UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
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.
(Exact name of registrant as specified in its charter)
Delaware 13-3245865
- ---------------------------------------- ---------------------------------
(State of incorporation or organization) (IRS Employer Identification No.)
2150 E. Lake Cook Road
Buffalo Grove, Illinois 60089-1877
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(847) 793-7500
----------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Class of Common Stock Shares Outstanding as of May 12, 1997
- -------------------------------------- -------------------------------------
Common stock, par value $.01 per share 33,471,000
<PAGE>
BT Office Products International, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1997
Index of Information Included in Report
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II. Other Information 12
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<PAGE>
Part I. Financial Information
BT Office Products International, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
March 31 December 31
1997 1996
---------- -----------
Assets
Current assets:
Cash and cash equivalents $ 27,045 $ 20,163
Accounts receivable, less allowances of
$4,978 in 1997 and $4,915 in 1996 211,575 203,629
Other receivables 12,144 22,197
Inventories 112,829 119,370
Other current 26,816 26,647
--------- ---------
Total current assets 390,409 392,006
Other assets 27,069 29,045
Property, plant and equipment 130,597 129,898
Accumulated depreciation and amortization 54,940 51,483
--------- ---------
Net property, plant and equipment 75,657 78,415
Intangibles, net of accumulated amortization of
$46,102 in 1997 and $43,834 in 1996 233,368 243,353
--------- ---------
Total assets $ 726,503 $ 742,819
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 32,810 $ 41,207
Accounts payable 128,183 123,306
Other current liabilities 65,471 73,548
--------- ---------
Total current liabilities 226,464 238,061
Long-term obligations 218,416 219,702
Other liabilities 15,499 16,404
Commitments and contingencies
Stockholders' equity:
Common stock 335 335
Additional paid-in capital 270,132 270,132
Retained earnings (deficit) 4,250 (118)
Cumulative translation adjustments (8,593) (1,697)
--------- ---------
Total stockholders' equity 266,124 268,652
Total liabilities and stockholders' equity $ 726,503 $ 742,819
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE>
BT Office Products International, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three months ended
March 31
---------------------------------
1997 1996
------------- ------------
Net sales $ 401,562 $ 342,656
Cost and expenses:
Costs of products sold 286,011 245,313
Selling and administrative expenses 97,043 81,693
Depreciation and amortization 4,206 3,037
Amortization of intangibles 2,683 2,367
--------- ---------
389,943 332,410
Operating income 11,619 10,246
Other income (expense):
Interest income and other 651 292
Interest expense (4,052) (2,857)
--------- ---------
(3,401) (2,565)
Income before income taxes 8,218 7,681
Income tax expense 3,850 3,610
--------- ---------
Net income $ 4,368 $ 4,071
========= =========
Net income per share $ 0.13 $ 0.12
========= =========
Weighted-average number of
common and common
equivalent shares 33,471 33,838
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
BT Office Products International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three months ended March 31
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating Activities
Net income $ 4,368 $ 4,071
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 4,592 3,432
Amortization of intangibles 2,683 2,367
Other 572 (334)
Changes in operating assets and liabilities, net of effects of
business acquisitions:
Receivables (3,089) 425
Inventories 3,092 1,096
Other current assets (1,848) (3,640)
Accounts payable and other current liabilities 2,429 5,737
--------- ---------
Net cash provided by operating activities 12,799 13,154
Investing activities
Purchases of property, plant and equipment (3,106) (7,447)
Acquisitions of businesses, less cash acquired (1,544) (23,901)
Other (283) (55)
--------- ----------
Net cash used for investing activities (4,933) (31,403)
Financing activities
Net repayments of notes payable (4,307) (3,535)
Net borrowings under long-term obligations 3,835 23,916
--------- ---------
Net cash provided by (used for) financing activities (472) 20,381
Effect of exchange rate changes on cash and cash equivalents (512) (114)
--------- ---------
Net increase in cash and cash equivalents 6,882 2,018
Cash and cash equivalents at beginning of period 20,163 7,568
--------- ---------
Cash and cash equivalents at end of period $ 27,045 $ 9,586
========= =========
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</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Formation and Basis of Presentation
Prior to June 30, 1995, BT Office Products International, Inc. was a holding
company (the "Holding Company"), which owned and operated the U.S. office
products distribution business of N.V. Koninklijke KNP BT ("KNP BT") as well as
certain other KNP BT businesses which were unrelated to the U.S. office products
distribution business. On June 30, 1995, KNP BT and BT Office Products
International, Inc. effected a series of transactions (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."
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 million 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 owned approximately 70% of
the Company's outstanding common stock.
The accompanying unaudited condensed consolidated financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and applicable rules of Regulation S-X.
Accordingly, they do not include all information or footnotes required by
generally accepted accounting principles for complete financial statements.
Management believes the financial statements include all normal accrual
adjustments necessary for a fair presentation. Operating results for the three
month period ended March 31, 1997 do not necessarily reflect the results that
may be expected for the full year. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 financial statement presentation.
2. 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.
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<PAGE>
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
2. Business Acquisitions (Continued)
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 indirect 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, the Company acquired four other significant office products
businesses in the U.S., of which three were effective on January 1, 1996 and one
was effective on March 1, 1996, 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.
The pro forma unaudited results of operations for the three month period ended
March 31, 1996, assuming the above-described acquisitions had been consummated
as of January 1, 1996 and translated at historical rates, are as follows (in
thousands, except per share amounts):
Three months ended
March 31, 1996
------------------
Sales $ 395,101
Net income 4,354
Net income per share 0.13
Weighted-average number of
common and common equivalent
shares 33,838
The Company also acquired other smaller office products and furniture businesses
in 1997 and 1996. These acquisitions did not have a significant impact on the
consolidated operating results for the three month periods ended March 31, 1997
and 1996.
3. Per Share Data
Net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding, adjusted for dilutive
common share equivalents attributed to outstanding options to purchase common
stock, if applicable.
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<PAGE>
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
4. 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 other
matters over and above previously established accruals will not have a material
adverse effect on the financial position, net cash flows or results of
operations of the Company.
5. Income Taxes
The difference between the effective income tax rate and the U.S. statutory tax
rate is primarily due to the effects of foreign and state income taxes and
non-deductible goodwill amortization.
-8-
<PAGE>
BT Office Products International, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net sales increased to $401.6 million in the first quarter of 1997 from $342.7
million in the comparable period last year, an increase of $58.9 million or
17.2%. The incremental impact of the Company's 1996 acquisitions accounted for
$51.2 million of the increase. Sales at the Company's existing locations
accounted for $15.1 million of the increase, or a growth rate 4.5%. Currency
depreciation against the U.S. dollar lowered sales by $7.4 million or 2.2%.
Net sales in the United States increased to $288.5 million in the first quarter
of 1997 from $266.6 million in the comparable period last year, an increase of
$21.9 million or 8.2%. The incremental impact of the Company's 1996 acquisitions
accounted for $5.8 million of the increase. Increased sales at the Company's
existing locations accounted for the remaining $16.1 million of the increase, or
a growth rate of 6.0%. The Company believes the principal factors contributing
to this internal growth were increased sales to existing and new accounts and
"add-on" acquisitions. Net sales in the United States were negatively impacted
by lower paper prices and fewer business days in the first quarter of 1997
compared to the same period in the prior year.
Net sales in Europe increased to $113.1 million in the first quarter of 1997
from $76.1 million in the comparable period last year, an increase of $37.0
million or 48.6%. The incremental impact of the Company's 1996 acquisitions
accounted for $45.4 million of the increase. Sales at the Company's existing
locations, excluding the effects of foreign currency depreciation against the
U.S. dollar which reduced sales by $7.4 million, were lower by $1.0 million. The
Company believes the decrease in sales was attributable to the continued
softness in the German market and to fewer business days in the first quarter of
1997 compared to the same period in the prior year.
Gross profit as a percentage of net sales was 28.8% in the first quarter of 1997
as compared to 28.4% in the comparable period last year. The increase was
attributable primarily to the European acquisitions and higher margins on paper
and related product sales.
Selling and administrative expenses as a percentage of net sales were 24.2% in
the first quarter of 1997 as compared to 23.8% in the comparable period last
year. The increase was attributable primarily to the effects of lower selling
prices on paper and related products in the United States and higher operating
expenses expressed as a percentage of net sales relating to the 1996 European
acquisitions.
Depreciation as a percentage of net sales, excluding the amount associated with
delivery and occupancy costs which are included in cost of products sold, was
1.1% in the first quarter of 1997 as compared to 0.9% in the comparable period
last year. The increase was attributable to higher depreciation levels,
principally for software technology and warehouse improvements in Florida and
Northern California.
Operating income increased to $11.6 million in the first quarter of 1997 from
$10.3 million in the comparable period last year, an increase of $1.3 million or
12.6%. Operating income in the United States increased to $10.0 million in the
first quarter of 1997 from $9.6 million in the comparable period last year, an
increase of $0.4 million or 4.2%. Operating income in Europe increased to $1.6
million in the first quarter of 1997 from $0.7 million in the comparable period
last year, a increase of $0.9 million or 128.6%.
Operating income as a percentage of net sales was 2.9% in the first quarter of
1997 as compared to 3.0% in the comparable period last year. Operating income as
a percentage of net sales in the United States was 3.5% in the first quarter of
1997 as compared to 3.6% in the comparable period last year. Operating income as
a percentage of net sales in Europe was 1.5% in the first quarter of 1997 as
compared to 0.8% in the comparable period last year. The increase was due
primarily to the 1996 acquisitions.
Interest expense, including affiliated interest expense, increased to $4.1
million in the first quarter of 1997 from $2.9 million in the comparable period
last year. The increase was attributable to interest expense on debt associated
with the new acquisitions and capital investments in 1996.
Net income increased to $4.4 million in the first quarter of 1997 from $4.1
million in the comparable period last year. The increase in net income was due
to increased operating income at existing operations and acquisitions offset by
higher interest costs. The effective income tax rate was approximately 47.0% for
the first three months of 1997 and 1996.
-9-
<PAGE>
Liquidity and Capital Resources
Cash provided by operating activities in the first three months of 1997 of $12.8
million was the result of $12.2 million of net income, depreciation,
amortization, and other non-cash items and $0.6 million of net reductions in
working capital. Significant cash requirements in the first three months of 1997
included $3.1 million for capital expenditures, $1.5 million related to
acquisitions of businesses and $0.5 million for net repayments of notes payable
and long-term obligations.
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. Total borrowings under the
Bank Credit Agreement at March 31, 1997 were $190.7 million. The most
restrictive covenant in the Bank Credit Agreement currently limits, and may 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. The Company also has commitments available under a long-term credit
agreement of $50 million with KNP BT Antilliana N.V., an affiliate of KNP BT,
which will expire in July 1998.
The Company believes that internally generated funds and borrowings under its
credit agreements will be sufficient to meet its presently anticipated cash
requirements for capital expenditures and working capital. While the Company
continues to seek acquisition candidates on a selective basis, it is expected
that the level of acquisition activity in 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.
-10-
<PAGE>
BT Office Products International, Inc.
Other
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
No. 125 ("SFAS 125"), "Accounting for Transfers and Services of Financial Assets
and Extinguishments of Liabilities", 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.
In February 1997, the FASB issued Statement No. 128 ("SFAS 128"), "Earnings per
Share," which specifies the computation, presentation, and disclosure
requirements for earnings per share. SFAS 128, which has an effective date of
December 15, 1997, is not expected to have a significant impact on the Company's
reported earnings per share.
Forward Looking Statements
Various statements made within this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly
Report on Form 10-Q 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.
-11-
<PAGE>
Part II. Other Information
BT Office Products International, Inc.
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On February 4, 1997, the Company filed a Current Report on Form 8-K reporting
the acquisition of Kuipers in The Netherlands.
On March 3, 1997, the Company filed a Current Report on Form 8-K/A-1 to amend
its Current Report on Form 8-K dated December 31, 1996, reporting the
acquisition of Bjorsell in Sweden and by appending to the Form 8-K the
appropriate financial statements and pro forma information required pursuant to
Item 7 of Form 8-K.
-12-
<PAGE>
BT Office Products International, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BT OFFICE PRODUCTS INTERNATIONAL, INC.
/s/ Francis J. Leonard
---------------------------------------------------------
Francis J. Leonard
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
Date: May 12, 1997
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<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
27.1 Financial Data Schedule
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from BT Office
Products International, Inc. Form 10-Q for the quarterly period ended March 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 27,045
<SECURITIES> 0
<RECEIVABLES> 216,553
<ALLOWANCES> 4,978
<INVENTORY> 112,829
<CURRENT-ASSETS> 390,409
<PP&E> 130,597
<DEPRECIATION> 54,940
<TOTAL-ASSETS> 726,503
<CURRENT-LIABILITIES> 226,464
<BONDS> 218,416
<COMMON> 335
0
0
<OTHER-SE> 265,789
<TOTAL-LIABILITY-AND-EQUITY> 726,503
<SALES> 401,562
<TOTAL-REVENUES> 401,562
<CGS> 286,011
<TOTAL-COSTS> 389,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,052
<INCOME-PRETAX> 8,218
<INCOME-TAX> 3,850
<INCOME-CONTINUING> 4,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,368
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
