<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
April 25, 1997
------------------------------------------------
Date of Report (Date of earliest event reported)
U.S. OFFICE PRODUCTS COMPANY
---------------------------------------------------
(Exact name of registrant specified in its charter)
Delaware 0-25372 52-1906050
- -------------------------------------------------------------------------------
(State or other Juris- (Commission (I.R.S. Employer
diction of incorporation File No.) Identification No.)
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
The following financial statements of U.S. Office Products Company (the
"Company") are being filed to reflect the Company's acquisitions through
March 26, 1997:
(a) Consolidated financial statements of the Company as of April
30, 1996 and 1995 and January 25, 1997 (unaudited) and for each of the fiscal
years ended April 30, 1996, 1995 and 1994 and the nine months ended January
25, 1997 and January 31, 1996 (unaudited).
(b) Unaudited pro forma combined financial information of the
Company as of January 25, 1997 and for each of the years ended April 30,
1996, 1995 and 1994 and for the nine months ended January 25, 1997 and
January 31, 1996.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
(i) Consent of Price Waterhouse LLP
(ii) Consent of Ernst & Young LLP
(iii) Consent of BDO Seidman, LLP
(iv) Consent of KPMG Peat Marwick LLP
(v) Consent of Rubin, Koehmstedt & Nadler, PLC
(vi) Consent of Parent, McLaughlin & Nangle
<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 30, 1996 and 1995 and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
April 30, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of School Specialty,
Inc., The Re-Print Corporation, SFI Corp. and Hano Document Printers, Inc.
(wholly owned subsidiaries) which statements reflect total assets of
approximately $70.7 million at December 31, 1994 and total revenues of $252.3
million, $194.4 million and $85.9 million for the years ended December 31, 1995,
1994 and 1993, respectively. We also did not audit the financial statements of
Bay State Computer Group, Inc. and Fortran Corp. (wholly owned subsidiaries)
which statements reflect total assets of approximately $20.5 million at March
31, 1995 and total revenues of $83.9 million, $64.0 million and $37.5 million
for the years ended March 31, 1996, 1995 and 1994, respectively. Those
statements were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for School Specialty, Inc., The Re-Print Corporation, SFI
Corp., Hano Document Printers, Inc., Bay State Computer Group and Fortran Corp.
is based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
May 31, 1996, except as to the third paragraph
of Note 3 which is as of January 24, 1997, and
Note 14, which is as of July 10, 1996
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
School Specialty, Inc.
We have audited the balance sheets of School Specialty, Inc. (formerly known
as EDA Corporation) (the Company) as of December 31, 1995 and 1994, and the
related statements of operations, changes in shareholders' deficit and cash
flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 2, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Re-Print Corporation
Birmingham, Alabama
We have audited the accompanying balance sheets of The Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for three years ended December 31, 1995,
1994, and 1993 (not presented separately herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for three years ended December 31, 1995, 1994, and 1993 in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
Atlanta, Georgia
February 8, 1996
F-3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
BAY STATE COMPUTER GROUP, INC.
Boston, Massachusetts
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.
[SIGNATURE APPEARS HERE]
Certified Public Accountants
May 23, 1996, except for Note N
as to which the date is
October 14, 1996
[LETTERHEAD OF PARENT, MCLAUGHLIN & NANGLE APPEARS HERE]
F-4
<PAGE>
[LETTERHEAD OF RUBIN, KOEHMSTEDT & NADLER, PLC]
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Fortran Corp.
Newington, Virginia
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 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.
/S/ RUBIN, KOEHMSTEDT & NADLER
June 7, 1996, except for Note 9,
as to which the date is October 24, 1996
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
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
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
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
F-7
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1995 1996
---------- ---------- JANUARY 25,
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 19,183 $ 177,635 $ 56,462
Accounts receivable, less allowance for doubtful accounts of $1,301,
$4,304 and $7,857, respectively........................................ 122,847 206,140 336,434
Lease receivables........................................................ 24,807 30,442
Inventories.............................................................. 63,056 128,396 250,795
Prepaid expenses and other current assets................................ 6,670 28,122 52,831
---------- ---------- ------------
Total current assets................................................. 211,756 565,100 726,964
Property and equipment, net................................................ 40,617 95,411 202,678
Intangible assets, net..................................................... 27,154 143,452 585,841
Lease receivables.......................................................... 47,005 44,423
Other assets............................................................... 5,620 19,751 68,401
---------- ---------- ------------
Total assets......................................................... $ 285,147 $ 870,719 $ 1,628,307
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.......................................................... $ 62,156 $ 134,590 $ 367,225
Accounts payable......................................................... 61,456 114,871 172,555
Accrued compensation..................................................... 10,342 20,207 38,966
Other accrued liabilities................................................ 15,619 29,919 69,342
---------- ---------- ------------
Total current liabilities............................................ 149,573 299,587 648,088
Long-term debt............................................................. 32,696 199,504 389,453
Deferred income taxes...................................................... 4,357 7,056 7,633
Other long-term liabilities................................................ 1,617 2,222 6,106
---------- ---------- ------------
Total liabilities.................................................... 188,243 508,369 1,051,280
---------- ---------- ------------
Commitments and contingencies
Minority interest.......................................................... 6,024 4,941
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares authorized, none
outstanding Preferred stock of a pooled company........................ 1,000
Common stock, $.001 par value 500,000,000 shares authorized, 26,568,288,
44,174,854 and 51,352,131 shares issued and outstanding,
respectively........................................................... 27 44 51
Additional paid-in capital............................................... 50,855 299,027 496,189
Cumulative translation adjustment........................................ (193) 418 (3,772)
Retained earnings........................................................ 45,215 56,837 79,618
---------- ---------- ------------
Total stockholders' equity........................................... 96,904 356,326 572,086
---------- ---------- ------------
Total liabilities and stockholders' equity........................... $ 285,147 $ 870,719 $ 1,628,307
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE FISCAL YEAR ENDED APRIL 30, -------------------------
------------------------------------ JANUARY 31, JANUARY 25,
1994 1995 1996 1996 1997
---------- ---------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................ $ 597,511 $ 798,709 $ 1,386,212 $ 975,128 $ 1,807,652
Cost of revenues................................ 427,308 586,989 1,016,640 719,908 1,295,249
---------- ---------- ------------ ----------- ------------
Gross profit.............................. 170,203 211,720 369,572 255,220 512,403
Selling, general and administrative expenses.... 151,979 181,845 314,314 213,123 418,516
Nonrecurring acquisition costs.................. 8,078 6,094 10,957
Discontinuation of printing division at
subsidiary..................................... 682 682
---------- ---------- ------------ ----------- ------------
Operating income.............................. 18,224 29,875 46,498 35,321 82,930
Other (income) expense:
Interest expense.............................. 4,943 7,108 15,322 9,503 32,083
Interest income............................... (405) (682) (4,034) (1,405) (6,437)
Equity in net income of affiliate............. (265)
Foreign currency gain......................... (3,420)
Other......................................... (1,154) (1,122) (1,140) (1,402) (193)
---------- ---------- ------------ ----------- ------------
Income before provision for income taxes and
extraordinary item............................. 14,840 24,571 36,350 28,625 61,162
Provision for income taxes...................... 2,095 3,184 7,123 5,226 24,159
---------- ---------- ------------ ----------- ------------
Income before extraordinary item................ 12,745 21,387 29,227 23,399 37,003
Extraordinary item--loss on early termination of
credit facility, net of income tax benefit..... 612
---------- ---------- ------------ ----------- ------------
Net income.................................... $ 12,745 $ 21,387 $ 29,227 $ 23,399 $ 36,391
---------- ---------- ------------ ----------- ------------
---------- ---------- ------------ ----------- ------------
Weighted average common shares outstanding...... 36,781 34,395 49,759
------------ ----------- ------------
------------ ----------- ------------
Net income per share:
Income before extraordinary item.............. $ .79 $ .68 $ .74
Extraordinary item............................ (.01)
------------ ----------- ------------
Net income per share.......................... $ .79 $ .68 $ .73
------------ ----------- ------------
------------ ----------- ------------
Unaudited pro forma net income
(see Note 8)................................ $ 8,945 $ 14,916 $ 19,302 $ 15,557 $ 30,454
---------- ---------- ------------ ----------- ------------
---------- ---------- ------------ ----------- ------------
Unaudited pro forma net income per share:
Pro forma income before extraordinary item.... $ .52 $ .45 $ .62
Extraordinary item............................ (.01)
------------ ----------- ------------
Pro forma net income per share................ $ .52 $ .45 $ .61
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED APRIL 30, 1994, 1995 AND 1996
AND THE NINE MONTHS ENDED JANUARY 25, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
------------------------ ---------------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS
----------- ----------- --------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1993............ 1 $ 1,000 18,064,225 $ 18 18,503 $ (400) $ 31,755
Transactions of Combined Companies:
Dividends.......................... (115)
Purchase of treasury stock
Adjustment to conform fiscal
year-ends of certain Combined
Companies........................... 273
Other................................ 512 (950)
Dividends of certain Pooled
Companies........................... (6,785)
Net income........................... 12,745
--- ----------- --------- --- ----------- ------ -----------
Balance at April 30, 1994............ 1 1,000 18,064,225 18 19,015 (400) 36,923
Transactions of Combined Companies:
Issuance of common stock........... 251
Capital contributed by principal
stockholder...................... 1,814
Dividends.......................... (222)
Issuance of common stock in
conjunction with the formation of
U.S. Office Products............. 800,000 1
Issuance of common stock in the
initial public offering, net of
offering expenses of $4,686...... 3,737,500 4 32,686
Issuance of common stock to the
stockholders of the Combined
Companies........................ 3,078,000 3 (3)
Distributions to the stockholders
of the Combined Companies........ (11,300)
Issuance of common stock in
acquisition...................... 875,000 1 8,749
Adjustment to conform the year-ends
of certain Pooled Companies...... 2,235
Adjustment to stockholders' equity
accounts to reflect the
Mergers.......................... (12,597) 5,035
Cumulative translation
adjustment....................... 207
Conversion of warrants to equity of
certain Pooled Companies......... 13,563 201
Issuance of stock by certain Pooled
Companies........................ 739
Dividends of certain Pooled
Companies........................ (8,843)
Net income........................... 21,387
--- ----------- --------- --- ----------- ------ -----------
Balance at April 30, 1995............ 1 1,000 26,568,288 27 50,855 (193) 45,215
<CAPTION>
TREASURY TOTAL
STOCK EQUITY
----------- ---------
<S> <C> <C>
Balance at April 30, 1993............ $ (5,048) $ 45,828
Transactions of Combined Companies:
Dividends.......................... (115)
Purchase of treasury stock (2,514) (2,514)
Adjustment to conform fiscal
year-ends of certain Combined
Companies........................... 273
Other................................ (438)
Dividends of certain Pooled
Companies........................... (6,785)
Net income........................... 12,745
----------- ---------
Balance at April 30, 1994............ (7,562) 48,994
Transactions of Combined Companies:
Issuance of common stock........... 251
Capital contributed by principal
stockholder...................... 1,814
Dividends.......................... (222)
Issuance of common stock in
conjunction with the formation of
U.S. Office Products............. 1
Issuance of common stock in the
initial public offering, net of
offering expenses of $4,686...... 32,690
Issuance of common stock to the
stockholders of the Combined
Companies........................
Distributions to the stockholders
of the Combined Companies........ (11,300)
Issuance of common stock in
acquisition...................... 8,750
Adjustment to conform the year-ends
of certain Pooled Companies...... 2,235
Adjustment to stockholders' equity
accounts to reflect the
Mergers.......................... 7,562
Cumulative translation
adjustment....................... 207
Conversion of warrants to equity of
certain Pooled Companies......... 201
Issuance of stock by certain Pooled
Companies........................ 739
Dividends of certain Pooled
Companies........................ (8,843)
Net income........................... 21,387
----------- ---------
Balance at April 30, 1995............ 96,904
</TABLE>
F-10
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED APRIL 30, 1994, 1995 AND 1996
AND THE NINE MONTHS ENDED JANUARY 25, 1997 (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
------------------------ ---------------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS
----------- ----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995............ 1 $ 1,000 26,568,288 $ 27 $ 50,855 $ (193) $ 45,215
Issuance of warrants by Pooled
Companies........................ 473,750 672
Exercise of warrants by Pooled
Companies........................ 178,865 784
Options issued by Pooled
Companies........................ 296
Issuance of common stock in the
second public offering, net of
offering expenses of $3,902...... 4,025,000 4 53,450
Issuance of common stock in the
third public offering, net of
offering expenses of $7,594...... 5,543,045 6 121,277
Issuance of common stock for stock
options exercised, including tax
benefits......................... 63,350 1,023
Issuance of common stock to repay
indebtedness..................... 419,408 3,855
Adjustment to conform fiscal
year-ends of certain Pooled
Companies and for the issuance of
common stock in acquisitions..... 6,247,723 6 61,135 6,578
Capital contribution by former
shareholders of pooled company... 1,154
Conversion of Pooled Company
preferred stock upon
acquisition...................... (1) (1,000) 1,000
Issuance of stock by certain Pooled
Companies........................ 91,000 2,164
Dividends of certain Pooled
Companies........................ 564,425 1 1,362 (24,183)
Cumulative translation
adjustment....................... 611
Net income......................... 29,227
--- ----------- --------- --- ----------- ----------- -----------
Balance at April 30, 1996............ -- -- 44,174,854 44 299,027 418 56,837
Issuance of common stock in
acquisitions..................... 5,122,401 5 145,665
Issuance of common stock........... 1,250,000 1 38,112
Exercise of stock options.......... 152,327 780
Exercise of stock warrants......... 166,750 1,200
Retirement of treasury stock....... 68,205 34 (34)
Capital contribution by former
shareholders of Pooled
Companies........................ 174,259 1 6,046
Issuance of common stock for stock
options exercised, including tax
benefit.......................... 122,796 2,945
Issuance of common stock for
employee stock purchase plan, net
of expenses of $63............... 120,539 2,380
Adjustment to conform fiscal
year-ends of certain Pooled
Companies........................ 284
Dividends of certain Pooled
Companies........................ (13,860)
Cumulative translation
adjustment....................... (4,190)
Net income......................... 36,391
--- ----------- --------- --- ----------- ----------- -----------
Balance at January 25, 1997
(unaudited)......................... -- $ -- 51,352,131 $ 51 $ 496,189 $ (3,772) $ 79,618
--- ----------- --------- --- ----------- ----------- -----------
--- ----------- --------- --- ----------- ----------- -----------
<CAPTION>
TREASURY TOTAL
STOCK EQUITY
----------- ---------
<S> <C> <C>
Balance at April 30, 1995............ -- $ 96,904
Issuance of warrants by Pooled
Companies........................ 672
Exercise of warrants by Pooled
Companies........................ 784
Options issued by Pooled
Companies........................ 296
Issuance of common stock in the
second public offering, net of
offering expenses of $3,902...... 53,454
Issuance of common stock in the
third public offering, net of
offering expenses of $7,594...... 121,283
Issuance of common stock for stock
options exercised, including tax
benefits......................... 1,023
Issuance of common stock to repay
indebtedness..................... 3,855
Adjustment to conform fiscal
year-ends of certain Pooled
Companies and for the issuance of
common stock in acquisitions..... 67,719
Capital contribution by former
shareholders of pooled company... 1,154
Conversion of Pooled Company
preferred stock upon
acquisition......................
Issuance of stock by certain Pooled
Companies........................ 2,164
Dividends of certain Pooled
Companies........................ (22,820)
Cumulative translation
adjustment....................... 611
Net income......................... 29,227
----------- ---------
Balance at April 30, 1996............ -- 356,326
Issuance of common stock in
acquisitions..................... 145,670
Issuance of common stock........... 38,113
Exercise of stock options.......... 780
Exercise of stock warrants......... 1,200
Retirement of treasury stock.......
Capital contribution by former
shareholders of Pooled
Companies........................ 6,047
Issuance of common stock for stock
options exercised, including tax
benefit.......................... 2,945
Issuance of common stock for
employee stock purchase plan, net
of expenses of $63............... 2,380
Adjustment to conform fiscal
year-ends of certain Pooled
Companies........................ 284
Dividends of certain Pooled
Companies........................ (13,860)
Cumulative translation
adjustment....................... (4,190)
Net income......................... 36,391
----------- ---------
Balance at January 25, 1997
(unaudited)......................... $ -- $ 572,086
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE FISCAL YEAR ENDED APRIL MONTHS ENDED
30, ------------------------
------------------------------- JANUARY 31, JANUARY 25,
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 12,745 $ 21,387 $ 29,227 $ 23,399 $ 36,391
Adjustment to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization expense................ 8,614 10,410 14,461 9,853 26,321
Deferred income taxes................................ (165) (51) (264) 825 3,600
Write-off of deferred compensation................... (1,501)
Foreign currency gain................................ (3,420)
Equity in net income of affiliate.................... (265)
Issuance of common stock in exchange for services
rendered........................................... 500
Changes in assets and liabilities (net of assets
acquired and liabilities assumed in business
combinations):
Accounts receivable................................ (9,964) (27,300) (21,986) (43,991) (36,024)
Lease receivables.................................. (17,664) (238)
Inventory.......................................... (2,615) (1,397) (7,565) (1,665) 4,395
Prepaid expenses and other current assets.......... (2,464) (1,243) (10,629) (7,845) (4,184)
Accounts payable................................... 4,305 7,603 12,199 14,919 (32,534)
Accrued liabilities................................ 1,625 5,453 10,135 324 (17,877)
--------- --------- --------- ----------- -----------
Net cash provided by (used in) operating
activities..................................... 12,081 14,862 7,914 (4,181) (24,836)
--------- --------- --------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment.................... (7,199) (7,864) (20,793) (16,845) (23,882)
Cash used in acquisitions.............................. (18,099) (95,574) (58,236) (332,537)
Investment in affiliate................................ (5,603) (41,291)
Deposits............................................... (74) (77) (256) (417) (1,310)
Other.................................................. (688) 274 (509) 158 (5,214)
--------- --------- --------- ----------- -----------
Net cash used in investing activities............ (7,961) (25,766) (122,735) (75,340) (404,234)
--------- --------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............... 8,568 6,198 168,170 11,388 221,101
Payments of long-term debt............................. (6,801) (8,107) (20,450) (10,264) (160,164)
Proceeds (payments) of short-term debt................. 1,504 3,859 (33,224) 35,443 215,062
Proceeds from issuance of common stock................. 33,454 176,287 52,537 38,113
Proceeds from exercise of stock options and warrants... 597 3,356
Proceeds from issuance of common stock in employee
stock purchase plan.................................. 2,380
Contributions of capital by stockholders of Pooled
Companies............................................ 2,557 1,921 1,970
Payments to stockholders of combined companies......... (27) (11,330) (42)
Adjustments to conform fiscal year-ends of certain
Pooled Companies..................................... 230 601 (1,615) (462) 286
Payments of dividends.................................. (7,179) (8,741) (16,506) (15,587) (13,860)
--------- --------- --------- ----------- -----------
Net cash provided by (used in) financing
activities..................................... (3,705) 18,491 273,217 74,976 308,244
--------- --------- --------- ----------- -----------
Effect of exchange rates on cash and cash equivalents.... 237 (422) (428) 99 (347)
Net increase (decrease) in cash and cash equivalents..... 652 7,165 157,968 (4,446) (121,173)
Cash and cash equivalents at beginning of period......... 11,366 12,018 19,183 19,183 177,635
--------- --------- --------- ----------- -----------
Cash and cash equivalents at end of period............... $ 12,018 $ 19,183 $ 177,635 $ 14,737 $ 56,462
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
F-12
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE FISCAL YEAR MONTHS ENDED
ENDED APRIL 30, --------------------------
------------------------------- JANUARY 31, JANUARY 25,
1994 1995 1996 1996 1997
--------- --------- --------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid.............................................. $ 8,236 $ 11,361 $ 12,854 $ 6,234 $ 28,980
Income taxes paid.......................................... $ 3,234 $ 3,463 $ 8,524 $ 5,321 $ 21,085
</TABLE>
The Company issued common stock, notes payable and cash in connection with
certain business combinations in fiscal years ended April 30, 1994, 1995 and
1996.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 NINE
FOR THE FISCAL YEAR MONTHS ENDED
ENDED APRIL 30, ------------------------
------------------------------- JANUARY 31, JANUARY 25,
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accounts receivable..................................... $ -- $ 23,462 $ 72,231 $ 30,561 $ 93,993
Inventories............................................. 20,074 51,425 22,442 126,506
Prepaid expenses and other current assets............... 1,779 8,914 4,001 15,159
Property and equipment.................................. 5,459 34,978 18,732 108,705
Intangible assets....................................... 21,079 118,422 74,665 447,202
Lease receivables....................................... 55,095 870
Other assets............................................ 339 1,257 1,074 5,273
Short-term debt......................................... (15,038) (105,814) (19,928) (17,102)
Accounts payable........................................ (15,627) (38,357) (21,357) (93,436)
Accrued liabilities..................................... (4,958) (16,244) (7,285) (83,894)
Long-term debt.......................................... (6,283) (17,949) (9,574) (116,807)
Deferred income taxes................................... (1,635)
Other long-term liabilities............................. (437) (247) (887) (8,262)
Minority interest....................................... (5,349)
--------- --------- --------- ----------- -----------
Net assets acquired..................................... $ -- $ 29,849 $ 156,727 $ 92,444 $ 478,207
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
The acquisitions were funded as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Common stock............................................ $ -- $ 8,750 $ 60,367 $ 34,208 $ 145,670
Notes payable........................................... 3,000 786
Cash.................................................... 18,099 95,574 58,236 332,537
--------- --------- --------- ----------- -----------
$ -- $ 29,849 $ 156,727 $ 92,444 $ 478,207
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
Noncash transactions:
- During fiscal 1996, one Pooled Company converted $1,385 of notes payable
to common stock.
- During fiscal 1996, the Company issued 194,447 shares of common stock to
repay $2,470 of indebtedness.
- During fiscal 1996, the Company recorded additional paid-in capital of
approximately $483 related to the tax benefit on stock options exercised.
- During fiscal 1994, one Combined Company issued $1,800 of debt in exchange
for nonvoting shares of common stock.
See accompanying notes to consolidated financial statements.
F-13
<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 with the goal of creating a world-wide office products
supplier, primarily to corporate, commercial and industrial customers.
Concurrent with the closing of its initial public offering (the "IPO") in
February 1995, the Company acquired four companies for a combination of its
common stock and cash which are referred to herein as the "Combined Companies"
and acquired two companies in business combinations accounted for under the
purchase method. The six companies are referred to as the "Founding Companies."
Simultaneously with the closing of the IPO, U.S. Office Products acquired by
merger each of the Combined Companies (the "Mergers"). The accompanying
consolidated financial statements and related notes to consolidated financial
statements are representative of what the financial position, results of
operations and cash flows would have been if U.S. Office Products and the
Combined Companies had been combined on May 1, 1993. The assets and liabilities
of the Combined Companies are reflected at their historical amounts. Capital
stock of the Combined Companies is included in additional paid-in capital. The
Combined Companies previously reported on fiscal years ending other than April
30. Commencing on May 1, 1994, the fiscal year-ends were changed to April 30
which resulted in an adjustment to retained earnings during fiscal 1994 of $273
which resulted from revenues of $8,983 and expenses of $8,710.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of U.S. Office Products,
the Combined Companies and the companies acquired in business combinations
accounted for under the purchase method (the "Purchased Companies") from their
respective acquisition dates and give retroactive effect to the results of the
companies acquired in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") for all periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, "fiscal 1994," "fiscal 1995" and "fiscal
1996" refer to the Company's fiscal years ended April 30, 1994, 1995 and 1996,
respectively.
F-14
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company invests a portion of its cash in highly
rated corporate commercial paper with original maturities of 30 days or less and
in overnight investments collateralized by U.S. government securities.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of product held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 5 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases are being amortized over the lesser of their useful lives or their lease
terms.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Goodwill is amortized on a straight
line basis over an estimated useful life of 40 years. Management periodically
evaluates the recoverability of goodwill, which would be adjusted for a
permanent decline in value, if any, by comparing anticipated undiscounted future
cash flows from operations to net book value.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.
F-15
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's majority owned foreign subsidiary has entered into forward
foreign currency exchange contracts (the "Exchange Contracts") with
counterparties to hedge the exposure to foreign currency fluctuations to the
extent permissible by hedge accounting requirements. At April 30, 1996, the
Exchange Contracts, in the notional amount of $4,616, hedge approximately $5,292
of foreign currency denominated assets. Discounts or premiums on the Exchange
Contracts are amortized over the life of the contracts.
The Company's majority owned foreign subsidiary has also entered into
interest rate swap agreements (the "Swap Agreements") with counterparties to
convert the interest rates associated with certain outstanding debt from
variable rates to fixed rates. The notional amount of the Swap Agreements was
$43,000 at April 30, 1996. The market risks associated with these Swap
Agreements result from short-term fluctuations in interest rates. The credit
risks related to non-performance of the Swap Agreements by the counterparties
are not deemed to be significant; however, non-performance would result in the
Company terminating the Swap Agreements and recognizing a gain or loss,
depending on the fair market value of the Swap Agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure About Fair Value of Financial Instruments," the Company has
estimated the fair value of its financial instruments using the following
methods and assumptions:
- The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value;
- The fair value of the 5 1/2% Convertible Subordinated Notes due 2001 is
based on quoted market prices;
- The carrying amounts of the Company's debt, other than the 5 1/2%
Convertible Subordinated Notes due 2001, approximates fair value,
estimated by discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." One Combined Company and certain Pooled Companies
were organized as subchapter S corporations prior to being acquired by the
Company and, as a result, the federal tax on their income was the responsibility
of their individual stockholders. The asset and liability approach used in SFAS
109 requires the recognition of deferred tax assets and liabilities for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of foreign 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.
F-16
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized upon the delivery of office products to customers. The
Company also leases equipment to customers under both short-term and long-term
lease agreements. Revenue related to the short-term leases is recognized on a
monthly basis over the life of the lease. Certain long-term leases qualify as
sales-type leases and accordingly the present value of the future lease payments
are recognized as income upon delivery of the equipment to the customer.
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included as an increase to cost of revenues.
NONRECURRING ACQUISITION COSTS
Nonrecurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, investment banking fees,
recognition of transaction related obligations and various other acquisition
related costs.
DISCONTINUATION OF PRINTING DIVISION AT SUBSIDIARY
During fiscal 1996, the Company discontinued the printing division at one of
its subsidiaries and incurred a one time charge of $682, which consisted
primarily of the writedown of printing division assets to their estimated market
value.
NET INCOME PER SHARE
Net income per share for fiscal 1996 is calculated by dividing net income by
the weighted average number of common shares outstanding during the year
including common stock equivalents, if dilutive.
Net income per share for fiscal 1995 and fiscal 1994 has not been presented
as it is not considered meaningful due to the Mergers and the IPO in conjunction
with the formation of the Company during fiscal 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation." SFAS 123 establishes a fair value
based method of accounting for employee stock based compensation plans and
encourages companies to adopt that method. However, it also allows companies to
continue to apply the intrinsic value based method currently prescribed under
APB Opinion No. 25, provided certain pro forma disclosures are made. SFAS 123 is
not required to be adopted by the Company until fiscal 1997. The Company
currently intends to continue to apply the accounting method prescribed by APB
Opinion 25 and, accordingly, the adoption of SFAS 123 will not have a material
impact on the Company's operating results.
In March, 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires
F-17
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. SFAS 121 is not required to be adopted by the Company until fiscal
1997. The Company does not anticipate that SFAS 121 will have a material effect
on the Company's operating results.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of January 25, 1997 and the results
of income and of cash flows for the nine months ended January 31, 1996 and
January 25, 1997, as presented in the accompanying unaudited supplemental
consolidated financial statements.
NOTE 3--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1996, the Company issued 8,440,852 shares of common stock to
acquire 14 companies in acquisitions accounted for under the
pooling-of-interests method. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. Certain of the Pooled Companies previously reported on fiscal
years ending other than April 30. The results of these Pooled Companies were
previously reported on June 30, September 30 and December 31 year-ends.
The accounts of these Pooled Companies for the years ended December 31, 1993
and 1994, for the years ended June 30, 1994 and 1995 and for the years ended
September 30, 1994 and 1995 have been combined with the accounts of U.S. Office
Products for the years ended April 30, 1994 and 1995, respectively. Commencing
on May 1, 1995, the year-ends of these companies were changed to April 30,
resulting in an increase to retained earnings of $2,235 during fiscal 1995.
Subsequent to April 30, 1996, the Company issued 13,307,350 shares of common
stock to acquire 30 companies in acquisitions accounted for under the
pooling-of-interests method. Except as noted below, the Company's consolidated
financial statements give retroactive effect to the acquisitions of the Pooled
Companies for all periods presented. Certain of the Pooled Companies previously
reported on fiscal years ending other than April 30. The results of these Pooled
Companies were previously reported on January 31, March 31, May 31, June 30,
August 31 and December 31 year-ends.
The accounts of these Pooled Companies for the years ended December 31, 1994
and 1995, for the years ended January 31, 1995 and 1996, for the year ended
March 31, 1995 and 1996, for the years ended May 31, 1995 and 1996, for the
years ended June 30, 1995 and 1996, and the years ended August 31, 1995 and 1996
have been combined with the accounts of U.S. Office Products for the years ended
April 30, 1995 and 1996, respectively. Commencing on May 1, 1996, the year-ends
of these Companies were changed to April 30, resulting in a reduction to
retained earnings of $2,660 during fiscal 1996 and an increase of $284 for the
nine months ended January 25, 1997.
F-18
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
Following is a summary of the results related to the adjustments to retained
earnings for these Pooled Companies:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
---------------------
1995 1996
--------- ---------- FOR THE NINE
MONTHS ENDED
JANUARY 25,
1997
------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................................. $ 55,126 $ 121,722 $ (4,639)
Costs and expenses....................................... 52,891 124,382 (4,923)
--------- ---------- ------------
Net income (loss)........................................ $ 2,235 $ (2,660) $ 284
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
The separate results of operations of U.S. Office Products Company and the
Pooled Companies for periods prior to the mergers are presented below:
<TABLE>
<CAPTION>
U.S. OFFICE POOLED
FOR THE YEAR ENDED APRIL 30, PRODUCTS COMPANIES COMBINED
- ----------------------------------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
1996
Revenue............................................ $ 488,670 $ 897,542 $ 1,386,212
Net income......................................... $ 7,828 $ 21,399 $ 29,227
1995
Revenue............................................ $ 120,479 $ 678,230 $ 798,709
Net income......................................... $ 1,514 $ 19,873 $ 21,387
1994
Revenue............................................ $ 76,541 $ 520,970 $ 597,511
Net income......................................... $ 1,114 $ 11,631 $ 12,745
FOR THE NINE MONTHS ENDED JANUARY 25, 1997
(UNAUDITED):
- -----------------------------------------------------
Revenue............................................ $ 1,473,192 $ 344,460 $ 1,807,652
Net income......................................... $ 25,069 $ 11,322 $ 36,391
FOR THE NINE MONTHS ENDED JANUARY 31, 1996
(UNAUDITED):
- -----------------------------------------------------
Revenue............................................ $ 267,837 $ 707,291 $ 975,128
Net income......................................... $ 5,226 $ 18,173 $ 23,399
</TABLE>
Certain of the Pooled Companies were individually insignificant and the
financial statements for years prior to fiscal 1996 have not been restated for
these operations. The effect of these acquisitions has been recognized as of May
1, 1995 as an increase in stockholders' equity of $10,012.
PURCHASE METHOD
In fiscal 1996, the Company made 27 acquisitions accounted for under the
purchase method for an aggregate purchase price of $156,727 consisting of
$95,574 of cash, $786 of notes payable and 3,885,349 shares of common stock with
a market value of $60,367. The total assets related to these 27 acquisitions
were $342,322, including goodwill of $118,422. The results of these acquisitions
have been included in the Company's results from their respective dates of
acquisition.
F-19
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
In fiscal 1995, in addition to the Mergers, the Company made six
acquisitions accounted for under the purchase method for an aggregate purchase
price of $29,849, consisting of $18,099 of cash, $3,000 of notes payable and
875,000 shares of common stock with a market value of $8,750. The total assets
related to these six acquisitions were $72,192, including goodwill of $21,079.
The results of these acquisitions have been included in the Company's results
from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the fiscal years ended April 30, 1995 and 1996 as if the purchase
acquisitions described above had been consummated as of the beginning of fiscal
1995. The results presented below include certain pro forma adjustments to
reflect the amortization of intangible assets, adjustments in executive
compensation and the inclusion of a federal income tax provision:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Revenues.......................................................... $ 1,299,286 $ 1,732,620
Net income........................................................ 22,069 32,278
Net income per share.............................................. 0.54 0.72
</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 1995 or the
results which may occur in the future.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Land.................................................................. $ 2,715 $ 4,539
Buildings............................................................. 14,709 33,465
Furniture and fixtures................................................ 23,208 51,779
Warehouse equipment................................................... 24,969 34,336
Equipment under capital leases........................................ 5,307 8,665
Leasehold improvements................................................ 8,209 8,507
---------- ----------
79,117 141,291
Less: Accumulated depreciation........................................ (38,500) (45,880)
---------- ----------
Net property and equipment............................................ $ 40,617 $ 95,411
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the fiscal years ended April 30, 1994, 1995 and
1996 was $6,453, $8,275 and $10,868, respectively.
F-20
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5--INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Goodwill............................................................... $ 23,944 $ 142,205
Other.................................................................. 8,309 8,596
--------- ----------
32,253 150,801
Less: Accumulated amortization......................................... (5,099) (7,349)
--------- ----------
$ 27,154 $ 143,452
--------- ----------
--------- ----------
</TABLE>
Other intangible assets consist primarily of non-compete arrangements which
are amortized over the term of the agreements. Amortization expense for the
fiscal years ended April 30, 1994, 1995 and 1996 was $2,161, $2,135 and $3,593,
respectively.
NOTE 6--LEASE RECEIVABLES
Lease receivables represent the present value of future lease payments
related to equipment sold to customers as sales type leases. The future minimum
lease payments to be received are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 34,146
1998.............................................................. 29,885
1999.............................................................. 17,181
2000.............................................................. 5,800
2001 and thereafter............................................... 1,647
---------
Total lease receivable............................................ 88,659
Less: Amounts representing interest............................... (16,847)
---------
Present value of net lease receivable............................. $ 71,812
---------
---------
</TABLE>
F-21
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Bank lines of credit, secured by accounts receivable and inventory, interest
rates ranging from prime to prime plus 2.25% (9.0% to 10.0% at April 30,
1996).......................................................................... $ 50,925 $ 22,555
Annual renewal loans provided by banks and other financial institutions of
foreign subsidiary secured by lease receivables of foreign subsidiary. Interest
rates ranging from 7.8% to 10.2% at April 30, 1996............................. 80,949
Bank lines of credit of foreign subsidiary operations secured by assets of those
operations.Interest rates ranging from 9.2% to 9.8% at April 30, 1996.......... 12,731
Other............................................................................ 3,036 7,130
Current maturities of long-term debt............................................. 8,195 11,225
--------- ----------
Total short-term debt...................................................... $ 62,156 $ 134,590
--------- ----------
--------- ----------
</TABLE>
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1995 1996
--------- ----------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates ranging
from 8.0% to 10.0%, maturities from October 1996 through 2003.................. $ 16,104 $ 9,773
Convertible Subordinated Notes due 2001, interest at 5 1/2%, convertible into
shares of common stock at any time prior to maturity at a conversion price of
$28.50 per share, subject to adjustment in certain events...................... 143,750
Debt facility payable over five years secured by lease receivables of the
Company's foreign subsidiaries. Interest rates ranging from 11.0% to 12.0% at
April 30, 1996................................................................. 8,943
Other............................................................................ 23,406 43,134
Capital lease obligations........................................................ 1,381 5,129
--------- ----------
40,891 210,729
Less: Current maturities of long-term debt....................................... (8,195) (11,225)
--------- ----------
Total long-term debt....................................................... $ 32,696 $ 199,504
--------- ----------
--------- ----------
</TABLE>
The 5 1/2% Convertible Subordinated Notes due 2001 (the "Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after February 3, 1998, but may not be
F-22
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
redeemed prior to February 2, 1999 unless the closing price of the common stock
is at least 150% of the conversion price for a period of time prior to the
notice of redemption. Costs incurred in connection with the issuance of the
Notes are included in other assets and are being amortized over the five year
period of maturity. The fair value of the Notes at April 30, 1996, based upon
quoted market prices, totaled $211,313.
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $ 11,225
1998.............................................................. 14,823
1999.............................................................. 13,528
2000.............................................................. 2,545
2001.............................................................. 148,285
Thereafter........................................................ 20,323
---------
$ 210,729
---------
---------
</TABLE>
NOTE 8--INCOME TAXES
U.S. Office Products will file a consolidated federal income tax return for
periods subsequent to the Mergers described in Note 3. Each of the Combined
Companies and Pooled Companies will file "short-period" federal tax returns
through the dates of the Mergers and business combinations.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED APRIL
30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income taxes currently payable:
Federal........................................................ $ 1,805 $ 1,722 $ 5,943
State.......................................................... 455 704 608
Foreign taxes currently payable................................ 809 836
--------- --------- ---------
2,260 3,235 7,387
--------- --------- ---------
Deferred income tax expense (benefit)............................ (165) (51) (264)
--------- --------- ---------
Total provision for income taxes........................... $ 2,095 $ 3,184 $ 7,123
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-23
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--INCOME TAXES (CONTINUED)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Inventory........................................................................ $ 178 $ 291
Allowance for doubtful accounts.................................................. 95 826
Accrued liabilities................................................................ 445 4
--------- ---------
Total current deferred tax assets............................................ 718 1,121
--------- ---------
Long-term deferred tax liabilities:
Property and equipment........................................................... (1,028) (2,701)
Internal Revenue Service tax assessment.......................................... (3,383) (3,383)
Other............................................................................ 54 (972)
--------- ---------
Total long-term deferred tax liabilities..................................... (4,357) (7,056)
--------- ---------
Net deferred tax asset (liability)........................................... $ (3,639) $ (5,935)
--------- ---------
--------- ---------
</TABLE>
The Internal Revenue Service ("IRS") tax assessment relates to the deferral
of a gain on the sale of land and building by a subsidiary of the Company. The
IRS has determined that a portion of the gain recorded by the subsidiary does
not qualify for deferral and has required that the Company pay additional taxes.
The subsidiary has recorded a deferred tax liability as a result of the
assessment and the related interest. The Company has filed an appeal with the
IRS relating to the above assessment; however, the IRS has not yet responded to
the appeal.
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED APRIL 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
U.S. federal statutory rate............................................. 34.0% 34.0% 35.0%
State income taxes, net of federal income tax benefit................... 4.0 4.1 5.4
Subchapter S corporation income not subject to corporate level
taxation.............................................................. (26.9) (27.7) (28.0)
Foreign earnings not subject to U.S. taxes.............................. (.6)
Minority interest in foreign taxes...................................... 2.5
Nondeductible goodwill.................................................. 1.4 2.6
Other................................................................... 3.0 1.2 2.7
----- ----- -----
Effective tax rate...................................................... 14.1% 13.0% 19.6%
----- ----- -----
----- ----- -----
</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.
F-24
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--INCOME TAXES (CONTINUED)
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the Combined Company and the specific Pooled
Companies had been subject to federal income taxes for the entire periods
presented.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR NINE MONTHS ENDED
ENDED APRIL 30, ------------------------
------------------------------- JANUARY 31, JANUARY 25,
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income per consolidated statement of income........ $ 12,745 $ 21,387 $ 29,227 $ 23,399 $ 36,391
Pro forma income tax provision adjustment.............. 3,800 6,471 9,925 7,842 5,937
--------- --------- --------- ----------- -----------
Pro forma net income................................... $ 8,945 $ 14,916 $ 19,302 $ 15,557 $ 30,454
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
NOTE 9--LEASE COMMITMENTS
The Company leases various types of retail, warehouse and office space and
equipment, furniture and fixtures under noncancellable lease agreements which
expire at various dates. Future minimum lease payments under noncancellable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1997.............................................................................. $ 1,922 $ 14,102
1998.............................................................................. 1,390 11,410
1999.............................................................................. 743 10,179
2000.............................................................................. 446 9,248
2001.............................................................................. 320 7,920
Thereafter........................................................................ 2,541 27,438
--------- -----------
Total minimum lease payments...................................................... 7,362 $ 80,297
-----------
-----------
Less: Amounts representing interest............................................... (2,233)
---------
Present value of net minimum lease payments....................................... $ 5,129
---------
---------
</TABLE>
Rent expense for all operating leases for the fiscal years ended April 30,
1994, 1995 and 1996 was $10,409, $11,731 and $17,379, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position or results of
operations or cash flows of the Company.
F-25
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon change of control or
certain other events. No amounts have been accrued at April 30, 1995 or 1996
related to these agreements.
NOTE 11--EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company have qualified defined contribution
benefit plans, which allow for voluntary pre-tax contributions by the employees.
The subsidiaries pay all general and administrative expenses of the plans and in
some cases make matching contributions on behalf of the employees. For the
fiscal years ended April 30, 1994, 1995 and 1996, the subsidiaries incurred
expenses totaling $220, $451 and $683, respectively, related to these plans.
One Combined Company entered into agreements with three officers which
provided for future compensation to those officers subsequent to termination of
employment with the Combined Company for a period of five years. The future
compensation would not be received, however, in the event that an officer
received payment under that Company's Restricted Stock Purchase Plan (the
"Purchase Plan") in excess of the purchase price of the stock paid by the
officer. No compensation expense was recorded with respect to the agreement
related to two of the officers, as it was probable that they would receive
payment under the Restricted Stock Purchase Plan. Future compensation expense of
approximately $1,030 was being recognized as expense for the third officer over
the estimated term of the officer's service to the Company of approximately
eleven years. The compensation expense equaled $95 in fiscal 1994 and $71 in
fiscal year 1995. The agreements were terminated upon closing of the Merger.
The Purchase Plan was considered to be compensatory, for the benefit of
certain officers. Two of these officers each purchased 1,000 shares of stock for
$1 under the Purchase Plan. The stock was restricted and could only be purchased
by the Combined Company at specified prices that varied upon the occurrence of
certain events. As a result, the Combined Company's future compensation expense
of $1,398, under this Purchase Plan, was being recognized as expense over the
expected periods of the officers' future service to the Combined Company of 20
and 28 years. Compensation expense of approximately $60 and $45 was recognized
in fiscal 1994 and fiscal 1995, respectively. The Plan was terminated upon
closing of the Merger.
NOTE 12--STOCKHOLDERS' EQUITY
LONG-TERM COMPENSATION PLAN
In October 1994, the Board of Directors and the Company's stockholders
approved the Company's 1994 Long-Term Compensation Plan (the "Plan"). The
purpose of the Plan is to provide directors, officers, key employees and
consultants with additional incentives by increasing their ownership interests
in the Company. The maximum number of options to purchase Common Stock granted
in any calendar or fiscal year under the Plan is equal to the greater of 855,000
shares or 15% of the aggregate number of shares of the Common Stock outstanding
at the time an award is granted, less, in each case, the number of shares
subject to previously outstanding awards under the Plan.
F-26
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
Under the provisions of the Plan, non-qualified stock options and other
stock awards are granted at prices not less than fair market value at the date
of grant. A summary of option transactions follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE EXPIRATION
OF SHARES RANGE PER SHARE DATE
---------- ----------------- -------------
<S> <C> <C> <C>
Outstanding at April 30, 1994...................................... -- -- --
Granted.......................................................... 629,500 $8.00 - $10.00 2004
Canceled......................................................... (7,000) $10.00 2004
---------- ----------------- -------------
Outstanding at April 30, 1995...................................... 622,500 $8.00 - $10.00 2004
Granted.......................................................... 2,764,591 $11.31 - $31.75 2004 - 2006
Exercised........................................................ (63,350) $8.00 - $10.00 2004
Canceled......................................................... (16,200) $10.00 - $17.13 2004 - 2005
---------- ----------------- -------------
Outstanding at April 30, 1996...................................... 3,307,541 $8.00 - $31.75 2004 - 2006
---------- ----------------- -------------
---------- ----------------- -------------
Exercisable at April 30, 1996...................................... 132,867 $8.00 - $10.00 2004
---------- ----------------- -------------
---------- ----------------- -------------
</TABLE>
Non-qualified options are generally exercisable beginning one year from the
date of grant in cumulative yearly amounts of 25% of the shares under option and
generally expire ten years from the date of grant.
Subsequent to year-end, the Company granted options to purchase 1,132,050
shares of common stock at exercise prices ranging from $36.00 to $44.875 per
share.
COMMON STOCK
In November 1994, the Board of Directors of the Company approved a one
thousand-for-one split of the Company's common stock and changed the par value
of common stock from $1 per share to $.001 per share. The consolidated financial
statements have been adjusted to reflect the stock split. In February 1996, the
stockholders approved the amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 25,000,000 to 100,000,000 shares.
F-27
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 266,959 $ 328,080 $ 380,089 $ 411,084 $ 1,386,212
Gross profit....................................... 70,003 85,456 99,761 114,352 369,572
Operating income................................... 3,766 12,196 19,359 11,177 46,498
Net income......................................... 2,919 8,317 12,163 5,828 29,227
Net income per share............................... .10 .22 .33 .13 .79
<CAPTION>
FISCAL 1995 QUARTERS
------------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 153,278 $ 182,020 $ 236,025 $ 227,386 $ 798,709
Gross profit....................................... 41,896 48,716 64,484 56,624 211,720
Operating income................................... 3,524 6,871 15,381 4,099 29,875
Net income......................................... 2,544 4,827 12,479 1,537 21,387
</TABLE>
NOTE 14--SUBSEQUENT EVENTS
BUSINESS COMBINATIONS SUBSEQUENT TO YEAR-END
Between April 30, 1996 and July 10, 1996, the Company acquired 14 companies
and the remaining 49% of Blue Star in business combinations accounted for under
the purchase method for $65,333, consisting of 1,663,692 shares of common stock
with a market value of $44,149 and cash of $21,184. In addition, the Company
considers the consummation to be probable of a total of 46 additional businesses
(the "Pending Acquisitions"). The Pending Acquisitions provide for consideration
of $286,740, consisting of 7,206,323 shares of common stock with a market value
of $254,659 and cash of $32,081.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1996 as if the acquisitions described above had been
consummated as of the beginning of fiscal 1996. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, reductions in executive compensation, the inclusion of a federal income
tax provision and the removal of certain restructuring costs:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 30, 1996
----------------
<S> <C>
Revenues.................................................................... $ 2,105,775
Net income.................................................................. 41,974
Net income per share........................................................ 0.88
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1996, or the
results which may occur in the future.
ISSUANCE OF CONVERTIBLE SUBORDINATED NOTES
In May 1996, the Company completed an offshore offering and a concurrent
private placement of $230,000, principal amount of 5 1/2% Convertible
Subordinated Notes due 2003, including the underwriters' over-allotment option
of $30,000. The underwriters exercised their over-allotment option in June 1996.
F-28
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--SUBSEQUENT EVENTS (CONTINUED)
The net proceeds to the Company, after deducting underwriting discounts and
commissions and offering expenses, were approximately $223,000.
NOTE 15--SUBSEQUENT EVENTS (UNAUDITED)
During the first nine months of fiscal 1997, the Company completed a total
of 90 business combinations, 30 accounted for under the pooling-of-interests
method and 60 accounted for under the purchase method. In the third quarter of
fiscal 1997, the Company completed a total of 24 business combinations, 9
accounted for under the pooling-of-interests method and 15 accounted for under
the purchase method. In addition to these business combinations, the Company
acquired a 49% equity interest in Dudley Stationery Limited ("Dudley"), an
independent office products dealer in the United Kingdom. Under the terms of the
agreement, the Company agreed to invest approximately $80,000 of working capital
into Dudley over a two-year period. In addition, Dudley plans to raise
approximately an additional $80,000 in debt financing. The Company has currently
invested approximately $41,300 of the total $80,000 in Dudley.
In August 1996, the Company entered into an agreement with Bankers Trust
Company (the "Bank"), whereby the Bank, or a syndicate of financial institutions
including the Bank, will provide a $500 million revolving credit facility (the
"Credit Facility") bearing interest, at the Company's option, at the Bank's base
rate plus an applicable margin of up to 1.25%, or a eurodollar rate plus an
applicable margin of up to 2.5%. The availability under the Credit Facility is
subject to certain sublimits including $100 million for working capital loans
and $ 400 million for acquisition loans, with $180 million of the acquisition
loan submit available and expected to be used to refinance certain outstanding
indebtedness of the Company in Australia and New Zealand. The Credit Facility is
secured by a majority of the assets of the Company and contains customary
covenants, including financial covenants with respect to the Company's leverage
and interest coverage ratios, capital expenditures, payment of dividends and
purchases and sales of assets, and customary default provisions, including
provisions related to non-payment of principal and interest, default under other
debt agreements and bankruptcy.
In August 1996, at the Company's Annual Meeting of Stockholders, the
stockholders approved, among other things, a proposal by the Board of Directors
of the Company to adopt an amendment to Article Four of the Company's Restated
Certificate of Incorporation to increase the number of shares of the Company's
Common Stock, par value $.001 per share, authorized for issuance from
100,000,000 shares to 500,000,000 shares.
On August 20, 1996, the Company's Board of Directors approved a change in
the Company's fiscal year-end, effective for the 1997 fiscal year, from April 30
to the last Saturday of April.
Subsequent to January 25, 1997 and through March 26, 1997, the Company has
completed 13 business combinations for an aggregate purchase price of $24.7
million, consisting of approximately $6.2 million of cash and .6 million shares
of the Company's common stock with an aggregate market value on the dates of
acquisition of approximately $18.5 million.
In February and March 1997, the Company completed the public sale, at a
gross price of $33.00 per share, of 8,682,331 shares of common stock, including
the purchase by the underwriters of 637,000 shares of common stock for their
over-allotment option. The net proceeds to the Company, after deducting
underwriting discounts and commissions and offering expenses, were approximately
$274.5 million and have been used to repay a portion of the outstanding balance
under the Company's bank Credit Facility.
F-29
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements give effect to, where
applicable, acquisitions completed through March 26, 1997. The unaudited pro
forma combined balance sheet gives effect to the 13 businesses acquired by the
Company after January 25, 1997 (the "Fiscal 1997 Post 3rd Quarter
Acquisitions"), as if all such acquisitions had occurred as of the Company's
most recent balance sheet date, January 25, 1997.
The pro forma combined statement of income for the year ended April 30, 1996
gives effect to (i) the 26 acquisitions completed during fiscal 1996 which were
business combinations accounted for under the purchase method of accounting (the
"Fiscal 1996 Purchased Companies") as if all such acquisitions had been made on
May 1, 1995; (ii) the 71 acquisitions completed during fiscal 1997 which were
business combinations accounted for under the purchase method of accounting (the
"Fiscal 1997 Purchased Companies") as if all such acquisitions had been made on
May 1, 1995; (iii) the 2 acquisitions completed after January 25, 1997 which
were combinations accounted for under the pooling-of-interests method of
accounting as if all such acquisitions had been made on May 1, 1995 (the "Fiscal
1997 Post 3rd Quarter Pooled Companies", which together with the Fiscal 1997
Purchased Companies are referred to as the "Fiscal 1997 Completed
Acquisitions"); (iv) the sales by the Company in February and March 1996 (the
"February Offerings") of 5,543,045 shares of Common Stock and 5 1/2% Convertible
Subordinated Notes due 2001 (the "February Notes") in the principal amount of
$143.75 million as if such sales had been made on May 1, 1995; (v) the sales by
the Company of 5 1/2% Convertible Subordinated Notes due 2003 in May and June
1996 (the "May Notes") in the principal amount of $230 million as if such sales
had been made on May 1, 1995; (vi) the sales by the Company in September 1996
(the "September Stock Sale") of 1,250,000 shares of the Common Stock as if such
sale had been made on May 1, 1995, and (vii) the sales by the Company in
February and March 1997 of 8,682,331 shares of Common Stock as if such sales had
been made on May 1, 1995.
The historical financial statements of the Company for the nine month
periods ended January 25, 1997 and January 31, 1996 and the fiscal year ended
April 30, 1996 give retroactive effect to the results of the 30 companies
acquired by the Company during the nine months ended January 25, 1997 and the 14
companies acquired during fiscal 1996 which were business combinations accounted
for under the pooling-of-interests method of accounting. The historical
financial statements of the Company for the fiscal years ended April 30, 1995
and 1994 give retroactive effect to the results of 23 of the companies acquired
by the Company during the nine months ended January 25, 1997 and the 14
companies acquired during fiscal 1996 which were business combinations accounted
for under the pooling-of-interests method of accounting. (Seven of the companies
acquired by the Company during the nine months ended January 25, 1997, which
were business combinations accounted for under the pooling-of-interests method
of accounting, were not included in the historical financial statements of the
Company for the fiscal years ended April 30, 1995 and 1994 because they are
considered to be individually insignificant (the "Insignificant Companies").)
The pro forma combined statement of income for the year ended April 30, 1996
includes (i) the audited financial statements of the Company for the year ended
April 30, 1996; (ii) the unaudited financial information of the Fiscal 1996
Purchased Companies for the period from May 1, 1995 to the consummation date;
(iii) the unaudited financial information for the Fiscal 1997 Purchased
Companies for the most recently completed fiscal year, except that unaudited
financial information for the year ended April 30, 1996 is included for each
such acquisition where the entity's fiscal year end is not within 93 days of the
Company's year end; and (iv) the unaudited financial information of the Fiscal
1997 Post 3rd Quarter Pooled Companies for the most recently completed fiscal
year.
F-30
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
The pro forma combined statement of income for the nine months ended January
25, 1997 includes the unaudited financial information of the Company and gives
effect to (i) the 71 acquisitions completed during fiscal 1997 accounted for
under the purchase method of accounting for the period May 1, 1996 to the
consummation date and (ii) the 2 acquisitions completed after January 25, 1997
which were combinations accounted for under the pooling-of-interests method of
accounting as if all such acquisitions had been made on May 1, 1996.
The pro forma combined statement of income for the nine months ended January
31, 1996 includes the unaudited financial information of the Company and gives
effect to the Fiscal 1996 Purchased Companies and the Fiscal 1997 Completed
Acquisitions as if all such acquisitions had been made on May 1, 1995.
The pro forma combined statement of income for the years ended April 30,
1995 and 1994 includes the historical financial information of the Company and
gives effect to the Insignificant Companies and the Fiscal 1997 Post 3rd Quarter
Pooled Companies.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent the results that the Company would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of the
period, as assumed, or the future results of the Company. The pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this report and in other
reports filed by the Company.
F-31
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED BALANCE SHEET
JANUARY 25, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR 1997
U.S. OFFICE ------------------------------ PRO FORMA
PRODUCTS COMPLETED PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
----------- ---------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 56,462 $ 563 $ (4,918)(a) $ -- $ 275,522(b) $ --
(52,107)(a) (275,522)(b)
Accounts receivable............... 336,434 9,101 -- 345,535 345,535
Lease receivable.................. 30,442 -- -- 30,442 30,442
Inventory......................... 250,795 2,790 -- 253,585 253,585
Prepaid and other current
assets.......................... 52,831 681 -- 53,512 53,512
----------- ------- ----------- ---------- ----------- -----------
Total current assets.......... 726,964 13,135 (57,025) 683,074 -- 683,074
Property and equipment, net......... 202,678 2,121 -- 204,799 204,799
Intangible assets, net.............. 585,841 1,485 14,869(a) 602,195 602,195
Lease receivables................... 44,423 -- -- 44,423 44,423
Other assets, including equity
investments....................... 68,401 1,281 -- 69,682 69,682
----------- ------- ----------- ---------- ----------- -----------
Total assets.................. $ 1,628,307 $18,022 $(42,156) $1,604,173 $ -- $ 1,604,173
----------- ------- ----------- ---------- ----------- -----------
----------- ------- ----------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt................... $ 367,225 $ 4,886 (51,245)(a) $ 320,866 $(275,522)(b) 45,344
Accounts payable.................. 172,555 6,214 -- 178,769 178,769
Accrued compensation.............. 38,966 548 -- 39,514 39,514
Other accrued liabilities......... 69,342 1,850 -- 71,192 71,192
----------- ------- ----------- ---------- ----------- -----------
Total current liabilities..... 648,088 13,498 (51,245) 610,341 (275,522) 334,819
Long-term debt...................... 389,453 862 (862)(a) 389,453 389,453
Deferred income taxes............... 7,633 -- -- 7,633 7,633
Other long -term liabilities........ 6,106 157 -- 6,263 6,263
----------- ------- ----------- ---------- ----------- -----------
Total liabilities............. 1,051,280 14,517 (52,107) 1,013,690 (275,522) 738,168
Minority Interest................... 4,941 -- -- 4,941 4,941
Stockholders' equity common stock... 51 3 (1)(a) 53 9(b) 62
Additional paid-in capital........ 496,189 772 12,454(a) 509,415 275,513(b) 784,928
Cumulative translation
adjustment...................... (3,772) -- -- (3,772) (3,772)
Retained earnings................. 79,618 228 -- 79,846 79,846
Equity of purchased companies..... 2,502 (2,502)(a) -- --
----------- ------- ----------- ---------- ----------- -----------
Total stockholders' equity.... 572,086 3,505 9,951 585,542 275,522 861,064
----------- ------- ----------- ---------- ----------- -----------
Total liabilities and
stockholders' equity........ $ 1,628,307 $18,022 $(42,156) $1,604,173 $ -- $ 1,604,173
----------- ------- ----------- ---------- ----------- -----------
----------- ------- ----------- ---------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-32
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. OFFICE 1996 1997 PRO FORMA
PRODUCTS PURCHASED COMPLETED PRO FORMA OFFERING PRO FORMA
COMPANY COMPANIES ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------ ----------- ------------ ----------- ------------ ----------- ------------
Revenues.................. $ 1,386,212 $ 307,954 $ 1,069,327 $ - $ 2,763,493 $ - $ 2,763,493
Cost of revenues.......... 1,016,640 214,072 736,592 - 1,967,304 - 1,967,304
------------ ----------- ------------ ----------- ------------ ----------- ------------
Gross profit............ 369,572 93,882 332,735 -- 796,189 -- 796,189
Selling, general and
administrative
expenses................ 314,314 84,070 278,416 8,759(c) 670,073 -- 670,073
(12,954)(d)
(2,532)(e)
Nonrecurring acquisition
costs................... 8,078 -- -- (8,078)(e) -- - -
Nonrecurring restructuring
costs................... - 8,092 -- - 8,092 - 8,092
Discontinuation of
printing division at
subsidiary.............. 682 -- -- - 682 - 682
------------ ----------- ------------ ----------- ------------ ----------- ------------
Operating income........ 46,498 1,720 54,319 14,805 117,342 -- 117,342
Other (income) expense:
Interest expense........ 15,322 2,761 10,150 11,825(f) 40,058 (18,804)(l) 21,254
Interest income......... (4,034) -- (502) 4,536(f) -- --
Other................... (1,140) (24) (999) (671)(g) (2,834) (2,834)
Equity in net income of
affiliated company...... (1,155)(h) (1,155) (1,155)
------------ ----------- ------------ ----------- ------------ ----------- ------------
Income (loss) before
provision for income
taxes................... 36,350 (1,017) 45,670 270 81,273 18,804 100,077
Provision for income
taxes................... 7,123 45 13,214 14,069(i) 34,451 7,522 41,973
------------ ----------- ------------ ----------- ------------ ----------- ------------
Net income (loss)......... $ 29,227 $ (1,062) $ 32,456 $ (13,799) $ 46,822 $ 11,282 $ 58,104
------------ ----------- ------------ ----------- ------------ ----------- ------------
------------ ----------- ------------ ----------- ------------ ----------- ------------
Weighted average shares
outstanding............. 36,781 - - - 52,460(j) - 61,142(m)
Net income per share...... $ 0.79 - - - $ 0.89 - $ 0.95
------------ ----------- ------------ ----------- ------------ ----------- ------------
------------ ----------- ------------ ----------- ------------ ----------- ------------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-33
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 25, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. OFFICE FISCAL 1997 PRO FORMA
PRODUCTS COMPLETED PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------ ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 1,807,652 $ 359,058 $ -- $ 2,166,710 $ -- $ 2,166,710
Cost of revenues................ 1,295,249 257,486 -- 1,552,735 -- 1,552,735
------------ ----------- ----------- ------------ ----------- -------------
Gross profit................ 512,403 101,572 -- 613,975 -- 613,975
Selling, general and
administrative expenses....... 418,516 91,455 1,418(c) 507,377 -- 507,377
(4,012)(d)
Nonrecurring acquisition
costs......................... 10,957 -- (10,957)(e) -- -- --
Nonrecurring restructuring
costs......................... -- -- -- -- -- --
Discontinuation of printing
division at subsidiary........ -- -- -- -- -- --
------------ ----------- ----------- ------------ ----------- -------------
Operating income............ 82,930 10,117 13,551 106,598 -- 106,598
Other (income) expense:
Interest expense.............. 32,083 3,130 (146)(f) 35,067 (14,103)(l) 20,964
Interest income............... (6,437) (142) 6,579(f) -- -- --
Foreign currency gian......... (3,420) -- -- (3,420) -- (3,420)
Other......................... (193) (1,084) -- (1,277) -- (1,277)
Equity in net income of
affiliated company............ (265) -- (1,009)(h) (1,274) -- (1,274)
------------ ----------- ----------- ------------ ----------- -------------
Income (loss) before provision
for income taxes and
extraordinary item............ 61,162 8,213 8,127 77,502 14,103 91,605
Provision for income taxes...... 24,159 3,107 5,820(i) 33,086 5,641 38,727
------------ ----------- ----------- ------------ ----------- -------------
Income before extraordinary
item.......................... $ 37,003 $ 5,106 $ 2,307 $ 44,416 $ 8,462 $ 52,878
------------ ----------- ----------- ------------ ----------- -------------
------------ ----------- ----------- ------------ ----------- -------------
Weighted average shares
outstanding................... 49,759 -- -- 53,149(j) -- 61,831(m)
Net income per share before
extraordinary item............ $ 0.74 -- -- $ 0.84 -- $ 0.86
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-34
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
U.S. OFFICE 1996 1997 PRO FORMA
PRODUCTS PURCHASED COMPLETED PRO FORMA OFFERING PRO FORMA
COMPANY COMPANIES ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
----------- --------- ------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $975,128 $293,615 $821,973 $ -- $2,090,716 $ -- $2,090,716
Cost of revenues............. 719,908 206,593 580,382 -- 1,506,883 -- 1,506,883
----------- --------- ------------ ----------- ---------- ----------- ----------
Gross profit............. 255,220 87,022 241,591 -- 583,833 -- 583,833
Selling, general and
administrative expenses.... 213,123 78,348 204,324 6,622(c) 498,345 498,345
(4,072)(d)
Nonrecurring acquisition
costs...................... 6,094 -- -- (6,094)(e) -- --
Nonrecurring restructuring
charges.................... -- 8,092 -- -- 8,092 8,092
Discontinuation of printing
division at subsidiary..... 682 -- -- -- 682 682
----------- --------- ------------ ----------- ---------- ----------- ----------
Operating income......... 35,321 582 37,267 3,544 76,714 -- 76,714
Other (income) expense:
Interest expense........... 9,503 2,776 8,856 13,932(f) 35,067 (14,103)(l) 20,964
Interest income............ (1,405) (37) (738) 2,180(f) --
Other...................... (1,402) (1,622) (551) -- (3,575) (3,575)
Equity in net income of
affiliated company......... -- -- -- (866)(h) (866) (866)
----------- --------- ------------ ----------- ---------- ----------- ----------
Income (loss) before
provision for income
taxes...................... 28,625 (535) 29,700 (11,702) 46,088 14,103 60,191
Provision for income taxes... 5,226 244 8,791 5,184(i) 19,445 5,641 25,086
----------- --------- ------------ ----------- ---------- ----------- ----------
Net income (loss)............ $ 23,399 $ (779) $ 20,909 $(16,886) $ 26,643 $ 8,462 $ 35,105
----------- --------- ------------ ----------- ---------- ----------- ----------
----------- --------- ------------ ----------- ---------- ----------- ----------
Weighted average shares
outstanding................ 34,395 52,286(j) 60,968(m)
Net income per share......... $ 0.68 $ 0.51 $ 0.58
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-35
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OTHER
FISCAL
U.S. OFFICE 1997 PRO FORMA
PRODUCTS POOLINGS ADJUSTMENTS TOTAL
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues....................................................... $ 798,709 $ 117,833 $ -- $ 916,542
Cost of revenues............................................... 586,989 84,446 -- 671,435
----------- ---------- ----------- -----------
Gross profit............................................... 211,720 33,387 -- 245,107
Selling, general and administrative expenses................... 181,845 26,832 -- 208,677
----------- ---------- ----------- -----------
Operating income........................................... 29,875 6,555 -- 36,430
Other (income) expense:
Interest expense............................................. 7,108 483 -- 7,591
Interest income.............................................. (682) (168) -- (850)
Other........................................................ (1,122) 600 -- (522)
----------- ---------- ----------- -----------
Income before provision for income taxes....................... 24,571 5,640 -- 30,211
Provision for income taxes..................................... 3,184 81 9,969(k) 13,234
----------- ---------- ----------- -----------
Net income..................................................... $ 21,387 $ 5,559 $ (9,969) $ 16,977
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-36
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OTHER
U.S. OFFICE FISCAL 1997 PRO-FORMA
PRODUCTS POOLINGS ADJUSTMENTS TOTAL
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 597,511 $ 91,180 $ -- $ 688,691
Cost of revenues............................................. 427,308 64,164 -- 491,472
----------- ----------- ----------- ----------
Gross profit............................................... 170,203 27,016 -- 197,219
Selling, general and administrative expenses................. 151,979 23,637 -- 175,616
----------- ----------- ----------- ----------
Operating income........................................... 18,224 3,379 -- 21,603
Other (income) expense:
Interest expense........................................... 4,943 422 -- 5,365
Interest income............................................ (405) (1) -- (406)
Other...................................................... (1,154) 629 -- (525)
----------- ----------- ----------- ----------
Income before provision for income taxes..................... 14,840 2,329 -- 17,169
Provision for income taxes................................... 2,095 174 5,285(k) 7,554
----------- ----------- ----------- ----------
Net income................................................... $ 12,745 $ 2,155 $ (5,285) $ 9,615
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-37
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS AND SHARE NUMBERS IN THOUSANDS)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a)(i) Adjustment to reflect purchase price adjustments and repayment of
certain long-term debt associated with the Fiscal 1997 Purchased
Companies noted below. The portion of the consideration assigned to
goodwill ($14,869) in transactions accounted for as purchases
represents the excess of the cost over the fair value of the net
assets acquired. The Company amortizes goodwill over a period of 40
years. The recoverability of the unamortized goodwill is assessed on
an ongoing basis by comparing anticipated undiscounted future cash
flows from operations to net book value.
(ii) Adjustment to reflect the reduction in short-term and long-term debt
of certain acquired companies and existing short-term debt of the
Company.
(b) Adjustment to reflect $275,522 of net proceeds from the sales of
8,682 shares of Common Stock by the Company in February and March
1997 (net of expenses and underwriting discount) and the utilization
of the proceeds to repay short-term debt.
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(c) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1996 Purchased
Companies and the Fiscal 1997 Purchased Companies. The goodwill is being
amortized over an estimated life of 40 years.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
YEAR ENDED ------------------------
APRIL 30, JANUARY 25, JANUARY 31,
1996 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fiscal 1996 Purchased Companies............................................ $ 1,570 $ -- $ 688
Fiscal 1997 Purchased Companies............................................ 7,189 1,418 5,934
----------- ----------- -----------
$ 8,759 $ 1,418 $ 6,622
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(d) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.
(e) Adjustment to reflect the reduction of (i) nonrecurring acquisition
costs related to pooling-of-interests business combinations of $8,078 for the
year ended April 30, 1996, $10,957 and $6,094 for the nine months ended January
25, 1997 and January 31, 1996, respectively, and (ii) certain other
restructuring charges from certain acquisitions of $2,532 for the year ended
April 30, 1996.
(f) Adjustment to reflect an increase (decrease) in interest expense
resulting from the utilization of the proceeds from the sales of the February
Notes and the May Notes to effect acquisitions as if such debt had been
outstanding for the entire period. In addition, the adjustment reflects an
increase in interest expense resulting from the amortization of debt issue costs
over the terms of the February Notes and the May Notes. Adjustment also reflects
a decrease in interest income resulting from the utilization of the proceeds
from the issuance of the Common Stock and the February Notes in the February
Offerings and the May Notes to effect certain transactions and refinance
existing debt.
F-38
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS AND SHARE NUMBERS IN THOUSANDS)
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS (CONTINUED)
(g) Adjustment to reflect the elimination of the minority interest
representing 49% of the net income of Blue Star Group Limited for the year ended
April 30, 1996.
(h) Adjustment to reflect the 49% equity interest in the net income of
Dudley Stationery Limited.
(i) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 42%. The
difference between the effective tax rate of 42% and the statutory tax rate of
35% relates primarily to state income taxes and non-deductible goodwill.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share is based on 52,460, 53,149 and 52,286 shares of Common Stock
and Common Stock equivalents outstanding for the year ended April 30, 1996 and
the nine months ended January 25, 1997 and January 31, 1996, respectively. The
amounts are comprised of 51,352 shares outstanding for each of the periods, 547
shares issued for acquisitions completed subsequent to January 25, 1997 and 561,
1,250, and 387 common stock equivalents considered to be outstanding related to
stock options, for the year ended April 30, 1996, and the nine month periods
ended January 25, 1997 and January 31, 1996, respectively.
(k) Adjustment to reflect the income taxes for certain acquisitions
accounted for under the poolings-of-interest method which were taxed as
subchapter S corporations as if these companies had been subject to taxation as
C corporations. As a result of being subchapter S corporations, any tax
liabilities prior to acquisition were the responsibility of the individual
company stockholder.
(l) Adjustment to reflect a decrease in interest expense as a result of the
utilization of the net proceeds of $275,522 from the sales in February and March
1997 by the Company of 8,682 shares of Common Stock to repay short term debt at
an effective rate of 6.825%.
(m) Adjustment to include in weighted average shares outstanding the 8,682
shares that were sold by the Company in February and March 1997.
F-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
U.S. OFFICE PRODUCTS COMPANY
Dated: April 25, 1997 By: /s/ Mark D. Director
Mark D. Director
Executive Vice President,
General Counsel and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of BDO Seidman, LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Rubin, Koehmstedt & Nadler, PLC
23.6 Consent of Parent, McLaughlin & Nangle
<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); and on Form S-4 (333-12133) of U.S. Office
Products Company of our report as of May 31, 1996, except as to the third
paragraph of Note 3 which is as of January 24, 1997, and Note 14, which is as
of July 10, 1996 and relating to the financial statements of U.S. Office
Products Company which appear in the Current Report on Form 8-K of U.S.
Office Products Company.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
April 22, 1997
<PAGE>
Exhibit 23.2
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); on Form S-3 (333-10383 and
333-14025); and on Form S-4 (333-13133) of U.S. Office Products Company 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 Statements) which report appears in
the Current Report on Form 8-K, dated April 25, 1997 of U.S. Office Products
Company.
Milwaukee, Wisconsin ERNST & YOUNG LLP
April 24, 1997
<PAGE>
Exhibit 23.3
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (333-01574), (333-12789) and (333-24581); on Form S-3 (333-10383)
and (333-14025); and on Form S-4 (333-13133) of U.S. Office Products Company
of our report dated February 8, 1996 relating to the financial statements of
The Re-Print Corporation, which report is included in this current report on
Form 8-K.
BDO SEIDMAN, LLP
April 17, 1997
Atlanta, Georgia
<PAGE>
Exhibit 23.4
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), on Form S-3 (333-10383)
and (333-14025) and on Form S-4 (333-13133) 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 the
year ended December 31, 1995, which reports appear in this Current Report on
Form 8-K of U.S. Office Products Company.
KPMG Peat Marwick LLP
Norfolk, Virginia
April 22, 1997
<PAGE>
Exhibit 23.5
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), on Form S-3
(333-10383) and (333-14025); and on Form S-4 (333-13133) of U.S. Office
Products Company of our report relating to the financial statements of
Fortran Corp. dated June 7, 1996, except for Note 9, as to which the date is
October 24, 1996, included in this Current Report on Form 8-K.
Gary A. Koehmstedt, CPA
RUBIN, KOEHMSTEDT & NADLER, PLC
April 23, 1997
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 (333-01574), (333-12789), and (333-24531); on Form S-3
(333-10383) and (333-14025); and on Form S-4 (333-13133) of U.S. Office
Products Company of our report dated May 23, 1996, except for Note N as to
which the date is October 14, 1996, relating to the financial statements of
Bay State Computer Group, Inc., included in this Current Report on Form 8-K,
dated April 25, 1997, of U.S. Office Products Company.
Parent, McLaughlin & Nangle
Boston, Massachusetts
April 24, 1997
