SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________________ to______________________
Commission file number 1-13858
BT OFFICE PRODUCTS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3245865
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(State of Incorporation) (I.R.S. Employer Identification No.)
2150 E. Lake Cook Road 60089-1877
Buffalo Grove, Illinois ----------
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(Address of principal executive offices)
Registrant's telephone number, including area code (847) 793-7500
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $.01 per share New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 17, 1997 was approximately
$84,010,463.
As of March 17, 1997, the number of shares outstanding of each of the
registrant's classes of common stock is as follows:
Title of each class Number of Shares Outstanding
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Common Stock, par value $.01 per share 33,471,000
Documents incorporated by reference Part
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Proxy Statement for the Annual Meeting of III
Stockholders to be held on May 29, 1997
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TABLE OF CONTENTS
Page
PART I .................................................................... 2
Item 1. Business............................................................ 2
Item 2. Properties......................................................... 18
Item 3. Legal Proceedings.................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders................ 20
PART II ................................................................... 21
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................ 21
Item 6. Selected Financial Data............................................ 21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 23
Item 8. Financial Statements and Supplementary Data........................ 30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 30
PART III .................................................................... 31
Item 10. Directors and Executive Officers of the Registrant................. 31
Item 11. Executive Compensation............................................. 31
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 31
Item 13. Certain Relationships and Related Transactions..................... 31
PART IV .................................................................... 32
Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and
Reports on Form 8-K..................................................32
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PART I
Item 1. Business
General
BT Office Products International, Inc. ("BT Office Products" or the
"Company") is a leading full-service distributor of office products, serving
primarily medium- and large-sized businesses and institutions in major markets
in both the United States and Europe. The Company offers its customers a full
range of office products, including traditional office supplies, office
furniture, computer supplies and accessories, copiers and office equipment,
business forms and advertising specialty and promotional products. In the United
States, the Company services over 40 major business markets through 25 sales and
distribution centers and 55 branch sales offices in 33 states as of February 28,
1997. In Europe, the Company is the largest office products distributor in
Germany and one of the leading office products distributors in The Netherlands,
Sweden and the United Kingdom. The Company also serves markets in Austria,
Italy, and Switzerland through licensed dealers for its "Classic" brand of
office supplies.
BT Office Products has developed and implemented an integrated
full-service approach to serving the office products needs of its customers. In
contrast to traditional contract stationers, who provide limited services to
customers and keep a smaller number of items in stock while relying on
wholesalers to produce catalogues and maintain inventory, BT Office Products
operates large regional distribution facilities, purchases products directly
from manufacturers whenever possible and offers a wide variety of products and
high levels of customer service.
Company History
Background
In 1984, Buhrmann-Tetterode NV ("BT"), a large Dutch graphic and
business systems, packaging manufacturing and paper distribution company and a
predecessor of NV Koninklijke KNP BT ("KNP BT"), established BT Office Products
International, Inc. (then known as BT USA, Inc.) as a holding company for its
United States operations (the "Holding Company"). Between 1984 and 1995, the
Holding Company operated certain packaging manufacturing businesses (the
"Packaging Businesses") and certain other businesses in the United States and,
between 1987 and 1995, operated BT's United States office products distribution
business.
During the mid-1980's, BT conducted a strategic survey of various
related distribution businesses. Based on the results of this survey, BT
determined that the office products distribution business in the United States
was undergoing significant changes and that an opportunity existed to acquire
one or more independent contract stationers in major metropolitan markets and,
through the coordination and integration of such acquisitions, to build an
office products distribution business. As a result, in 1987, BT commenced a
series of acquisitions of office products distribution businesses in the United
States and Europe that are described below. See "--United States" and
"--Europe."
In 1990, BT established a separate division headquartered in Amsterdam
to administer its office products distribution businesses in the United States
and Europe (the "Office Products Division"). In March 1993, BT merged with two
other large companies with headquarters in The Netherlands, NV Koninklijke KNP
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("KNP") and VRG Groep NV ("VRG"), to form KNP BT. As a result, the Office
Products Division became a division of KNP BT.
On June 30, 1995, KNP BT and the Holding Company effected a series of
transactions (collectively, the "Reorganization") in order to reorganize the
legal ownership of various of their businesses and to recapitalize the ongoing
office products distribution business which now constitutes the Company. In
anticipation of the Reorganization, the headquarters of the Office Products
Division was transferred from Amsterdam to the Chicago area in August 1994. In
connection with the Reorganization, the Packaging Businesses and other
non-office products assets and liabilities were transferred by the Holding
Company to KNP BT, the European Businesses and Kelly Paper (each as defined
below) were transferred by KNP BT to the Holding Company, and KNP BT made a
capital contribution of $118.0 million (the "Capital Contribution") to the
Holding Company. As a result of the Reorganization, the Holding Company was
recapitalized to constitute the Company, which now owns and manages all of KNP
BT's office products distribution businesses worldwide.
In July 1995, the Company completed the sale of 10,000,000 shares of
common stock of the Company, par value $.01 per share (the "Common Stock"), at a
price of $11.50 per share in an initial public offering (the "Offering"). After
the Offering, KNP BT beneficially owns approximately 70% of the Company's
outstanding common stock. The net proceeds received from the Offering, after
underwriting discounts and commissions and costs related to the Offering and the
Reorganization ("Net Proceeds") were $98.4 million. Of the Net Proceeds, the
Company used $65.8 million to repay, in full, non-interest-bearing advances from
affiliates made in 1994 and 1995 to finance several acquisitions. The Company
used the remaining Net Proceeds to reduce outstanding indebtedness under the
interest-bearing advances from affiliates made to the Company for working
capital and other general corporate purposes.
United States
The Company entered into the office products distribution business in
the United States in September 1987 through the acquisition of a 70% interest in
Summit Office Supply, Inc. ("BT Summit"), a contract stationer based in New York
City serving the New York metropolitan area. In 1989, the Company acquired M.S.
Ginn Company and Publix Office Supply, Inc. which served the Washington D.C. and
Chicago metropolitan areas, respectively, and through their sales offices,
certain other contiguous markets. Also in 1989, the Company acquired the
remaining 30% interest in BT Summit.
The Company expanded its United States operations by entering the St.
Louis and Pittsburgh metropolitan markets in 1990 through its acquisitions of
Buschart Office Products, Inc. and E.W. Curry Company, Inc., respectively. In
1991, the Company acquired Redwood Office Products, Inc., a contract stationer
operating in the San Francisco/San Jose/Oakland metropolitan area, and expanded
its St. Louis operations through its acquisition of certain net assets of L&J
Enterprises, Inc., a contract stationer based in Little Rock, Arkansas. In 1992,
the Company acquired Miller Business Systems, Inc., a contract stationer based
in Arlington, Texas with operations in the Austin, Dallas/Fort Worth, Houston
and San Antonio, Texas metropolitan areas. The Company also expanded its
Washington, D.C. operations through its acquisition in 1993 of certain net
assets of Chas. G. Stott & Co., Inc., a contract stationer based in Landover,
Maryland.
In 1993, as a result of the merger of BT with KNP and VRG, Kelly Paper
Company ("Kelly Paper"), a subsidiary of VRG prior to the merger, was
transferred to the Office Products Division. Kelly Paper, headquartered in Los
Angeles, California, operates a wholesale cash and carry printing paper and
supplies business primarily for small commercial printers in California, Arizona
and Nevada.
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In 1994, the Company entered the Los Angeles, Portland (Oregon) and
Phoenix, and Tampa/St. Petersburg metropolitan area markets by acquiring
Paramount Stationers, Inc., Far West Office Systems, Inc., and Ross Office
System Supply, Inc., respectively. The Company also expanded its Houston, St.
Louis, and San Francisco/San Jose/Oakland metropolitan area operations through
the acquisitions of Northwest Stationers & Supply, Inc., Business Supply
Centers, Inc. and Kielty & Dayton, Incorporated, respectively.
In 1995, the Company entered the Columbus (Ohio), Indianapolis, Boston,
Minneapolis and Detroit metropolitan areas through the acquisitions of the
Continental Office Supply Division of Continental Office Furniture and Supply
Corporation, Stationers, Inc., Monroe Stationers and Printers, Inc., Business
Essentials, Inc., and Miles Fox Company, respectively. Additionally, in 1995 the
Company entered the Denver metropolitan area through the acquisition of Metro
Office Products and subsequently expanded its Denver area operations through the
acquisition of Stone Business Products, Inc. in Colorado Springs. The Company
also entered the Atlanta metropolitan area through a "greenfield" operation.
In 1996, the Company entered the Albuquerque, Greensboro (North
Carolina), Philadelphia, Orlando and Davenport (Iowa) metropolitan area markets
through the acquisitions of General Office Supply Company, Mitchell-Dixon Office
Supply, Inc., C.B. Kershner, Inc., Crown Office Products, Inc. and the office
supply division of The Fidlar Company, respectively. The Company also entered
the Columbia (South Carolina), Miami/West Palm Beach, Jacksonville and San Diego
metropolitan area markets through the acquisitions of McWaters, Inc., Tucker &
Johnson, Inc., Kight's Printing & Office Products, Inc. and Apollo Stationers,
Inc., respectively. In addition, the Company expanded its Washington, D.C.,
Cleveland, St. Louis, Davenport and Minneapolis metropolitan area operations
through the acquisitions of Office Outfitters, Inc., Ossco Office Products,
Inc., Business Essentials, Inc., Morris Sanford Company and Marx & Brown Office
Supplies Ltd, respectively. The Company also expanded its Portland (Oregon)
metropolitan area operations with the acquisitions of Total Office Products &
Printers, Inc. and Henderson's Business Machines, Inc.
In February 1997, the Company organized its United States operations
into the following eight geographical regions and Kelly Paper: New England,
Northeast, Mid-Atlantic, Midwest, Great Lakes, South-Southeast, Northwest and
West-Southwest.
Europe
BT entered into the office products distribution business in Europe in
1989 through the acquisition of Copygraphic plc ("Copygraphic"), a contract
stationer based in London, England. In 1990, BT acquired a 40% interest in
Bierbrauer + Nagel GmbH & Co. KG and certain related companies ("B+N"), an
office products dealer in Stuttgart, Germany.
Effective January 1, 1992, the office supply operations of Robert Horne
plc, a paper merchanting company in the United Kingdom which had been acquired
by BT in 1990, were transferred to Copygraphic. Copygraphic further expanded its
operations in the United Kingdom in 1993 by acquiring Jockelson White & Co.
Limited, a London-based office products dealer.
Operations in Germany were expanded in 1993 through the acquisitions of
Hartmann & Cie GmbH & Co. KG, a contract stationer based in Frankfurt, including
Classic Burobedarf Vertriebs GmbH, the company that operates the Classic
licensing business; Wurth Burobedarf + Organisation GmbH, a contract stationer
based in Bingen; Georg Steinmetz GmbH, a contract stationer based in Worms
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(collectively, "Hartmann/Wurth"); and BVZ Buroversorgungszentrum GmbH ("BVZ"), a
company that operates a modern 70,000 square foot distribution center located
near Frankfurt.
In 1994, KNP BT increased its beneficial ownership in B+N to 100% by
purchasing an additional 36% of the equity and entering into a binding agreement
to purchase the remaining 24% equity interest by no later than December 31,
1997.
In 1994, KNP BT also transferred its wholly-owned subsidiaries, Veenman
Kantoormachines B.V., Repro Copiers Nederland B.V., Direct Dealer Services B.V.
and Veenman Office Management B.V. (collectively, the "Veenman Group"; together
with Copygraphic, B+N and Hartmann/Wurth, the "European Businesses"), which had
previously been included within its Information Systems Division, to the Office
Products Division. The principal business of the Veenman Group is the
distribution of copiers, office machines and related services and supplies, and
office products in The Netherlands.
In 1996, the Company has expanded its German operations through the
acquisitions of Cohn Kopiertechnik GmbH in Heilbronn, Nett GmbH ("Nett") and
Service-Partner Gesellschaft fur moderne Burokommunikation GmbH in Koblenz, the
Keller + Roth group of companies (the "Keller + Roth Group") in the Dusseldorf,
Wuppertal and Essen areas, and bax Burosysteme Vetriebsgesellschaft mbh ("Bax")
in the Munich area. In addition, the Company entered the Swedish market through
the acquisition of the Vinbogen I Boras AB group of companies ("Bjorsell").
Effective as of December 31, 1996, the Company expanded its Netherlands
operations through the acquisition of Kuipers Centrum voor Kantoorefficiency
B.V. ("Kuipers").
Growth Strategy
The Company's strategy is to increase its business by: (i) expanding
the scope of its operations, primarily through acquisitions of substantial
office products distributors in major metropolitan markets in Europe and the
United States where it does not currently have operations and to make selected
add-on acquisitions; (ii) leveraging its international capabilities in order to
grow its business in Europe; (iii) focusing its sales efforts on gaining new
customers and (iv) increasing sales of products and services to existing
customers by effective utilization of value-added services offered by the
Company.
Expansion by Acquisition
Since 1987, the Company (including its predecessors) has acquired
numerous office products companies in the United States and Europe. See "Company
History." The Company will continue to seek attractive acquisition candidates in
additional major metropolitan markets in Europe and the United States. In the
event that the Company cannot acquire an attractive substantial office products
supplier at a reasonable price in a major metropolitan market that the Company
believes would be desirable to enter, the Company may begin a start-up or
"greenfield" operation in such market.
The Company has demonstrated in its previous acquisitions that it is
able to integrate acquired companies into its business in a relatively short
period of time and believes that it will be able to similarly integrate new
acquisitions in the future. The Company believes that it has been successful in
building its business through acquisitions as a result of its practice of
retaining existing senior management, whenever possible, to continue to focus
the acquired companies on local market conditions and customer needs, while
centralizing administrative functions, merchandising, purchasing and systems
development to achieve cost savings through economies of scale and scope. The
Company believes that its practice of retaining management is an advantage in
competing against other potential acquirers when seeking to acquire high-quality
contract stationers. The integration of acquired businesses may, however, lead
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to the loss of key employees of the acquired companies and diversion of
management attention from other ongoing business concerns.
In metropolitan markets in which the Company does not currently have
operations, the Company generally seeks to acquire a traditional contract
stationer serving medium- and large-sized customers, with significant sales
levels relative to the size of such market and with an experienced management
team that the Company believes it will be able to retain following the
acquisition. The Company believes that the continued expansion of its operations
through acquisitions, together with the integration of such acquired companies
into the Company, will create cost savings (through reduced administrative
expenses as a percentage of sales and additional purchasing power) and increase
sales and total profitability.
The Company also intends to grow within its existing markets by
selectively making add-on acquisitions of smaller contract stationers with less
substantial sales in the Company's existing markets. Add-on acquisitions
increase the Company's sales within an existing market and generate operating
efficiencies, such as the consolidation of warehouses and administrative
functions.
The Company will continue to evaluate acquisition opportunities in
1997, although the Company expects to limit the level of those activities during
the first half of the year as it integrates the acquisitions completed in 1996.
Leveraging International Capabilities
BT Office Products derives a substantial portion of its total sales
revenue from outside the United States. The Company's net sales in Europe have
grown from $85.2 million in 1992 to $325.5 million in 1996. Management believes
that there are opportunities for additional growth in Europe and that the
Company is well-positioned to capitalize on such opportunities because of the
extensive experience of its European operating and executive managers in
acquiring and operating businesses in the Company's European markets. The
Company is also pursuing new and additional business from multinational
corporations which have locations in the United States and Europe.
Obtaining New Customers
The Company believes that many larger customers are seeking to control
overhead and reduce the total cost of their office products needs while
demanding a significantly broader range of products and services. Many of these
customers are also reducing the number of suppliers with whom they do business.
The Company views these changing market conditions as a major opportunity to
obtain new customers and, as one of the leading providers of office products and
services in the United States and Europe, the Company believes that it is
well-positioned to capitalize on these trends. Specific initiatives include: (i)
expansion of the Company's sales force at the local level; (ii) implementation
of sales training programs focused on the increasingly complex needs of
customers; (iii) application of technology solutions such as EDI, personal
computer based order management software and Internet ordering; and (iv)
continuous improvements in technology such as the development and implementation
of the Company's "National Selling System," which provides uniform information
system and order management capabilities to serve the needs of large customers
with multiple locations.
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Increased Sales to Existing Customers
Management believes there are significant opportunities to increase
sales of both products and services to existing customers, particularly by
increasing customers' utilization of the value-added services offered by the
Company, such as stockless delivery, electronic commerce and customized forms
management and printing services. BT Office Products works with its larger
customers to develop an "outsourcing" approach by providing value-added services
to reduce customers' costs associated with office supplies. For example,
customers may rely entirely on the Company to deliver office products when and
as needed by the customers' employees, resulting in a "stockless supply" system.
The customers completely eliminate their inventory of office products, storage
facilities for office products and all related personnel and administrative
requirements. The Company traditionally targeted its sales efforts to the
purchasing manager or office administrator of a larger customer. As part of a
more comprehensive selling approach, the Company targets other office products
purchasing decision makers, such as the chief financial officer and director of
management information systems. The Company is also expanding sales of certain
new product lines such as advertising specialty and computer supplies.
Operating Strategy
BT Office Products serves its customers through local operating
divisions that provide sales, marketing and order fulfillment services, while it
conducts merchandising, purchasing, systems development, sales training and many
administrative functions on a regional or central basis. The Company is reducing
its operating costs by consolidating and centralizing functions which do not
involve direct customer contact as it expands the use of its logistics and
distribution systems over a growing sales base. Management believes this
operating strategy allows it to be flexible and responsive to local market needs
while securing the benefits of economies of scale. At the same time, the Company
continues to control costs by consolidating administrative functions on a
regional or central basis.
It is the Company's practice to retain key employees of acquired
companies. As a result, in many of the Company's operations, the entrepreneurs
and managers who were responsible for the business before its acquisition remain
in key positions today. Accordingly, the Company benefits from their substantial
local knowledge, customer relationships and operating and logistics experience.
In 1996, the Company began an analysis of its U.S. systems and business
processes. Project Millennium, the title assigned to the process review,
provides the organizational framework and proposed timetable to accomplish
specific strategic goals. One such goal is the consolidation and centralization
of certain business functions. Additional steps and analysis are still necessary
before Project Millennium is adopted and implemented.
Information Systems
The Company currently provides customers with remote order entry, CD
ROM catalogues and order management, materials management software, EDI and
Internet ordering systems designed to decrease response times and error rates
and improve customer service. The Company's National Selling System establishes
uniform account, product and price information across all of the Company's U.S.
regions.
The Company offers its customers access to its entire selection of
office products through the Company's electronic commerce systems. Through the
use of customized software programs installed by the Company on the customer's
computer system, customers can order office products through their personal
computers which are linked to BT Office Products' on-line order management
system.
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BT Office Products also provides its customers with billing and usage
information in hard copy or magnetic tape, cartridge or diskette media, in each
case designed to a particular customer's specifications. Customized cost center
billing allows a customer, with the Company's assistance, to analyze and
rationalize its ordering and usage of office supplies and to use such
information for budgeting purposes.
The Company's information systems initiatives and administrative
programs, together with the increased sales and purchasing power that result
from the Company's aggressive growth strategy, are designed to generate lower
operating costs and higher operating profitability.
Products and Services
The Company offers its customers a full range of office products,
including traditional office supplies, office furniture, computer supplies and
accessories, copiers and office equipment, business forms and advertising
specialty and promotional products. The Company's larger operating divisions
typically have in stock 6,000 to 7,000 SKUs of office supplies, all of which are
contained in the Company's common catalogues. The Company also has access,
through the Company's EDI systems, to over 25,000 additional SKUs of office
supplies from its vendors, enabling the Company to provide its customers with
immediate access to a broad range of products. The Company also provides a wide
variety of customized value-added services to its customers, which are designed
to reduce the customer's total overall cost of managing its office products
needs.
Office Supplies
The Company provides its customers access to one of the broadest
available selections of office supplies. In the United States, through its
distribution centers and access to wholesalers, the Company provides customers
with access to over 30,000 SKUs of office supplies. Products include paper,
writing instruments, mailroom supplies, filing supplies, organizers, desktop
accessories, business forms, binders, tape, printed products, staplers and other
fastening products and consumable items.
In addition to the wide variety of brand name products that the Company
offers to its customers, the Company sells over 300 different items in the
United States under the "BT MASTERBRAND" label, such as reprographic paper,
rubberbands, paperclips and computer printer ribbons. In Europe, in addition to
other brand name products, the Company sells for its own account and through
participating dealers with whom the Company has certain exclusive arrangements,
over 950 different items under its "Classic" trademark, including reprographic
paper, writing pads and other office and computer supply consumables.
See "--Sales and Marketing."
Office Furniture and Ergonomic Products
The Company sells a comprehensive line of so-called "catalogue
furniture," which is a term used generally to describe low- and mid-priced
desks, chairs, file cabinets and other office furniture that is included in the
Company's catalogues and generally sold from stock on a piece basis. Catalogue
furniture is sold by both the Company's office supplies sales force and its
office furniture sales force. The Company also offers executive furniture and
modular office systems, and at certain locations, office design and space
planning. These products are generally ordered by a customer in connection with
a corporate relocation or expansion, facility reconfiguration or refurbishment.
To complement office furniture, the Company sells a broad range of ergonomic
products designed to enhance worker comfort, safety and productivity.
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Computer Supplies and Accessories
The Company sells a variety of consumable computer supplies and
accessories, such as filing and storage supplies for diskettes and other
computer media, keyboard storage drawers and personal computer stands, mouse
pads and other keyboard accessories, monitor accessories, screen filters,
cleaning and maintenance products, laser printer toner (including recycled
toner), diskettes and other computer-related consumables. Sales of personal
computers and other computer hardware are not material.
Advertising Specialty and Promotional Products
The Company sells numerous advertising specialty and promotional
products, such as beverage mugs and glassware, apparel, writing instruments,
desk accessories and gift items, all of which may be personalized with the
customer's logo and/or name. Management believes that the sales of such products
represent a growth opportunity for the Company.
Office Equipment - Copiers and Postal/Mail Equipment
The Company sells and services copiers, facsimile machines, postal/mail
equipment, printers and related supplies primarily in Europe. The Veenman Group,
which operates in The Netherlands, is an exclusive distributor of Konica
copiers, printers and facsimile machines and Pitney Bowes postal/mail equipment.
Conference Equipment
In the United States and Germany, the Company offers a wide range of
conference supplies and equipment, including seating, tables, overhead
projectors, LED panels, easels and related supplies.
Printing Paper Products
Kelly Paper operates a wholesale cash and carry printing and
communication paper and printing supplies business primarily for small
commercial printers through a central warehouse in Whittier, California, and 34
wholesale stores located in California, Arizona and Nevada. Over 90% of Kelly
Paper's sales are made from its wholesale stores, with the balance made from its
central warehouse. A typical store is approximately 14,000 square feet in size.
Kelly Paper plans to open five to eight additional stores in the western United
States in the next three years.
Rapid Delivery
In 1996, the Company filled over 98% of orders for office products from
customers in the United States on either a same-day or next-day shipment basis,
depending on the customer's specific needs. Through its advanced logistics
systems, the Company processes thousands of orders daily so that it can offer
its customers such delivery services.
Stockless Delivery
The Company can provide its customers with delivery of office products
directly to the desks of the individual office employees of the customer.
Desktop delivery creates savings for the customer by reducing the need for
storage facilities, personnel and capital investment in non-income producing
inventory. In many cases, customers rely entirely on the Company to deliver
office products when and as needed by the customer's employees, resulting in a
"stockless supply" system whereby they completely eliminate their inventory of
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office products, storage facilities for office products and all related
personnel and administrative requirements.
Forms Management and Printing Services
The Company offers customized forms management services to reduce the
customer's indirect costs for maintaining forms. The Company works directly with
third-party printers to arrange for the supply of such forms to its customers,
allowing a customer to reduce its storage and personnel requirements. The
Company also provides customized printing services for its customers for
products such as business cards and company stationery.
Sales and Marketing
Overview
The Company's marketing strategy is designed to increase its customer
base of medium- and large-sized businesses and institutions (including, in
particular, businesses and institutions with multiple locations in the Company's
United States and European markets) and to increase sales by demonstrating to
customers and potential customers that the total overall cost of managing their
office products needs can be reduced by focusing on process cost reduction. The
Company works with customers to simplify and reduce the costs of the office
product procurement process by providing services such as customized and
tailored catalogues, electronic as well as paper requisition forms, CD ROM
catalogues with built-in order logic and remote electronic order entry
capability. The Company has implemented its "National Selling System" program to
service customers with multiple locations across broad geographic areas. This
program includes the establishment of common product and pricing data, the
implementation of a telecommunications network and a common order-entry and
order-management system. This system enables the Company to provide customers
with consolidated reports, billing and other useful customer information and
will serve as the foundation for the development of additional common customer
service and operating systems.
Each of BT Office Products' operating divisions markets its products
and services to customers through a local dedicated sales force using the
Company's centrally produced full-color catalogues of its product and service
offerings in each of the United States, The Netherlands, Germany, Sweden and the
United Kingdom. Most of the office products offered in these main catalogues are
kept in stock at the Company's regional distribution centers, and in the United
States the Company is linked electronically to certain of its suppliers so that
(i) items not in stock can be delivered to a customer on a next-day basis and
(ii) the Company can better manage its inventory levels. In addition to its main
catalogues in each country, the Company produces a substantial number of
customized and promotional catalogues. Together, BT Office Products' local sales
force and catalogues are key elements of its marketing strategy.
The Company is increasing its telemarketing, Internet and direct mail
marketing efforts. The Company believes that it is able to effectively offer its
products through telemarketing and direct mail to specific customers for certain
products by using its information systems and database to target such customers.
The Company uses direct mail efforts and its catalogues to increase sales to
existing customers and target small- to medium-sized customers that are not
generally covered by its sales force.
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United States
In February 1997, the Company organized its United States operations
into eight geographical regions and Kelly Paper. The Company's Kelly Paper
operations maintains a central distribution center in Whittier, California.
Kelly Paper also operates 34 wholesale stores, 30 of which are located in
California, three in Arizona and one in Nevada. The Company's operating
divisions maintain sales and distribution centers, as well as branches, some of
which include distribution breakdown facilities, which as of February 28, 1997
serve the following major markets:
<TABLE>
<CAPTION>
Sales and
Distribution Centers Branches
-------------------- ----------------
New England Region:
<S> <C> <C>
New England Division Needham, MA Cranston, RI
(Boston area) Manchester, NH
Northeast Region:
New York Division New York, NY Islandia, NY
North Bergen, NJ White Plains, NY
Meriden, CT
Stamford, CT
Mid-Atlantic Region:
Washington, DC Division Springdale, MD Richmond, VA
Sterling, VA
Philadelphia Division Philadelphia, PA
Midwest Region:
St. Louis Division Vinita Park, MO Little Rock, AK
(St. Louis area) Lenexa, KS
Carbondale, IL
Columbia, MO
Jefferson City, MO
Memphis, TN
Indianapolis Division Indianapolis, IN Indianapolis, IN
Anderson, IN
Fort Wayne, IN
Louisville, KY
Columbus Division Lewis Center, OH Norwood, OH
(Cincinnati area)
Pittsburgh Division Glenfield, PA Westlake, OH
(Cleveland area)
Great Lakes Region:
Chicago Division Chicago, IL Wauwatosa, WI
(Milwaukee area)
Detroit Division Warren, MI
-11-
<PAGE>
Minneapolis Division Plymouth, MN Red Wing, MN
Eau Claire, WI
Davenport Division Davenport, IA Davenport, IA
Burlington, IA
Dubuque, IA
Hiawatha, IA
(Cedar Rapids area)
Marshalltown, IA
Urbandale, IA
(Des Moines area)
East Peoria, IL
South-Southeast Region:
Texas Division Arlington, TX Addison, TX
Houston, TX (Dallas area)
Austin, TX
Fort Worth, TX
San Antonio, TX
Oklahoma City, OK
Tulsa, OK
North Carolina Division Greensboro, NC
Atlanta Division Atlanta, GA Albany, GA
Columbus, GA
West Columbia, SC
Northern Florida Division Tampa, FL Jacksonville, FL
St. Augustine, FL
Tallahassee, FL
Southern Florida Division West Palm Beach, FL Plantation, FL
Northwest Region:
Pacific Northwest Division Portland, OR Corvallis, OR
Seattle, WA
Colorado Division Aurora, CO Colorado Springs, CO
Fort Collins, CO
West-Southwest Region:
Northern California Division Newark, CA San Francisco, CA
North Highlands, CA
(Sacramento area)
Southern California Division Rancho Dominguez, CA Chatsworth, CA
Irvine, CA
Paramount, CA
San Diego, CA
New Mexico Division Albuquerque, NM Phoenix, AZ
El Paso, TX
</TABLE>
-12-
<PAGE>
Europe
The Company's European operations are managed and coordinated from its
European headquarters in Amsterdam. From this location, overall sales,
marketing, logistics, financial and operating strategies are established that
provide a coordinated direction for all of the European operations. The
Company's European distribution centers and branch sales offices as of February
28, 1997 are located as follows:
Sales and
Distribution Centers Branches
-------------------- ------------
Germany:
B+N Scharnhausen Stuttgart
Ulm-Lehr Dresden
Heilbronn
Kempten im Allgau
Neuhausen
BVZ/Hartmann/Nett/Wurth Langenlonsheim Bad Kreuznach
Bingen
Frankfurt am Main
Idar-Oberstein
Koblenz
Mainz
Worms
Keller + Roth Group Wuppertal Ratingen
(Dusseldorf area)
Essen
Bax Maisach bei Munich
United Kingdom:
Copygraphic London
Reading
The Netherlands:
Veenman Group Capelle aan den IJssel Amsterdam
Gorinchem Best
Utrecht Zwolle
-13-
<PAGE>
Kuipers Zwolle Amersfoort
Apeldoorn
Enschede
Groningen
Leeuwarden
Sweden:
Bjorsell Boras Alingsas
Boras
Goteborg
Jonkoping
Kalmar
Lidkoping
Linkoping
Lund
Malmo
Mariestag
Nassjo
Skovde
Trollhattan
Uddevalla
Ulricehamn
Umea
Vamamo
Orebro
Sales Force
The Company uses a variety of sales approaches tailored to the specific
needs of its customers. A substantial majority of the Company's sales are
conducted through a sales force of approximately 800 persons in the United
States, 120 in Germany, 220 in The Netherlands, 70 in Sweden and 24 in the
United Kingdom. Most of the sales force in the United States is compensated on a
commission basis and most of the sales force in Europe is compensated on a
salaried basis. The Company services its customers through salaried sales
personnel and customer service representatives.
The Company's sales force assists its customers with the implementation of
a comprehensive office products procurement system, which includes the supply of
office products and the provision of customized services, such as specialized
catalogues and electronic order entry. Management is committed to provide
training for its sales force, with the objective of enabling sales personnel to
educate customers as to the total overall costs of managing their office
products needs and to assist customers in designing programs to minimize these
costs.
Catalogues
The Company annually publishes a full-color catalogue of its office
products offerings in the United States (containing approximately 10,000 SKUs)
and in Germany, The Netherlands, Sweden and the United Kingdom (each containing
approximately 6,000 SKUs). The catalogues consist of a narrative and pictorial
selling presentation, prices and a description of each item's uses and features,
as well as descriptions of the services available to customers. The Company also
-14-
<PAGE>
produces other specialty catalogues for its marketing efforts, targeted to
customers by size and/or type. In addition, the Company also provides customized
catalogues containing 100 to 500 SKUs of office products for its larger
customers and CD ROM catalogues with built-in order logic and EDI capability.
The Company generally does not utilize newspaper, radio or other forms of mass
media advertising.
Classic Licensing Program
The Company sells its Classic private label brand of office products in
Europe through a network of dealers under its Classic licensing program. This
licensing program supplements the Company's direct sales of Classic products in
Germany, The Netherlands, Sweden and the United Kingdom in markets not otherwise
serviced through its wholly-owned distributors. Under the Classic license
program, the Company enters into agreements with independent office products
dealers, granting exclusive distribution arrangements for the Classic brand of
office products in a specific geographic area.
The Company offers participating dealers a full menu of services,
including catalogues, direct marketing assistance, promotions and order
fulfillment. Through the use of the Company's warehouse and distribution
facility in Langenlonsheim, Germany (near Frankfurt), a participating dealer has
the ability to offer next-day delivery in a cost-effective manner and to take
advantage of the centralized logistics (e.g., stock control, picking, packing
and shipping), merchandising and information systems of the Company. In this
capacity, the Company serves as a wholesaler to the Classic license program
participants, permitting them to reduce inventory and distribution facilities
costs. As a result, small local dealers have the ability to offer their
customers products and services comparable to those of larger and better
capitalized office products dealers without the expense of carrying larger
product inventories.
In addition to the revenue the Company generates on the sales of its
Classic products and the annual licensing fees paid by the participating
dealers, the Company realizes other economic benefits from these arrangements.
Because participating dealers are required to (i) participate in the Company's
Classic brand marketing activities, thereby broadening the market for the
Classic name and (ii) buy Classic products from suppliers of the Company, the
purchasing power of the Company, and therefore the dealers as well, is increased
without requiring any incremental investment by the Company.
The Classic program enables the Company to establish a business
relationship with a large number of local dealers across Europe, some of which
may become attractive acquisition candidates. Currently, there are 60
participating independent dealers in the Classic license program in Germany. The
Company has entered into license agreements with one dealer in each of Austria,
Italy and Switzerland.
Customers
No single customer accounted for more than 1% of the Company's sales in
1995 and 1996. The Company's customers include many Fortune 500 companies, other
large corporations, banks, financial services companies, governmental entities
and educational institutions. Many customers have multiple locations that are
serviced by the Company's operating divisions.
Purchasing
The Company purchases a large majority of its products in volume directly
from manufacturers or major office products wholesalers, who deliver the
merchandise to each of the Company's distribution centers. Generally, the
Company has been able to return any unsold or obsolete office products inventory
to its vendors, resulting in minimal inventory write-offs. However, no assurance
can be given that the Company's vendors will continue to offer this return
policy in the future.
-15-
<PAGE>
To maximize its purchasing power, the Company's purchasing strategy has
been to establish preferred relations with certain vendors with whom the Company
can capitalize on purchasing economies. This "preferred vendor" strategy creates
advantageous pricing relationships for the Company and has led to competition
among vendors for inclusion in such group. To further maximize its purchasing
power, the Company has been consolidating, and will continue to consolidate, its
purchases from key vendors to increase its importance to those vendors,
including the sourcing of the office products sold under the "BT MASTERBRAND,"
"Masterbrand" and "Classic" brand names. Additionally, the Company has utilized,
and will continue to utilize, its ability to provide vendors access to
international markets as part of its purchasing strategy.
Some of the Company's vendors are linked through EDI with the Company's
on-line order entry system. Products ordered through the Company's on-line order
entry system that are not in stock are automatically purchased by the Company
through EDI from the Company's vendors. These products are delivered by such
vendors to the Company's warehouses in time for next-day delivery to the
customer with other ordered products.
During the fiscal year ended December 31, 1996, the Company purchased
merchandise from over 500 suppliers in the United States. The largest supplier
accounted for approximately 15% of the Company's total purchases, and the ten
largest suppliers accounted for approximately 47% of total inventory purchases.
Although a substantial portion of the Company's purchases are concentrated with
a relatively small number of suppliers, the Company believes that alternative
sources of supply are available for virtually every product it sells. However,
the Company believes that customer brand preference is an important factor in
the purchase of certain office products and that its competitive position is
enhanced by the inclusion of popular brand name items. The Company considers its
relationship with its suppliers to be good and has not experienced any
difficulty in sourcing its merchandise.
Logistics
The Company receives orders through its electronic commerce systems, as
well as by traditional telephone, fax and mail-in purchase order methods. After
an order has been placed with the Company, picking documents are created for
those items in stock and routed to the appropriate distribution center for order
fulfillment. At the same time, the Company's EDI systems transmit those portions
of the orders not in stock to the Company's vendors. The Company is able to
acquire many items not then in its own inventory on the same day and to combine
such items with the in-stock items to yield a first order fill-ratio in the
United States exceeding 98%.
The Company's distribution centers use automated routing software,
scanning and carousel picking technology to enhance accuracy and efficiency.
After an order is picked and packed, conveyors and overhead scanning systems are
utilized to route and manifest outgoing customer deliveries. Significant
detailed reporting is available to optimize warehouse productivity, inventory
turns, SKU selection and sourcing decisions and to evaluate vendor performance.
The Company's distribution centers have a logistical and economic reach of
up to approximately six hours by truck in any direction. The Company uses a
combination of owned and leased vehicles and third-party delivery services to
deliver office products.
-16-
<PAGE>
Competition
The Company operates in a highly competitive environment. The principal
competitive factors in the office products distribution industry are service,
price, product quality and product offerings. The Company's principal
competitors, depending upon the regions in which it operates, are national
office products distributors, traditional contract stationers, direct mail order
companies, retail office products superstores and stationery stores. With
respect to medium- and large-sized businesses and other institutions, which are
the Company's target market, management believes that existing customers and
potential customers prefer to deal with large value-added office products
distributors such as the Company which can provide the lowest total overall cost
of managing their office products needs, high levels of service, convenience and
rapid delivery.
The Company's largest competitors in the United States are Boise Cascade
Office Products Corporation, Corporate Express, Inc., U.S. Office Products
Company and the office products distribution businesses of Office Depot Inc. and
Staples, Inc. These businesses compete for, and sell office products to, many of
the same customers as the Company. Management believes that it competes
favorably with these companies on the basis of its customized and value-added
services and the price of its products.
Historically, the German market was highly fragmented and customers in
Germany were serviced to a large extent by local dealers who generally operated
within a local or regional territory. Consolidation within the German market was
occurring at a slow pace. However, in 1996 several international contract
stationers entered into or continued their expansion within the German market.
This trend is anticipated to continue as the local dealers are pressured to
compete with these international companies. The Company's largest competitors in
Germany include Corporate Express, Inc., Guilbert S.A., Lyreco and Viking Office
Products.
The United Kingdom market has also experienced a significant amount of
consolidation over the past few years. The Company's major competitors in the
United Kingdom are Guilbert S.A., Corporate Express, Inc., Dudley Stationery
Ltd. and Samas.
In The Netherlands, the Company's competitors are principally local
dealers. The largest competitors are Ahrend and Samas.
In Sweden, the Company's main competitors are Svanstroms, Tybring-Gjedde,
and Durab.
Some of the Company's competitors have greater financial resources and
purchasing power than the Company and, particularly in the case of the retail
office products superstores, significant name recognition. In addition, the
Company believes that the office products distribution industry will continue to
consolidate over the next few years and, consequently become more competitive.
Also, the Company believes that increasing competition and heightened price
sensitivity among customers have led to industry-wide pressure on gross margins,
a trend which the Company expects will continue in the future.
Employees
At December 31, 1996, the Company employed approximately 6,600 persons.
Approximately 6% of the Company's United States employees are covered by
collective bargaining agreements. The Company's labor contracts expire at
various times in 1998 and 1999. The Company expects no significant changes in
its relations with these unions. Most of the Company's employees in the United
Kingdom and the Netherlands are not covered by collective bargaining agreements.
Wages for the Company's German employees are determined annually pursuant to
-17-
<PAGE>
centrally negotiated industry labor contracts which provide for a minimum wage
for an industry within a region. Wages have increased moderately over the last
few years pursuant to such contracts. A substantial portion of the Company's
employees in Sweden are covered by collective bargaining agreements which expire
at various times during 1997 and 1998. The Company believes that its relations
with its employees are satisfactory.
Item 2. Properties
The Company's principal executive offices are located at 2150 E. Lake Cook
Road, Buffalo Grove, Illinois 60089. The Company owns and leases properties for
use in the ordinary course of business. The leases expire at various times
through 2022, and many of the Company's leases contain options to renew and/or
purchase the property.
-18-
<PAGE>
As of February 28, 1997, the Company's principal sales and distribution
centers and branch distribution breakdown facilities were as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Building Area Building Area
Location (square feet) Location (square feet)
-------- ------------- -------- -------------
United States: Germany:
<S> <C> <C>
Albuquerque, New Mexico................. 35,079 Langenlonsheim..................... 69,837
Arlington, Texas........................ 134,016 Maisach bei Munich................. 41,153
Arlington, Texas........................ 36,399 Scharnhausen....................... 57,725
Atlanta, Georgia........................ 30,128 Ulm-Lehr........................... 47,606
Aurora, Colorado........................ 30,080 Wuppertal.......................... 52,074
Chicago, Illinois <F1>.................. 124,000
Chicago, Illinois....................... 67,182 Sweden:
Davenport, Iowa......................... 12,000 Boras.............................. 79,584
Glenfield, Pennsylvania <F1>............ 52,464 Boras.............................. 30,125
Glenfield, Pennsylvania................. 25,000
Greensboro, North Carolina.............. 13,000 The Netherlands:
Houston, Texas.......................... 114,170 Capelle aan den IJssel............. 61,565
Indianapolis, Indiana................... 32,000 Gorinchem.......................... 9,105
Lewis Center, Ohio...................... 79,555 Utrecht............................ 15,215
Needham, Massachusetts.................. 66,142 Zwolle............................. 88,633
New York, New York...................... 195,000 Zwolle............................. 10,759
Newark, California...................... 160,000
North Bergen, New Jersey................ 208,810 United Kingdom:
Philadelphia, Pennsylvania.............. 60,675 London............................. 26,000
Philadelphia, Pennsylvania.............. 40,000 Reading............................ 87,000
Plymouth, Minnesota..................... 78,500
Portland, Oregon........................ 49,520
Portland, Oregon........................ 12,600
Rancho Dominguez, California............ 70,800
Springdale, Maryland.................... 111,000
Tampa, Florida.......................... 76,567
Vinita Park, Missouri................... 129,506
Warren, Michigan........................ 75,973
West Palm Beach, Florida................ 23,400
- ---------------
<FN>
<F1> These sales and distribution centers are owned by the Company. All
other sales and distribution centers and distribution breakdown
facilities are leased by the Company.
</FN>
</TABLE>
Also, the Company maintains additional smaller branch sales offices and
distribution breakdown facilities in the U.S. and in Europe.
-19-
<PAGE>
The Company's Kelly Paper operation maintains a central distribution
center of approximately 82,000 square feet in Whittier, California as well as 30
wholesale stores in California, three in Arizona and one in Nevada.
Although the Company believes that its facilities are generally
adequate for its current level of business, the Company believes that its
operations in certain markets will require new or expanded facilities in the
next several years.
Item 3. Legal Proceedings
The Company is involved in various ordinary routine legal proceedings
incidental to the conduct of its business. Management does not believe that any
of these legal proceedings will have a material adverse effect on the financial
condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-20-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company (NYSE symbol: BTF) commenced trading on
the New York Stock Exchange (the "Exchange") on July 19, 1995. Prior to that
time, there was no market for the Common Stock of the Company. The following
table sets forth the range of high and low sale prices of the Company's Common
Stock on the Exchange for each full quarterly period since trading commenced.
Fiscal 1996 Fiscal 1995
----------- -----------
High Low High Low
---- --- ---- ---
First quarter........... $23 1/2 $13 n/a n/a
Second quarter.......... 23 7/8 15 1/2 n/a n/a
Third quarter........... 17 7/8 9 7/8 n/a n/a
Fourth quarter.......... 14 8 1/8 $16 $11 1/4
As of March 17, 1997, there were approximately 208 holders of record of
the Common Stock.
The Company has not declared or paid cash dividends on its Common
Stock. The Company currently anticipates that it will retain all available funds
for use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Company's Board of Directors
and will be dependent upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors.
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data for
the Company for each of the five years ended December 31, 1992 through 1996. The
selected statement of operations data and balance sheet data, except for the
balance sheet data as of December 31, 1992, have been derived from the Company's
audited financial statements. The balance sheet data as of December 31, 1992 has
been derived from the unaudited consolidated financial statements of the
Company. The information contained herein should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements of the Company for
the three years ended December 31, 1996 and the notes thereto included herein.
-21-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share and operating data)
Statement of Operations Data:
Net sales:
<S> <C> <C> <C> <C> <C>
United States.................... $1,086,960 $ 833,010 $589,823 $469,263 $390,113
Europe........................... 325,554 299,360 199,718 117,591 85,198
--------- --------- -------- -------- --------
Total....................... 1,412,514 1,132,370 789,541 586,854 475,311
Costs of products sold............... 1,004,713 819,078 557,737 408,514 325,753
--------- --------- ------- ------- --------
Gross Profit..................... 407,801 313,292 231,804 178,340 149,558
--------- --------- --------- ------- --------
Selling and administrative expenses.. 345,879 266,163 197,088 157,370 136,204
Depreciation and amortization........ 13,693 10,339 7,796 6,961 5,648
Amortization of intangibles.......... 10,046 8,117 6,111 4,737 5,228
--------- --------- --------- ------- --------
Operating income (loss):
United States.................... 31,335 22,797 18,541 12,879 7,965
Europe........................... 6,848 5,876 2,268 (3,607) (5,487)
--------- --------- --------- ------- --------
Total....................... 38,183 28,673 20,809 9,272 2,478
Other income (expense):
Other income..................... 2,091 1,287 629 339 632
Equity in earnings (loss) of affiliated
company <F1>................ -- -- (112) 153 73
Interest expense................. (7,401) (3,561) (4,389) (2,122) (1,348)
Interest expense to affiliates <F2> (5,172) (12,372) (12,641) (10,078) (2,985)
--------- --------- --------- ------- --------
Total....................... (10,482) (14,646) (16,513) (11,708) (3,628)
--------- --------- --------- ------- --------
Income (loss) before income taxes and
cumulative effect of accounting
change........................... 27,701 14,027 4,296 (2,436) (1,150)
Income tax expense................... 13,000 7,337 4,455 1,764 2,341
--------- --------- --------- ------- --------
Income (loss) before cumulative effect
of accounting change............. 14,701 6,690 (159) (4,200) (3,491)
Cumulative effect of accounting change,
net of income tax benefit <F3>... -- -- -- (692) --
--------- --------- -------- ------- -------
Net income (loss)........... $ 14,701 $ 6,690 $ (159) $ (4,892) $ (3,491)
========= ========= ======== ======== ========
Per Share Data <F4>:
Income (loss) before cumulative effect
of accounting change............. $ .44 $ .24 $ (.01) $ (.18) $ (.15)
Net income (loss).................... .44 .24 (.01) (.21) (.15)
Operating Data:
Selling and administrative expenses as
a percentage of net sales........ 24.5% 23.5% 25.0% 26.8% 28.7%
Distribution centers (at period end). 37 38 28 19 15
Inventory turns <F5>................. 9.5x 9.8x 8.9x 8.1x 7.9x
Balance Sheet Data (at period end):
Working capital (deficiency)......... $153,945 $143,963 $ (143,028) $(97,786) $(95,314)
Total assets......................... 742,819 524,647 429,371 287,794 240,166
Short-term debt <F6>................. 47,934 25,619 282,015 174,114 159,314
Long-term debt <F7>.................. 219,702 99,551 13,399 23,521 18,947
Stockholders' equity (deficit) <F2><F8> 268,652 260,235 21,933 7,707 (2,327)
(footnotes on following page)
-22-
<PAGE>
(footnotes for preceding page)
- ---------------
<FN>
<F1> Represents earnings (loss) on the Company's 40% interest in B+N accounted
for on the equity method through June 30, 1994. Effective July 1, 1994, the
operating results of B+N have been consolidated with those of the Company
reflecting the acquisition of the remaining 60% beneficial interest in B+N.
<F2> The substantial increase in interest expense to affiliates in 1993 was
largely attributable to $90 million of indebtedness incurred in connection
with a return of capital payment made by the Company to KNP BT in December
1992. The return of capital payment resulted in a deficit in stockholders'
equity in 1992.
<F3> In 1993, the Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The effect of this adoption increased 1993 net periodic
postretirement cost by $1.1 million and increased the 1993 net loss by
$692,000.
<F4> For 1994, 1993 and 1992, gives effect to a stock split that occurred in
connection with the Reorganization resulting in 23,400,000 shares
outstanding.
<F5> Inventory turns are calculated by dividing (i) the inventory costs of
products sold by (ii) the average of the ending inventory balance from the
prior fiscal period and the current fiscal period, except for acquisitions
made during the current period, for which inventory balances are weighted
for the portion of the period included in operations.
<F6> Short-term debt includes amounts due within twelve months to third parties
and affiliates of KNP BT, including the current portion of long-term debt.
The balances in 1994 and prior years consisted principally of amounts due to
affiliates of KNP BT. The Company also received in 1995 and 1994
non-interest bearing advances from affiliates of KNP BT associated with
acquisitions during these periods totalling $21.9 million and $43.9 million,
respectively.
<F7> Consists of long-term debt with third parties, affiliates of KNP BT, and
capitalized leases, less current portion.
<F8> The Company has never declared or paid cash dividends on its Common Stock.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background
New York Division
In March 1996, the Company discovered certain accounting and financial
reporting irregularities at its New York division. The irregularities involved
misstatements in the reporting of gross profit margins and operating expenses
principally in 1995 and 1994, as well as concealment in the accounting records
of theft of Company assets. The impact of the charges associated with these
issues resulted in a reduction of operating income for 1995 by approximately
$7.5 million and for 1994 by approximately $2.9 million. An independent
investigation, completed in August 1996, uncovered no basis for any further
adjustment to the financial statements.
-23-
<PAGE>
Accounting for Reorganization
On June 30, 1995, Kelly Paper and the European Businesses, which had
been owned by KNP BT, were transferred to the Company as part of the
Reorganization. This transfer was accounted for on an historical basis in a
manner similar to a pooling of interests, as it represents a transaction among
entities under common control. In light of the common ownership, the Company's
consolidated financial statements reflect the combined United States and
European office products distribution businesses as if the combination were
effective prior to June 30, 1995. The Company's financial statements exclude the
results of operations and the assets and liabilities of the Holding Company's
non-office products businesses which were transferred to KNP BT in connection
with the Reorganization.
Integration of Acquired Businesses
The Company's results of operations and financial condition reflect its
rapid growth through acquisitions. The Company has made and continues to make
significant investments in connection with the purchase and integration of its
acquired businesses in order to attain long-term improvements in profitability;
however, the costs of integration have had an adverse effect on short-term
operating results. Management believes that, as the Company integrates its
acquired businesses, the adverse effect of integration expenses on profitability
will decline as will operating expenses as a percentage of net sales.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to consolidated net sales of certain items in the Company's
consolidated statement of operations:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Net sales:
<S> <C> <C> <C>
United States.................. 76.9% 73.6% 74.7%
Europe......................... 23.1 26.4 25.3
------ ------ ------
Total..................... 100.0 100.0 100.0
Costs of products sold............. 71.1 72.4 70.6
------ ------ ------
Gross Profit................... 28.9 27.6 29.4
Selling and administrative expenses 24.5 23.5 25.0
Depreciation and amortization...... 1.0 .9 1.0
Amortization of intangibles........ .7 .7 .8
------ ------ ------
Operating income:
United States.................. 2.2 2.0 2.3
Europe......................... .5 .5 .3
------ ------ ------
Total..................... 2.7 2.5 2.6
Other income (expense):
Other income................... .1 .1 .1
Interest expense............... (.5) (.3) (.6)
Interest expense to affiliates. (.4) (1.1) (1.6)
------ ------ ------
Income before income taxes......... 1.9 1.2 .5
Income tax expense................. .9 .6 .5
------ ------ ------
Net income (loss).................. 1.0% .6% --%
====== ====== ======
</TABLE>
-24-
<PAGE>
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
Net sales increased to $1,412.5 million in 1996 from $1,132.4 million
in 1995, an increase of $280.1 million or 24.7%.
Net sales in the United States increased to $1,087.0 million in 1996
from $833.0 million in 1995, an increase of $254.0 million or 30.5%. The
Company's 1996 acquisitions and the incremental impact of its 1995 acquisitions
accounted for $89.7 million of the increase. Increased sales at the Company's
existing operations accounted for the remaining $164.3 million of the increase,
or a growth rate at existing locations of 19.7%. The Company believes that the
principal factors contributing to this growth were increased sales to existing
and new accounts and "add-on" acquisitions at ten divisions.
Net sales in Europe increased to $325.5 million in 1996 from $299.4
million in 1995, an increase of $26.1 million or 8.7%. The Company's
acquisitions of the Keller + Roth Group and Bax in July 1996 and Bjorsell in
December 1996 accounted for $27.6 million of the increase. Increased sales at
the Company's existing operations, excluding the effects of foreign currency
depreciation against the U.S. dollar, accounted for $20.6 million of the
increase, or a growth rate at existing locations of 6.9%. The Company believes
that the principal factor contributing to this internal growth was sales
associated with an "add-on" acquisition in Germany. European sales have been
impacted by the softness in the German economy. Offsetting the increase in net
sales during 1996 from acquisitions and internal growth was $13.5 million of
foreign currency depreciation against the U.S. dollar. In addition, net sales
for 1995 were favorably impacted by $8.6 million for the personal computer sales
and service operations of Bierbrauer & Nagel GmbH & Co. KG, which was
transferred to the Information Systems Division of KNP BT effective July 1,
1995.
Gross profit as a percentage of net sales was 28.9% in 1996 compared to
27.6% in 1995, an increase of 1.3%. The increase was attributable primarily to
improved margin management, higher margins on paper and related product sales of
approximately 0.4%, and a lower LIFO charge associated with inventory cost
decreases in the U.S. amounting to 0.3%.
Selling and administrative expenses as a percentage of net sales were
24.5% in 1996 compared to 23.5% in 1995, an increase of 1.0%. The fluctuation
was attributable primarily to the impact on costs due solely to lower U.S.
selling prices on paper and related products of 0.4%, higher professional fees
associated with the New York division investigation of 0.2%, higher facility
costs associated with four new distribution centers of 0.2%, costs relating to
the business process reengineering initiative of 0.1%, and declining sales
associated with the existing operations in Germany against a relatively fixed
expense base of 0.1%.
Operating income increased to $38.2 million in 1996 from $28.7 million
in 1995, an increase of $9.5 million or 33.1%. Operating income in the United
States increased to $31.3 million in 1996 from $22.8 million in 1995, an
increase of $8.5 million or 37.3%. Operating income in Europe increased to $6.9
million in 1996 from $5.9 million in 1995, an increase of $1.0 million or 16.9%.
Operating income as a percentage of net sales was 2.7% in 1996 as
compared to 2.5% in 1995. Operating income as a percentage of net sales in the
United States was 2.9% in 1996 as compared to 2.7% in 1995. Higher product
margins were substantially offset by the impact of lower U.S. paper prices,
higher facility costs and professional fees. Operating income as a percentage of
net sales in Europe was 2.1% in 1996 as compared to 2.0% in 1995. The slight
increase was primarily due to new acquisitions offset by lower sales associated
with the existing operations in Germany as a result of the soft market
conditions against a relatively fixed expense base.
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Interest expense, including affiliated interest expense, decreased to
$12.6 million in 1996 from $16.0 million in 1995. While the Company has
continued to invest in new acquisitions and capital expenditures in 1995 and
1996, the average interest bearing debt levels are lower in 1996 as a result of
proceeds received in mid-1995 from the Reorganization and the Offering. In
addition, interest rates have decreased due to generally lower market rates and
more favorable lending terms under the Antilliana Credit Agreement and the Bank
Credit Agreement (each as defined below).
Net income increased to $14.7 million in 1996 from $6.7 million in
1995. The increase in net income was due to increased operating income at
existing operations, acquisitions, lower interest costs and a lower effective
income tax rate. The effective income tax rate was 47.0% for 1996 as compared to
52.0% for 1995. This rate decrease is primarily due to the effects of
non-deductible goodwill amortization and other permanent differences against a
relatively higher pre-tax income base in 1996.
Year Ended December 31, 1995 Compared with Year ended December 31, 1994
Net sales increased to $1,132.4 million in 1995 from $789.5 million in
1994, an increase of $342.9 million or 43.4%.
Net sales in the United States increased to $833.0 million from $589.8
million, an increase of $243.2 million or 41.2%. The Company's 1995 acquisitions
and the incremental impact of its 1994 acquisitions accounted for $103.4 million
of this increase. The balance of the increase of $139.8 million or 23.7%
resulted from internal growth at existing operations. While no single factor
contributed to a significant portion of the internal sales increase in 1995, the
Company believes the principal factors included sales associated with "add-on"
acquisitions at the Texas, St. Louis and New York divisions, increased sales to
existing accounts, new accounts and price increases, particularly those
associated with paper products.
Net sales in Europe increased to $299.4 million from $199.7 million, an
increase of $99.7 million or 49.9%. The increase was largely attributable to
sales of $62.2 million from the consolidation of the results of operations of
B+N following the Company's July 1994 acquisition of a controlling interest.
Currency appreciation against the U.S. Dollar also accounted for a translated
sales gain of $20.9 million. The balance of the increase in Europe of $16.6
million or 8.3% resulted from internal growth at existing operations. Effective
July 1, 1995 the personal computer sales and service operation of B+N was
transferred to the Information System Division of KNP BT at net book value.
Removing the effects of this transferred operation, European sales would have
increased by 53.0% over 1994, of which 13.8% would have been attributable to
internal growth.
Gross profit as a percentage of net sales was 27.6% in 1995, as
compared to 29.4% in 1994, a decrease of 1.8%. The decrease was attributable to
several factors including: the lower relative gross profit margins associated
with the 1995 and 1994 acquisitions (accounting for a decrease of 0.3%); a
higher LIFO charge associated with inventory cost increases in the U.S.
(accounting for a decrease of 0.2%); and changes in customer and product mix;
lower paper product gross margins due to the Company's inability to immediately
adjust selling prices to fully reflect cost increases of these products; and
competitive pricing pressure, none of which can be specifically quantified.
Selling and administrative expenses increased to $266.2 million in 1995
from $197.1 million in 1994, an increase of $69.1 million. U.S. acquisitions
accounted for $21.8 million of this increase and the B+N consolidation accounted
for $16.6 million of this increase. The balance of the increase was attributable
to existing operations. Selling and administrative expenses as a percentage of
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net sales were 23.5% in 1995, as compared to 25.0% in 1994, a decrease of 1.5%.
This decrease was primarily attributable to lower relative expense levels in
both the United States and Europe.
Operating income increased to $28.7 million in 1995 from $20.8 million
in 1994, an increase of 38.0%. Operating income in the U.S. increased to $22.8
million in 1995 from $18.5 million in 1994, an increase of $4.3 million. The
increase was primarily attributable to improved operating performance at
existing divisions.
Operating income in Europe increased to $5.9 million in 1995 from $2.3
million in 1994, an increase of $3.6 million. The increase was attributable to
the consolidation of the B+N operating results (accounting for $.8 million) with
the balance due to improvements in operating performance at existing divisions.
Third party interest expense decreased to $3.6 million in 1995 from
$4.4 million in 1994, a decrease of $.8 million. This decrease was due primarily
to a capital contribution by KNP BT to Copygraphic in the fourth quarter of
1994. Interest expense to affiliates decreased to $12.4 million in 1995 from
$12.6 million in 1994, a decrease of $.2 million. The decrease in affiliated
interest expense was attributable to the effects of the Reorganization, the
Offering and the $200 million long term credit agreement with KNP BT Antilliana
N.V. (the "Antilliana Credit Agreement") which has resulted in lower interest
rates.
Net income increased to $6.7 million in 1995 from a loss of $.2 million
in 1994, an increase of $6.9 million. The increase was attributable to increased
income at existing divisions, new acquisitions, lower interest costs as a result
of the Reorganization, the Offering and the Antilliana Credit Agreement, and a
lower effective income tax rate. The effective income tax rate was 52% in 1995
as compared to 104% in 1994. The reduction is primarily attributable to reduced
state income taxes as a result of the merger of several U.S. operating
subsidiaries on December 31, 1994 and to the reduced effects of non-deductible
goodwill amortization as a result of higher pre-tax income.
Liquidity and Capital Resources
Historically, the Company relied upon cash flow from operations,
capital contributions from KNP BT, and cash from revolving credit facilities
with KNP BT to fund working capital, capital expenditures and acquisitions. In
July 1995, the Company completed the sale of 10 million shares of Common Stock
in the Offering (see Note 1 to the consolidated financial statements). Of the
Net Proceeds of $98.4 million, the Company used $65.8 million to repay, in full,
non-interest bearing advances from affiliates of KNP BT made in 1994 and 1995 to
finance acquisitions. The Company used the remaining Net Proceeds to reduce
outstanding indebtedness under the interest bearing advances from affiliates of
KNP BT made to the Company for working capital and other general corporate
purposes. Upon the completion of the Offering, the Company also entered into the
Antilliana Credit Agreement to provide funds for working capital and other
general corporate purposes.
On August 2, 1996, the Company entered into a $250 million syndicated
bank Competitive Advance and Revolving Credit Facility Agreement (the "Bank
Credit Agreement"). The Bank Credit Agreement was used to pay down existing debt
owing to affiliates of the Company and is being used for working capital needs
and general corporate purposes, including acquisitions. After entering into the
Bank Credit Agreement, the Company reduced the commitments available under the
Antilliana Credit Agreement, which will expire in July 1998, to $50 million.
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<PAGE>
Cash provided by operating activities in the year ended December 31,
1996 was $48.5 million, which included $14.7 million of net income and $25.4
million of non-cash depreciation and amortization charges. Significant cash
requirements for 1996 included $130.1 million related to acquisitions and $25.1
million for capital expenditures. These requirements were partially financed by
$119.0 million of net borrowings under notes payable and long-term obligations.
The Company repaid a significant portion of the borrowings under the Antilliana
Credit Agreement with borrowings under the Bank Credit Agreement during the
second half of 1996.
Cash used for operating activities for the year ended December 31, 1995
was $.3 million. The Company generated cash flows of $6.7 million from net
income and $19.8 million from non-cash depreciation and amortization charges.
The cash flow was used to finance its net cash needs of $26.8 million for other
operating activities. An increase in accounts receivable accounted for $32.7
million of these needs. The increase in accounts receivable was attributable to
higher sales levels in the U.S. and Europe. Other significant cash requirements
in 1995 included $161.4 million for the repayment of amounts due under the
credit facility with KNP BT and its affiliates, $37.2 million related to
acquisitions, $21.9 million for capital expenditures and $.7 million for the net
repayment of notes payable and long-term obligations. Remaining cash for these
activities and other uses of funds were provided by the $118.0 million Capital
Contribution and the Net Proceeds of the Offering.
Cash used in operating activities for the year ended December 31, 1994
was $4.4 million. The Company generated cash flows for $14.7 million from
non-cash depreciation and amortization charges offset by a net loss of $.2
million. These cash flows were used to finance its net cash needs of $18.9
million for other operating assets and liabilities. Increases in inventories and
accounts receivable accounted for $5.0 million and $14.5 million of these needs,
respectively. The overall growth in inventories relative to the growth in net
sales has slowed as evidenced by an increase of inventory turns from 8.1 turns
in 1993 to 8.9 turns in 1994 (providing for the partial year impact on inventory
for acquisitions during the periods). The increase in trade receivable was
attributable to higher sales levels as days sales outstanding remained constant
at 46 days. The changes from year to year in accounts receivable and inventories
are also impacted by the timing of acquisitions and exchange rate fluctuations
in translating foreign currency balances into U.S. Dollars. Other significant
cash requirements in 1994 included $41.2 million related to several
acquisitions, $12.9 million for capital expenditures principally for information
systems hardware and software requirements and improvements to warehouse
facilities, and $16.2 million for net repayments of notes payable and long-term
obligations. KNP BT contributed $10.4 million of capital in the form of net
capital contributions to existing companies of $9.7 million and allocated
divisional expenses not reimbursed of $.7 million. Remaining cash for these
activities, and other net uses, was provided by additional borrowings of $79.2
million under the revolving credit facility with KNP BT and its affiliates.
In 1996, the Company had total capital expenditures of $25.1 million.
The Company has budgeted aggregate capital expenditures of $31.4 million for the
year ending December 31, 1997 excluding any expenditures relating to recent
acquisitions. These budgeted expenditures primarily relate to investments in
information technology systems, costs associated with its business process
reengineering and improvements to existing distribution centers.
The Company believes that internally generated funds and available
borrowings under its credit agreements will be sufficient to meet its presently
anticipated cash requirements for capital expenditures and working capital.
However, since the Offering in July 1995, the Company has relied principally
upon its debt facilities, the most significant of which is currently the $250
million Bank Credit Agreement, to finance acquisitions. Total borrowings under
the Bank Credit Agreement at December 31, 1996 were $197.2 million. The most
restrictive covenant in the Bank Credit Agreement currently limits, and may
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<PAGE>
in the future limit, the Company's ability to fully utilize the available
capacity remaining under the Bank Credit Agreement and other credit facilities
of the Company. While the Company continues to seek acquisition candidates on a
selective basis, it is expected that the level of acquisition activity in the
first half of 1997 will be limited, as the focus will be on integrating the 1996
acquired companies. The Company anticipates significant future acquisition
funding, to the extent required, will necessitate obtaining additional debt
and/or equity capital resources. The Company is presently examining and
evaluating several alternatives.
Effects of Fluctuations in Foreign Currency Exchange Rates
Approximately 25% of the Company's operating revenues and operating
expenses are generated from its European operations and are denominated in a
variety of currencies other than United States dollars. Each of the Company's
European operations conducts substantially all of its business in its local
currency with minimal cross-border product movement. As a result, these
operations are not subject to material operational risks associated with
fluctuations in exchange rates. The Company's results of operations, however,
are impacted by the translation rate of the European operations' currencies into
United States dollars. Additionally, because the Company intends to expand the
size and scope of its international operations, this exposure to fluctuations in
exchange rates will be increased. Accordingly, no assurance can be given that
the Company's results of operations will not be adversely affected by
fluctuations in foreign currency exchange rates. Although the Company currently
does not engage in any activities with respect to hedging its exposure to such
fluctuations, it may consider engaging in such efforts in the future.
Inflation
The Company does not believe that inflation has had a material impact
on its business or results of operations in recent years. However, there can be
no assurance that the Company's business will not be affected by inflation in
the future.
Other
The Financial Accounting Standards Board issued Statement No. 125,
"Accounting for Transfers and Services of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"), which requires an entity to recognize the
financial and servicing assets it controls and the liabilities it has incurred
and to derecognize financial assets when control has been surrendered in
accordance with the criteria provided in SFAS 125. The Company has not yet
determined the impact of SFAS 125 on the financial statements.
Forward Looking Statements
Various statements made within this Management's Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this
Annual Report on Form 10-K constitute "forward looking statements" for purposes
of the Securities and Exchange Commission's "safe harbor" provisions under the
Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the
Securities Exchange Act of 1934, as amended. Investors are cautioned that all
forward looking statements involve risks and uncertainties, including those
detailed in the Company's filings with the Securities and Exchange Commission.
There can be no assurance that actual results will not differ from the Company's
expectations. Factors which could cause materially different results include,
among others, uncertainties related to the introduction of the Company's
products and services; the successful completion and integration of
acquisitions; and competitive and general economic conditions.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
See Item 14 below for a listing of financial statements and the
financial statement schedule included therein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 29, 1997 under the captions "Election of
Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated herein by reference.
Item 11. Executive Compensation
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 29, 1997 under the caption "Executive
Compensation" is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 29, 1997 under the caption "Security Ownership
of Certain Beneficial Owners and Management" is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 29, 1997 under the caption "Certain
Relationships and Related Transactions" and "Compensation Committee Interlocks
and Insider Participation" is incorporated herein by reference.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and
Reports on Form 8-K
(a) The following financial statements and financial statement schedule of
the Company are included in this Report:
Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 Notes to Consolidated Financial Statements
Schedule:
Schedule II - Valuation and Qualifying Accounts
Exhibits:
Exhibit
Number Description
------- ----------------------------------------------------------------
2.1 Exchange Agreement (incorporated by reference to Exhibit 2.1 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed with Amendment
No. 2 to the Company's Registration Statement on Form S-1, dated
July 7, 1995, Registration No. 33-12124).
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 filed with Amendment No. 2 to the
Company's Registration Statement on Form S- 1, dated July 7,
1995, Registration No. 33-12124).
10.1 Antilliana Credit Agreement (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1995, Commission file no.
1-13858).
10.2 Registration Rights Agreement among NV Koninklijke KNP BT,
Buhrmann-Tetterode International B.V. and the Company
(incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the Fiscal Year ended December
31, 1995, Commission file no. 1-13858).
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<PAGE>
10.3 Tax Matters Agreement (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
*10.4 Amendment No. 1 to Tax Matters Agreement dated as of June 7,
1996.
10.5 License Agreement (incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
10.6 Intercompany Services Agreement between NV Koninklijke KNP BT
and the Company (incorporated by reference to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
10.7 Agreement for Credit Support (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1995, Commission file no.
1-13858).
10.8 Form of Indemnification Agreement for officers and directors
(incorporated by reference to Exhibit 10.7 filed with Amendment
No. 2 to the Company's Registration Statement on Form S-1, dated
July 7, 1995, Registration No. 33-12124).
+ 10.9 Supplemental Executive Retirement Plan, as amended by the First
Amendment thereto (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
+*10.10 Second Amendment to Supplemental Executive Retirement Plan.
+ 10.11 1995 Stock Option Plan (incorporated by reference to Exhibit
10.9 filed with Amendment No. 1 to the Company's Registration
Statement on Form S-1, dated June 22, 1995, Registration No.
33-12124).
10.12 Promissory Note evidencing mortgage (incorporated by reference
to Exhibit 10.10 filed with Amendment No. 2 to the Company's
Registration Statement on Form S-1, dated July 7, 1995,
Registration No. 33-12124).
10.13 Mortgage and Note Amendment Agreement (incorporated by reference
to Exhibit 10.11 filed with Amendment No. 2 to the Company's
Registration Statement on Form S-1, dated July 7, 1995,
Registration No. 33-12124).
+ 10.14 Employment Agreement of Rudolf A.J. Huyzer (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.15 Employment Agreement of John J. McKiernan (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.16 Employment Agreement of Richard C. Dubin (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.17 Employment Agreement of David Kirshner (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.18 Employment Agreement of Michael J. Miller (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
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<PAGE>
+ 10.19 Assignment and Modification Agreement, dated June 26, 1996,
among BT Office Products International, Inc., KNP BT Antilliana
N.V. and KNP BT Finance (USA), Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the Fiscal Quarter ended June 30, 1996, Commission file no.
1-13858).
10.20 Competitive Advance and Revolving Credit Facility Agreement,
dated as of August 2, 1996 among BT Office Products
International, Inc., the subsidiaries, guarantors and lenders
named therein, The Chase Manhattan Bank, as Administrative
Agent, and ABN AMRO Bank N.V., as Documentation Agent
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the Fiscal Quarter ended June
30, 1996, Commission file no. 1-13858).
*10.21 Amendment No. 1 dated as of December 20, 1996 to the Competitive
Advance and Revolving Credit Facility Agreement.
*10.22 Cash Management Agreement dated June 24, 1996 among the Company,
Astro- Valcour, Inc., Sengewald USA, Inc., KNP BT Antilliana
N.V. and KNP BT Finance (USA), Inc.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Ernst & Young LLP.
*27.1 Financial Data Schedule.
- -------------------------
* Filed herewith
+ Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
On October 17, 1996, the Company filed a Current Report on Form 8-K
reporting the acquisition of Bax in Germany.
On December 9, 1996, the Company filed a Current Report on Form 8-K/A-1
to amend its Current Report on Form 8-K dated October 17, 1996 reporting the
acquisition of Bax in Germany in order to indicate that due to certain
amendments to Regulation S-X, the Company was no longer required to file
financial statements of such acquired company and pro forma financial
information showing the effects of such acquisition pursuant to Item 7 of Form
8-K.
On December 31, 1996, the Company filed a Current Report on Form 8-K
reporting the acquisition of Bjorsell in Sweden.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BT OFFICE PRODUCTS INTERNATIONAL, INC.
Date: March 26, 1997 By /s/ Rudolf A.J. Huyzer
-------------------------
Rudolf A.J. Huyzer
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Frank J. de Wit Chairman of the Board
- -------------------------- of Directors March 26, 1997
(Frank J. de Wit)
/s/ Rudolf A.J. Huyzer President, Chief Executive
- -------------------------- Officer and Director March 26, 1997
(Rudolf A.J. Huyzer)
Vice President-Finance and
/s/ John J. McKiernan Administration, Chief
- -------------------------- Financial Officer and Secretary March 26, 1997
(John J. McKiernan)
/s/ Francis J. Leonard Controller and Chief Accounting
- -------------------------- Officer March 26, 1997
(Francis J. Leonard)
/s/ Rob W.J.M. Bonnier Director March 26, 1997
- --------------------------
(Rob W.J.M. Bonnier)
/s/ Frans H.J. Koffrie Director March 26, 1997
- --------------------------
(Frans H.J. Koffrie)
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<PAGE>
/s/ Lorrence T. Kellar Director March 26, 1997
- --------------------------
(Lorrence T. Kellar)
/s/ Philip E. Beekman Director March 26, 1997
- --------------------------
(Philip E. Beekman)
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<PAGE>
Consolidated Financial Statements
BT Office Products International, Inc.
Contents
Reports of Independent Accountants 38
Financial Statements 40
Consolidated Balance Sheets as of December 31, 1996 and 1995 40
Consolidated Statements of Operations for the years ended 42
December 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995, and 1994 43
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994 44
Notes to Consolidated Financial Statements 45
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
BT Office Products International, Inc.
We have audited the accompanying consolidated balance sheet of BT Office
Products International, Inc. and subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 1996. Our audit also included the
financial statement schedule listed in the Index at Item 14(a) of this Form
10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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 consolidated financial position of BT Office
Products International, Inc. and subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
February 5, 1997
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
BT Office Products International, Inc.
We have audited the accompanying consolidated balance sheet of BT Office
Products International, Inc. and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 BT Office
Products International, Inc. and subsidiaries as of December 31, 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects
the information required to be included therein.
/s/ Ernst & Young LLP
Chicago, Illinois
April 5, 1996
-39-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
BT Office Products International, Inc.
December 31
------------------------------------------
(In thousands, except share and per share amounts) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 20,163 $ 7,568
Accounts receivable, less allowances of $4,915 in 1996 and
$4,222 in 1995 203,629 160,747
Other receivables 22,197 20,243
Due from affiliates 475 2,791
Inventories 119,370 86,639
Deferred income taxes 1,761 1,900
Investment in sales-type leases 10,573 4,708
Prepaid expenses and other current assets 13,838 11,089
--------- ---------
Total current assets 392,006 295,685
Deferred income taxes 5,688 3,628
Investment in sales-type leases 17,119 5,306
Other assets 6,238 5,574
Property, plant and equipment:
Land 1,236 1,594
Buildings 31,755 25,571
Machinery and equipment 96,907 79,509
--------- ---------
129,898 106,674
Accumulated depreciation and amortization 51,483 42,033
--------- ---------
Net property, plant and equipment 78,415 64,641
Costs in excess of net assets of businesses acquired, net of
accumulated amortization of $16,621 in 1996 and $12,003 in
1995 231,222 134,507
Other intangible assets, net of accumulated amortization of $27,213
in 1996 and $22,002 in 1995 12,131 15,306
--------- ---------
Total Assets $742,819 $524,647
======== ========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
BT Office Products International, Inc.
December 31
------------------------------------------
(In thousands, except share and per share amounts) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Notes payable $ 41,207 $ 20,176
Current portion of long-term obligations 6,727 5,443
Accounts payable 123,306 79,130
Due to affiliates 1,504 2,102
Accrued compensation and benefits 21,977 15,834
Accrued sales tax 8,778 7,551
Accrued expenses 29,434 20,457
Income taxes payable 2,363 --
Deferred income tax 2,765 1,029
--------- ---------
Total current liabilities 238,061 151,722
Long-term obligation with affiliates 4,247 83,148
Long-term obligations, less current portion 215,455 16,403
Accrued pension and postretirement costs 9,252 7,147
Deferred income taxes 1,930 91
Accrued expenses 5,222 5,901
--------- ---------
236,106 112,690
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value of $.01 per share; authorized
shares,10,000,000; none outstanding -- --
Common stock, par value $.01 per share; authorized shares,
90,000,000; issued shares, 33,471,000 at December 31, 1996
and 33,400,000 at December 31, 1995 335 334
Additional paid-in capital 270,132 273,477
Retained earnings (deficit) (118) (14,819)
Cumulative translation adjustments (1,697) 1,243
--------- ---------
Total stockholders' equity 268,652 260,235
--------- ---------
Total Liabilities and Stockholders' Equity $742,819 $524,647
======== ========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
BT Office Products International, Inc.
Year ended December 31
-------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Net sales-products $1,412,333 $1,132,127 $ 789,383
License fee revenues 181 243 158
---------- ---------- ---------
1,412,514 1,132,370 789,541
Costs and expenses:
Costs of products sold, including inventory
purchased from affiliates of $8,606,
$8,567 and $3,895 1,004,713 819,078 557,737
Selling and administrative expenses,
including management fees and shared
expenses paid to affiliates of $2,035,
$3,959 and $5,797 345,879 266,163 197,088
Depreciation and amortization 13,693 10,339 7,796
Amortization of intangibles 10,046 8,117 6,111
---------- ---------- ---------
1,374,331 1,103,697 768,732
---------- ---------- ---------
Operating income 38,183 28,673 20,809
Other income (expense):
Interest income and other 2,091 1,287 629
Equity in loss of affiliated company -- -- (112)
Interest expense (7,401) (3,561) (4,389)
Interest expense to affiliates (5,172) (12,372) (12,641)
---------- ---------- ---------
(10,482) (14,646) (16,513)
---------- ---------- ---------
Income before income taxes 27,701 14,027 4,296
Income tax expense 13,000 7,337 4,455
---------- ---------- ---------
Net income (loss) $ 14,701 $ 6,690 $ (159)
=========== =========== ==========
Net income (loss) per share $ .44 $ .24 $ (.01)
=========== =========== =========
Weighted-average number of common and
common equivalent shares 33,687 27,975 23,400
=========== =========== ==========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
BT Office Products International, Inc.
Additional Retained Cumulative Total
Common Paid-in Earnings Translation Stockholders'
(In thousands) Stock Capital (Deficit) Adjustments Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 234 $ 33,195 $ (21,350) $ (4,372) $7,707
Net loss -- -- (159) -- (159)
Offering costs incurred -- (4,219) -- -- (4,219)
Net capital and intercompany
transactions-unrelated
businesses -- (527) -- -- (527)
Net capital and intercompany
transactions-related
businesses -- 15,644 -- -- 15,644
Currency translation
adjustments -- -- -- 3,487 3,487
--------- --------- ---------- --------- --------
Balance at December 31, 1994 234 44,093 (21,509) (885) 21,933
Net income -- -- 6,690 -- 6,690
Issuance of common stock,
net 100 102,607 -- -- 102,707
Capital contribution -- 118,000 -- -- 118,000
Net capital and intercompany
transactions-unrelated
businesses -- 4,927 -- -- 4,927
Net capital and intercompany
transactions-related
businesses -- 3,850 -- -- 3,850
Corporate reorganization:
Historical paid-in capital -- (33,281) -- -- (33,281)
Transfer of unrelated
businesses -- 59,990 -- -- 59,990
Contribution of related
businesses -- (79,579) -- -- (79,579)
Recapitalization -- 52,870 -- -- 52,870
Currency translation
adjustments -- -- -- 2,128 2,128
--------- --------- ---------- --------- --------
Balance at December 31, 1995 334 273,477 (14,819) 1,243 260,235
Net income -- -- 14,701 -- 14,701
Stock options exercised 1 867 -- -- 868
Acquisition of Bax-a related
entity -- (3,630) -- -- (3,630)
Other -- (582) -- -- (582)
Currency translation
adjustments -- -- -- (2,940) (2,940)
--------- --------- ---------- --------- --------
Balance at December 31, 1996 $ 335 $ 270,132 $ (118) $ (1,697) $268,652
========= ========= ========= ======== ========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
BT Office Products International, Inc.
Year Ended December 31
-----------------------------------------------------
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 14,701 $ 6,690 $ (159)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 15,351 11,663 8,635
Amortization of intangibles 10,046 8,117 6,111
Provision for doubtful accounts 2,107 1,369 1,826
(Gain) loss on sale of property, plant and equipment, net 70 (77) 394
Deferred income taxes 1,477 2,323 (19)
Equity in earnings of affiliated company -- -- 112
Changes in operating assets and liabilities, net of
effects of business acquisitions:
Accounts receivable (6,312) (32,681) (14,478)
Inventories (8,334) (8,605) (5,006)
Other current assets (3,800) 1,021 (61)
Accounts payable and accrued expenses 20,623 10,793 3,468
Due to/from affiliates, net 1,564 (1,685) (1,791)
Income taxes payable (refundable) 1,020 728 (3,385)
--------- --------- ---------
Net cash provided by (used for) operating activities 48,513 (344) (4,353)
Investing activities
Purchases of property, plant and equipment (25,090) (21,886) (12,851)
Acquisitions of businesses, less cash acquired (130,135) (37,248) (41,239)
Proceeds from disposal of property, plant and equipment 1,795 881 26
Other assets and liabilities (1,581) (6,064) (6,912)
--------- --------- ---------
Net cash used for investing activities (155,011) (64,317) (60,976)
Financing Activities
Proceeds from issuance of notes payable 15,571 9,562 2,723
Repayments of notes payable (13,261) (11,071) (13,138)
Proceeds from issuance of long-term obligations 220,135 6,100 1,885
Repayments of long-term obligations (25,250) (5,337) (7,715)
Net borrowings (repayments) on obligations with (78,228) (161,420) 79,237
affiliates
Proceeds from stock options exercised including 868 -- --
related tax benefits
Net transactions of unrelated businesses transferred -- 4,927 (527)
Net transactions of related businesses contributed (476) 3,850 10,447
Capital contribution by KNP BT -- 118,000 --
Issuance of common stock, net (106) 102,707 (4,219)
-------- ---------- ---------
Net cash provided by financing activities 119,253 67,318 68,693
Effect of exchange rate changes on cash and cash equivalents (160) (84) (4)
--------- --------- ---------
Net increase in cash and cash equivalents 12,595 2,573 3,360
Cash and cash equivalents at beginning of year 7,568 4,995 1,635
--------- --------- ---------
Cash and cash equivalents at end of year $ 20,163 $ 7,568 $ 4,995
========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
-44-
<PAGE>
Notes to Consolidated Financial Statements
BT Office Products International, Inc.
1. Formation and Basis of Presentation
BT Office Products International, Inc. was organized in 1984 as BT USA,
Inc., a subsidiary of Buhrmann-Tetterode NV, the predecessor of KNP BT, a
Netherlands-based diversified distribution and manufacturing company.
On June 30, 1995, KNP BT and BT Office Products International, Inc.
effected a series of transactions described below (collectively, the "Corporate
Reorganization") in order to reorganize the legal ownership of various of their
businesses and to recapitalize the ongoing office products distribution business
which now constitutes the "Company." Prior to the Corporate Reorganization, BT
Office Products International, Inc. was a holding company (the "Holding
Company"), which operated KNP BT's U.S. office products distribution business
(through its ownership of its U.S. office products companies) as well as certain
other businesses which are unrelated to the U.S. office products distribution
business.
The Corporate Reorganization included, among other things: (1) KNP BT's
contribution of the net assets of its European office products businesses and
one U.S. business to the Company, (2) the transfer of the Holding Company's
unrelated businesses to KNP BT, (3) a capital contribution of $118.0 million in
the form of an exchange of indebtedness of the Holding Company under interest
bearing advances by KNP BT for shares of common stock, (4) a stock split which
resulted in 23,400,000 shares issued and outstanding, and (5) the execution of
various agreements related to income tax matters, financing arrangements, and
shared services.
In July 1995, the Company completed the sale of 10,000,000 shares of
common stock at a price of $11.50 per share in an initial public offering (the
"Offering"). After the Offering, KNP BT beneficially owns approximately 70% of
the Company's outstanding common stock. The net proceeds received from the
Offering, after underwriting commissions and costs related to the Offering and
the Corporate Reorganization ("Net Proceeds"), were $98.4 million. Of the Net
Proceeds, the Company used $65.8 million to repay in full non-interest bearing
advances from affiliates made in 1995 and 1994 to finance several acquisitions.
The Company used the remaining Net Proceeds to reduce outstanding indebtedness
under the interest bearing advances from affiliates made to the Company for
working capital and other general corporate purposes.
Upon completion of the Offering, the Company entered into a $200
million long-term credit agreement (the "Antilliana Credit Agreement") with KNP
BT Antilliana N.V. ("Antilliana"), an affiliate of KNP BT. The commitments under
the Antilliana Credit Agreement were reduced after the Company's execution of
the $250 million long-term syndicated bank facility led by The Chase Manhattan
Bank, as administrative agent.
-45-
<PAGE>
The pro forma unaudited results of operations for the year ended
December 31, 1995, assuming the Capital Contribution and Net Proceeds of the
Offering occurred as of January 1, 1995, were as follows:
Year ended
December 31
(In thousands, except per share amounts) 1995
- ----------------------------------------------------------------------
Sales $1,132,370
Net income 10,781
Net income per share .32
Weighted-average number of common and
common equivalent shares 33,427
- ----------------------------------------------------------------------
The consolidated financial position and consolidated results of
operations of the Company for all periods presented prior to the Corporate
Reorganization include the results of the KNP BT office products businesses, in
a manner similar to the pooling-of-interests method of accounting, using KNP
BT's historical basis of accounting and giving effect to the Corporate
Reorganization. Corporate general and administrative expenses of KNP BT that
could be specifically identified as relating to the Company have been reflected
in the consolidated financial statements. Those remaining expenses which could
not be specifically identified as relating to the Company have been allocated on
a basis which, in the opinion of management, is a reasonable estimate of the
level of expenses which would have been incurred had the Company been operating
as a separate company.
2. New York Division Irregularities--1995 and 1994
In March 1996, the Company discovered certain accounting and financial
reporting irregularities at its New York operating division. The irregularities
involved misstatements in the reporting of gross profit margins and operating
expenses principally in 1995 and 1994, as well as the concealment, in the
accounting records, of theft of Company assets.
Based on the results of its internal investigations, the Company
determined the impact of the charges associated with these issues to be a
reduction of operating income for 1995 by approximately $7.5 million and 1994 by
approximately $2.9 million. The effect on results of operations for years prior
to 1994 of $500 thousand was adjusted to retained earnings (deficit) at December
31, 1992. These adjustments were recorded in the previously issued 1995
consolidated financial statements.
The Company also engaged legal counsel to investigate the
irregularities and pursue recoveries, if any, from insurance carriers or others.
This investigation uncovered no basis for any further adjustment to the prior
years' financial statements.
A class action suit was filed in April 1996 against the Company and
other defendants requesting unspecified damages. While not admitting any
wrongdoing and in order to avoid a prolonged discovery and legal process, the
Company has elected to enter into a negotiated settlement with the attorneys
representing the class. The proposed negotiated settlement and related
anticipated recovery under insurance coverage have been reflected in the balance
sheet.
-46-
<PAGE>
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements and related notes to consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation. In addition, a 40%-owned foreign affiliate located
in Germany, was accounted for by the equity method until July 1, 1994, when the
remaining 60% was acquired by the Company.
Cash Equivalents
Temporary cash investments with an original maturity of three months or
less are considered to be cash equivalents.
Financial Instruments
The carrying amount reported in the consolidated balance sheets for
cash and cash equivalents and notes payable approximates fair value because of
the short-term maturity of these financial instruments.
The Company utilizes letters of credit and guarantees by KNP BT to back
certain financing or leasing instruments. The letters of credit and guarantees
reflect fair value as a condition of their underlying purpose and are subject to
fees competitively determined in the market place. The carrying amounts of
letters of credit and guarantees were $15.0 million and $15.8 million at
December 31, 1996 and 1995, respectively.
Concentration of Credit Risk
The Company is in the business of distributing various office products,
including furniture and office equipment, to businesses throughout the U.S. and
Europe.
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. Credit risk
with respect to trade receivables is minimized because of a large customer base
and its geographic dispersion. The Company maintains allowances for potential
credit losses and historically credit losses have been within management's
expectations.
Revenue Recognition
Revenues are recorded at the time of shipment of products or
performance of services. Revenues from service contracts are recognized as
income over the term of the contract. The present value of payments under
sales-type lease contracts is recorded as revenue and the book value of the
equipment is charged to costs of products sold at the time of shipment. Future
interest income is deferred and recognized over the related lease term.
-47-
<PAGE>
Costs of Products Sold
Vendor rebates are recognized on an accrual basis in the period earned
and are recorded as a reduction to costs of products sold. Delivery and
occupancy costs are included as an increase to costs of products sold.
Inventories
Inventories consist primarily of products held for sale and are valued
at the lower of cost or market using the last-in, first-out (LIFO) method for
U.S. inventories and the first-in, first-out (FIFO) method for foreign
inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization of plant and equipment, including the amortization of assets
recorded under capital leases, are computed using the straight-line method over
the estimated useful lives of the assets or the initial or remaining terms of
the leases. Useful lives range from three to ten years for machinery and
equipment and up to 30 years for buildings. Maintenance and repairs are expensed
as incurred while expenditures which extend the useful life of plant and
equipment are capitalized. As of December 31, 1996 and 1995, software
development costs for major projects of $8.4 million and $4.9 million,
respectively, were capitalized and are being amortized over the software's
estimated useful life. Amortization of software development costs totaled $1.0
million and $583 thousand for the years ended December 31, 1996 and 1995,
respectively.
Costs in Excess of Net Assets of Businesses Acquired
Costs in excess of net assets of businesses acquired (goodwill) are
being amortized on a straight-line basis over 40 years.
Other Intangible Assets
Costs of customer lists, trademarks, and favorable lease rights arising
from business combinations are being amortized using the straight-line method
over periods which principally range from 4 to 10 years. Costs of covenants
not-to-compete are amortized using the straight-line method over their
contractual lives, which range from 1 to 5 years.
Impairment of Long-lived Assets
In the event that facts and circumstances indicate that the cost of any
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the assets would be compared to the carrying amount of the
assets to determine if a write-down to market value or discounted cash flow
value is required.
Income Taxes
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and tax bases of existing
assets and liabilities. In addition, the amount of any future tax benefits are
-48-
<PAGE>
reduced by a valuation allowance to the extent such benefits are not expected to
be realized on a more likely than not basis.
Stock Based Compensation
Effective December 31, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). As provided by SFAS 123, the Company has elected to continue to account
for its stock based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure provisions required by SFAS
123 (see Note 11).
Per Share Data
Net income (loss) per share is computed by dividing net income (loss)
by the weighted-average number of common shares outstanding, adjusted for
dilutive common share equivalents attributed to outstanding options to purchase
common stock.
Translation of Foreign Currencies
Balance sheet accounts of foreign operations are translated using the
year-end exchange rate and income statement accounts are translated using the
average exchange rate for the year. Translation adjustments are recorded as a
separate component of stockholders' equity. The Company does not currently hedge
foreign currency translation risk exposure.
Derivative Financial Instruments
Forward exchange contracts are used to hedge certain net transaction
exposures. The Company defers unrealized gains or losses until the completion of
the contract. The Company's program to hedge net foreign currency transaction
exposure has been limited to acquisition funding. The hedging activities seek to
limit this risk by offsetting the gains and losses on the underlying exposures
with losses and gains on the instruments utilized to create the hedge. At
December 31, 1996, the Company had one outstanding contract totaling $22
million. The contract value approximated fair value at December 31, 1996.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 financial statement presentation.
4. Business Acquisitions
In December 1996, the Company acquired the Vinborgen I Boras AB group
of companies ("Bjorsell"), an office products distributor in Sweden, in a
purchase transaction for approximately $41.5 million in cash, subject to
adjustment as provided in the purchase agreement. The transaction resulted in
goodwill of $30.5 million.
-49-
<PAGE>
On December 31, 1996, the Company acquired Kuipers Centrum voor
Kantoorefficiency B.V. ("Kuipers"), an office products distributor in The
Netherlands, in a purchase transaction for approximately $22.0 million in cash,
subject to adjustment as provided in the purchase agreement. The transaction
resulted in goodwill of $18.1 million.
In July 1996, the Company acquired the two businesses comprising the
Keller & Roth Group, office products distributors in Germany, in a purchase
transaction for approximately $11.5 million in cash and the issuance of $4.5
million of notes payable. The transaction resulted in goodwill of $12.4 million.
In July 1996, the Company assumed control of bax Burosysteme
Vertriebsgesellschaft mbH ("Bax"), an indirectly wholly-owned subsidiary of KNP
BT. In October 1996, the Company completed the acquisition of Bax, an office
equipment distributor in Germany, by acquiring the shares of Bax from KNP BT for
approximately $9.8 million in cash. The excess purchase price over the net book
value of $3.6 million was charged to additional paid-in capital.
In addition, during the year ended December 31, 1996, the Company
acquired four other significant office products businesses in the U.S. in
purchase transactions for aggregate consideration of $26.7 million, which
included $25.9 million of cash and the issuance of $0.8 million of notes
payable. These transactions resulted in goodwill of $22.9 million.
In the year ended December 31, 1995, the Company acquired five
significant U.S. office products businesses in the U.S. in purchase transactions
for aggregate consideration of $34.2 million, which included $34.0 million of
cash and the issuance of $0.2 million of notes payable. These transactions
resulted in goodwill of $19.4 million and other intangible assets of $2.3
million.
In the year ended December 31, 1994, KNP BT acquired all of the
remaining outstanding shares of an affiliated office products business in
Germany and the Holding Company acquired six other office products businesses in
the U.S., in purchase transactions for aggregate consideration of $50.2 million,
which included $39.5 million of cash, the issuance of $5.5 million in notes
payable, and $5.2 million (related to KNP BT's acquisition of the German
affiliated company) was contributed to capital of the Company. These
transactions resulted in goodwill of $50.8 million (including $8.7 million
related to the initial investment in the affiliated company) and other
intangible assets of $5.7 million.
The pro forma unaudited results of operations for the years ended
December 31, 1996 and 1995, assuming the 1996 and 1995 acquisitions described
above had been consummated as of January 1, 1995, were as follows:
Year ended December 31
--------------------------------
1996 1995
(In thousands, except per share amounts) Unaudited Unaudited
- -------------------------------------------------------------------------------
Sales $1,580,657 $1,439,028
Net income 15,818 8,193
Net income per share .47 .29
Weighted-average number of common and
common equivalent shares 33,687 27,975
- -------------------------------------------------------------------------------
The Company also acquired several other smaller office product
businesses in 1996 and 1995 for a total purchase price of $23.8 million and $1.2
million, respectively. These acquisitions did not have a significant impact on
the consolidated financial statements for the years ended December 31, 1996 and
1995.
-50-
<PAGE>
5. Inventories
Current cost exceeded the LIFO value of inventories by approximately
$5.3 million and $6.5 million at December 31, 1996 and 1995, respectively. LIFO
inventories represented approximately 60% and 66% of total inventories at
December 31, 1996 and 1995, respectively.
6. Investment in Sales-type Leases
The components of the net investment in sales-type leases were as
follows:
December 31
----------------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------------------
Lease contracts receivable $ 33,147 $ 11,259
Less: Unearned income (5,455) (1,245)
-------- --------
Net investment in sales-type leases 27,692 10,014
Less: Current portion (10,573) (4,708)
-------- --------
$ 17,119 $ 5,306
======== =======
- -----------------------------------------------------------------------------
Minimum future lease payments to be received for the succeeding five
years on sales-type leases are as follows: $12.7 million in 1997, $9.4 million
in 1998, $6.5 million in 1999, $3.5 million in 2000, and $1.1 million in 2001.
7. Notes Payable
Notes payable consisted of the following:
December 31
----------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Acquisition notes payable to sellers $10,976 $ 4,136
Borrowings under line-of-credit agreements, a portion
of which are guaranteed by KNP BT 30,231 16,040
------- ------
$41,207 $20,176
======= =======
- --------------------------------------------------------------------------------
Unused lines of credit with non-affiliates amounted to $25.3 million at
December 31, 1996.
The weighted average interest rates for short-term obligations for the
years ended December 31, 1996 and 1995 were 6.4% and 8.4%, respectively.
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<PAGE>
8. Long-term Obligations
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
December 31
--------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt:
Borrowing under Bank Credit Agreement, due in August 2001 with a
weighted average interest rate of 5.9% at December 31, 1996 $197,159 $ --
Borrowing under Antilliana Credit Agreement, due in June 1998 with a
weighted average interest rate of 4.3% and 6.5% at December 31, 1996
and 1995, respectively 4,247 83,148
Acquisition notes payable, due October 1, 1996 and September 1, 2000
with interest payable at the U.S. prime rate and 6.1%, respectively 1,100 2,000
Real estate mortgage note, payable in monthly installments of $8 including
interest, collateralized by the land and building, due November 1, 2006
with interest payable at 9.375% 646 1,468
Unsecured note, payable in monthly installments of $20, due February 28,
2002 with interest payable at 8.5% 1,223 1,597
Collateralized notes, due in quarterly installments of $205 plus interest,
collateralized by certain assets, due March 31, 2003 with interest rates
ranging from 6.0% to 6.9% 3,743 --
Other 415 153
-------- --------
208,533 88,366
Capitalized leases:
Building, due July 1, 2022 with an interest rate of 10.8% 5,690 6,247
Building, due December 1, 2009 with an interest rate of 13.7% 2,036 2,068
Vehicles, due April 22, 1998 through November 20, 1999 with interest
rates ranging from 9.5% to 17.0% 150 615
Office equipment, due January 1996 through December 2001 with interest
rates ranging from 6.0% to 10.25% 9,751 6,851
Other 269 847
-------- --------
17,896 16,628
-------- --------
226,429 104,994
Less: Current portion 6,727 5,443
-------- --------
$219,702 $ 99,551
======== ========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
On August 2, 1996, the Company entered into a $250 million syndicated
bank Competitive Advance and Revolving Credit Facility Agreement (the "Bank
Credit Agreement"). The Bank Credit Agreement was used to pay down existing debt
owed to affiliates of the Company and is being used for working capital needs
and general corporate purposes, including acquisitions.
The Bank Credit Agreement provides for a five-year, unsecured,
non-amortizing, multi-currency, revolving credit facility. Under the
multi-currency arrangement, term loans in U.S. Dollars, German Marks, British
Pounds, Swedish Kronor and Netherlands Guilders (other currencies are also
available) bear interest based on a leverage ratio ranging from .35% to .55%
over the applicable interbank rate as determined therein. The facility also
provides for revolving loans in U.S. Dollars at the prevailing prime rate. There
is a facility fee ranging from .125% to .225% on the unused portion of the Bank
Credit Agreement based on the leverage ratio.
The Bank Credit Agreement, as modified in December 1996, contains
various loan covenants calculated quarterly including a maximum leverage ratio
based on total debt to pro forma EBITDA (3.75 to 1 at December 31, 1996 and
March 31, 1997, and reducing to 3.25 to 1 in subsequent quarters), a minimum
EBITDA less capital expenditures to interest ratio, and a minimum net worth
-52-
<PAGE>
requirement. In addition, under a change of control clause, an event of default
would occur if any person or group, other than KNP BT or its affiliates, shall
own more than 50% of the voting shares of the Company.
Upon entering the Bank Credit Agreement, the Company reduced the
commitments available under the Antilliana Credit Agreement to $50 million,
which expires in July 1998. Subsequently, $15 million of the $50 million of
available borrowings under the Antilliana Credit Agreement was assigned to KNP
BT Finance (USA), Inc., a subsidiary of KNP BT, to be used under a Cash
Management Agreement for the Company' s U.S. operations. The $35 million of
commitments remaining available under the Antilliana Credit Agreement are used
to finance the Company's European operations. Revolving loans and term loans are
available in German Marks, British Pounds and Netherlands Guilders. Revolving
loans bear interest at 1% over the applicable interbank rate as determined
therein. Term loans bear interest at .75% over the applicable interbank rate as
determined therein. Short-term loans under the Cash Management Agreement bear
interest at the U.S. prime rate and investments earn interest 2% below the U.S.
prime rate. At December 31, 1996, the investment balance of $7.2 million has
been reflected in cash and cash equivalents. The Cash Management Agreement shall
terminate at the end of the third month following written notice by either party
or KNP BT or its affiliates owning less than 50% of the voting shares of the
Company.
The Antilliana Credit Agreement contains certain events of default the
most significant of which includes KNP BT's failure to own, beneficially and of
record, more than 50% of the issued and outstanding share capital of the
Company. There is a commitment fee of .35% on the unused portion of the
Antilliana Credit Agreement.
Maturities of long-term obligations, other than obligations under
capital lease agreements, for the five years succeeding December 31, 1996, are
$1.3 million in 1997, $5.5 million in 1998, $1.2 million in 1999, $2.2 million
in 2000, $197.7 million in 2001, and $653 thousand thereafter.
The fair value of the Company's long-term debt approximates the
carrying amount based on the present value of cash flows discounted at the
current rates offered to the Company on similar debt instruments.
Interest payments on short-term and long-term obligations were $12.4
million, $15.6 million, and $16.4 million for the years ended December 31, 1996,
1995, and 1994, respectively.
Noncash investing and financing activities included capital lease
obligations incurred of $196 thousand and $581 thousand in 1995 and 1994,
respectively.
-53-
<PAGE>
9. Income Taxes
Federal, foreign, and state income tax expense (benefit) consisted of
the following:
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $7,663 $2,374 $2,790
State 1,895 858 2,075
Foreign 1,965 1,782 (391)
------- ------ ------
11,523 5,014 4,474
Deferred:
Federal 578 1,291 (136)
State 215 477 (50)
Foreign 684 555 167
------- ------ ------
1,477 2,323 (19)
------- ------ ------
$13,000 $7,337 $4,455
======= ====== ======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Reconciliations between the U.S. federal statutory income tax rate of
35% and the consolidated effective income tax rates of 47%, 52%, and 104% for
the years ended December 31 1996, 1995, and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. federal income tax rate $ 9,695 $ 4,909 $ 1,504
State income taxes, net of U.S. federal tax benefit 1,372 868 1,317
Goodwill amortization 1,234 932 557
Reduced foreign tax benefits due to loss
carryforwards and rate differentials 286 926 318
All other items 413 (298) 759
------- ------- -------
Tax provision $13,000 $ 7,337 $ 4,455
======= ======= =======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Domestic and foreign income (loss) before income taxes consisted of the
following:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $22,029 $10,558 $ 5,845
Foreign 5,672 3,469 (1,549)
------- ------- -------
$27,701 $14,027 $ 4,296
======= ======= =======
- ------------------------------------------------------------------------------------------------------------
</TABLE>
-54-
<PAGE>
Significant components of the Company's deferred tax liabilities and
assets were as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 3,456 $ 2,574
Capital leases 5,578 1,819
Inventories 429 238
Other trade receivables 979 924
Other 1,782 901
------- --------
Total deferred tax liabilities 12,224 6,456
Deferred tax assets:
Deferred compensation and postretirement costs 2,026 1,674
Allowance for doubtful accounts 728 1,149
Amortization 1,067 2,275
Deferred expenses 1,490 1,468
Acquisition integration reserves 1,089 533
Foreign net operating loss carryforwards 48,770 5,250
Alternative minimum tax credit carryforward 969 664
Other 133 817
------- --------
Total deferred tax assets 56,272 13,830
Valuation allowance for deferred tax assets (41,294) (2,966)
------- -------
Total deferred tax assets net of valuation allowance 14,978 10,864
------- -------
Net deferred tax assets $ 2,754 $ 4,408
======= ========
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Company had foreign net operating loss (NOL) carryovers of
approximately $94.0 million at December 31, 1996, which have an unlimited
carryover. The significant increase during 1996 in the deferred tax asset for
foreign NOL carryovers relates primarily to the current year acquisition of Bax,
which had $75.2 million of NOL carryovers available in Germany at December 31,
1996. A valuation allowance has been recorded against the deferred tax assets
relating to Bax and United Kingdom foreign tax net operating losses of $37.3
million and $4.0 million, respectively, as a result of the uncertainty of the
ultimate utilization.
The Company's policy is to permanently reinvest earnings of its foreign
subsidiaries. As of December 31, 1996, the Company had approximately $6.8
million of undistributed earnings relating to its operations in Europe. It is
impracticable to determine the amount of income taxes that would be payable upon
remittance of assets that represent those earnings.
The Internal Revenue Service (the "IRS") has concluded its examination
of the 1991 to 1993 consolidated federal income tax returns of the Company as it
existed (including the non-related businesses described in Note 1) prior to the
Reorganization and has entered into a settlement with the Company on all
proposed adjustments, except for the following. On January 10, 1997, the IRS
issued the Company a formal notice of proposed adjustment that asserts
approximately $1.9 million in tax deficiencies, plus interest, relating to the
disallowance of certain interest paid in 1992 and 1993 to Antilliana. Management
intends to vigorously contest this assessment and does not believe that the
ultimate resolution of the issue will have a material adverse effect on the
financial condition or results of operations of the Company.
The IRS has also commenced its examination of the Company's 1994 and
1995 consolidated federal income tax returns. Management believes that it has
made adequate provision for taxes that may become payable with respect to all
open tax years.
-55-
<PAGE>
In addition, KNP BT has agreed to make additional capital contributions
to the Company in the event that tax adjustments, applicable to operations of
the Company prior to the date of the Corporate Reorganization, exceed recorded
income tax accruals at the time of the Reorganization.
Total income tax payments (receipts) were $8.3 million, $(906)
thousand, and $10.5 million in 1996, 1995, and 1994, respectively.
10. Benefit Plans
The Company's United Kingdom, Netherlands, and German subsidiaries have
defined-benefit pension plans covering certain salaried and hourly employees.
Benefits are based on years of service and each employee's compensation during
employment. The Company's funding policy is to make the minimum annual
contributions required by applicable regulations. Assets held by the plan
consist primarily of government bonds, bank deposits, and other investments.
The funded status and amount recognized for the Company's
defined-benefit pension plans in the consolidated balance sheets were as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
and vested benefits $19,304 $16,454
======= =======
Actuarial present value of projected benefit obligation
for services rendered to date $21,141 $17,870
Plan assets as fair value 16,033 13,568
------- -------
Projected benefit obligation in excess of plan assets 5,108 4,302
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (383) (205)
Unrecognized net transition obligation 411 56
------- -------
Accrued pension cost $ 5,136 $ 4,153
======= =======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net pension cost included the following components:
Year ended December 31
------------------------------------------
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $1,073 $ 935 $1,152
Interest cost on projected benefit obligation 1,266 1,172 224
Actual return on plan assets (955) (865) (179)
Net amortization and deferral 9 11 (27)
------ ------ ------
Net pension cost $1,393 $1,253 $1,170
====== ====== ======
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-56-
<PAGE>
Following is a summary of significant actuarial assumptions used for
European subsidiaries:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 6.5 to 7.5% 6.5 to 7.5% 6.5 to 8.5%
Rates of increase in compensation levels 2.0 to 6.0 2.0 to 6.0 2.0 to 6.5
Expected long-term rate of return on assets 7.0 to 8.5 7.0 to 8.5 7.0 to 8.5
- -------------------------------------------------------------------------------------------------
</TABLE>
The Company provides 401(k) defined-contribution plans covering
substantially all U.S. employees. Company matching contributions for employees
under the plans amounted to $2.1 million in 1996, $1.6 million in 1995 and $963
thousand in 1994.
11. Stock Option Plan
In 1995, the Company adopted a non-qualified and incentive stock option
plan ("the Plan") for officers and other key employees. A total of 4,188,000
shares of authorized but unissued common stock has been reserved for issuance
under the Plan upon the exercise of options, subject to adjustment in the event
of a stock split, stock dividend or other change in the common stock. The
administrator of the Plan is the Compensation Committee of the Company's Board
of Directors. Under the Plan, options may be granted to purchase common stock at
prices not less than 90% (100% in the case of an incentive stock option and 110%
in the case of an incentive stock option granted to a 10% stockholder) of the
fair market value of the common stock on the date of the grant of the option.
The term of each option may be for such a period as the Compensation Committee
shall determine, but not more than 10 years (or 5 years in the case of certain
incentive stock options) from the date of grant. The vesting schedule for
options shall be determined by the Compensation Committee.
Information with respect to options granted under the Plan is as
follows:
Weighted
Number of Shares Average Exercise Price
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 -- $ --
Granted during the year 1,203,000 11.50
Exercised during the year -- --
Canceled during the year (17,500) 11.50
--------- -----
Outstanding at December 31, 1995 1,185,500 11.50
Granted during the year 1,015,930 18.90
Exercised during the year (71,000) 11.50
Canceled during the year (146,000) 13.28
--------- -----
Outstanding at December 31, 1996 1,984,030 $15.16
========= =====
- --------------------------------------------------------------------------------
The Company had three separate issuances of options under the plan. In 1995,
the Company issued 1,203,000 of options at $11.50 per share and in 1996, the
Company issued 757,250 and 258,680 of options at $21.00 and $12.75,
respectively. The grant price for all three grants equaled the fair market value
of common stock at the date of grant. The options granted are exercisable as
follows: 50% after one year from grant date; an additional 25% after two years
from grant date; and the remaining 25% after three years from grant date. The
options granted expire after ten years from the grant date, except for those
granted to Netherlands-based employees which expire after five years.
-57-
<PAGE>
The Company has options outstanding at December 31, 1996 under each grant of
996,000, 729,850 and 258,180, which are exercisable at $11.50, $21.00 and
$12.75, respectively. Options on 498,500 shares were exercisable at December 31,
1996.
Had the Company elected to apply the provisions of SFAS 123 regarding
recognition of compensation expense to the extent of the calculated fair value
of stock options granted 1996 and 1995, reported net income and earnings per
share would have been reduced as follows:
Year ended
December 31
-------------------------
(In thousands, except per share amounts) 1996 1995
- ------------------------------------------------------------------------
Net income, as reported $14,701 $6,690
Pro forma net income 12,310 5,797
Net income per share, as reported .44 .24
Pro forma net income per share .37 .21
- -----------------------------------------------------------------------
For purposes of the SFAS 123 pro forma net income and income per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option-pricing model. Compensation expense was not
recognized for options that were forfeited because employees failed to fulfill
service requirements. The weighted-average assumptions used in determining fair
value as disclosed for SFAS 123 are shown in the following table for each grant
year.
Year ended
December 31
--------------------------------
1996 1995
- ------------------------------------------------------------------
Risk-free interest rate 6.7% 5.9%
Dividend yield 0.0% 0.0%
Option life (years) 5 5
Stock price volatility 40.2% 39.9%
- ------------------------------------------------------------------
12. Leases
The Company operates primarily in leased facilities. Lease terms range
up to 30 years with options to renew at varying terms. The majority of leases
contain escalation clauses relating to real estate tax increases and cost of
living adjustments. In addition, the Company leases certain machinery,
equipment, and vehicles.
Property, plant and equipment includes the following amounts for leases
that have been capitalized:
December 31
--------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------
Buildings $ 7,975 $ 8,505
Machinery and equipment 736 2,482
------- -------
8,711 10,987
Less: Accumulated amortization 1,296 1,838
------- -------
$ 7,415 $ 9,149
======= =======
- --------------------------------------------------------------------------
-58-
<PAGE>
Future minimum payments under capital leases and noncancelable
operating leases with initial or remaining terms in excess of one year consisted
of the following at December 31, 1996:
Capital Operating
(In thousands) Leases Leases
- -------------------------------------------------------------------------------
1997 $ 6,896 $ 32,462
1998 4,503 30,257
1999 2,379 27,207
2000 1,236 23,057
2001 1,007 17,899
Thereafter 16,077 49,366
------- -------
Total minimum lease payments 32,098 $180,248
========
Amount representing interest 14,202
-------
Obligations under capital leases 17,896
Less: Obligations due within one year 5,421
-------
Long-term obligations under capital leases $12,475
=======
- -------------------------------------------------------------------------------
Rental expense was $29.1 million, $23.5 million and $18.8 million for
the years ended December 31, 1996, 1995 and 1994, respectively.
Two of the European operating companies lease facilities from
affiliates of KNP BT under operating leases which expire on June 30 and
September 30, 1999. Rental expense was $893 thousand, $648 thousand and $570
thousand for the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum lease payments are $2.5 million.
The Company sells office equipment and leases the equipment back with
the obligation to purchase the equipment at the end of the lease. The equipment
underlying the leases is subsequently sub-leased to customers under sales-type
leases. At December 31, 1996 and 1995, $9.8 million and $6.9 million,
respectively, of these leases are classified as capital leases and generally
have a term of three years.
13. Contingencies
The Company is involved in various legal actions arising in the normal
course of business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that the ultimate resolution of
these matters over and above previously established accruals will not have a
material adverse effect on the financial position or results of operations of
the Company.
14. Stockholders' Equity
Net capital and intercompany transactions, included as a component of
additional paid-in capital, represents the activity of the unrelated businesses
transferred to KNP BT and the related businesses contributed to the Company by
KNP BT in connection with the Corporate Reorganization.
The net equity transactions of the unrelated businesses represent cash
advances/repayments between the Company and the unrelated businesses and the
effect of expenses incurred or income earned by the Company on behalf of the
unrelated businesses.
-59-
<PAGE>
The net equity transactions of the related businesses to be contributed
to the Company are between the related businesses and KNP BT. The components of
these net equity transactions were as follows:
<TABLE>
<CAPTION>
December 31
-----------
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital contributions by KNP BT $ 317 $5,086 $18,009
Capital repayments to KNP BT -- -- (8,307)
Tax related adjustments (793) (1,645) --
Companies acquired by KNP BT and contributed -- -- 5,197
Divisional expenses allocated from KNP BT -- 409 745
------ ------ -------
$ (476) $3,850 $15,644
====== ====== =======
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The capital contributions in 1996 were related to the difference
between certain distributions which were estimated at the date of the Corporate
Reorganization and the actual settlement amount.
The capital reductions in 1996 were related to income taxes generated
by the Corporate Reorganization which were not reflected at the date of the
Corporate Reorganization.
15. Business Segment Information
Geographic segments:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
(In millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
United States $1,087.0 $ 833.0 $ 589.8
Europe 325.5 299.4 199.7
Consolidated 1,412.5 1,132.4 789.5
Operating income:
United States 31.3 22.8 18.5
Europe 6.9 5.9 2.3
Consolidated 38.2 28.7 20.8
Identifiable assets:
United States 459.7 375.9 286.1
Europe 283.1 148.7 143.3
Consolidated 742.8 524.6 429.4
- ---------------------------------------------------------------------------------------------------------
There are no intergeographic sales or eliminations.
</TABLE>
-60-
<PAGE>
16. Related Party Transactions
The financial statements of the Company include, in addition to
borrowings and related interest expense, the following transactions with KNP BT
and its affiliated companies:
Year ended December 31
----------------------------
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------
Sales $1,310 $1,413 $ 943
Purchases 8,606 8,567 3,895
Selling and administrative expenses:
Management fees -- -- 650
Shares expenses 1,241 4,215 4,950
Other 794 (256) 197
- ----------------------------------------------------------------------
Included in other assets is a note receivable from an officer of the
Company, totaling $850 thousand and $1 million at December 31, 1996 and 1995,
respectively. The note bears interest at a rate of 7.25%, with quarterly
interest installments due through September 1996 and monthly principal and
interest payments due thereafter through September 2024.
17. Quarterly Results of Operations (Unaudited)
All of the quarterly reports filed in 1996 reflect the restatement of
the 1995 quarterly results of the New York division (see Note 2). Selected
unaudited quarterly financial data is shown below.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
(In thousands except per share amounts) March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Sales $342,656 $339,057 $354,871 $375,930
Costs of products sold 245,313 240,298 253,415 265,687
Operating income 10,246 9,911 7,679 10,347
Income before income taxes 7,681 7,443 5,005 7,572
Net income 4,071 3,945 2,655 4,030
Net income per share .12 .12 .08 .12
1995
Sales $269,200 $275,627 $277,661 $309,882
Costs of products sold 193,508 198,532 202,077 224,961
Operating income 6,261 6,357 6,267 9,788
Income before income taxes 1,292 1,157 4,177 7,401
Net income 464 415 2,097 3,714
Net income per share .02 .02 .07 .11
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-61-
<PAGE>
<TABLE>
<CAPTION>
Schedule II-- Valuation and Qualifying Accounts
BT Office Products International, Inc.
(In thousands)
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
Additions Deductions
-------------------------- ---------------------
Charged Write-Offs
Beginning Charged to to Other Net of Other Ending
Description Balance Expense Described(a) Recoveries Describe Balance
----------- --------- -------- ------------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $4,222 $2,107 $1,046 $2,460 $ -- $4,915
Inventory reserves 3,011 1,462 1,357 1,657 -- 4,173
------ ------ ------ ------ ----- -----
Total $7,233 $3,569 $2,403 $4,117 $ -- $9,088
====== ====== ====== ====== ====== ======
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $4,651 $1,369 $ 263 $2,061 $ -- $4,222
Inventory reserves 2,375 1,234 156 754 -- 3,011
------ ------ ------ ------ ----- -----
Total $7,026 $2,603 $ 419 $2,815 $ -- $7,233
====== ====== ====== ====== ===== ======
Year Ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $3,358 $1,728 $ 878 $1,313 $ -- $4,651
Inventory reserves 1,976 1,048 592 1,241 -- 2,375
------ ------ ------ ------ ----- -----
Total $5,334 $2,776 $1,470 $2,554 $ -- $7,026
====== ====== ====== ====== ===== ======
(a) Acquisition balances and net foreign currency translation gains.
</TABLE>
-62-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- ----------------------------------------------------------------
2.1 Exchange Agreement (incorporated by reference to Exhibit 2.1 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed with Amendment
No. 2 to the Company's Registration Statement on Form S-1, dated
July 7, 1995, Registration No. 33-12124).
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 filed with Amendment No. 2 to the
Company's Registration Statement on Form S- 1, dated July 7,
1995, Registration No. 33-12124).
10.1 Antilliana Credit Agreement (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1995, Commission file no.
1-13858).
10.2 Registration Rights Agreement among NV Koninklijke KNP BT,
Buhrmann-Tetterode International B.V. and the Company
(incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the Fiscal Year ended December
31, 1995, Commission file no. 1-13858).
10.3 Tax Matters Agreement (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
*10.4 Amendment No. 1 to Tax Matters Agreement dated as of June 7,
1996.
10.5 License Agreement (incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
10.6 Intercompany Services Agreement between NV Koninklijke KNP BT
and the Company (incorporated by reference to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
10.7 Agreement for Credit Support (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1995, Commission file no.
1-13858).
10.8 Form of Indemnification Agreement for officers and directors
(incorporated by reference to Exhibit 10.7 filed with Amendment
No. 2 to the Company's Registration Statement on Form S-1, dated
July 7, 1995, Registration No. 33-12124).
+ 10.9 Supplemental Executive Retirement Plan, as amended by the First
Amendment thereto (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995, Commission file no. 1-13858).
+*10.10 Second Amendment to Supplemental Executive Retirement Plan.
+ 10.11 1995 Stock Option Plan (incorporated by reference to Exhibit
10.9 filed with Amendment No. 1 to the Company's Registration
Statement on Form S-1, dated June 22, 1995, Registration No.
33-12124).
10.12 Promissory Note evidencing mortgage (incorporated by reference
to Exhibit 10.10 filed with Amendment No. 2 to the Company's
Registration Statement on Form S-1, dated July 7, 1995,
Registration No. 33-12124).
-63-
<PAGE>
10.13 Mortgage and Note Amendment Agreement (incorporated by reference
to Exhibit 10.11 filed with Amendment No. 2 to the Company's
Registration Statement on Form S-1, dated July 7, 1995,
Registration No. 33-12124).
+ 10.14 Employment Agreement of Rudolf A.J. Huyzer (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.15 Employment Agreement of John J. McKiernan (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.16 Employment Agreement of Richard C. Dubin (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.17 Employment Agreement of David Kirshner (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.18 Employment Agreement of Michael J. Miller (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+ 10.19 Assignment and Modification Agreement, dated June 26, 1996,
among BT Office Products International, Inc., KNP BT Antilliana
N.V. and KNP BT Finance (USA), Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the Fiscal Quarter ended June 30, 1996, Commission file no.
1-13858).
10.20 Competitive Advance and Revolving Credit Facility Agreement,
dated as of August 2, 1996 among BT Office Products
International, Inc., the subsidiaries, guarantors and lenders
named therein, The Chase Manhattan Bank, as Administrative
Agent, and ABN AMRO Bank N.V., as Documentation Agent
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the Fiscal Quarter ended June
30, 1996, Commission file no. 1-13858).
*10.21 Amendment No. 1 dated as of December 20, 1996 to the Competitive
Advance and Revolving Credit Facility Agreement.
*10.22 Cash Management Agreement dated June 24, 1996 among the Company,
Astro- Valcour, Inc., Sengewald USA, Inc., KNP BT Antilliana
N.V. and KNP BT Finance (USA), Inc.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Ernst & Young LLP.
*27.1 Financial Data Schedule.
- -------------------------
* Filed herewith
+ Management contract or compensatory plan or arrangement.
-64-
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 1 TO TAX MATTERS AGREEMENT
Reference is made to that certain Tax Matters Agreement (the
"Agreement"), dated as of July 1, 1995, among N.V. Koninklijke KNP BT, BT Office
Products International, Inc. ("Office Products"), Buhrmann-Tetterode
International B.V., Astro-Valcour, Inc. and Sengewald U.S.A., Inc. Capitalized
terms used but not defined herein shall have the meanings assigned to such terms
in the Agreement.
Whereas, the agreements and instruments listed on Schedule B-1
attached hereto constituted, as of the date of the Agreement, part of the assets
disposed of by Office Products, but were inadvertently omitted from Schedule B
of the Agreement.
The parties hereto hereby agree that Schedule B to the
Agreement is hereby amended, effective as of July 1, 1995, by adding thereto the
instruments and documents listed on Schedule B-1 attached hereto.
This agreement amends the Agreement only to the extent
provided herein and shall not constitute an amendment or modification to any
other provision of the Agreement. All references to the Agreement shall be
deemed references to the Agreement as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of this 7th
day of June, 1996.
N.V. KONINKLIJKE KNP BT
By:/s/ F.J. de Wit
---------------------------------
Name: F.J. de Wit
Title:
By:/s/ R.W.J.M. Bonnier
---------------------------------
Name: R.W.J.M. Bonnier
Title:
BT OFFICE PRODUCTS
INTERNATIONAL, INC.
By:/s/ John J. McKiernan
---------------------------------
Name: John J. McKiernan
Title:
BUHRMANN-TETTERODE
INTERNATIONAL B.V.
By:/s/ F.J. de Wit
---------------------------------
Name: F.J. de Wit
Title:
By:/s/ R.W.J.M. Bonnier
---------------------------------
Name: R.W.J.M. Bonnier
Title:
ASTRO-VALCOUR, INC.
By:/s/ Christopher G. Angus
---------------------------------
Name: Christopher G. Angus
Title:
SENGEWALD U.S.A., INC.
By:/s/ Andre Leutscher
---------------------------------
Name: Andre Leutscher
Title:
-2-
<PAGE>
SCHEDULE B-1
25. Richter Documents.
a. Agreement dated December 30, 1986 by, between and among BT
USA, Inc., Astro Packaging, Inc. and Richter Manufacturing Corporation.
b. Agreement dated December 30, 1986 by, between and among BT
USA, Inc., Valcour Holdings, Inc., Valcour Incorporated and Richter
Manufacturing Corporation.
c. Agreement dated as of December 30, 1986 by and among BT
USA, Inc., Alfred H. Richter, Walter Richter, Richard A. Riddle, Michael
Abbinante and Richter Manufacturing Corporation.
d. Technology Agreement and License dated December 30, 1986
by, between and among BT USA, Inc., Valcour Holdings, Valcour Incorporated,
Ricour Incorporated, and Richter Manufacturing Corporation.
e. Agreement dated as of December 30, 1986 between BT USA,
Inc., Valcour Holdings, Inc., Alfred H. Richter, Frederick T. Ducey, Richard A.
Riddle and Frederick H. Collins with respect to the sale of shares of Valcour
Holdings, Inc. to BT USA, Inc.
-3-
<PAGE>
EXHIBIT 10.10
THE SECOND AMENDMENT TO THE
KNP BT USA, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, BT Office Products International, Inc. (the
"Company") maintains the KNP BT USA, Inc. Supplemental Executive Retirement Plan
(the "SERP Plan");
WHEREAS, Amendment of the Plan is now considered desirable;
and
WHEREAS, in accordance with Article VIII, the Company has
reserved the right to amend the Plan:
NOW, THEREFORE, the SERP Plan be, and it hereby is, amended in
the following particulars, effective as of July 1, 1996:
1. The name of the SERP Plan shall be changed from the
"KNP BT USA, INC. Supplemental Executive Retirement Plan" to the
"BT Office Products International, Inc. Supplemental Executive
Retirement Plan."
2. Article I, Section 1.1 shall be deleted in its
entirety, and the following substituted therefor:
"1.1 Establishment and Purpose. The Board of
Directors (the "Board") of BT Office Products International, Inc. (the
"Employer") adopted a resolution on _____________, 199__ authorizing
certain executive employees of the Employer and subsidiaries of the
Employer to be entitled to a supplemental non-qualified retirement
benefit. Such a retirement benefit was designed to provide certain
executive employees with competitive retirement benefits. The
resolution of the Board authorized the creation of such supplemental
plan, and the Employer established a supplemental executive retirement
plan, BT Office Products International, Inc. Supplemental Executive
Retirement Plan (the "Supplemental Plan"). The effective date of this
Supplemental Plan is January 1, 1994."
3. Article II, Section 2.1, Subsections (i) and (p) of
the SERP Plan shall be deleted in their entirety, and the following
substituted therefor:
"(i) "Employer" means BT Office Products
International, Inc., or, where appropriate,
a subsidiary thereof which participates in
this Supplemental Plan.
(p) "Supplemental Plan" means the BT Office
Products International, Inc. Supplemental
Executive Retirement Plan."
<PAGE>
4. Article IV, Section 4.2 of the SERP Plan shall be
deleted in its entirety, and the following substituted therefor:
"4.2 Employer Contributions. As of the Valuation Date
corresponding to the last day of each Plan Year, the Employer will
credit, to the Account of a Participant, an amount equal to a
percentage of the Participant's Compensation as specified by the Board.
Amounts credited under this Supplemental Plan shall begin with the
calendar year which includes the later of January 1, 1991 or each
Participant's initial date of participation in this Supplemental Plan.
Amounts credited with respect to Compensation earned by a Participant
for any Plan Year preceding January 1, 1995 shall be credited to the
Account of the Participant as of the Valuation Date for the calendar
year during which such Compensation was earned. In addition, the
amounts credited under this Supplemental Plan shall continue until the
Valuation Date concurrent with a Participant's Employment Termination
Date, in accordance with Section 4.3 below. Furthermore, as provided in
Section 7.3, the Employer shall pay all reasonable expenses of
administration of this Supplemental Plan."
5. Article IV, Section 4.3, Subsection (a) of the SERP
Plan shall be deleted in its entirety, and the following
substituted therefor:
"(a) Termination. Upon the Participant's
Employment Termination Date, he shall be
entitled to receive the value of his Account
balance, as described in this Article IV. A
Participant's Account shall also be adjusted
to reflect Employer contributions that are
credited for the Plan Year in which his
Employment Termination Date occurs. This
adjustment shall be credited to a
Participant's Account as of his Employment
Termination Date. With respect to a
Participant who terminates employment during
a Plan Year, a separate Valuation Date shall
occur upon such Participant's Employment
Termination Date. Such a Participant shall
receive the value of his Account balance and
the earnings thereon as of the Valuation
Date concurrent with his Employment
Termination Date. He shall also receive
Employer contributions as of the Valuation
Date concurrent with his Employment
Termination Date, but in no case shall he
receive earnings on such Employer
contributions. No Employer contributions,
interest, expenses, gains, or losses shall
be credited on behalf of a Participant for
any Plan Year following the Valuation Date
-2-
<PAGE>
concurrent with such Participant's
Employment Termination Date."
IN WITNESS WHEREOF, the Company has caused this Second
Amendment to be executed by its duly authorized officer this 30th day of
October, 1996.
By: /s/ John J. McKiernan
----------------------
Its: Vice President and Chief
Financial Officer
------------------------
-3-
<PAGE>
EXHIBIT 10.21
AMENDMENT No. 1 dated as of December
20, 1996 (this "Amendment") to the
Competitive Advance and Revolving Credit
Facility Agreement dated as of August 2,
1996 (the "Credit Agreement"), among BT
OFFICE PRODUCTS INTERNATIONAL, INC. (the
"Company"), the Borrowing Subsidiaries and
Guarantors named in the Credit Agreement,
the lenders named in the Credit Agreement
(the "Lenders"), THE CHASE MANHATTAN BANK,
as administrative agent (the "Administrative
Agent"), and ABN AMRO BANK N.V., as
documentation agent.
A. Pursuant to the Credit Agreement, the Lenders have
agreed to extend credit to the Company, in each case pursuant to
the terms and subject to the conditions set forth therein.
B. The Company has requested that certain provisions
contained in the Credit Agreement be amended as set forth herein.
C. The Lenders are willing to so amend the Credit
Agreement pursuant to the terms and subject to the conditions set
forth herein.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows (all
capitalized terms used and not otherwise defined herein having the meanings
given them in the Credit Agreement as amended hereby):
SECTION 1. Amendment to Section 6.08 of the Credit Agreement.
Section 6.08 of the Credit Agreement is hereby amended and restated as follows:
SECTION 6.08. Consolidated Leverage Ratio. The
Consolidated Leverage Ratio will not at any time (i) on or before March
31, 1997 exceed 3.75 to 1.0, and (ii) after March 31, 1997 exceed 3.25
to 1.0.
SECTION 2. Representations and Warranties. To induce the other
parties hereto to enter into this Amendment, the Company represents and warrants
to each of the Lenders and the Administrative Agent that, after giving effect to
this Amendment, (a) the representations and warranties set forth in Article IV
of the Credit Agreement are true and correct on and as of the date hereof with
the same effect as though made on and as of the date hereof, except to the
extent such representations and warranties expressly relate to an earlier date,
and (b) no Default or Event of Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Amendment
shall become effective on the date that the Administrative Agent shall have
<PAGE>
received counterparts of this Amendment that, when taken together, bear the
signatures of the Company and the Required Lenders.
SECTION 4. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of or otherwise affect the rights and remedies of the
Lenders or the Administrative Agent or of the Company under the Credit
Agreement, and shall not alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement, which is ratified and affirmed in all respects and shall continue in
full force and effect. Nothing herein shall be deemed to entitle the Company to
a consent to, or a waiver, amendment, modification or other change of, any of
the terms, conditions, obligations, covenants or agreements contained in the
Credit Agreement in similar or different circumstances.
SECTION 5. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
Delivery of any executed counterpart of a signature page of this Amendment by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.
SECTION 6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their duly authorized officers, all as of the
date and year first above written.
BT OFFICE PRODUCTS INTERNATIONAL,
INC.,
By: /s/ John J. McKiernan
---------------------------------------
Name: John J. McKiernan
Title: Vice President-Finance
and Administration
Guarantors
----------
KELLY PAPER COMPANY,
By: /s/ Edward A. Pearson
--------------------------------------
Name: Edward A. Pearson
Title: President
BT MONROE OFFICE PRODUCTS, INC.,
By: /s/ Steven A. Frager
--------------------------------------
Name: Steven A. Frager
Title: President
BUSINESS ESSENTIALS, INC.
(Minneapolis),
By: /s/ Sharon Re
--------------------------------------
Name: Sharon Re
Title: President
-3-
<PAGE>
GENERAL OFFICE SUPPLY COMPANY, INC.,
By: /s/ Terry Palmer
---------------------------------------
Name: Terry Palmer
Title: President
MITCHELL-DIXON OFFICE SUPPLY
COMPANY,
By: /s/ Karen Kendrick
--------------------------------------
Name: Karen Kendrick
Title: Vice President and Treasurer
TOTAL OFFICE PRODUCTS & PRINTERS,
INC.,
By: /s/ Paul Zimmerman
---------------------------------------
Name: Paul Zimmerman
Title: President
BUSINESS ESSENTIALS, INC.
(St. Louis),
By: /s/ Richard C. Dubin
--------------------------------------
Name: Richard C. Dubin
Title: Vice President
-4-
<PAGE>
APOLLO STATIONERS, INC.
By: /s/ Steve Stadell
--------------------------------------
Name: Steve Stadell
Title: President
BT OFFICE PRODUCTS INTERNATIONAL
HOLDINGS, INC.,
By: /s/ John J. McKiernan
--------------------------------------
Name: John J. McKiernan
Title: Vice President
BT OPE HOLDINGS, INC.,
By: /s/ John J. McKiernan
--------------------------------------
Name: John J. McKiernan
Title: Vice President
CROWN OFFICE PRODUCTS, INC.,
By: /s/ Karen Kendrick
--------------------------------------
Name: Karen Kendrick
Title: Vice President and
Treasurer
-5-
<PAGE>
EXHIBIT 10.22
CASH MANAGEMENT AGREEMENT
AGREEMENT dated June 24, 1996 among BT OFFICE PRODUCTS
INTERNATIONAL, INC., a Delaware corporation ("BTOPI"), acting for itself and
each of its wholly-owned subsidiaries incorporated and doing business in the
United States (collectively the "BTOPI Group"), ASTRO-VALCOUR, INC., a New
Jersey corporation ("Astro-Valcour"), acting for itself and each of any
wholly-owned subsidiaries (collectively the "AVI Group"), SENGEWALD USA, INC., a
Maryland corporation ("Sengewald"), KNP BT ANTILLIANA N.V., a Netherlands
Antilles corporation ("Antilliana"), and KNP BT FINANCE (USA), INC., a Delaware
corporation ("USA").
WITNESSETH:
WHEREAS, the parties hereto wish to institute a cash
management program under which cash in their bank accounts will be invested with
USA and any overdrafts in their bank accounts will be covered by USA up to
specified limits;
NOW, THEREFORE, the parties hereto agree as follows:
1. Each of the parties to this Agreement shall establish an
account or accounts (each, a "Designated Account") at First National Bank of
Maryland or such other bank in the United States as all of the parties shall
agree (the "Sweep Bank"). Each party shall give the Sweep Bank instructions
that, for value at the close of each business day, any net positive balance in
the Designated Accounts of any of the parties other than USA shall be
transferred to the Designated Account of USA at the Sweep Bank and any net
overdraft in the Designated Accounts of any of the parties other than USA shall
be covered by a transfer from the Designated Account of USA to the Designated
Account of the party with the overdraft up to limits to be arranged separately.
2. Any transfer to USA shall constitute a loan from the
transferring party to USA, and any transfer from USA to another party shall
constitute a loan from USA to that party.
3 . On any positive balance transferred by another party to
it, USA shall pay interest at an annualized rate equal to the rate publicly
announced from time to time by the First National Bank of Maryland as its prime
rate for loans made at the location of its headquarters (or the equivalent rate
as determined by any bank substituted for it as the Sweep Bank) (the "Prime
Rate") minus two percent (2.0%). On any overdraft covered by a transfer of funds
from USA, the party receiving the transfer shall pay interest to USA at the
Prime Rate.
4. Interest due to or from USA shall be accumulated for the
period through the end of each month or to the termination date of this
Agreement, as the case may be, and shall be paid for value not later than the
third day thereafter that banks are open for business at the location of the
Sweep Bank.
<PAGE>
5. Not later than the day prior to the date when an interest
payment is due, USA shall provide the party to receive or make such payment with
an accounting of interest earned and interest charged for the period to be
covered by such payment.
6. This Agreement shall terminate as to any party upon
the first to occur of the following:
(1) the end of the third month following written notice by
such party (the "terminating party") to each other party to
this Agreement terminating this Agreement as to such
terminating party;
(2) Any payment of interest due from such party pursuant
hereto shall not be made when and as due and in accordance
with the terms of this Agreement and such failure shall
continue for 14 days;
(3) (A) Such party shall fail to pay, in accordance with its
terms and when due and payable, any of the principal of or
interest on any of its indebtedness (other than amounts due
hereunder) or (B) the maturity of any such indebtedness shall,
in whole or in part, have been accelerated, or any such
indebtedness shall, in whole or in part, have been required to
be prepaid prior to the stated maturity thereof, in accordance
with the provisions governing such indebtedness, and in the
case of each of (A) and (B) such event shall not be cured with
14 days;
(4) (A) such party shall commence any case, proceeding or
action (x) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, or (y) seeking appointment of a
receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its
assets, or such party shall make a general assignment for the
benefit of its creditors; or (B) there shall be commenced
against such party any case, proceeding or action of a nature
referred to in clause (A) above which (x) results in the entry
of an order for relief or any such adjudication or appointment
or (y) remains undismissed, undischarged or unbonded for a
period of 30 days; or (C) there shall be commenced against
such party any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its
assets which results in the entry of an order for any such
-2-
<PAGE>
relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 30 days from the entry
thereof; or (D) such party shall take any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (A), (B)
or (C) above; or (E) such party shall generally not, or shall
be unable to, or shall admit in writing its inability to, pay
its debts as they become due;
(5) The guaranty of a person guaranteeing the obligations of
such party hereunder shall cease, for any reason, to be in
full force and effect;
(6) NV Koninklijke KNP BT, a Netherlands corporation, shall at
any time, directly or indirectly, beneficially own less than
100% of the issued and outstanding common voting shares of
USA;
(7) as to the BTOPI Group, N.V. Koninklijke KNP BT shall at
any time, directly or indirectly, fail to own, beneficially,
more than 50% of the issued and outstanding share capital of
BTOPI;
(8) as to the AVI Group or Sengewald, N.V. Koninklijke KNP BT
shall at any time, directly or indirectly, fail to own,
beneficially, more than 50% of the issued and outstanding
share capital of Astro-Valcour or Sengewald, respectively; or
(9) NV Koninklijke KNP BT, a Netherlands corporation, shall at
any time, directly or indirectly, beneficially own less than
100% of the issued and outstanding common voting shares of
Antilliana.
7. By executing a copy of this Agreement as guarantor at the
space provided below, BTOPI hereby unconditionally guarantees the obligations
hereunder of each member of the BTOPI Group, Astro-Valcour hereby
unconditionally guarantees the obligations hereunder of each member of the AVI
Group, and NV Koninklijke KNP BT hereby unconditionally guarantees the
obligations hereunder of each of Sengewald, Antilliana and USA.
8. Except as otherwise expressly provided, all notices,
communications and materials to be given or delivered pursuant to this Agreement
shall be given or delivered in writing (which shall include telecopy
transmissions) at the respective addresses and telecopier numbers and to the
attention of the individuals or departments listed on Exhibit A to this
Agreement or at such other address or telecopier or telephone number or to the
attention of such other individual or department as the party to which such
-3-
<PAGE>
information pertains may hereafter specify. Notices, communications and
materials shall be deemed given or delivered when delivered or received at the
appropriate address or telecopy number to the attention of the appropriate
individual or department.
9. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto were upon the same instrument.
10. This Agreement embodies the entire agreement between the
parties hereto relating to the subject matter hereof and supersedes all prior
agreements, representations and understandings, if any, relating to the subject
matter hereof.
11. This Agreement shall governed by and construed in
accordance with the laws of the State of Delaware, USA, without giving effect to
any doctrine of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
BT OFFICE PRODUCTS INTERNATIONAL, INC.
By /s/ John J. McKiernan
-----------------------------------------------
ASTRO-VALCOUR, INC.
By /s/ John C. Wade
-----------------------------------------------
SENGEWALD USA, INC.
By /s/ Albert Leutscher
-----------------------------------------------
KNP BT FINANCE (USA), INC.
By /s/ Andre Zwetsloot
-----------------------------------------------
KNP BT ANTILLIANA N.V.
By /s/ Rene A. Ignacia
-----------------------------------------------
By /s/ R.M. Van Arendonk
-----------------------------------------------
-4-
<PAGE>
Guarantees of the Obligations Hereunder of:
The other members of the BTOPI Group:
BT OFFICE PRODUCTS INTERNATIONAL, INC.
By /s/ John J. McKiernan
---------------------------------------
The other members of the AVI Group:
ASTRO-VALCOUR, INC.
By /s/ John C. Wade
---------------------------------------
Sengewald, Antilliana and USA:
NV KONINKLIJKE KNP BT
By /s/ H. Barbas
---------------------------------------
EXHIBIT A
BT Office Products KNP BT Finance (USA), Inc.
International, Inc. c/o KNP BT Antilliana N.V.
21 East Lake Cook Road Fokkerweg 11
Buffalo Grove, Illinois 60089 Curacao
Atten: Chief Financial Officer Netherlands Antilles
Telecopier #: + 847-808-3001 Atten: Treasurer
Telecopier #: + 599-9-658391
Astro-Valcour, Inc. Sengewald USA, Inc.
18 Peck Avenue c/o NV Koninklijke KNP BT
Glens Falls, N.Y. 12801 Paalbergweg 2
Atten: Vice President, Finance 1105 AG Amsterdam ZO
Telecopier #: + 518-743-3300 The Netherlands
Atten: Director of Fiscal Affairs
Telecopier #: +011 31 20 567 2453
KNP BT Anilliana N.V.
Fokkerweg 11 NV Koninklijke KNP BT
Curacao Paalbergweg 2
Netherlands Antilles 1105 AG Amsterdam ZO
The Netherlands
Atten: Director of Fiscal Affairs
Telecopier #: +011 31 20 567 2453
-5-
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
The following is a list of subsidiaries that are directly or
indirectly owned by the Company as of March 31, 1997 (unless otherwise
indicated, the subsidiaries are 100% beneficially owned by the Company):
Kelly Paper Company
BT Office Products International Holdings, Inc.
BT OPE Holdings, Inc.
BT Office Products Europe BV
BT Office Products Europe CV
UK Bel BV
BT Office Products Nederland BV
Veenman Kantoormachines BV
Veenman Office Management BV
Direct Dealer Services BV
Repro Copiers Netherlands BV
Kuipers Centrum voor Kantoorefficiency BV
Copygraphic Plc
BT Office Products Deutschland Verwaltungs mbH
BT Office Products Vertriebs GmbH & Co KG (99%)
Burosysteme Roth Essen Beteiligungs GmbH
Keller Buromatic GmbH
Buroeinrichtungshaus Roth GmbH
BT Office Products Deutschland GmbH
Burosysteme Roth Essen GmbH & Co. KG
Bierbrauer + Nagel KG
Bierbrauer + Nagel GmbH
Classic Office Products GmbH & Co. KG
Albert Martz GmbH
Albert Martz GmbH & Co KG (99%)
Glocker GmbH
Gesellschaft fur Mal und Zeichenbedarf GmbH
Classic Office Products GmbH
Hartmann GmbH
BVZ GmbH & Co KG (99%)
Nett + Wurth GmbH
GWP KG (1%)
BT Office Products Sweden AB
Vinborgen i Boras AB
AB JF Bjorsell
Konlev AB
Bjorsells JUSTNU-tryck AB
Bjorsells Kontorsvaruhus i Kalmar AB
Ake Wengbrand Kontorsmaskiner AB
Bjorsells Kontorsvaruhus i AB Visby
Helsingborgs Kontorsvaruhus AB (42.5%)
Bjorsells Polska Ltd (51%)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of BT
Office Products International, Inc. on Form S-8 (No. 333-07549) of our report
dated February 5, 1997, on our audit of the consolidated financial statements
and financial statement schedule of BT Office Products International, Inc. as of
December 31, 1996, and for the year then ended, which report is included in this
Annual Report on Form 10-K.
Coopers & Lybrand, L.L.P.
Chicago, Illinois
March 26, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-07549) pertaining to the BT Office Products International, Inc. 1995
Stock Option Plan and the Non-Qualified Stock Option Agreement between BT Office
Products International, Inc. and Herman C. Brauckmann of our report dated April
5, 1996, with respect to the consolidated financial statements and schedule of
BT Office Products International, Inc. included in the Annual Report on Form
10-K for the year ended December 31, 1996.
Ernst & Young LLP
Chicago, Illinois
March 21, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from BT Office
Products International, Inc. Form 10-K for the year ended December 31, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,163
<SECURITIES> 0
<RECEIVABLES> 208,544
<ALLOWANCES> 4,915
<INVENTORY> 119,370
<CURRENT-ASSETS> 392,006
<PP&E> 129,898
<DEPRECIATION> 51,483
<TOTAL-ASSETS> 742,819
<CURRENT-LIABILITIES> 238,061
<BONDS> 215,455
0
0
<COMMON> 335
<OTHER-SE> 268,317
<TOTAL-LIABILITY-AND-EQUITY> 742,819
<SALES> 1,412,514
<TOTAL-REVENUES> 1,412,514
<CGS> 1,004,713
<TOTAL-COSTS> 1,374,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,573
<INCOME-PRETAX> 27,701
<INCOME-TAX> 13,000
<INCOME-CONTINUING> 14,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,701
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
