<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
NOVEMBER 20, 1997
--------------------------------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
U.S. OFFICE PRODUCTS COMPANY
--------------------------------------
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
DELAWARE
--------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-25372
--------------------------------------
(COMMISSION FILE NO.)
52-1906050
--------------------------------------
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
1025 THOMAS JEFFERSON STREET, N.W., SUITE 600 EAST, WASHINGTON, D.C. 20007
--------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(202) 339-6700
--------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
ITEM 5--OTHER EVENTS
INTRODUCTION
U.S. Office Products Company ("USOP" or the "Company") has prepared this
Current Report on Form 8-K to file updated financial information with respect to
Mail Boxes Etc. ("MBE"), which the Company acquired in November 1997. Financial
information with respect to MBE was originally incorporated by reference by
filings on Form 8-K filed by the Company on April 26, 1997 and July 21, 1997.
The Information filed today includes unaudited interim financial data for the
six months ended October 31, 1997, which has not previously been filed or
incorporated by reference.
ITEM 7--FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. See Index to Financial Statements at page F-1 for a
list of financial statements included herein.
(c) Exhibits
23.1 Consent of Ernst & Young LLP, Independent auditors
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Financial Statements:
Report of Ernst & Young LLP, Independent Auditors........................................................ F-2
Consolidated Balance Sheets as of April 30, 1997 and 1996................................................ F-3
Consolidated Statements of Income for the fiscal years ended April 30, 1997, 1996 and 1995............... F-5
Consolidated Statement of Stockholders' Equity for the fiscal years ended April 30, 1997, 1996 and
1995................................................................................................... F-6
Consolidated Statements of Cash Flows for fiscal years ended April 30, 1997, 1996 and 1995............... F-7
Notes to Consolidated Financial Statements............................................................... F-9
Condensed Consolidated Balance Sheet as of October 31, 1997 (unaudited).................................. F-19
Condensed Consolidated Statements of Operations for three months and six months ended October 31, 1997
and October 31, 1996 (unaudited)....................................................................... F-20
Condensed Consolidated Statements of Cash Flows for the six months ended October 31, 1997 and October 31,
1996 (unaudited)....................................................................................... F-21
Notes to Condensed Consolidated Financial Statements (unaudited)......................................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Mail Boxes Etc.
We have audited the accompanying consolidated balance sheets of Mail Boxes
Etc. as of April 30, 1997 and 1996, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended April 30, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Mail Boxes Etc.
at April 30, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended April 30, 1997,
in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
/s/ ERNST & YOUNG LLP
--------------------------------------------
Ernst & Young LLP
San Diego, California
June 6, 1997
</TABLE>
F-2
<PAGE>
MAIL BOXES ETC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
APRIL 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................................................. $ 3,992 $ 1,416
Restricted cash--franchisee deposits...................................................................... 1,613 2,073
Short-term investments.................................................................................... 27,342 21,825
Accounts receivable, net of allowance for doubtful accounts of $1,334 and $1,507, at April 30, 1997 and
1996, respectively...................................................................................... 6,547 6,799
Receivable from National Media Fund....................................................................... 250 770
Inventories............................................................................................... 447 544
Current portion of notes receivable....................................................................... 6,048 6,756
Current portion of net investment in sales-type leases.................................................... 2,322 2,414
Deferred income taxes..................................................................................... 1,272 1,846
Re-acquired area and center rights held for resale........................................................ 629 638
Other..................................................................................................... 1,394 1,063
--------- ---------
Total current assets.................................................................................. 51,856 46,144
Notes receivable, net..................................................................................... 12,977 10,831
Net investment in sales-type leases....................................................................... 6,067 7,518
Property and equipment:
Land.................................................................................................... 1,200 1,200
Building and improvements............................................................................... 5,076 4,201
Office furniture and equipment.......................................................................... 4,307 4,018
Vehicles................................................................................................ 209 209
--------- ---------
Total property and equipment.......................................................................... 10,792 9,628
Less accumulated depreciation and amortization.......................................................... 4,831 4,247
--------- ---------
Net property and equipment.............................................................................. 5,961 5,381
Excess of cost over assets acquired, net of accumulated amortization of $607 and $549 at April 30, 1997
and 1996, respectively.................................................................................. 383 441
Re-acquired area rights, net of accumulated amortization of $511 and $240 at April 30, 1997 and 1996,
respectively............................................................................................ 6,443 3,240
Deferred income taxes..................................................................................... 1,249 1,307
Other assets.............................................................................................. 739 904
--------- ---------
Total Assets.......................................................................................... $ 85,675 $ 75,766
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................................................................... $ 1,363 $ 2,096
Franchisee deposits....................................................................................... 2,097 2,619
Royalties, referrals and commissions payable.............................................................. 1,760 2,515
Accrued employee expenses and related taxes............................................................... 2,390 1,963
Other accrued expenses.................................................................................... 1,550 2,012
Income taxes payable...................................................................................... 769 838
Current maturities of long term debt...................................................................... 692 958
--------- ---------
Total current liabilities............................................................................. 10,621 13,001
Long-term debt, net of current maturities................................................................... 3,916 1,402
Commitments and contingencies............................................................................... -- --
Shareholders' equity:
Preferred stock, no par value, 10,000,000 shares authorized, with none issued and outstanding............. -- --
Common stock, no par value, 40,000,000 shares authorized, with 11,300,273 and 11,139,698 shares issued and
outstanding at April 30, 1997 and 1996, respectively.................................................... 16,728 14,944
Retained earnings......................................................................................... 54,410 46,419
--------- ---------
Total shareholders' equity............................................................................ 71,138 61,363
--------- ---------
Total liabilities and shareholders' equity............................................................ $ 85,675 $ 75,766
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
MAIL BOXES ETC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Revenues:
Royalty and marketing fees..................................................... $ 35,254 $ 30,947 $ 24,673
Franchise fees................................................................. 9,915 8,557 8,670
Sales of supplies and equipment................................................ 12,775 10,839 10,020
Interest income on leases and other............................................ 8,687 6,975 5,424
Company centers................................................................ 1,206 1,789 1,564
--------- --------- ---------
Total Revenues............................................................... 67,837 59,107 50,351
Cost and expenses:
Franchise operations........................................................... 18,463 14,881 12,506
Franchise development.......................................................... 6,383 5,883 5,090
Cost of supplies and equipment sold............................................ 9,585 8,465 7,915
Marketing...................................................................... 6,219 4,068 4,630
General and administrative..................................................... 9,060 10,293 7,878
Company centers................................................................ 1,265 1,842 1,598
Litigation settlement expenses................................................. 5,000 -- --
--------- --------- ---------
Total cost and expenses...................................................... 55,975 45,432 39,617
--------- --------- ---------
Operating income................................................................. 11,862 13,675 10,734
Interest on investments and other................................................ 963 674 447
Income before provision for income taxes......................................... 12,825 14,349 11,181
Provision for income taxes....................................................... 4,834 5,620 4,411
--------- --------- ---------
Net income................................................................... $ 7,991 $ 8,729 $ 6,770
--------- --------- ---------
--------- --------- ---------
Net income per common share...................................................... $ 0.68 $ 0.77 $ 0.60
--------- --------- ---------
--------- --------- ---------
Weighted average common and common equivalent shares outstanding................. 11,780 11,403 11,357
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAIL BOXES ETC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, April 30, 1994................................................ 11,569 $ 19,195 $ 30,920 $ 50,115
Exercise of employee stock options and other........................... 146 928 928
Common stock repurchased............................................... (657) (5,681) (5,681)
Income tax benefit from stock option activity.......................... 13 13
Net income............................................................. 6,770 6,770
--------- --------- --------- ---------
Balance, April 30, 1995................................................ 11,058 14,455 37,690 52,145
--------- --------- --------- ---------
Exercise of employee stock options and other........................... 221 2,135 2,135
Common stock repurchased............................................... (140) (1,922) (1,922)
Income tax benefit from stock option activity.......................... 276 276
Net income............................................................. 8,729 8,729
--------- --------- --------- ---------
Balance, April 30, 1996................................................ 11,139 14,944 46,419 61,363
--------- --------- --------- ---------
Exercise of employee stock options and other........................... 180 1,590 1,590
Common stock repurchased............................................... (19) (410) (410)
Income tax benefit from stock option activity.......................... 604 604
Net income............................................................. 7,991 7,991
--------- --------- --------- ---------
Balance, April 30, 1997................................................ 11,300 $ 16,728 $ 54,410 $ 71,138
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
MAIL BOXES ETC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities:
Net income........................................................................ $ 7,991 $ 8,729 $ 6,770
Adjustments to reconcile net income to net cash provided from operating
activities:
Depreciation and amortization................................................... 1,046 1,030 1,024
Gain on sale of equipment under sales type lease agreements..................... (429) (558) (681)
Increase (decrease) in allowance for doubtful accounts.......................... (530) 880 1,236
Loss (gain) on disposal of property and equipment............................... (7) 4 122
Deferred income taxes........................................................... 632 (1,054) (1,023)
Changes in assets and liabilities:
Restricted cash................................................................. 460 (459) (252)
Accounts and notes receivable................................................... (760) (1,049) (7,386)
Receivable from National Media Fund............................................. 520 830 (1,600)
Assets leased to franchisees and inventories.................................... (1,338) (1,235) (1,999)
Re-acquired area and center rights held for resale.............................. 109 378 261
Other current assets............................................................ (331) (58) 421
Other assets.................................................................... (38) 152 173
Accounts payable................................................................ (733) 945 419
Franchisee deposits............................................................. (522) 466 747
Royalties, referrals and commissions payable.................................... (755) 66 610
Accrued employee expenses and related taxes..................................... 427 500 697
Other accrued expenses.......................................................... (369) 838 821
Income taxes payable............................................................ 535 397 730
--------- --------- ---------
Net cash flows provided from operating activities............................. 5,908 10,802 1,090
Investing Activities:
Net change in short-term investments............................................ (5,517) (11,773) 389
Additions to property and equipment............................................. (1,292) (472) (477)
Principal payments received on sales-type leases................................ 3,407 3,628 3,223
Re-acquired area rights......................................................... (439) (185) (887)
--------- --------- ---------
Net cash flows provided from (used in) investing activities..................... (3,841) (8,802) 2,248
Financing Activities:
Borrowing under line of credit.................................................. 1,630 3,720 3,800
Repayments under line of credit................................................. (2,150) (4,550) (2,200)
Repayments on notes payable..................................................... (354) (146) (54)
Repurchase of common stock...................................................... (410) (1,922) (5,681)
Proceeds from the issuance of common stock...................................... 1,793 1,923 937
--------- --------- ---------
Net cash flows provided from (used in) financing activities..................... 509 (975) (3,198)
--------- --------- ---------
Increase in cash and cash equivalents............................................... 2,576 1,025 140
Cash and cash equivalents at beginning of year...................................... 1,416 391 251
--------- --------- ---------
Cash and cash equivalents at end of year............................................ $ 3,992 $ 1,416 $ 391
--------- --------- ---------
--------- --------- ---------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for Income taxes...................................... $ 3,762 $ 6,348 $ 5,479
</TABLE>
F-6
<PAGE>
MAIL BOXES ETC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest expense.................................................................... $ 261 $ 155 $ 98
Supplemental Schedule of Non-Cash Activities:
Equipment sold under sales-type leases.......................................... $ 1,864 $ 2,232 $ 2,724
Cost of equipment sold under sales-type leases.................................. $ 1,435 $ 1,674 $ 2,043
Notes payable issued in connection with re-acquired area rights................. $ 3,123 $ 185 $ 1,495
Accounts and notes forgiven in connection with re-acquired area rights.......... $ 104 -- $ 468
Exchange of area rights......................................................... -- -- $ 260
</TABLE>
See accompanying notes.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Mail Boxes Etc. ("MBE" or "the Company") was incorporated in November 1983
as a California corporation. It operates domestically through one wholly-owned
subsidiary, Mail Boxes Etc. USA, Inc. This subsidiary grants territorial
franchise rights for the operation or sale of service centers specializing in
postal, packaging, business and communication services. The purchase price paid
by the Company to acquire this subsidiary exceeded the subsidiary's net assets
by $0.9 million; the excess is being amortized on the straight-line method over
20 years.
The Company acquired a majority interest in the master license for the
United Kingdom during FY96. During FY97 MBE acquired the remaining interest in
the United Kingdom and operated this entity as a wholly-owned subsidiary,
MBE-UK. All accounts of this foreign subsidiary have been measured using U.S.
dollars as the functional currency. The gains and losses arising from the
measurement of the foreign subsidiary's account have not been significant. At
the end of FY97, the MBE Master License for the United Kingdom was sold to a
group comprised of the individual principal owners of the MBE Master License for
Canada and several other MBE Area and Individual Franchisees.
The Company provides franchisees with a system of business training, advice
regarding site location, marketing, advertising programs and management support
designed to assist the franchisee in opening and operating MBE Centers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.
REVENUE RECOGNITION
The Company enters into area and individual franchise agreements in the
United States and master license agreements in other countries.
Area franchise agreements grant the area franchisee the exclusive right to
market individual franchise centers for the Company in the area franchisee's
territory. The area franchisee generally receives a commission on individual
franchises sold as well as a share of future royalties earned by the Company
from centers in the area franchisee's territory. Individual franchise agreements
grant the individual franchisee the exclusive right to open and operate a
franchise center in the individual franchisee's territory.
Franchise fee revenue is recognized upon completion of all significant
initial services provided to the franchisee, area franchisee or master licensee
and upon satisfaction of all material conditions of the franchise agreement,
area franchise agreement or master license. For individual franchise sales, the
significant initial obligations that must be completed before any revenue is
recognized are: the site is located, a store lease is in place, the franchise
agreement has been signed, the store design and layout is complete, all manuals
and systems have been provided, and training at MBE is completed. For area
franchise sales, the significant initial obligations that must be completed
before any revenue is recognized are: all operating manuals are provided,
training is completed and a pilot center is opened. For master license
agreements, the significant initial obligations that must be completed before
any revenue is recognized are: all operating manuals are provided and training
is completed.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue is recognized using the installment method when the revenue is
collectable over an extended period and no reasonable basis exists for
estimating collectability.
On a monthly basis, all individual franchisees are required to pay royalty
and marketing fees to the Company based upon a percentage of each franchisee's
sales (as defined). Such fees are recognized as revenue based upon reported or
estimated sales activity by the franchisees. Revenue from sales of supplies and
equipment is recognized when orders are shipped, or the lease is completed,
whichever is later.
In FY95, the National Media Fund was created to administer national
advertising programs. The National Media Fund is managed by a committee of area
franchisees, individual franchisees and MBE. Certain advertising fees, based on
franchisees' sales (as defined), are collected by the Company for the National
Media Fund. Such advertising fees are not included in the accompanying financial
statements. As of April 30, 1997 and 1996, the Company had advanced $250
thousand and $770 thousand to the National Media Fund, respectively, to fund
certain national advertising programs.
These advances, including interest, are repaid to the Company based on the
collection of the advertising fees and availability of funds.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers cash equivalents to be those instruments which have
original maturities of three months or less.
In accordance with Financial Accounting Standards Board Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities for which the Company
does not have the intent or the ability to hold to maturity are classified as
available for sale along with the Company's investments in equity securities.
Securities classified as available for sale are carried at fair value, with
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. At April 30, 1997 and 1996, the Company had no investments
that were classified as trading or held to maturity as defined by Statement No.
115.
Realized gains and losses are included in interest income. The cost of
securities sold is based on the specific identification method. Interest on
securities classified as available for sale is included in interest income.
The following is a summary of cash and cash equivalents and the estimated
fair value of available for sale securities by balance sheet classification at
April 30;
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents Cash.............................................................. $ 351 $ 1,339
Money market fund....................................................................... 3,641 77
Short-term investments:
U.S. Government securities.............................................................. 5,842 4,000
Mutual fund preferred equity securities................................................. 21,500 17,825
--------- ---------
Total cash, cash equivalents and short-term investments..................................... $ 31,334 $ 23,241
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimated fair value of each investment approximates the amortized cost,
and therefore, there are no unrealized gains or losses as of April 30, 1997 or
1996.
"Restricted cash-franchisee deposits" is the amount that prospective
franchisees have deposited into a separate account managed by MBE. When all of
the requirements for recognizing revenue for an individual, area or master
license sale are completed (see the "Revenue Recognition" section of Note 1),
then the deposit amount is transferred from this separate account into MBE's
regular account and the revenue from the sale is recognized. If MBE's
obligations are not completed then these deposits are usually refundable. The
account, "Franchisee deposits", in the liability section of the balance sheet
includes the restricted cash deposit amount and other deposits received from its
franchisees.
CONCENTRATION OF CREDIT RISK
The Company invests its excess cash in debt and equity instruments of
financial institutions and corporations with strong credit ratings. The Company
has established guidelines relative to diversification and maturities that
attempt to maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
The Company has not experienced any significant losses on its cash equivalents
or short-term investments. Receivables from franchisees include trade
receivables, lease receivables and notes receivable. Credit is extended based on
an evaluation of the franchisee's financial condition. Sales-type leases are
collateralized by the leased equipment and fixtures.
Trade receivables are not collateralized. However, the center ownership
transfer process requires that all amounts owed be paid when a center ownership
is transferred.
Notes receivable from area franchisees and master licensees are
collateralized by the area rights or master license rights, respectively. The
Company has provided for estimated credit losses.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of resources and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories consist of supplies and equipment held for resale to franchisees
and equipment held for lease. Inventories are recorded at the lower of cost
(first-in, first-out method) or market.
RE-ACQUIRED INDIVIDUAL AND AREA FRANCHISE RIGHTS
The Company repurchases franchise rights for two primary reasons. The
Company may repurchase area rights with the intention of developing a better
support system and then reselling the areas within a short period of time. The
Company may acquire individual center rights to upgrade the Center and then
resell it within a short period of time. The Company had an investment of
approximately $629 thousand and $638 thousand in such individual and area rights
at April 30, 1997 and 1996, respectively. The Company may also repurchase the
area rights with the primary intention of retaining the royalties normally
shared with the former area franchisees and maintaining such rights as long-term
investments. The area
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
repurchases have been accounted for as purchases. The Company records these area
repurchases at cost less accumulated amortization. Periodically the Company
assesses the fair value of these areas based on estimated cash flows to
determine if an impairment in the value has occurred and an adjustment is
necessary. As of April 30, 1997 no adjustment is necessary. The Company had an
investment of $6.4 million and $3.2 million in such area rights at April 30,
1997 and 1996, respectively. Area franchise rights held as long-term investments
are amortized over a period of 20 years.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization is
computed using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Building................................................... 31.5 years
12.5--31.5
Building improvements...................................... years
Office furniture and equipment............................. 3-5 years
Vehicles................................................... 3 years
</TABLE>
EMPLOYEE STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's stock options generally equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
ACCOUNTING FOR ASSET IMPAIRMENT
The Company adopted Statement of Financial Accounting Standards No. 121
(SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", effective May 1, 1995. SFAS No. 121
required impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. There was no effect on the financial
statements from the adoption of SFAS No. 121.
NET INCOME PER COMMON SHARE
Earnings per share are based on the weighted average number of common shares
and common share equivalents (stock options) outstanding during the period.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
2. NOTES RECEIVABLE
Notes receivable consist of the following at April 30;
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Notes with interest rates ranging from 8%-14%, from individual franchisees, due at varying
dates through 2005........................................................................ $ 11,688 $ 11,170
Notes with interest rates ranging from 8%-14%, from area franchisees, due at varying dates
through 2005.............................................................................. 7,252 6,611
Notes with interest rates ranging from 8.5%--11.75%, from master licensees, due at varying
dates through 2004........................................................................ 1,728 1,806
--------- ---------
20,668 19,587
Less portion due within one year............................................................ (6,048) (6,756)
Less allowance for uncollectible notes...................................................... (1,643) (2,000)
--------- ---------
$ 12,977 $ 10,831
--------- ---------
--------- ---------
Interest earned for the fiscal year ended April 30:..................................... $ 1,997 $ 2,041
--------- ---------
--------- ---------
</TABLE>
Scheduled principal maturities for notes receivable as of April 30, 1997,
are as follows (in thousands): 1998--$6,048; 1999--$4,164; 2000--3,384;
2001--$2,582; 2002--$1,997; and thereafter $2,493
At April 30, 1997, the Company was obligated to fund approximately $281
thousand under certain financing programs offered to franchisees.
3. NET INVESTMENT IN SALES--TYPE LEASES
The Company leases various types of office and computer equipment to
franchisees under three to eight-year lease agreements. The following summarizes
the components of the net investment in sales-type leases at April 30;
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Total minimum lease payments to be received................................................. $ 10,980 $ 13,241
Less unearned income........................................................................ (2,591) (3,309)
--------- ---------
Net investment in sales-type leases......................................................... 8,389 9,932
Less portion due within one year............................................................ (2,322) (2,414)
--------- ---------
$ 6,067 $ 7,518
--------- ---------
--------- ---------
Interest earned for the fiscal year ended April 30:......................................... $ 1,203 $ 1,420
--------- ---------
--------- ---------
</TABLE>
Annual minimum lease payments subsequent to April 30, 1997, are as follows
(in thousands): 1998-- $3,307; 1999--$2,736; 2000 -$2,031; 2001--$1,330;
2002--$778; and thereafter--$798.
4. DEBT
The Company has a line of credit with a bank which allows maximum borrowings
of $7 million. As of April 30, 1997, $250 thousand has been borrowed and $6.750
million is available for borrowing under the line of credit. The line of credit
is unsecured and bears interest at a rate based on LIBOR plus certain basis
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
4. DEBT (CONTINUED)
points (6.81% at April 30, 1997). The agreement expires on September 1, 1998, at
which time all outstanding borrowing can be converted to a three-year term loan,
which would be payable in equal monthly installments. The line of credit
agreement contains various covenants, including limitations on additional
indebtedness and maintaining certain financial ratios.
5. NOTES PAYABLE
Long-term debt consists of notes payable to former area franchisees in
connection with the repurchase of area franchise rights. Payments are made in
monthly installments of $51 thousand including interest at 8% to 8.5% per annum.
Aggregate principal maturities on notes payable at April 30, 1997 are as follows
(in thousands): 1998 ---$442; 1999--$452; 2000--$447; 2001--$457; 2002--$463;
and thereafter-- $2,097.
6. INCOME TAXES
The provision for income taxes consists of the following for each of the
years ended April 30:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal............................................................................ $ 3,297 $ 5,324 $ 4,352
State.............................................................................. 905 1,344 1,088
--------- --------- ---------
4,202 6,668 5,440
Deferred:
Federal............................................................................ 557 (913) (890)
State.............................................................................. 75 (135) (139)
--------- --------- ---------
632 (1,048) (1,029)
--------- --------- ---------
$ 4,834 $ 5,620 $ 4,411
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company has derived tax deductions measured by the excess of the market
value over the option price at the date employee stock options were exercised.
The cumulative related tax benefit of approximately $1.4 million has been
credited to common stock. Significant components of the Company's deferred tax
assets for federal and state income taxes as of April 30 are:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Valuation reserves................................................................... $ 1,884 $ 2,646 $ 1,679
State taxes.......................................................................... 247 339 295
Deferred compensation................................................................ 390 168 131
--------- --------- ---------
Total deferred tax assets............................................................ $ 2,521 $ 3,153 $ 2,105
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation between the amount of tax computed by multiplying income
before taxes by the applicable statutory rates and the amount of reported taxes
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate....................................................................... 34.0% 35.0% 34.0%
State tax, net of federal tax benefit................................................ 5.0% 5.5% 5.6%
Other................................................................................ (1.3%) (1.3%) (0.1%)
--- --- ---
37.7% 39.2% 39.5%
--- --- ---
--- --- ---
</TABLE>
7. STOCK OPTIONS
The Company has granted options to directors, officers and key employees
under stock option plans to purchase shares of the Company's common stock.
Options are generally granted at prices equal to the fair market value of
the shares at the date of grant and are generally exercisable in equal
increments over three to five years, commencing one year after the date of
grant. At April 30, 1997, 473 thousand options were exercisable and the Company
had nearly 2.6 million shares available for future grant under the stock option
plan for employees and 160 thousand shares available for future grant under the
stock option plan for outside directors.
A summary of the Company's stock option activity and related information is
as follows (shares in thousands):
<TABLE>
<CAPTION>
FY97
----------------------------
<S> <C> <C>
NUMBER OF WGTD. AVG.
SHARES EXERCISED PRICE
----------- ---------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year...................................................... 1,113 $ 9.85
Granted............................................................................... 489 $ 17.54
Exercised............................................................................. (180) $ 9.97
Forfeited............................................................................. (169) $ 13.12
----- ------
Outstanding at the end of the year.................................................... 1,253 $ 12.39
----- ------
Exercisable at the end of the year.................................................... 473* $ 10.75
----- ------
</TABLE>
- ------------------------
* Because of the Merger Agreement with U.S. Office Products described in Note
13, all stock options granted prior to May 22, 1997 (the date of the Merger
Agreement), will become vested and fully exercisable prior to the Merger. If
the Merger is not consummated, all options that were accelerated solely as a
result of the Merger Agreement, but were not exercised, will revert back to
their original vesting schedule.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
7. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
FY96
--------------------------
<S> <C> <C>
WGTD. AVG.
NUMBER OF EXERCISE
SHARES PRICE
----------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year....................................................... 914 $ 9.93
Granted................................................................................ 441 $ 9.17
Exercised.............................................................................. (221) $ 8.70
Forfeited.............................................................................. (21) $ 13.30
----- ------
Outstanding at the end of the year..................................................... 1,113 $ 9.85
----- ------
Exercisable at the end of the year..................................................... 394 $ 12.49
----- ------
</TABLE>
<TABLE>
<CAPTION>
FY95
----------------------------
<S> <C> <C>
WGTD. AVG.
NUMBER OF EXERCISE
SHARES PRICE
------------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year....................................................... 847 $ 9.90
Granted................................................................................ 258 $ 7.81
Exercised.............................................................................. (146) $ 6.29
Forfeited.............................................................................. (45) $ 9.31
----- ------
Outstanding at the end of the year..................................................... 914 $ 9.93
----- ------
Exercisable at the end of the year..................................................... 408 $ 10.77
----- ------
</TABLE>
Adjusted pro forma information regarding net income and earnings-per-share
is required by SFAS 123, and has been determined as if the Company had accounted
for its employee and non-employee directors stock options under the fair value
method of that Statement. The fair value for these options was estimated at the
date of grant using the "Black Scholes" method for option pricing with the
following weighted-average assumptions for FY97 and FY96: 1) risk free interest
rates of 6%; 2) dividend yields of 0%; 3) volatility factors of the expected
market value of the Company's common stock of .395; and a weighted-average
expected life of the options of 5 years.
For purposed of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's adjusted pro forma information would have been as follows (in
thousands):
<TABLE>
<CAPTION>
FY97 FY96
----------- -------------
<S> <C> <C>
Adjusted pro forma net income.......................................................... $ 7,403 $ 8,549
Adjusted pro forma earnings-per-share.................................................. $ 0.63 $ 0.75
</TABLE>
The results above are not likely to be representative of the effects of
applying FAS 123 on reported net income or loss for future years as these
amounts reflect the expense for only one or two years vesting.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
7. STOCK OPTIONS (CONTINUED)
The following summarizes information about the Company's stock options
outstanding at April 30, 1977 (number of options in thousands):
<TABLE>
<CAPTION>
SHARES SUBJECT TO OUTSTANDING OPTIONS
- ------------------------------------------------------------------------------ EXERCISABLE
OPTION WGTD. AVE ---------------------------------------
RANGE OF SHARES REMAINING WGTD. AVE. NUMBER WGTD. AVE.
EXERCISE PRICE OUTSTANDING LIFE EXER. PRICE EXERCISABLE EXER. PRICE
- -------------------------------------------------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$4.13 ...................................... 8 1.0 yrs $ 4.13 8 $ 4.13
$6.81--$ 8.25..................................... 390 7.5 $ 7.84 112 $ 7.57
$9.00--$10.50..................................... 278 4.6 $ 10.00 195 $ 9.96
$11.50--$14.50.................................... 145 4.8 $ 13.80 140 $ 13.78
$16.50--$23.13.................................... 432 9.1 $ 17.70 18 $ 18.27
----- ----------- ----------- ----- -----------
1,253 473
</TABLE>
8. FRANCHISE FEES
Franchise fees consist of the following for each of the years ended April
30:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Individual franchises................................................................ $ 7,240 $ 6,397 $ 6,774
Area franchises...................................................................... 296 292 58
Master licenses & international fees................................................. 1,062 957 1,170
Transfer and renewal fees............................................................ 1,317 911 668
--------- --------- ---------
$ 9,915 $ 8,557 $ 8,670
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. ROYALTY EXPENSES
Royalties shared with area franchisees are included in franchise operations
in the accompanying consolidated statements of income and are as follows (in
thousands): 1997--$12,875; 1996--$11,686; and 1995--$9,689.
10. EMPLOYEE BENEFIT PLANS
In November 1988, the Company adopted an amended and restated Stock Purchase
and Salary Savings Plan (Plan) covering substantially all employees that have
been employed for at least six months and meet other age and eligibility
requirements. Employees may contribute up to ten percent of compensation per
year (subject to a maximum limit by federal tax law) into various funds.
Profit sharing contributions by the Company to the Plan are made at the
discretion of the Board of Directors and were $240 thousand, $450 thousand, and
$420 thousand for the years ended April 30, 1997, 1996 and 1995, respectively.
At the discretion of the Board of Directors, the Company may also make annual
matching contributions to the Plan. Matching contributions for 1997, 1996 and
1995 were $214 thousand, $162 thousand, and $136 thousand, respectively and
equal to 50% of the employee's contributions.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has entered into an employment agreement with its chief
executive officer, under which the Company agreed to obtain a split dollar life
insurance policy for his benefit. The Company contributed $100 thousand in both
FY97 and FY96 toward the funding of this policy. The Company has retained an
equity interest in this policy equal to the extent of its contributions.
Consequently, there is no effect on the Company's earnings as a result of these
contributions.
Contributions after FY97 will be determined annually by the Board of
Directors.
11. LITIGATION
On November 6, 1996, the Company entered into a comprehensive settlement of
various lawsuits and claims made by certain franchisees in several lawsuits
being pursued in San Diego County Superior Court. Under the settlement
agreement, the Company paid $4 million in cash and will deliver an aggregate
amount of 39,080 shares of its common stock over a period of two years. The
settlement expense reflected in the Company's financial results is $5 million.
The Company is still involved in various lawsuits and claims from its
franchisees and former employees in the course of conducting its business. While
the Company intends to vigorously defend these actions, management is unable to
make a meaningful estimate of the amount or range of loss that could result from
an unfavorable outcome of all pending litigation. It is possible that the
Company's results of operations in a particular quarter or annual period could
be materially adversely affected by an ultimate unfavorable outcome of certain
pending litigation. Management believes, however, that the ultimate outcome of
all pending litigation should not have a material adverse effect on the
Company's financial position or liquidity.
12. RELATED PARTY TRANSACTIONS
Nearly 40% of the franchisees' gross sales and almost 50% of their
subject-to-royalty revenues are generated by selling UPS Services. The Company
receives royalty revenue based on revenues earned by the franchisees. The
Company recognized royalty and marketing fee revenues generated from UPS
services of $16.9 million, $14.9 million, and $11.8 million for the years ended
April 30, 1997, 1996, and 1995, respectively.
13. SUBSEQUENT EVENTS
On May 22, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with U.S. Office Products Company ("USOP"), pursuant to
which a newly-formed, wholly-owned subsidiary of USOP will be merged (the
"Merger") with and into MBE, with MBE to be the surviving corporation. Once the
merger is completed, MBE will be a wholly-owned subsidiary of USOP. Consummation
of the Merger is subject to certain conditions, including the approval of the
principal terms of the transaction by the Company's shareholders.
14. QUARTERLY INFORMATION (UNAUDITED)
The following quarterly information includes all adjustments which
management considers necessary for a fair statement of such information. For
interim quarterly financial statements, the provision for
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997 (CONTINUED)
14. QUARTERLY INFORMATION (UNAUDITED) (CONTINUED)
income taxes is estimated using the best available information for projected
results for the entire year (in thousands, except for per share data).
<TABLE>
<CAPTION>
FY97 FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues......................................................... $ 14,779 $ 17,047 $ 18,838 $ 17,173
Total cost and expenses................................................ 11,634 18,078 13,204 13,059
Provision for (benefit from) income taxes.............................. 1,331 (341) 2,310 1,534
Net income (loss)...................................................... 2,070 (470) 3,557 2,834
Earnings (loss) per share.............................................. .18 (0.04) .30 .24
</TABLE>
<TABLE>
<CAPTION>
FY96 FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues......................................................... $ 12,803 $ 15,097 $ 16,164 $ 15,093
Total cost and expenses................................................ 10,279 11,804 11,870 11,479
Provision for (benefit from) income taxes.............................. 1,036 1,345 1,751 1,488
Net income (loss)...................................................... 1,622 2,091 2,708 2,308
Earnings (loss) per share.............................................. .14 .18 .24 .20
</TABLE>
F-18
<PAGE>
MAIL BOXES ETC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31,
1997
------------
<S> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................................... $ 1,059
Restricted cash--franchisee deposits.............................................................. 1,923
Short-term investments............................................................................ 31,354
Accounts receivable, net.......................................................................... 7,806
Receivable from National Media Fund............................................................... --
Inventories....................................................................................... 533
Current portion of notes receivable............................................................... 8,998
Current portion of net investment in sales-type leases............................................ 3,388
Deferred income taxes............................................................................. 1,272
Re-acquired area and center rights held for resale................................................ 612
Other............................................................................................. 1,637
------------
TOTAL CURRENT ASSETS............................................................................ 58,582
Notes receivable, net............................................................................. 18,131
Net investment in sales-type leases............................................................... 5,133
Property and equipment, net....................................................................... 6,686
Excess of cost over assets acquired, net.......................................................... 268
Re-acquired area rights........................................................................... 1,157
Deferred income taxes............................................................................. 1,249
Other assets...................................................................................... 958
------------
TOTAL ASSETS.................................................................................... $ 92,164
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................................. $ 1,952
Franchisee deposits............................................................................... 2,395
Royalties, referrals and commissions payable...................................................... 2,760
Accrued employee expenses and related taxes....................................................... 2,089
Other accrued expenses............................................................................ 2,038
Income taxes payable.............................................................................. 1,523
Current maturities of debt and notes payable...................................................... 274
------------
TOTAL CURRENT LIABILITIES....................................................................... 13,031
Long-term debt, net of current maturities........................................................... 2,448
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized, with none issued and outstanding..... --
Common stock, no par value, 40,000,000 shares authorized, with 11,422,091 shares issued
outstanding at October 31, 1997................................................................. 18,340
Retained earnings................................................................................. 58,345
------------
TOTAL SHAREHOLDERS' EQUITY...................................................................... 76,685
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................................... $ 92,164
------------
------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
MAIL BOXES ETC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
<S> <C> <C> <C> <C>
10/31/97 10/31/96 10/31/97 10/31/96
--------- --------- --------- ---------
REVENUE:
Royalty and marketing fees........................................ $ 8,466 $ 7,985 $ 17,161 $ 15,586
Franchise fees.................................................... 3,802 2,736 6,144 4,531
Sales of supplies and equipment................................... 3,537 3,899 6,049 6,929
Interest income on leases and other............................... 2,537 2,163 4,413 4,151
Company centers................................................... 204 264 458 630
--------- --------- --------- ---------
TOTAL REVENUES................................................ 18,546 17,047 34,225 31,827
COST AND EXPENSES:
Franchise operations.............................................. 4,515 4,328 8,598 8,488
Franchise development............................................. 1,840 1,742 3,316 2,954
Cost of supplies and equipment sold............................... 2,552 2,912 4,396 5,189
Marketing......................................................... 1,773 1,713 3,048 3,061
General and administrative........................................ 3,251 2,099 5,591 4,341
Company centers................................................... 197 284 459 680
Litigation settlement expenses.................................... -- 5,000 -- 5,000
Non recurring charges............................................. -- -- 2,510 --
--------- --------- --------- ---------
TOTAL COST AND EXPENSES....................................... 14,128 18,078 27,918 29,713
Operating Income (loss)............................................... 4,418 (1,031) 6,307 2,114
Interest on investments and other..................................... 309 220 631 476
--------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes............. 4,727 (811) 6,938 2,590
Provision for income taxes............................................ 1,881 (341) 3,003 990
--------- --------- --------- ---------
NET INCOME (LOSS)............................................. $ 2,846 $ (470) $ 3,935 $ 1,600
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME (LOSS) PER COMMON SHARE:................................... $ .24 $ (.04) $ .33 $ .14
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common and common equivalent shares outstanding...... 12,101 11,198 12,088 11,774
--------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-20
<PAGE>
MAIL BOXES ETC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
OPERATING ACTIVITIES:
Net income................................................................................. $ 3,935 $ 1,600
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization............................................................ 556 523
Gain on sale of re-acquired area rights.................................................. (2,644) (339)
Gain on sale of equipment under sales-type lease agreements.............................. (166) (241)
Changes in assets and liabilities:
Restricted cash.......................................................................... (310) 80
Accounts and notes receivable............................................................ (1,792) 461
Receivable from National Media Fund...................................................... 250 770
Assets leased to franchisees and inventories............................................. (675) (1,032)
Re-acquired area and center rights (held for resale)..................................... (143) (86)
Other current assets..................................................................... (243) (1,447)
Other assets............................................................................. (127) (191)
Accounts payable......................................................................... 589 288
Franchisee deposits...................................................................... 298 89
Royalties, referrals and commissions payable............................................. 1,000 (26)
Accrued employee expenses and related taxes.............................................. (301) (929)
Other accrued expenses................................................................... 488 4,806
Income taxes payable..................................................................... 754 (838)
--------- ---------
Net cash flows provided from operating activities...................................... 1,469 3,488
INVESTING ACTIVITIES:
Net change in short-term investments..................................................... (4,012) (2.840)
Additions to property and equipment...................................................... (1,106) (215)
Principal payments received on sales-type leases......................................... 624 1,777
--------- ---------
Net cash flows (used in) investment activities......................................... (4,494) (1,278)
FINANCING ACTIVITIES:
Borrowings under revolving loan.......................................................... -- 930
Repayments under revolving loan.......................................................... (250) (1,700)
Repayments on notes payable.............................................................. (1,270) (136)
Repurchase of common stock............................................................... (112) (283)
Proceeds from the issuance of common stock............................................... 1,724 945
--------- ---------
Net cash flows provided from (used in) financing activities............................ 92 (244)
INCREASE IN CASH AND CASH EQUIVALENTS........................................................ (2,933) 1,966
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................................. 3,992 1,416
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................... $ 1,059 $ 3,382
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Cash paid during the period for income taxes............................................. $ 2,240 $ 3,270
Interest................................................................................. 164 85
SUPPLEMENTAL SCHEDULE WITH NON-CASH INVESTMENT AND FINANCING ACTIVITIES:
Equipment sold under sales-type agreements............................................... $ 755 $ 1,048
Additions to debt for acquisition of Area rights......................................... 597 1,780
</TABLE>
See accompanying notes.
F-21
<PAGE>
MAIL BOXES ETC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 1. BASIS OF PRESENTATION:
NOTE 1. PRESENTATION
The condensed consolidated balance sheet as of October 31, 1997, the
condensed consolidated statements of operations for the three-month periods and
six-month periods ended October 31, 1997 and 1996, and the condensed
consolidated statements of cash flows for the six-month periods then ended have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations, and cash flows
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. In addition, certain Risk Factors may also
impact future financial reports. It is suggested that the condensed consolidated
financial statements contained in this report be read in conjunction with the
financial statements and notes thereto included in the 1997 Annual Report on
Form 10-K, as well as the Risk Factors discussed in the Form 10-K Report. The
results of operations for the quarter ended October 31, 1997 are not necessarily
indicative of the operating results for the full year.
NOTE 2. SUBSEQUENT EVENT
During November 1997, Mail Boxes Etc. was acquired by U.S. Office Products.
U.S. Office Products issued approximately 15.4 million shares of its common
stock in exchange for all the outstanding shares of Mail Boxes Etc.,
representing an exchange ratio of 1.349 shares of U.S. Office Products common
stock for each share of Mail Boxes Etc. common stock.
F-22
<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
By: /s/ DONALD H. PLATT
-----------------------------------------
Donald H. Platt
Dated: April 7, 1998 CHIEF FINANCIAL OFFICER
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
23.1 Consent of Ernst & Young LLP, Independent auditors
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (333-01574, 333-12789 and 333-24581); Form S-3 (333-10383 and
333-14025); Form S-4 (333-13133); and Post-Effective Amendment No. 1 to Form S-4
on Form S-8 (333-36463) of U.S. Office Products Company of our report dated June
6, 1997, with respect to the consolidated financial statements of Mail Boxes
Etc. included in this Current Report on Form 8-K of U.S. Office Products
Company.
San Diego, California
April 3, 1998.
