<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------
DECEMBER 24, 1997
Date of Report (Date of earliest event reported)
U.S. OFFICE PRODUCTS COMPANY
(Exact name of Registrant Specified in its Charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-25372
(Commission File No.)
52-1906050
(I.R.S. Employer Identification Number)
1025 THOMAS JEFFERSON STREET, N.W., SUITE 600 EAST, WASHINGTON, D.C. 20007
(Address of principal executive offices) (Zip Code)
(202) 339-6700
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5--OTHER EVENTS
Set forth below are (i) the Company's audited consolidated financial
statements which have been restated to reflect the acquisition of 12 businesses
during the Company's second fiscal quarter, each of which was accounted for
under the pooling-of-interests methods of accounting and (ii) the Company's
audited supplemental consolidated financial statements which give retroactive
effect to the acquisition of MBE, which will be accounted for under the
pooling-of-interests method of accounting.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
U.S. Office Products Company
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of U.S. Office Products Company and
its subsidiaries at April 26, 1997 and April 30, 1996 and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended April 26, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
certain wholly-owned subsidiaries, which statements reflect total revenues of
$616.9 million and $323.1 million included in the Company's fiscal years ended
April 30, 1996 and 1995, respectively. Those statements were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for those
wholly-owned subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
June 6, 1997, except as to the first paragraph
of Note 4, which is as of October 25, 1997, and
the first paragraph of Note 14, which is as of
November 6, 1997
3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
School Specialty, Inc.
We have audited the balance sheets of School Specialty, Inc. (formerly known
as EDA Corporation) (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, changes in shareholders' deficit and cash
flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
February 2, 1996
4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Re-Print Corporation
Birmingham, Alabama
We have audited the accompanying balance sheets of the Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for three years ended December 31, 1995,
1994, and 1993 (not presented separately herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for three years ended December 31, 1995, 1994, and 1993 in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 8, 1996
5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SFI Corp.
We have audited the accompanying balance sheet of SFI Corp. as of December
31, 1995 and the related statements of income, stockholders' equity, and cash
flows for the year then ended, which are not included herein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 SFI Corp. 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.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Hano Document Printers, Inc.
We have audited the accompanying balance sheet of Hano Document Printers,
Inc. as of December 31, 1995 and the related statements of income, stockholders'
equity, and cash flows for the year then ended, which are not included herein.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 Hano Document Printers, 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.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SFI Corp. and Hano Document Printers, Inc.
We have audited the combined balance sheet of SFI Corp. and Hano Document
Printers, Inc. (collectively referred to as the "Companies") as of December 31,
1994, and the related statements of income, stockholders' equity, and cash flows
for each of the years in the two-year period ended December 31, 1994, which are
not included herein. These combined financial statements are the responsibility
of the Companies' management. Our responsibility is to express an opinion on
these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of SFI Corp. and Hanco
Document Printers, Inc., as of December 31, 1994 and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Bay State Computer Group, Inc.
We have audited the accompanying balance sheets of Bay State Computer Group,
Inc. as of March 31, 1996 and 1995, and the related statements of earnings and
retained earnings, and cash flows for the three years ended March 31, 1996, 1995
and 1994 (none of which are presented herein separately). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bay State Computer Group,
Inc. as of March 31, 1996 and 1995, and the results of its operations and its
cash flows for the three years ended March 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
PARENT, MCLAUGHLIN AND NANGLE
Boston, Massachusetts
May 23, 1996, except for Note N
as to which the date is
October 14, 1996
9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Data Business Forms Limited
We have audited the balance sheet of Data Business Forms Limited ("DBF") as
of December 31, 1995 and the statements of income and retained earnings and
changes in financial position for the period from amalgamation to December 31,
1995. These financial statements are the responsibility of DBF'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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of DBF as at December 31, 1995 and the results
of its operations and the changes in its financial position for the period from
amalgamation to December 31, 1995 in accordance with generally accepted
accounting principles.
ERNST & YOUNG
Toronto, Canada
February 6, 1996
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Fortran Corp.
We have audited the accompanying balance sheet of Fortran Corp. as of March
31, 1996, and 1995 and the related statements of earnings, changes in
stockholders' equity, and cash flows for the years ended March 31, 1996, 1995,
and 1994 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 and above present
fairly, in all material respects, the financial position of Fortran Corp. as of
March 31, 1996, and 1995 and the results of its operations and its cash flows
for three years ended march 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.
As described in Note 9 to the financial statements, on August 21, 1996, the
Company entered into a letter of intent to exchange all of its issued and
outstanding shares of common stock for shares of U.S. Office Products Company
common stock.
RUBIN, KOEHMSTEDT AND NADLER
Newington, Virginia
June 7, 1996, except for Note 9,
as to which the date is
October 24, 1996
11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MTA, Inc.
We have audited the accompanying consolidated balance sheet of MTA, Inc.
(the Company) as of December 31, 1995 and the related statements of income and
retained earnings and of cash flows for the period from January 25, 1995 (date
of incorporation) to December 31, 1995. These financial statements are
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MTA, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the period from January 25, 1995, and the results of its operations and its cash
flows for the period from January 25, 1995 (date of incorporation) to December
31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
September 23, 1996
12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
United Envelope Co., Inc.
We have audited the combined balance sheets of United Envelope Co., Inc. and
its affiliate, Rex Envelope Co., Inc., as at December 31, 1995 and 1994, and the
related combined statements of income and retained earnings and cash flows for
the years then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As referred to in Note A on "Principles of Combination," the companies,
whose financial statements are combined, are related through common ownership
and control. In addition, each has pledged certain assets and guaranteed
long-term indebtedness of the other as described in the notes to financial
statements. In view of their close operating and financial relationship, the
preparation of combined financial statements was considered appropriate. The
combined statements, however, do not refer to a legal entity and neither of the
companies guarantees trade obligations of the other.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of United
Envelope Co., Inc. and its affiliates as at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
HERTZ, HERSON & COMPANY, LLP
New York, New York
March 6, 1996
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Huxley Envelope Corporation
We have audited the accompanying balance sheets of Huxley Envelope
Corporation as of December 31, 1995 and 1994, and the related statements of
income and retained earnings (accumulated deficit) and cash flows for the years
then ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Huxley Envelope Corporation
as of 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.
HERTZ, HERSON & COMPANY LLP
New York, New York
March 4, 1996
14
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 190,414 $ 50,369 $ 43,300
Accounts receivable, less allowance for doubtful accounts of $6,211,
$10,651 and $12,312, respectively................................... 271,106 405,180 502,254
Inventories........................................................... 159,842 292,559 308,490
Prepaid expenses and other current assets............................. 59,387 108,005 111,466
------------ ------------ ------------
Total current assets................................................ 680,749 856,113 965,510
Property and equipment, net............................................. 142,627 258,598 287,192
Intangible assets, net.................................................. 157,380 651,540 717,691
Other assets............................................................ 70,631 122,495 117,838
------------ ------------ ------------
Total assets........................................................ $ 1,051,387 $ 1,888,746 $ 2,088,231
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Short-term debt....................................................... $ 158,207 $ 157,710 $ 294,948
Accounts payable...................................................... 148,274 219,706 235,880
Accrued compensation.................................................. 28,655 45,947 52,917
Other accrued liabilities............................................. 43,376 94,983 105,938
------------ ------------ ------------
Total current liabilities........................................... 378,512 518,346 689,683
Long-term debt.......................................................... 240,434 400,897 395,594
Deferred income taxes................................................... 10,196 8,693 8,593
Other long-term liabilities and minority interests...................... 7,795 10,144 8,977
------------ ------------ ------------
Total liabilities................................................... 636,937 938,080 1,102,847
------------ ------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares authorized, none
outstanding
Common stock, $.001 par value 500,000,000 shares authorized,
87,887,300, 113,050,382 and 116,384,235 shares issued and
outstanding, respectively........................................... 88 113 116
Additional paid-in capital............................................ 318,729 815,554 877,091
Cumulative translation adjustment..................................... 846 (5,524) (77,991)
Retained earnings..................................................... 94,787 140,523 186,168
------------ ------------ ------------
Total stockholders' equity.......................................... 414,450 950,666 985,384
------------ ------------ ------------
Total liabilities and stockholders' equity.......................... $ 1,051,387 $ 1,888,746 $ 2,088,231
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
---------------------------------------- --------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues................................... $ 1,193,055 $ 1,858,508 $ 3,053,358 $ 1,392,545 $ 1,855,964
Cost of revenues........................... 860,272 1,360,874 2,179,485 995,939 1,328,268
------------ ------------ ------------ ------------ ------------
Gross profit........................... 332,783 497,634 873,873 396,606 527,696
Selling, general and administrative
expenses................................. 286,259 420,697 712,087 318,007 414,993
Non-recurring acquisition costs............ 8,057 16,245 5,727 10,252
Restructuring costs........................ 3,214 4,395
------------ ------------ ------------ ------------ ------------
Operating income....................... 46,524 65,666 141,146 72,872 102,451
Other (income) expense:
Interest expense......................... 9,516 21,303 47,211 22,397 22,287
Interest income.......................... (1,375) (4,839) (7,990) (5,890) (1,315)
Other.................................... (893) (603) (3,640) (3,274) (6,885)
------------ ------------ ------------ ------------ ------------
Income before provision for income taxes
and extraordinary items.................. 39,276 49,805 105,565 59,639 88,364
Provision for income taxes................. 4,277 8,659 37,007 20,552 35,308
------------ ------------ ------------ ------------ ------------
Income before extraordinary items.......... 34,999 41,146 68,558 39,087 53,056
Extraordinary items--losses on early
termination of credit facilities, net of
income taxes............................. 701 1,450 612
------------ ------------ ------------ ------------ ------------
Net income................................. $ 34,999 $ 40,445 $ 67,108 $ 38,475 $ 53,056
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares
outstanding.............................. 76,983 100,369 94,662 117,440
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Income per share before extraordinary
items.................................... $ .53 $ .68 $ .41 $ .45
Extraordinary items........................ .01
------------ ------------ ------------ ------------
Net income per share....................... $ .53 $ .67 $ .41 $ .45
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Unaudited pro forma income before
extraordinary items (see Note 10)........ $ 22,588 $ 25,650 $ 57,850 $ 31,276 $ 49,580
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Unaudited pro forma income per share before
extraordinary items...................... $ .33 $ .58 $ .33 $ .42
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED APRIL 26, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------------- PAID-IN TRANSLATION RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
----------- ------ ---------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994............... 46,824,122 $ 47 $ 30,667 $ (309) $ 69,380 $(7,562) $ 92,223
Transactions of Combined Companies
upon formation of Company:
Issuance of common stock............ 5,817,000 6 (5) 1
Capital contribution................ 1,500 1,500
Distributions to stockholders....... (11,300) (11,300)
Adjustments to stockholders'
equity............................ (12,597) 5,035 7,562
Cash dividends...................... (222) (222)
Issuance of common stock, net of
associated expenses in conjunction
with:
Initial public offering............. 5,606,250 6 32,684 32,690
Acquisition......................... 1,312,500 1 8,749 8,750
Transactions of Pooled Companies:
Exercise of warrants and stock
options........................... 20,345 201 201
Capital contributions............... 187 187
Cash dividends...................... (113) (18,790) (18,903)
Adjustment to conform the year-ends of
Pooled Companies.................... 2,235 2,235
Cumulative translation adjustments.... 213 213
Net income............................ 34,999 34,999
----------- ------ ---------- ---------- -------- -------- -------------
Balance at April 30, 1995............... 59,580,217 60 61,273 (96) 81,337 142,574
Issuances of common stock, net of
associated expenses in conjunction
with:
Public offerings.................... 14,352,067 14 174,723 174,737
Acquisitions........................ 11,120,163 11 68,607 68,618
Capital contributions............... 500 500
Exercise of stock options, including
tax benefits...................... 95,025 1,023 1,023
Transactions of Pooled Companies:
Issuances of common stock for cash
and repayment of debt............. 872,248 1 8,297 8,298
Capital contributions............... 42,019 1,324 1,324
Exercise of warrants and stock
options........................... 978,923 1 1,751 1,752
Cash and stock dividends............ 846,638 1 1,231 (35,893) (34,661)
Adjustment to conform the year-ends of
Pooled Companies.................... 8,898 8,898
Cumulative translation adjustments.... 942 942
Net income............................ 40,445 40,445
----------- ------ ---------- ---------- -------- -------- -------------
Balance at April 30, 1996............... 87,887,300 88 318,729 846 94,787 414,450
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
17
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE THREE FISCAL YEARS ENDED APRIL 26, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------------- PAID-IN TRANSLATION RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
----------- ------ ---------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996............... 87,887,300 $ 88 $318,729 $ 846 $ 94,787 $414,450
Issuances of common stock, net of
associated expenses in conjunction
with:
Public offering..................... 13,023,496 13 275,699 275,712
Direct equity investment............ 1,875,000 2 38,111 38,113
Acquisitions........................ 8,685,450 9 166,071 166,080
Exercise of stock options, including
tax benefits...................... 197,742 2,843 2,843
Employee stock purchase plan........ 229,998 3,145 3,145
Transactions of Pooled Companies:
Issuances of common stock for
repayment of debt and payment of
acquisition expenses.............. 409,630 6,859 6,859
Capital contributions............... 160,842 2,807 2,807
Exercise of warrants and stock
options........................... 478,616 1 1,979 1,980
Retirement of common stock.......... 102,308 (443) (34) (477)
Cash dividends paid and declared.... (246) (26,354) (26,600)
Adjustment to conform the year-ends of
Pooled Companies.................... 5,016 5,016
Cumulative translation adjustments.... (6,370) (6,370)
Net income............................ 67,108 67,108
----------- ------ ---------- ---------- -------- -------- -------------
Balance at April 26, 1997............... 113,050,382 113 815,554 (5,524) 140,523 950,666
Unaudited data:
Issuance of common stock, net of
associated expenses, in conjunction
with:
Acquisitions........................ 2,683,815 3 49,546 49,549
Exercise of stock options, including
tax benefits...................... 526,172 6,730 6,730
Employee stock purchase plan........ 123,866 1,710 1,710
Repayment of debt................... 569 569
Transactions of Pooled Companies:
Capital contributions............... 2,982 2,982
Cash dividends...................... (6,577) (6,577)
Adjustment to conform fiscal year-ends
of Pooled Companies................. (834) (834)
Cumulative translation adjustments.... (72,467) (72,467)
Net income............................ 53,056 53,056
----------- ------ ---------- ---------- -------- -------- -------------
Balance at October 25, 1997
(unaudited)........................... 116,384,235 $116 $877,091 $(77,991) $186,168 $ -- $985,384
----------- ------ ---------- ---------- -------- -------- -------------
----------- ------ ---------- ---------- -------- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
--------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income........................................... $ 34,999 $ 40,445 $ 67,108 $ 38,475 $ 53,056
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense.............. 16,033 23,460 52,175 20,640 35,834
Non-recurring acquisition costs.................... 8,057 16,245 5,727 10,252
Extraordinary losses............................... 701 1,450 612
Equity in net income of affiliate.................. (782) (728)
Other.............................................. (187) (113) (6,085) 331 (2,387)
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable.............................. (35,679) (13,564) (32,673) (60,804) (78,374)
Inventory........................................ (4,428) 1,630 (5,346) (4,866) (4,751)
Prepaid expenses and other current assets........ (2,369) (23,679) (11,563) 349 (4,544)
Accounts payable................................. 13,790 8,189 (28,708) (7,586) 13,723
Accrued liabilities.............................. 6,875 5,117 6,287 (52) 1,715
----------- --------- --------- ----------- -----------
Net cash provided by (used in) operating
activities................................... 29,034 50,243 58,108 (7,174) 23,796
----------- --------- --------- ----------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received...... (18,099) (130,178) (354,811) (273,704) (120,364)
Investment in affiliate.............................. (41,270)
Payments of non-recurring acquisition costs.......... (7,283) (13,588) (5,727) (7,878)
Additions to property and equipment, net of
disposals.......................................... (15,265) (32,374) (56,165) (18,849) (19,312)
Other................................................ 320 (4,501) (2,140) (8,023) 5,548
----------- --------- --------- ----------- -----------
Net cash used in investing activities.......... (33,044) (174,336) (467,974) (306,303) (142,006)
----------- --------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock............... 32,891 181,530 320,549 44,371 6,500
Proceeds from issuance of long-term debt............. 14,758 212,573 231,209 232,480 1,211
Payments of long-term debt........................... (12,844) (27,041) (222,515) (156,555) (10,663)
Proceeds from (payments of) short-term debt, net..... 5,586 (58,209) (33,699) 83,149 124,609
Payments to terminate credit facilities.............. (579) (1,235) (261)
Payments of dividends at Pooled Companies............ (19,125) (25,331) (25,470) (13,509) (7,896)
Capital contributed by stockholders of Pooled
Companies.......................................... 69 564 2,799 2,715
Net change in cash due to conforming fiscal
year-ends of certain Pooled Companies........ 601 (1,221) (1,277) 286 (834)
Payments to stockholders of Combined Companies....... (11,300)
Capital contribution by Combined Company
stockholder........................................ 1,500 500
----------- --------- --------- ----------- -----------
Net cash provided by financing activities...... 12,136 282,786 270,361 192,676 112,927
----------- --------- --------- ----------- -----------
Effect of exchange rates on cash and cash
equivalents.......................................... (172) 265 (540) 646 (1,786)
----------- --------- --------- ----------- -----------
Net increase (decrease) in cash and cash equivalents... 7,954 158,958 (140,045) (120,155) (7,069)
Cash and cash equivalents at beginning of period....... 23,502 31,456 190,414 190,414 50,369
----------- --------- --------- ----------- -----------
Cash and cash equivalents at end of period............. $ 31,456 $ 190,414 $ 50,369 $ 70,259 $ 43,300
----------- --------- --------- ----------- -----------
----------- --------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Supplemental disclosures of cash flow information:
Interest paid......................................... $ 13,904 $ 13,049 $ 40,645 $ 13,189 $ 10,819
Income taxes paid..................................... $ 8,456 $ 9,271 $ 30,617 $ 12,257 $ 32,465
</TABLE>
The Company issued common stock, notes payable and cash in connection with
certain business combinations in fiscal years ended April 30, 1995, 1996, 1997
and for the six months ended October 26, 1996 and October 25, 1997. The fair
values of the assets and liabilities of the acquired companies at the dates of
the acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accounts receivable................................... $ 23,462 $ 93,741 $ 105,538 $ 66,509 $ 25,454
Inventories........................................... 20,074 68,861 122,917 107,086 23,595
Prepaid expenses and other current assets............. 1,779 9,740 23,344 12,981 2,871
Property and equipment................................ 5,459 57,372 95,615 102,244 41,896
Intangible assets..................................... 21,079 127,870 506,386 398,932 118,342
Other assets.......................................... 339 56,529 7,847 3,732 2,232
Short-term debt....................................... (15,038) (106,672) (24,895) (8,783) (6,293)
Accounts payable...................................... (15,627) (48,825) (103,851) (73,042) (14,795)
Accrued liabilities................................... (4,958) (21,554) (55,477) (99,158) (6,291)
Long-term debt........................................ (6,283) (17,950) (155,237) (114,649) (15,031)
Other long-term liabilities and minority interest..... (437) (12,175) (1,296) (1,942) (2,067)
--------- --------- --------- ----------- -----------
Net assets acquired............................... $ 29,849 $ 206,937 $ 520,891 $ 393,910 $ 169,913
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
The acquisitions were funded as follows:
Common stock.......................................... $ 8,750 $ 68,618 $ 166,080 $ 120,206 $ 49,549
Debt.................................................. 3,000 8,141
Cash.................................................. 18,099 130,178 354,811 273,704 120,364
--------- --------- --------- ----------- -----------
$ 29,849 $ 206,937 $ 520,891 $ 393,910 $ 169,913
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
Noncash transactions:
- - During fiscal 1996 and 1997, the Company issued 291,671 and 384,630 shares of
common stock, respectively, to repay $2,470 and $6,359 of indebtedness,
respectively.
- - During fiscal 1996 and 1997, the Company recorded additional paid-in capital
of approximately $426 and $1,250, respectively, related to the tax benefit
on stock options exercised.
- - During fiscal 1996, one Pooled Company converted $1,385 of debt to common
stock.
- - During fiscal 1996, one Pooled Company paid a dividend of $9,851 through the
issuance of 846,638 shares of common stock.
20
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--BUSINESS ORGANIZATION
U.S. Office Products Company ("U.S. Office Products" and the "Company") was
founded in October 1994. The Company is a supplier of a broad range of office
and educational products and business services to corporate, commercial,
educational and industrial customers. The Company operates throughout the United
States, as well as New Zealand, Australia and Canada and, through a 49%-owned
affiliate, in the United Kingdom.
NOTE 2--FORMATION OF COMPANY
Concurrent with the closing of its initial public offering in February 1995,
the Company acquired four companies (the "Combined Companies") for a combination
of its common stock and cash and acquired two companies in business combinations
accounted for under the purchase method. Because of the substantial ongoing
interest of the stockholders of the Combined Companies in U.S. Office Products,
the assets and liabilities of the Combined Companies were combined on an
historical cost basis. The capital stock of the Combined Companies is included
in additional paid-in capital.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of U.S. Office Products,
the Combined Companies and the companies acquired in business combinations
accounted for under the purchase method (the "Purchased Companies") from their
respective acquisition dates and give retroactive effect to the results of the
companies acquired in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") for all periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, "fiscal 1995, "fiscal 1996", "fiscal 1997",
"the first six months of fiscal 1997" and "the first six months of fiscal 1998"
refer to the Company's fiscal years ended April 30, 1995 and 1996, April 26,
1997 and its six months ended October 26, 1996 and October 25, 1997,
respectively. On August 20, 1996, the Company's Board of Directors approved a
change in the Company's fiscal year-end, effective for the 1997 fiscal year,
from April 30 to the last Saturday in April.
21
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Investments in less than 50% owned entities
are accounted for under the equity method. All significant intercompany
transactions and accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of 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.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Substantially all goodwill is amortized
on a straight line basis over an estimated useful life of 40 years. Management
periodically evaluates the recoverability of goodwill, which would be adjusted
for a permanent decline in value, if any, by comparing anticipated undiscounted
future cash flows from operations to net book value.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.
22
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's wholly-owned foreign subsidiary has entered into forward
foreign currency exchange contracts (the "Exchange Contracts") with
counterparties to hedge the exposure of foreign currency fluctuations to the
extent permissible by hedge accounting requirements. At April 26, 1997, the
Exchange Contracts, in the notional amount of $3,319, hedge certain foreign
currency denominated assets. The Exchange Contracts generally have maturity
dates of 60 days or less. Discounts or premiums on the Exchange Contracts are
amortized over the life of the contracts.
The Company's wholly-owned foreign subsidiary also entered into interest
rate swap agreements (the "Swap Agreements") with counterparties to convert the
interest rates associated with certain outstanding debt from variable rates to
fixed rates. The notional amount of the Swap Agreements was $43,000 at April 30,
1996. During fiscal 1997, the Swap Agreements were terminated resulting in a
loss of $117.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments has been
determined using the following methods and assumptions:
- The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value;
- The fair values of the 5 1/2% Convertible Subordinated Notes due 2001 and
the 5 1/2% Convertible Subordinated Notes due 2003 are based on quoted
market prices;
- The carrying amounts of the Company's debt, other than the 5 1/2%
Convertible Subordinated Notes due 2001 and the 5 1/2% Convertible
Subordinated Notes due 2003, approximate fair value, estimated by
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
INCOME TAXES
Income taxes have been computed utilizing the asset and liability approach
which 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. Certain
companies acquired in pooling-of-interests transactions elected to be taxed as
Subchapter S corporations, and accordingly, no federal income taxes were
recorded by those companies for periods prior to their acquisition by U.S.
Office Products.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of subsidiary
companies which the Company controls but does not include in the consolidated
federal income tax return since it is management's practice and intent to
permanently reinvest the earnings of these subsidiaries.
23
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized upon the delivery of products or upon the completion
of services provided to customers as no additional obligations to the customers
exist. Returns of the Company's product are considered immaterial. The Company
also leases equipment to customers under both short-term and long-term lease
agreements. Revenue related to short-term leases is recognized on a monthly
basis over the life of the lease. Certain long-term leases qualify as sales-type
leases and, accordingly, the present value of the future lease payments are
recognized as income upon delivery of the equipment to the customer.
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included in cost of revenues.
NON-RECURRING ACQUISITION COSTS
Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, investment banking fees,
recognition of transaction related obligations and various other acquisition
related costs.
RESTRUCTURING COSTS
The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees in accordance with EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)."
ACCRUED ACQUISITION COSTS
The Company accrues the direct external costs incurred in conjunction with
the consummation of business combinations and the costs incurred to consolidate
acquired operations into existing Company facilities, including the external
costs and liabilities to close redundant facilities and severance and relocation
costs related to the acquired entity's employees in accordance with EITF Issue
No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination."
NET INCOME PER SHARE
Net income per share for fiscal 1996, fiscal 1997, the first six months of
fiscal 1997 and the first six months of fiscal 1998 is calculated by dividing
net income by the weighted average number of common shares outstanding during
the periods including common stock equivalents, if dilutive. Net income per
share for fiscal 1995 has not been presented as it is not considered meaningful
due to the acquisitions of the Combined Companies and the Company's initial
public offering in conjunction with the formation of the Company during fiscal
1995.
24
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. The adoption of SFAS 121 did not have
a material effect on the Company's consolidated operating results or financial
position.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
during fiscal 1997. Under the provisions of SFAS 123, companies can elect to
account for stock-based compensation plans using a fair-value based method or
continue measuring compensation expense for those plans using the intrinsic
value method prescribed in APB Opinion No. 25. The Company has elected to
continue using the intrinsic value method to account for stock-based
compensation plans. Pro forma disclosures of net income and net income per
share, as if the fair value-based method of accounting defined in SFAS 123 has
been applied, are presented in Note 14.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This Statement establishes standards for computing
and presenting earnings per share ("EPS"). SFAS 128 simplifies the standards for
computing EPS and makes the presentation comparable to international EPS
standards by replacing the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. This Statement is required to be
adopted by the Company during fiscal 1998.
UNAUDITED INTERIM FINANCIAL DATA
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 October 25, 1997 and the results
of operations and of cash flows for the six months ended October 26, 1996 and
October 25, 1997, as presented in the accompanying unaudited consolidated
financial data.
NOTE 4--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In the first six months of fiscal 1998, the Company issued 8,607,894 shares
of common stock to acquire 19 companies (the "1998 Poolings") in business
combinations accounted for under the pooling-of-interests method. Certain of the
Pooled Companies previously reported on fiscal years ending other than April 25,
1998.
In fiscal 1996 and 1997, the Company issued 12,661,278 and 33,163,164 shares
of common stock, respectively, to acquire 14 (the "1996 Poolings") and 40 (the
"1997 Poolings") companies, respectively, in business combinations accounted for
under the pooling-of-interests method. The Company's consolidated financial
statements give retroactive effect to the acquisitions of the Pooled Companies
for all periods
25
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
presented. Certain of the Pooled Companies previously reported on fiscal years
ending other than April 30, 1996 and April 26, 1997.
Commencing on May 1, 1995 and 1996 and April 27, 1997, the year-ends of the
1996 Poolings, the 1997 Poolings and the 1998 Poolings were changed to April 30,
1996, April 26, 1997 and April 25, 1998, respectively, resulting in adjustments
to retained earnings of $2,235, $8,898, $5,016 and $(834) during fiscal 1995,
fiscal 1996, fiscal 1997 and the first six months of fiscal 1998, respectively.
Following is a summary of the results related to the adjustments to retained
earnings:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE SIX
-------------------------------- MONTHS ENDED
APRIL 30, APRIL 30, APRIL 26, OCTOBER 25,
1995 1996 1997 1997
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues........................................................ $ 55,126 $ 245,737 $ 55,639 $ (8,389)
Costs and expenses.............................................. 52,891 236,839 50,623 (7,555)
--------- ---------- --------- -------------
Net adjustment.............................................. $ 2,235 $ 8,898 $ 5,016 $ (834)
--------- ---------- --------- -------------
--------- ---------- --------- -------------
</TABLE>
The following presents the separate results, in each of the periods
presented, of U.S. Office Products (excluding the results of Pooled Companies
prior to the dates on which they were acquired), and the Pooled Companies up to
the dates on which they were acquired:
<TABLE>
<CAPTION>
U.S. OFFICE POOLED
PRODUCTS COMPANIES COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
For the year ended April 30, 1995
Revenues.............................................................. $ 120,479 $ 1,072,576 $ 1,193,055
Net income............................................................ $ 1,514 $ 33,485 $ 34,999
For the year ended April 30, 1996
Revenues.............................................................. $ 488,670 $ 1,369,838 $ 1,858,508
Net income............................................................ $ 7,828 $ 32,617 $ 40,445
For the year ended April 26, 1997
Revenues.............................................................. $ 2,175,170 $ 878,188 $ 3,053,358
Net income............................................................ $ 36,246 $ 30,862 $ 67,108
For the six months ended October 26, 1996 (unaudited):
Revenues.............................................................. $ 858,093 $ 534,452 $ 1,392,545
Net income............................................................ $ 15,500 $ 22,975 $ 38,475
For the six months ended October 25, 1997 (unaudited):
Revenues.............................................................. $ 1,762,846 $ 93,118 $ 1,855,964
Net income............................................................ $ 52,241 $ 815 $ 53,056
</TABLE>
PURCHASE METHOD
In fiscal 1995, in addition to the acquisitions of the Combined Companies,
the Company made six acquisitions accounted for under the purchase method for an
aggregate purchase price of $29,849, consisting of $18,099 of cash, $3,000 of
notes payable and 1,312,500 shares of common stock with a market value of
$8,750. The total assets related to these six acquisitions were $72,192,
including goodwill of
26
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
$21,079. The results of these acquisitions have been included in the Company's
results form their respective dates of acquisition.
In fiscal 1996, the Company made 34 acquisitions accounted for under the
purchase method for an aggregate purchase price of $206,937, consisting of
$130,178 of cash, $8,141 of debt and 11,120,163 shares of common stock with a
market value of $68,618. The total assets related to these 34 acquisitions were
$414,113, including goodwill of $127,870. The results of these acquisitions have
been included in the Company's results from their respective dates of
acquisition.
In fiscal 1997, the Company made 77 acquisitions accounted for under the
purchase method for an aggregate purchase price of $520,891 consisting of
$354,811 of cash, and 8,685,450 shares of common stock with a market value of
$166,080. The total assets related to these 77 acquisitions were $861,647,
including goodwill of $506,386. The results of these acquisitions have been
included in the Company's results from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the fiscal years ended April 30, 1996 and April 26, 1997 and
includes the Company's consolidated financial statements, which give retroactive
effect to the acquisitions of the Pooled Companies for all periods presented,
and the results of the Purchased Companies as if all such purchase acquisitions
had been made at the beginning of fiscal 1996. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, adjustments in executive compensation and the inclusion of a federal
income tax provision on all earnings:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------
APRIL 30, APRIL 26,
1996 1997
------------ ------------
<S> <C> <C>
Revenues.......................................................... $ 3,270,794 $ 3,443,065
Income before extraordinary items................................. 55,455 82,850
Net income........................................................ 54,754 81,400
Income per share before extraordinary items....................... .49 .72
Net income per share.............................................. .48 .71
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1996 or the
results which may occur in the future.
EQUITY INVESTMENT IN AFFILIATE
In November 1996, the Company acquired a 49% equity interest in Dudley
Stationery Limited ("Dudley"), which is being accounted for under the equity
method. Under the terms of the agreement, the Company agreed to invest
approximately $80 million for working capital into Dudley over a two-year
period. The Company has currently invested approximately $41.3 million of the
total $80 million in Dudley.
27
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5--ACCRUED ACQUISITION COSTS
In conjunction with the acquisitions of the fiscal 1997 Purchased Companies,
the Company accrued the direct external costs incurred in conjunction with the
consummation of the acquisitions and the costs to consolidate acquired
operations into existing Company facilities, including the external costs
associated with closing redundant facilities of acquired companies, and
severance and relocation costs related to the acquired companies' employees.
As of the consummation date of the acquisition, the Company begins to assess
and formulate a plan to exit activities of the acquired companies. Typically,
this involves evaluating the facilities of the Company and the acquired
companies in the specific geographic areas, determining which of the acquired
facilities will be exited and identifying employee groups that will be
terminated or relocated. In most cases, the facilities are closed and the
employees terminated within one year of the completion of the plan.
The following table sets forth the Company's accrued acquisition costs for
the periods ended April 30, 1996, April 26, 1997 and October 25, 1997:
<TABLE>
<CAPTION>
EMPLOYEE DISPOSAL OF
REDUNDANT SEVERANCE & ASSETS &
FACILITIES RELOCATION OTHER TOTAL
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at April 30, 1996....................................... $ -- $ -- $ -- $ --
Additions..................................................... 1,593 2,484 6,712 10,789
----------- ------ ----------- ---------
Balance at April 26, 1997....................................... 1,593 2,484 6,712 10,789
Additions..................................................... 1,442 3,244 4,686
Utilizations.................................................. (198) (96) (4,637) (4,931)
----------- ------ ----------- ---------
Balance at October 25, 1997 (unaudited)......................... $ 1,395 $ 3,830 $ 5,319 $ 10,544
----------- ------ ----------- ---------
----------- ------ ----------- ---------
</TABLE>
NOTE 6--RESTRUCTURING COSTS
The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees. The following table sets forth the Company's accrued
restructuring costs for the periods ended April 30, 1996, April 26, 1997 and
October 25, 1997:
<TABLE>
<CAPTION>
FACILITY SEVERANCE OTHER ASSET
CLOSURE AND AND WRITE-DOWNS
CONSOLIDATION TERMINATIONS AND COSTS TOTAL
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at April 30 1995
Additions................................................ $ 641 $ 469 $ 2,104 $ 3,214
Utilizations............................................. (682) (682)
----- ----- ----------- ---------
Balance at April 30, 1996.................................... 641 469 1,422 2,532
Additions................................................ 1,337 308 2,750 4,395
Utilizations............................................. (943) (698) (3,615) (5,256)
----- ----- ----------- ---------
Balance at April 26, 1997.................................... 1,035 79 557 1,671
Utilizations............................................. (725) (79) (376) (1,180)
----- ----- ----------- ---------
Balance at October 25, 1997 (unaudited)...................... $ 310 $ 0 $ 181 $ 491
----- ----- ----------- ---------
----- ----- ----------- ---------
</TABLE>
28
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Land...................................................................................... $ 8,098 $ 34,150
Buildings................................................................................. 52,145 71,912
Furniture and fixtures.................................................................... 100,349 217,353
Warehouse equipment....................................................................... 45,487 49,672
Equipment under capital leases............................................................ 7,627 11,141
Leasehold improvements.................................................................... 14,205 27,452
---------- ----------
227,911 411,680
Less: Accumulated depreciation............................................................ (85,284) (153,082)
---------- ----------
Net property and equipment................................................................ $ 142,627 $ 258,598
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for fiscal years 1995, 1996 and 1997 was $13,141, $17,292
and $34,275, respectively.
NOTE 8--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
---------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill................................................................... $ 151,724 $ 660,272 $ 731,207
Other...................................................................... 16,361 15,527 19,729
---------- ----------- -----------
168,085 675,799 750,936
Less: Accumulated amortization............................................. (10,705) (24,259) (33,245)
---------- ----------- -----------
Net intangible assets.................................................. $ 157,380 $ 651,540 $ 717,691
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Amortization expense for fiscal years 1995, 1996, 1997 was $1,920, $5,764 and
$14,884, respectively, and $9,909 for the six months ended October 25, 1997.
29
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Credit facilities with banks, average interest rates of 7.8% at April 30, 1996 and 7.6% at
April 26, 1997.......................................................................... $ 30,560 $ 144,061
Annual renewal loans provided by banks and other financial institutions of foreign
subsidiary secured by lease receivables of foreign subsidiary. Interest rates ranging
from 7.8% to 10.2% at April 30, 1996.................................................... 89,456
Bank lines of credit of foreign subsidiary operations secured by assets of those
operations. Interest rates ranging from 9.2% to 9.8% at April 30, 1996.................. 12,731
Other..................................................................................... 7,447 3,257
Current maturities of long-term debt...................................................... 18,013 10,392
---------- ----------
Total short-term debt............................................................... $ 158,207 $ 157,710
---------- ----------
---------- ----------
</TABLE>
The Company currently has an agreement under which a syndicate of financial
institutions, led by Bankers Trust Company, as Agent (the "Bank"), is providing
the Company with a $500 million credit facility (the "Credit Facility") bearing
interest, at the Company's option, at the Bank's base rate plus an applicable
margin of up to 1.25%, or a eurodollar rate plus an applicable margin of up to
2.5%. The availability under the Credit Facility is subject to certain sublimits
including $100 million for working capital loans and $400 million for
acquisition loans. The Credit Facility is secured by a majority of the assets of
the Company and its subsidiaries and contains customary covenants, including
financial covenants with respect to the Company's consolidated leverage and
interest coverage ratios, capital expenditures, payment of dividends and
purchases and sales of assets, and customary default provisions, including
provisions related to non-payment of principal and interest, default under other
debt agreements and bankruptcy. The Company was in compliance with or obtained
waivers relating to these covenants at April 26, 1997. At April 26, 1997, the
balance outstanding under the Credit Facility was $140,090 and included five
eurodollar contracts, expiring within 30 days, totaling $105,000 at an average
interest rate of 7.2%.
30
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9--CREDIT FACILITIES (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Convertible Subordinated Notes due 2003, interest at 5 1/2%, convertible into shares of
common stock at any time prior to maturity at a conversion price of $31.60 per share,
subject to adjustment in certain events................................................. $ 230,000
Convertible Subordinated Notes due 2001, interest at 5 1/2%, convertible into shares of
common stock at any time prior to maturity at a conversion price of $19.00 per share,
subject to adjustment in certain events................................................. $ 143,750 143,750
Notes payable, secured by certain assets of the Company, interest rates ranging from 8.0%
to 10.0%, maturities from October 1996 through 2003..................................... 45,078 10,874
Other..................................................................................... 57,586 18,727
Capital lease obligations................................................................. 12,033 7,938
---------- ----------
258,447 411,289
Less: Current maturities of long-term debt................................................ (18,013) (10,392)
---------- ----------
Total long-term debt................................................................ $ 240,434 $ 400,897
---------- ----------
---------- ----------
</TABLE>
The 5 1/2% Convertible Subordinated Notes due 2003 (the "2003 Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after May 22, 1998, but may not be redeemed prior to May 15, 1999
unless the closing price of the common stock is at least 150% of the conversion
price for a period of time prior to the notice of redemption. Costs incurred in
connection with the issuance of the 2003 Notes are included in other assets and
are being amortized over the seven year period of maturity. The fair value of
the 2003 Notes at April 26, 1997, based upon quoted market prices, totaled
$184,000.
The 5 1/2% Convertible Subordinated Notes due 2001 (the "2001 Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after February 3, 1998, but may not be redeemed prior to February
2, 1999 unless the closing price of the common stock is at least 150% of the
conversion price for a period of time prior to the notice of redemption. Costs
incurred in connection with the issuance of the 2001 Notes are included in other
assets and are being amortized over the five year period of maturity. The fair
value of the 2001 Notes at April 26, 1997, based upon quoted market prices,
totaled $147,344.
31
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1998.............................................................. $ 10,392
1999.............................................................. 12,133
2000.............................................................. 3,960
2001.............................................................. 145,942
2002.............................................................. 1,965
Thereafter........................................................ 236,897
---------
Total maturities of long-term debt.......................... $ 411,289
---------
---------
</TABLE>
NOTE 10--INCOME TAXES
Domestic and foreign income before provision for income taxes and
extraordinary items consist of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Domestic.................................................... $ 36,774 $ 45,245 $ 77,300
Foreign..................................................... 2,502 4,560 28,265
--------- --------- ----------
Total................................................. $ 39,276 $ 49,805 $ 105,565
--------- --------- ----------
--------- --------- ----------
</TABLE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-----------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
----------- ----------- ---------
<S> <C> <C> <C>
Income taxes currently payable:
Federal................................................... $ 2,928 $ 7,305 $ 24,591
State..................................................... 704 608 3,797
Foreign................................................... 832 859 11,784
----------- ----------- ---------
4,464 8,772 40,172
----------- ----------- ---------
Deferred income tax expense (benefit)......................... (187) (113) (3,165)
----------- ----------- ---------
Total provision for income taxes.......................... $ 4,277 $ 8,659 $ 37,007
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
32
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--INCOME TAXES (CONTINUED)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- -----------
<S> <C> <C>
Current deferred tax assets:
Inventory................................................................................ $ 1,330 $ 1,363
Allowance for doubtful accounts.......................................................... 1,556 2,645
Net operating loss carryforward.......................................................... 3,192 3,192
Accrued liabilities...................................................................... 3,289 3,560
--------- -----------
Total current deferred tax assets...................................................... 9,367 10,760
--------- -----------
Long-term deferred tax liabilities:
Property and equipment................................................................... (5,142) (4,577)
Intangible assets........................................................................ (441) (670)
Internal Revenue Service tax assessment.................................................. (3,383) (3,383)
Other.................................................................................... (1,230) (63)
--------- -----------
Total long-term deferred tax liabilities............................................... (10,196) (8,693)
--------- -----------
Subtotal............................................................................... (829) 2,067
Valuation allowance.................................................................... (5,468)
--------- -----------
Net deferred tax asset (liability)..................................................... $ (6,297) $ 2,067
--------- -----------
--------- -----------
</TABLE>
At April 30, 1996, a valuation allowance had been recorded, related to
deferred tax assets of a Pooled Company, including net operating loss
carryforwards. Based upon the improved profitability of this Pooled Company
during fiscal 1997, the valuation allowance was reversed resulting in a lower
provision for income taxes.
The Internal Revenue Service ("IRS") tax assessment relates to the deferral
of a gain on the sale of land and a building by a subsidiary of the Company. The
IRS has determined that a portion of the gain recorded by the subsidiary does
not qualify for deferral and has assessed the Company additional taxes. The
subsidiary has recorded a deferred tax liability, including interest, as a
result of the assessment. The Company has filed an appeal with the IRS relating
to the above assessment; however, the IRS has not yet responded to the appeal.
33
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory rate........................................................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit.............................. 4.1 5.9 2.9
Subchapter S corporation income not subject to corporate level taxation............ (31.6) (31.1) (10.1)
Foreign earnings not subject to U.S. taxes......................................... (.5) 1.8
Minority interest in foreign taxes................................................. 2.2
Nondeductible goodwill............................................................. 1.3 2.3 2.8
Nondeductible acquisition costs.................................................... 1.1 4.8
Reversal of valuation allowance.................................................... (5.3)
Other.............................................................................. 2.1 2.5 3.2
----- ----- -----
Effective income tax rate.......................................................... 10.9% 17.4% 35.1%
----- ----- -----
----- ----- -----
</TABLE>
One Combined Company and certain Pooled Companies were organized as
subchapter S corporations prior to the closing of their acquisitions by the
Company and, as a result, the federal tax on their income was the responsibility
of their individual stockholders. Accordingly, the Combined Company and the
specific Pooled Companies provided no federal income tax expense prior to these
acquisitions by the Company.
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the Combined Company and the specific Pooled
Companies had been subject to federal income taxes for the entire periods
presented.
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Income before extraordinary items per consolidated
statement of income.................................. $ 34,999 $ 41,146 $ 68,558 $ 39,087 $ 53,056
Pro forma income tax provision adjustment.............. 12,411 15,496 10,708 7,811 3,476
--------- --------- --------- ----------- -----------
Pro forma income before extraordinary items............ $ 22,588 $ 25,650 $ 57,850 $ 31,276 $ 49,580
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
34
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11--LEASE COMMITMENTS
The Company leases various types of retail, warehouse and office facilities
and equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1998...................................................................................... $ 2,429 $ 57,155
1999...................................................................................... 2,256 47,791
2000...................................................................................... 1,349 38,036
2001...................................................................................... 861 26,822
2002...................................................................................... 531 19,836
Thereafter................................................................................ 3,433 58,961
---------- ----------
Total minimum lease payments.............................................................. 10,859 $ 248,601
---------- ----------
---------- ----------
Less: Amounts representing interest....................................................... (2,921)
----------
----------
Present value of net minimum lease payments............................................... $ 7,938
----------
----------
</TABLE>
Rent expense for all operating leases for fiscal 1995, 1996 and 1997 was
$21,997, $33,050 and $54,577, respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements.
NOTE 13--EMPLOYEE BENEFIT PLANS
Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service. In fiscal 1997, the Company's matching contribution expense was $1,195.
Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For fiscal 1995, 1996 and 1997, the
subsidiaries incurred expenses totaling $3,089, $3,292 and $2,524, respectively,
related to these plans.
35
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--STOCKHOLDERS' EQUITY
COMMON STOCK
In November 1994, the Board of Directors of the Company approved a one
thousand-for-one split of the Company's common stock and changed the par value
of common stock from $1 per share to $.001 per share. The consolidated financial
statements have been adjusted to reflect the stock split. In February 1996, the
Company's stockholders approved the amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 25,000,000 to 100,000,000 shares. In August 1996, the
Company's stockholders approved the amendment to the Company's Restated
Certified of Incorporation to increase the number of authorized shares of common
stock from 100,000,000 to 500,000,000. In October 1997, the Board of Directors
of the Company approved a three for two split of the Company's common stock. The
financial statements give retroactive effect for the split for all periods
presented.
STOCK COMPENSATION PLANS
In October 1994, the Board of Directors and the Company's stockholders
approved the Company's 1994 Long-Term Compensation Plan (the "Plan"). The
purpose of the Plan is to provide officers, key employees and consultants with
additional incentives by increasing their ownership interests in the Company.
The maximum number of options to purchase common stock granted in any calendar
or fiscal year under the Plan, as amended, is equal to 20% of the aggregate
number of shares of the Company's common stock outstanding at the time an award
is granted, less, in each case, the number of shares subject to previously
outstanding awards under the Plan.
In August 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Non-Employee Directors' Stock Plan (the "Directors'
Plan"). The purpose of the Directors' Plan is to promote ownership by
non-employee directors of a greater proprietary interest in the Company, thereby
aligning such directors' interests more closely with the interest of
stockholders of the Company. A total of 750,000 shares of common stock have been
reserved for issuance under the Directors' Plan. At April 26, 1997, options to
acquire 162,000 shares of common stock have been granted under the Directors'
Plan.
The Company applies APB 25 in accounting for its stock option plans.
Accordingly, because the exercise prices of the options have equaled the market
price on the date of grant, no compensation expense has been recognized for
stock options granted. Had compensation cost for the Company's stock options
been recognized based upon the fair value of the stock options on the grant date
under the methodology prescribed by SFAS 123, the Company's net income and net
income per share would have been impacted as indicated in the following table.
The pro forma results shown below reflect only the impact of options granted in
fiscal 1996 and 1997.
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Net income:
As reported............................................................................. $ 40,445 $ 67,108
Pro forma............................................................................... 38,286 54,470
Net income per share:
As reported............................................................................. $ .53 $ .67
Pro forma............................................................................... .50 .54
</TABLE>
36
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of options granted (which is amortized to expense over the
option vesting period in determining the pro forma impact) is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Expected life of option...................................................................... 7 years 7 years
Risk free interest rate...................................................................... 6.58% 6.66%
Expected volatility of USOP stock............................................................ 58.5% 44.0%
</TABLE>
The weighted-average fair value of options granted was $8.29 and $11.37 for
fiscal 1996 and 1997, respectively.
A summary of option transactions follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE OPTIONS AVERAGE
OPTIONS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------ --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Balance at April 30, 1994............................... 125,498 $ .45 125,498 $ .45
Granted............................................. 944,250 5.95
Canceled............................................ (10,500) 6.67
------------
Balance at April 30, 1995............................... 1,059,248 5.29 177,998 1.89
Granted............................................. 4,146,887 6.25
Exercised........................................... (95,025) 6.25
Canceled............................................ (24,300) 8.47
------------
Balance at April 30, 1996............................... 5,086,810 11.18 324,798 3.77
Granted............................................. 6,729,165 20.41
Exercised........................................... (197,744) 8.39
Canceled............................................ (73,445) 12.65
------------
Balance at April 26, 1997............................... 11,544,786 16.60 1,598,228 10.10
------------
------------
</TABLE>
The following table summarizes information about stock options outstanding
at April 26, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE EXERCISABLE PRICE
- --------------------------------------------------- ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$0.45 to $6.66..................................... 884,497 7.1 years $ 5.09 476,630 $ .45
$6.67 to $13.33.................................... 2,660,399 8.6 years 9.42 702,303 9.70
$13.34 to $20.00................................... 4,234,986 9.3 years 17.55 313,866 16.25
$20.01 to $26.66................................... 3,737,004 9.3 years 23.27 105,429 20.65
$26.67 to $29.92................................... 27,900 9.1 years 28.13
------------ ----------- ----------- ---------- -----------
$0.45 to $29.92.................................... 11,544,786 9.0 years 16.60 1,598,228 10.10
------------ ----------- ----------- ---------- -----------
------------ ----------- ----------- ---------- -----------
</TABLE>
37
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--STOCKHOLDERS' EQUITY (CONTINUED)
The options outstanding information includes 125,498, 58,802, and 343,488
options to acquire common stock at exercise prices of $.45, $10.59 and $10.70,
respectively, which were granted at certain Pooled Companies prior to their
respective acquisitions by the Company.
Non-qualified options are generally exercisable beginning one year from the
date of grant in cumulative yearly amounts of 25% of the shares under option and
generally expire ten years from the date of grant.
NOTE 15--SEGMENT REPORTING
INDUSTRY SEGMENT
The Company currently operates in two reportable industry segments: office
products and print management. The office products industry segment involves the
sales and distribution of office and related supplies and equipment, catalog,
contract and remanufactured furniture, office coffee and beverage products and
services and various types of business machines. The print management industry
segment involves the manufacturing, distribution, management and printing of
business forms, envelopes and promotional products. The other industry segments
that the Company operates in include technology solutions, education products
and corporate travel services. The following table sets forth information as to
the Company's operations in its different industry segments:
<TABLE>
<CAPTION>
OFFICE PRINT
PRODUCTS MANAGEMENT OTHER TOTAL
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fiscal 1995:
Revenues............................................... $ 702,480 $ 139,732 $ 350,843 $ 1,193,055
Operating income....................................... 21,655 5,571 19,298 46,524
Identifiable assets.................................... 242,096 51,906 121,003 415,005
Depreciation and amortization.......................... 5,782 4,478 5,773 16,033
Capital expenditures................................... 7,021 2,956 6,061 16,038
Fiscal 1996:
Revenues............................................... $ 1,094,375 317,033 447,100 1,858,508
Operating income....................................... 34,363 12,388 18,915 65,666
Identifiable assets.................................... 538,254 120,971 392,162 1,051,387
Depreciation and amortization.......................... 11,603 5,089 6,768 23,460
Capital expenditures................................... 20,541 7,698 4,834 33,073
Fiscal 1997:
Revenues............................................... $ 2,102,636 368,378 582,344 3,053,358
Operating income....................................... 93,308 20,301 27,537 141,146
Identifiable assets.................................... 1,292,797 184,301 411,648 1,888,746
Depreciation and amortization.......................... 32,768 8,758 10,649 52,175
Capital expenditures................................... 31,511 16,600 17,618 65,729
</TABLE>
38
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 15--SEGMENT REPORTING (CONTINUED)
GEOGRAPHIC SEGMENTS
The following table sets forth information as to the Company's operations in
its different geographic segments:
<TABLE>
<CAPTION>
NEW ZEALAND
UNITED AND
STATES AUSTRALIA CANADA TOTAL
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fiscal 1995:
Revenues............................................... $ 1,157,360 $ 28,574 $ 7,121 $ 1,193,055
Operating income....................................... 44,194 1,429 901 46,524
Identifiable assets at year-end........................ 405,425 5,512 4,068 415,005
Fiscal 1996:
Revenues............................................... $ 1,661,249 $ 77,141 $ 120,118 $ 1,858,508
Operating income....................................... 56,755 3,533 5,378 65,666
Identifiable assets at year-end........................ 808,539 188,134 54,714 1,051,387
Fiscal 1997:
Revenues............................................... $ 2,223,499 $ 700,793 $ 129,066 $ 3,053,358
Operating income....................................... 102,517 28,708 9,921 141,146
Identifiable assets at year-end........................ 1,077,218 753,254 58,274 1,888,746
</TABLE>
NOTE 16--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data. The
amounts differ from the amounts previously reported during fiscal 1996 and 1997
on the Company's Quarterly Reports on Form 10-Q as a result of the restatement
of the financial statements to give retroactive effect to the results of the
companies acquired during fiscal 1996 and 1997 in business combinations
accounted for under the pooling-of-interests method.
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 372,893 $ 448,693 $ 502,890 $ 534,032 $ 1,858,508
Gross profit....................................... 98,645 119,039 133,438 146,512 497,634
Operating income................................... 8,870 18,133 25,378 13,285 65,666
Net income......................................... 6,763 11,549 15,716 6,417 40,445
Net income per share............................... 0.10 0.15 0.20 0.07 0.53
Pro forma income before extraordinary item (see
Note 10)......................................... 3,889 7,716 9,613 4,432 25,650
Pro forma income per share before extraordinary
item............................................. 0.06 0.10 0.11 0.08 0.33
</TABLE>
39
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to April 26, 1997 and through December 8, 1997, the Company has
completed 32 business combinations for an aggregate purchase price of $501.2
million, consisting of approximately $119.4 million of cash and 18.2 million
shares of the Company's common stock with an aggregate market value on the dates
of acquisition of approximately $381.8 million. This includes the acquisition of
Mail Boxes Etc., the world's largest franchisor of business, communication and
postal service centers with more than 3,500 centers operating worldwide, which
was completed on November 20, 1997. The Company issued approximately 15.4
million shares of its common stock in exchange for all of the outstanding shares
of Mail Boxes Etc. representing an exchange ratio of 1.349 shares of U.S. Office
Products common stock for each share of Mail Boxes Etc. common stock. The
acquisition of Mail Boxes Etc. will be accounted for under the
pooling-of-interests method of accounting; however, because the acquisition was
completed after October 25, 1997, these consolidated financial statements and
the notes hereto have not been adjusted to give retroactive effect to this
acquisition.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the acquisition described above had been
consummated as of the beginning of fiscal 1997. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, adjustments in executive compensation and the inclusion of a federal
income tax provision on all earnings:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 26, 1997
----------------
<S> <C>
Revenues........................................................................................ $ 3,510,901
Income before extraordinary items............................................................... 92,942
Income per share before extraordinary items..................................................... .72
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1997 or the
results which may occur in the future.
40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
U.S. Office Products Company
In our opinion, based upon our audits and the reports of other auditors, the
accompanying supplemental consolidated balance sheet and the related
supplemental consolidated statements of income, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
U.S. Office Products Company and its subsidiaries at April 26, 1997 and April
30, 1996 and the results of their operations and their cash flows for each of
the three fiscal years in the period ended April 26, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of certain wholly-owned subsidiaries, which statements
reflect total assets of $85.7 million and $75.8 million at April 26, 1997 and
April 30, 1996, respectively, total revenues of $67.8 million, $676.0 million
and $373.5 million included in the Company's fiscal years ended April 26, 1997,
April 30, 1996 and 1995, respectively. Those statements were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for those
wholly- owned subsidiaries, is based solely on the reports of the other
auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors provide a reasonable
basis for the opinion expressed above.
As described in Note 1, on November 20, 1997, U.S. Office Products Company
merged with Mail Boxes Etc. in a transaction accounted for as a pooling of
interests. The accompanying supplemental consolidated financial statements give
retroactive effect to the merger of U.S. Office Products Company with Mail Boxes
Etc.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
June 6, 1997, except as to the first paragraph
of Note 5, which is as of October 25, 1997, the first
paragraph of Note 15, which is as of November 6, 1997
and Note 1, which is as of November 20, 1997
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Mail Boxes Etc.
We have audited the accompanying consolidated balance sheets of Mail Boxes
Etc. as of April 30, 1997 and 1996, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended April 30, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Mail Boxes Etc.
at April 30, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended April 30, 1997,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
June 6, 1997
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
School Specialty, Inc.
We have audited the balance sheets of School Specialty, Inc. (formerly known
as EDA Corporation) (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, changes in shareholders' deficit and cash
flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
February 2, 1996
43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The Re-Print Corporation
Birmingham, Alabama
We have audited the accompanying balance sheets of the Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for three years ended December 31, 1995,
1994, and 1993 (not presented separately herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for three years ended December 31, 1995, 1994, and 1993 in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 8, 1996
44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SFI Corp.
We have audited the accompanying balance sheet of SFI Corp. as of December
31, 1995 and the related statements of income, stockholders' equity, and cash
flows for the year then ended, which are not included herein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 SFI Corp. 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.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
45
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Hano Document Printers, Inc.
We have audited the accompanying balance sheet of Hano Document Printers,
Inc. as of December 31, 1995 and the related statements of income, stockholders'
equity, and cash flows for the year then ended, which are not included herein.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 Hano Document Printers, 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.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
46
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SFI Corp. and Hano Document Printers, Inc.
We have audited the combined balance sheet of SFI Corp. and Hano Document
Printers, Inc. (collectively referred to as the "Companies") as of December 31,
1994, and the related statements of income, stockholders' equity, and cash flows
for each of the years in the two-year period ended December 31, 1994, which are
not included herein. These combined financial statements are the responsibility
of the Companies' management. Our responsibility is to express an opinion on
these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of SFI Corp. and Hanco
Document Printers, Inc., as of December 31, 1994 and the results of their
operations and cash flows for each of the years in the two-year period ended
December 31, 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Bay State Computer Group, Inc.
We have audited the accompanying balance sheets of Bay State Computer Group,
Inc. as of March 31, 1996 and 1995, and the related statements of earnings and
retained earnings, and cash flows for the three years ended March 31, 1996, 1995
and 1994 (none of which are presented herein separately). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bay State Computer Group,
Inc. as of March 31, 1996 and 1995, and the results of its operations and its
cash flows for the three years ended March 31, 1996, 1995, and 1994 in
conformity with generally accepted accounting principles.
PARENT, MCLAUGHLIN AND NANGLE
Boston, Massachusetts
May 23, 1996, except for Note N
as to which the date is October 14, 1996
48
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Data Business Forms Limited
We have audited the balance sheet of Data Business Forms Limited ("DBF") as
of December 31, 1995 and the statements of income and retained earnings and
changes in financial position for the period from amalgamation to December 31,
1995. These financial statements are the responsibility of DBF'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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of DBF as at December 31, 1995 and the results
of its operations and the changes in its financial position for the period from
amalgamation to December 31, 1995 in accordance with generally accepted
accounting principles.
ERNST & YOUNG
Toronto, Canada,
February 6, 1996
49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Fortran Corp.
We have audited the accompanying balance sheet of Fortran Corp. as of March
31, 1996, and 1995 and the related statements of earnings, changes in
stockholders' equity, and cash flows for the years ended March 31, 1996, 1995,
and 1994 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 and above present
fairly, in all material respects, the financial position of Fortran Corp. as of
March 31, 1996, and 1995 and the results of its operations and its cash flows
for three years ended march 31, 1996, 1995 and 1994 in conformity with generally
accepted accounting principles.
As described in Note 9 to the financial statements, on August 21, 1996, the
Company entered into a letter of intent to exchange all of its issued and
outstanding shares of common stock for shares of U.S. Office Products Company
common stock.
RUBIN, KOEHMSTEDT AND NADLER
Newington, Virginia
June 7, 1996, except for Note 9,
as to which the date is
October 24, 1996
50
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MTA, Inc.
We have audited the accompanying consolidated balance sheet of MTA, Inc.
(the Company) as of December 31, 1995 and the related statements of income and
retained earnings and of cash flows for the period from January 25, 1995 (date
of incorporation) to December 31, 1995. These financial statements are
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MTA, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the period from January 25, 1995, and the results of its operations and its cash
flows for the period from January 25, 1995 (date of incorporation) to December
31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
September 23, 1996
51
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
United Envelope Co., Inc.
We have audited the combined balance sheets of United Envelope Co., Inc. and
its affiliate, Rex Envelope Co., Inc., as at December 31, 1995 and 1994, and the
related combined statements of income and retained earnings and cash flows for
the years then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As referred to in Note A on "Principles of Combination," the companies,
whose financial statements are combined, are related through common ownership
and control. In addition, each has pledged certain assets and guaranteed
long-term indebtedness of the other as described in the notes to financial
statements. In view of their close operating and financial relationship, the
preparation of combined financial statements was considered appropriate. The
combined statements, however, do not refer to a legal entity and neither of the
companies guarantees trade obligations of the other.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of United
Envelope Co., Inc. and its affiliates as at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
HERTZ, HERSON & COMPANY, LLP
New York, New York
March 6, 1996
52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Huxley Envelope Corporation
We have audited the accompanying balance sheets of Huxley Envelope
Corporation as of December 31, 1995 and 1994, and the related statements of
income and retained earnings (accumulated deficit) and cash flows for the years
then ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Huxley Envelope Corporation
as of 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.
HERTZ, HERSON & COMPANY LLP
New York, New York
March 4, 1996
53
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 191,830 $ 54,361 $ 44,359
Short-term investments................................................ 21,825 27,342 31,354
Accounts receivable, less allowance for doubtful accounts of $7,718
and $11,985, and $13,646, respectively.............................. 278,675 411,977 510,060
Inventories........................................................... 160,386 293,006 309,023
Prepaid expenses and other current assets............................. 74,177 121,283 129,296
------------ ------------ ------------
Total current assets................................................ 726,893 907,969 1,024,092
Property and equipment, net............................................. 148,008 264,559 293,878
Intangible assets, net.................................................. 161,061 658,366 719,116
Other assets............................................................ 91,191 143,527 143,309
------------ ------------ ------------
Total assets........................................................ $ 1,127,153 $ 1,974,421 $ 2,180,395
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt....................................................... $ 159,165 $ 158,402 $ 295,222
Accounts payable...................................................... 150,370 221,069 237,832
Accrued compensation.................................................. 30,618 48,337 55,006
Other accrued liabilities............................................. 51,360 101,159 114,654
------------ ------------ ------------
Total current liabilities........................................... 391,513 528,967 702,714
Long-term debt.......................................................... 241,836 404,813 398,042
Deferred income taxes................................................... 10,196 8,693 8,593
Other long-term liabilities and minority interests...................... 7,795 10,144 8,977
------------ ------------ ------------
Total liabilities................................................... 651,340 952,617 1,118,326
------------ ------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares authorized, none
outstanding
Common stock, $.001 par value 500,000,000 shares authorized,
103,022,623; 128,402,810 and 131,848,609 shares issued and
outstanding, respectively........................................... 103 128 132
Additional paid-in capital............................................ 333,658 832,267 895,415
Cumulative translation adjustment..................................... 846 (5,524) (77,991)
Retained earnings..................................................... 141,206 194,933 244,513
------------ ------------ ------------
Total stockholders' equity.......................................... 475,813 1,021,804 1,062,069
------------ ------------ ------------
Total liabilities and stockholders' equity.......................... $ 1,127,153 $ 1,974,421 $ 2,180,395
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
54
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
---------------------------------------- --------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues........................................... $ 1,243,406 $ 1,917,615 $ 3,121,195 $ 1,424,372 $ 1,890,190
Cost of revenues................................... 887,381 1,391,945 2,215,181 1,018,250 1,347,547
------------ ------------ ------------ ------------ ------------
Gross profit................................... 356,025 525,670 906,014 406,122 542,643
Selling, general and administrative expenses....... 298,767 435,058 732,366 325,409 423,633
Non-recurring acquisition costs.................... 8,057 16,245 5,727 10,252
Restructuring costs................................ 3,214 4,395
------------ ------------ ------------ ------------ ------------
Operating income............................... 57,258 79,341 153,008 74,986 108,758
Other (income) expense:
Interest expense................................. 9,069 21,303 47,211 22,397 22,287
Interest income.................................. (1,375) (5,513) (8,953) (6,366) (1,946)
Other income..................................... (893) (603) (3,640) (3,274) (6,885)
------------ ------------ ------------ ------------ ------------
Income before provision for income taxes and
extraordinary items.............................. 50,457 64,154 118,390 62,229 95,302
Provision for income taxes......................... 8,688 14,279 41,841 21,542 38,311
------------ ------------ ------------ ------------ ------------
Income before extraordinary items.................. 41,769 49,875 76,549 40,687 56,991
Extraordinary items--losses on early terminations
of credit facilities, net of income taxes........ 701 1,450 612
------------ ------------ ------------ ------------ ------------
Net income......................................... $ 41,769 $ 49,174 $ 75,099 $ 40,075 $ 56,991
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average common shares outstanding......... 93,058 116,445 110,738 133,781
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share before extraordinary items.... $ .53 $ .65 $ .36 $ .43
Extraordinary items................................ .01
------------ ------------ ------------ ------------
Net income per share............................... $ .53 $ .66 $ .36 $ .43
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Unaudited pro forma income before extraordinary
items (see Note 11).............................. $ 29,366 $ 34,322 $ 65,943 $ 32,876 $ 53,515
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Unaudited pro forma income per share before
extraordinary items.............................. $ .37 $ .57 $ .30 $ .40
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED APRIL 26, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------------------- PAID-IN TRANSLATION RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ----------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994............ 61,850,176 $ 62 $ 45,107 $ (309) 100,300 $ (7,562) $ 137,598
Transactions of Combined Companies
upon formation of Company:
Issuance of common stock............. 5,817,000 6 (5) 1
Capital contribution................. 1,500 1,500
Distributions to stockholders........ (11,300) (11,300)
Adjustments to stockholders'
equity............................. (12,597) 5,035 7,562
Cash dividends....................... (222) (222)
Issuance of common stock, net of
associated expenses in conjunction
with:
Initial public offering.............. 5,606,250 6 32,684 32,690
Acquisition.......................... 1,312,500 1 8,749 8,750
Transactions of Pooled Companies:
Exercise of warrants and stock
options............................ 20,345 201 201
Cash dividends....................... (113) (18,790) (18,903)
Capital contributions................ 187 187
Adjustment to conform the year-ends
of Pooled Companies................ 2,235 2,235
Cumulative translation adjustments... 213 213
Net income........................... 41,769 41,769
------------ ----- ----------- ----------- --------- ----------- -------------
Balance at April 30, 1995............ 74,606,271 75 75,713 (96) 119,027 194,719
Issuances of common stock, net of
associated expenses in
conjunction with:
Public offerings..................... 14,352,067 14 174,723 174,737
Acquisitions......................... 11,120,163 11 68,607 68,618
Capital contributions................ 500 500
Exercise of stock options, including
tax benefits....................... 95,025 1,023 1,023
Transactions of Pooled Companies:
Issuances of common stock for cash
and repayment of debt.............. 872,248 1 8,297 8,298
Capital contributions................ 42,019 1,324 1,324
Exercise of warrants and stock
options............................ 1,088,192 1 2,240 2,241
Cash and stock dividends............. 846,638 1 1,231 (35,893) (34,661)
Adjustment to conform the year-ends
of Pooled Companies................ 8,898 8,898
Cumulative translation adjustments... 942 942
Net income........................... 49,174 49,174
------------ ----- ----------- ----------- --------- ----------- -------------
Balance at April 30, 1996............ 103,022,623 103 333,658 846 141,206 475,813
</TABLE>
56
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE THREE FISCAL YEARS ENDED APRIL 26, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------------------- PAID-IN TRANSLATION RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK EQUITY
------------ ----------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996............ 103,022,623 $ 103 $ 333,658 $ 846 $ 141,206 $ -- $ 475,813
Issuances of common stock, net of
associated expenses in conjunction
with:
Public offering...................... 13,023,496 13 275,699 275,712
Direct equity investment............. 1,875,000 2 38,111 38,113
Acquisitions......................... 8,685,450 9 166,071 166,080
Exercise of stock options, including
tax benefits....................... 197,742 2,843 2,843
Employee stock purchase plan......... 229,998 3,145 3,145
Transactions of Pooled Companies:
Issuances of common stock for
repayment of debt and payment of
acquisition expenses............... 409,630 6,859 6,859
Capital contributions................ 160,842 2,807 2,807
Exercise of warrants and stock
options............................ 695,721 1 3,763 3,764
Retirement of common stock........... 102,308 (443) (34) (477)
Cash dividends paid and declared..... (246) (26,354) (26,600)
Adjustment to conform the year-ends
of Pooled Companies................ 5,016 5,016
Cumulative translation adjustments... (6,370) (6,370)
Net income........................... 75,099 75,099
------------ ----- ----------- ----------- --------- ----------- -------------
Balance at April 26, 1997............ 128,402,810 128 832,267 (5,524) 194,933 1,021,804
Unaudited data:
Issuance of common stock, net of
associated expenses, in conjunction
with:
Acquisitions......................... 2,683,815 4 49,545 49,549
Exercise of stock options, including
tax benefits....................... 582,145 6,730 6,730
Employee stock purchase plan......... 123,866 1,710 1,710
Repayment of debt.................... 569 569
Transaction of Pooled Companies:
Capital contributions................ 2,982 2,982
Exercise of warrants and stock
options............................ 55,973 1,612 1,612
Cash dividends....................... (6,577) (6,577)
Adjustment to conform fiscal year-
ends of Pooled Companies........... (834) (834)
Cumulative translation adjustments... (72,467) (72,467)
Net income........................... 56,991 56,991
------------ ----- ----------- ----------- --------- ----------- -------------
Balance at October 25, 1997
(unaudited)........................ 131,848,609 $ 132 $ 895,415 $ (77,991) $ 244,513 $ $ 1,062,069
------------ ----- ----------- ----------- --------- ----------- -------------
------------ ----- ----------- ----------- --------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
57
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
--------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income.......................................... $ 41,769 $ 49,174 $ 75,099 $ 40,075 $ 56,991
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 17,057 24,490 53,221 21,163 36,390
Non-recurring acquisition loss...................... 8,057 16,245 5,727 10,252
Extraordinary losses................................ 701 1,450 612
Equity in net income of affiliate................... (782) (728)
Other............................................... (1,210) (1,167) (5,453) 331 (2,387)
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations):
Accounts receivable............................. (43,429) (12,903) (33,443) (59,573) (79,916)
Lease receivables............................... (1,999) (1,235) (1,241) (1,032) (675)
Inventories..................................... (4,428) 1,630 (5,443) (4,866) (4,751)
Prepaid expenses and other current assets....... (1,019) (23,200) (11,885) (1,295) (5,367)
Accounts payable................................ 13,650 8,580 (29,877) (7,539) 11,502
Accrued liabilities............................. 9,733 6,918 6,125 3,050 3,954
----------- --------- --------- ----------- -----------
Net cash provided by operating activities..... 30,124 61,045 64,016 (3,347) 25,265
----------- --------- --------- ----------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received..... (18,099) (130,178) (354,811) (273,704) (120,364)
Investment in affiliate............................. (41,270)
Payments of non-recurring acquisition cost.......... (7,283) (13,588) (5,727) (7,878)
Additions to property and equipment, net of
disposals......................................... (15,742) (32,846) (57,457) (20,681) (36,408)
Cash received on sale of assets..................... 1,617 15,990
Other............................................... 3,045 (12,831) (4,689) (9,425) 2,160
----------- --------- --------- ----------- -----------
Net cash used in investing activities......... (30,796) (183,138) (471,815) (307,920) (146,500)
----------- --------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 28,147 181,531 321,932 45,033 8,112
Proceeds from issuance of long-term debt............ 14,758 212,573 231,209 232,480 1,211
Payments of long-term debt.......................... (12,898) (27,187) (222,869) (156,691) (11,933)
Proceeds from (payments of) short-term debt, net.... 7,186 (59,039) (34,219) 82,379 124,359
Payments to terminate credit facilities............. (579) (1,235) (261)
Payments of dividends at Pooled Companies........... (19,125) (25,331) (25,470) (13,509) (7,896)
Capital contributed by stockholders of Pooled
Companies......................................... 69 564 2,799 2,715
Net change in cash due to conforming fiscal
year-ends of certain Pooled Companies............. 601 (1,221) (1,277) 286 (834)
Payments to stockholders of Combined Companies...... (11,300)
Proceeds from issuance of common stock in employee
stock purchase plan...............................
Capital contribution by Combined Company
stockholder....................................... 1,500 500
----------- --------- --------- ----------- -----------
Net cash provided by financing activities..... 8,938 281,811 270,870 192,432 113,019
----------- --------- --------- ----------- -----------
Effect of exchange rates on cash and cash
equivalents......................................... (172) 265 (540) 646 (1,786)
Net increase (decrease) in cash and cash
equivalents......................................... 8,094 159,983 (137,469) (118,189) (10,002)
Cash and cash equivalents at beginning of period...... 23,753 31,847 191,830 191,830 54,361
----------- --------- --------- ----------- -----------
Cash and cash equivalents at end of period............ $ 31,847 $ 191,830 $ 54,361 $ 73,641 $ 44,359
----------- --------- --------- ----------- -----------
----------- --------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
58
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
---------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Supplemental disclosure of cash flow information:
Interest paid........................................ $ 14,002 $ 13,204 $ 40,906 $ 13,274 $ 10,983
Income taxes paid.................................... $ 13,935 $ 15,619 $ 34,379 $ 15,527 $ 34,705
</TABLE>
The Company issued common stock, notes payable and cash in connection with
certain business combinations in fiscal years ended April 30, 1995, 1996, 1997
and for the six months ended October 26, 1996 and October 25, 1997. The fair
values of the assets and liabilities of the acquired companies at the dates of
the acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Accounts receivable.................................... $ 23,462 $ 93,741 $ 105,538 $ 66,509 $ 25,454
Inventories............................................ 20,074 68,861 122,917 107,086 23,595
Prepaid expenses and other current assets.............. 1,779 9,740 23,344 12,981 2,871
Property and equipment................................. 5,459 57,372 95,615 102,244 41,896
Intangible assets...................................... 21,079 127,870 506,386 398,932 118,342
Other assets........................................... 339 56,529 7,847 3,732 2,232
Short-term debt........................................ (15,038) (106,672) (24,895) (8,783) (6,293)
Accounts payable....................................... (15,627) (48,825) (103,851) (73,042) (14,795)
Accrued liabilities.................................... (4,958) (21,554) (55,477) (99,158) (6,291)
Long-term debt......................................... (6,283) (17,950) (155,237) (114,649) (15,031)
Other long-term liabilities and minority interest...... (437) (12,175) (1,296) (1,942) (2,067)
----------- ----------- ----------- ----------- -----------
Net assets acquired................................ $ 29,849 $ 206,937 $ 520,891 $ 393,910 169,913
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
The acquisitions were funded as follows:
Common stock........................................... $ 8,750 $ 68,618 $ 166,080 $ 120,206 $ 49,549
Notes payable.......................................... 3,000 8,141
Cash................................................... 18,099 130,178 354,811 273,704 120,364
----------- ----------- ----------- ----------- -----------
$ 29,849 $ 206,937 $ 520,891 $ 393,910 $ 169,913
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
Noncash transactions:
- During fiscal 1996 and 1997, the Company issued 291,671 and 384,630 shares
of common stock, respectively, to repay $2,470 and $6,359 of indebtedness,
respectively.
- During fiscal 1996 and 1997, the Company recorded additional paid-in
capital of approximately $426 and $1,250, respectively, related to the tax
benefit on stock options exercised.
- During fiscal 1996, one Pooled Company converted $1,385 of debt to common
stock.
- During fiscal 1996, one Pooled Company paid a dividend of $9,851 through
the issuance of 846,638 shares of common stock.
See accompanying notes to consolidated financial statements.
59
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1--BUSINESS COMBINATION WITH MAIL BOXES ETC.
Effective November 20, 1997, U.S. Office Products Company ("U.S. Office
Products" and the "Company") acquired all of the outstanding common stock of
Mail Boxes Etc. ("MBE") in exchange for 15,428,028 shares of common stock. The
acquisition was accounted for as a pooling-of-interests and accordingly, the
accompanying supplemental consolidated financial statements give retroactive
effect to the merger of U.S. Office Products with MBE for all periods presented.
NOTE 2--BUSINESS ORGANIZATION
U.S. Office Products was founded in October 1994. The Company is a supplier
of a broad range of office and educational products and business services to
corporate, commercial, educational and industrial customers. The Company
operates throughout the United States, as well as New Zealand, Australia and
Canada and, through a 49%-owned affiliate, in the United Kingdom.
NOTE 3--FORMATION OF COMPANY
Concurrent with the closing of its initial public offering in February 1995,
the Company acquired four companies (the "Combined Companies") for a combination
of its common stock and cash and acquired two companies in business combinations
accounted for under the purchase method. Because of the substantial ongoing
interest of the stockholders of the Combined Companies in U.S. Office Products,
the assets and liabilities of the Combined Companies were combined on an
historical cost basis. The capital stock of the Combined Companies is included
in additional paid-in capital.
NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of U.S. Office Products,
the Combined Companies and the companies acquired in business combinations
accounted for under the purchase method (the "Purchased Companies") from their
respective acquisition dates and give retroactive effect to the results of the
companies acquired in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") for all periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, "fiscal 1995," "fiscal 1996," "fiscal 1997,"
"the first six months of fiscal 1997" and "the first six months of fiscal 1998"
refer to the Company's fiscal years ended April 30, 1995 and 1996, April 30,
1997
60
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and its six months ended October 26, 1996 and October 25, 1997, respectively. On
August 20, 1996, the Company's Board of Directors approved a change in the
Company's fiscal year-end, effective for the 1997 fiscal year, from April 30 to
the last Saturday in April.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. Investments in less than 50% owned entities
are accounted for under the equity method. All significant intercompany
transactions and accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of 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.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Substantially all goodwill is amortized
on a straight line basis over an estimated useful life of 40 years. Management
periodically evaluates the recoverability of goodwill, which would be adjusted
for a permanent decline in value, if any, by comparing anticipated undiscounted
future cash flows from operations to net book value.
61
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RE-ACQUIRED INDIVIDUAL AND AREA FRANCHISE RIGHTS
The Company, through its wholly-owned subsidiary, MBE, repurchases franchise
rights for two primary reasons. The Company may repurchase area rights with the
intention of developing a better support system and then reselling the areas
within a short period of time. The Company may acquire individual center rights
to upgrade the Center and then resell it within a short period of time. The
Company had an investment of approximately $638 and $629 in such individual and
area rights at April 30, 1996 and 1997, respectively. The Company may also
repurchase the area rights with the primary intention of retaining the royalties
normally shared with the former area franchises and maintaining such rights as
long-term investments. The area repurchases have been accounted for as
purchases. The Company records these area repurchases at cost less accumulated
amortization. Periodically the Company assesses the fair value of these areas
based on estimated cash flows to determine if an impairment in the value has
occurred and an adjustment is necessary. As of April 26, 1997, no adjustment is
necessary. The Company had an investment of $3,200 and $6,400 in such area
rights at April 30, 1996 and April 26, 1997, respectively. Area franchise rights
held as long-term investments are amortized over a period of 20 years.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's wholly-owned foreign subsidiary has entered into forward
foreign currency exchange contracts (the "Exchange Contracts") with
counterparties to hedge the exposure of foreign currency fluctuations to the
extent permissible by hedge accounting requirements. At April 26, 1997, the
Exchange Contracts, in the notional amount of $3,319, hedge certain foreign
currency denominated assets. The Exchange Contracts generally have maturity
dates of 60 days or less. Discounts or premiums on the Exchange Contracts are
amortized over the life of the contracts.
The Company's wholly-owned foreign subsidiary also entered into interest
rate swap agreements (the "Swap Agreements") with counterparties to convert the
interest rates associated with certain outstanding debt from variable rates to
fixed rates. The notional amount of the Swap Agreements was $43,000 at April 30,
1996. During fiscal 1997, the Swap Agreements were terminated resulting in a
loss of $117.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments has been
determined using the following methods and assumptions:
- The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value;
- The fair values of the 5 1/2% Convertible Subordinated Notes due 2001 and
the 5 1/2% Convertible Subordinated Notes due 2003 are based on quoted
market prices;
62
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- The carrying amounts of the Company's debt, other than the 5 1/2%
Convertible Subordinated Notes due 2001 and the 5 1/2% Convertible
Subordinated Notes due 2003, approximate fair value, estimated by
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
SHORT-TERM INVESTMENTS
In accordance with Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities," management determines the
appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt securities for
which the Company does not have the intent or the ability to hold to maturity
are classified as available for sale along with the Company's investments in
equity securities.
Securities classified as available for sale are carried at fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. At April 30, 1996 and April 26, 1997, the Company had no
investments that were classified as trading or held to maturity as defined by
SFAS No. 115. Realized gains and losses are included in interest income. The
cost of securities sold is based on the specific identification method. Interest
on securities classified as available for sale is included in interest income.
The estimated fair value of each investment approximates the amortized cost,
and therefore, there are no unrealized gains or losses as of April 30, 1996 or
April 26, 1997.
INCOME TAXES
Income taxes have been computed utilizing the asset and liability approach
which 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. Certain
companies acquired in pooling-of-interests transactions elected to be taxed as
Subchapter S corporations, and accordingly, no federal income taxes were
recorded by those companies for periods prior to their acquisition by U.S.
Office Products.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of subsidiary
companies which the Company controls but does not include in the consolidated
federal income tax return since it is management's practice and intent to
permanently reinvest the earnings of these subsidiaries.
REVENUE RECOGNITION
Revenue is recognized upon the delivery of products or upon the completion
of services provided to customers as no additional obligations to the customers
exist. Returns of the Company's product are considered immaterial. The Company
also leases equipment to customers under both short-term and long-term lease
agreements. Revenue related to short-term leases is recognized on a monthly
basis over the life
63
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of the lease. Certain long-term leases qualify as sales-type leases and,
accordingly, the present value of the future lease payments are recognized as
income upon delivery of the equipment to the customer.
The Company, through its wholly-owned subsidiary MBE, enters into area and
individual franchise agreements in the United States and master license
agreements in other countries. Area franchise agreements grant the area
franchisee the exclusive right to market individual franchise centers for the
Company in the area franchisee's territory. The area franchisee generally
receives a commission on individual franchises sold as well as a share of future
royalties earned by the Company from centers in the area franchisee's territory.
Individual franchise agreements grant the individual franchisee the exclusive
right to open and operate a franchise center in the individual franchisee's
territory.
Franchise fee revenue is recognized upon completion of all significant
initial services provided to the franchisee, area franchisee or master licensee
and upon satisfaction of all material conditions of the franchise agreement,
area franchise agreement or master license. For individual franchise sales, the
significant initial obligations that must be completed before any revenue is
recognized are: the site is located, a store lease is in place, the franchise
agreement has been signed, the store design and layout is complete, all manuals
and systems have been provided, and training at MBE is completed. For area
franchise sales, the significant initial obligations that must be completed
before any revenue is recognized are: all operating manuals are provided,
training is completed and a pilot center is opened. For master license
agreements, the significant initial obligations that must be completed before
any revenue is recognized are: all operating manuals are provided and training
is completed. Revenue is recognized using the installment method when the
revenue is collectible over an extended period and no reasonable basis exists
for estimating collectibility.
On a monthly basis, all individual franchisees are required to pay royalty
and marketing fees to the Company based upon a percentage of each franchisee's
sales (as defined). Such fees are recognized as revenue based upon reported or
estimated sales activity by the franchisees. Revenue from sales of supplies and
equipment is recognized when orders are shipped, or the lease is completed,
whichever is later.
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included in cost of revenues.
NON-RECURRING ACQUISITION COSTS
Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, investment banking fees,
recognition of transaction related obligations and various other acquisition
related costs.
RESTRUCTURING COSTS
The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees in accordance with EITF Issue No. 94-3, "Liability
64
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)."
ACCRUED ACQUISITION COSTS
The Company accrues the direct external costs incurred in conjunction with
the consummation of business combinations and the costs incurred to consolidate
acquired operations into existing Company facilities, including the external
costs and liabilities to close redundant facilities and severance and relocation
costs related to the acquired entity's employees in accordance with EITF Issue
No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination."
NET INCOME PER SHARE
Net income per share for fiscal 1996, fiscal 1997, the first six months of
fiscal 1997 and the first six months of fiscal 1998 is calculated by dividing
net income by the weighted average number of common shares outstanding during
the periods including common stock equivalents, if dilutive. Net income per
share for fiscal 1995 has not been presented as it is not considered meaningful
due to the acquisitions of the Combined Companies and the Company's initial
public offering in conjunction with the formation of the Company during fiscal
1995.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted "SFAS" No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The adoption of SFAS 121 did not have a material effect on the Company's
consolidated operating results or financial position.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
during fiscal 1997. Under the provisions of SFAS 123, companies can elect to
account for stock-based compensation plans using a fair-value based method or
continue measuring compensation expense for those plans using the intrinsic
value method prescribed in APB Opinion No. 25. The Company has elected to
continue using the intrinsic value method to account for stock-based
compensation plans. Pro forma disclosures of net income and net income per
share, as if the fair value-based method of accounting defined in SFAS 123 has
been applied, are presented in Note 15.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This Statement establishes standards for computing
and presenting earnings per share ("EPS"). SFAS 128 simplifies the standards for
computing EPS and makes the presentation comparable to international EPS
standards by replacing the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. This Statement is required to be
adopted by the Company during fiscal 1998.
65
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL DATA
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 October 25, 1997 and the results
of operations and of cash flows for the six months ended October 26, 1996 and
October 25, 1997, as presented in the accompanying unaudited consolidated
financial data.
NOTE 5--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In the first six months of fiscal 1998, the Company issued 8,607,894 shares
of common stock to acquire 19 companies (the "1998 Poolings") in business
combinations accounted for under the pooling-of-interests method. Certain of the
Pooled Companies previously reported on fiscal years ending other than April 25,
1998.
In fiscal 1996 and 1997, the Company issued 12,661,278 and 33,163,164 shares
of common stock, respectively, to acquire 14 (the "1996 Poolings") and 40 (the
"1997 Poolings") companies, respectively, in business combinations accounted for
under the pooling-of-interests method. The Company's consolidated financial
statements give retroactive effect to the acquisitions of the Pooled Companies
for all periods presented. Certain of the Pooled Companies previously reported
on fiscal years ending other than April 30, 1996 and April 26, 1997.
Commencing on May 1, 1995 and 1996 and April 27, 1997, the year-ends of the
1996 Poolings, the 1997 Poolings and the 1998 Poolings were changed to April 30,
1996, April 26, 1997 and April 25, 1998, respectively, resulting in adjustments
to retained earnings of $2,235, $8,898, $5,016 and $(834), during fiscal 1995,
1996, 1997 and the first six months of fiscal 1998, respectively. Following is a
summary of the results related to the adjustments to retained earnings:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE SIX
-------------------------------- MONTHS ENDED
APRIL 30, APRIL 30, APRIL 26, OCTOBER 25,
1995 1996 1997 1997
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues........................................................ $ 55,126 $ 245,737 $ 55,639 $ (8,389)
Costs and expenses.............................................. 52,891 236,839 50,623 (7,555)
--------- ---------- --------- -------------
Net adjustment.............................................. $ 2,235 $ 8,898 $ 5,016 $ (834)
--------- ---------- --------- -------------
--------- ---------- --------- -------------
</TABLE>
66
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
The following presents the separate results, in each of the periods
presented, of U.S. Office Products (excluding the results of Pooled Companies
prior to the dates on which they were acquired), and the Pooled Companies up to
the dates on which they were acquired:
<TABLE>
<CAPTION>
U.S. OFFICE POOLED
PRODUCTS COMPANIES COMBINED
------------ ------------ ------------
<S> <C> <C> <C>
For the year ended April 30, 1995
Revenues.............................................................. $ 120,479 $ 1,122,927 $ 1,243,406
Net income............................................................ $ 1,514 $ 40,255 $ 41,769
For the year ended April 30, 1996
Revenues.............................................................. $ 488,670 $ 1,428,945 $ 1,917,615
Net income............................................................ $ 7,828 $ 41,346 $ 49,174
For the year ended April 26, 1997
Revenues.............................................................. $ 2,175,170 $ 946,025 $ 3,121,195
Net income............................................................ $ 36,246 $ 38,853 $ 75,099
For the six months ended October 26, 1996 (unaudited):
Revenues.............................................................. $ 858,093 $ 566,279 $ 1,424,372
Net income............................................................ $ 15,500 $ 24,575 $ 40,075
For the six months ended October 25, 1997 (unaudited):
Revenues.............................................................. $ 1,762,846 $ 127,344 $ 1,890,190
Net income............................................................ $ 52,241 $ 4,750 $ 56,991
</TABLE>
PURCHASE METHOD
In fiscal 1995, in addition to the acquisitions of the Combined Companies,
the Company made six acquisitions accounted for under the purchase method for an
aggregate purchase price of $29,849, consisting of $18,099 of cash, $3,000 of
notes payable and 1,312,500 shares of common stock with a market value of
$8,750. The total assets related to these six acquisitions were $72,192,
including goodwill of $21,079. The results of these acquisitions have been
included in the Company's results form their respective dates of acquisition.
In fiscal 1996, the Company made 34 acquisitions accounted for under the
purchase method for an aggregate purchase price of $206,937, consisting of
$130,178 of cash, $8,141 of debt and 11,120,163 shares of common stock with a
market value of $68,618. The total assets related to these 34 acquisitions were
$414,113, including goodwill of $127,870. The results of these acquisitions have
been included in the Company's results from their respective dates of
acquisition.
In fiscal 1997, the Company made 77 acquisitions accounted for under the
purchase method for an aggregate purchase price of $520,891 consisting of
$354,811 of cash, and 8,685,450 shares of common stock with a market value of
$166,080. The total assets related to these 77 acquisitions were $861,647,
including goodwill of $506,386. The results of these acquisitions have been
included in the Company's results from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the fiscal years ended April 30, 1996 and April 26, 1997 and
includes the Company's consolidated financial statements, which give retroactive
effect to the acquisitions of the Pooled Companies for all periods
67
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 5--BUSINESS COMBINATIONS (CONTINUED)
presented, and the results of the Purchased Companies as if all such purchase
acquisitions had been made at the beginning of fiscal 1996. The results
presented below include certain pro forma adjustments to reflect the
amortization of intangible assets, adjustments in executive compensation and the
inclusion of a federal income tax provision on all earnings:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------
APRIL 30, APRIL 26,
1996 1997
------------ ------------
<S> <C> <C>
Revenues.......................................................... $ 3,329,901 $ 3,510,902
Income before extraordinary items................................. 64,184 90,841
Net income........................................................ 63,483 89,391
Income per share before extraordinary items....................... .50 .69
Net income per share.............................................. .49 .68
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1996 or the
results which may occur in the future.
EQUITY INVESTMENT IN AFFILIATE
In November 1996, the Company acquired a 49% equity interest in Dudley
Stationery Limited ("Dudley"), which is being accounted for under the equity
method. Under the terms of the agreement, the Company agreed to invest
approximately $80 million for working capital into Dudley over a two-year
period. The Company has currently invested approximately $41.3 million of the
total $80 million in Dudley.
NOTE 6--ACCRUED ACQUISITION COSTS
In conjunction with the acquisitions of the fiscal 1997 Purchased Companies,
the Company accrued the direct external costs incurred in conjunction with the
consummation of the acquisitions and the costs to consolidate acquired
operations into existing Company facilities, including the external costs
associated with closing redundant facilities of acquired companies, and
severance and relocation costs related to the acquired companies' employees.
As of the consummation date of the acquisition, the Company begins to assess
and formulate a plan to exit activities of the acquired companies. Typically,
this involves evaluating the facilities of the Company and the acquired
companies in the specific geographic areas, determining which of the acquired
facilities will be exited and identifying employee groups that will be
terminated or relocated. In most cases, the facilities are closed and the
employees terminated within one year of the completion of the plan.
68
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 6--ACCRUED ACQUISITION COSTS (CONTINUED)
The following table sets forth the Company's accrued acquisition costs for
the periods ended April 30, 1996 and April 27, 1997:
<TABLE>
<CAPTION>
EMPLOYEE
SEVERANCE DISPOSAL OF
REDUNDANT AND ASSETS AND
FACILITIES RELOCATION OTHER TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at April 30, 1996......................................... $ -- $ -- $ -- $ --
Additions....................................................... 1,593 2,484 6,712 10,789
----------- ----------- ----------- ---------
Balance at April 26, 1997......................................... 1,593 2,484 6,712 10,789
Additions....................................................... 1,442 3,244 4,686
Utilizations.................................................... (198) (96) (4,637) (4,931)
----------- ----------- ----------- ---------
Balance at October 25, 1997 (unaudited)........................... $ 1,395 $ 3,830 $ 5,319 $ 10,544
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
NOTE 7--RESTRUCTURING COSTS
The Company records the costs of consolidating existing Company facilities
into acquired operations, including the external costs and liabilities to close
redundant Company facilities and severance and relocation costs related to the
Company's employees. The following table sets forth the Company's accrued
restructuring costs for the periods ended April 30, 1996, April 26, 1997 and
October 25, 1997:
<TABLE>
<CAPTION>
FACILITY SEVERANCE OTHER ASSET
CLOSURE AND AND WRITE-DOWNS
CONSOLIDATION TERMINATIONS AND COSTS TOTAL
------------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at April 30 1995
Additions................................................. $ 641 $ 469 $ 2,104 $ 3,214
Utilizations.............................................. (682) (682)
------ ----- ------------ ---------
Balance at April 30, 1996................................... 641 469 1,422 2,532
Additions................................................. 1,337 308 2,750 4,395
Utilizations.............................................. (943) (698) (3,615) (5,256)
------ ----- ------------ ---------
Balance at April 26, 1997................................... 1,035 79 557 1,671
Utilizations.............................................. (725) (79) (376) (1,180)
------ ----- ------------ ---------
Balance at October 25, 1997 (unaudited)..................... $ 310 $ 0 $ 181 $ 491
------ ----- ------------ ---------
------ ----- ------------ ---------
</TABLE>
69
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- -----------
<S> <C> <C>
Land................................................................. $ 9,298 $ 35,350
Buildings............................................................ 56,346 76,988
Furniture and fixtures............................................... 104,576 221,869
Warehouse equipment.................................................. 45,487 49,672
Equipment under capital leases....................................... 7,627 11,141
Leasehold improvements............................................... 14,205 27,452
---------- -----------
237,539 422,472
Less: Accumulated depreciation....................................... (89,531) (157,913)
---------- -----------
Net property and equipment........................................... $ 148,008 $ 264,559
---------- -----------
---------- -----------
</TABLE>
Depreciation expense for fiscal years 1995, 1996 and 1997 was $13,796, $18,093
and $34,975, respectively.
NOTE 9--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
---------- ---------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill.............................................. $ 152,714 $ 661,262 $ 732,197
Other................................................. 20,831 23,471 20,854
---------- ---------- --------------
173,545 684,733 753,051
Less: Accumulated amortization........................ (12,484) (26,367) (33,935)
---------- ---------- --------------
Net intangible assets............................. $ 161,061 $ 658,366 $ 719,116
---------- ---------- --------------
---------- ---------- --------------
</TABLE>
Amortization expense for fiscal years 1995, 1996 and 1997 was $2,289, $5,993 and
$15,230, respectively, and $10,115 for the six months ended October 25, 1997.
70
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 10--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Credit facilities with banks, average interest rates of 7.8% at April 30, 1996 and 7.6% at
April 26, 1997.......................................................................... $ 31,518 $ 144,753
Annual renewal loans provided by banks and other financial institutions of foreign
subsidiary secured by lease receivables of foreign subsidiary. Interest rates ranging
from 7.8% to 10.2% at April 30, 1996.................................................... 89,456
Bank lines of credit of foreign subsidiary operations secured by assets of those
operations. Interest rates ranging from 9.2% to 9.8% at April 30, 1996.................. 12,731
Other..................................................................................... 7,447 3,257
Current maturities of long-term debt...................................................... 18,013 10,392
---------- ----------
Total short-term debt................................................................. $ 159,165 $ 158,402
---------- ----------
---------- ----------
</TABLE>
The Company currently has an agreement under which a syndicate of financial
institutions, led by Bankers Trust Company, as Agent (the "Bank"), is providing
the Company with a $500 million credit facility (the "Credit Facility") bearing
interest, at the Company's option, at the Bank's base rate plus an applicable
margin of up to 1.25%, or a eurodollar rate plus an applicable margin of up to
2.5%. The availability under the Credit Facility is subject to certain sublimits
including $100 million for working capital loans and $400 million for
acquisition loans. The Credit Facility is secured by a majority of the assets of
the Company and its subsidiaries and contains customary covenants, including
financial covenants with respect to the Company's consolidated leverage and
interest coverage ratios, capital expenditures, payment of dividends and
purchases and sales of assets, and customary default provisions, including
provisions related to non-payment of principal and interest, default under other
debt agreements and bankruptcy. The Company was in compliance with or obtained
waivers relating to these covenants at April 26, 1997. At April 26, 1997, the
balance outstanding under the Credit Facility was $140,090 and included five
eurodollar contracts, expiring within 30 days, totaling $105,000 at an average
interest rate of 7.2%.
71
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 10--CREDIT FACILITIES (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Convertible Subordinated Notes due 2003, interest at 5 1/2%, convertible into shares of
common stock at any time prior to maturity at a conversion price of $31.60 per share,
subject to adjustment in certain events................................................. $ 230,000
Convertible Subordinated Notes due 2001, interest at 5 1/2%, convertible into shares of
common stock at any time prior to maturity at a conversion price of $19.00 per share,
subject to adjustment in certain events................................................. $ 143,750 143,750
Notes payable, secured by certain assets of the Company, interest rates ranging from 8.0%
to 10.0%, maturities from October 1996 through 2003..................................... 45,078 10,874
Other..................................................................................... 58,988 23,085
Capital lease obligations................................................................. 12,033 7,938
---------- ----------
.......................................................................................... 259,849 415,647
Less: Current maturities of long-term debt................................................ (18,013) (10,834)
---------- ----------
Total long-term debt.................................................................. $ 241,836 $ 404,813
---------- ----------
---------- ----------
</TABLE>
The 5 1/2% Convertible Subordinated Notes due 2003 (the "2003 Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after May 22, 1998, but may not be redeemed prior to May 15, 1999
unless the closing price of the common stock is at least 150% of the conversion
price for a period of time prior to the notice of redemption. Costs incurred in
connection with the issuance of the 2003 Notes are included in other assets and
are being amortized over the seven year period of maturity. The fair value of
the 2003 Notes at April 26, 1997, based upon quoted market prices, totaled
$184,000.
The 5 1/2% Convertible Subordinated Notes due 2001 (the "2001 Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after February 3, 1998, but may not be redeemed prior to February
2, 1999 unless the closing price of the common stock is at least 150% of the
conversion price for a period of time prior to the notice of redemption. Costs
incurred in connection with the issuance of the 2001 Notes are included in other
assets and are being amortized over the five year period of maturity. The fair
value of the 2001 Notes at April 26, 1997, based upon quoted market prices,
totaled $147,344.
72
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 10--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998.............................................................. $ 10,834
1999.............................................................. 12,585
2000.............................................................. 4,407
2001.............................................................. 146,399
2002.............................................................. 2,428
Thereafter........................................................ 238,552
---------
Total maturities of long-term debt.............................. $ 415,205
---------
---------
</TABLE>
NOTE 11--INCOME TAXES
Domestic and foreign income before provision for income taxes and
extraordinary items consist of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Domestic.................................................... $ 47,955 $ 59,594 $ 90,125
Foreign..................................................... 2,502 4,560 28,265
--------- --------- ----------
Total..................................................... $ 50,457 $ 64,154 $ 118,390
--------- --------- ----------
--------- --------- ----------
</TABLE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
----------- --------- ---------
<S> <C> <C> <C>
Income taxes currently payable:
Federal....................................................... $ 8,362 $ 13,979 $ 28,793
State......................................................... 704 608 3,797
Foreign....................................................... 832 859 11,784
----------- --------- ---------
9,898 15,446 44,374
----------- --------- ---------
Deferred income tax expense (benefit)......................... (1,210) (1,167) (2,533)
----------- --------- ---------
Total provision for income taxes............................ $ 8,688 $ 14,279 $ 41,841
----------- --------- ---------
----------- --------- ---------
</TABLE>
73
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--INCOME TAXES (CONTINUED)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- -----------
<S> <C> <C>
Current deferred tax assets:
Inventory.............................................................. $ 3,976 $ 3,249
Allowance for doubtful accounts........................................ 1,556 2,645
Net operating loss carryforward........................................ 3,192 3,192
Accrued liabilities.................................................... 3,457 3,950
Other.................................................................. 339 245
--------- -----------
Total current deferred tax assets.................................... 12,520 13,281
--------- -----------
Long-term deferred tax liabilities:
Property and equipment................................................. (5,142) (4,577)
Intangible assets...................................................... (441) (670)
Internal Revenue Service tax assessment................................ (3,383) (3,383)
Other.................................................................. (1,230) (63)
--------- -----------
Total long-term deferred tax liabilities............................. (10,196) (8,693)
--------- -----------
Subtotal............................................................. 2,324 4,588
Valuation allowance.................................................. (5,468)
--------- -----------
Net deferred tax asset (liability)................................... $ (3,144) $ 4,588
--------- -----------
--------- -----------
</TABLE>
At April 30, 1996, a valuation allowance had been recorded, related to
deferred tax assets of a Pooled Company, including net operating loss
carryforwards. Based upon the improved profitability of this Pooled Company
during fiscal 1997, the valuation allowance was reversed resulting in a lower
provision for income taxes.
The Internal Revenue Service ("IRS") tax assessment relates to the deferral
of a gain on the sale of land and a building by a subsidiary of the Company. The
IRS has determined that a portion of the gain recorded by the subsidiary does
not qualify for deferral and has assessed the Company additional taxes. The
subsidiary has recorded a deferred tax liability, including interest, as a
result of the assessment. The Company has filed an appeal with the IRS relating
to the above assessment; however, the IRS has not yet responded to the appeal.
74
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------------
APRIL 30, APRIL 30, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory rate.................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit.......... 4.4 5.7 3.2
Subchapter S corporation income not subject to corporate level
taxation..................................................... (24.6) (24.2) (9.0)
Foreign earnings not subject to U.S. taxes..................... (.4) 1.6
Minority interest in foreign taxes............................. 1.7
Nondeductible goodwill......................................... 1.0 1.8 2.5
Nondeductible acquisition costs................................ 0.8 4.3
Reversal of valuation allowance................................ (4.7)
Other.......................................................... 1.4 1.9 2.4
----- ----- -----
Effective income tax rate...................................... 17.2% 22.3% 35.3%
----- ----- -----
----- ----- -----
</TABLE>
One Combined Company and certain Pooled Companies were organized as
subchapter S corporations prior to the closing of their acquisitions by the
Company and, as a result, the federal tax on their income was the responsibility
of their individual stockholders. Accordingly, the Combined Company and the
specific Pooled Companies provided no federal income tax expense prior to these
acquisitions by the Company.
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the Combined Company and the specific Pooled
Companies had been subject to federal income taxes for the entire periods
presented.
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1995 1996 1997 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Income before extraordinary items per consolidated statement
of income................................................... $ 41,769 $ 49,875 $ 76,549 $ 40,687 $ 56,991
Pro forma income tax provision adjustment..................... 12,403 15,553 10,606 7,811 3,476
--------- --------- --------- ----------- -----------
Pro forma income before extraordinary items................... $ 29,366 $ 34,322 $ 65,943 $ 32,876 $ 53,515
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
75
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12--LEASE COMMITMENTS
The Company leases various types of retail, warehouse and office facilities
and equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
1998................................................................... $ 2,429 $ 57,155
1999................................................................... 2,256 47,791
2000................................................................... 1,349 38,036
2001................................................................... 861 26,822
2002................................................................... 531 19,836
Thereafter............................................................. 3,433 58,961
--------- ----------
Total minimum lease payments........................................... 10,859 $ 248,601
----------
----------
Less: Amounts representing interest.................................... (2,921)
---------
Present value of net minimum lease payments............................ $ 7,938
---------
---------
</TABLE>
Rent expense for all operating leases for fiscal 1995, 1996 and 1997 was
$21,997, $33,050 and $54,577, respectively.
NOTE 13--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements.
NOTE 14--EMPLOYEE BENEFIT PLANS
Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service. In fiscal 1997, the Company's matching contribution expense was $1,195.
Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases
76
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 14--EMPLOYEE BENEFIT PLANS (CONTINUED)
made matching contributions on behalf of the employees. For fiscal 1995, 1996
and 1997, the subsidiaries incurred expenses totaling $3,225, $3,454 and $2,738,
respectively, related to these plans.
NOTE 15--STOCKHOLDERS' EQUITY
COMMON STOCK
In November 1994, the Board of Directors of the Company approved a one
thousand-for-one split of the Company's common stock and changed the par value
of common stock from $1 per share to $.001 per share. The consolidated financial
statements have been adjusted to reflect the stock split. In February 1996, the
Company's stockholders approved the amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 25,000,000 to 100,000,000 shares. In August 1996, the
Company's stockholders approved the amendment to the Company's Restated
Certified of Incorporation to increase the number of authorized shares of common
stock from 100,000,000 to 500,000,000. In October 1997, the Board of Directors
of the Company approved a three for two stock split of the Company's common
stock. The financial statements give retroactive effect for the split for all
period presented.
STOCK COMPENSATION PLANS
In October 1994, the Board of Directors and the Company's stockholders
approved the Company's 1994 Long-Term Compensation Plan (the "Plan"). The
purpose of the Plan is to provide officers, key employees and consultants with
additional incentives by increasing their ownership interests in the Company.
The maximum number of options to purchase common stock granted in any calendar
or fiscal year under the Plan, as amended, is equal to 20% of the aggregate
number of shares of the Company's common stock outstanding at the time an award
is granted, less, in each case, the number of shares subject to previously
outstanding awards under the Plan.
In August 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Non-Employee Directors' Stock Plan (the "Directors'
Plan"). The purpose of the Directors' Plan is to promote ownership by
non-employee directors of a greater proprietary interest in the Company, thereby
aligning such directors' interests more closely with the interest of
stockholders of the Company. A total of 750,000 shares of common stock have been
reserved for issuance under the Directors' Plan. At April 26, 1997, options to
acquire 162,000 shares of common stock have been granted under the Directors'
Plan.
The Company applies APB 25 in accounting for its stock option plans.
Accordingly, because the exercise prices of the options have equaled the market
price on the date of grant, no compensation expense has been recognized for
stock options granted. Had compensation cost for the Company's stock options
been recognized based upon the fair value of the stock options on the grant date
under the methodology prescribed by SFAS 123, the Company's net income and net
income per share would have
77
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--STOCKHOLDERS' EQUITY (CONTINUED)
been impacted as indicated in the following table. The pro forma results shown
below reflect only the impact of options granted in fiscal 1996 and 1997.
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Net income:
As reported............................................................................... $ 49,174 $ 75,099
Pro forma................................................................................. 47,015 62,461
Net income per share:
As reported............................................................................... $ .53 $ .66
Pro forma................................................................................. .50 .53
</TABLE>
The fair value of options granted (which is amortized to expense over the
option vesting period in determining the pro forma impact) is estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Expected life of option.................................................. 7 years 7 years
Risk free interest rate.................................................. 6.58% .66%
Expected volatility of USOP stock........................................ 58.5% 4.0%
</TABLE>
The weighted-average fair value of options granted was $12.44 and $17.06 for
fiscal 1996 and 1997, respectively.
A summary of option transactions follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
EXERCISE OPTIONS AVERAGE
OPTIONS PRICE EXERCISABLE EXERCISE PRICE
------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C>
Balance at April 30, 1994............................... 1,268,101 $ 6.66 1,268,101 $ 6.66
Granted............................................... 1,292,292 5.91
Exercised............................................. (196,954) 4.66
Canceled.............................................. (71,205) 6.87
------------
Balance at April 30, 1995............................... 2,292,234 6.40 669,057 6.90
Granted............................................... 4,741,796 6.32
Exercised............................................. (393,154) 6.40
Canceled.............................................. (52,629) 9.22
------------
Balance at April 30, 1996............................... 6,588,247 10.30 748,038 7.67
Granted............................................... 7,388,826 19.75
Exercised............................................. (440,564) 7.84
Canceled.............................................. (301,426) 10.44
------------
Balance at April 26, 1997............................... 13,235,083 15.65 2,236,305 9.30
------------
------------
</TABLE>
78
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 15--STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at April 26, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE OPTIONS EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE EXERCISABLE PRICE
- --------------------------------------------------- ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$0.45 to $6.66..................................... 1,421,399 7.2 years $ 3.17 638,510 $ 1.72
$6.67 to $13.33.................................... 3,231,026 7.9 years 7.76 1,154,218 9.26
$13.34 to $20.00................................... 4,817,754 9.3 years 15.43 338,148 15.02
$20.01 to $26.66................................... 3,737,004 9.3 years 23.27 105,429 20.65
$26.67 to $29.92................................... 27,900 9.1 years 28.13
------------ ----------
$29.93 to $29.92................................... 13,235,083 8.7 years $ 15.65 2,236,305 9.30
------------ ----------
------------ ----------
</TABLE>
The options outstanding information includes 125,498, 1,690,297, 58,802 and
343,488 options to acquire common stock at exercise prices of $.45, $8.01,
$10.59 and $10.70, respectively, which were granted at certain Pooled Companies
prior to their respective acquisitions by the Company.
Non-qualified options are generally exercisable beginning one year from the
date of grant in cumulative yearly amounts of 25% of the shares under option and
generally expire ten years from the date of grant.
NOTE 16--SEGMENT REPORTING
INDUSTRY SEGMENT
The Company currently operates in three reportable industry segments: office
products, print management and Mail Boxes Etc. The office products industry
segment involves the sales and distribution of office and related supplies and
equipment, catalog, contract and remanufactured furniture, office coffee and
beverage products and services and various types of business machines. The print
management industry segment involves the manufacturing, distribution, management
and printing of business forms, envelopes and promotional products. The Mail
Boxes Etc. industry segment involves the franchising of business, communications
and postal service centers. The other industry segments that the Company
79
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT REPORTING (CONTINUED)
operates in include technology solutions, education products and corporate
travel services. The following table sets forth information as to the Company's
operations in its different industry segments:
<TABLE>
<CAPTION>
OFFICE PRINT MAIL
PRODUCTS MANAGEMENT BOXES ETC. OTHER TOTAL
------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal 1995:
Revenues.............................................. $ 702,480 $ 139,732 $ 50,350 $ 350,844 $1,243,406
Operating income...................................... 21,655 5,571 10,734 19,298 57,258
Identifiable assets................................... 242,096 51,906 64,293 121,003 479,298
Depreciation and amortization......................... 5,782 4,478 1,024 5,773 17,057
Capital expenditures.................................. 6,779 2,456 477 5,561 15,273
Fiscal 1996:
Revenues.............................................. $ 1,094,375 $ 317,033 $ 59,106 $ 447,101 $1,917,615
Operating income...................................... 34,363 12,388 13,676 18,914 79,341
Identifiable assets................................... 533,614 120,971 72,766 399,802 1,127,153
Depreciation and amortization......................... 11,603 5,089 1,030 6,768 24,490
Capital expenditures.................................. 19,291 6,098 472 3,934 29,795
Fiscal 1997:
Revenues.............................................. $ 2,102,636 $ 368,378 $ 67,837 $ 582,344 $3,121,195
Operating income...................................... 93,308 20,301 11,862 27,537 153,008
Identifiable assets................................... 1,292,797 184,301 85,675 411,648 1,974,421
Depreciation and amortization......................... 32,768 8,758 1,046 10,649 53,221
Capital expenditures.................................. 31,511 16,600 1,292 17,618 67,021
</TABLE>
80
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16--SEGMENT REPORTING (CONTINUED)
GEOGRAPHIC SEGMENTS
The following table sets forth information as to the Company's operations in
its different geographic segments:
<TABLE>
<CAPTION>
NEW ZEALAND
UNITED AND
STATES AUSTRALIA CANADA TOTAL
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
Fiscal 1995:
Revenues................................................. $ 1,207,711 $ 28,574 $ 7,121 $ 1,243,406
Operating income......................................... 54,928 1,429 901 57,258
Identifiable assets at year-end.......................... 469,718 5,512 4,068 479,298
Fiscal 1996:
Revenues................................................. $ 1,720,356 $ 77,141 $ 120,118 $ 1,917,615
Operating income......................................... 70,430 3,533 5,378 79,341
Identifiable assets at year-end.......................... 884,305 188,134 54,714 1,127,153
Fiscal 1997:
Revenues................................................. $ 2,291,336 $ 700,793 $ 129,066 $ 3,121,195
Operating income......................................... 114,379 28,708 9,921 153,008
Identifiable assets at year-end.......................... 1,162,893 753,254 58,274 1,974,421
</TABLE>
NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data. The
amounts differ from the amounts previously reported during fiscal 1996 and 1997
on the Company's Quarterly Reports on Form 10-Q as a result of the restatement
of the financial statements to give retroactive effect to the results of the
81
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 17--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
companies acquired during fiscal 1996 and 1997 in business combinations
accounted for under the pooling-of-interests method.
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 385,696 $ 463,790 $ 519,054 $ 549,075 $ 1,917,615
Gross profit....................................... 105,146 126,380 141,962 152,182 525,670
Operating income................................... 11,394 21,427 29,672 16,848 79,341
Net income......................................... 8,385 13,640 18,424 8,725 49,174
Net income per share............................... .09 .13 .18 .07 .53
Pro forma income before extraordinary item (see
Note 10)......................................... 5,511 9,747 12,021 7,043 34,322
Pro forma income per share before extraordinary
item............................................. .06 .09 .12 .06 .36
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997 QUARTERS
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 614,635 $ 809,737 $ 867,078 $ 829,745 $ 3,121,195
Gross profit....................................... 175,088 231,034 252,874 247,018 906,014
Operating income................................... 33,672 41,314 40,715 37,307 153,008
Net income......................................... 20,224 19,851 17,551 17,473 75,099
Net income per share............................... .17 .16 .14 .13 .66
Pro forma income before extraordinary item (see
Note 10)......................................... 15,433 17,443 15,227 17,840 65,943
Pro forma income per share before extraordinary
item............................................. .13 .14 .12 .13 .56
</TABLE>
82
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 18--SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to April 26, 1997 and December 8, 1997, the Company has completed
31 business combinations for an aggregate purchase price of $169.5 million,
consisting of approximately $119.4 million of cash and 2.7 million shares of the
Company's common stock with an aggregate market value on the dates of
acquisition of approximately $50.1 million.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the acquisition described above had been
consummated as of the beginning of fiscal 1997. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, adjustments in executive compensation and the inclusion of a federal
income tax provision on all earnings:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 26, 1997
----------------
<S> <C>
Revenues.................................................................... $ 3,510,901
Income before extraordinary items........................................... 92,942
Income per share before extraordinary items................................. .72
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1997 or the
results which may occur in the future.
83
<PAGE>
ITEM 7--FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
<TABLE>
<C> <S>
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consents of Hertz, Herson & Co. LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of KPMG Peat Marwick LLP
23.6 Consent of Ernst & Young LLP
23.7 Consent of BDO Seidman LLP
23.8 Consent of Parent, McLaughlin & Nangle
23.9 Consent of Rubin, Koehmstedt & Nadler, PLC
23.10 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C> <C>
U.S. OFFICE PRODUCTS COMPANY
By: /s/ MARK D. DIRECTOR
-----------------------------------------
Mark D. Director
CHIEF ADMINISTRATIVE OFFICER,
Dated: December 24, 1997 GENERAL COUNSEL AND SECRETARY
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consents of Hertz, Herson & Co. LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of KPMG Peat Marwick LLP
23.6 Consent of Ernst & Young LLP
23.7 Consent of BDO Seidman LLP
23.8 Consent of Parent, McLaughlin & Nangle
23.9 Consent of Rubin, Koehmstedt & Nadler, PLC
23.10 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383
and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of our reports as of the dates indicated below
pertaining to the related financial statements of U.S. Office Products Company
which appear in this Current Report on Form 8-K of U.S. Office Products Company.
<TABLE>
<CAPTION>
COMPANY DATE
- ------------------------------------------------- ----------------------------------------
<S> <C>
U.S. Office Products Company Consolidated June 6, 1997, except as to the first
Financial Statements paragraph of Note 4, which is as of
October 25, 1997, and the first
paragraph of Note 14, which is as of
November 6, 1997.
U.S. Office Products Company Supplemental June 6, 1997, except as to the first
Consolidated Financial Statements paragraph of Note 5, which is as of
October 25, 1997, the first paragraph of
Note 15, which is as of November 6, 1997
and Note 1, which is as of November 20,
1997.
</TABLE>
/s/ PRICE WATERHOUSE LLP
- ------------------------------
Price Waterhouse LLP
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
December 23, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We thereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (33-10383
and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of our report dated February 2, 1996, with respect
to the financial statements of School Specialty, Inc. for the years ended
December 31, 1995 and 1994 (not presented separately in the Registration
Statement) which report appears in this Current Report on Form 8-K and Form
10-K/A of U.S. Office Products Company.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Milwaukee, Wisconsin
December 22, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383
and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of our reports dated February 28, 1997, except for
the Note Q, as to which the date is April 14, 1997 and March 7, 1997, except for
Note L, as to which the date is April 14, 1997 with respect to the financial
statements of United Envelope Co., Inc. and its affiliate, Rex Envelope Co.,
Inc., and Huxley Envelope Corporation, respectively, for the year ended December
31, 1996, which reports appear in this Current Report on Form 8-K of U.S. Office
Products Company.
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-1083
and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of our reports dated March 6, 1996 and March 4, 1996
with respect to the financial statements of United Envelope Co., Inc. and its
affiliate, Rex Envelope Co., Inc., and Huxley Envelope Corporation,
respectively, for the years ended December 31, 1995 and December 31, 1994, which
reports appear in this Current Report on Form 8-K of U.S. Office Products
Company.
/s/ HERTZ, HERSON & COMPANY, LLP
HERTZ, HERSON & COMPANY, LLP
New York, New York
December 19, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form S-4
and Form S-8 (333-36463) of U.S. Office Products Company of our report dated
June 6, 1997, with respect to the consolidated financial statements of Mail
Boxes Etc. included in this Current Report on Form 8-K of U.S. Office Products
Company.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
December 18, 1997
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
U.S. Office Products Company
We consent to the incorporation by reference in the registration statements on
Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133) and Post Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) of U.S. Office Products Company of our reports dated
August 28, 1996 with respect to the balance sheets of SFI Corp. and Hano
Document Printers, Inc. as of December 31, 1995, and the related statements of
income, stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1995, which reports appear in this Current
Report on Form 8-K and the Annual Report on Form 10-K/A of U.S. Office Products
Company.
[LOGO]
Norfolk, Virginia
December 23, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574), (333-12789) and (333-24581); Form S-3 (333-10383) and
(333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of U.S. Office Products Company of our report, with
respect to the financial statements of Data Business Forms Limited for the year
ended December 31, 1995, dated February 6, 1996, and which report appears on
U.S. Office Products Company's Current Report on Form 8-K.
/s/ ERNST & YOUNG
CHARTERED ACCOUNTANTS
Toronto, Canada
December 19, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789) and (333-12789, and 333-24581); Form S-3
(333-10383 and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment
No. 1 to Form S-4 on Form S-8 (333-36463) of our report dated February 8, 1996
relating to the financial statements of The Re-Print Corporation for the years
ended December 31, 1995 and 1994 which report appears in this Current Report on
Form 8-K and Form 10-K/A of U.S. Office Products Company.
<TABLE>
<S> <C>
/s/ BDO SEIDMAN, LLP
---------------------------------------------
BDO SEIDMAN, LLP
</TABLE>
Atlanta, Georgia
December 22, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383
and 333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form
S-4 on Form S-8 (333-36463) of our report dated May 23, 1996, except for Note N
as to which the date is October 14, 1996 with respect to the Balance Sheets of
Bay State Computer Group, Inc. as of March 31, 1996 and 1995, and the statements
of income, retained earnings, and cash flows for each of the three years in the
period ended March 31, 1996, which report appears in this Current Report on Form
8-K of U.S. Office Products Company.
/s/ Parent, McLaughlin & Nangle
Certified Public Accountants
Parent, McLaughlin & Nangle, CPA's,
Inc.
Boston, Massachusetts
December 23, 1997
<PAGE>
EXHIBIT 23.9
RUBIN, KOEHMSTEDT & NADLER, PLC
A Virginia Professional Limited
Liability Company
Certified Public Accounts
Management Consultants
6551 Loisdale Court, Suite 715
Springfield, Virginia
22150 703-971-2422
We hereby consent to the incorporation by reference in the Registration
Statements of Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3
(333-14025); S-4 (333-13133); and Post-Effective Amendement No. 1 to Form S-4 on
Form S-4 on Form S-8 (333-36463) of our report dated June 7, 1996, except as to
Note 9, which is as of October 24, 1996, relating to the financial statements of
Portran Corp., which report appears in this Current Report on Form 8-K of U.S.
office Products Company.
/s/ GARY A. KOEHMSTEDT
- ------------------------------
Gary A. Koehmstedt
Gary A. Koehmstedt, CPA
RUBIN, KOEHMSTEDT & NADLER,
PLC
December 22, 1997
<PAGE>
Ex 23.10
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (333-01574, 333-12789, and 333-24581); Form S-3
(333-10383 and 333-14025), Form S-4(333-13133); and Post-Effective Amendment No.
1 to Form S-4 on Form S-8 (333-36463) of our report dated September 23, 1996,
with respect to the financial statements of MTA, Inc. as of December 31, 1995,
and for the period from January 25, 1995 (date of incorporation) to December 31,
1995, appearing in this Current Report on Form 8-K and Form 10-K/A of U.S.
Office Products Company.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
December 19, 1997
