinion is
expressed as at that date.
/s/ ERNST & YOUNG
Auckland
F-186
<PAGE>
Wang New Zealand Limited and Subsidiaries
Statement of Profit and Loss and Retained Earnings
<TABLE>
<CAPTION>
GROUP PARENT
1995 1994 1995 1994
For the Year Ended 30 June 1995 Notes $000 $000 $000 $000
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE 72,105 53,462 68,496 53,462
- -----------------------------------------------------------------------------------------------
PROFIT BEFORE TAX (3) 5,320 4,256 4,585 4,256
Tax expense (4) (1,764) (1,444) (1,522) (1,444)
- -----------------------------------------------------------------------------------------------
PROFIT AFTER TAX 3,556 2,812 3,063 2,812
Retained earnings brought forward 6,207 9,141 6,207 9,141
Dividend paid to WLI (5) - (4,335) - (4,335)
Dividends (5) (1,785) (1,411) (1,785) (1,411)
- -----------------------------------------------------------------------------------------------
RETAINED EARNINGS CARRIED FORWARD 7,978 6,207 7,485 6,207
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes form part of these financial statements.
F-187
<PAGE>
Wang New Zealand Limited and Subsidiaries
Balance Sheet
<TABLE>
<CAPTION>
GROUP PARENT
1995 1994 1995 1994
As at 30 June 1995 NOTES $000 $000 $000 $000
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHAREHOLDERS' FUNDS
Issued and paid-up capital
17,000,000 ordinary shares of $1 each (6) 17,000 17,000 17,000 17,000
Retained earnings 7,978 6,207 7,485 6,207
- -----------------------------------------------------------------------------------------------
Total Shareholders' Funds 24,978 23,207 24,485 23,207
- -----------------------------------------------------------------------------------------------
Represented by:
FIXED AND LONG TERM ASSETS
Fixed assets (7) 2,765 2,663 2,738 2,663
Lease receivables (8) 1,445 3,254 1,445 3,254
- -----------------------------------------------------------------------------------------------
4,210 5,917 4,183 5,917
- -----------------------------------------------------------------------------------------------
INVESTMENT IN SUBSIDIARIES (9) - - 80 80
FUTURE TAXATION BENEFIT (10) 1,437 1,184 1,437 1,184
CURRENT ASSETS
Cash at Bank 11,504 8,015 11,116 7,953
Accounts receivable and prepayments (11) 10,572 8,784 10,339 8,740
Inventories (12) 3,642 5,306 3,636 5,306
Lease receivables (8) 2,380 3,371 2,380 3,371
Income tax refund due 75 4 74 5
Related party account receivable (17) - - 1 -
- -----------------------------------------------------------------------------------------------
28,173 25,480 27,546 25,375
- -----------------------------------------------------------------------------------------------
Total Assets 33,820 32,581 33,246 32,556
- -----------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accruals (13) 7,400 8,015 7,319 7,990
Payable to Directors 15 15 15 15
Related party accounts (17) 152 443 152 443
Provision for dividend (5) 1,275 901 1,275 901
- -----------------------------------------------------------------------------------------------
Total Liabilities 8,842 9,374 8,761 9,349
- -----------------------------------------------------------------------------------------------
Net Assets 24,978 23,207 24,485 23,207
- -----------------------------------------------------------------------------------------------
</TABLE>
For and on behalf of the Board
/s/ Brian Allison /s/ Timothy EC Saunders
Brian Allison DIRECTOR Timothy EC Saunders DIRECTOR 28 July 1995
The accompanying notes form part of these financial statements.
Statement of Cash Flows
<TABLE>
<CAPTION>
GROUP PARENT
1995 1994 1995 1994
As at 30 June 1995 NOTES $000 $000 $000 $000
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was provided from:
Receipts from customers 72,546 57,515 69,127 57,515
Interest received 493 397 492 394
- ------------------------------------------------------------------------------------------------
73,039 57,912 69,619 57,909
- ------------------------------------------------------------------------------------------------
Cash was applied to:
Suppliers and employees 64,801 49,256 61,957 49,256
Taxes paid 2,088 1,200 1,845 1,200
Interest paid - 38 - 38
- ------------------------------------------------------------------------------------------------
66,889 50,494 63,802 50,494
- ------------------------------------------------------------------------------------------------
Net cash flows from operating activities (19) 6,150 7,418 5,817 7,415
CASH FLOWS FROM INVESTING ACTIVITIES
Cash was provided from:
Proceeds from sale of fixed assets 151 144 85 144
Cash was applied to:
Purchases of fixed assets 1,040 1,388 967 1,388
Purchase of BHN Information Systems
New Zealand Limited net assets (22) 361 - 361 -
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,250) (1,244) (1,243) (1,244)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash was applied to:
Settlement of bank borrowings - 1,300 - 1,300
Dividend - WLI (5) - 4,335 - 4,335
Dividends (5) 1,411 510 1,411 510
- ------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,411) (6,145) (1,411) (6,145)
Net increase in cash held 3,489 29 3,163 26
Add:opening cash brought forward 8,015 7,986 7,953 7,927
- ------------------------------------------------------------------------------------------------
Cash Balances in the Balance Sheet 11,504 8,015 11,116 7,953
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes form part of these financial statements
F-188
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 1995
(1) STATEMENT OF ACCOUNTING POLICIES
1.1 REPORTING ENTITY Wang New Zealand Limited is a public company registered
under the Companies Act 1955 and listed on the New Zealand Stock Exchange.
The group consists of Wang New Zealand Limited and its subsidiaries. Wang
New Zealand Limited is an issuer for the purposes of the Financial
Reporting Act 1993. The financial statements and group financial
statements of Wang New Zealand Limited have been prepared in accordance
with the Financial Reporting Act 1993.
1.2 MEASUREMENT BASE The accounting principles recognised as appropriate for
the measurement and reporting of earnings and financial position on a
historical cost basis are followed by the group.
1.3 SPECIFIC ACCOUNTING POLICIES The following specific accounting policies
which significantly affect the measurement of profit and financial position
have been applied:
BASIS OF CONSOLIDATION - PURCHASE METHOD The consolidated financial
statements include the holding company and its subsidiaries accounted for
using the purchase method. All significant intercompany transactions are
eliminated on consolidation. In the parent company's financial statements
investments in subsidiaries are stated at the lower of cost and net
realisable value.
FIXED ASSETS Fixed assets are stated at cost less accumulated
depreciation. Depreciation is provided over the expected economic lives of
the assets as follows:
- --------------------------------------------------------------------------------
Leasehold Improvements 16.7% per annum straight line
Furniture, fittings and motor
vehicles 20.0% per annum straight line
Service & technical equipment 28.5% per annum diminishing value basis
Demonstration & rental equipment 28.5% per annum diminishing value basis
Software 14.7% per annum straight line.
- --------------------------------------------------------------------------------
INVENTORIES Inventories are valued at the lower of cost (actual or
weighted average costs) and net realisable value after making due allowance
for obsolescence.
TRANSLATION OF FOREIGN CURRENCIES Foreign currency
transactions throughout the year have been converted into New Zealand
currency at the ruling rate of exchange at the date of the transaction.
At balance date where there are foreign monetary assets and liabilities,
these are translated at the closing rate, and exchange variations arising
from these translations are included in the Consolidated Statement of
Profit and Loss and Retained Earnings as operating items.
INCOME TAX The income tax expense charged to the Consolidated Statements
of Profit and Losses and Retained Earnings includes both the current year
expense and the income tax effects of timing differences calculated using
the liability method.
Tax effect accounting is applied on a comprehensive basis to all timing
differences. A debit balance in the deferred tax account, arising from
timing differences or income tax benefits from income tax losses, is only
recognised if there is virtual certainty of realisation.
LEASE RECEIVABLE REVENUE The actuarial method has been used to allocate
interest income over the term of the lease.
FINANCIAL INSTRUMENTS The group has the following classes of financial
instruments:
--Cash at bank
--Trade, lease and other accounts receivable and payable
The financial instruments are valued at their estimated net realisable
value. Receivables are shown at cost less a provision for doubtful debts.
The book value therefore represents the anticipated net realisable value.
1.4 CHANGES IN ACCOUNTING POLICIES There have been no changes in accounting
policies. All policies have been applied on bases consistent with those
used in previous years.
(2) PRINCIPAL ACTIVITY
The group is principally engaged in the business of systems integration,
bringing together both hardware and software technologies which meet a
customer's specific business process needs and provides the ongoing service
and support thereafter.
(3) OPERATING PROFIT
Operating profit is arrived at:
GROUP PARENT
1995 1994 1995 1994
$000 $000 $000 $000
- --------------------------------------------------------------------------------
After charging:
Audit fees 56 50 54 50
Depreciation 996 1,147 978 1,147
Director's fees 80 60 80 60
Leasing and rental expenses 997 1,348 971 1,348
After crediting:
Rental income 1,113 1,904 1,113 1,904
Interest received 571 388 570 385
Foreign currency gains 35 * 35 *
Gain on sale of fixed assets 24 (36) 24 (36)
- --------------------------------------------------------------------------------
(4) INCOME TAX
GROUP PARENT
1995 1994 1995 1994
$000 $000 $000 $000
- --------------------------------------------------------------------------------
Net profit before income tax expense 5,320 4,256 4,585 4,256
Add permanent differences 118 151 117 151
- --------------------------------------------------------------------------------
Assessable income 5,438 4,407 4,702 4,407
Income tax at 33% 1,794 1,454 1,552 1,454
Prior year over provision (30) (10) (30) (10)
Tax charge per Profit &
Loss Account 1,764 1,444 1,522 1,444
- --------------------------------------------------------------------------------
The tax charge is represented by:
--Current taxation 1,511 1,320 1,269 1,320
--Deferred taxation 253 124 253 124
- --------------------------------------------------------------------------------
1,764 1,444 1,522 1,444
- --------------------------------------------------------------------------------
IMPUTATION CREDIT ACCOUNT
Balance as at 30 June 1994 949 -
Imputation credits attaching to
dividends paid in the year (695) (251)
Income tax payments during the year 1,845 1,200
- --------------------------------------------------------------------------------
2,099 949
- --------------------------------------------------------------------------------
At balance date, the imputation
credits available to the shareholders
of the parent company were:
Through direct shareholding in the
parent company 2,099 949
Through indirect interests in
subsidiaries 243 -
- --------------------------------------------------------------------------------
2,342 949
- --------------------------------------------------------------------------------
F-189
<PAGE>
(5) DIVIDENDS
1995 1994
$000 $000
- -------------------------------------------------------------------------------
Proposed dividends 1,275 901
Interim dividend paid during the year 510 4,845
- -------------------------------------------------------------------------------
1,785 5,746
- -------------------------------------------------------------------------------
Dividends paid in 1994 includes $4,335,000 paid to Wang Laboratories Inc (WLI)
prior to the company's public flotation.
(6) SHARE CAPITAL (GROUP & PARENT)
1995 1994
$000 $000
- -------------------------------------------------------------------------------
AUTHORISED
17,000,000 ordinary shares of $1 each 17,000 17,000
33,000,000 unclassified shares of $1 each 33,000 33,000
- -------------------------------------------------------------------------------
Total Authorised Capital 50,000 50,000
- -------------------------------------------------------------------------------
ISSUED AND PAID UP
Ordinary shares of $1 each
17,000,000 issued and fully paid shares 17,000 17,000
- -------------------------------------------------------------------------------
Total Issued and Paid Up Capital 17,000 17,000
- -------------------------------------------------------------------------------
(7) FIXED ASSETS (GROUP)
1995 1994
ACCUM BOOK ACCUM BOOK
COST DEPN VALUE COST DEPN VALUE
$000 $000 $000 $000 $000 $000
- -------------------------------------------------------------------------------
Leasehold
improvements 4,339 4,022 317 4,166 3,814 352
Furniture & fittings 686 634 52 646 628 18
Service, demonstration
& office equipment 6,765 4,774 1,991 6,029 4,248 1,781
Motor vehicles 707 397 310 910 398 512
Software 107 12 95 - - -
- -------------------------------------------------------------------------------
12,604 9,839 2,765 11,751 9,088 2,663
- -------------------------------------------------------------------------------
(7) FIXED ASSETS (PARENT)
1995 1994
ACCUM BOOK ACCUM BOOK
COST DEPN VALUE COST DEPN VALUE
$000 $000 $000 $000 $000 $000
- -------------------------------------------------------------------------------
Leasehold
improvements 4,339 4,022 317 4,166 3,814 352
Furniture & fittings 686 631 52 646 628 18
Service, demonstration
& office equipment 6,728 4,764 1,964 6,029 4,248 1,781
Motor vehicles 707 397 310 910 398 312
Software 107 12 95 - - -
- -------------------------------------------------------------------------------
12,567 9,829 2,738 11,751 9,088 2,663
- -------------------------------------------------------------------------------
(8) LEASE RECEIVABLES (GROUP AND PARENT)
1995 1994
DUE WITHIN DUE AFTER DUE WITHIN DUE AFTER
12 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS
$000 $000 $000 $000
- -------------------------------------------------------------------------------
Minimum lease receivables 2,701 1,649 4,048 3,630
Less unearned income 321 204 677 376
- -------------------------------------------------------------------------------
Net lease receivables 2,380 1,445 3,371 3,254
- -------------------------------------------------------------------------------
Generally equipment subject to lease has no material residual value at the end
of the lease period.
Interest rates vary from 11% to 20%.
(9) INVESTMENT IN SUBSIDIARIES (PARENT)
1995 1994
$000 $000
- -------------------------------------------------------------------------------
Shares in subsidiaries (unlisted) 80 80
- -------------------------------------------------------------------------------
Subsidiaries comprise BGD Limited, previously named Priority Computing
Limited, and Wang New Zealand Nominees Limited. Both subsidiaries are 100%
owned, and have 30 June balance dates.
(10) FUTURE TAX BENEFIT (GROUP AND PARENT)
1995 1994
$000 $000
- -------------------------------------------------------------------------------
Balance as at 30 June 1994 1,184 1,060
Transfer to Statement of Profit and Loss 253 124
- -------------------------------------------------------------------------------
1,437 1,184
- -------------------------------------------------------------------------------
F-190
<PAGE>
[11] ACCOUNTS RECEIVABLE AND PREPAYMENTS
<TABLE>
<CAPTION>
GROUP PARENT
1995 1994 1995 1994
For the year ended 30 June 1995 $000 $000 $000 $000
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trade accounts receivable 10,316 8,415 10,094 8,415
Provision for doubtful debts (340) (535) (340) (535)
Other receivables 399 583 388 539
- -------------------------------------------------------------------------------------------------
10,375 8,463 10,142 8,419
Prepayments 197 321 197 321
- --------------------------------------------------------------------------------------------------
10,572 8,784 10,339 8,740
- --------------------------------------------------------------------------------------------------
[12] INVENTORIES
Inventories include the following:
Hardware 1,607 3,037 1,601 3,037
Service parts 2,035 2,269 2,035 2,269
- --------------------------------------------------------------------------------------------------
3,642 5,306 3,636 5,306
- ---------------------------------------------------------------------------------------------------
[13] ACCOUNTS PAYABLE AND ACCRUALS
Trade accounts payable 3,843 4,214 3,768 4,214
Reorganization costs 1,347 1,992 1,347 1,992
Other accrued expenses 2,210 1,809 2,204 1,784
- ----------------------------------------------------------------------------------------------------
7,400 8,015 7,319 7,990
- ----------------------------------------------------------------------------------------------------
[14] LEASE COMMITMENTS [GROUP AND PARENT]
The company has the following commitments on non cancellable operating property
lease agreements:
1995 1994
$000 $000
- ------------------------------------------------------------------------------------------------------
Within one year after balance date 1,779 1,732
Within one to two years after balance date 1,705 1,679
Within two to five years after balance due date 4,519 2,993
Thereafter 2,906 371
- -------------------------------------------------------------------------------------------------------
10,909 6,775
- -------------------------------------------------------------------------------------------------------
</TABLE>
[15] CAPITAL COMMITMENTS
There were no capital commitments at 30 June 1995 [1994:NIL]
[16] CONTINGENT LIABILITIES [GROUP AND PARENT]
As noted in the Offering Memorandum issued on 22 November 1993, related
party accounts receivable of N2$46,730,000 due from Wang Laboratories Inc
[WLI], the company's former parent, were assigned as part of restructuring
the company in anticipation of listing as a public company. A possible
contingent tax liability of up to $8,246,000 was identified in relation
to that receivable. The company has received advice to the effect that
the risk of this liability crystallising is not significant. WLI has
provided an indemnity, secured by way of a lien over the shares of the
company owned by WLI, should this contingent liability ever crystallise.
[17] RELATED PARTY TRANSACTIONS
Wang New Zealand is 30% owned by Wang Laboratories Inc [WLI]. In addition,
Wang Australia Pty Limited [Wang Australia] and BHN Information Systems New
Zealand Limited [BHN] are also related parties, being affiliated companies
to WLI. During the year Wang New Zealand purchased computer hardware and
related products from WLI and Wang Australia. The company also paid
management fees to WLI. and acquired from BHN certain business assets and
liabilities.
<TABLE>
<CAPTION>
GROUP PARENT
1995 1994 1995 1995
$000 $000 $000 $000
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Summary of transactions with the
above related parties were:
Purchases 1,323 3,157 1,323 3,157
Management fees paid 380 452 380 452
Sale of Wang Securities Limited - 61 - 61
Purchase of certain BHN assets
and liabilities 361 - 361 -
Outstanding related party balances are:
Related party accounts receivable - - -
Related party trade accounts payable 152 443 152 443
- -----------------------------------------------------------------------------------------------------
</TABLE>
Related party balances are payable on normal trading terms.
There have been no related party debts written off or forgiven during the
year.
[18] SEGMENTAL INFORMATION
Wang New Zealand operates in one industry segment, information technology,
entirely in New Zealand.
[19] RECONCILIATION OF NET PROFIT AFTER TAXATION WITH CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
GROUP PARENT
1995 1994 1995 1994
$000 $000 $000 $000
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Profit after tax 3,556 2,812 3,063 2,82
Add Non-cash items:
Depreciation 996 1,147 978 1,147
Movement in deferred tax (253) (124) (253) (124)
Gain on sale of fixed assets (24) 36 (24) 36
Foreign currency gains (35) - (35) -
Other 78 78 114 139
Movement in working capital:
Decrease in related party payables (291) (2,870) (291) (2,70)
Decrease in accounts payable (813) 2,259 (869) 2,260
Increase in tax fund (71) 368 (69) 367
Increase in related party receivables - 467 1 406
*Decrease in inventory 1,714 (363) 1,720 (363)
*Increase in receivables (1,633) (386) (1,444) (389)
Decrease in lease receivables 2,800 4,315 2,800 4,315
Increase prepaid exercises 126 (321) 126 (321)
- -----------------------------------------------------------------------------------------------------
Net Cash Flows form Operating
Activities 6,150 7,418 5,817 7,415
- -------------------------------------------------------------------------------------------------------
</TABLE>
*The movement in working capital for these items reflects the exclusion of
the purchase of the business of BHN Information Systems New Zealand Limited
as detailed in Note 22.
F-191
<PAGE>
(20) FINANCIAL INSTRUMENTS
Credit Risk Financial instruments which potentially subject the group to
credit risk principally consist of cash at bank, accounts receivable and
lease receivables. The group performs credit evaluations on all customers
requiring credit and generally does not require collateral for accounts
receivable but takes security over the assets leased from the company by
its customers.
Maximum exposure to credit risk of cash at bank, accounts receivable
and lease receivables is as disclosed on the Balance Sheet in the Financial
Statements. The above maximum exposures are net of any recognised provision
for losses on these financial instruments.
Concentration of Credit Risk The group is not exposed to any
concentration of credit risk with the exception of Cash at Bank.
Fair Values The fair value of each class of financial instruments as
stated in Note 13 is the carrying amount as disclosed in these Financial
Statements.
(21) EMPLOYEE SHARE OWNERSHIP PLAN
On 22 November 1993 the company established an Employee Share Ownership
Plan (ESOP), and issued 70,800 ordinary shares of $1.00 each to the
trustees of the ESOP at the issue price of $1.27 per share. All employees
may participate in the ESOP.
The ESOP meets the requirements of Section 166 of the Income Tax Act 1976.
To finance the plan the ESOP borrowed $89,916 from the company. The advance
is for a 3 year period, interest free. The repayment terms of the advances
are the same as the ESOP offers to the employees who have participated in
acquiring shares under the plan. The shares are held in trust for the
employees by the Trustee during the period of the loan. The ESOP has
no external funding.
As at balance date the ESOP held 70,800 fully paid ordinary shares of
$1.00 in the company (0.41% of the company's issued share capital). Of
these 56,200 shares (1994: 69,800) have been allocated to employees. No
shares are subject to options.
The amount owing by the ESOP to the company at balance date was $54,229
(1994: 75,078) included in Other Receivables.
The Trustees of the ESOP are appointed by the company. A Trustee can be
removed from office by the company giving written notice to the Trustee.
The shares held by the ESOP carry the same voting rights as other issued
ordinary shares and such rights are exercised by the Trustee.
(22) INVESTMENT IN BHN (GROUP AND PARENT)
On the June 1995, the company acquired part of the net assets of BHN
Information Systems New Zealand Limited for a cash consideration of
$361,000.
Details of the acquisition are as follows:
1995
Net Assets Acquired $000
- ------------------------------------------------------------------------
Fixed Assets 228
Accounts Receivable 279
Inventory - Service Parts 50
Prepayments 2
- ------------------------------------------------------------------------
559
Deferred Revenue (198)
- -------------------------------------------------------------------------
Fair Value of Net Tangible Assets 361
- -------------------------------------------------------------------------
(23) SUBSEQUENT EVENTS
There have been no material subsequent events since 30 June 1995.
F-192
<PAGE>
WANG NEW ZEALAND LIMITED INTERIM REPORT 1996
Wang New Zealand Limited and Subsidiaries
--------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
Unaudited Unaudited Audited
6 months 6 months 12 months
For the six months ended to 31.12.95 to 31.12.94 to 30.6.95
31 December 1995 $000 $000 $000
- --------------------------------------------------------------------------------
OPERATING REVENUE 38,059 33,417 72,105
- --------------------------------------------------------------------------------
PROFIT BEFORE TAX 2,360 2,334 5,320
Tax expense (804) (794) (1,764)
- --------------------------------------------------------------------------------
PROFIT AFTER TAX 1,556 1,540 3,556
Earnings per share (annualised) 18.31 18.12 20.92
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY
Unaudited Unaudited Audited
6 months 6 months 12 months
to 31.12.95 to 31.12.94 to 30.6.95
As at 31 December 1995 $000 $000 $000
- --------------------------------------------------------------------------------
Equity at start of the period 24,978 23,207 23,207
Profit after tax for the period 1,556 1,540 3,556
Provision for dividend and dividend
paid during the period (510) (510) (1,785)
Equity at end of the period 26,024 24,237 24,978
- --------------------------------------------------------------------------------
Accounting policies in the current six months have been applied on bases
consistent with those used in previous periods.
F-193
<PAGE>
Wang New Zealand Limited and Subsidiaries
--------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
6 months 6 months 12 months
to 31.12.95 to 31.12.94 to 30.6.95
As at 31 December 1995 $000 $000 $000
- --------------------------------------------------------------------------------
SHAREHOLDERS FUNDS
Issued and paid-up capital
17,000,000 ordinary shares of $1 each 17,000 17,000 17,000
Retained earnings 9,024 7,237 7,978
- --------------------------------------------------------------------------------
Total Shareholders' Funds 26,024 24,237 24,978
- --------------------------------------------------------------------------------
Represented by:
FIXED AND LONG TERM ASSETS
Fixed assets 2,771 2,669 2,765
Lease receivables 767 2,770 1,445
- --------------------------------------------------------------------------------
3,538 5,439 4,210
- --------------------------------------------------------------------------------
FUTURE TAXATION BENEFIT 1,146 1,177 1,437
CURRENT ASSETS
Cash 11,150 6,319 11,504
Accounts receivable and prepayments 13,252 13,477 10,572
Inventories 3,913 4,990 3,642
Lease receivables 1,934 2,713 2,380
Income tax refund due 328 - 75
- --------------------------------------------------------------------------------
30,577 27,499 28,173
- --------------------------------------------------------------------------------
Total Assets 35,261 34,115 33,820
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accruals 8,638 8,851 7,400
Payable to Directors - - 15
Related party accounts 89 356 152
Tax Payable - 161 -
Provision for dividend 510 510 1,275
- --------------------------------------------------------------------------------
Total Liabilities 9,237 9,878 8,842
- --------------------------------------------------------------------------------
Net Assets 26,024 24,237 24,978
- --------------------------------------------------------------------------------
F-194
<PAGE>
Wang New Zealand Limited and Subsidiaries
--------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
6 months 6 months 12 months
to 31.12.95 to 31.12.94 to 30.6.95
As at 31 December 1995 $000 $000 $000
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was provided from:
Receipts from customers 35,980 29,677 72,546
Interest received 547 179 493
- --------------------------------------------------------------------------------
36,527 29,856 73,039
- --------------------------------------------------------------------------------
Cash was applied to:
Suppliers and employees 34,187 29,477 64,801
Taxes paid 777 633 2,088
- --------------------------------------------------------------------------------
34,964 30,110 66,889
- --------------------------------------------------------------------------------
Net cash inflows from operating
activities 1,563 (254) 6,150
CASH FLOWS FROM INVESTING ACTIVITIES
Cash was provided from:
Proceeds from sale of fixed assets 45 16 151
Cash was applied to:
Purchases of fixed assets 687 557 1,040
Purchase of BHN Information Systems
New Zealand Limited net assets - - 361
- --------------------------------------------------------------------------------
Net cash used in investing activities (642) (541) (1,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash was applied to:
Dividend 1,275 901 1,411
- --------------------------------------------------------------------------------
Net cash used in financing activities (1,275) (901) (1,411)
Net increase / (decrease) in cash held (354) (1,696) 3,489
Add:opening cash brought forward 11,504 8,015 8,015
- --------------------------------------------------------------------------------
Ending cash carried forward 11,150 6,319 11,504
- --------------------------------------------------------------------------------
F-195
<PAGE>
WANG NEW ZEALAND LIMITED CONSOLIDATED
UNAUDITED
6 MONTHS
TO 31.12.95
$000'S
OPERATING PROFIT IS ARRIVED AT AFTER CHARGING
AFTER CHARGING:
Audit Fees 30
Depreciation 608
Director's Fees 40
Leasing and rental expenses 606
Foreign currency loss 3
AFTER CREDITING:
Rental income 426
Interest received 526
Gain on sale of fixed assets 14
F-196
<PAGE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
(unaudited)
(Amounts in $NZ000)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
----------------------- YEAR ENDED
31/12/95 31/12/94 30/06/95
$000 $000 $000
-------- -------- --------
<S> <C> <C> <C>
Revenue 310,584 318,217 603,455
-------- -------- --------
Less:
Operating Expenses (Note 4) 259,702 267,106 509,773
Depreciation of Fixed Assets 6,370 5,903 12,021
Audit Fees 126 130 254
Rental and Lease Expenses 17,521 15,155 33,268
Directors' Fees n/a 15 31
Directors' Remuneration 248 n/a n/a
Goodwill Amortisation 1,426 1,472 2,974
-------- -------- --------
Earnings Before Interest and Taxation 25,191 28,436 45,134
Net Interest Expense 5,749 5,169 11,293
-------- -------- --------
Net Profit Before Taxation 19,442 23,267 33,841
Provision for Taxation (Note 5)
Current 7,128 8,856 15,380
Deferred (1,188) (733) (1,842)
-------- -------- --------
5,940 8,123 13,538
-------- -------- --------
Less Minority Interests 48 62 115
-------- -------- --------
Net Profit After Taxation 13,454 15,082 20,188
-------- -------- --------
-------- -------- --------
</TABLE>
CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY
(unaudited)
(Amounts in $NZ000)
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR
----------------------- ENDED
31/12/95 31/12/94 30/06/95
$000 $000 $000
-------- -------- --------
<S> <C> <C> <C>
Equity at Start of Period 148,100 140,411 140,411
Net Profit After Taxation 13,454 15,082 20,188
Decrease in Revaluation Reserve - - (547)
Minority Interest Movement 40 62 92
Currency Translation Difference (330) 84 56
Dividends Paid and Proposed (6,050) (4,840) (12,100)
-------- -------- --------
Equity at End of Period (Note 6) 155,214 150,799 148,100
-------- -------- --------
-------- -------- --------
</TABLE>
F-197
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(unaudited)
(Amounts in $NZ000)
<TABLE>
<CAPTION>
AS AT
----------------------- AS AT
3l/12/95 31/12/94 30/06/95
$000 $000 $000
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash at Bank and on Deposit 5,208 - -
Accounts Receivable 46,234 48,284 48,783
Inventory 127,401 160,542 123,383
Tax Refund Due - - 1,275
-------- -------- --------
178,843 208,826 173,441
NON CURRENT ASSETS
Fixed Assets 105,203 117,191 111,005
Investments 2,320 2,591 2,519
Deferred Charges 152 428 247
Goodwill 51,265 54,139 52,158
-------- -------- --------
158,940 174,349 165,929
-------- -------- --------
Total Assets 337,783 383,175 339,370
-------- -------- --------
-------- -------- --------
LIABILITIES
CURRENT LIABILITIES
Bank Overdraft - 5,460 11,176
Creditors 88,031 99,769 70,655
Provision for Dividend 6,050 4,840 7,260
Provision for Taxation 1,048 5,413 -
Current Portion of Term Liabilities 21,219 21,547 21,134
-------- -------- --------
116,348 137,029 110,225
DEFERRED TAXATION (1,811) 120 (627)
TERM LIABILITIES
Loans 66,041 94,412 79,882
Finance Lease Liabilities 1,991 815 1,790
-------- -------- --------
68,032 95,227 81,672
-------- -------- --------
TOTAL LIABILITIES 182,569 232,376 191,270
EQUITY 155,214 150,799 148,100
-------- -------- --------
TOTAL EQUITY AND LIABILITIES 337,783 383,175 339,370
-------- -------- --------
-------- -------- --------
</TABLE>
F-198
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(Amounts in $NZ000)
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR
----------------------- ENDED
31/12/95 31/12/94 30/06/95
$000 $000 $000
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was Provided From:
Receipts From Customers 313,708 318,339 600,969
Interest Received 101 28 154
-------- -------- --------
313,809 318,367 601,123
Cash was Disbursed To:
Payments to Employees and Suppliers 265,948 298,514 553,143
Interest Paid 6,070 4,965 11,091
Tax Paid 4,781 2,315 15,593
-------- -------- --------
276,799 305,794 579,827
-------- -------- --------
Net Cash Flows From Operating Activities 37,010 12,573 21,296
Cash Flows From Investing Activities
Cash was Provided From:
Disposal of Fixed Assets 6,158 532 4,149
Net Effect of Resolution of Angus & Robertson
Bookworld dispute (Note 3) 2,891 - -
Proceeds from Sale of Business - - 2,466
-------- -------- --------
9,049 532 6,615
Cash was Applied To:
Purchase of Fixed Assets 6,211 12,703 19,627
Payments Made for Acquisition of Business - 197 -
-------- -------- --------
6,211 12,900 19,627
-------- -------- --------
Net Cash Flows from Investing Activities 2,838 (12,368) (l3,012)
Cash Flows From Financing Activities
Cash was Provided From:
Loans Received 48,757 9,990 19,254
Finance leases Received 990 709 2,081
-------- -------- --------
49,747 10,699 21,335
Cash was Applied To:
loans repaid 64,757 10,145 29,855
Finance Leases Repaid 704 1,149 1,731
Dividends Paid 7,260 4,840 9,680
-------- -------- --------
72,721 16,134 41,266
-------- -------- --------
Net Cash Flows From Financing Activities (22,974) (5,435) (19,931)
-------- -------- --------
Net Cash Received (Disbursed)
During the Period 16,874 (5,230) (11,647)
Cash at Beginning of Period (11,176) 197 197
Exchange Rate Adjustments (490) (427) 274
-------- -------- --------
Cash at End of Period 5,208 (5,460) (11,176)
-------- -------- --------
-------- -------- --------
</TABLE>
F-199
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
RECONCILIATION OF CONSOLIDATED NET PROFIT AFTER TAXATION TO
NET CASH FLOWS FROM OPERATING ACTIVITIES
(unaudited)
(Amounts in $NZ000)
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR
----------------------- ENDED
31/12/95 31/12/94 30/06/95
$000 $000 $000
-------- -------- --------
<S> <C> <C> <C>
NET PROFIT AFTER TAXATION 13,454 15,082 20,188
NON CASH ITEMS
Depreciation 6,370 5,903 12,021
Goodwill 1,426 1,472 2,974
Minority Interests 48 62 115
-------- -------- --------
7,844 7,437 15,110
MOVEMENTS IN WORKING CAPITAL
Current Liabilities: Increase/(Decrease)
Creditors 16,187 15,449 (10,146)
Provision for Taxation 2,322 5,413 (958)
Current Assets: (Increase)/Decrease
Accounts Receivable 6 123 (1,068)
Inventory (1,759) (31,535) (590)
Deferred Charges 96 120 301
-------- -------- --------
16,852 (10,430) (12,461)
OTHER
(Gain)/Loss on Disposal of Fixed Assets 23 89 (443)
(classed as investing activity)
Increase/(Decrease) in Deferred Tax (1,163) 395 (1,098)
-------- -------- --------
(1,140) 484 (1,541)
-------- -------- --------
CASH FLOW FROM OPERATING ACTIVITIES 37,010 12,573 21,296
-------- -------- --------
-------- -------- --------
</TABLE>
F-200
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
These unaudited accounts have been prepared using the same accounting policies
as applied in the preparation of the published accounts for the year ended 30
June 1995.
2. SEGMENTAL INFORMATION
The Group operates in two industry sectors, the retailing of books and
stationery and the manufacture and printing of paper-based products.
<TABLE>
<CAPTION>
NEW ZEALAND AUSTRALIA CONSOLIDATED
$NZ000 $NZ000 $NZ000
1995 1994 1995 1994 1995 1994
BY GEOGRAPHIC SEGMENTS $000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
Revenue
Sales Outside the Group 241,924 234,214 68,660 84,003 310,584 318,217
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
A$60,345 A$69,563
Earnings before Interest, Tax
& Amortisation of Goodwill 22,738 26,125 3,879 3,783 26,617 29,908
-------- -------- -------- --------
-------- -------- -------- --------
A$3,410 A$3,132
Amortisation of Goodwill (1,426) (1,472)
-------- --------
Earnings before Interest & Tax 25,191 28,436
-------- --------
-------- --------
Total Assets 281,047 310,172 56,736 73,003 337,783 383,175
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
A$49,865 A$60,330
RETAIL MANUFACTURING CONSOLIDATED
$NZ000 $NZ000 $NZ000
1995 1994 1995 1994 1995 1994
BY ACTIVITY SEGMENT $000 $000 $000 $000 $000 $000
Revenue
Sales Outside the Group 261,296 265,954 49,288 52,263 310,584 318,217
-------- --------
-------- --------
Sales to Group Companies - - 18,355 18,567
-------- -------- -------- --------
261,296 265,954 67,643 70,830
-------- -------- -------- --------
-------- -------- -------- --------
Earnings before Interest, Tax
& Amortisation of Goodwill 18,680 21,156 7,937 8,752 26,617 29,908
-------- -------- -------- --------
Amortisation of Goodwill (1,426) (1,472)
-------- --------
Earnings before Interest & Tax 25,191 28,436
-------- --------
-------- --------
Total Assets 258,352 296,481 79,431 86,694 337,783 383,175
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
F-201
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION MATTERS OUTSTANDING
With respect to Croxley Collins Olympic, the position is as described in Note 19
of the Annual Report for the year ended 30 June 1995. The matter has been set
down for hearing in the High Court in October 1996.
The Angus & Robertson Bookworld dispute is now settled, with the agreement in
principle referred to in Notes 19 and 20 of the Annual Report for the year ended
30 June 1995 having been documented and executed.
4. ABNORMAL
Restructuring and relocation costs of NZ$1,022,000 were incurred by GP Print
Limited during the six month period ended 31 December 1995 and are included
in operating expenses.
5. TAXATION
No taxation expense has been charged for the six month period ended 31
December 1995 against the profit of Angus & Robertson Bookworld Pty Ltd in
view of tax credits held. This has reduced the consolidated tax expense by
NZ$1,058,000.
6. EQUITY
The Company has on issue 121,000,398 ordinary shares.
7. CONVERSION FROM NEW ZEALAND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (U.S. GAAP)
EFFECTING SHAREHOLDERS' EQUITY AND REPORTED EARNINGS.
As indicated in Note 1, the financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) followed in New
Zealand. Had these financial statements been prepared on the basis of generally
accepted accounting principles in the United States (US GAAP), the material
differences which affect earnings and shareholders' equity would be as follows:
1. New Zealand GAAP allows for the revaluation of fixed assets with a
corresponding adjustment to capital reserves. Whitcoulls Group Limited have
revalued land, buildings and a certain item of plant. This type of revaluation
is not in accordance with U.S. GAAP and accordingly, US GAAP basis for fixed
assets should be presented at their historical cost amounts. In this regard
depreciation and gains or losses on disposal of fixed assets would be computed
on the basis of the historical cost amounts and not upon the revalued amounts.
2. New Zealand GAAP allows for the recognition of dividend distributions on an
accrual basis. Under US GAAP, dividends are only recognised if they are
declared prior to the balance sheet date.
3. New Zealand GAAP allows the immediate recognition of gains arising from
sale and leaseback transactions which meet certain criteria. U.S GAAP requires
that these gains within specified limits be recognised over the term of the
related Lease.
4. New Zealand GAAP requires that the earnings of foreign subsidiaries be
recognised at the year end exchange rate. US GAAP requires that the earnings
be recognised at a weighted average rate. This results in a reallocation of
earnings between the income statement and the exchange translation reserve.
5. US GAAP requires a deferred tax liability to be recognised for
differences between the assigned tax and book basis of assets in a purchase
business combination.
A reconciliation of the key components of the financial statements between New
Zealand GAAP and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
SHAREHOLDER FIXED INVESTMENTS GOODWILL DEFERRED DEFERRED PROVISION NET PROFIT
EQUITY ASSETS TAX INCOME FOR AFTER TAX
DIVIDEND
$NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS ENDED 31 DECEMBER
1995
Reported under NZ GAAP 155,214 105,203 2,320 51,265 (1,811) 6,050 13,454
1. Adjustments related to
changes in accounting for
Fixed Assets (21,574) (21,323) (251) 266
2. Adjustments related to
changes in accounting for
Dividends 6,050 (6,050)
3. Adjustment related to
changes in accounting for
sale and leaseback
transactions (803) 803 41
5. Adjustment for differences
between assigned values and tax
basis on acquisitions (70) 333 403 (10)
Restated under U.S GAAP 138,817 83,880 2,069 51,598 (1,408) 803 -- 13,751
<CAPTION>
SHAREHOLDER FIXED INVESTMENTS GOODWILL DEFERRED DEFERRED PROVISION NET PROFIT
EQUITY ASSETS TAX INCOME FOR AFTER TAX
DIVIDEND
$NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 MONTHS ENDED 31 DECEMBER
1994
REPORTED UNDER NZ GAAP 150,799 117,191 2,591 54,139 120 4,840 15,082
1. Adjustments related to
changes in accounting for
Fixed Assets (22,808) (22,557) (251) 366
2. Adjustments related to
changes in accounting for
Dividends 4,840 (4,840)
3. Adjustment related to
changes in accounting for sale
and leaseback transactions (886) 886 41
5. Adjustment for differences
between assigned values and tax
basis on acquisitions (50) 353 403 (10)
Restated under U.S GAAP 131,895 94,634 2,340 54,492 523 886 -- 15,479
</TABLE>
F-202
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors of
Whitcoulls Group Limited
Auckland
New Zealand
We have audited the accompanying consolidated balance sheet of Whitcoulls
Group Limited as of 30 June 1995 and 30 June 1994, and the related Profit
and Loss Account, and Statement of Cash Flows for the years then ended (all
expressed in New Zealand dollars). 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 auditing standards generally
accepted in New Zealand and the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Group at 30 June 1995 and 30 June
1994, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally
accepted in New Zealand.
Accounting principles generally accepted in New Zealand vary in certain
significant respects from accounting principles generally accepted in the
United States. The application of the latter would have affected the
determination of net income for each of the two years in the period
ended 30 June 1995 and the determination of stockholders' equity and
financial position at 30 June 1995 and 30 June 1994 to the extent
summarised in Note 22. Additional disclosures required under
US GAAP are summarised in Note 22.
DELOITTE TOUCHE TOHMATSU
7 September 1995
Auckland, New Zealand
F-203
<PAGE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
NOTE $000 $000 $000 $000
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUE 2 603,455 526,832 12,089 13,959
------- ------- ------- -------
LESS:
Operating Expenses 509,773 447,265 251 557
Depreciation of Fixed Assets 12,021 9,321 23 19
Audit Fees 254 230 - 18
Rental and Lease Expenses 33,268 25,561 - -
Directors' Fees 31 28 21 19
Goodwill Amortization 2,974 2,164 8 -
------- ------- ------- -------
EARNINGS BEFORE INTEREST AND TAXATION 45,134 42,263 11,786 13,346
Net Interest Expense 2 11,293 6,836 (943) (288)
------- ------- ------- -------
NET PROFIT BEFORE TAXATION 33,841 35,427 12,729 13,634
Provision for Taxation 3 13,538 11,291 250 (103)
Minority Interests 115 74 - -
------- ------- ------- -------
NET PROFIT AFTER TAXATION 20,188 24,062 12,479 13,737
Plus Retained Earnings Brought Forward 59,401 42,628 9,021 3,754
Transfer from Reserves 14 65 1,181 - -
Dividends Paid and Proposed 4 (12,100) (8,470) (12,100) (8,470)
------- ------- ------- -------
Retained Earnings Carried Forward 67,554 59,401 9,400 9,021
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to the financial statements.
- --------------------------------------------------------------------------------
F-204
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
BALANCE SHEET
AS AT 30 JUNE
($NZ000's)
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
NOTE $000 $000 $000 $000
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash at Bank and on Deposit 5 - 197 - 578
Accounts Receivable 6 48,783 48,526 32 90
Inventory 7 123,383 129,007 - -
Income Tax Receivable 1,275 317 536 357
------- ------- ------- -------
173,441 178,047 568 1,025
NON CURRENT ASSETS
Fixed Assets 8 111,005 111,012 42 51
Amount Due from Subsidiaries - - 162,833 112,832
Investments 9 2,519 2,471 68,365 68,383
Deferred Charges 10 247 548 247 440
Goodwill 52,158 55,414 158 -
------- ------- ------- -------
165,929 169,445 231,645 181,706
------- ------- ------- -------
TOTAL ASSETS 339,370 347,492 232,213 182,731
------- ------- ------- -------
------- ------- ------- -------
LIABILITIES
CURRENT LIABILITIES
Bank Overdraft 5 11,176 - 1,769 -
Accounts Payable 70,655 84,320 6,448 6,803
Provision for Dividend 4 7,260 4,840 7,260 4,840
Current Portion of Term Liabilities 11, 12 21,134 21,754 20,000 20,298
------- ------- ------- -------
110,225 110,914 35,477 31,941
DEFERRED TAXATION LIABILITY/(ASSET) 3 (627) 42 56 103
TERM LIABILITIES
Loans 11 79,882 95,007 46,981 59,354
Amounts Due to Subsidiaries - - 84,504 26,517
Finance Lease Liabilities 12 1,790 1,118 - -
------- ------- ------- -------
81,672 96,125 131,485 85,871
------- ------- ------- -------
TOTAL LIABILITIES 191,270 207,081 167,018 117,915
MINORITY INTERESTS 600 508 - -
SHAREHOLDERS' FUNDS
Issued and Paid Up Capital 13 12,100 12,100 12,100 12,100
Reserves 14 67,846 68,402 43,695 43,695
Retained Earnings 67,554 59,401 9,400 9,021
------- ------- ------- -------
TOTAL SHAREHOLDERS' FUNDS 147,500 139,903 65,195 64,816
------- ------- ------- -------
TOTAL SHAREHOLDERS' FUNDS AND LIABILITIES 339,370 347,492 232,213 182,731
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to the financial statements.
- --------------------------------------------------------------------------------
F-205
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE
($NZ000's)
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
$000 $000 $000 $000
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was Provided From:
Receipts From Customers 600,969 532,202 - 184
Interest Received 154 337 62 770
------- ------- ------ -------
601,123 532,539 62 954
Cash was Disbursed To:
Payments to Employees and Suppliers 553,143 482,319 87 521
Interest Paid 11,091 6,998 7,247 5,299
Tax Paid 15,593 13,151 624 208
------- ------- ------ -------
579,827 502,468 7,958 6,028
------- ------- ------ -------
Net Cash Flows From Operating Activities 21,296 30,071 (7,896) (5,074)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash was Provided From:
Disposal of Fixed Assets 4,149 2,491 - 645
Proceeds from Sale of Businesses 2,466 - - -
Proceeds from Sale of Investment Properties - 1,700 - -
------- ------- ------ -------
6,615 4,191 - 645
Cash was Applied To:
Purchase of Fixed Assets 19,627 9,457 10 29
Payments Made for Acquisition of Business - 134,773 - 94,256
------- ------- ------ -------
19,627 144,230 10 94,285
------- ------- ------ -------
Net Cash Flows from Investing Activities (13,012) (140,039) (10) (93,640)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash was Provided From:
Loans Received 19,254 126,012 14,000 90,359
Advances from Subsidiaries - - 62,673 38,814
Finance Leases Received 2,081 1,636 - -
Share Capital Paid Up - 44,967 - 44,967
------- ------- ------ -------
21,335 172,615 76,673 174,140
Cash was Applied To:
Loans Repaid 29,855 68,676 26,672 69,286
Advances to Subsidiaries - - 34,762 -
Finance Leases Repaid 1,731 1,163 - -
Dividends Paid 9,680 5,748 9,680 5,748
------- ------- ------ -------
41,266 75,587 71,114 75,034
Net Cash Flows From Financing Activities (19,931) 97,028 5,559 99,106
------- ------- ------ -------
NET CASH RECEIVED (DISBURSED) DURING
THE PERIOD (11,647) (12,940) (2,347) 392
CASH AT BEGINNING OF PERIOD 197 13,137 578 186
Impact of Foreign Exchange 274 - - -
------- ------- ------ -------
Cash at End of Period (11,176) 197 (1,769) 578
------- ------- ------ -------
------- ------- ------ -------
</TABLE>
See accompanying notes to the financial statements.
- --------------------------------------------------------------------------------
F-206
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
RECONCILIATION OF NET CASH FLOWS FROM OPERATING
ACTIVITIES TO NET PROFIT AFTER TAXATION
($NZ000's)
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
$000 $000 $000 $000
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET PROFIT AFTER TAXATION 20,188 24,062 12,479 13,737
NON CASH ITEMS
Depreciation 12,021 9,321 23 19
Goodwill 2,974 2,164 8 -
Minority Interests 115 74 - -
Other Non-cash Expenses - - 14 1
------ ------ ------ -------
15,110 11,559 45 20
MOVEMENTS IN WORKING CAPITAL
Current Liabilities: Increase/(Decrease)
Accounts Payable (10,146) (455) (355) 633
Amounts Due to Subsidiaries - - 24,846 -
Provision for Taxation (958) (2,327) (179) (357)
Current Assets: (Increase)/Decrease
Accounts Receivable (1,068) 5,560 58 623
Income Tax Receivable - (317) - -
Amounts Due from Subsidiaries - - (44,935) (19,934)
Inventory (590) (7,675) - -
Deferred Charges 301 (376) 192 (268)
------ ------ ------ -------
(12,461) (5,590) (20,373) (19,303)
OTHER
(Gain)/Loss on Disposal of Assets (443) 173 - (645)
(classed as investing activity)
Increase/(Decrease) in Deferred Tax (1,098) (133) (47) 1,117
------- ------ ------ -------
(1,541) 40 (47) 472
------- ------ ------ -------
Net Cash Flows From Operating Activities 21,296 30,071 (7,896) (5,074)
------- ------ ------ -------
------- ------ ------ -------
</TABLE>
See accompanying notes to the financial statements.
- --------------------------------------------------------------------------------
F-207
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(1) STATEMENT OF ACCOUNTING POLICIES
These financial statements are presented in accordance with the Companies Act
1955 and have been prepared in accordance with the Financial Reporting Act 1993.
The Company's financial statements are for Whitcoulls Group Limited as a
separate entity and the consolidated financial statements are for the Whitcoulls
Group, which includes all its subsidiaries and associate entities as disclosed
in note 17.
GENERAL ACCOUNTING POLICIES
The general accounting policies recognised as appropriate for the measurement
and reporting of profit and the financial position on an historical cost basis
are followed with the exception that certain land, buildings and plant are
recorded at valuation.
PARTICULAR ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include those of the parent company and
its subsidiaries and incorporate the equity share of the earnings and net assets
of associated companies. The purchase method of accounting has been used. All
significant inter-company transactions are eliminated on consolidation.
INVENTORIES
Inventories are stated at the lower of net realisable value and cost, using
either a first-in first-out or weighted average basis.
Work in progress is valued at the cost of materials and labour and includes
fixed and variable overheads to the last completed stage of manufacture.
Finished manufactured goods are valued at the lower of cost and net realisable
value. Cost includes fixed and variable production overheads.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at expected realisable value.
FIXED ASSETS
The cost of purchased fixed assets is the value of the consideration given to
acquire the assets and the value of other directly attributable costs which have
been incurred in bringing the assets to the location and condition necessary for
their intended use.
Land and buildings are revalued annually by independent registered valuers on
the basis of net current value. Changes in valuation are transferred directly to
the Asset Revaluation Reserve. On the sale of an asset the balance in the Asset
Revaluation Reserve pertaining to that asset is transferred to Retained
Earnings. Where the sale value differs to the carrying value that difference is
recognised through the Profit and Loss Account.
Fixed assets are depreciated on a straight line basis at rates which will write
off the cost or valuation of those assets over their estimated useful lives.
- --------------------------------------------------------------------------------
F-208
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
The following estimated useful lives have been applied:
Motor Vehicles 5 years
Furniture and Fittings 5 to 10 years
Plant and Machinery 5 to 15 years
Office and EDP Equipment 3 to 5 years
Buildings 30 to 80 years
LEASED ASSETS
Finance leases are capitalised to reflect the term borrowings incurred and the
cost of the asset acquired. The finance cost portion of lease payments is
expensed and the leased asset is depreciated on a straight line basis over the
estimated useful life of the asset.
FOREIGN CURRENCIES
Foreign currency transactions are translated to New Zealand currency at the rate
of exchange ruling at the date of those transactions. At balance date foreign
monetary assets and liabilities are translated at the closing rate and exchange
variations arising from these translations are included in the Profit and Loss
Account.
The financial statements of independent foreign operations are translated at the
closing rate. The exchange difference arising from the translation of the
opening net investment at an exchange rate different from that at which it was
previously reported is taken to the foreign currency translation reserve.
GOODWILL
Goodwill represents the excess of purchase consideration over the fair value of
net tangible assets acquired at the time of acquisition of a business or a
subsidiary. Goodwill is amortised using the straight line method over the period
during which benefits are expected to be received. This period has been assessed
to be 20 years.
TAXATION
Taxation accounted for in the Profit and Loss Account is the estimated total
liability including both current and deferred taxation. In calculating the
taxation payable full advantage is taken of all allowable taxation deductions.
Deferred taxation is provided on the comprehensive basis using the liability
method.
FINANCIAL INSTRUMENTS
The Group has certain financial instruments with off-balance sheet risk for the
primary purpose of reducing its exposure to fluctuations in interest rates.
While these financial instruments are subject to risk that market rates may
change subsequent to acquisition, such changes would generally be offset by
opposite effects on the items being hedged.
Interest rate swaps have been entered into to manage interest rate exposure. The
differential to be paid or received is accrued as interest rates change and is
recognised as a component of interest expense.
CHANGES IN ACCOUNTING POLICIES
There have been no changes in accounting policies.
All policies have been applied on a basis consistent with those used in the
previous year.
- --------------------------------------------------------------------------------
F-209
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
(2) PROFIT AND LOSS ACCOUNT $NZ000 $NZ000 $NZ000 $NZ000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Included in the Profit and Loss account are:
Interest Income (154) (337) (8,605) (5,819)
Interest Expense on Finance Leases 251 257 - -
Interest Expense on Term Loans 10,994 6,916 7,466 5,427
Other Interest Expense 202 - 196 104
-------- -------- -------- --------
Net Interest Expense/(Income) 11,293 6,836 (943) (288)
Sales 603,451 526,575 - -
Dividend Income - 58 12,000 13,214
Share of Associates After Tax Profit 4 199 - -
Gains/(Losses) on Sale of Fixed Assets (479) (173) - -
Gains/(Losses) on Sale of Business 922 - - -
(3) TAXATION
Provision for Taxation
The current taxation charge is calculated as follows:
Net Profit Before Taxation 33,841 35,427 12,729 13,634
Taxation at 33% 11,167 11,691 4,201 4,499
Adjusted for the effect of:
Permanent Differences 707 (400) (3,951) (4,602)
Timing Differences not Recognised 1,664 - - -
-------- -------- -------- --------
Net Taxation Charge 13,538 11,291 250 (103)
-------- -------- -------- --------
-------- -------- -------- --------
Accounted for as follows;
Current 15,380 11,424 297 (149)
Deferred (1,842) (133) (47) 46
-------- -------- -------- --------
13,538 11,291 250 (103)
-------- -------- -------- --------
-------- -------- -------- --------
Deferred Taxation
Opening Balance (Asset)/Liability 42 719 103 (1,014)
Charge to P&L (1,842) (133) (47) 46
Adjustments:
Transfers 1,173 (544) - 1,071
-------- -------- -------- --------
Closing Balance (Asset)/Liability (627) 42 56 103
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Future income tax benefits of NZ$1,872,000 arising from tax losses and other
timing differences in Angus & Robertson Bookworld Pty Limited have not been
taken into account in accordance with Australian Accounting Standards Board 1020
and New Zealand Society of Accountants Statement of Standard Accounting Practice
12. The effect on this year's tax charge in the Profit and Loss Account is to
increase the charge by NZ$1,664,000.
- --------------------------------------------------------------------------------
F-210
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
$NZ000 $NZ000 $NZ000 $NZ000
---- ---- ---- ----
<S> <C> <C> <C> <C>
IMPUTATION CREDIT ACCOUNT
Opening Balance 16,437 6,155 5,498 2.498
Income Tax Paid/(Refunded) 15,384 13,151 477 141
Transfers - - - (141)
Imputation Credits on Dividends Received 35 26 5,910 5,895
Less: Credits Attributed to Dividends Paid (4,768) (2,895) (4,768) (2,895)
-------- -------- -------- --------
27,088 16,437 7,117 5,498
-------- -------- -------- --------
-------- -------- -------- --------
(4) DIVIDENDS AND BONUS ISSUE
INTERIM DIVIDEND 4,840 3,630 4,840 3,630
Interim dividend of 4 cents per share
(1994: 3 cents per share)
FINAL DIVIDEND 7,260 4,840 7,260 4,840
A proposed final dividend of 6 cents
per share (1994: 4 cents per share)
-------- -------- -------- --------
12,100 8,470 12,100 8,470
-------- -------- -------- --------
-------- -------- -------- --------
(5) SET-OFF OF ASSETS AND LIABILITIES
The Group has established a legal right of set-off with
the Westpac Banking Corporation. Accordingly current
accounts have been set-off against the bank overdrafts.
Bank Overdraft Prior to Set-Off (18,095) (2,915) (1,769) -
Deposits on Hand 6,919 3,112 - 578
-------- -------- -------- --------
Bank Overdraft after Set-Off (11,176) 197 (1,769) 578
-------- -------- -------- --------
-------- -------- -------- --------
(6) ACCOUNTS RECEIVABLE
Accounts Receivable are recorded net of a
provision for doubtful debts.
Provision for Doubtful Debts 480 355 - -
-------- -------- -------- --------
(7) INVENTORY
Finished Goods 110,491 118,112 - -
Work in Progress 2,845 2,340 - -
Raw Materials 10,047 8,555 - -
-------- -------- -------- --------
123,383 129,007 - -
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Certain inventories are subject to restrictions of title. ie. Romalpa clauses.
- --------------------------------------------------------------------------------
F-211
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATION COMPANY
COST VALUATION ACCUM NET COST ACCUM NET
DEPN BOOK DEPN BOOK
VALUE VALUE
$NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
<S> <C> <C> <C> <C> <C> <C> <C>
(8) FIXED ASSETS
30 JUNE 1995
Motor Vehicles 697 - 232 465 - - -
Capitalised Leased
Motor Vehicles 4,755 - 1,752 3,003 - - -
Plant & Machinery 36,110 - 12,413 23,697 - - -
Office Equipment/
Furniture & Fittings 36,914 - 17,957 18,957 104 62 42
Leasehold Improvements 3,932 - 1,689 2,243 - - -
Buildings - 28,255 - 28,255 - - -
Land - 34,385 - 34,385 - - -
------ ------ ------ ------- ----- ----- -----
82,408 62,640 34,043 111,005 104 62 42
------ ------ ------ ------- ----- ----- -----
------ ------ ------ ------- ----- ----- -----
30 JUNE 1994
Motor Vehicles 622 - 148 474 - - -
Capitalised Leased
Motor Vehicles 4,053 - 1,277 2,776 - - -
Plant & Machinery 32,772 - 8,791 23,981 - - -
Office Equipment/
Furniture & Fittings 32,022 - 14,132 17,890 90 39 51
Leasehold Improvements 2,714 - 1,377 1,337 - - -
Buildings - 29,237 - 29,237 - - -
Land - 35,317 - 35,317 - - -
------ ------ ------ ------- ----- ----- -----
72,183 64,554 25,725 111,012 90 39 51
------ ------ ------ ------- ----- ----- -----
------ ------ ------ ------- ----- ----- -----
</TABLE>
Land and buildings are restated to valuation in accordance with valuation
reports of registered independent valuers, with the exception of Croxley
Stationery Limited's Avondale property which is valued at market value based on
an unconditional agreement to sell this property in October 1995.
Valuations were prepared by Jones Lang Wootten Ltd (report dated 30 June 1995),
Colliers Jardine New Zealand Limited (report dated 30 June 1995) and Lockwood &
Associates Limited (report dated 30 June 1995). The telephone directory press is
stated at valuation (recognised as deemed cost) as at 30 June 1991 less
depreciation.
- --------------------------------------------------------------------------------
F-212
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
$NZ000 $NZ000 $NZ000 $NZ000
---- ---- ---- ----
<S> <C> <C> <C> <C>
(9) INVESTMENTS
Other Investments 116 76 5 5
Investment in Subsidiaries - - 68,360 68,378
Associate Companies
Shares at Cost 1,045 1,045 - -
Share of
-- Retained Profits 452 506 - -
-- Revaluations 252 252 - -
Advances to Associates 654 592 - -
------- ------- ------- -------
2,403 2,395 - -
------- ------- ------- -------
2,519 2,471 68,365 68,383
------- ------- ------- -------
------- ------- ------- -------
(10) DEFERRED CHARGES
Deferred charges include costs incurred on raising
term loans. Such costs are capitalised and written
off over the term of the loans.
(11) LOANS
Loans--Secured 99,882 115,305 66,981 79,652
Less: Included in Current Liabilities 20,000 20,298 20,000 20,298
------- ------- ------- -------
79,882 95,007 46,981 59,354
------- ------- ------- -------
------- ------- ------- -------
Repayable as follows:
Between 1 and 2 years 79,882 20,298 46,981 20,298
Between 2 and 5 years - 74,709 - 39,056
------- ------- ------- -------
79,882 95,007 46,981 59,354
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The loans are secured by mortgages over all of the properties owned and by
debentures over the assets and undertakings of the parent and its subsidiaries.
Interest rates charged during the year ranged from 6.93% to 10.2%.
- --------------------------------------------------------------------------------
F-213
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
$NZ000 $NZ000 $NZ000 $NZ000
---- ---- ---- ----
<S> <C> <C> <C> <C>
(12) FINANCE LEASE LIABILITIES
The consolidated future lease rental payments under
finance leases are:
Not later than 1 year 1,388 1,669 - -
1 - 2 years 1,060 816 - -
2 - 5 years 936 393 - -
------- ------- ------- -------
3,384 2,878 - -
Less future interest expense 460 304 - -
------- ------- ------- -------
2,924 2,574 - -
------- ------- ------- -------
------- ------- ------- -------
Representing:
Current Liability 1,134 1,456 - -
Term Liability 1,790 1,118 - -
------- ------- ------- -------
2,924 2,574 - -
------- ------- ------- -------
------- ------- ------- -------
(13) SHARE CAPITAL
Authorised Share Capital
500,000,000 (1994: 500,000,000) Ordinary
Shares of NZ$0.10 (1994: NZ$0.10) Each 50,000 50,000 50,000 50,000
------- ------- ------- -------
------- ------- ------- -------
ISSUED AND FULLY PAID CAPITAL
121,000,398 (1994: 121,000,398) Ordinary
Shares of NZ$0.10 (1994: NZ$0.10) Each 12,100 12,100 12,100 12,100
------- ------- ------- -------
------- ------- ------- -------
(14) RESERVES
SHARE PREMIUM RESERVE
Opening Balance 43,695 240 43,695 240
Movements - 43,455 - 43,455
------- ------- ------- -------
Closing Balance 43,695 43,695 43,695 43,695
ASSET REVALUATION RESERVE
Opening Balance 24,597 10,653 - -
Revaluation (548) 15,125 - -
Adjustment for Assets Sold (65) (1,181) - -
------- ------- ------- -------
Closing Balance 23,984 24,597 - -
CURRENCY TRANSLATION RESERVE
Opening Balance 110 - - -
Movements 57 110 - -
------- ------- ------- -------
Closing Balance 167 110 - -
------- ------- ------- -------
TOTAL RESERVES 67,846 68,402 43,695 43,695
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
F-214
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED COMPANY
1995 1994 1995 1994
$NZ000 $NZ000 $NZ000 $NZ000
---- ---- ---- ----
<S> <C> <C> <C> <C>
(15) OPERATING LEASE COMMITMENTS
Commitments under operating leases are due as follows:
Not later than 1 year 31,272 30,878 - -
1-2 years 28,911 25,378 - -
2-5 years 44,607 33,125 - -
Over 5 years 13,701 16,477 - -
------- ------- ------- -------
118,491 105,858 - -
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
NEW ZEALAND AUSTRALIA CONSOLIDATED
1995 1994 1995 1994 1995 1994
BY GEOGRAPHIC SEGMENTS $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
(16) SEGMENTAL REPORTING
REVENUE
Sales Outside the Group 472,718 432,403 130,737 94,429 603,455 526,832
------- ------- ------- ------ ------- -------
------- ------- ------- ------ ------- -------
EARNINGS BEFORE INTEREST, TAX
AND AMORTISATION OF GOODWILL 48,271 43,973 (163) 454 48,108 44,427
------- ------- ------- ------
------- ------- ------- ------
Amortisation of Goodwill (2,974) (2,164)
------- -------
EARNINGS BEFORE INTEREST AND TAX 45,134 42,263
------- -------
------- -------
TOTAL ASSETS 287,767 285,122 51,603 62,370 339,370 347,492
------- ------- ------- ------ ------- -------
------- ------- ------- ------ ------- -------
<CAPTION>
RETAIL MANUFACTURING CONSOLIDATED
1995 1994 1995 1994 1995 1994
BY ACTIVITY SEGMENT $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
------- ------- ------- ------- ------- -------
REVENUE
Sales Outside the Group 502,208 426,619 101,247 100,213 603,455 526,832
------- -------
------- -------
Sales to Group Companies - - 32,969 24,983
------- ------- ------- -------
502,208 426,619 134,216 125,196
------- ------- ------- -------
------- ------- ------- -------
EARNINGS BEFORE INTEREST, TAX
AND AMORTISATION OF GOODWILL 31,409 30,374 16,699 14,053 48,108 44,427
------- ------- ------- -------
------- ------- ------- -------
Amortisation of Goodwill (2,974) (2,164)
------- -------
EARNINGS BEFORE INTEREST AND TAX 45,134 42,263
------- -------
------- -------
TOTAL ASSETS 258,957 260,860 80,413 86,632 339,370 347,492
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
F-215
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
(17) RELATED PARTIES
The ultimate parent company is Rank Commercial Limited. (This company is not
consolidated in these Financial Statements.)
Significant subsidiaries consolidated at 30 June 1995 (and 30 June 1994) are:
<TABLE>
<CAPTION>
% OWNED PRINCIPAL ACTIVITY
<S> <C> <C>
Whitcoulls Limited 100 Book & Stationery Retailing
London Bookshops Limited 100 Book & Stationery Retailing
Angus & Robertson Bookworld Pty Limited 100 Book & Stationery Retailing
GH Bennett & Company Limited 100 Tertiary & Professional Book Retailing
Croxley Stationery Limited 100 Stationery Manufacturing & Wholesaling
Armidale Industries Limited 65 Stationery Manufacturing
OTC Office Supplies Limited 100 Commercial Stationery Retailing
Whitcoulls Office Products Limited 100 Commercial Stationery Retailing
Hollands Limited 100 Commercial Stationery Retailing
School Supplies Limited 100 Scholastic Stationery Retailing
GPO Holdings Limited 100 Printing & Publishing
WGL Group Limited 100 Holding Company
Whitcoulls Group Services Limited 100 Management Services
</TABLE>
Significant Associate Companies equity accounted at 30 June 1995 are:
University Bookshop (Auckland) Limited 50 Tertiary Book Retailing
University Bookshop (Canterbury) Limited 50 Tertiary Book Retailing
University Book Shop (Otago) Limited 50 Tertiary Book Retailing
Whitcoulls Group Limited has entered into the following related party
transactions with its subsidiaries.
COMPANY
1995 1994
$NZ000 $NZ000
Interest Charged to Subsidiaries 8,605 5,819
Management Fees from Subsidiaries 89 -
The outstanding balances at year end are disclosed in the Balance Sheet, and
financing cash flows are disclosed in the Statement of Cash Flows.
- --------------------------------------------------------------------------------
F-216
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
(18) FINANCIAL INSTRUMENTS
CURRENCY AND INTEREST RATE RISK
CURRENCY
Whitcoulls Group Limited has a 100% investment in a subsidiary company located
in Australia--Angus & Robertson Bookworld Pty Limited. The purchase price of
this investment was fully funded in Australian currency loans.
The Group has exposure to foreign exchange risk as a result of transactions
denominated in foreign currencies in the normal course of trading. Where these
exposures are considered significant, the Group's policy is to cover the
transaction. No significant exposures existed at year end.
INTEREST RATE
The Group has long term borrowings which are used to fund on-going activities.
These borrowings have interest rate maturity dates of 90 days. It is Group
policy to manage its interest rate exposure in accordance with prudent
commercial practice. The Group has entered into interest rate swaps to convert a
portion of its interest rate exposure from floating to fixed. The notional
principal amounts of interest rate contracts outstanding at balance date were as
follows:
CONSOLIDATED COMPANY
1995 1994 1995 1994
$NZ000 $NZ000 $NZ000 $NZ000
------ ---- ------ ----
Interest Rate Swaps 91,000 - 70,000 -
INTEREST RATE REPRICING
The Group has entered into interest rate swap agreements where a portion of the
Group's floating rate debt has been effectively converted to fixed. These
agreements mature approximately evenly over the period to October 1999. Interest
rates range from 8.67% to 9.35%.
CREDIT RISK
In the normal course of business, the Group incurs credit risk from trade
debtors and transactions with financial institutions. The Group has a credit
policy to manage this exposure to credit risk. Credit risk in respect to debtors
is limited due to the large number of customers included in the Group's customer
base. The Group does not require collateral from debtors.
FAIR VALUES
As at balance date, the fair value of the interest swap agreements were
approximately equal to their carrying value. This value was calculated based on
the variance between the floating and fixed rates in effect at balance date.
The Directors are of the opinion that the fair value of the Group's remaining
financial assets and liabilities approximate their carrying value.
- --------------------------------------------------------------------------------
F-217
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
(19) ACQUISITION MATTERS OUTSTANDING
CROXLEY COLLINS OLYMPIC
Croxley Collins Olympic was acquired on 29 November 1993.
The purchase price of the business was finalised at NZ$51.5 million which after
a payment of NZ$46.0 million left a final balance due of NZ$5.5 million.
Upon taking over the business Whitcoulls Group Limited formed the opinion that
certain breaches of the Sale and Purchase Agreement by the vendors had occured
and retained the final payment pending resolution of these matters.
The vendor sued for summary judgement. Whitcoulls Group Limited counterclaimed
for NZ$11.2 million for breach of contract.
The hearing took place in August 1994 and the High Court dismissed the summary
judgement proceedings and found Whitcoulls Group Limited had an arguable case
regarding the alleged breach of contract. The vendor appealed this decision to
the Court of Appeal but withdrew this appeal prior to the hearing.
Pending resolution of this matter the final balance due to the vendor of NZ$5.5
million has been accrued as a liability in the balance sheet and is included in
accounts payable. Legal costs have been expensed as incurred and no provision
has been made for any interest liability.
ANGUS & ROBERTSON BOOKWORLD
Angus & Robertson Bookworld was acquired on 29 November 1993. The purchase price
was provisionally assessed and paid, subject to the estimated retention of $8.7
million. The final purchase price was to be determined upon the provision by the
vendor of an audited statement of net assets. This statement has not been
received.
In May 1994 two of the vendors, Bibury Limited (formerly Brash Holdings Limited)
and Brashs Pty Limited were placed into Administration.
At the date of issue of the 1994 Annual report, Whitcoulls Group Limited
believed that the final purchase price would not exceed the amount paid to that
date, with the difference relating primarily to the overvaluation of inventories
in the provisional assessment of the purchase price.
Subsequently Whitcoulls Group Limited concluded that the business had been
misrepresented and sued for damages.
An agreement in principle has been reached with the Administrator, subject to
final legal documentation. No further monies were paid to, or are owing to, the
Administrator in respect of this acquisition.
These accounts have been prepared incorporating the terms of the agreement
reached.
(20) CONTINGENT LIABILITIES/ASSETS
There were no contingent liabilities.
Angus and Robertson Bookworld Pty Ltd has been admitted as an unsecured creditor
of Bibury Limited (formerly Brash Holdings Limited) (Subject to Deed of Company
Arrangement) for A$7.5 million.
No monies will be received in respect of this proof of debt until the other
unsecured creditors have received A$38 cents per dollar of admitted proof.
(21) CAPITAL COMMITMENTS
There were no material capital commitments at year end. (1994:NIL)
- --------------------------------------------------------------------------------
F-218
<PAGE>
(22) CONVERSION FROM NEW ZEALAND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP) TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP) EFFECTING SHAREHOLDERS' EQUITY AND REPORTED EARNINGS.
As indicated in Note 1, the financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) followed in New
Zealand. Had these financial statements been prepared on the basis of generally
accepted accounting principles in the United States (US GAAP), the material
differences which affect earnings and shareholders' equity would be as follows:
1. New Zealand GAAP allows for the revaluation of fixed assets with a
corresponding adjustment to capital reserves. Whitcoulls Group Limited have
revalued land, buildings and a certain item of plant. This type of revaluation
is not in accordance with U.S. GAAP and accordingly, US GAAP basis for fixed
assets should be presented at their historical cost amounts. In this regard
depreciation and gains or losses on disposal of fixed assets would be computed
on the basis of the historical cost amounts and not upon the revalued amounts.
2. New Zealand GAAP allows for the recognition of dividend distributions on an
accrual basis. Under US GAAP, dividends are only recognised if they are
declared prior to the balance sheet date.
3. New Zealand GAAP allows the immediate recognition of gains arising from
sale and leaseback transactions which meet certain criteria. U.S GAAP requires
that these gains within specified limits be recognised over the term of the
related Lease.
4. New Zealand GAAP requires that the earnings of foreign subsidiaries be
recognised at the year end exchange rate. US GAAP requires that the earnings
be recognised at a weighted average rate. This results in a reallocation of
earnings between the income statement and the exchange translation reserve.
5. US GAAP requires a deferred tax liability to be recognised for
differences between the assigned tax and book basis of assets in a purchase
business combination.
A reconciliation of the key components of the financial statements between New
Zealand GAAP and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
SHAREHOLDER FIXED INVESTMENTS GOODWILL DEFERRED DEFERRED PROVISION NET PROFIT
EQUITY ASSETS TAX INCOME FOR AFTER TAX
DIVIDEND
AUDITED INFORMATION
$NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED 30 JUNE 1995
Reported under NZ GAAP 147,500 111,005 2,519 52,158 (627) 7,260 20,188
1. Adjustments related to
changes in accounting for Fixed
Assets (21,837) (21,586) (251) 789
2. Adjustments related to
changes in accounting for
Dividends 7,260 (7,260)
3. Adjustments related to
changes in the accounting for
sale and lease back transactions (844) 844 82
4. Adjustment related to using
weighted average exchange rate
rather than year end exchange
rate for earnings of foreign
subsidiary 332
5. Adjustment for differences
between assigned values and tax
basis on acquisitions (60) 343 403 (20)
Restated under U.S GAAP 132,019 89,419 2,268 52,501 (224) 844 -- 21,371
<CAPTION>
Shareholder Fixed Investments Goodwill Deferred Deferred Provision Net Profit
Equity Assets Tax Income for After Tax
Dividend
AUDITED INFORMATION
$NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED 30 JUNE 1994
Reported under NZ GAAP 139,903 111,012 2,471 55,414 42 4,840 24,062
1. Adjustments related to
changes in accounting for
Fixed Assets (23,174) (22,923) (251) 1,720
2. Adjustments related to
changes in accounting for
Dividends 4,840 (4,840)
3. Adjustment related to
changes in accounting for
sale and leaseback
transactions (927) 927 41
5. Adjustment for differences
between assigned values and tax
basis on acquisitions (40) 363 403 (20)
Restated under U.S GAAP 120,602 88,089 2,220 55,777 445 927 - 25,803
</TABLE>
F-219
<PAGE>
ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
YEARS ENDED 30 JUNE 1995 AND 1994
1. NATURE OF BUSINESS
Whitcoulls Group Ltd operates nine main subsidiary companies.
Summarised below are the activities for each of the main subsidiaries:
Whitcoulls Ltd operates 74 stores throughout New Zealand, retailing books,
paperbacks, magazines, commercial and household stationery, greeting cards,
videos, and other complementary products.
London Bookshops Ltd operates 36 stores (nine of which are franchised)
throughout New Zealand, retailing books, paperbacks, magazines, commercial
and household stationery, greeting cards, videos, and other complementary
products.
Angus & Robertson Bookworld Pty Ltd operates Australia's largest chain of
bookshops, comprising 87 company owned and 81 franchised stores. Books are
the core of the product range, with some stores also carrying magazines and a
limited range of household stationery.
OTC Office Supplies Ltd is the largest commercial stationery retailer in New
Zealand, operating four sales and distribution centres in Auckland, Hamilton,
Wallington and Christchurch.
Whitcoulls Office Products Ltd is New Zealand's second largest commercial
stationer, operating 17 retail and warehouse branches and includes a
specialist retailer of computer consumables and related products.
Hollands Ltd is a retailer of stationery and office furniture to the Auckland
market.
School Supplies Ltd operates 11 branches throughout New Zealand, supplying
schools with a wide range of stationery, art supplies and text books.
Croxley Stationary Ltd is a manufacturer and wholesaler of stationery,
including filing products, diaries, scholastic products, pads, envelopes,
writing instruments and recycled laser cartridges. It manufactures
approximately 70% of its product range at its four factories.
GP Print Ltd (formerly the Government Printing Office). It holds long term
contracts to produce all New Zealand's telephone directories and to print and
distribute Parliamentary legislation. It is also one of New Zealand's largest
commercial printers.
F-220
<PAGE>
2. PROFIT AND LOSS STATEMENT
Operating expenses in the Profit and Loss Account comprise;
1995 1994
NZ$000 NZ$000
Cost of Product sold 392,557 342,401
Selling, General, Administrative
and Other Expenses 117,216 104,864
-----------------------
Total Operating Expenses $509,773 $447,265
-----------------------
3. STATEMENT OF CASH FLOWS
NZ GAAP includes bank overdraft as under the cash caption in the Statement of
Cash Flows under US GAAP a bank overdraft is included as financing activities.
Effect on the Cash Flow Statement is to increase cash received from financing
activities by NZ$11,176,000 in the 1995 year. There is no effect to respect of
the 1994 or 1993 years.
The restated cash flow in summary form is as follows:
1995 1994
NZ$000 NZ$000
Net Cash flows from Operating Activities 21,296 30,071
Cash Flows from Investing Activities (13,012) (140,039)
Cash Flows from Financing Activities (8,755) 97,028
Net Cash (Disbursements) during period (471) (12,940)
Cash at beginning of period 197 13,137
Impact of Foreign Exchange 274
------------------------
Cash at end of Period Nil 197
------------------------
4. IMPUTATION CREDIT BALANCE
Imputation credit disclosed in Note 3 relates to taxation credits available
to be attached to dividend distributions to shareholders. These credits are
lost on significant changes in shareholders.
F-221
<PAGE>
5. LOANS
The term position of loans disclosed in Note 11 comprise:
1995 1994
NZ$000 NZ$000
Repayable
1 & 2 years 79,882 20,298
2 & 3 years -- 74,709
--------------------------
79,882 95,007
--------------------------
6. FINANCE LEASE LIABILITIES
Finance lease commitments disclosed in Note 12 comprises:
1995 1994
NZ$000 NZ$000
Repayable:
Current 1,388 1,669
1 & 2 years 1,060 816
2 & 3 years 936 393
--------------------------
3,384 2,878
--------------------------
Less
Future interest 460 304
expenses
--------------------------
2,924 2,574
--------------------------
7. EARNINGS PER SHARE
1995 1994
NZ$ NZ$
Earnings per share (cents) 17.7 22.7
8. MATERIAL ACQUISITIONS
1995 1994
NZ$000 NZ$000
Net assets acquired - $140,290
--------------------------
Payments made per -
Statement of Cash Flows 134,773
Included in Creditors - 5,517
--------------------------
- $140,290
--------------------------
F-222
<PAGE>
9. LOANS
Included in loans (part of net liabilities of foreign subsidiaries) is
Australian denominated debt of NZ$32.9 million for the year ended 30 June 1995,
and NZ$35.6 million for the year ended 30 June 1994.
10. NON-CASH FINANCING ACTIVITIES
New Zealand GAAP requires that bonus shares (stock dividends) are recorded at
par value. US GAAP requires stock dividends involving issuance by the company
of additional shares in ratios of less than 20% to 25% of the previously
outstanding shares accounted for by the issuer to be transferred from
retained earnings to share capital and share premium at a combined amount
equal to the fair value of the additional shares issued.
On 11 December 1992 a one-for-ten bonus issue was made. The fair value was
NZ$22,138,000, which under US GAAP would have been transferred from Related
Earnings to Capital Reserves. Under NZ GAAP the par value of shares NZ$963,000
was transferred. This adjustment has no effect on total reported
shareholders' equity.
11. FOREIGN SUBSIDIARIES
Net liabilities of foreign subsidiaries which are denominated in Australian
dollars amount to NZ$4,884,000 as at 30 June 1995 and NZ$1,248,000 as at 30
June 1994.
12. UNUSED LETTERS OF CREDIT
1995 1994
NZ$000 NZ$000
Total as at 30 June 588 1,524
13. OPERATING LEASE EXPENSE
Operating lease expense comprise:
1995 1994
NZ$000 NZ$000
Base 35,339 27,004
Contingent 450 395
Less sub-lease (2,511) (1,838)
------------------------------
$33,268 $25,561
------------------------------
F-223
<PAGE>
14. BUSINESS COMBINATION:
PURCHASE METHOD
In year ending 30 June 1994, the Company made 8 acquisitions accounted
for under the purchase method for an aggregate purchase price which was
initially the sum of NZ$140.3 million, but which was subsequently reduced to
NZ$137.7 million as a result of adjustments to the purchase price of Angus &
Robertson Bookworld. Payment for the acquisitions was financed entirely by
cash, apart from NZ$5.5 million which is under dispute and still remains to be
paid. The total assets related to these 8 acquisitions were NZ$182.0 million
including goodwill of NZ$46.6 million. The results of these acquisitions have
been included in the Company's results from their respective dates of
acquisitions.
The following presents the unaudited pro forma results of operations of
the Company for the fiscal year ended 30 June 1994 as if the purchase
acquisitions described above had been consummated as of the beginning of the
financial year ended 30 June 1994. The results presented below include
certain pro forma adjustments to reflect the amortization of intangible
assets, the cost of funding, adjustments in executive compensation and the
inclusion of an income tax provision:
FOR THE
FISCAL
YEAR ENDED
JUNE 30 1994
($NZ000, except
per share amount)
Revenues.............................. 607,453
Net income............................ 18,288
Net income per share.................. 15.11 cents
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 the financial year
ending 30 June 1994 or the results which may occur in the future.
F-224
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors of
Whitcoulls Group Limited
Auckland
New Zealand
We have audited the accompanying consolidated balance sheet of Whitcoulls
Group Limited as of 30 June 1994 and 30 June 1993, and the related Profit
and Loss Account, and Statement of Cash Flows for the years then ended (all
expressed in New Zealand dollars). 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 auditing standards generally
accepted in New Zealand and the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Group at 30 June 1994 and 30 June
1993, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally
accepted in New Zealand.
Accounting principles generally accepted in New Zealand vary in certain
significant respects from accounting principles generally accepted in the
United States. The application of the latter would have affected the
determination of net income for each of the two years in the period
ended 30 June 1994 and the determination of stockholders' equity and
financial position at 30 June 1994 and 30 June 1993 to the extent
summarised in Note 22. Additional disclosures required under
US GAAP are summarised in Note 22.
DELOITTE TOUCHE TOHMATSU
16 September 1994
Auckland, New Zealand
F-225
<PAGE>
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE
<TABLE>
<CAPTION>
1994 1993
NOTE $000 $000
-------- --------
<S> <C> <C> <C>
Revenue 2 526,832 302,355
-------- --------
Less:
Operating Expenses 447,265 254,287
Depreciation of Fixed Assets 9,321 5,377
Audit Fees 230 106
Rental and Lease Expenses 25,561 11,425
Directors' Fees 28 11
Goodwill Amortisation 2,164 612
-------- --------
Total Expenses 484,569 271,818
-------- --------
Earnings Before Interest and Taxation 42,263 30,537
Net Interest Expense 2 6,836 4,172
-------- --------
Net Profit Before Taxation 35,427 26,365
Provision for Taxation 3 11,291 7,852
Minority Interests 74 -
-------- --------
Net Profit After Taxation 24,062 18,513
Retained Earnings Brought Forward 42,628 27,683
Transfer from Reserves 13 1,181 571
Dividends and Bonus Issue 4 (8,470) (4,139)
-------- --------
Retained Earnings Carried Forward 59,401 42,628
-------- --------
-------- --------
</TABLE>
See accompanying notes to the financial statements.
F-226
<PAGE>
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE
<TABLE>
<CAPTION>
1994 1993
NOTE $000 $000
-------- --------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash at Bank and on Deposit 197 13,137
Accounts Receivable 5 48,526 30,621
Inventory 6 129,007 48,909
Tax Refund Due 317 -
-------- --------
178,047 92,667
Non Current Assets
Fixed Assets 7 111,012 60,627
Investments 8 2,471 2,272
Deferred Charges 9 548 172
Goodwill 55,414 11,020
-------- --------
169,445 74,091
-------- --------
Total Assets 347,492 166,758
-------- --------
-------- --------
LIABILITIES
Current Liabilities
Creditors 84,320 38,808
Provision for Dividend 4 4,840 2,117
Provision for Taxation - 2,327
Current Portion of Term Liabilities 10, 11 21,754 13,065
-------- --------
110,914 56,317
Deferred Taxation 3 42 719
Term Liabilities
Loans 10 95,007 44,325
Finance Lease Liabilities 11 1,118 1,288
-------- --------
96,125 45,613
-------- --------
Total Liabilities 207,081 102,649
Minority Interests 508 -
SHAREHOLDERS' FUNDS
Issued and Paid Up Capital 12 12,100 10,588
Reserves 13 68,402 10,893
Retained Earnings 59,401 42,628
-------- --------
Total Shareholders' Funds 139,903 64,109
-------- --------
Total Shareholders' Funds and Liabilities 347,492 166,758
-------- --------
-------- --------
</TABLE>
See accompanying notes to the financial statements.
F-227
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE
<TABLE>
<CAPTION>
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Cash was Provided From:
Receipts from Customers 532,202 295,057
Interest Received 337 1,011
Dividends Received - 27
-------- --------
532,539 296,095
Cash was Applied to:
Payments to Employees and Suppliers 482,319 268,796
Interest Paid 6,998 4,898
Tax Paid 13,151 6,658
502,468 280,352
-------- --------
Net Cash Flows from Operating Activities 30,071 15,743
Cash Flows From Investing Activities
Cash was Provided From:
Disposal of Fixed Assets 2,491 6,231
Proceeds from Sale of Investment Properties 1,700 2,750
-------- --------
4,191 8,981
Cash was Applied to:
Purchase of Fixed Assets 9,457 17,880
Payments Made for Acquisition of Business 134,773 -
-------- --------
144,230 17,880
-------- --------
Net Cash Flows from Investing Activities (140,039) (8,899)
Cash Flows from Financing Activities
Cash was Provided From:
Loans Received 126,012 7,700
Finance Leases Received 1,636 2,746
Rights Issue 44,967 -
-------- --------
172,615 10,446
Cash was Applied To:
Loans Repaid 68,676 11,122
Finance Leases Repaid 1,163 856
Dividends Paid 5,748 2,503
-------- --------
75,587 14,481
Net Cash Flows from Financing Activities 97,028 (4,035)
-------- --------
Net Cash Received (Disbursed) During the Year (12,940) 2,809
-------- --------
Cash at Beginning of Year 13,137 10,328
-------- --------
Cash at End of Year 197 13,137
-------- --------
-------- --------
</TABLE>
See accompanying notes to the financial statements.
F-228
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
RECONCILIATION OF CONSOLIDATED NET CASH FLOWS FROM OPERATING
ACTIVITIES TO NET PROFIT AFTER TAXATION
<TABLE>
<CAPTION>
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Net Profit After Taxation 24,062 18,513
Non Cash Items
Depreciation 9,321 5,377
Goodwill 2,164 612
Minority Interests 74 -
Other Non-cash Expenses - 143
-------- --------
11,559 6,132
Movements in Working Capital
Current Liabilities: Increase/(Decrease)
Creditors (455) 3,571
Provision for Taxation (2,327) 322
Current Assets: (Increase)/Decrease
Accounts Receivable 5,560 (7,180)
Tax Refund Due (317) -
Amount Due from Associates - (132)
Inventory (7,675) (6,183)
Deferred Charges (376) 57
-------- --------
(5,590) (9,545)
Other
(Gain)/Loss on Disposal of Fixed Assets 173 (204)
(classed as investing activity)
Increase/(Decrease) in Deferred Taxation (133) 847
-------- --------
40 643
-------- --------
Net Cash Flows From Operating Activities 30,071 15,743
-------- --------
-------- --------
</TABLE>
See accompanying notes to the financial statements.
F-229
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
PARENT COMPANY BALANCE SHEET
AS AT 30 JUNE
<TABLE>
<CAPTION>
1994 1993
NOTE $000 $000
-------- --------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash at Bank and on Deposit 578 186
Accounts Receivable 5 90 713
Due from Related Parties 15 34,546 1,620
Tax Refund Due 357 -
-------- --------
35,571 2,519
Non Current Assets
Due from Related Parties 15 78,286 35,243
Future Income Tax Benefit - 1,014
Fixed Assets 7 51 40
Investments in Subsidiaries 15 68,383 48,027
Deferred Charges 9 440 172
-------- --------
147,160 84,496
-------- --------
Total Assets 182,731 87,015
-------- --------
-------- --------
LIABILITIES
Current Liabilities
Creditors 6,803 653
Provision for Dividend 4 4,840 2,117
Due to Related Parties 15 - 6,839
Current Portion of Term Liabilities 10 20,298 10,253
-------- --------
31,941 19,862
Deferred Taxation 103 -
Term Liabilities
Loans 10 59,354 40,325
Due to Related Parties 15 26,517 12,247
-------- --------
85,871 52,572
-------- --------
Total Liabilities 117,915 72,434
SHAREHOLDERS' FUNDS
Issued and Paid Up Capital 12 12,100 10,588
Reserves 13 43,695 240
Retained Earnings 9,021 3,753
-------- --------
Total Shareholders' Funds 64,816 14,581
-------- --------
Total Shareholders' Funds and Liabilities 182,731 87,015
-------- --------
-------- --------
</TABLE>
See accomanying notes to the financial statements.
F-230
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
WHITCOULLS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1 STATEMENT OF ACCOUNTING POLICIES
GENERAL ACCOUNTING POLICIES
The general accounting policies recognised as appropriate for the measurement
and reporting of profit and the financial position on an historical cost basis
are followed by the group with the exception that certain land, buildings and
plant are recorded at valuation.
Accrual accounting is used to match expenses and revenues. Reliance is placed on
the fact that the group is a going concern.
PARTICULAR ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include those of the parent company and
its subsidiaries and incorporate the equity share of the earnings and net assets
of the associated companies. The purchase method of accounting has been used.
All significant inter-company transactions are eliminated on consolidation.
INVENTORIES
Inventories are stated at the lower of net realisable value and cost, using
either a first-in-first-out or weighted average basis.
Work in progress is valued at the cost of materials and labor and includes fixed
and variable overheads to the last completed stage of manufacture.
Finished manufactured goods are valued at the lower of cost and net realisable
value. Cost includes fixed and variable production overheads.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at expected realisable value.
FIXED ASSETS
Fixed assets are depreciated on a straight-line basis at rates which will write-
off the cost or valuation of those assets over their estimated useful lives.
The following lives have been estimated:
Motor Vehicles 5 years
Furniture and Fittings 5 to 10 years
Plant and Machinery 5 to 15 years
Office and EDP Equipment 3 to 5 years
Buildings 30 to 80 years
Land and buildings are revalued to net current value on an annual basis. The
valuations are carried out by independent registered valuers.
Changes in valuations are transferred directly to the Asset Revaluation Reserve.
On the sale of an asset the balance in the Asset Revaluation Reserve pertaining
to that asset is transferred to Retained Earnings. Where the sale value differs
to the carrying value that difference is recognised through the Profit and Loss
Account.
F-231
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
LEASED ASSETS
Finance leases are capitalised to reflect the term borrowings incurred and the
cost of the asset acquired. The finance cost portion of lease payments is
expensed and the leased asset is depreciated on a straight-line basis over the
estimated useful life of the asset.
FOREIGN CURRENCIES
Foreign currency transactions are translated to New Zealand currency at the rate
of exchange ruling at the date of those transactions. At balance date foreign
monetary assets and liabilities are translated at the closing rate and exchange
variations arising from these translations are included in the profit and loss
account.
The financial statements of independent foreign operations are translated at the
closing rate. The exchange difference arising from the translation of the
opening net investment at an exchange rate different from that at which it was
previously reported is taken to the foreign currency translation reserve.
TAXATION
Taxation accounted for in the Consolidated Profit and Loss Account is the
estimated total liability including both current and deferred taxation. In
calculating the taxation payable full advantage is taken of all allowable
taxation deductions. Deferred taxation is provided on the comprehensive basis
using the liability method.
GOODWILL
Goodwill represents the excess of purchase consideration and associated costs
over the fair value of net tangible assets acquired at the time of acquisition
of a business or a subsidiary. Goodwill is amortised using the straight-line
method over the period during which benefits are expected to be received. This
period has been assessed to be 20 years.
CHANGES IN ACCOUNTING POLICIES
There have been no changes in accounting policies.
2 PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
CONSOLIDATED
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Included in the Consolidated Profit and Loss Account are:
Interest Income 337 1,052
Interest Expense on Finance Leases (257) (204)
Other Interest Expense (6,916) (5,020)
-------- --------
Net Interest Expense (6,836) (4,172)
-------- --------
Gain (Loss) on Sale of Fixed Assets (173) 204
Share of Associates' After Tax Profit 199 132
The Parent's profit after taxation was $13,737,000
(1993:$7,420,000).
</TABLE>
F-232
<PAGE>
<TABLE>
<CAPTION>
3 TAXATION
CONSOLIDATED
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Provision for Taxation
The current taxation charge is calculated as follows:
Net Profit Before Taxation 35,427 26,365
Permanent Differences (1,212) (2,573)
-------- --------
34,215 23,792
Taxation at 33% 11,291 7,852
-------- --------
-------- --------
Accounted for as follows:
Current 11,424 7,005
Deferred (133) 847
-------- --------
11,291 7,852
-------- --------
-------- --------
DEFERRED TAXATION
The balance comprises:
Future Income Taxation Benefit (1,170) -
Deferred Taxation 1,212 719
-------- --------
42 719
-------- --------
-------- --------
</TABLE>
The future income taxation benefit relates to taxation losses and other timing
differences arising in Angus and Robertson Bookworld which is based in the
Australian taxation jurisdiction.
<TABLE>
<CAPTION>
<S> <C> <C>
Imputation Credit Account
Opening Balance 6,189 24
Income Tax Paid 13,151 6,658
Imputation Credits on Dividends Received 26 28
Less: Credits Attributed to Dividends Paid (2,895) (521)
-------- --------
16,471 6,189
-------- --------
-------- --------
4 DIVIDENDS AND BONUS ISSUE
COMPANY AND CONSOLIDATED
1994 1993
$000 $000
-------- --------
Interim Dividend
An interim dividend of 3 cents per share
(1993: 1 cent per share) 3,630 1,059
Final Dividend
A proposed final dividend of 4 cents per share
(1993: 2 cents per share) 4,840 2,117
-------- --------
8,470 3,176
Bonus Issue
A bonus issue of fully paid ordinary shares in
the ratio of 1 for 10 - 963
-------- --------
8,470 4,139
-------- --------
-------- --------
</TABLE>
F-233
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
5 ACCOUNTS RECEIVABLE
Accounts Receivable are recorded net of a provision for doubtful debts. The
consolidated provision for doubtful debts is $355,000 (1993:$278,000).
6 INVENTORY
An analysis of inventories is as follows:
<TABLE>
<CAPTION>
CONSOLIDATED
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Finished Goods 118,112 43,335
Work in Progress 2,340 1,342
Raw Materials 8,555 4,232
-------- --------
129,007 48,909
-------- --------
-------- --------
</TABLE>
7 FIXED ASSETS
<TABLE>
<CAPTION>
COMPANY CONSOLIDATED
COST ACCUM NET COST VALN ACCUM NET
DEPN BOOK DEPN BOOK
VALUE VALUE
$000 $000 $000 $000 $000 $000 $000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
30 JUNE 1994
Motor Vehicles - - - 350 - 91 259
Capitalised Leased
Motor Vehicles - - - 4,053 - 1,277 2,776
Plant & Machinery - - - 54,089 - 17,758 36,331
Office Equipment 90 39 51 10,248 - 4,735 5,513
Leasehold Improvements - - - 3,443 - 1,864 1,579
Buildings - - - - 29,237 - 29,237
Land - - - - 35,317 - 35,317
-------- -------- -------- -------- -------- -------- --------
90 39 51 72,183 64,554 25,725 111,012
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
30 JUNE 1993
Motor Vehicles - - - 117 - 78 39
Capitalised Leased
Motor Vehicles - - - 2,250 - 476 1,774
Plant & Machinery - - - 24,373 3,673 14,236 13,810
Office Equipment 61 21 40 5,042 - 3,077 1,965
Leasehold Improvements - - - 4,035 - 1,996 2,039
Buildings - - - - 17,255 - 17,255
Land - - - - 23,745 - 23,745
-------- -------- -------- -------- -------- -------- --------
61 21 40 35,817 44,673 19,863 60,627
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
Land and buildings are restated to valuation at 30 June 1994 in accordance with
valuation reports of registered independent valuers at that date. The valuers
used were Jones Lang Wootten, Colliers Jardine and Lockwood and Associates. The
telephone directory press is stated at valuation (recognized as deemed cost) as
at 30 June 1991 less depreciation.
F-234
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
8 INVESTMENTS
<TABLE>
<CAPTION>
CONSOLIDATED
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Other Investments 76 76
Associate Companies
Shares at Cost 1,045 1,045
Share of:
--Retained Profits 506 307
--Revaluations 252 252
Advances to Associates 592 592
-------- --------
2,395 2,196
-------- --------
2,471 2,272
-------- --------
-------- --------
</TABLE>
9 DEFERRED CHARGES
Deferred charges include costs incurred on raising term loans. Such costs are
capitalised and written off over the term of the loans.
10 LOANS
<TABLE>
<CAPTION>
COMPANY CONSOLIDATED
1994 1993 1994 1993
$000 $000 $000 $000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loans--Secured 79,652 50,578 115,305 56,578
Less: Included in Current Liabilities 20,298 10,253 20,298 12,253
-------- -------- -------- --------
59,354 40,325 95,007 44,325
-------- -------- -------- --------
-------- -------- -------- --------
Repayable as follows:
Between 1 and 2 years 20,298 10,253 20,298 12,253
Between 2 and 5 years 39,056 30,072 74,709 32,072
-------- -------- -------- --------
59,354 40,325 95,007 44,325
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The loans are secured by mortgages over all properties owned and by debentures
over the assets and undertakings of the parent and its subsidiaries.
Interest rates charged during the year ranged from 5.15% to 9.02%.
F-235
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
11 FINANCE LEASE LIABILITIES
<TABLE>
<CAPTION>
CONSOLIDATED
1994 1993
$000 $000
-------- --------
<S> <C> <C>
The consolidated future lease rental payments
under finance leases are:
Not later than 1 year 1,669 1,000
1-2 years 816 891
2 -5 years 393 549
-------- --------
2,878 2,440
Less future interest expense 304 340
-------- --------
2,574 2,100
-------- --------
-------- --------
Representing: Current Liability 1,456 812
Term Liability 1,118 1,288
-------- --------
2,574 2,100
-------- --------
-------- --------
12 SHARE CAPITAL
COMPANY AND CONSOLIDATED
1994 1993
$000 $000
-------- --------
Authorized Share Capital
500,000,000 (1993:500,000,000) Ordinary Shares of
$0.10 (1993:$0.10) Each 50,000 50,000
-------- --------
-------- --------
Issued and Fully Paid Shares
121,000,398 (1993:105,876,210) Ordinary Shares 12,100 10,588
-------- --------
-------- --------
</TABLE>
A one for seven renounceable cash issue of ordinary shares of 10 cents each at a
price of $3.00 per share was effective on 31 December 1993.
13 RESERVES
<TABLE>
<CAPTION>
COMPANY CONSOLIDATED
1994 1993 1994 1993
$000 $000 $000 $000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Share Premium Reserve
Opening Balance 240 240 240 240
Movements 43,455 - 43,455 -
-------- -------- -------- --------
Closing Balance 43,695 240 43,695 240
Asset Revaluation Reserve
Opening Balance - - 10,653 9,485
Revaluation - - 15,125 1,739
Adjustment for Assets Sold - - (1,181) (571)
-------- -------- -------- --------
Closing Balance - - 24,597 10,653
Currency Translation Reserve
Opening Balance - - - -
Movements - - 110 -
-------- -------- -------- --------
Closing Balance - - 110 -
-------- -------- -------- --------
Total Reserves 43,695 240 68,402 10,893
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-236
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
The Adjustment for Assets sold of $1,181,000 (1993 $571,000) relates to the sale
of a non core property and represents the realisation of the revaluation amount
above original cost. This has been transferred to retained earnings.
14 SEGMENT INFORMATION
The Group operates predominantly in the industry of printing and supplying
paper-based products. Operations are carried out in two geographical segments--
New Zealand and Australia.
<TABLE>
<CAPTION>
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Revenue
New Zealand 432,403 302,355
Australia 94,429 -
-------- --------
526,832 302,355
-------- --------
-------- --------
Earnings Before Interest, Taxation and Amortization
of Goodwill
New Zealand 43,973 31,149
Australia 454 -
-------- --------
44,427 31,149
-------- --------
-------- --------
Total Assets
New Zealand 285,122 166,758
Australia 62,370 -
-------- --------
347,492 166,758
-------- --------
-------- --------
</TABLE>
15 RELATED PARTIES
Related party transactions are limited to those companies which are included
within the consolidation.
Significant subsidiaries consolidated at 30 June 1994 are:
<TABLE>
<CAPTION>
<S> <C> <C>
% OWNED PRINCIPAL ACTIVITY
Whitcoulls Limited 100 Book & Stationery Retailing
London Bookshops Limited 100 Book & Stationery Retailing
Angus & Robertson Bookworld Pty Limited 100 Book & Stationery Retailing
G H Bennett & Company Limited 100 Tertiary & Professional Book
Retailing
Croxley Stationery Limited 100 Stationery Manufacturing &
Wholesaling
Armidale Industries Limited 65 Stationery Manufacturing
OTC Office Supplies Limited 100 Commercial Stationery Retailing
Whitcoulls Office Products Limited 100 Commercial Stationery Retailing
Hollands Limited 100 Commercial Stationery Retailing
School Supplies Limited 100 Scholastic Stationery Retailing
GPO Holdings Limited 100 Printing & Publishing
WGL Group Limited 100 Holding Company
Whitcoulls Group Services Limited 100 Management Services
</TABLE>
F-237
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Significant Associate Companies equity accounted at 30 June 1994 are:
<S> <C> <C>
% OWNED PRINCIPAL ACTIVITY
University Bookshop (Auckland) Limited 50 Tertiary Book Retailing
University Bookshop (Canterbury) Limited 50 Tertiary Book Retailing
University Book Shop (Otago) Limited 50 Tertiary Book Retailing
</TABLE>
16 MATERIAL ACQUISITIONS
During the year the Group acquired the following businesses and subsidiaries:
BUSINESS/COMPANY NAME ACQUISITION DATE
Wiljef Stationery 1 July 1993
Inca Products 1 July 1993
Microtronix Computer Supplies 1 July 1993
Bob Atley 1 October 1993
London Bookshops Limited 1 October 1993
Hollands 1 November 1993
AllenBank Office Products 1 November 1993
Croxley Collins Olympic 29 November 1993
Armidale Industries Limited 29 November 1993
Angus & Robertson Bookworld 29 November 1993
Philip King Booksellers 1 December 1993
These acquisitions contributed $5,127,000 of net profit before tax and intra-
group profit elimination.
Assets and liabilities acquired at acquisition date were as follows:
$000
Current Assets 100,039
Fixed Assets 35,369
Goodwill 46,558
-------
Total Assets 181,966
Current Liabilities (41,676)
-------
Net Assets 140,290
-------
-------
17 ACQUISITION MATTERS OUTSTANDING
CROXLEY COLLINS OLYMPIC
Croxley Collins Olympic was acquired on 29 November 1993.
The purchase price of the business was finalised at $51.5 million which after a
payment of $46.0 million left a final balance due of $5.5 million.
Upon taking over the business Whitcoulls Group Limited formed the opinion that
certain breaches of the Sale and Purchase Agreement by the vendors had occurred
and retained the final payment pending resolution of these matters.
The vendor sued for summary judgement. Whitcoulls Group Limited counterclaimed
for $11.2 million for breach of contract.
The hearing took place in August 1994 and the High Court dismissed the summary
judgement proceedings and found Whitcoulls Group Limited had an arguable case
regarding the alleged breach of contract. The court established procedures for
the conduct of a full hearing.
F-238
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
Pending resolution of this matter the final balance due to the vendor of $5.5
million has been accrued as a liability in the balance sheet and is included in
the creditors.
ANGUS & ROBERTSON BOOKWORLD
Angus & Robertson Bookworld was acquired on 29 November 1993. The purchase price
was provisionally assessed and paid, subject to the estimated retention of $8.7
million. The final purchase price is to be determined upon the provision by the
vendor of an audited statement of net assets. This statement has not yet been
received.
Whitcoulls Group Limited believes that the final purchase price will not exceed
the amount paid to date with the difference relating primarily to the
overvaluation of inventories in the provisional assessment of the purchase
price. The inventories to which the overvaluation applies were held "in
quarantine" at 30 June 1994. An independent person is to be appointed to value
such inventories in accordance with the Sale and Purchase Agreement.
Should the independent assessment of inventories result in the net assets being
reduced by less than $8.7 million there will be a further liability to recognize
which will be offset by a corresponding increase in the net realisable value of
inventories held.
Should the independent assessment of inventories result in the net assets being
reduced by more than $8.7 million, Whitcoulls Group Limited would become an
unsecured creditor of Brash Pty Limited (in Administration) and some loss would
result.
Pending resolution of this matter, no amount is included as owing to the vendor.
The Directors believe that the ultimate outcome will not have a material effect
on these financial statements.
18 FINANCIAL INSTRUMENT DISCLOSURE
The nature of activities and management policies with respect to financial
instruments are:
CREDIT
In the normal course of business the company incurs credit risk from debtors and
financial institutions. The company has a credit policy to manage this exposure
to credit risk. Credit risk in respect to debtors is limited due to the large
number of customers included in the Group's customer base. The company does not
require any collateral from debtors.
FAIR VALUES
The Directors are of the opinion that the fair value of the company's financial
assets and liabilities approximate their carrying value stated in the accounts.
FOREIGN EXCHANGE
Investment Risk
Whitcoulls Group Limited has a 100% investment in a subsidiary company located
in Australia--Angus & Robertson Bookworld Pty Limited. The purchase price of
this investment was funded fully in Australian currency loans and therefore is
fully hedged.
F-239
<PAGE>
FINANCIAL STATEMENTS CONTINUED
- -------------------------------------------------------------------------------
TRADING RISK
The company undertakes transactions denominated in foreign currencies from time
to time and these activities result in foreign currency exposures. It is the
company's policy to hedge significant foreign currency exposures as they arise.
The company uses forward exchange contracts to manage these exposures.
INTEREST RATE
The company monitors its interest rate exposure on a continual basis. At balance
date the interest rate maturity profile of debt was less than three months.
19 OPERATING LEASE COMMITMENTS
<TABLE>
<CAPTION>
CONSOLIDATED
1994 1993
$000 $000
-------- --------
<S> <C> <C>
Commitments under operating leases are due as follows:
Not later than 1 year 30,878 9,770
1-2 years 25,378 8,538
2 -5 years 33,125 19,338
Over 5 years 16,477 6,861
-------- --------
105,858 44,507
-------- --------
-------- --------
</TABLE>
20 CONTINGENT LIABILITIES
There were no contingent liabilities other than those referred to in relation to
Angus & Robertson Bookworld (Note 17). (1993:nil).
21 CAPITAL COMMITMENTS
There were no material capital commitments at year end. (1993: $16 million).
22 CONVERSION FROM NEW ZEALAND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP) TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(U.S. GAAP) EFFECTING SHAREHOLDERS' EQUITY AND REPORTED EARNINGS.
As indicated in Note 1, the financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) followed in New
Zealand. Had these financial statements been prepared on the basis of generally
accepted accounting principles in the United States (US GAAP), the material
differences which affect earnings and shareholders' equity would be as follows:
1. New Zealand GAAP allows for the revaluation of fixed assets with a
corresponding adjustment to capital reserves. Whitcoulls Group Limited have
revalued land, buildings and a certain item of plant. This type of revaluation
is not in accordance with U.S. GAAP and accordingly, US GAAP basis for fixed
assets should be presented at their historical cost amounts. In this regard
depreciation and gains or losses on disposal of fixed assets would be computed
on the basis of the historical cost amounts and not upon the revalued amounts.
2. New Zealand GAAP allows for the recognition of dividend distributions on an
accrual basis. Under US GAAP, dividends are only recognised if they are
declared prior to the balance sheet date.
3. New Zealand GAAP allows the immediate recognition of gains arising from
sale and leaseback transactions which meet certain criteria. U.S GAAP requires
that these gains within specified limits be recognised over the term of the
related Lease.
4. New Zealand GAAP requires that the earnings of foreign subsidiaries be
recognised at the year end exchange rate. US GAAP requires that the earnings
be recognised at a weighted average rate. This results in a reallocation of
earnings between the income statement and the exchange translation reserve.
5. US GAAP requires a deferred tax liability to be recognised for
differences between the assigned tax and book basis of assets in a purchase
business combination.
A reconciliation of the key components of the financial statements between New
Zealand GAAP and U.S. GAAP are as follows:
F-240
<PAGE>
<TABLE>
<CAPTION>
Shareholder Fixed Investments Goodwill Deferred Deferred Provision Net Profit
Equity Assets Tax Income for After Tax
Dividend
AUDITED INFORMATION
$NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED 30 JUNE 1994
Reported under NZ GAAP 139,903 111,012 2,471 55,414 42 4,840 24,062
1. Adjustments related to
changes in accounting for
Fixed Assets (23,174) (22,923) (251) 1,720
2. Adjustments related to
changes in accounting for
Dividends 4,840 (4,840)
3. Adjustment related to
changes in accounting for
sale and leaseback
transactions (927) 927 41
5. Adjustment for differences
between assigned values and tax
basis on acquisitions (40) 363 403 (20)
Restated under U.S GAAP 120,602 88,089 2,220 55,777 445 927 - 25,803
<CAPTION>
Shareholder Fixed Investments Goodwill Deferred Provision for Net Profit
AUDITED INFORMATION Equity Assets Tax Dividend After Tax
$NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000 $NZ000
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED
30 JUNE 1993
Reported under NZ GAAP 64,109 60,627 2,272 11,020 719 2,117 18,513
1. Adjustments related to
changes in accounting for
Fixed Assets (9,769) (9,518) (251) 1,007
2. Adjustments related to
changes in accounting for
Dividends. 2,117 (2,117)
5. Adjustments for differences
between assigned values and tax
basis on acqisitions. (20) 383 403 (20)
Restated under U.S GAAP 56,437 51,109 2,021 11,403 1,122 - 19,500
</TABLE>
F-241
<PAGE>
ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GAAP FOR THE
YEARS ENDED 30 JUNE 1994 AND 1993
1. NATURE OF BUSINESS
Whitcoulls Group Ltd operates nine main subsidiary companies.
Summarized below are the activities for each of the main subsidiaries:
Whitcoulls Ltd operates 71 stores throughout New Zealand, retailing books,
paperbacks, magazines, commercial and household stationery, greeting cards,
videos, and other complementary products.
London Bookshops Ltd operates 24 stores (nine of which are franchised)
throughout New Zealand, retailing books, paperbacks, magazines, commercial
and household stationery, greeting cards, videos, and other complementary
products.
Angus & Robertson Bookworld Pty Ltd operates Australia's largest chain of
bookshops, comprising 92 company owned and 85 franchised stores. Books are
the core of the product range, with some stores also carrying magazines and a
limited range of household stationery.
OTC Office Supplies Ltd is the largest commercial stationery retailer in New
Zealand, operating four sales and distribution centres in Auckland, Hamilton,
Wellington and Christchurch.
Whitcoulls Office Products Ltd is New Zealand's second largest commercial
stationer, operating 20 retail and warehouse branches and includes a
specialist retailer of computer consumables and related products.
Hollands Ltd is a retailer of stationery and office furniture to the Auckland
market.
School Supplies Ltd operates 11 branches throughout New Zealand, supplying
schools with a wide range of stationery, art supplies and text books.
Croxley Stationary Ltd is a manufacturer and wholesaler of stationery,
including filing products, diaries, scholastic products, pads, envelopes,
writing instruments and recycled laser cartridges.
GP Print Ltd (formerly the Government Printing Office). It holds long term
contracts to produce all New Zealand's telephone directories and to print and
distribute Parliamentary legislation. It is also one of New Zealand's largest
commercial printers.
F-242
<PAGE>
2. PROFIT AND LOSS STATEMENT
Operating expenses in the Profit and Loss Account comprise:
1994 1993
NZ$000 NZ$000
Cost of Product sold 342,401 198,715
Selling, General, Administrative
and Other Expenses 104,864 55,572
-----------------------
Total Operating Expenses $447,265 $254,287
-----------------------
-----------------------
3. IMPUTATION CREDIT BALANCE
Imputation credit disclosed in Note 3 relates to taxation credits available
to be attached to dividend distributions to shareholders. These credits are
lost on significant changes in shareholders.
4. LOANS
The term position of loans disclosed in Note 11 comprise:
1994 1993
NZ$000 NZ$000
Repayable
1 & 2 years 20,298 10,253
2 & 3 years 74,709 10,000
3 & 4 years 10,000
4 & 5 years 10,072
------------------------------
$95,007 $40,325
------------------------------
------------------------------
5. FINANCE LEASE LIABILITIES
Finance loans commitments disclosed in Note 12 comprise:
1994 1993
NZ$000 NZ$000
Repayable:
Current 1,669 1,000
1 & 2 years 816 891
2 & 3 years 393 549
-----------------------------
2,878 2,440
Loss
Future interest 364 340
expenses
-----------------------------
$2,574 $2,100
-----------------------------
-----------------------------
F-243
<PAGE>
6. EARNINGS PER SHARE
1994 1993
Earnings per share (cents) 22.7 18.4
7. MATERIAL ACQUISITIONS
1994 1993
NZ$000 NZ$000
Net assets acquired $140,290 -
note 16 -----------------------------
Payments made per
Statement of Cash Flows 134,773 -
Included in Creditors 5,517 -
-----------------------------
$140,290 -
-----------------------------
-----------------------------
8. LOANS
Included in loans (part of net liabilities of foreign subsidiaries) is
Australian denominated debt of $35.6 million for the year ended 30 June 1994
and for 30 June 1993 Nil, which was a hedge by the company's Australian
denominated assets.
9. NON-CASH FINANCING ACTIVITIES
New Zealand GAAP requires that bonus shares (stock dividends) are recorded at
par value. US GAP requires stock dividends involving issuance by the company
of additional shares in ratios of less than 20% to 25% of the previously
outstanding shares accounted for by the issuer to be transferred from
retained earnings to share capital and share premium at a combined amount
equal to the fair value of the additional shares issued.
On 11 December 1992 a one-for-ten bonus issue was made. The fair value was
$22,138,000, which under US GAAP would have been transferred from Related
Earnings to Capital Reserves. Under NZ GAAP the par value of shares $963,000
was transferred. This adjustment has no effect on total reported
shareholders' equity.
10. FOREIGN SUBSIDIARIES
Net liabilities of foreign subsidiaries which are denominated in Australian
dollars amount to $1,248,000 as at 30 June 1994 and 30 June 1993 Nil.
11. UNUSED LETTERS OF CREDIT
1994 1993
NZ$000 NZ$000
Total as at 30 June 1,524 -
F-244
<PAGE>
12. OPERATING LEASE EXPENSE
Operating lease expense comprise:
1994 1993
NZ$000 NZ$000
Base 27,004 11,944
Contingent 395 105
Less sub-lease (1,838) (624)
------------------------------
$25,561 $11,425
------------------------------
F-245
<PAGE>
13. BUSINESS COMBINATION:
PURCHASE METHOD
In year ending 30 June 1994, the Company made 8 acquisitions accounted
for under the purchase method for an aggregate purchase price which was
initially the sum of $140.3 million, but which was subsequently reduced to
$137.7 million as a result of adjustments to the purchase price of Angus &
Robertson Bookworld. Payment for the acquisitions was financed entirely by
cash apart from $5.5 million which is under dispute and still remains to be
paid. The total assets related to these 8 acquisitions were $182.0 million
including goodwill of $46.6 million. The results of these acquisitions have
been included in the Company's results from their respective dates of
acquisitions.
The following presents the unaudited pro forma results of operations of
the Company for the fiscal years ended 30 June 1994 and 1993 as if the
purchase acquisitions described above had been consummated as of the
beginning of the financial year ended 30 June 1993. The results presented
below include certain pro forma adjustments to reflect the amortization of
intangible assets, the cost of funding, adjustments in executive compensation
and the inclusion of an income tax provision:
FOR THE FISCAL
YEAR ENDED JUNE 30
1994 1993
($NZ000's except per
share amounts)
Revenues.............................. 607,453 572,075
Net income............................ 18,288 11,840
Net income per share.................. 15.11cents 9.79cents
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 the financial year
ending 30 June 1993 or the results which may occur in the future.
F-246
<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 present 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 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 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
F-247
<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.
F-248
<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.
F-249
<PAGE>
THE OFFICE FURNITURE STORE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
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.
F-250
<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.
F-251
<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.
F-252
<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.
F-253
<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
F-254
<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.
F-255
<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
F-256
<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.
F-257
<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.
F-258
<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.
F-259
<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."
F-260
<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
F-261
<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
----------- -----------
----------- -----------
F-262
<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
----------- -----------
----------- -----------
F-263
<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
----------- -----------
----------- -----------
F-264
<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.
F-265
<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.
F-266
<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.
F-267
<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
----------- -----------
F-268
<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
F-269
<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
F-270
<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
F-271
<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.
F-272
<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.
F-273
<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.
F-274
<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.
F-275
<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
F-276
<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
----------- -----------
----------- -----------
F-277
<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
----------- -----------
----------- -----------
F-278
<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
----------- -----------
----------- -----------
F-279
<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
----------- -----------
----------- -----------
F-280
<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
----------- -----------
----------- -----------
F-281
<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
F-282
<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.
F-283
<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
----------- -----------
----------- -----------
F-284
<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
F-285
<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
F-286
<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
F-287
<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.
F-288
<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.
F-289
<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.
F-290
<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.
F-291
<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
F-292
<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
----------- -----------
----------- -----------
F-293
<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
----------- -----------
----------- -----------
F-294
<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
----------- -----------
----------- -----------
F-295
<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.
F-296
<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.
F-297
<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
----------- -----------
----------- -----------
F-298
<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
F-299
<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
F-300
<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
F-301
<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.
F-302
<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.
F-303
<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.
F-304
<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.
F-305
<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
F-306
<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
----------- -----------
----------- -----------
F-307
<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
----------- -----------
----------- -----------
F-308
<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.
F-309
<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)
----------- -----------
----------- -----------
F-310
<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
F-311
<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
F-312
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
June 25, 1996
To the Boards of Directors of
U.S. Office Products Company
Mark's Office Furniture
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in owner's equity and of cash flows present fairly, in all
material respects, the financial position of Mark's Office Furniture (the
"Company"), at March 31, 1996, and the results of their operations and their
cash flows for the twelve month period ended March 31, 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 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 discussed in Note 10, management of the Company has entered into a letter of
intent to sell the assets of the Company.
Price Waterhouse LLP
Minneapolis, Minnesota
F-313
<PAGE>
MARK'S OFFICE FURNITURE
BALANCE SHEET
MARCH 31, 1996
----------------------------------------------------------
ASSETS
Current assets:
Cash $ 9,516
Accounts receivable, net of allowance of $43,000 650,247
Rebates receivable 141,899
Inventories 459,116
Prepaid expenses 23,200
---------
Total current assets 1,283,978
Property and equipment, net 185,904
---------
Total assets $1,469,882
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $341,123
Accrued liabilities 58,385
Customer deposits 25,872
Notes payable to related parties 240,000
Distributions payable to owner 252,721
Current portion of long-term debt 34,304
---------
Total current liabilities 952,405
Long-term debt, net of current portion 39,454
---------
Total liabilities 991,859
---------
Owner's equity 478,023
---------
Total liabilities and owner's equity $ 1,469,882
---------
F-314
<PAGE>
MARK'S OFFICE FURNITURE
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------------------
Net sales $10,694,501
Cost of goods sold 7,614,713
---------
3,079,788
Selling, general and administrative expenses 2,223,696
Depreciation and amortization expense 39,995
---------
Operating income 816,097
Interest expense 26,460
---------
Net income $ 789,637
---------
Pro forma net income (see Note 11) $473,782
---------
F-315
<PAGE>
MARK'S OFFICE FURNITURE
STATEMENT OF CHANGES IN OWNER'S EQUITY
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------------------
Balance at March 31, 1995 $ 344,257
Distributions to owner (884,507)
Contributions from owner 228,636
Net income 789,637
---------
Balance at March 31, 1996 $478,023
---------
F-316
<PAGE>
MARK'S OFFICE FURNITURE
STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $789,637
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39,995
Changes in assets and liabilities:
Increase in accounts receivable (132,768)
Increase in rebates receivable (48,392)
Increase in inventories 5,064
Increase in prepaid expenses (5,234)
Decrease in accounts payable (104,420)
Decrease in accrued expenses (5,028)
Decrease in customer deposits (17,881)
---------
Cash provided by operating activities 520,973
---------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Acquisition of property, plant and equipment, net (61,207)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party notes 25,000
Payments of notes payable (33,309)
Distributions to owner (714,977)
Contributions from owner 228,636
---------
Cash used for financing activities (494,650)
---------
Decrease in cash (34,884)
Cash at beginning of year 44,400
---------
F-317
<PAGE>
Cash at end of year $9,516
---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest $26,000
---------
F-318
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION
Mark's Office Furniture is a discount retailer of office furniture
with stores in operation in Tampa, Sarasota and Ft. Myers, Florida.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market value with cost
determined on the first-in, first-out (FIFO) method and consists
primarily of office furniture held for sale.
REVENUES AND RECEIVABLES
Revenues are recognized upon delivery of office furniture to
customers.
Trade receivables are primarily concentrated with various commercial
customers located in the three principal markets in which the Company
operates. The Company performs on-going credit evaluations of its
customers and believes that trade receivables are well diversified,
thereby reducing potential credit risk. At March 31, 1996, the
allowance for doubtful accounts was $43,000. For the twelve month
period ended March 31, 1996, the Company had two customers which
represented in the aggregate approximately 20% of Company revenues.
Rebates receivable represent group and annual wholesaler rebates
earned by the company as of March 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over
estimated useful lives ranging from three to twelve years using
accelerated cost recovery methods. Expenditures which substantially
increase asset value or extend useful life are capitalized.
Expenditures for maintenance and repairs are charged against income as
incurred. When items of property are sold or otherwise disposed of,
the cost and related accumulated depreciation are eliminated from the
accounts, and any gain or loss is reflected in income.
INCOME TAXES
F-319
<PAGE>
The Company is a sole proprietorship and, accordingly, any income tax
liabilities are the responsibility of the owner. Therefore, these
statements do not include any provision for income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheet for cash, accounts
receivable, accounts payable, customer deposits and accrued expenses
approximates fair value due to the immediate or short-term maturity of
these financial instruments.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
MARCH 31,
1996
Leasehold improvements $ 80,426
Furniture and equipment 131,710
Vehicles 201,199
---------
413,335
Less: accumulated depreciation and amortization 227,431
---------
$ 185,904
---------
4. PREPAID EXPENSES
F-320
<PAGE>
Prepaid expenses consist of the following:
MARCH 31,
1996
Prepaid rent $ 17,000
Prepaid insurance 6,200
---------
$ 23,200
---------
5. REBATES RECEIVABLE
Rebates receivable at March 31, 1996 is an estimate of the amounts
earned from suppliers as of the balance sheet date. The rebates are
based on the dollar value of invoiced items and various additional
criteria as established by the suppliers. The Company is eligible for
approximately $65,400 of rebates related to purchases made from its
two largest suppliers Hon and Superior Chair.
In addition, the Company maintains a co-operative advertising
agreement with its largest supplier and has recorded rebates
receivable of $76,000 as of March 31, 1996. Amounts earned under this
agreement are based upon co-operative sales for the supplier's
product.
6. NOTES PAYABLE
MARCH 31,
1996
Notes payable to related parties with interest due
semiannually at 7%, principal due in January 1997,
secured by accounts receivable and inventory $165,000
Note payable to related party with interest payable
monthly at 9%, renewable every three months 75,000
---------
$240,000
---------
F-321
<PAGE>
7. LONG-TERM DEBT
MARCH 31,
1996
Notes payable to banks with interest at 8.5% -
10.95%, monthly payments of principal and
interest of approximately $3,400, through 1999,
secured by specific Company vehicles $73,758
Less: current maturities 34,304
---------
$39,454
---------
Future annual maturities of debt at March 31, 1996 are as follows:
MARCH 31,
1996
1997 $274,304
1998 38,238
1999 1,216
---------
$313,758
---------
8. LEASE OBLIGATIONS
The Company leases certain vehicles, furniture and warehouse space
under various lease arrangements which have been accounted as
operating leases. Future minimum lease payments required under leases
in effect at March 31, 1996, assuming renewal options are not
utilized, are approximately $175,000 in 1997.
9. RELATED PARTY TRANSACTIONS
The Company owes $240,000 in notes payable to various family members
of the owner, including one family member who is also an
F-322
<PAGE>
employee. The terms of such notes are described at Note 6. This debt
was paid in full subsequent to March 31, 1996.
As of March 31, 1996, the Company has recorded distributions due to
the owner of approximately $252,000 for payment of taxes related to
operations for the 1995 calendar year. During the twelve month period
ended March 31, 1996, distributions to the owner and contributions
from the owner totaled approximately $885,000 and $229,000,
respectively.
10. SUBSEQUENT EVENTS
On May 24, 1996, management of the Company entered into a letter of
intent to sell the assets of the Company to U.S. Office Products
Company, a Delaware Corporation, at an amount in excess of the assets
net book value.
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 period presented and had accounted
for income taxes in accordance with Statement of Financial Accounting
Standard No. 109.
Net income before pro forma adjustment $789,637
Provision for income taxes 315,855
---------
Pro forma net income $473,782
---------
F-323
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated By-laws provide that the Company shall,
to the fullest extent permitted by Section 145 of the General Corporation Law of
the State of Delaware, as amended from time to time, indemnify all persons whom
it may indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Eight of the Company's Amended and Restated Certificate of
Incorporation provides that the Company's directors will not be personally
liable to the Company or its stockholders for monetary damages resulting from
breaches of their fiduciary duty as directors except (a) for any breach of the
duty of loyalty to the Company or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (c) under Section 174 of the General Corporation Law of the State of
Delaware, which makes directors liable for unlawful dividends or unlawful stock
repurchases or redemptions or (d) for transactions from which directors derive
improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of U.S. Office Products Company
(Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the quarter
ended July 27, 1996 is hereby incorporated by reference)
<C> <S>
3.2 Amended and Restated Bylaws of U.S. Office Products Company. (Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996
is hereby incorporated by reference)
4.1 Form of Indenture relating to the Company's $143.75 million 5 1/2% Convertible
Subordinated Notes due 2001 (including form of Note) (Exhibit 4.1 of the
Company's Registration Statement on Form S-1 (File No. 33-80553) is hereby
incorporated by reference)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------------------------------------------------------------------------------
4.2 Form of Indenture relating to the Company's $230.0 million 5 1/2% Convertible
Subordinated Notes due 2003 (including form of Note) (Exhibit 4.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996
is hereby incorporated by reference)
<C> <S>
4.3 Registration Rights Agreement, dated as of May 22, 1996, by and among the Company
and Robertson Stephens & Company LLC and Natwest Securities Limited, as
Managers (Exhibit 4.3 of the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1996 is hereby incorporated by reference)
4.4* Registration Rights Agreement, dated September 17, 1996, by and among the Company
and Quantum Partners LDC
5.1* Opinion of Morgan, Lewis & Bockius LLP re: legality
10.1 U.S. Office Products Company Amended and Restated 1994 Long-Term Incentive Plan,
as amended (Exhibit A to the Company's Proxy Statement, dated July 22, 1996, is
hereby incorporated by reference)
10.2 Form of Employment Agreement for Jonathan J. Ledecky (Exhibit 10.3 of the
Company's Registration Statement on Form S-1 (File No. 33-88096) is hereby
incorporated by reference)
10.3 Employment Agreement for Timothy Flynn (Exhibit 10.4 of the Company's
Post-Effective Amendment No. 6 to the Registration Statement on Form S-1 (File
No. 33-89978) is hereby incorporated by reference)
10.4 Employment Agreement for Thomas Reaser (Exhibit 10.5 of the Company's
Post-Effective Amendment No. 6 to the Registration Statement on Form S-1 (File
No. 33-89978) is hereby incorporated by reference)
10.5 Employment Agreement for Jack L. Becker (Exhibit 10.6 of the Company's
Post-Effective Amendment No. 6 to the Registration Statement on Form S-1 (File
No. 33-89978) is hereby incorporated by reference)
10.6 Employment Agreement for Ralph K. Burgess (Exhibit 10.7 of the Company's Post-
Effective Amendment No. 6 to the Registration Statement on Form S-1 (File No.
33-89978) is hereby incorporated by reference)
10.7 Employment Agreement for Martin S. Pinson (Exhibit 10.13 of the Company's
Registration Statement on Form S-1 (File No. 33-93956) is hereby incorporated
by reference)
10.8 Employment Agreement for Donald H. Platt (Exhibit 10.14 of the Company's Post-
Effective Amendment No. 2 to the Registration Statement on Form S-1 (File No.
33-89978) is hereby incorporated by reference)
10.9 Form of Employment Agreement for Roger Choquette (Exhibit 10.15 of the Company's
Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 (File
No. 33-89978) is hereby incorporated by reference)
10.10 Employment Agreement for Clifton B. Phillips (Exhibit 10.21 of the Company's Pre-
Effective Amendment No. 1 to the Registration Statement on Form S-1 (File No.
33-80117) is hereby incorporated by reference)
10.11 Employment Agreement for David Gezon (Exhibit 10.22 of the Company's
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 (File
No. 33-80117) is hereby incorporated by reference)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------------------------------------------------------------------------------
10.12 Employment Agreement for David C. Copenhaver (Exhibit 10.23 of the Company's Pre-
Effective Amendment No. 1 to the Registration Statement on Form S-1 (File No.
33-80117) is hereby incorporated by reference)
<C> <S>
10.13 Employment Agreement for Mark A. Sorgenfrei (Exhibit 10.24 of the Company's Pre-
Effective Amendment No. 1 to the Registration Statement on Form S-1 (File No.
33-80117) is hereby incorporated by reference)
10.14 Employment Agreement for Mark D. Director (Exhibit 10.14 of the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1996 is hereby
incorporated by reference)
10.15 Credit and Security Agreement, dated June 26, 1995, between the Company and First
Bank National Association (Exhibit 10.12 of the Company's Post-Effective
Amendment No. 2 to the Registration Statement on Form S-1 (File No. 33-89978)
is hereby incorporated by reference)
10.16 Agreement and Plan of Reorganization, dated as of December 29, 1994, by and among
U.S. Office Supply Company, Andrews Acquisition Corp., Andrews Office Supply &
Equipment Company, and the Stockholders named therein (Exhibit 2.1 of the
Company's Registration Statement on Form S-1 (File No. 33-88096) is hereby
incorporated by reference)
10.17 Agreement and Plan of Reorganization, dated as of November 18, 1994, by and among
U.S. Office Supply Company, Sharp Pencil Holdings, Inc., GOP Acquisition Corp.,
General Office Products Company, Sharp Pencil Holdings, Inc. and the
Stockholders named therein (Exhibit of the Company's Registration Statement on
Form S-1 (File No. 33-88096) is hereby incorporated by reference)
10.18 Agreement and Plan of Reorganization, dated as of November 18, 1994, by and among
U.S. Office Supply Company, Burgess Acquisition Corp., Burgess, Anderson &
Tate, Inc. and the Stockholders named therein (Exhibit 2.3 of the Company's
Registration Statement on Form S-1 (File No. 33-88096) is hereby incorporated
by reference)
10.19 Agreement and Plan of Reorganization, dated as of December 2, 1994, by and among
U.S. Office Supply Company, Dameron-Pierson Acquisition Corp., Dameron-Pierson
Company, Limited and the Stockholders named therein (Exhibit 2.4 of the
Company's Registration Statement on Form S-1 (File No. 33-88096) is hereby
incorporated by reference)
10.20 Agreement and Plan of Reorganization, dated as of December 20, 1994, by and among
U.S. Office Supply Company, Office Works Acquisition Corp., The Office Works,
Inc. and the Stockholders named therein (Exhibit 2.5 of the Company's
Registration Statement on Form S-1 (File No. 33-88096) is hereby incorporated
by reference)
10.21 Asset Purchase Agreement dated as of December 22, 1994, by and among U.S. Office
Supply Company, DeKalb Acquisition Corp. and DeKalb Office Environments, Inc.
(Exhibit 2.6 of the Company's Registration Statement on Form S-1 (File No.
33-88096) is hereby incorporated by reference)
10.22 Merger Agreement, dated as of January 31, 1996, by and among U.S. Office Products
Company, Oak Brook Office Supply & Equipment Corporation, Oak Brook Acquisition
Corp., and the Stockholders named therein (Exhibit 2.7 of the Company's
Post-Effective Amendment No. 1 to Form S-1 (File No. 3-80117) is hereby
incorporated by reference)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------------------------------------------------------------------------------
10.23 Stock Purchase Agreement, dated as of January 31, 1996, by and between U.S.
Office Products Company and Eric John Watson (Exhibit 2.8 of the Company's
Post-Effective Amendment No. 1 to Form S-1 (File No. 33-80117) is hereby
incorporated by reference)
<C> <S>
10.24 Amendment to Stock Purchase Agreement, dated as of June 20, 1996, by and between
the Company and Eric John Watson (Exhibit 10.24 of the Company's Annual Report
on Form 10-K for the fiscal year ended April 30, 1996 is hereby incorporated by
reference)
10.25 Merger Agreement dated March 15, 1995 among U.S. Office Products Company, the
H.H. West Company, a Wisconsin corporation, the H.H. West Company, a Delaware
corporation and the stockholders named therein (Exhibit 2.1 to the Company's
Form 8-K (Commission file No. 0-25372) dated March 15, 1995 is hereby
incorporated by reference)
10.26 Merger Agreement, dated as of May 16, 1995, among U.S. Office Products Company,
Coffee Butler Acquisition Corp., Coffee Butler Service, Inc., and the
stockholders named therein (Exhibit 2.1 of the Current Report on Form 8-K dated
May 16, 1995, filed with the Commission on May 22, 1995 (Commission file No.
0-25372), is hereby incorporated by reference)
10.27 Merger Agreement, dated as of June 8, 1995, among U.S. Office Products Company,
C.W. Mills Paper Company, C.W. Mills Acquisition Corp. and the stockholders
named therein (Exhibit 10.10 of the Company's Registration Statement on Form
S-1 (File No. 33-93956) is hereby incorporated by reference)
10.28 Merger Agreement dated as of June 12, 1995, among U.S. Office Products Company,
Mills Morris Arrow, Inc., Mills Morris Arrow Acquisition Corp. and the
stockholders named therein (Exhibit 10.11 of the Company's Registration
Statement on Form S-1 (File No. 33-93956) is hereby incorporated by reference)
10.29 Amendment No. 1 to Merger Agreement, dated as of July 27, 1995, among U.S. Office
Products Company, Coffee Butler Acquisition Corp., Coffee Butler Service, Inc.,
and the stockholders named therein (Exhibit 10.16 Company's Registration
Statement on Form S-1 (File No. 33-93956) is hereby incorporated by reference)
10.30 Amendment No. 1 to Merger Agreement, dated as of July 27, 1995, among U.S. Office
Products Company, C.W. Mills Paper Company, C.W. Mills Acquisition Corp. and
the stockholders named therein (Exhibit 10.17 of the Company's Registration
Statement on Form S-1 (File No. 33-93956) is hereby incorporated by reference)
10.31 Amendment No. 1 to Merger Agreement, dated as of July 27, 1995, among U.S. Office
Products Company, Mills Morris Arrow, Inc., Mills Morris Arrow Acquisition
Corp. and the stockholders named therein (Exhibit 10.18 of the Company's
Registration Statement on Form S-1 (File No. 33-93956) is hereby incorporated
by reference)
10.32 Asset Purchase Agreement, dated as of August 16, 1995, among OSCO Acquisition
Corp., MISSCO Corporation of Jackson and U.S. Office Products Company (Exhibit
10.19 of the Company's Post-Effective Amendment No. 6 to the Registration
Statement on Form S-1 (File No. 33-89978) is hereby incorporated by reference)
10.33 Form of Merger Agreement, dated as of August 16, 1995, among U.S. Office Products
Company, Smith-Wilson Co., a Florida corporation, Smith-Wilson Acquisition
Corp., a Delaware corporation, Copenhaver Holdings, Incorporated, a Florida
corporation and the stockholders named therein (Exhibit 10.20 of the Company's
Post-Effective Amendment No. 5 to the Registration Statement on Form S-1 (File
No. 33-89978) is hereby incorporated by reference)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------------------------------------------------------------------------------
10.34 Assets Purchase Agreement, dated as of January 12, 1996, among U.S. Office
Products Company, Emmons-Napp Office Products, Inc. and EN Acquisition Corp.
(Exhibit 2.1 of the Company's Current Report on Form 8-K (File No. 0-25372),
filed on January 31, 1996, is hereby incorporated by reference)
<C> <S>
10.35 Agreement and Plan of Reorganization, dated as of January 10, 1996, by and among
U.S. Office Products Company, National Office Supply, Inc., Tuscarawas Office
Supply, Inc., Stark Office Supply, Inc. and NST Acquisition Corp. (Exhibit 2.2
of the Company's Current Report on Form 8-K (File No. 0-25372), filed on
January 31, 1996, is hereby incorporated by reference)
10.36 Amendment No. 2 to Merger Agreement, dated August 10, 1995, by and among C.W.
Mills, C.W. Mills Acquisition Corp., U.S. Office Products Company and certain
stockholders named therein (Exhibit 2.1 of the Company's Current Report on Form
8-K (File No. 0-25372), filed on February 21, 1996, is hereby incorporated by
reference)
10.37 Agreement and Plan of Reorganization, dated as of April 29, 1996, by and among
School Specialty, School Acquisition Corp, U.S. Office Products Company and
certain other investors of School Specialty named therein (Exhibit 2.2 of the
Company's Current Report on Form 8-K (File No. 0-25372), filed on May 17, 1996,
is hereby incorporated by reference)
10.38 Stock Purchase Agreement, dated as of July 22, 1996, by and among Blue Star Group
Limited, Rank Commercial Limited, the Company and Graeme Richard Hart (Exhibit
10.1 of the Company's Current Report on Form 8-K (File No. 0-25372), filed on
July 26, 1996, is hereby incorporated by reference)
10.39 Agreement and Plan of Reorganization, dated as of July 26, 1996, by and among
Mile High Office Supply, Inc., MHOS Acquisition Corp., the Company and the
stockholders named therein (Exhibit 10.2 of the Company's Current Report on
Form 8-K (File No. 0-25372), filed on July 26, 1996, is hereby incorporated by
reference)
10.40 Agreement and Plan of Reorganization, dated as of July 26, 1996, by and among
American Looseleaf, Acquisition Corp., the Company and the stockholders named
therein (Exhibit 10.3 of the Company's Current Report on Form 8-K (File No.
0-25372), filed on July 26, 1996, is hereby incorporated by reference)
10.41* Credit Agreement, dated as of August 21, 1996, among U.S. Office Products
Company, Various Lending Institutions, and Bankers Trust Company, As Agent
10.42 U.S. Office Products Company Executive Deferred Compensation Plan (Exhibit B of
the Company's Proxy Statement, dated July 22, 1996, is hereby incorporated by
reference)
10.43 U.S. Office Products Company 1996 Non-Employee Directors' Stock Plan (Exhibit C
of the Company's Proxy Statement, dated July 22, 1996, is hereby incorporated
by reference)
21.1 List of subsidiaries of U.S. Office Products Company (Exhibit 21.1 of the
Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1996
is hereby incorporated by reference)
23.1(a)* Consent of Price Waterhouse LLP
23.1(b)* Consent of Price Waterhouse
23.2* Consent of Ernst & Young LLP
23.3(a)* Consent of KPMG Peat Marwick LLP
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ---------------------------------------------------------------------------------
23.3(b)* Consent of KPMG Peat Marwick
<C> <S>
23.4* Consent of Crowe, Chizek and Company LLP
23.5* Consent of Swink, Fiehler & Hoffman, P.C.
23.6* Consent of Shinners, Hucovski & Company
23.7* Consent of BDO Seidman, LLP
23.8* Consent of Thorne Little
23.9* Consent of Ehrhardt Keefe Steiner & Hottman PC
23.10* Consent of Ernst & Young
23.11* Consent of Joel S. Baum P.A.
23.12* Consent of Hamilton & Associates
23.13* Consent of Petherbridge, Davis & Company, P.A.
23.14* Consent of Deloitte Touche Tohmatsu
23.15(a)* Consent of Day Nielson
23.15(b)* Consent of Day Nielson
23.15(c)* Consent of Day Nielson
23.15(d)* Consent of Day Nielson
23.16 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
</TABLE>
- ------------------------
* Previously filed
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
II-6
<PAGE>
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
other material change to such information in the registration statement.
(2) That for the purpose of determining any liability under the Act each
such post-effective amendment may be deemed to be a new registration
statement relating to the securities being offered therein and the offering
of such securities at the time may be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which are being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(5) To deliver or cause to be delivered with the Prospectus, to each
person to whom the Prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and where interim financial
information required to be presented by Article 3 of Regulation S-X are not
set forth in the Prospectus, to deliver, or caused to be delivered to each
person to whom the Prospectus is sent or given, the latest quarterly report
that is specifically incorporated by reference in the Prospectus to provide
such interim financial information.
(6) As follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reoffering by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(7) That every prospectus (i) that is filed pursuant to paragraph (6)
immediately preceding or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(8) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one (1) business day of receipt of such request, and to sent
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request.
II-7
<PAGE>
(9) To supply by means of a post-effective amendment, Rule 424(c)
supplement or information incorporated by reference, all information
concerning a material transaction, and the company being acquired involved
there, that was not the subject of and included in the registration
statement when it became effective.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington,
District of Columbia, on October 8, 1996.
<TABLE>
<S> <C> <C>
U.S. OFFICE PRODUCTS COMPANY
By: /s/ JONATHAN J. LEDECKY
-----------------------------------------
Name: Jonathan J. Ledecky
Title: CHIEF EXECUTIVE OFFICER
</TABLE>
Each person whose signature appears below hereby appoints Jonathan J.
Ledecky and Mark D. Director, and both of them, either of whom may act without
the joinder of the other, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
registration statements for the same offering filed pursuant to Rule 462 under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
all other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to perform each and
every act and thing appropriate or necessary to be done, as full and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
* Chief Executive Officer
- ------------------------------ (Principal Executive October 8, 1996
Jonathan J. Ledecky Officer)
Chief Financial Officer
* (Principal Financial
- ------------------------------ Officer and Principal October 8, 1996
Donald H. Platt Accounting Officer)
*
- ------------------------------ Director October 8, 1996
Timothy J. Flynn
*
- ------------------------------ Director October 8, 1996
Thomas J. Reaser
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director October 8, 1996
John K. Burgess
*
- ------------------------------ Director October 8, 1996
Jack L. Becker, Jr.
*
- ------------------------------ Director October 8, 1996
Clifton B. Phillips
*
- ------------------------------ Director October 8, 1996
Milton H. Kuyers
*
- ------------------------------ Director October 8, 1996
Allon H. Lefever
*
- ------------------------------ Director October 8, 1996
Edward J. Mathias
*
- ------------------------------ Director October 8, 1996
John A. Quelch
*
- ------------------------------ Director October 8, 1996
David C. Gezon
*
- ------------------------------ Director October 8, 1996
David C. Copenhaver
*
- ------------------------------ Director October 8, 1996
Mark A. Sorgenfrei
</TABLE>
II-10
<PAGE>
Mark D. Director by signing his name hereto signs this document on behalf of
each of the persons indicated above pursuant to the powers of attorney duly
executed by such persons and set forth on the signature page of the Registration
Statement filed with the Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
By: /s/ MARK D. DIRECTOR
-----------------------------------------
Name: Mark D. Director
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of U.S. Office Products Company (Exhibit 3.1 of
the Company's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996 is hereby
incorporated by reference)
3.2 Amended and Restated Bylaws of U.S. Office Products Company. (Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended April 30, 1996 is hereby incorporated by reference)
4.1 Form of Indenture relating to the Company's $143.75 million 5 1/2% Convertible Subordinated Notes
due 2001 (including form of Note) (Exhibit 4.1 of the Company's Registration Statement on Form S-1
(File No. 33-80553) is hereby incorporated by reference)
4.2 Form of Indenture relating to the Company's $230.0 million 5 1/2% Convertible Subordinated Notes due
2003 (including form of Note) (Exhibit 4.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 1996 is hereby incorporated by reference)
4.3 Registration Rights Agreement, dated as of May 22, 1996, by and among the Company and Robertson
Stephens & Company LLC and Natwest Securities Limited, as Managers (Exhibit 4.3 of the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 1996 is hereby incorporated by
reference)
4.4* Registration Rights Agreement, dated September 17, 1996, by and among the Company and Quantum
Partners LDC
5.1* Opinion of Morgan, Lewis & Bockius LLP re: legality
10.1 U.S. Office Products Company Amended and Restated 1994 Long-Term Incentive Plan, as amended (Exhibit
A to the Company's Proxy Statement, dated July 22, 1996, is hereby incorporated by reference)
10.2 Form of Employment Agreement for Jonathan J. Ledecky (Exhibit 10.3 of the Company's Registration
Statement on Form S-1 (File No. 33-88096) is hereby incorporated by reference)
10.3 Employment Agreement for Timothy Flynn (Exhibit 10.4 of the Company's Post-Effective Amendment No. 6
to the Registration Statement on Form S-1 (File No. 33-89978) is hereby incorporated by reference)
10.4 Employment Agreement for Thomas Reaser (Exhibit 10.5 of the Company's Post-Effective Amendment No. 6
to the Registration Statement on Form S-1 (File No. 33-89978) is hereby incorporated by reference)
10.5 Employment Agreement for Jack L. Becker (Exhibit 10.6 of the Company's Post-Effective Amendment No.
6 to the Registration Statement on Form S-1 (File No. 33-89978) is hereby incorporated by
reference)
10.6 Employment Agreement for Ralph K. Burgess (Exhibit 10.7 of the Company's Post-Effective Amendment
No. 6 to the Registration Statement on Form S-1 (File No. 33-89978) is hereby incorporated by
reference)
10.7 Employment Agreement for Martin S. Pinson (Exhibit 10.13 of the Company's Registration Statement on
Form S-1 (File No. 33-93956) is hereby incorporated by reference)
10.8 Employment Agreement for Donald H. Platt (Exhibit 10.14 of the Company's Post-Effective Amendment
No. 2 to the Registration Statement on Form S-1 (File No. 33-89978) is hereby incorporated by
reference)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.9 Form of Employment Agreement for Roger Choquette (Exhibit 10.15 of the Company's Post-Effective
Amendment No. 2 to the Registration Statement on Form S-1 (File No. 33-89978) is hereby
incorporated by reference)
10.10 Employment Agreement for Clifton B. Phillips (Exhibit 10.21 of the Company's Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1 (File No. 33-80117) is hereby incorporated by
reference)
10.11 Employment Agreement for David Gezon (Exhibit 10.22 of the Company's Pre-Effective Amendment No. 1
to the Registration Statement on Form S-1 (File No. 33-80117) is hereby incorporated by reference)
10.12 Employment Agreement for David C. Copenhaver (Exhibit 10.23 of the Company's Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1 (File No. 33-80117) is hereby incorporated by
reference)
10.13 Employment Agreement for Mark A. Sorgenfrei (Exhibit 10.24 of the Company's Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1 (File No. 33-80117) is hereby incorporated by
reference)
10.14 Employment Agreement for Mark D. Director (Exhibit 10.14 of the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1996 is hereby incorporated by reference)
10.15 Credit and Security Agreement, dated June 26, 1995, between the Company and First Bank National
Association (Exhibit 10.12 of the Company's Post-Effective Amendment No. 2 to the Registration
Statement on Form S-1 (File No. 33-89978) is hereby incorporated by reference)
10.16 Agreement and Plan of Reorganization, dated as of December 29, 1994, by and among U.S. Office Supply
Company, Andrews Acquisition Corp., Andrews Office Supply & Equipment Company, and the
Stockholders named therein (Exhibit 2.1 of the Company's Registration Statement on Form S-1 (File
No. 33-88096) is hereby incorporated by reference)
10.17 Agreement and Plan of Reorganization, dated as of November 18, 1994, by and among U.S. Office Supply
Company, Sharp Pencil Holdings, Inc., GOP Acquisition Corp., General Office Products Company,
Sharp Pencil Holdings, Inc. and the Stockholders named therein (Exhibit of the Company's
Registration Statement on Form S-1 (File No. 33-88096) is hereby incorporated by reference)
10.18 Agreement and Plan of Reorganization, dated as of November 18, 1994, by and among U.S. Office Supply
Company, Burgess Acquisition Corp., Burgess, Anderson & Tate, Inc. and the Stockholders named
therein (Exhibit 2.3 of the Company's Registration Statement on Form S-1 (File No. 33-88096) is
hereby incorporated by reference)
10.19 Agreement and Plan of Reorganization, dated as of December 2, 1994, by and among U.S. Office Supply
Company, Dameron-Pierson Acquisition Corp., Dameron-Pierson Company, Limited and the Stockholders
named therein (Exhibit 2.4 of the Company's Registration Statement on Form S-1 (File No. 33-88096)
is hereby incorporated by reference)
10.20 Agreement and Plan of Reorganization, dated as of December 20, 1994, by and among U.S. Office Supply
Company, Office Works Acquisition Corp., The Office Works, Inc. and the Stockholders named therein
(Exhibit 2.5 of the Company's Registration Statement on Form S-1 (File No. 33-88096) is hereby
incorporated by reference)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.21 Asset Purchase Agreement dated as of December 22, 1994, by and among U.S. Office Supply Company,
DeKalb Acquisition Corp. and DeKalb Office Environments, Inc. (Exhibit 2.6 of the Company's
Registration Statement on Form S-1 (File No. 33-88096) is hereby incorporated by reference)
10.22 Merger Agreement, dated as of January 31, 1996, by and among U.S. Office Products Company, Oak Brook
Office Supply & Equipment Corporation, Oak Brook Acquisition Corp., and the Stockholders named
therein (Exhibit 2.7 of the Company's Post-Effective Amendment No. 1 to Form S-1 (File
No.33-80117) is hereby incorporated by reference)
10.23 Stock Purchase Agreement, dated as of January 31, 1996, by and between U.S. Office Products Company
and Eric John Watson (Exhibit 2.8 of the Company's Post-Effective Amendment No. 1 to Form S-1
(File No. 33-80117) is hereby incorporated by reference)
10.24 Amendment to Stock Purchase Agreement, dated as of June 20, 1996, by and between the Company and
Eric John Watson (Exhibit 10.24 of the Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 1996 is hereby incorporated by reference)
10.25 Merger Agreement dated March 15, 1995 among U.S. Office Products Company, the H.H. West Company, a
Wisconsin corporation, the H.H. West Company, a Delaware corporation and the stockholders named
therein (Exhibit 2.1 to the Company's Form 8-K (Commission file No. 0-25372) dated March 15, 1995
is hereby incorporated by reference)
10.26 Merger Agreement, dated as of May 16, 1995, among U.S. Office Products Company, Coffee Butler
Acquisition Corp., Coffee Butler Service, Inc., and the stockholders named therein (Exhibit 2.1 of
the Current Report on Form 8-K dated May 16, 1995, filed with the Commission on May 22, 1995
(Commission file No. 0-25372), is hereby incorporated by reference)
10.27 Merger Agreement, dated as of June 8, 1995, among U.S. Office Products Company, C.W. Mills Paper
Company, C.W. Mills Acquisition Corp. and the stockholders named therein (Exhibit 10.10 of the
Company's Registration Statement on Form S-1 (File No. 33-93956) is hereby incorporated by
reference)
10.28 Merger Agreement dated as of June 12, 1995, among U.S. Office Products Company, Mills Morris Arrow,
Inc., Mills Morris Arrow Acquisition Corp. and the stockholders named therein (Exhibit 10.11 of
the Company's Registration Statement on Form S-1 (File No. 33-93956) is hereby incorporated by
reference)
10.29 Amendment No. 1 to Merger Agreement, dated as of July 27, 1995, among U.S. Office Products Company,
Coffee Butler Acquisition Corp., Coffee Butler Service, Inc., and the stockholders named therein
(Exhibit 10.16 Company's Registration Statement on Form S-1 (File No. 33-93956) is hereby
incorporated by reference)
10.30 Amendment No. 1 to Merger Agreement, dated as of July 27, 1995, among U.S. Office Products Company,
C.W. Mills Paper Company, C.W. Mills Acquisition Corp. and the stockholders named therein (Exhibit
10.17 of the Company's Registration Statement on Form S-1 (File No. 33-93956) is hereby
incorporated by reference)
10.31 Amendment No. 1 to Merger Agreement, dated as of July 27, 1995, among U.S. Office Products Company,
Mills Morris Arrow, Inc., Mills Morris Arrow Acquisition Corp. and the stockholders named therein
(Exhibit 10.18 of the Company's Registration Statement on Form S-1 (File No. 33-93956) is hereby
incorporated by reference)
10.32 Asset Purchase Agreement, dated as of August 16, 1995, among OSCO Acquisition Corp., MISSCO
Corporation of Jackson and U.S. Office Products Company (Exhibit 10.19 of the Company's
Post-Effective Amendment No. 6 to the Registration Statement on Form S-1 (File No. 33-89978) is
hereby incorporated by reference)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.33 Form of Merger Agreement, dated as of August 16, 1995, among U.S. Office Products Company,
Smith-Wilson Co., a Florida corporation, Smith-Wilson Acquisition Corp., a Delaware corporation,
Copenhaver Holdings, Incorporated, a Florida corporation and the stockholders named therein
(Exhibit 10.20 of the Company's Post-Effective Amendment No. 5 to the Registration Statement on
Form S-1 (File No. 33-89978) is hereby incorporated by reference)
10.34 Assets Purchase Agreement, dated as of January 12, 1996, among U.S. Office Products Company,
Emmons-Napp Office Products, Inc. and EN Acquisition Corp. (Exhibit 2.1 of the Company's Current
Report on Form 8-K (File No. 0-25372), filed on January 31, 1996, is hereby incorporated by
reference)
10.35 Agreement and Plan of Reorganization, dated as of January 10, 1996, by and among U.S. Office
Products Company, National Office Supply, Inc., Tuscarawas Office Supply, Inc., Stark Office
Supply, Inc. and NST Acquisition Corp. (Exhibit 2.2 of the Company's Current Report on Form 8-K
(File No. 0-25372), filed on January 31, 1996, is hereby incorporated by reference)
10.36 Amendment No. 2 to Merger Agreement, dated August 10, 1995, by and among C.W. Mills, C.W. Mills
Acquisition Corp., U.S. Office Products Company and certain stockholders named therein (Exhibit
2.1 of the Company's Current Report on Form 8-K (File No. 0-25372), filed on February 21, 1996, is
hereby incorporated by reference)
10.37 Agreement and Plan of Reorganization, dated as of April 29, 1996, by and among School Specialty,
School Acquisition Corp, U.S. Office Products Company and certain other investors of School
Specialty named therein (Exhibit 2.2 of the Company's Current Report on Form 8-K (File No.
0-25372), filed on May 17, 1996, is hereby incorporated by reference)
10.38 Stock Purchase Agreement, dated as of July 22, 1996, by and among Blue Star Group Limited, Rank
Commercial Limited, the Company and Graeme Richard Hart (Exhibit 10.1 of the Company's Current
Report on Form 8-K (File No. 0-25372), filed on July 26, 1996, is hereby incorporated by
reference)
10.39 Agreement and Plan of Reorganization, dated as of July 26, 1996, by and among Mile High Office
Supply, Inc., MHOS Acquisition Corp., the Company and the stockholders named therein (Exhibit 10.2
of the Company's Current Report on Form 8-K (File No. 0-25372), filed on July 26, 1996, is hereby
incorporated by reference)
10.40 Agreement and Plan of Reorganization, dated as of July 26, 1996, by and among American Looseleaf,
Acquisition Corp., the Company and the stockholders named therein (Exhibit 10.3 of the Company's
Current Report on Form 8-K (File No. 0-25372), filed on July 26, 1996, is hereby incorporated by
reference)
10.41* Credit Agreement, dated as of August 21, 1996, among U.S. Office Products Company, Various Lending
Institutions, and Bankers Trust Company, As Agent
10.42 U.S. Office Products Company Executive Deferred Compensation Plan (Exhibit B to the Company's Proxy
Statement, dated July 22, 1996, is hereby incorporated by reference)
10.43 U.S. Office Products Company 1996 Non-Employee Directors' Stock Plan (Exhibit C to the Company's
Proxy Statement, dated July 22, 1996, is hereby incorporated by reference)
21.1 List of subsidiaries of U.S. Office Products Company (Exhibit 21.1 of the Company's Annual Report on
Form 10-K for the fiscal year ended April 30, 1996 is hereby incorporated by reference)
23.1 (a)* Consent of Price Waterhouse LLP
23.1 (b)* Consent of Price Waterhouse
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
23.2* Consent of Ernst & Young LLP
23.3 (a)* Consent of KPMG Peat Marwick LLP
23.3 (b)* Consent of KPMG Peat Marwick
23.4* Consent of Crowe, Chizek and Company LLP
23.5* Consent of Swink, Fiehler & Hoffman, P.C.
23.6* Consent of Shinners, Hucovski & Company
23.7* Consent of BDO Seidman, LLP
23.8* Consent of Thorne Little
23.9* Consent of Ehrhardt Keefe Steiner & Hottman PC
23.10* Consent of Ernst & Young
23.11* Consent of Joel S. Baum P.A.
23.12* Consent of Hamilton & Associates
23.13* Consent of Petherbridge, Davis & Company, P.A.
23.14* Consent of Deloitte Touche Tohmatsu
23.15(a)* Consent of Day Nielson
23.15(b)* Consent of Day Nielson
23.15(c)* Consent of Day Nielson
23.15(d)* Consent of Day Nielson
23.16 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
</TABLE>
* Previously Filed
