<PAGE>
Rules 424(b)(3) and 424(c)
Registration No. 333-1928
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED MARCH 28, 1996
AND PROSPECTUS SUPPLEMENT DATED MAY 21, 1996
U.S. OFFICE PRODUCTS COMPANY
U.S. Office Products Company (the "Company") has prepared this Prospectus
Supplement to update certain information included in the Company's Prospectus
dated March 28, 1996, covering 19,174,575 shares of the Company's common stock,
$.001 par value (the "Common Stock"), and the Prospectus Supplement dated May
21, 1996.
As of the date hereof, the Company considers the acquisition to be probable
of a total of 46 businesses that sell a variety of office supplies, office
furniture, coffee and breakroom supplies and services and school supplies and
school furniture (the "Pending Acquisitions"). In addition, the Company has
been negotiating to acquire, or has otherwise announced its intent to acquire,
other businesses, but the Company currently believes these acquisitions are not
probable. The Company intends to continue its aggressive acquisition strategy,
both in the United States and internationally. There can be no assurances,
however, that the Pending Acquisitions or any other acquisitions will be
consummated or that any of the terms of such acquisitions will not change during
the course of further negotiations.
Attached hereto (and made a part hereof) are (i) the pro forma financial
statements of the Company reflecting the acquisitions that the Company completed
after April 30, 1996 and the Pending Acquisitions and (ii) financial statements
for certain of the Pending Acquisitions.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JULY 16, 1996
<PAGE>
LIST OF FINANCIAL STATEMENTS
The following pro forma financial statements of the Company and financial
statements for certain of the Pending Acquisitions are included herein:
(a) PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY
(i) Pro forma financial information as of April 30, 1996 and for the
years ended April 30, 1996, 1995 and 1994 (unaudited).
(b) FINANCIAL STATEMENTS OF THE PENDING ACQUISITIONS
(i) The audited financial statements of American Looseleaf/Business
Products, Inc. as of September 30, 1995 and for the year then ended and as of
March 31, 1996 and for the six months ended March 31, 1996 and 1995 (unaudited);
(ii) The financial statements of Mile High Office Supply, Inc. as of
December 31, 1995 and 1994 and for the years then ended and as of March 31, 1996
and for the three months ended March 31, 1996 and 1995 (unaudited);
(iii) The financial statements of Pear Commercial Interiors as of
December 31, 1995 and for the year then ended and as of March 31, 1996 and for
the three months ended March 31, 1996 (unaudited);
(iv) The financial statements of New Office Plus, Inc. as of December 31,
1995 and for the year then ended and as of March 31, 1996 and for the three
months ended March 31, 1996 and 1995 (unaudited);
(v) The financial statements of Prudential of Florida, Inc. as of
December 31, 1995 and for the year then ended and as of March 31, 1996 and for
the three months ended March 31, 1996 (unaudited);
(vi) The financial statements of David's Office Supply and Furniture Co.,
Inc. as of May 31, 1996 and for the year then ended;
(vii) The financial statements of Carolina Office Equipment Company as of
March 31, 1996 and for the year then ended;
(viii) The financial statements of WBT Holdings, Inc. (d.b.a. Office
Furniture Distributors) as of December 31, 1995 and for the year then ended and
as of March 31, 1996 and for the three months ended March 31, 1996 and 1995
(unaudited);
(ix) The financial statements of Mark's Office Furniture as of March 31,
1996 and for the year then ended;
(x) The financial statements of International Interiors, Inc. as of
September 30, 1995 and 1994 and for the years then ended;
<PAGE>
(xi) The financial statements of Arbuckle Foods Inc. as of December 31,
1995 and for the year then ended and as of March 31, 1996 and for the three
months ended March 31, 1996 (unaudited);
(xii) The financial statements of McWorter Stationery Co as of March 31,
1995 and for the year then ended;
(xiii) The financial statements of Wang of New Zealand as of June 30, 1995
and for the year then ended and as of December 31, 1995 and for the six months
ended December 31, 1995 and 1994 (unaudited);
(xiv) The financial statements of Re-Print Corporation as of December 31,
1995 and for the year then ended and as of March 31, 1996 and for the three
months ended March 31, 1996 (unaudited); and
(xv) The balance sheet of Thompson Book and Supply Company as of
December 31, 1995 and as of March 31, 1996 (unaudited).
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma combined balance sheet gives effect to the
Company's acquisitions of businesses acquired after the end of fiscal 1996
(the "Fiscal 1997 Completed Acquisitions") and the 46 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, April 30, 1996. The unaudited pro forma combined balance
sheet also gives effect to the sales by the Company in May and June 1996 of
5-1/2% Convertible Subordinated Notes due 2003 (the "May Notes") in the
principal amount of $230 million (the "May Notes Offering") as if such sales
had been made on April 30, 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; and (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.
The historical financial statements of the Company give retroactive
effect to the results of companies acquired by the Company in fiscal 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 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 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.
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED BALANCE SHEET
APRIL 30, 1996
(000'S)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
U.S. OFFICE PRO-FORMA
PRODUCTS FY 1997 FY 1997 PRO-FORMA MAY OFFERING
COMPANY CONSUMMATED PENDING ADJUSTMENTS SUBTOTAL ADJUSTMENTS
------------ ----------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 165,659 $ 3,445 $ 17,906 $ (53,265)(c) $ 58,915 $ 222,600 (a)
(74,830)(b)
Accounts receivable................... 126,159 20,895 49,332 -- 196,386
Lease receivable ..................... 24,807 24,807
Inventory............................. 71,306 20,415 43,317 -- 135,038
Prepaid and other current assets...... 18,463 3,764 8,105 -- 30,332
------------ ----------- --------- ------------ ------------- ------------
Total current assets................ 406,394 48,519 118,660 (128,095) 445,478 222,600
Property and equipment, net............. 50,529 9,820 31,589 -- 91,938
Intangible assets, net.................. 133,803 7,154 3,121 143,138 (c) 287,216
Lease Receivables....................... 47,005 47,005
Other assets............................ 13,796 1,691 6,165 (6,575)(c) 15,077 7,400 (a)
------------ ----------- --------- ------------ ------------- ------------
Total assets........................ $ 651,527 $ 67,184 $ 159,535 $ 8,468 $ 886,714 $ 230,000
------------ ----------- --------- ------------ ------------- ------------
------------ ----------- --------- ------------ ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt....................... $ 86,260 $ 19,832 $ 23,025 $ (42,857)(b) $ 86,260
Accounts payable...................... 63,763 12,400 35,006 -- 111,169
Accrued compensation.................. 12,754 1,275 2,011 -- 16,040
Other accrued liabilities............. 13,758 6,464 7,958 -- 28,180
------------ ----------- --------- ------------ ------------- ------------
Total current liabilities........... 176,535 39,971 68,000 (42,857) 241,649 --
Long-term debt.......................... 157,303 15,745 12,297 (28,042)(b) 157,303 230,000 (a)
Notes payable to related parties........ -- 2,321 1,610 (3,931)(b) --
Deferred income taxes................... 6,148 23 186 -- 6,357
Other long-term liabilities............. 109 22 1,096 -- 1,227
------------ ----------- --------- ------------ ------------- ------------
Total liabilities................... 340,095 58,082 83,189 (74,830) 406,536 230,000
Minority Interest....................... 6,023 -- -- (6,023)(c) 6,684
Stockholders' equity 6,684 (c)
Common stock.......................... 31 1,432 1,384 (2,805)(c) 42
Additional paid-in capital............ 279,306 4,604 2,425 152,713 (c) 439,048
Cumulative Translation Adjustment..... 483 -- -- -- 483
Retained earnings..................... 25,589 (12,511) 20,843 -- 33,921
Equity of Purchased Companies........... 15,577 51,694 (67,271)(c) --
------------ ----------- --------- ------------ ------------- ------------
Total stockholders' equity.......... 305,409 9,102 76,346 82,637 473,494 --
------------ ----------- --------- ------------ ------------- ------------
Total liabilities and stockholders'
equity............................. $ 651,527 $ 67,184 $ 159,535 $ 8,468 $ 886,714 $ 230,000
------------ ----------- --------- ------------ ------------- ------------
------------ ----------- --------- ------------ ------------- ------------
<CAPTION>
PRO-FORMA
COMBINED
----------
<S> <C>
Current assets:
Cash and cash equivalents............. $ 281,515
Accounts receivable................... 196,386
Lease receivable ..................... 24,807
Inventory ............................ 135,038
Prepaid and other current assets...... 30,332
----------
Total current assets................ 668,078
Property and equipment, net............. 91,938
Intangible assets, net.................. 287,216
Lease receivables....................... 47,005
Other assets............................ 22,477
----------
Total assets........................ $1,116,714
----------
----------
Current liabilities
Short-term debt....................... $ 86,260
Accounts payable...................... 111,169
Accrued compensation.................. 16,040
Other accrued liabilities............. 28,180
----------
Total current liabilities........... 241,649
Long-term debt.......................... 387,303
Notes payable to related parties........
Deferred income taxes................... 6,357
Other long-term liabilities............. 1,227
----------
Total liabilities................... 636,536
Minority Interest....................... 6,684
Stockholders' equity
Common stock.......................... 42
Additional paid-in capital............ 439,048
Cumulative Translation Adjustment..... 483
Retained earnings..................... 33,921
Equity of Purchased Companies...........
----------
Total stockholders' equity.......... 473,494
----------
Total liabilities and stockholders'
equity............................. $1,116,714
----------
----------
</TABLE>
<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 1997
U.S. OFFICE 1996 ACQUSITIONS
PRODUCTS PURCHASED ---------------------- PRO FORMA PRO FORMA
COMPANY COMPANIES COMPLETED PENDING ADJUSTMENTS COMBINED
----------- --------------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ 701,949 $ 307,954 $ 241,288 $ 483,975 $ 1,735,166
Cost of revenues...................... 523,409 214,072 176,642 338,705 1,252,828
----------- --------------- ----------- --------- ------------- ------------
Gross profit........................ 178,540 93,882 64,646 145,270 -- 482,338
Selling, general and administrative
expenses............................. 152,796 84,070 59,373 124,952 5,148 (d) 416,027
(7,780)(e)
(2,532)(f)
Nonrecurring acquisition costs........ 8,057 -- -- -- (8,057)(f) --
Nonrecurring restructuring costs...... 8,092 -- -- 8,092
Discontinuation of printing division
at subsidiary........................ 682 -- -- -- 682
----------- --------------- ----------- --------- ------------- ------------
Operating income.................... 17,005 1,720 5,273 20,318 13,221 57,537
Other (income) expense:
Interest expense.................... 6,476 2,761 4,982 2,489 (6,477)(g) 10,231
Interest income..................... (3,097) -- (85) (291) 935 (h) (2,538)
Other............................... (599) (24) (335) (10) (968)
Minority Interest in Subsidiary....... 671 -- -- 202 (671)(h) 1,166
964 (h)
----------- --------------- ----------- --------- ------------- ------------
Income (loss) before provision for
income taxes......................... 13,554 (1,017) 711 17,928 18,470 49,646
Provision for income taxes............ 4,814 45 343 3,778 12,514 (i) 21,494
----------- --------------- ----------- --------- ------------- ------------
Net income (loss)..................... 8,740 (1,062) 368 14,150 5,956 28,152
----------- --------------- ----------- --------- ------------- ------------
----------- --------------- ----------- --------- ------------- ------------
Weighted average shares outstanding... 39,391 (j)
Net income per share.................. $ 0.71
------------
------------
</TABLE>
<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 PRO FORMA
PRODUCTS POOLINGS ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues........................................................ $ 355,821 $ 173,756 $ -- $ 529,577
Cost of revenues................................................ 265,690 109,330 375,020
----------- ---------- ----------- ----------
Gross profit.................................................. 90,131 64,426 -- 154,557
Selling, general and administrative expenses.................... 80,129 59,256 139,385
----------- ---------- ----------- ----------
Operating income.............................................. 10,002 5,170 -- 15,172
Other (income) expense:
Interest expense.............................................. 2,310 754 3,064
Interest income............................................... (376) (104) (480)
Other......................................................... 162 (657) (495)
----------- ---------- ----------- ----------
Income before provision for income taxes........................ 7,906 5,177 -- 13,083
Provision for income taxes...................................... 1,761 (1) 3,866(k) 5,626
----------- ---------- ----------- ----------
Net income...................................................... $ 6,145 $ 5,178 $ (3,866) $ 7,457
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
<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 PRO FORMA
PRODUCTS POOLINGS ADJUSTMENTS COMBINED
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues........................................................ $ 267,774 $ 160,459 $ -- $ 428,233
Cost of revenues................................................ 192,062 101,712 293,774
----------- ---------- ----------- ----------
Gross profit.................................................. 75,712 58,747 -- 134,459
Selling, general and administrative expenses.................... 68,926 55,089 124,015
----------- ---------- ----------- ----------
Operating income.............................................. 6,786 3,658 -- 10,444
Other (income) expense:
Interest expense.............................................. 1,609 651 2,260
Interest income............................................... (172) (161) (333)
Other......................................................... (648) (624) (1,272)
----------- ---------- ----------- ----------
Income before provision for income taxes........................ 5,997 3,792 -- 9,789
Provision for income taxes...................................... 1,195 448 2,566(k) 4,209
----------- ---------- ----------- ----------
Net income...................................................... $ 4,802 $ 3,344 $ (2,566) $ 5,580
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reflect the proceeds from the sale of $230,000 of May Notes
in the May Note Offering, net of expenses and underwriters discount.
(b) Adjustment to reflect the use of the proceeds from the issuance of Common
Stock and the February Notes in the February Offerings to (i) repay
short-term debt of $42,857, (ii) repay long-term debt of $28,042 and (iii)
repay notes payable to officers and stockholders of $3,931.
(c) Adjustment to reflect purchase price adjustments associated with the Fiscal
1997 Completed Acquisitions and 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........................... $ 70,000 $ -- 2,591,094 $ 70,000 $
Other................................. 42,775 21,184 917,770 21,591 19,812
------------- --------- ------------ ---------- ----------
Total............................... 112,775 21,184 3,508,864 91,591 19,812
Fiscal 1997 Pending Acquisitions
Significant........................... 80,000 2,105,264 80,000
Other................................. 206,740 32,081 5,099,059 174,659 123,326
------------- --------- ------------ ---------- ----------
Total............................... 286,740 32,081 7,204,323 254,659 123,326
------------- --------- ------------ ---------- ----------
Total................................... $ 399,515 $ 53,265 10,713,187 $ 346,250 $ 143,138
------------- --------- ------------ ---------- ----------
------------- --------- ------------ ---------- ----------
</TABLE>
Adjustment includes the elimination of minority interest of $6,023 due to
the acquisition of the remaining 49% of the outstanding common stock of the
Company's 51% owned subsidiary, Blue Star and the creation of minority
interest of $6,684 related to the increase of the Company's ownership
interest in Wang-New Zealand to 60%.
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(d) Adjustment to reflect the increase in amortization expense relating to the
goodwill recorded in purchase accounting related to the 1996 Purchased
Companies and 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
APRIL 30,
1996
-----------
<S> <C>
1996 Purchased Companies.................................................... $ 1,570
Fiscal 1997 Completed Acquisitions.......................................... 495
Fiscal 1997 Pending Acquisitions............................................ 3,083
-----------
$ 5,148
-----------
-----------
</TABLE>
(e) 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.
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
(f) Adjustment to reflect the reduction of (i) nonrecurring acquisition costs
related to pooling-of-interests business combinations of $8,057 and (ii)
certain other restructuring charges from certain acquisitions.
(g) Adjustment to reflect the decrease in interest expense and interest income
resulting from the utilization of the proceeds from the sale of the February
Notes issued in the February Offerings and an increased amortization expense
related to the debt issuance costs over the term of the notes.
(h) Adjustment to reflect the elimination of the minority interest representing
49% of the net income of Blue Star and the creation of minority interest
representing 40% of the net income of Wang-New Zealand.
(i) Adjustment to calculate the provision for income taxes on the combined pro
forma results at an effective income tax rate of 43%. The difference between
the effective tax rate of 43% and the statutory tax rate of 35% relates
primarily to state income taxes and non-deductible goodwill.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share is 39,391, consisting of 30,868 shares of Common Stock
outstanding for the year ended April 30, 1996, 478 Common Stock equivalents
considered to be outstanding related to stock options for the year ended
April 30, 1996, 3,509 shares issued for the Fiscal 1997 Completed
Acquisitions and 7,204 shares to be issued for the Fiscal 1997 Pending
Acquisitions, less 2,668 shares of Common Stock related to the unused
portion of the proceeds from the February Offerings for the period from the
beginning of fiscal 1996 to the date of closing of the February Offerings.
(k) 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.
<PAGE>
AMERICAN LOOSE LEAF/
BUSINESS PRODUCTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<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
<PAGE>
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(SEE NOTE 12)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
SEPTEMBER 30, 1996 1995
ASSETS NOTES 1995 (UNAUDITED) (UNAUDITED)
- ------ ----- ------------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 1 $ 302,722 $ 397,463 $ 563,289
Accounts receivable:
Trade (net of allowance for doubtful
accounts of $35,000) 1,5 6,885,862 7,106,271 6,504,074
Other 156,419 315,098 301,801
Income taxes 1,7 7,850 122,011
Inventory 1,2 3,380,925 3,992,297 3,858,269
Deferred income tax asset 1,7 142,000 142,000 99,000
Prepaid expenses 72,434 137,506 11,791
----------- ----------- -----------
Total current assets 10,948,212 12,212,646 11,338,224
PROPERTY AND EQUIPMENT-NET 1,3,6 4,246,293 4,280,059 4,267,892
OTHER ASSETS 1,4 570,624 650,174 569,425
----------- ----------- -----------
TOTAL $15,765,129 $17,142,879 $16,175,541
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit 5 $ 1,300,000 $ 1,700,000 $ 1,300,000
Current maturities of long-term debt 6 357,195 407,212 1,377,460
Accounts payable 3,263,750 3,970,717 3,796,705
Accrued liabilities 944,495 725,730 812,896
Income taxes payable 1,7 26,701
----------- ----------- -----------
Total current liabilities 5,892,141 6,803,659 7,287,061
DEFERRED INCOME TAX LIABILITY 1 746,000 769,000 670,000
LONG-TERM DEBT 6,10 986,275 804,307 935,000
----------- ----------- -----------
Total liabilities 7,624,416 8,376,966 8,892,061
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $100 par value, 3,000 shares
authorized, 1,719 shares issued and outstanding 171,900 171,900 171,900
Paid in capital 40 40 40
Retained earnings 1 7,968,773 8,593,973 7,111,540
----------- ----------- -----------
Total stockholders' equity 8,140,713 8,765,913 7,283,480
----------- ----------- -----------
TOTAL $15,765,129 $17,142,879 $16,175,541
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(SEE NOTE 12)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, 1996 MARCH 31, 1995
NOTES 1995 (UNAUDITED) (UNAUDITED)
----- ------------- -------------- --------------
<S> <C> <C> <C> <C>
NET SALES 1 $49,194,648 $27,999,487 $22,355,627
COST OF SALES 36,421,239 20,793,355 16,599,677
----------- ----------- -----------
GROSS PROFIT 12,773,409 7,206,132 5,755,950
----------- ----------- -----------
EXPENSES:
Warehousing and purchasing 1,483,459 800,629 756,334
Delivery 1,150,921 723,721 532,653
Selling and customer service 5,242,656 3,026,813 2,421,727
Occupancy 488,301 283,019 227,963
Office and data processing 1,254,259 717,102 533,094
Administrative 812,308 514,383 430,613
----------- ----------- -----------
Total 10,431,904 6,065,667 4,902,384
----------- ----------- -----------
OPERATING INCOME 2,341,505 1,140,465 853,566
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 12,453 2,403 6,858
Interest expense 5,6 (192,242) (130,257) (82,820)
Miscellaneous - net 66,925 22,589 36,804
----------- ----------- -----------
Total (112,864) (105,265) (39,158)
----------- ----------- -----------
NET INCOME BEFORE INCOME TAXES 2,228,641 1,035,200 814,408
PROVISION FOR INCOME TAXES 1,7 881,000 410,000 324,000
----------- ----------- -----------
NET INCOME 1,347,641 625,200 490,408
RETAINED EARNINGS,
BEGINNING OF PERIOD 1 6,621,132 7,968,773 6,621,132
----------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 7,968,773 $ 8,593,973 $ 7,111,540
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMERICAN LOOSE LEAF/BUSINESS PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(SEE NOTE 12)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, 1996 MARCH 31, 1995
1995 (UNAUDITED) (UNAUDITED)
------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,347,641 $ 625,200 $ 490,408
----------- --------- -----------
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 363,230 211,899 156,558
Gain on sale of assets (1,055) (15,569)
Deferred income tax provision 33,000 23,000
Decrease (increase) in current assets:
Accounts receivable (574,082) (393,263) (329,826)
Inventory (430,083) (306,479) (907,427)
Prepaid expenses 21,379 (58,697) 73,536
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 940,865 488,202 1,342,221
Income taxes payable (19,207) (26,701) (45,908)
----------- --------- -----------
Total adjustments 334,047 (77,608) 289,154
----------- --------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,681,688 547,592 779,562
----------- --------- -----------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Business acquisitions (2,231,547) (422,676) (1,367,557)
Proceeds from sale of assets 1,055 15,569
Property additions (295,827) (127,116) (95,501)
(Increase) decreaes in other assets 5,568 (86,691)
----------- --------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,520,751) (620,914) (1,463,058)
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit borrowings - net 1,100,000 400,000 1,100,000
Payments of long-term debt (210,000) (231,937) (105,000)
----------- --------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 890,000 168,063 995,000
----------- --------- -----------
NET INCREASE IN CASH 50,937 94,741 311,504
CASH, BEGINNING OF PERIOD 251,785 302,722 251,785
----------- --------- -----------
CASH, END OF PERIOD $ 302,722 $ 397,463 $ 563,289
----------- --------- -----------
----------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 1 of 2
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, 1996 MARCH 31, 1995
1995 (UNAUDITED) (UNAUDITED)
------------- -------------- --------------
<S> <C> <C> <C>
Interest $ 187,149 $ 127,823 $ 82,375
----------- --------- -----------
----------- --------- -----------
Income taxes $ 875,057 $ 527,861 $ 370,353
----------- --------- -----------
----------- --------- -----------
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.
Page 2 of 2
<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.
<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
six months ended March 31, 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 six months ended March 31, 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
----------
----------
<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.
<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.
<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.
<PAGE>
Mile High Office Supply Company, Inc.
Financial Statements
December 31, 1995 and 1994
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Mile High Office Supply Company, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of changes in stockholders' equity, and of cash flows presents fairly,
in all material respects, the financial position of Mile High Office Supply
Company, Inc. 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. 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 31, 1996 the Company
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
Denver, Colorado
June 27, 1996
<PAGE>
MILE HIGH OFFICE SUPPLY COMPANY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995 1996
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 1,927,882 $ 3,425,062 $ 3,324,602
Accounts receivable, less allowance for
doubtful accounts of $176,936, $189,013
and $205,695, respectively 3,361,789 3,591,239 3,908,209
Inventory 1,465,746 989,010 682,009
Other current assets 10,613 38,589 28,943
Total current assets 6,766,030 8,043,900 7,943,763
Property, plant and equipment, net 1,378,168 1,311,873 1,296,295
Loan receivable 100,000
Other assets 152,133 55,000 55,000
Total assets $ 8,296,331 $ 9,410,773 $ 9,395,058
---------- --------- ----------
---------- --------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,540,824 $ 1,812,092 $ 1,516,583
Accrued compensation 211,961 272,239 192,041
Sales taxes payable 108,354 114,224 128,014
Other accrued liabilities 47,735 51,053 61,405
---------- --------- ----------
Total current liabilities 1,908,874 2,249,608 1,898,043
Commitments and contingencies
Stockholders' equity:
Common stock, no par; 50,000 shares
authorized, 416 shares outstanding 42,884 42,884 42,884
Retained earnings 6,344,573 7,118,281 7,454,131
---------- --------- ----------
Total stockholders' equity 6,387,457 7,161,165 7,497,015
---------- --------- ----------
Total liabilities and stockholders' equity $ 8,296,331 $ 9,410,773 $ 9,395,058
---------- --------- ----------
---------- --------- ----------
</TABLE>
<PAGE>
MILE HIGH OFFICE SUPPLY COMPANY, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $24,860,303 $28,274,389 $7,116,967 $8,077,469
Cost of sales 17,531,275 19,591,804 4,915,495 5,503,891
---------- ---------- ---------- ----------
Gross margin 7,329,028 8,682,585 2,201,472 2,573,578
Selling, general and administrative
expenses 4,661,187 4,877,191 1,201,312 1,278,266
---------- ---------- ---------- ----------
Operating income 2,667,841 3,805,394 1,000,160 1,295,312
Other (income) expense:
Interest income (77,066) (112,750) (27,325) (32,344)
Other income (57,835) (55,564) (23,540) (8,194)
---------- ---------- ---------- ----------
Net income $ 2,802,742 $ 3,973,708 $ 1,051,025 $ 1,335,850
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Unaudited pro forma net income
(see Note 8) $ 1,681,645 $ 2,384,225 $ 630,615 $ 801,510
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<PAGE>
MILE HIGH OFFICE SUPPLY COMPANY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained
-----------------------
Shares Amount Earnings Total
------ -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 416 $42,884 $6,041,831 $6,084,715
Net income 2,802,742 2,802,742
Shareholder distribution (2,500,000) (2,500,000)
---- -------- ----------- ----------
Balance at December 31, 1994 416 42,884 6,344,573 6,387,457
Net income 3,973,708 3,973,708
Shareholder distribution (3,200,000) (3,200,000)
----------- ----------
Balance at December 31, 1995 416 42,884 7,118,281 7,161,165
Net income (unaudited) 1,335,850 1,335,850
Shareholder distribution (unaudited) (1,000,000) (1,000,000)
----------- ----------
Balance at March 31, 1996 (unaudited) 416 $ 42,884 $ 7,454,131 $7,497,015
---- -------- ----------- ----------
---- -------- ----------- ----------
</TABLE>
<PAGE>
MILE HIGH OFFICE SUPPLY COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income $2,802,742 $3,973,708 $1,051,025 $1,335,850
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 124,949 70,308 25,024 15,578
Loss (income) on investment (22,363) 54,033
Changes in assets and liabilities:
Accounts receivable (525,954) (229,450) 70,177 (316,970)
Inventory (526,706) 476,736 640,660 307,001
Other current assets (10,613) (27,976) 10,613 9,647
Accounts payable 627,854 271,268 (776,310) (295,510)
Accrued liabilities 35,487 69,466 (38,154) (56,056)
------ ------ -------- --------
Net cash provided by
operating activities 2,505,396 4,658,093 983,035 999,540
Cash Flows From Investing Activities
Proceeds from sale of investment 43,100
Proceeds from notes receivable 697,690
Issuance of note receivable (100,000)
Capital expenditures (39,681) (4,013)
--------- ---------
Net cash provided (used) by
investing activities 658,009 39,087 (100,000)
Cash Flows From Financing Activities
Distributions to shareholders (2,500,000) (3,200,000) (500,000) (1,000,000)
---------- --------- --------- ----------
Net cash used by financing
activities (2,500,000) (3,200,000) (500,000) (1,000,000)
---------- --------- --------- ----------
Net change in cash 663,405 1,497,180 483,035 (100,460)
Cash at beginning of period 1,264,477 1,927,882 1,927,882 3,425,062
---------- --------- --------- ----------
Cash at end of period $1,927,882 $3,425,062 $2,410,917 $3,324,602
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
<PAGE>
MILE HIGH OFFICE SUPPLY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Organization and Acquisition
The Company is a distributor of office products and supplies located
in Denver, Colorado.
The Company entered into a definitive agreement with U.S. Office
Products Company ("U.S. Office Products") pursuant to which the
Company agreed to merge with U.S. Office Products. Pursuant to the
agreement, the Company shareholders will exchange all of the
outstanding shares of the Company's common stock for 1,052,632 shares
of U.S. Office Products' common stock.
2. Summary of Significant Accounting Policies
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.
Revenue Recognition
Revenues are recognized upon the shipment of office supplies and
related office products to the customers.
Inventory
Inventory is stated at the lower of cost or market with cost
determined on the first-in, first-out (FIFO) basis and consists
primarily of product held for sale.
<PAGE>
Property and Equipment
Property and equipment are stated at cost. Depreciation expense is
computed using the straight-line method over the estimated useful
lives of the assets.
Fair Value Disclosure of Financial Instruments
The Company's financial instruments consist of cash, short-term trade
receivables and payables for which their current carrying amounts
approximate fair market value.
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 1.
Unaudited Interim Financial Information
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 cash flows for the three months
ended March 31, 1996 and March 31, 1995, as presented in the
accompanying unaudited interim financial statements.
<PAGE>
3. Property and Equipment
Property and equipment consist of the following:
December 31,
1994 1995
Vehicles $ 280,980 $ 280,980
Property and equipment 1,113,936 1,117,949
Buildings 879,210 879,210
Land 510,089 510,089
--------- ---------
2,784,215 2,788,228
Less: Accumulated depreciation (1,406,047) (1,476,355)
----------- ----------
$ 1,378,168 $ 1,311,873
----------- ----------
4. Lease Commitments
The Company leases vehicles under operating leases with various
expiration dates. The future minimum payments under noncancelable
leases at December 31, 1995 are as follows:
Year Ending December 31,
1996 $28,035
1997 25,838
1998 20,466
1999 6,599
--------
$80,938
-------
Rental expense under operating leases was approximately $30,021 and
$21,498 during the years ended December 31, 1995 and 1994,
respectively.
<PAGE>
5. Employee Benefits
The Company sponsors a defined contribution savings plan (the "Plan")
for Company employees which 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 matching contributions by the Company of 50% up
to a maximum of 5% of compensation. Company contributions were
$62,646 and $59,571 during 1995 and 1994, respectively. Upon leaving
the Company, each participant is 100% vested with respect to his
contributions and is vested based on years of service with respect to
the Company's contributions. Contributions are invested, as directed
by the participant, in various investment funds available under the
Plan.
6. Significant Customer
During the years ended December 31, 1995 and 1994, the Company had net
sales to one customer totaling approximately $3,350,680 and
$2,976,816, respectively.
7. Related Party Transactions
The Company periodically makes loans to a construction company which
is owned jointly by a shareholder of the Company. These loans are
secured by mortgages on the property. No amounts were outstanding at
December 31, 1995 and 1994.
<PAGE>
8. Unaudited Pro Forma 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 periods presented and
had accounted for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
1994 1995 1995 1996
(Unaudited)
<S> <C> <C> <C> <C>
Net income per statement of income $2,802,742 $3,973,708 $1,051,025 $1,335,850
Pro forma income tax provision
adjustment 1,121,097 1,589,483 420,410 534,340
----------- ---------- --------- ----------
Pro forma net income $1,681,645 $2,384,225 $630,615 $ 801,510
----------- ---------- --------- ----------
</TABLE>
<PAGE>
PEAR COMMERCIAL INTERIORS, INC.
AND SUBSIDIARY
FINANCIAL STATEMENTS
DECEMBER 31, 1995, MARCH 31, 1995, AND MARCH 31, 1996
<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
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash $ 221,724 $ 74,948
Trade accounts receivable (Note 4) 1,079,383 897,908
Employee receivable 19,036 39,968
Inventories (Note 4) 326,158 349,771
Deposits 45,248 159,951
Prepaid expenses 15,891 23,840
------------ -----------
Total current assets 1,707,440 1,546,386
------------ -----------
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) (267,980)
------------ -----------
Net property and equipment 277,075 272,710
------------ -----------
Other assets
Security deposits 8,501 8,721
------------ -----------
Total $ 1,993,016 $ 1,827,817
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 458,336 $ 396,857
Accrued sales and property taxes 38,208 14,602
Accrued payroll, taxes and employee benefits 64,900 21,029
Accrued commissions 80,831 113,007
Line-of-credit (Note 4) 450,000 503,000
Current portion of long-term debt (Note 2) 10,895 -
Current portion of capital lease obligation (Note 3) 22,361 22,093
------------ -----------
Total current liabilities 1,125,531 1,070,588
------------ -----------
Long-term portion of capital lease obligation (Note 3) 47,091 42,869
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 800,732 694,698
------------ -----------
Total stockholder's equity 820,394 714,360
------------ -----------
Total $ 1,993,016 $ 1,827,817
============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------------
1995 1995 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Net sales $ 13,180,695 $ 1,873,304 $ 2,989,939
Cost of goods sold 10,533,958 1,489,177 2,485,122
------------ ------------ ------------
Gross profit 2,646,737 384,127 504,817
------------ ------------ ------------
Operating expenses
Selling 698,595 115,121 204,463
General and administrative 1,700,138 346,133 420,451
------------ ------------ ------------
Total operating expenses 2,398,733 461,254 624,914
------------ ------------ ------------
Income (loss) before other income (expense) 248,004 (77,127) (120,097)
------------ ------------ ------------
Other income (expense)
Interest expense (42,451) (6,316) (10,614)
Other income 150,755 39,046 24,677
------------ ------------ ------------
Total other - net 108,304 32,730 14,063
------------ ------------ ------------
Net income (loss) $ 356,308 $ (44,397) $ (106,034)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 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) - - (106,034) (106,034)
-------- --------- ---------- -------------
Balance at March 31, 1996
(unaudited) 100 $ 19,562 $ 694,698 $ 714,360
======== ========= ========== =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PEAR COMMERCIAL INTERIORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------------
1995 1995 1996
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 356,308 $ (44,397) $ (106,034)
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 67,548 9,087 16,899
Loss on sale of assets 1,617 - -
Changes in assets and liabilities
Receivables 1,042,984 1,589,190 181,475
Inventories (146,759) (205,344) (23,613)
Prepaid expenses 7,395 (8,839) (7,949)
Other assets 41,740 32,961 (135,855)
Accounts payable (989,507) (1,040,255) (61,479)
Accrued expenses (159,391) (245,415) (35,301)
------------ ------------ ------------
(134,373) 131,385 (65,823)
------------ ------------ ------------
Net cash provided by (used in) operating
activities 221,935 86,988 (171,857)
------------ ------------ ------------
Cash flows from investing activities
Purchase of furniture and equipment (43,118) (14,488) (12,534)
------------ ------------ ------------
Net cash used in investing activities (43,118) (14,488) (12,534)
------------ ------------ ------------
Cash flows from financing activities
Net advances on line-of-credit 330,000 155,000 53,000
Payments on long-term debt and lease obligations (52,538) (6,919) (15,385)
Distribution to stockholder (237,285) (40,903) -
------------ ------------ ------------
Net cash provided by financing activities 40,177 107,178 37,615
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 218,994 179,678 (146,776)
Cash and cash equivalents at beginning of period 2,730 2,730 221,724
------------ ------------ ------------
Cash and cash equivalents at end of period $ 221,724 $ 182,408 $ 74,948
============ ============ ============
Supplemental disclosure of cash flow information:
The Company paid $42,451 (December 31, 1995), $6,316 (March 31, 1995), and $10,614
(March 31, 1996) 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.
<PAGE>
PEAR COMMERCIAL INTERIORS AND SUBSIDIARY, INC.
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.
<PAGE>
PEAR COMMERCIAL INTERIORS AND SUBSIDIARY, INC.
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 three months ended March 31, 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 three months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year.
<PAGE>
PEAR COMMERCIAL INTERIORS AND SUBSIDIARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(Unaudited)
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, MARCH 31,
1995 1996
------------ ---------
(Unaudited)
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 $ 64,962
Less current portion (22,361) (22,093)
------------ ---------
Long-term lease obligation - net of current portion $ 47,091 $ 42,869
============ =========
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
========
<PAGE>
PEAR COMMERCIAL INTERIORS AND SUBSIDIARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - CAPITAL LEASE OBLIGATIONS (CONTINUED)
Net book value of leased assets at December 31, 1995 and March 31, 1996 was
$73,851 and $66,923, respectively.
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 and 8.25% at March 31, 1996). 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 and $503,000 at December 31, 1995 and March 31,
1996, respectively.
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 and the three months ended March 31,
1995 and 1996, rent expense for both leases was $105,108, $27,373, and
$28,488, respectively, 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.
<PAGE>
PEAR COMMERCIAL INTERIORS AND SUBSIDIARY, INC.
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. Management believes the merger will be consummated on or before
July 31, 1996.
<PAGE>
NEW OFFICE PLUS, INC.
FINANCIAL REPORT
DECEMBER 31, 1995
<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
<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.
<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>
<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.
<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.
<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.
<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>
<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
<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
<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
<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
--------
--------
<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.
<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
-------- -------- --------
-------- -------- --------
<PAGE>
To the Board of Directors
Prudential of Florida, Inc.
North Miami, Florida
I have audited the accompanying balance sheet of Prudential of Florida, Inc.
as of December 31, 1995, and the related statement of income,
stockholder's equity and changes in cash flows for the year then ended. These
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 statements presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prudential of Florida, Inc
and the results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles.
/s/ Joel S. Baum
June 7, 1996
Coral Springs, Florida
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS
Cash in Bank $ 5,481
Accounts Receivable 293,225
Inventory (Note 1) 110,143
Prepaid Expenses 5,753
----------
Total Current Assets 414,602
----------
FIXED ASSETS (NOTE 1 AND 4)
Furniture and Fixtures 57,665
Automobiles and Forklifts 237,347
Leasehold Improvements 35,445
Computer 130,028
Machinery & Equipment 2,337,637
----------
Total Fixed Assets 2,798,122
Less Accumulated Depreciation 1,146,364
----------
1,651,758
----------
OTHER ASSETS
Due From Affiliated Companies (Note 2) 146,200
Non-Compete Covenant, net (Note 3) 54,888
Customer Lists, net (Note 3) 8,796
Goodwill, net (Note 3) 105,060
Deposits with Vendors 7,990
Cash Surrender Value-Officer's Life (Note 5) 13,339
Investment in Majordomo Services, Inc. (Note 1) 60,700
----------
396,973
----------
Total Assets $2,463,333
----------
----------
See Accountant's Report and Accompanying Footnotes
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
BALANCE SHEET
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts Payable $ 162,045
Sales Tax Payable 3,727
Notes Payable (Note 4) 213,187
-----------
Total Current Liabilities 378,959
-----------
LONG-TERM LIABILITIES
Notes Payable (Note 4) 237,985
Stockholder Loans (Note 7) 2,469,640
-----------
Total Long-Term Liabilities 2,707,625
-----------
STOCKHOLDER'S EQUITY
Common Stock, Par Value $1.00;
500 shares authorized;
issued and outstanding 500
Accumulated Deficit (623,751)
----------
Total Equity (623,251)
----------
Total Liabilities and Stockholder's Equity $2,463,333
----------
----------
See Accountant's Report and Accompanying Footnotes
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
Sales $2,917,751
Cost of Goods Sold 1,172,804
----------
Gross Profit 1,744,947
----------
Operating Expenses:
Salaries 637,767
Payroll Taxes 60,917
Contract Labor 295,736
Professional Fees 20,419
Repairs & Maintenance 53,600
Advertising 29,847
Auto 118,649
Insurance 76,514
Interest 43,242
Postage 19,581
Rent 62,273
Sales Expense 20,769
Telephone 47,539
Employee Benefits 14,889
Utilities 13,093
Office 99,583
Travel 10,616
----------
Total Operating Expenses 1,625,034
----------
Income Before Depreciation/Amortization 119,913
Depreciation and Amortization 439,722
----------
Net (Loss) $(319,809)
----------
----------
See Accountant's Report and Accompanying Footnotes.
<PAGE>
PRUDENTIAL OF FLORIDA, INC
STATEMENT OF CASH FLOWS
DECEMBER 31, 1995
Cash Flow from Operating Activities:
Net (Loss) $(319,809)
Adjustments to Reconcile Net Income
to Net Cash Used for Operating Activities:
Depreciation and Amortization 439,722
---------
119,913
Changes in Assets and Liabilities
(Increase) in Accounts Receivable (34,825)
(Increase) in Inventory (15,697)
(Increase) in Prepaid Expenses (3,014)
(Increase) in Security Deposits (1,532)
(Increase) in Cash Surrender Value (13,339)
Increase in Notes Payable 75,045
Increase in Accounts Payable 118,164
---------
Net Cash Provided by Operational Activities 244,715
---------
Cash Flows from Investing Activities:
Acquisition of Fixed Assets (590,344)
Loan to Affiliated Company (50,000)
Increase in Intangible Assets (1,000)
Disposal of Plant, Property & Equipment 7,040
---------
Total Cash Flows from Investing Activities (634,304)
---------
Cash Flows from Financing Activities:
Loans From Officers 289,930
Increase in Long Term Debt 96,868
---------
Total Cash Flows from Financing Activities 386,798
---------
Net (Decrease) in Cash (2,791)
Cash - Beginning 8,272
---------
Cash - Ending $ 5,481
---------
---------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid $ 43,242
---------
---------
See Accountant's Report and Accompanying Footnotes.
<PAGE>
PRUDENTIAL OF FLORIDA, INC
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1995
Common Stock
------------------- Accumulated
Shares Amount Deficit
------ ------ -----------
Balance December 31, 1994 500 $500 $(303,942)
Net (Loss) (319,809)
--- ---- ---------
Balance December 31, 1995 500 $500 $(623,751)
--- ---- ---------
--- ---- ---------
See Accountant's Report and Accompanying Footnotes.
<PAGE>
PRUDENTIAL OF FLORIDA, INC
BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
Assets
Current Assets
Cash In Bank $ (81,449.10)
Cash In Bank 3,000.00
Accounts Receivable 320,520.03
Prepaid Expenses 14,500.00
Exchange Account 3,110.58
Sundries (379.21)
Inventory 139,682.15
Brochures/Literature 3,113.28
--------------
Total Current Assets $ 402,097.73
Fixed Assets
Vehicles 237,346.93
Furniture & Fixtures 73,199.21
Furniture & Fixture-Orlando 1,000.00
Computer System 139,457.15
Telephone System 43,147.43
Equipment - Coin/Currency 11,567.23
Equipment - Coffee Machines 1,202,289.46
Equipment - Purezone 200,000.00
Equipment - Daily Grind 20,001.17
Equipment - E & R 8,500.00
Equipment - RZ Coffee 400,000.00
Equipment - Snack Machines 98,946.00
Equipment - Water Machines 486,635.32
Equipment - Soda Machines 56,321.61
Leasehold Improvements 54,118.97
Accumulated Depreciation (1,245,364.00)
--------------
Total Fixed Assets 1,787,166.48
Other Assets
Loan Receivable - Major Domo 144,500.00
Investment in Major Domo 70,700.00
Due from Prossaire 1,700.00
Non-Compete - Perkup 100,000.00
Non-Compete - RZ Coffee 50,000.00
Covenent - Chenoy 1,000.00
Non-Compete - Ace Coffee Svc 1,000.00
Accum Amort - Non-Compete (99,445.03)
Customer List - Perkup 49,498.00
Accum Amort - Customer List (42,900.69)
Goodwill 117,515.50
Accum Amort - Goodwill (13,190.88)
Refundable Deposits 8,774.52
Cash Surrender Value - OLI 19,056.00
--------------
Total Other Assets 408,207.42
-------------
Total Assets $2,597,471.63
-------------
-------------
<PAGE>
Liabilities & Equity
Current Liabilities
Accounts Payable $ 214,486.75
Sales Tax Payable 4,403.70
Note Payable - Northern Trust 98,000.00
Note Payable - Southpoint 11,326.14
-------------
Total Current Liabilities $ 328,216.59
Long-Term Liabilities
Shareholder Loans 2,633,156.99
SHL - Interest (6,000.00)
SHL - Dividends (28,775.00)
Note Payable - FMCC 9,394.73
Note Payable - FMCC 9,787.65
Note Payable - Sun Bank 15,541.87
Note Payable - Sun Bank 18,298.37
Note Payable - FMCC 13,521.37
Note Payable - FMCC 12,453.25
Note Payable - Sun Bank 13,867.64
Note Payable - Sun Bank 9,861.96
Note Payable - Chase 44,161.86
Note Payable - Northern Trust 187,962.96
-------------
Total Long-Term Liabilities 2,933,233.65
Equity
Common Stock 500.00
Retained Earnings (623,750.06)
Current Net Income (Loss) (40,728.55)
-------------
TOTAL EQUITY (663,978.61)
-------------
Total Liabilities & Stockholder's Equity $2,597,471.63
-------------
-------------
<PAGE>
PRUDENTIAL OF FLORIDA, INC
INCOME STATEMENT
(UNAUDITED)
3 MONTHS ENDED
MAR. 31, 1996 PCT
--------------- -----
Revenue
Income $800,455.58 99.94
NSF Income 488.00 0.06
----------- ------
Net Revenue 800,943,58 100.00
Cost of Sales
Purchases 321,801.78 40.18
----------- ------
Total Cost of Sales 321,801.78 40.18
----------- ------
Gross Profit 479,141.80 59.82
----------- ------
Operating Expenses
Purchases-other exp/disc 860.60 0.11
Advertising 9,167.76 1.14
Alarm / Security Expense 525.24 0.07
Auto Expense 14,253.12 1.78
Auto Lease Expense 13,722.10 1.71
Bad Debt Expense 35.91 0.00
Bank Charges/Credit Card Disc 1,347.14 0.17
Commissions 616.41 0.08
Computer / Data Processing 705.91 0.09
Credit Card Discounts 171.54 0.02
Damaged Bottle Expense 576.00 0.07
Dues & Subscriptions 1,362.51 0.17
Employee Benefits 578.89 0.07
Entertainment 143.39 0.02
Equipment Lease / Rental 688.56 0.09
Insurance 6,386.04 0.80
Insurance - Group Health (2,196.34) (0.27)
Insurance - Liability 9,478.14 1.18
Insurance - Workers Comp 3,474.03 0.43
Installation Expense 289.60 0.04
Legal Fees 60.44 0.01
Licenses & Taxes 302.94 0.04
Meetings & Seminars 524.71 0.07
Miscellaneous 83.94 0.01
Office Expense 17,380.77 2.17
Payroll - Office 174,688.53 21.81
Payroll Tax Expense 23,892.23 2.98
Petty Cash 4,974.07 0.62
Postage / Delivery / Couriers 5,665.14 0.71
Printing Expense 417.52 0.05
Rent 22,332.59 2.79
Repair & Maintenance 661.22 0.08
R & M - Coffee Equipment (1,543.49) (0.19)
R & M - Water Equipment 486.89 0.06
Sales Expense 34.84 0.00
Subcontract Labor 66,133.72 8.26
Telephone / Communication Exp 14,291.14 1.78
Travel 677.35 0.08
Uniforms, Linens & Laundry (157.50) (0.02)
Utilities / Electric 3,294.11 0.41
----------- ------
Total Expenses 396,387.71 49.49
----------- ------
Operating Income 82,754.09 10.33
Sales Tax Discounts (90.99) (0.01)
<PAGE>
Payroll - Officers 6,000.00 0.75
Interest Expense 12,306.21 1.54
Depreciation/Amortization 99,000.00 12.36
Amortization 6,267.42 0.78
----------- ------
Total Other Income (123,482.64) (15.42)
----------- ------
Net Income (Loss) $(40,728.55) (5.09)
----------- ------
----------- ------
<PAGE>
PRUDENTIAL OF FLORIDA, INC
STATEMENT OF CASH FLOWS
MARCH 31, 1996
(UNAUDITED)
Cash Flow from Operating Activities:
Net (Loss) $(40,729)
Adjustments to Reconcile Net Income
to Net Cash Used for Operating Activities:
Depreciation and Amortization 105,267
--------
64,538
Changes in Assets and Liabilities
(Increase) in Accounts Receivable (27,295)
(Increase) in Inventory (32,652)
(Increase) in Prepaid Expenses (11,479)
(Increase) in Security Deposits (785)
(Increase) in Cash Surrender Value (5,717)
Increase in Accounts Payable 53,119
--------
Net Cash Provided by Operational Activities 39,729
--------
Cash Flows from Investing Activities:
Acquisition of Fixed Assets 234,408
Increase in Intangible Assets 1,000
Loan to Affiliated Company 10,000
--------
Total Cash Flows from Investing Activities (245,408)
--------
Cash Flows from Financing Activities:
Loans From Officers 128,742
Decrease in Installment Debt (6,994)
--------
Total Cash Flows from Financing Activities 121,748
Net (Decrease) in Cash (83,931)
--------
Cash - Beginning 5,481
--------
Cash - Ending $(78,449)
--------
--------
Supplemental Cash Flow Information
- ----------------------------------
Interest Paid $12,306
-------
-------
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash in Bank $ 6,796
Accounts Receivable, 301,474
Inventory (Note 1) 115,335
----------
Total Current Assets $ 423,605
----------
FIXED ASSETS (Note 1)
Furniture and Fixtures 54,772
Automobiles and Forklifts 224,941
Leasehold Improvements 29,848
Computer 110,469
Machinery & Equipment 1,933,744
----------
Total Fixed Assets 2,353,773
Less Accumulated Depreciation 829,772
----------
1,524,001
----------
OTHER ASSETS
Due From Affiliated Companies (Note 2) 96,200
Non-Compete Covenant, net (Note 3) 71,383
Customer Lists, net (Note 3) 16,221
Goodwill, net (Note 3) 107,265
Deposits with Vendors 6,564
Investment in Majordomo 80,700
----------
378,333
----------
Total Assets $2,325,939
----------
----------
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 120,283
Sales Tax Payable 4,221
Notes Payable (Note 4) 118,266
-----------
Total Current Liabilities 242,770
LONG-TERM LIABILITIES
Notes Payable (Note 4) 195,118
Stockholder Loans 2,239,368
-----------
Total Liabilities 2,677,256
-----------
EQUITY
Common Stock 500
Retained Earnings (303,942)
Net Income (Loss) (47,874)
----------
Total Equity (351,316)
----------
Total Liabilities and Stockholder's Equity $2,325,939
----------
----------
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
Sales $ 740,585
Cost of Goods Sold 312,137
----------
Gross Profit 428,448
----------
Operating Expenses:
Salaries 140,627
Payroll Taxes 19,311
Contract Labor 71,440
Professional Fees 3,184
Repairs & Maintenance 15,066
Advertising 6,834
Auto 23,767
Insurance 15,571
Interest 16,846
Postage 4,286
Rent 12,497
Sales Expense 9,312
Telephone 9,497
Employee Benefits 1,804
Utilities 1,699
Office 29,286
Contributions 2,250
--------
Total Operating Expenses 383,277
--------
Income Before Depreciation/Amortization 45,171
Depreciation/Amortization 93,045
--------
Net (Loss) $(47,874)
--------
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
STATEMENT OF CASH FLOWS
MARCH 31, 1995
(UNAUDITED)
Cash Flow from Operating Activities:
Net (Loss) $ (47,874)
Adjustments to Reconcile Net Income
to Net Cash Used for Operating Activities:
Depreciation and Amortization 93,045
----------
45,171
Changes in Assets and Liabilities
(Increase) in Accounts Receivable (43,074)
(Increase) in Inventory (20,889)
Decrease in Prepaid Expenses 2,739
(Increase) in Security Deposits (106)
Increase in Accounts Payable 76,897
----------
Net Cash Provided by Operational Activities 60,738
----------
Cash Flows from Investing Activities:
Acquisition of Fixed Assets 135,996
Loan to Affiliated Company 20,000
----------
Total Cash Flows from Investing Activities (155,996)
----------
Cash Flows from Financing Activities:
Loans From Officers 84,656
Increase in Long Term Debt 49,126
----------
Total Cash Flows from Financing Activities 133,782
Net Increase in Cash 38,524
----------
Cash - Beginning (31,728)
----------
Cash - Ending $ 6,796
----------
----------
Supplemental Cash Flow Information
- ----------------------------------
Interest Paid $ 16,846
----------
----------
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
The Company was incorporated on February 3, 1966 in the State of
Florida. The principal business of the Company is the sale of
coffee and water for office use.
INVENTORY
Inventory consists of water, coffee, coffee parts, and other
related products. Inventory is stated at average cost.
FIXED ASSETS
Fixed assets purchased during the year are stated at cost. Depreciation
of fixed assets is computed utilizing the double declining balance
method over their estimated lives; five years for automobiles and
forklifts, and seven years for machinery and equipment, computers,
leasehold improvements, and furniture and fixtures.
Expenditures for maintenance and repairs are charged to expense as
incurred.
BASIS OF ACCOUNTING
The Company maintains its books on the accrual basis, whereby
revenues are recognized when earned and expenses when incurred.
INCOME TAXES
The Company is taxed under Subchapter S of the Internal Revenue
Service. Accordingly, any profit or loss incurred by the Company is
passed through and taxed to the stockholders. Therefore, no
provision for income taxes has been made.
INVESTMENTS
Investments are carried at cost.
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 2 - DUE FROM AFFILIATED COMPANIES
The Company makes purchases of inventory, equipment, and service parts
for affiliated companies. Occasionally, the Company makes operating
loans to affiliates. At December 31, 1995 the amounts owed to the
Company was composed of the following:
Majordomo Services, Inc. $144,500
Prossaire of Fla., Inc. 1,700
--------
Total $146,200
--------
--------
NOTE 3 - ACQUISITION OF BUSINESS
In 1994 the Company acquired two businesses whose activity are now an
integral part of the Company. The excess of purchase price over cost
of equipment was allocated to goodwill, non-compete covenant, and
customer lists. The covenant and customer lists are being amortized
over sixty (60) months. Goodwill is being amortized over forty (40)
years.
NOTE 4 - NOTES PAYABLE
Notes payable consist of the following at December 31, 1995:
NOTE PAYABLE - WENDOVER FUNDING
Line of Credit - requiring monthly payments of interest
only, computed at 14.75% $11,326
NOTE PAYABLE - INTERCONTINENTAL BANK
Line of Credit - requiring monthly payments of interest
only, computed at 2% over prime. The loan is secured
by equipment, receivables and inventory. Matures
January 1996. 80,000
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 4 - NOTES PAYABLE (CONTINUED)
NOTE PAYABLE - FORD MOTOR CREDIT
Installment note, commencing March, 1994 with monthly
payments of $428 including interest at 7.0%. Secured by
vehicle. 14,897
NOTE PAYABLE - FORD MOTOR CREDIT
Installment note, commencing March, 1994, with monthly
payments of $405 including interest at 7.0% Secured by
vehicle. 13,438
NOTE PAYABLE - FORD MOTOR CREDIT
Installment note, commencing December, 1993, with monthly
payments of $332 including interest at 7%. Secured by
vehicle. 10,217
NOTE PAYABLE - FORD MOTOR CREDIT
Installment note, commencing December, 1993, with monthly
payments of $346 including interest at 7%. Secured by
vehicle. 10,644
NOTE PAYABLE - SUN BANK
Installment note, Commencing April, 1994, with monthly
payments of $428 including interest at 7%. Secured by
vehicle. 14,557
NOTE PAYABLE - SUN BANK
Installment note, commencing February, 1994, with
monthly payments of $483 including interest at 8%.
Secured by vehicle. 11,099
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 4 - NOTES PAYABLE (CONTINUED)
NOTE PAYABLE - SUN BANK
Installment note, commencing December, 1994, with
monthly payments of $570 including interest at 10%.
Secured by vehicle. 16,847
NOTE PAYABLE - SUN BANK
Installment note, commencing May 1995 with monthly
payments of $563 including interest at 10%. Secured
by vehicle. 19,514
NOTE PAYABLE - INTERCONTINENTAL BANK
Installment note, commencing August 1995, with monthly
payments of $6482 plus interest at prime plus 2%.
Secured by a blanket lien. 200,926
NOTE PAYABLE - CHASE
Installment note, commencing November, 1994, with
payments of $1,224 including interest at 9.7%.
Secured by vehicle. 47,707
--------
Total Notes Payable 451,172
Less Current Portion 213,187
--------
$237,985
--------
--------
Schedule of notes payable retirement as of December 31:
1995 $213,187
1996 127,472
1997 93,073
1998 17,440
1999 -0-
Thereafter -0-
--------
$451,172
--------
--------
<PAGE>
PRUDENTIAL OF FLORIDA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 5 - CASH SURRENDER VALUE - OFFICERS LIFE INSURANCE
The company maintained a whole life insurance policy on the life of its
stockholder/officer in 1995.
NOTE 6 - LEASING ARRANGEMENTS
OPERATING LEASE
The Company conducts its Orlando operations from facilities that are
leased under a 1 year lease ending June 1996. The lease calls for
monthly rent payments starting in July 1995 of $475 per month
including common area maintenance charges which includes a pro-rata
share of real property taxes.
The Company conducts its Miami operations from facilities that are
lease under a 5 year lease ending January 1999, including common
area maintenance charges and consumer price index increases.
The Company leases several pieces of equipment under various terms and
expirations.
FUTURE MINIMUM LEASE PAYMENTS
Future Minimum lease payments for operating leases at December 31 are:
Operating Facility
Leases Leases Total
--------- -------- ---------
1996 $73,183 $108,805 $181,988
1997 49,018 114,275 163,293
1998 28,474 120,665 149,139
1999 28,474 10,100 38,574
2000 18,983 -0- 189,983
------- -------- --------
Total Future
Lease Payments $198,132 $353,845 $551,977
------- -------- --------
------- -------- --------
NOTE 7 - STOCKHOLDER LOANS
Loans from the stockholder are unsecured non-interest
bearing subordinated debt with no determined repayment schedule
and subject to the first rights of Intercontinental Bank obligations.
<PAGE>
DAVIDS OFFICE SUPPLY
AND FURNITURE CO., INC.
FINANCIAL STATEMENTS
MAY 31, 1996
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
July 10, 1996
To the Stockholders of
Davids Office Supply
and Furniture Co., Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Davids Office Supply and Furniture
Co., Inc. at May 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 8 to the financial statements, on June 4, 1996 the Company
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
Battle Creek, Michigan
<PAGE>
BALANCE SHEET
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
MAY 31,
1996
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 224,265
Accounts receivable 807,165
Inventory 350,674
Prepaid expenses 21,957
-----------
Total current assets 1,404,061
Property and equipment, net 67,671
Deposits 12,087
-----------
TOTAL ASSETS $ 1,483,819
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - current $ 17,993
Accounts payable 329,450
Accrued compensation and withholdings 144,954
Other accrued liabilities 129,567
-----------
Total current liabilities 621,964
-----------
Notes payable - noncurrent 34,905
-----------
Deferred income taxes 9,000
-----------
Stockholders' equity:
Common stock, $1 stated value per share - 5,000
shares authorized, issued and outstanding 5,000
Retained earnings 812,950
-----------
817,950
-----------
Commitments and contingencies (Notes 6 and 8) -
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,483,819
-----------
-----------
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENT OF INCOME
----------------------------------------------------------------------
YEAR ENDED
MAY 31, 1996
Net sales $8,136,514
Cost of sales 5,989,210
----------
Gross profit 2,147,304
Selling, general and administrative expenses 1,864,024
----------
Operating income 283,280
Other income (expense):
Interest expense (5,727)
Commission income 15,097
Other 10,885
----------
Income before income taxes 303,535
Provision for income taxes 114,000
----------
Net income $ 189,535
----------
----------
See accompanying notes to financial statements
<PAGE>
STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------------------------------
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS
Balance at May 31, 1995 5,000 $5,000 $ 623,415
Net income 189,535
---------
Balance at May 31, 1996 5,000 $5,000 $ 812,950
----- ------ ---------
See accompanying notes to financial statements
<PAGE>
STATEMENT OF CASH FLOWS
----------------------------------------------------------------------
YEAR ENDED
MAY 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 189,535
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 20,502
Deferred income taxes 5,900
Changes in assets and liabilities:
Accounts receivable 209,432
Inventory (88,817)
Prepaid expenses (13,328)
Other assets (2,582)
Accounts payable (152,010)
Accrued liabilities 66,752
------
Net cash provided by operating activities 235,384
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (51,517)
--------
Net cash used for investing activities (51,517)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt (63,770)
Proceeds from issuance of debt 37,553
------
Net cash used for financing activities (26,217)
--------
Net increase in cash and cash equivalents 157,650
Cash and cash equivalents at beginning of year 66,615
------
Cash and cash equivalents at end of year $ 224,265
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 6,301
-----------
-----------
Cash paid during the year for federal income taxes $ 26,000
-----------
-----------
See accompanying notes to financial statements
<PAGE>
DAVID'S OFFICE SUPPLY AND FURNITURE CO., INC.
NOTES TO FINANCIAL STATEMENTS
----------------------------------------------------------------------
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESSES
Davids Office Supply and Furniture Co., Inc. (the "Company") is a
distributor of office supplies and new and used office furniture.
The Company sells to customers primarily in Michigan and
Midwestern United States.
REVENUE RECOGNITION
Revenue is recognized upon delivery of office supplies and
furniture to customers.
ADVERTISING EXPENSE
The Company recognizes expenses, including advertising expense,
as incurred. Included in operating expenses for the year ended
May 31, 1996 is advertising expense in the amount of $20,610.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. 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. Sales to various affiliated United Auto Workers (UAW)
organizations aggregated approximately 13% of the total sales for
the year ended May 31, 1996.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments, including
certificates of deposit, with maturities of three months or less
from the date of purchase to be cash equivalents.
INVENTORY
Inventory, consisting of office supplies and new and used office
furniture, is valued at the lower of cost or market on the FIFO
(first-in, first-out) basis.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated
over the estimated useful lives of the assets using the straight-
line method over three to ten years for furniture and fixtures
and five years for transportation equipment and leasehold
improvements. Additions and improvements are capitalized, and
maintenance and repairs are expensed as incurred.
<PAGE>
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 No. 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and notes payable,
approximates fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect 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.
2.PROPERTY AND EQUIPMENT
The cost of property and equipment and the related accumulated
depreciation at May 31, 1996 is as follows:
Furniture and fixtures $ 228,733
Transportation equipment 110,231
Leasehold improvements 38,750
------
377,714
Less: accumulated depreciation (310,043)
---------
$ 67,671
- ------
3. OTHER ACCRUED LIABILITIES
Other accrued liabilities at May 31, 1996 consists of the following:
Accrued federal income tax $ 91,100
Sales tax payable 23,742
Accrued professional fees 11,210
Other 3,515
-----
$ 129,567
- -------
<PAGE>
4.NOTES PAYABLE
The Company has three notes payable related to the purchase of
automobiles which are secured by the related assets with various
interest rates and payment terms. In addition, the Company has a note
payable to a bank which is secured by certain equipment of the
Company. The following is a summary of notes payable balances at May
31, 1996:
MAY 31,
1996
Secured note payable which bears interest at
9.25% with monthly payments of principal and
interest of $468 through August 1999 $ 15,711
Secured note payable which bears interest at 7.50%
with monthly payments of principal and interest of
$438 through September 1999 15,473
Secured note payable which bears interest at 9.25%
with monthly payments of principal and interest of
$471 through August 1999 15,464
Secured note payable to a bank which bears interest
at 9.00% with monthly principal payments of $417
through August 1997 6,250
------
52,898
Less: amounts due within one year (17,993)
--------
$ 34,905
- ------
Future payments for notes payable are as follows:
YEAR ENDED
MAY 31,
1997 $ 17,993
1998 15,418
1999 15,447
2000 4,040
-----
$ 52,898
- ------
<PAGE>
5.INCOME TAXES
The income tax provision is comprised of the following
components:
YEAR ENDED
MAY 31, 1996
Current tax expense $ 108,100
Deferred tax expense 5,900
-----
$ 114,000
- -------
The deferred income tax liability in the amount of $9,000 relates
to the difference between book and tax depreciation. Differences
between the Company's effective federal income tax rate and
statutory rates resulted from the payment of non-deductible
officers life insurance premiums by the Company during the year.
6.OPERATING LEASES
The Company leases its facilities and warehouse space on a month
to month basis. The Company also leases five vehicles with terms
expiring at various dates through the year 1998. Total rent
expense for the year ended May 31, 1996 was approximately
$67,100.
Future minimum lease payments for all noncancellable vehicle
operating leases are as follows:
YEAR ENDED
MAY 31,
1997 $ 17,441
1998 5,731
-----
$ 23,172
- ------
7.PROFIT SHARING PLAN
The Company has a discretionary profit sharing plan which covers
substantially all full-time employees. At the discretion of the
Board of Directors, the Company may make contributions each year
for the benefit of eligible employees under the plan. The plan
does not allow participants to contribute to the plan. The
Company paid all administrative fees related to this plan but
made no contribution for the year ended May 31, 1996.
<PAGE>
8.SUBSEQUENT EVENTS
On June 4, 1996, 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 agreed to merge with
U.S. Office Products. Pursuant to the letter of intent, the
Company will exchange all of its issued and outstanding shares of
common stock for approximately 75,090 shares of U.S. Office
Products' common stock with a market value of approximately $2.6
million.
<PAGE>
CAROLINA OFFICE EQUIPMENT COMPANY
FINANCIAL STATEMENTS
MARCH 31, 1996
<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
<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
----------
<PAGE>
CAROLINA OFFICE EQUIPMENT COMPANY
INCOME STATEMENT
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
----------
<PAGE>
CAROLINA OFFICE EQUIPMENT COMPANY
STATEMENT OF CASH FLOWS
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
----------
<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.
<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
----------
<PAGE>
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.
<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 and
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.
<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.
<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.
<PAGE>
WBT HOLDINGS, INC.
DBA OFFICE FURNITURE DISTRIBUTORS
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
Report of Independent Accountants
July 1, 1996
To the Board of Directors and Shareholders of
WBT Holdings, 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 WBT Holdings, Inc. 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 7 to the financial statements, on June 4, 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
<PAGE>
WBT Holdings, Inc.
dba Office Furniture Distributors
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 376 $ -
Trade receivables net of an allowance
for doubtful accounts of $50,000 594,142 637,575
Vendor receivables 395,625 205,000
Rebates receivable 100,676 92,189
Inventories 649,516 707,918
Other current assets 5,253 20,731
---------- ----------
Total current assets 1,745,588 1,663,413
Property and equipment, net 414,579 407,662
Other assets 28,672 30,526
---------- ----------
Total assets 2,188,839 2,101,601
---------- ----------
Liabilities and Shareholders' Equity
Current liabilities:
Revolving line of credit $ 200,000 $ 200,000
Accounts payable 541,511 460,134
Customer deposits 190,404 93,580
Other accrued expenses 213,978 244,945
Notes payable 73,251 61,389
Notes payable - shareholder 1,538,928 1,500,000
---------- ----------
Total liabilities 2,758,072 2,560,048
---------- ----------
Commitments (Note 5)
Shareholders' equity:
Common stock, no par value, 1,000 shares authorized,
and 840 shares issued and outstanding 200,000 200,000
Treasury stock (60,000) (60,000)
Accumulated deficit (709,233) (598,447)
---------- ----------
Total shareholders' equity (569,233) (458,447)
---------- ----------
Total liabilities and shareholders' equity $2,188,839 $2,101,601
---------- ----------
</TABLE>
<PAGE>
WBT Holdings, Inc.
dba Office Furniture Distributors
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
December 31, March 31,
------------------------------------
1995 1995 1996
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
Sales $8,154,896 $1,865,596 $2,358,176
Cost of sales 4,822,341 1,214,948 1,501,141
---------- ---------- ----------
Gross profit 3,332,555 650,648 857,035
Selling, general and
administrative expenses 2,689,690 546,112 732,509
---------- ---------- ----------
Operating income 642,865 104,536 124,526
Interest expense 68,824 14,426 13,740
---------- ---------- ----------
Net income $ 574,041 $ 90,110 $ 110,786
---------- ---------- ----------
---------- ---------- ----------
Unaudited pro forma net income
(see Note 8) $ 344,425 $ 54,066 $ 66,470
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
WBT Holdings, Inc.
dba Office Furniture Distributors
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
December 31, ------------------
1995 1995 1996
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 574,041 $ 90,110 $ 110,786
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 33,880 8,470 9,459
Loss on disposal of equipment 3,978 - -
Increase (decrease) in cash resulting
from changes:
Accounts and other receivable (430,543) 202,266 155,679
Inventories (24,902) (32,534) (58,402)
Other current assets (329) (8,064) (15,478)
Other assets (2,514) (1,864) (1,854)
Accounts payable 175,040 (74,227) (81,377)
Customer deposits 99,801 (37,982) (96,824)
Accrued liabilities (246,610) (136,823) 30,967
---------- ---------- ----------
Total adjustments (392,199) (80,758) (57,830)
---------- ---------- ----------
Net cash provided by operating activities 181,842 9,352 52,956
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (132,532) (19,696) (2,542)
---------- ---------- ----------
Net cash used for investing activities (132,532) (19,696) (2,542)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of stockholder loans (177,479) - -
Proceeds from long-term debt 43,527 - -
Payments on long-term debt (44,763) (26,413) (50,790)
Net change in revolving line of credit 125,000 75,000 -
---------- ---------- ----------
Net cash provided by (used for) financing activities (53,715) 48,587 (50,790)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (4,405) 38,243 (376)
Beginning of period 4,781 4,781 376
---------- ---------- ----------
End of period $ 376 $ 43,024 $ 0
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 380,206 $ 14,426 $ 13,740
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
WBT Holdings, Inc.
dba Office Furniture Distributors
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------ Treasury Accumulated
Shares Amount Stock Deficit Total
------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 840 $ 200,000 $ (60,000) $ (1,283,274) $ (1,143,274)
Net income 574,041 574,041
------------- ------------ ------------ ------------ ------------
Balance at December 31, 1995 840 200,000 (60,000) (709,233) (569,233)
Net income (unaudited) 110,786 110,786
------------- ------------ ------------ ------------ ------------
Balance at March 31, 1996 (unaudited) 840 $ 200,000 $ (60,000) $ (598,447) $ (458,447)
------------- ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
WBT Holdings, Inc.
dba Office Furniture Distributors
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business Organization
WBT Holdings, Inc., doing business as Office Furniture Distributors (the
"Company"), is a supplier of office supplies and furniture serving the Austin,
Texas metropolitan area.
Note 2 - Summary of Significant Accounting Policies
FISCAL YEAR - The Company's fiscal year ends on December 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. At December 31, 1995, the Company did not have a
significant concentration of sales or accounts receivable with any single
customer.
VENDOR RECEIVABLES - Vendor receivables represent installation fees and
commissions due from one of the Company's primary suppliers. Management
believes such amounts to be fully collectable.
REBATES RECEIVABLE - Rebates receivable represent group and annual wholesaler
rebates earned by the Company as well as certain cooperative advertising claims
as of December 31, 1995.
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 three to thirty-nine years
using the straight-line method. 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.
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 7.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount of cash, accounts and
receivables, accounts payable, and notes payable approximates fair value because
of the short maturity of those instruments.
<PAGE>
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.
UNAUDITED INTERIM FINANCIAL INFORMATION - 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 of each of the
three months ended March 31, 1996 and 1995, as presented in the accompanying
unaudited interim financial information.
Note 3 - Property and Equipment
Property and equipment consist of the following:
December 31,
1995
-----
Leasehold improvements $ 235,875
Furniture, fixtures and equipment 100,847
Autos and trucks 60,030
Data processing equipment and machinery 99,431
----------
496,183
Less: accumulated depreciation and amortization 81,604
----------
Net property and equipment $ 414,579
----------
Depreciation expense was $33,880 for the year ended December 31, 1995.
<PAGE>
Note 4 - Credit Facilities
Notes payable consists of the following:
December 31,
1995
----
Note payable to a bank, due in monthly
installments of principal and interest through
November 1996, interest at 9.5%.
Secured by receivables and inventory. $ 32,663
Note payable to a commercial entity, principal and interest
due in varying amounts based on the performance of certain
equipment sold to the Company. Secured by certain equipment. 28,309
Other notes 12,279
----------
$ 73,251
----------
The Company has available a $400,000 line of credit with a bank. Borrowings
under the credit agreement are secured by inventories, receivables and certain
life insurance policies held by the primary shareholder. The line bears
interest at prime +1% and matures on October 15, 1996. In connection with the
Company's acquisition this line was paid off subsequent to year end.
Notes payable to shareholder are payable at various times through December 1996
and bear interest at rates from "CD Rate" +1% to Prime +2.5%. During the year
the Company paid $311,382 which had been expensed in prior years representing a
portion of the accumulated interest due on these notes. Subsequent to year end
and in connection with the acquisition of the Company, the lender agreed to
modify the notes such that interest expense for the year amounted to
approximately $30,000. Additionally, the lender agreed to waive any additional
claim to unpaid interest on these notes. In connection with the acquisition of
the Company, these notes were paid off.
<PAGE>
Note 5 - Commitments
The Company leases certain vehicles and office, store and warehouse space under
various non-cancelable lease arrangements which have been accounted for as
operating leases. Future minimum lease payments required under long-term leases
in effect at December 31, 1995 are as follows:
Operating
---------
1997 $ 148,420
1998 128,961
1999 110,163
2000 119,125
2001 119,125
Thereafter 69,490
----------
$ 695,284
----------
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 matching contributions of 25 cents of every $1
up to 6% of employee salaries. For the period ended December 31, 1995, the
Company accrued contributions amounting to $6,902.
Note 7 - Subsequent Events
On June 4, 1996, the Company and its stockholders entered into a definitive
agreement with U. S. Office Products Company ("U. S. Office Products") pursuant
to which the Company agreed to merge with U. S. Office Products. Pursuant to
the Merger Agreement, all of the outstanding shares of the Company's common
stock were exchanged for 204,000 shares of U. S. Office Products common stock
less that number of shares required to payoff the shareholder loans at market
value.
<PAGE>
Note 8 - 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 periods presented and had accounted for income taxes in
accordance with Statement of Accounting Standards No. 109, "Accounting for
Income Taxes":
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31,
December 31, ------------------
1995 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net income before pro forma tax adjustments $ 574,041 $ 90,110 $ 110,784
Provision for income taxes 229,616 36,044 44,314
---------- ---------- ----------
Pro forma net income $ 344,425 $ 54,066 $ 66,470
---------- ---------- ----------
</TABLE>
<PAGE>
MARK'S OFFICE FURNITURE
AND FURNITURE CO., INC.
FINANCIAL STATEMENTS
May 31, 1996
<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
<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
---------
<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
---------
<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
---------
<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
---------
<PAGE>
Cash at end of year $9,516
---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest $26,000
---------
<PAGE>
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
<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
<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
---------
<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
<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
---------
<PAGE>
INTERNATIONAL INTERIORS, INC.
AUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
<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.
<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
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
BALANCE SHEETS
September 30, 1995 and 1994
ASSETS
1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 1) $ 21,540 $ 468,776
Accounts receivable - trade less
allowance for doubtful accounts
of $1,000 in 1995 and 1994 955,176 956,983
Advances - employees 1,125 1,523
Loan to stockholder -- 10,000
Inventory (Note 1) 1,186,540 718,819
Prepaid expense -- 1,125
Deferred tax asset (Note 2) 60,618 101,752
---------- ----------
Total Current Assets 2,224,999 2,258,978
---------- ----------
Property and Equipment: (Notes 1 and 4)
Automotive equipment 158,738 126,474
Leasehold improvements 92,827 92,827
Office furniture 57,270 57,270
Office equipment 65,340 56,012
Warehouse equipment 16,739 15,608
Capitalized lease - computer 164,762 164,762
---------- ----------
Total Property and Equipment 555,676 512,953
Less: Accumulated Depreciation 329,721 217,373
---------- ----------
Net Property and Equipment 225,955 295,580
---------- ----------
Other Assets 3,633 5,538
---------- ----------
Total Assets $2,454,587 $2,560,096
---------- ----------
---------- ----------
</TABLE>
Read accompanying notes and auditors' report.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
BALANCE SHEETS
September 30, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
---- ----
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 623,587 $ 331,552
Accrued liabilities 58,190 77,784
Income taxes payable -- 2,514
Customer deposits 24,621 2,450
Notes payable, current portion (Note 6) 23,415 23,415
Capitalized lease obligation (Note 4) 33,771 31,520
Loan from stockholder -- 142,000
---------- ----------
Total Current Liabilities 763,584 611,235
---------- ----------
Long-term Liabilities:
Notes payable, due after one
year (Note 6) 7,805 31,220
Capitalized lease obligation, due
after one year (Note 4) 58,150 91,920
Deferred tax credit (Note 2) 17,186 15,455
---------- ----------
Total Long-term Liabilities 83,141 138,595
---------- ----------
Total Liabilities 846,725 749,830
---------- ----------
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) 1,964,936 1,817,236
Common stock, $1 par value, 30,000
shares authorized, 10,000 shares
issued and outstanding 10,000 10,000
Additional paid in capital 1,095,048 1,095,048
Accumulated deficit (1,462,122) (1,112,018)
---------- ----------
Total Stockholders' Equity 1,607,862 1,810,266
---------- ----------
Total Liabilities
and Stockholders' Equity $2,454,587 $2,560,096
---------- ----------
---------- ----------
</TABLE>
Read accompanying notes and auditors' report.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF INCOME
Years Ended September 30, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
Sales (Note 10) $7,931,071 $8,159,392
Cost of sales (Note 10) 5,437,640 5,481,795
---------- ----------
Gross profit 2,493,431 2,677,597
Operating expenses (Note 9) 2,357,846 2,153,033
---------- ----------
Income from operations 135,585 524,564
---------- ----------
Other income (expense):
Interest income 3,201 4,288
Miscellaneous income (expense) 15,813 (4,824)
Interest expense (29,138) (15,356)
Loss on retirement of equipment -- (6,054)
---------- ----------
Total other income (expense) (10,124) (21,946)
---------- ----------
Income before income taxes and
cumulative effect of change in
accounting principle 125,461 502,618
Provision for income taxes (Note 2) 42,865 175,198
---------- ----------
Income before cumulative effect of
change in accounting principle 82,596 327,420
Cumulative effect of change in
accounting principle (Note 2) -- 258,981
---------- ----------
Net income $ 82,596 $ 586,401
---------- ----------
---------- ----------
</TABLE>
Read accompanying notes and auditors' report.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF ACCUMULATED DEFICIT
Years Ended September 30, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
Accumulated deficit balance at
beginning of year $1,112,018 $1,353,040
Less: Net income 82,596 586,401
Plus: Common stock dividends 285,000 345,379
Plus: Preferred stock dividends
(Note 5) 147,700 --
---------- ----------
Accumulated deficit balance at
end of year $1,462,122 $1,112,018
---------- ----------
---------- ----------
</TABLE>
Read accompanying notes and auditors' report.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 82,596 $ 586,401
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 80,085 82,077
Loss on retirement of equipment -- 6,054
Net change in deferred tax assets and
credits after cumulative effect of
change in accounting principle 42,865 (86,297)
(Increase) decrease in:
Accounts receivable 1,807 (223,346)
Stockholder and employee advances 10,398 11,097
Inventory (467,721) 135,246
Prepaid expenses 1,125 15,922
Other assets 1,905 4,310
Increase (decrease) in:
Accounts payable 292,034 79,721
Accrued liabilities and income tax (22,108) 47,025
Customer deposits 22,170 (250,767)
---------- ----------
Net cash provided by operating
activities 45,156 432,216
---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment (10,459) (79,940)
---------- ----------
Net cash used in investing
activities (10,459) (79,940)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from borrowing:
Notes payable, vehicle installment
contracts -- 70,246
Loan from stockholder -- 142,000
Debt reduction:
Notes payable, vehicle installment
contracts (23,414) (15,611)
Loan from stockholder (142,000) --
Capitalized lease (31,519) (29,418)
Dividends paid (285,000) (345,378)
---------- ----------
Net cash used by financing
activities $ (481,933) $ (178,161)
---------- ----------
</TABLE>
Read accompanying notes and auditors' report.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL INTERIORS, INC.
STATEMENTS OF CASH FLOWS (Continued)
Years Ended September 30, 1995 and 1994
1995 1994
---- ----
<S> <C> <C>
Net increase (decrease) in cash and
cash equivalents $ (447,236) $ 174,115
Cash and cash equivalents at
beginning of period 468,776 294,661
---------- ----------
Cash and cash equivalents at
end of period $ 21,540 $ 468,776
---------- ----------
---------- ----------
Supplemental Disclosures:
Operating Activities reflect:
Interest paid $ 29,138 $ 15,356
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.
<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:
1995 1994
---- ----
New Furniture and accessories
(1994 includes used) $ 427,083 $420,421
Used Furniture and
accessories 341,422 --
Office Supplies 418,035 298,398
---------- ---------
Total Inventory $1,186,540 $718,819
---------- ---------
---------- ---------
Read accompanying auditors' report.
<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:
1995 1994
---- ----
Current $ -- $ 2,514
Deferred 42,865 172,684
-------- --------
Total $ 42,865 $175,198
-------- --------
-------- --------
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.
<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, 1995 and
1994 amounted to approximately $81,240 and $59,891, respectively. Accounts
receivable from Jones College at September 30, 1995 and 1994 amounted to
$21,006 and $11,420, 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, 1995 and 1994 amounted to $147,532 and $146,231,
respectively.
On an as needed basis the Company rents trucks and other equipment
used in delivery. Equipment rental for September 30, 1995 and 1994 was
$24,337 and $20,805, respectively.
<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 $70,024 and $37,072 at September 30, 1995
and 1994, respectively is included in property and equipment. Depreciation
for this equipment for the period ended September 30, 1995 and 1994 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.
<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 1995 and 1994 were $5,073 and $5,983, respectively.
<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 year ended September 30, 1995, revenue and cost of sales have been
restated and have been decreased by $400,473 and $358,007, respectively.
The net effect of the difference of $42,466 commissions has been added to
sales.
<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.
<PAGE>
ARBUCKLE FOODS INC.
FINANCIAL STATEMENTS
AUGUST 31, 1995
<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
<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 1,71?,282
---------- ---------- ----------
$4,131,148 $4,026,087 4,190,261
---------- ---------- ----------
---------- ---------- ----------
CONTINGENT LIABILITY (note 11)
</TABLE>
<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>
<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>
<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>
<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>
<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>
<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.
<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>
<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>
<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>
<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>
<PAGE>
McWHORTER
STATIONERY COMPANY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
McWhorter Stationery Company, Inc.
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 McWhorter
Stationery Company, Inc. and its subsidiary (the Company) at March 31, 1996, and
the results of their operations and their cash flows for the year 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 express
above.
As described in Note 12, the company signed a letter of intent to merge
with U.S. Office Products Company.
Price Waterhouse LLP
Minneapolis, Minnesota
July 12, 1996
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------
MARCH 31, 1996
ASSETS
Current assets:
Cash $ 1,028,667
Accounts receivable 939,924
Inventories 7,546,789
Prepaid 279,466
Other current assets 35,695
-------------
Total current assets $ 9,830,541
Property, plant & equipment 2,492,535
Intangibles 264,642
Deferred income taxes 569,224
Other assets 131,072
-------------
Total assets $ 13,288,014
-------------
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Overdraft $ 484,009
Notes payable to related parties - current portion 205,162
Current portion of long term debt 765,108
Current portion of capital lease obligations 61,418
Accounts payable 3,151,974
Taxes payable 408,320
Accrued compensation 1,092,398
Deferred income taxes 675,159
Other accrued expenses 141,566
Deferred rent 273,116
-------------
Total current liabilities 7,258,230
Deferred compensation 1,419,512
Capital lease obligations 114,369
Notes payable to related parties - long-term 16,667
Long-term debt 1,111,515
-------------
Total liabilities 9,920,293
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------
Minority interest 168,756
-------------
Total liabilities and minority interest 10,089,049
-------------
Commitments (Note 8)
Shareholders' equity
Common stock A, $1.00 par value, 150,000 shares
authorized, 137,000 shares issued and outstanding 137,000
Common stock B, $1.00 par value, 13,000 shares
authorized, 1,794 shares issued and outstanding 1,794
Additional paid-in capital 629,139
Shareholders' stock subscription notes receivable (351,710)
Retained earnings 2,782,742
-------------
Total shareholders' equity 3,198,965
-------------
Total liabilities and shareholders' equity $ 13,288,014
-------------
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED
MARCH 31, 1996
Net sales $ 51,713,805
Cost of goods sold 31,865,581
-------------
Gross margin 19,848,224
Selling, general and administrative expenses 18,978,568
-------------
Operating income 869,656
Other (income) expense:
Interest expense 168,736
Interest income (33,337)
Other income (185,254)
-------------
Income before provision for income taxes and minority
interest 919,511
Minority interest 202,207
-------------
Income before provision for income taxes 717,304
Provision for income taxes 339,582
-------------
Net income $ 377,722
-------------
-------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDERS'
CLASS A CLASS B STOCK
COMMON STOCK COMMON STOCK PAID-IN SUBSCRIPTION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL NOTES EARNINGS TOTAL
---------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1995 137,000 $ 137,000 1,058 $ 1,058 $ 601,395 $ (351,710) $2,405,020 $2,792,763
Issuance of common stock, 736 736 27,744 28,480
Class B
Net income 377,722 377,722
---------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
Balance at March 31, 1996 137,000 $ 137,000 1,794 $ 1,794 $ 629,139 $ (351,710) $2,782,742 $3,198,965
---------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED
MARCH 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 377,722
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 811,318
Increase (decrease) in cash resulting
from changes in:
Accounts receivable (47,384)
Inventories (698,574)
Other current assets 12,375
Other assets 5,685
Accounts payable (120,280)
Overdraft (108,501)
Deferred taxes 151,012
Deferred compensation 177,439
Accrued expenses (128,497)
-----------
Net cash provided by operating activities 432,315
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 436,396
-----------
Net cash used in investing activities 436,396
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 28,480
Proceeds from long-term debt 185,162
Payments on long-term debt and notes payable (363,827)
Capital lease principal payments (22,600)
Net proceeds from revolving credit facility 400,000
-----------
Net cash provided by financing activities 227,215
-----------
Net increase in cash 223,134
Cash, beginning of year 805,533
-----------
Cash, end of year $ 1,028,667
-----------
-----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest $ 168,736
Income taxes $ 140,569
The accompanying notes are an integral part of the financial statements.
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. BUSINESS ORGANIZATION
NATURE OF BUSINESS
McWhorter Stationery Company, Inc. (the "Company") is primarily a retail
stationary and office products supplier to both commercial and retail
customers.
INVESTMENT IN PARTNERSHIP
The Company is a general partner with an ownership interest of
approximately 62% at March 31, 1996 in a California general partnership,
McWhorter's of Menlo Park (MMP). The Company accounts for its investment
in MMP in accordance with the provisions of Statement of Financial
Accounting Standards No. 94, "Consolidation of All Majority Owned
Subsidiaries".
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of the Company and
its subsidiary. All significant intercompany transactions and accounts
have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recognized upon the sale of office products to customers.
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in banks and highly-liquid debt
instruments purchased with an initial maturity of three months or less.
INVENTORIES
Inventory is stated at the lower of cost or market with cost determined on
a weighted average basis, and consists primarily of products held for sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over
estimated useful lives ranging from three to seven years using the double
declining balance method for reporting purposes and income tax reporting
purposes. Leasehold improvements are amortized using the straight line
method over 20 years.
-7-
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Expenditures for maintenance and repairs are charged
against income as incurred.
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 the financial statement carrying
amounts and the tax basis of existing assets and liabilities.
CONCENTRATION OF CREDIT RISK
The Company's retail store locations are concentrated in the State of
California. As a result, the Company's operations may be affected by the
economic environment of the state. However, no single customer accounted
for a significant amount of the Company's sales and there are no
significant accounts receivable from a single customer.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
notes and other receivables, accounts payable, accrued expenses and other
liabilities approximates fair value due to the short maturity of these
instruments. The carrying amount of long-term debt approximates fair value
based upon current market rates for debt of similar risks and maturities.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of March 31, 1996:
Leasehold improvements $1,318,688
Furniture and fixtures 1,529,296
Machinery and equipment 4,298,411
----------
7,146,395
Less: accumulated depreciation (4,653,860)
----------
Net property and equipment $2,492,535
----------
----------
Depreciation and amortization expense for the fiscal year ended March 31,
1996 was $702,815.
-8-
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INTANGIBLE ASSETS
Intangible assets consist of goodwill and non-compete agreements.
Intangibles are amortized on a straight line basis over estimated useful
lives of 15 years for goodwill and 6 years for the non-compete agreements.
Intangible assets and accumulated amortization consist of the following:
Goodwill $ 11,000
Non-compete agreements 811,369
Less: Accumulated amortization (557,727)
--------
$264,642
--------
--------
Amortization expense for the fiscal year ended March 31, 1996 was $108,625
5. NOTES PAYABLE TO RELATED PARTIES
Note payable to a partnership in which shareholders $185,162
of the Company are partners, due on
February 2, 1997, interest at 8%
Note payable to a related party, due on , 36,667
January 1, 1998, interest at 10%
Less: Notes payable to related parties-current portion (205,162)
--------
Notes payable to related parties-long term $16,667
--------
--------
-9-
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. DEBT
Notes payable secured by inventory and equipment, $493,826
due on June 20, 2000, interest at 7.25%.
Notes payable secured by inventory and equipment, 438,764
due on July 20, 2000, interest at 7.25%
Notes payable secured by inventory and equipment, 208,724
due on July 20, 2000, interest at 8.50%
Notes payable, unsecured, due on January 15, 1997, 71,681
interest at 10%
Notes payable, unsecured, due on October 31, 1998, 263,628
interest at 6.9%
$750,000 revolving line of credit with a bank, secured by 400,000
certain eligible assets as defined in the agreement,
due on July 24, 1997, interest at bank's prime rate
plus 1.55%
Less: Current portion of long-term debt (765,108)
----------
Long-term debt $1,111,515
----------
----------
The revolving line of credit agreement include restrictive covenants which
require the Company to comply with various financial ratios. The Company
was in compliance with these covenants at March 31, 1996.
Maturities of long-term debt and notes payable are as follows:
Fiscal years ending March 31:
1997 $ 970,270
1998 330,252
1999 339,096
2000 339,312
2001 119,522
----------
$2,098,452
----------
----------
-10-
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. INCOME TAXES
The provision for income taxes consists of:
FISCAL YEAR ENDED
MARCH 31, 1996
Income taxes currently payable:
Federal $ 139,970
State 48,600
---------
188,570
Deferred income tax expense 151,012
---------
Total provision for income taxes $ 339,582
---------
---------
Deferred taxes are comprised of the following:
FISCAL YEAR ENDED
MARCH 31, 1996
Current deferred tax liabilities:
Deferred rent $(112,904)
Inventory 810,116
Other (22,053)
---------
Total current deferred tax liability 675,159
Long-term deferred tax assets:
Deferred compensation 569,224
---------
Net deferred tax liability $ 105,935
---------
---------
The Company's effective income tax rate varied from the U.S. federal statutory
tax rate as follows:
FISCAL YEAR ENDED
MARCH 31, 1996
U.S. federal statutory tax rate 34.0%
State income taxes, net of federal income tax benefit 6.1
Life insurance premiums 4.6
Other 2.6
-----------
Effective rate 47.3%
-----------
-----------
-11-
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
8. LEASE COMMITMENTS
The Company leases certain equipment, office, store 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 long-term leases at March 31, 1996 are as follows:
Capital Operating Total
----------- ----------- -----------
1997 $ 76,644 $ 4,156,591 $ 4,233,235
1998 76,644 4,054,070 4,130,714
1999 43,849 4,086,892 4,130,741
2000 3,370 4,166,701 4,170,071
2001 1,859 4,228,050 4,229,909
Thereafter 25,334,526 25,334,526
----------- -----------
202,366 $46,026,830 $46,229,196
----------- -----------
Less imputed interest (26,579)
-----------
175,787
Less current portion (61,418)
-----------
Long-term capitalized
lease obligation $ 114,369
-----------
Rental expense for operating leases approximated $ 4,107,711 for the year
ended March 31, 1996.
-12-
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
The Company leases certain office and warehouse space from certain
shareholders of the Company, which has been accounted for as operating
lease. Rental expense for this operating lease approximated $306,000 for
the fiscal year ended March 31, 1996.
The Company received interest income from related parties of $40,763 and
incurred interest expense on borrowings from related parties of $3,533.
10. 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 15% of their compensation. The
Company made matching contributions totaling $29,192 to the plan for the
fiscal year ended March 31, 1996.
The Company has a non-contributory profit sharing plan for the benefit of
its eligible employees. Contributions are determined annually by the
Company's Board of Directors. The contribution for the fiscal year ended
March 31, 1996 was $200,000.
In 1988, the Company entered into agreements with three officers which
provide for future compensation to those officers subsequent to their
retirement from the Company for a period of ten years. Future compensation
expense of approximately $1,800,000 is being recognized as expense over the
estimated remaining term of each officer's service to the Company of from
seven to sixteen years. Compensation expense recognized for the year ended
March 31, 1996 was $177,439. Upon signing of the definitive purchase
agreement, the agreements will terminate. (See Note 12.)
In 1988, the directors and shareholders approved the Company's 1988 Stock
Option Plan (the "Plan"). The purpose of the Plan is to provide selected
employees with additional incentives by increasing their ownership
interests in the Company. The maximum number of options to purchase Class
B common stock that may be granted under the Plan is 13,000 shares. At
March 31, 1996, the Company had outstanding incentive stock options to
purchase a total of 8,486 shares of Class B common stock as follows:
- 5,486 options to purchase shares of Class B common stock at $30.00 per
share, 572 of which are immediately exercisable; and
- 3,000 options to purchase shares of Class B common stock at $50.00 per
share, 500 of which are immediately exercisable. During the year
March 31, 1995 to March 31, 1996, there were 416 shares of Class B
common stock exercised at $30.00 per share and 500 shares of Class B
common stock exercised at $50.00 per share.
<PAGE>
McWHORTER STATIONERY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Subsequent to year-end, the Company has entered into an agreement to merge
with U.S. Office Products Company. Upon signing of the definitive
purchase agreement, all options under the Plan will become 100% vested.
(See Note 12.)
11. SHAREHOLDERS' EQUITY
COMMON STOCK
The Company's capital stock consists of Class A and Class B common
stock. Holders of Class A common stock have one vote per share and
holders of Class B common stock have no voting rights. In the event of
a sale or transfer of control of more than seventy five percent of the
Company's outstanding Class A common stock, or the sale of substantially
all of the Company's assets, holders of the Class B common stock have
the option to put their shares to the Company for immediate repurchase
at the greater of the price paid for the shares or their fair market
value.
SHAREHOLDERS' STOCK SUBSCRIPTION NOTES
In 1988, the Company issued 57,000 shares of Class A common stock in
exchange for two notes receivable totaling $351,710 as of March 31, 1996
due on August 1, 1997. The notes were repaid prior to their original
due date in June, 1996.
12. SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company and its shareholders signed a
letter of intent to merge with U.S. Office Products Company. The merger is
expected to close in the second quarter of the Company's fiscal year.
<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
<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.
<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
<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
- --------------------------------------------------------------------------------
17
<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
- -------------------------------------------------------------------------------
18
<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.
19
<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.
<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.
1
<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
- --------------------------------------------------------------------------------
2
<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
- --------------------------------------------------------------------------------
3
<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
4
<PAGE>
THE RE-PRINT CORPORATION
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<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 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 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 the years then ended in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
Atlanta, Georgia
February 8, 1996
<PAGE>
THE RE-PRINT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (Note 4)
CURRENT
Cash $ 67,872 $ 41,484 $ 148,719
Accounts receivable, net of allowance
for doubtful accounts of $ 111,000, $80,000
and $127,000 4,563,160 4,447,304 3,159,079
Other receivables and prepaid expenses 31,573 47,759 51,664
Inventories (Note 1) 9,694,318 8,708,644 6,065,119
Current portion of catalog costs 1,870,263 1,983,320 2,187,560
Current portion of notes receivable 119,718 121,522 62,586
- --------------------------------------------------------------------------------------------------
Total current assets 16,346,904 15,350,033 11,674,727
PROPERTY AND EQUIPMENT (Notes 2 and 5) 859,056 922,064 1,160,101
CATALOG COSTS, less current portion 440,985 843,796 203,173
NOTE RECEIVABLE, related party (Note 7) 350,000 350,000 -
NOTE RECEIVABLE, less current portion - - 169,698
INCOME TAXES RECEIVABLE (Note 9) 213,447 213,447 213,447
OTHER ASSETS (Note 3) 203,447 230,948 395,957
- --------------------------------------------------------------------------------------------------
$18,413,839 $17,910,288 $13,817,103
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
FINANCIAL STATEMENTS.
<PAGE>
THE RE-PRINT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 4) $ 8,649,278 $ 8,560,624 $ 5,063,980
Accounts payable 4,558,637 4,299,758 3,668,256
Accrued expenses 123,407 133,434 71,876
Current portion of long-term debt (Note 5) 110,313 121,650 254,660
Current portion of deferred income taxes (Note 9) 592,509 592,509 328,509
- --------------------------------------------------------------------------------------------------
Total current liabilities 14,034,144 13,707,975 9,441,447
LONG-TERM DEBT, less current portion (Note 5) 53,222 71,638 853,803
DEFERRED INCOME TAXES, less current portion (Note 9) 99,776 24,395 49,395
SUBORDINATED DEBENTURES AND NOTE PAYABLE
TO STOCKHOLDERS (Note 6) 1,550,000 1,550,000 1,550,000
Total liabilities 15,737,142 15,354,008 11,840,479
- --------------------------------------------------------------------------------------------------
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY (Notes 6 and 8)
Preferred stock, par value $.01 per share,
5,000 shares authorized, issued and outstanding
(entitled in liquidation to $500,000) 50 50 50
Common stock, par value $.001 per share,
10,000,000 shares authorized; 3,250,209,
3,250,209 and 3,139,098 issued; 3,192,843,
3,192,843 and 3,139,098 outstanding 3,250 3,250 3,139
Additional paid-in capital 1,679,058 1,679,058 1,179,169
Retained earnings 1,086,124 965,707 794,266
Treasury stock, at cost (57,366 shares) (91,785) (91,785) -
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 2,676,697 2,556,280 1,976,624
- --------------------------------------------------------------------------------------------------
$18,413,839 $17,910,288 $13,817,103
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
FINANCIAL STATEMENTS.
<PAGE>
THE RE-PRINT CORPORATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ -------------------------
1996 1995 1995 1994
- ---------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
SALES $7,889,098 $5,687,443 $30,796,203 $24,139,839
Cost of sales 4,353,462 3,295,164 19,840,987 15,783,427
- ---------------------------------------------------------------------------------------------------------
GROSS PROFIT 3,535,636 2,392,279 10,955,216 8,356,412
- ---------------------------------------------------------------------------------------------------------
EXPENSES
Salaries and wages 872,993 737,283 3,711,471 2,727,538
Amortization of catalog costs 515,858 560,998 2,344,053 2,134,497
Other operating expenses 1,683,628 873,208 3,459,223 2,756,494
- ---------------------------------------------------------------------------------------------------------
Total expenses 3,072,479 2,071,489 9,514,747 7,618,529
- ---------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 463,157 220,790 1,440,469 737,883
- ---------------------------------------------------------------------------------------------------------
OTHER EXPENSE
Interest expense 267,362 208,292 926,048 688,224
Loss on sale of property and equipment (Note 7) - - 3,980 -
- ---------------------------------------------------------------------------------------------------------
Total other expense 267,362 212,272 930,028 688,224
- ---------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 195,795 8,518 510,441 49,659
Income taxes (Note 9) 75,378 2,896 239,000 20,665
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 120,417 $ 5,622 $ 271,441 $ 28,994
=========================================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
THE RE-PRINT CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL TREASURY
PREFERRED COMMON PAID-IN RETAINED STOCK
STOCK STOCK CAPITAL EARNINGS AT COST TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at January 1, 1994 $50 $2,925 $ 899,317 $ 765,272 $ - $1,667,564
Issuance of 213,399 shares
of common stock - 214 279,852 - - 280,066
Net income - - - 28,994 - 28,994
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1994 50 3,139 1,179,169 794,266 - 1,976,624
Issuance of 111,111 shares
of common stock - 111 499,889 - - 500,000
Purchase of 57,366 shares
of common stock - - - - (91,785) (91,785)
Dividends to preferred
stockholders - - - (100,000) - (100,000)
Net income - - - 271,441 - 271,441
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1995 $50 $3,250 $1,679,058 $ 965,707 $(91,785) $2,556,280
Net income 120,417 - 120,417
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, at March 31, 1996 $50 $3,250 $1,679,058 $1,086,124 $(91,785) $2,676,697
=============================================================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
FINANCIAL STATEMENTS.
<PAGE>
THE RE-PRINT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ --------------------------
1996 1995 1995 1994
- ----------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 120,413 $ 5,622 $ 271,441 $ 28,994
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization of catalog costs 475,314 214,621 2,344,053 2,134,497
Depreciation and amortization 103,620 113,052 525,346 448,625
Deferred income taxes 74,384 2,896 239,000 234,112
Cash surrender value of life insurance - - (9,982) 524
Loss on sale of property and equipment - 3,980 3,980 -
Changes in current assets and liabilities:
Accounts receivable (115,855) 591,153 (1,288,225) 221,031
Other receivables and prepaid expenses 17,988 (571,400) 3,905 (35,273)
Catalog costs expenditures 40,553 (415,251) (2,780,435) (3,092,079)
Income taxes receivable - - - (213,447)
Inventories (985,675) (611,563) (2,643,525) (1,182,939)
Accounts payable 313,645 324,017 631,502 766,300
Accrued expenses - - 11,558 (24,142)
Income taxes payable 39,976 (6,192) - (103,673)
- -----------------------------------------------------------------------------------------------------------
Cash used for operating activities 85,363 (349,064) (2,691,382) (817,470)
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (13,111) (42,431) (150,670) (259,806)
Sale of property and equipment - 75,000 75,000 -
Other assets - - (40,629) -
Issuance of notes receivable - - (350,000) (146,732)
Collection of notes receivable - - 110,762 31,931
- ----------------------------------------------------------------------------------------------------------
Cash used for investing activities (13,111) 32,569 (355,537) (374,607)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE RE-PRINT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ --------------------------
1996 1995 1995 1994
- ----------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt - 17,255 34,755 -
Repayments of long-term debt (29,753) (75,211) (116,597) (277,781)
Net proceeds from revolving credit loan 39,129 (123,999) 3,496,644 617,287
Net repayments of former line of credit - - (833,333) -
Proceeds from subordinated debt and note
payable to stockholders - - - 850,000
Dividends paid (50,000) - (50,000) -
Proceeds from issuance of common stock - 500,000 500,000 80,066
Purchase of treasury stock - - (91,785) -
- ----------------------------------------------------------------------------------------------------------
Cash provided by financing activities (40,624) 318,045 2,939,684 1,269,572
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 31,628 1,550 (107,235) 77,495
CASH, BEGINNING OF YEAR 36,244 34,853 148,719 71,224
- ----------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 67,872 $ 36,403 $ 41,484 $ 148,719
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
FINANCIAL STATEMENTS.
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NATURE OF The Re-Print Corporation (the "Company"), located in
BUSINESS Birmingham, Alabama, is a national distributor of
office, drafting, art and school supplies. Sales of
merchandise are primarily through catalogs to
schools and companies located in the United States.
INVENTORIES Inventories are stated at the lower of cost, as
determined by the first-in, first-out method, or
market.
CATALOG COSTS The Company produces catalogs of its merchandise
which are distributed nationally. Costs incurred as
a result of producing these catalogs are capitalized
and amortized over the sales life of the catalogs.
The period over which these costs are amortized is
12 to 36 months and approximates the units of
production method of amortization.
PROPERTY, Property and equipment are stated at cost.
EQUIPMENT, Depreciation and amortization are provided in
DEPRECIATION amounts sufficient to allocate the cost of
AND depreciable assets to operations over their
AMORTIZATION estimated useful lives using the straight-line
method. Maintenance, repairs, and minor renovations
are charged to income as incurred.
The estimated useful lives used for financial
reporting depreciation and amortization are as
follows:
Years
-----------------------------------------------------
Furniture and fixtures 3-7
Leasehold improvements 5-20
Machinery and equipment 3-10
Automobiles and trucks 5
Other Other assets are amortized using the straight-line
Assets method over the lesser of their estimated economic
useful lives or their legal term of existence. The
lives used for financial reporting amortization
range from three to five years.
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REVENUE Revenues are recorded on the accrual basis of
RECOGNITION accounting and are recognized upon the shipment of
the product.
INCOME TAXES Income taxes are calculated using the liability
method specified by Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes".
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts
of assets and liabilities for financial reporting
purposes and the amounts used for income tax
purposes.
STATEMENTS For the purposes of the accompanying statements of
OF CASH FLOWS cash flows, the Company considers all highly liquid
debt instruments purchased with a maturity of three
months or less to be cash equivalents.
USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS Certain amounts have been reclassified to conform to
the current year's financial statement presentation.
ESTIMATED FAIR VALUE OF The estimated fair value of financial instruments
FINANCIAL INSTRUMENTS has been determined based on available market
information and appropriate valuation methodologies.
However, considerable judgment is necessarily
required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of
the amounts that the Company might realize in a
current market exchange. The use of different
market assumptions and/or estimation methodologies
may have a material effect on the estimated fair
value.
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The carrying amounts of cash, account receivable,
accounts payable and other accrued liabilities are
reasonable estimates of their fair value. The
estimated fair value of notes receivable is not
materially different from the carrying value for
financial statements purposes.
The estimated fair value of long-term debt,
subordinated debentures and note payable to
stockholders is not materially different from the
carrying value for financial statements purposes
based on interest rates of similar instruments.
UNAUDITED INTERIM In the opinion of management, the Company has made
FINANCIAL STATEMENTS 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 three months ended March 31, 1995 and 1996,
as presented in the accompanying unaudited
consolidated financial statements.
1. INVENTORIES Inventories consisted of the following type of
supplies:
<TABLE>
<CAPTION>
MARCH 31,
1996 1995 1994
----------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
School $6,804,767 $5,515,855 $3,068,827
Office 1,604,635 1,711,207 1,462,868
Art 643,076 562,230 570,396
Engineering 476,989 641,609 728,485
Printing 164,851 277,743 234,543
----------------------------------------------------------------
$9,694,318 $8,708,644 $6,065,119
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
2. PROPERTY AND Property and equipment consisted of:
EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
1996 1995 1994
----------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures $ 526,917 $ 731,554 $ 702,505
Leasehold improvements 623,678 619,618 568,817
Machinery and equipment 605,970 392,282 568,182
Automobiles and trucks 134,391 134,391 229,699
----------------------------------------------------------------
Total property and
equipment 1,890,956 1,877,845 2,069,203
Less accumulated
depreciation
and amortization 1,031,900 955,781 909,102
----------------------------------------------------------------
$ 859,056 $ 922,064 $1,160,101
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. OTHER Other assets consisted of:
ASSETS
DECEMBER 31,
MARCH 31, -----------------
1996 1995 1994
----------------------------------------------------
(UNAUDITED)
Non-compete agreements $336,667 $336,667 $336,667
Deferred loan costs 53,989 53,989 213,638
Goodwill 50,000 50,000 50,000
Organizational costs 28,371 28,371 28,372
Cash surrender value of
life insurance 30,339 30,339 20,357
----------------------------------------------------
Total other assets 499,366 499,366 649,034
Less accumulated
amortization 295,919 268,418 253,077
----------------------------------------------------
$203,447 $230,948 $395,957
----------------------------------------------------
----------------------------------------------------
4. LOAN AND On July 31, 1995, the Company entered into a Loan
SECURITY and Security Agreement ("Agreement") with a bank.
AGREEMENT The Agreement provides for an $11,000,000 revolving
credit loan through August 1, 1997. Proceeds from
the Agreement were utilized on July 31, 1995 to pay
off all outstanding borrowings and accrued interest
under the prior Loan and Security Agreement ("Prior
Agreement").
The Agreement's borrowing base is 80% and 60% of
eligible receivables and inventories, respectively.
Interest with respect to the Agreement is at the
bank's prime rate plus 1.5%. The Agreement also
provides for a $400,000 overadvance facility through
February 28, 1996. Borrowings under the Agreement
amounted to $8,560,624 at December 31, 1995 and
borrowings under the Prior Agreement amounted to
$5,063,980 at December 31, 1994. Borrowings under
the Agreement are collateralized by substantially
all assets of the Company and the personal guaranty
of the Company's president. The Agreement contains
certain affirmative, negative and financial loan
covenants.
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. LONG-TERM Long-term debt consisted of:
DEBT
DECEMBER 31,
MARCH 31, ------------------
1996 1995 1994
-----------------------------------------------------
(UNAUDITED)
Note payable to bank
paid off in July 1995 $ - $ - $833,333
9% subordinated note
payable - individual due
in monthly installments of
$6,477 including interest,
maturing in January 1997,
collateralized by personal
guaranty of the Company's
president 62,180 79,947 147,159
Non-interest-bearing
subordinated note payable
- individual, due in
monthly installments of
$2,833, maturing in
January 1998,
collateralized by personal
guaranty of the Company's
president 62,333 70,833 104,833
Notes payable to financial
institutions, due in
monthly installments ranging
from $442 to $620 including
interest at rates varying
from 7.89% to 10.5% per
annum, collateralized
by automobiles and
equipment. 39,022 42,508 23,138
-----------------------------------------------------
Total long-term debt 165,535 193,288 1,108,463
Less current portion 110,313 121,650 254,660
-----------------------------------------------------
$ 53,222 $ 71,638 $ 853,803
-----------------------------------------------------
-----------------------------------------------------
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal maturities of long-term debt are as
follows:
Year Amount
----------------------------------------------------
1996 $121,650
1997 53,839
1998 12,331
1999 5,468
----------------------------------------------------
$193,288
----------------------------------------------------
----------------------------------------------------
6. SUBORDINATED In April 1994, the Company amended its Revolving
DEBENTURES Credit and Security Agreement which was originally
AND NOTE effective in October 1992. The Revolving Credit and
PAYABLE TO Security Agreement, as amended, provides for
STOCKHOLDERS $1,750,000 of available borrowings from investors,
including the Company's president, two current
employees, and a party related to the Company's
president. At March 31, 1996 and December 31, 1995
and 1994, $1,550,000 of borrowings were outstanding.
During the year ended December 31, 1994, $200,000
of the total borrowings was repaid to the Company's
president, who subsequently exercised warrants to
purchase 66,666 2/3 shares of common stock.
Interest on the subordinated debentures and note
payable to stockholders is payable monthly at the
rate of 9% per annum to October 31, 1995. Interest
from October 31, 1995 to the termination date of the
subordinated debentures and note payable to
stockholders (October 31, 1999 or sooner as provided
in the Revolving Credit and Security Agreement) is
payable monthly at a rate equal to the greater of
(a) 9% per annum or (b) the prime rate plus 2%,
determined for each interest payment period,
including any interest payment date, as of the
immediately preceding interest payment date.
Pursuant to the Loan and Security Agreement entered
into by the Company on July 31, 1995 (see Note 4),
any repayment of the subordinated debentures and the
note payable to stockholders is prohibited.
The subordinated debentures include a provision for
the issuance of warrants to purchase common stock.
For each $50,000 in subordinated debentures, the
Company is obligated to issue the lenders warrants
to purchase 16,666 2/3 shares of common stock for $2
per share.
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. SALE OF COMPANY Effective March 1, 1995, the Company entered into an
ASSETS agreement whereby the Company sold certain tangible
and intangible assets of the Company and a portion,
comprising less than 10%, of the ongoing business of
the Company to a party related to the Company's
president. The assets were sold at approximately
net book value with a resulting loss from disposal
of $3,980. The purchase price for the assets sold
was $550,000 which was comprised of $200,000 cash
and a $350,000 promissory note. The promissory note
is interest only at prime plus 1.5% for the first 24
months. Beginning on April 1, 1997, principal and
interest payments are due in sixty monthly
installments of $5,833 until the note maturity date
of March 31, 2002. In connection with this
transaction, the Company and the Company's president
entered into non-compete agreements with the
purchaser who has no further relationship with the
Company subsequent to these transactions.
8. PREFERRED The 5,000 preferred stock shares are entitled to
STOCK dividends whenever dividends are declared or paid to
common stockholders and are entitled to vote, with
the number of votes allowed based on the number of
shares of common stock into which the preferred
shares are convertible. In addition, dividends may
be declared or paid on the preferred stock only. In
the event of voluntary or involuntary liquidation,
holders of preferred stock shall be entitled to be
paid $100 per share plus any accrued and unpaid
dividends. After common stockholders receive $1.57
per share, the preferred and common stockholders
share remaining assets. In 1995, the Company
declared dividends on preferred stock of $100,000,
of which $50,000 was paid and $50,000 was accrued at
December 31, 1995. The remaining $50,000 was paid in
the first three months of 1996.
The holders of shares of preferred stock shall have
the right to convert at any time their shares into
shares of common stock and must convert all shares
into common stock immediately prior to the
consummation of an underwritten public offering
covering the offer and sale of at least $10,000,000
in aggregate value of shares of common stock.
The initial conversion price of $1.57 per share is
subject to adjustment if common stock shares
subdivide or decrease in number.
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. INCOME TAXES The provision for income taxes (benefit) included in
net income for the year ended was comprised of the
following components:
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------ -----------------
1996 1995 1995 1994
-----------------------------------------------------
U.S. FEDERAL AND STATE:
Current $ - $ - $ - $(213,447)
Deferred 75,381 2,896 239,000 234,112
-----------------------------------------------------
$75,381 $2,896 $239,000 $ 20,665
-----------------------------------------------------
-----------------------------------------------------
Deferred taxes for 1995 and 1994 relate primarily to
catalog costs, net operating loss carryforwards, the
difference in fixed assets basis for tax and
financial reporting purposes, and accounts
receivable allowance for possible losses.
Approximately $642,000 of the Company's loss
carryforwards remain at March 31, 1996. Their use
is limited to future taxable earnings of the Company.
All carryforwards expire in 2009.
The difference between the effective tax rate and
the United States federal tax rate of 34 percent
relates primarily to state income taxes and various
permanent differences including non-deductible meals
and entertainment expenses.
10. COMMITMENTS The Company leases several business locations and
equipment from unrelated parties under various
noncancelable operating leases with various terms
expiring through 2001. Total rental expense on
these leases amounted to approximately $166,000,
$503,000 and $394,000 for the periods ended March 31,
1996 and December 31, 1995 and 1994, respectively.
The Company also leases a business location from the
Company's president with terms expiring December
2003. Total rental expense on this lease amounted
to approximately $17,000, $70,000 and $70,000 for the
periods ended March 31, 1996 and December 31, 1995
and 1994.
Minimum future rental payments on the above leases
having remaining terms in excess of one year for
each of the next five years ending December 31 and
thereafter are as follows:
<PAGE>
THE RE-PRINT CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNRELATED COMPANY'S
PARTIES PRESIDENT TOTAL
--------------------------------------------------
1996 $ 452,876 $ 52,200 $ 505,076
1997 510,815 69,600 580,415
1998 359,177 69,600 428,777
1999 317,258 69,600 386,858
2000 261,713 69,600 331,313
Thereafter 239,904 208,800 448,704
--------------------------------------------------
$2,141,683 $539,400 $2,681,143
--------------------------------------------------
--------------------------------------------------
11. SUPPLEMENTAL Supplemental information required by Statement of
DISCLOSURES Financial Accounting Standards No. 95, relative to
OF CASH FLOW the Statement of Cash Flows, is as follows:
INFORMATION
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------ ------------------
1996 1995 1995 1994
--------------------------------------------------
Interest paid
during the
year $267,906 $207,163 $979,810 $670,000
Income taxes paid
during the
year $ - $ - $ - $104,000
--------------------------------------------------
--------------------------------------------------
During the year ended December 31, 1995, the
Company declared dividends payable in the amount
of $50,000. The amount was recorded as a charge
to retained earnings and a ccrual as a current
liability. The $50,000 accrual was distributed to
shareholders during the three months ended
March 31, 1996.
During the year ended December 31, 1994, the
Company's President was repaid $200,000 of
subordinated debt which was subsequently used to
exercise warrants to purchase 66,666 2/3 shares of
common stock of the Company (Note 6).
<PAGE>
THOMPSON BOOK AND SUPPLY COMPANY
FINANCIAL STATEMENT AND AUDITOR'S REPORT
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
Thompson Book and Supply Company
Oklahoma City, Oklahoma
We have audited the accompanying balance sheet of Thompson Book and Supply
Company (a Corporation) as of December 31, 1995. This financial statement is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this balance sheet 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An udit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statment presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion. the balance sheet referred to above presents fairly, in all
material respects, the financial position of Thompson Book and Supply Company at
December 31, 1995, in conformity with genereally accepted accounting principles.
Hamilton & Associates, Inc.
Oaklahoma City, Oklahoma
March 4, 1996
<PAGE>
THOMPSON BOOK AND SUPPLY COMPANY
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS
CASH $ 39,826
Accounts and notes receivable
Trade accounts (net of
allowance for doubtful
accounts of $28,029) 1,1741,138
Notes receivable 164,891
Inventory at the lower of cost
(specific identification) or
market 3,022,338
Prepaid expenses 19,511
Prepaid taxes 36,511
------------
TOTAL CURRENT ASSETS $5,024,215
PROPERTY AND EQUIPMENT
Office machines 133,868
Delivery and warehouse
equipment 272,213
Furniture and fixtures 235,322
Leasehold improvements 236,731
------------
878,134
Accumulated Depreciation (626,187)
------------
Goodwill purchased 251,947
271,900
----------
$5,548,062
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term notes $ 1,225,000
Accounts payable 423,629
Accrued liabilities 300,944
Outstanding gift certificates 10,503
------------
TOTAL CURRENT LIABILITIES $1,960,076
DEFERRED TAXES 3,662
STOCKHOLDERS' EQUITY
Common stock, $10 par value,
50,000 shares authorized,
15,000 shares issued and
outstanding 150,000
Retained earnings 3,434,324
------------
3,584,324
----------
$5,548,062
----------
----------
SEE ACCOMPANYING NOTES AND AUDITORS' REPORT.
<PAGE>
THOMPSON BOOK AND SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Thompson Book and Supply Company (the "Company") sells textbooks and school and
business supplies through its Oklahoma City warehouse and its five retail
locations in Oklahoma and Arkansas.
INVENTORY
Inventory is stated at the lower of cost (determined by the specific
identification method) or market.
DEPRECIATION
Depreciation is computed by using the straight-line method for financial
reporting purposes and the accelerated cost recovery method for federal income
tax purposes.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management must make estimates based on future events
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the financial statements.
Actual results could differ from these estimates.
NOTE B - INCOME TAXES
The deferred tax benefit results from the use of accelerated methods of
depreciation of property and equipment. The deferred tax liability results from
a difference in inventory basis due to overhead costs capitalized in accordance
with tax law.
The deferred tax liability in the accompanying balance sheet includes the
following amounts:
Deferred tax liability $11,375
Deferred tax asset 7,713
--------
Net deferred tax liability $ 3,662
--------
--------
NOTE C - RELATED PARTY TRANSACTIONS
Notes receivable were due from the following related parties:
Thompson's of Durant, Inc. $159,891
Thompson's of Arkansas 5,000
--------
$164,891
--------
--------
The above entities have the same stockholder as the Company.
<PAGE>
THOMPSON BOOK AND SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1995
NOTED C - RELATED PARTY TRANSACTIONS (CONTINUED)
Short-term notes payable includes a note to stockholder, Lowell Thompson, in the
amount of $25,000.
NOTE D - LINE OF CREDIT
At December 31, 1995, the Company had $1,200,000 of outstanding line of credit.
<PAGE>
THOMPSON BOOK AND SUPPLY COMPANY
FINANCIAL STATEMENT
AS OF MARCH 31, 1996
<PAGE>
THOMPSON BOOK AND SUPPLY COMPANY
BALANCE SHEET
MARCH 31, 1996
ASSETS
CURRENT ASSETS
Cash $ 67,940
Accounts and notes receivable
Trade accounts 1,156,103
Notes receivable 148,971
Inventory at the lower of cost
(specific identification) or
market 2,987,860
Prepaid expenses 210,762
Prepaid taxes 36,623
------------
TOTAL CURRENT ASSETS $4,608,259
PROPERTY AND EQUIPMENT
Office machines 133,868
Delivery and warehouse
equipment 270,873
Furniture and fixtures 235,322
Leasehold improvements 236,731
------------
876,794
Accumulated Depreciation (619,891)
------------
TOTAL PROPERTY & EQUIPMENT 256,903
OTHER ASSETS
Goodwill purchased 271,900
------------
OTHER ASSETS 271,900
----------
$5,137,062
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term notes $ 524,000
Accounts payable 869,936
Accrued liabilities 34,657
Outstanding gift certificates 10,034
------------
TOTAL CURRENT LIABILITIES $1,438,627
DEFERRED TAXES 3,662
STOCKHOLDERS' EQUITY
Common stock, $10 par value,
50,000 shares authorized,
15,000 shares issued and
outstanding 150,000
Retained earnings 3,544,773
------------
3,694,773
----------
$5,137,062
----------
----------
SEE ACCOMPANYING NOTES AND ACCOUNTANT'S REPORT.
3
<PAGE>
THOMPSON BOOK AND SUPPLY COMPANY
NOTES TO FINANCIAL STATEMENT
MARCH 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is computed
using the straight-line method over the estimated useful lives of the assets.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, short-term trade
receivables and payables for which their current carrying amounts approximate
fair market value.
INCOME TAXES
The deferred tax benefit results from the use of accelerated methods of
depreciation of property and equipment. The deferred tax liability results from
a difference in inventory basis due to overhead costs capitalized in accordance
with tax law.
The deferred tax liability in the accompanying balance sheet includes the
following amounts:
Deferred tax liability $11,375
Deferred tax asset 7,713
-------
Net deferred tax liability $ 3,662
-------
-------
UNAUDITED INTERIM FINANCIAL INFORMATION
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, as presented in the
accompanying unaudited interim financial statement.
4
