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, 1998
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 7, 1998
- --------------------------------- ------------------------------------
Common stock, par value $.01 per share 33,471,000
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BT Office Products International, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1998
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 8
Part II. Other Information 10
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Part I. Financial Information
BT Office Products International, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
March 31 December 31
1998 1997
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 21,309 $ 19,466
Accounts receivable, less allowances of
$9,623 in 1998 and $9,753 in 1997 234,737 219,118
Other receivables 22,823 33,429
Inventories 120,933 123,324
Other current assets 31,774 29,524
------------ ------------
Total current assets 431,576 424,861
Other assets 26,287 26,786
Property, plant and equipment 158,803 152,137
Accumulated depreciation and amortization 68,513 64,212
------------ ------------
Net property, plant and equipment 90,290 87,925
Intangibles, net of accumulated amortization of
$55,964 in 1998 and $53,726 in 1997 220,789 224,129
------------ ------------
Total assets $ 768,942 $ 763,701
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 18,645 $ 24,591
Accounts payable 145,995 140,780
Current portion of long-term obligations 205,636 200,816
Other current liabilities 69,391 70,688
------------ ------------
Total current liabilities 439,667 436,875
Long-term obligations 32,838 31,837
Other liabilities 21,495 21,276
Commitments and contingencies
Stockholders' equity:
Common stock 335 335
Additional paid-in capital 270,132 270,132
Retained earnings 21,470 17,137
Accumulated other comprehensive loss (16,995) (13,891)
------------ ------------
Total stockholders' equity 274,942 273,713
------------ ------------
Total liabilities and stockholders' equity $ 768,942 $ 763,701
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements
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BT Office Products International, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three months ended
March 31
------------------------------
1998 1997
------------- -------------
Net sales $ 444,223 $ 401,562
Costs and expenses:
Costs of products sold 324,474 286,011
Selling and administrative expenses 101,466 97,043
Depreciation and amortization 4,493 4,206
Amortization of intangibles 2,391 2,683
----------- ------------
432,824 389,943
Operating income 11,399 11,619
Other income (expense):
Interest income and other 667 651
Interest expense (4,033) (4,052)
----------- ------------
(3,366) (3,401)
Income before income taxes 8,033 8,218
Income tax expense 3,700 3,850
------------ ------------
Net income $ 4,333 $ 4,368
=========== ============
Basic earnings per share $ 0.13 $ 0.13
=========== ============
Diluted earnings per share $ 0.13 $ 0.13
=========== ============
Average shares outstanding, basic 33,471 33,471
=========== ============
Average shares outstanding, diluted 33,685 33,471
=========== ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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BT Office Products International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three months ended
March 31
---------------------
1998 1997
------- -------
Operating Activities
Net income $ 4,333 $ 4,368
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 4,846 4,592
Amortization of intangibles 2,391 2,683
Other 819 572
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Receivables (17,699) (3,089)
Inventories 1,495 3,092
Other current assets 7,880 (1,848)
Accounts payable and other current liabilities 4,486 2,429
------- -------
Net cash provided by operating activities 8,551 12,799
Investing activities
Purchases of property, plant and equipment (7,764) (3,106)
Acquisitions of businesses, less cash acquired (405) (1,544)
Other 796 (283)
------- -------
Net cash used for investing activities (7,373) (4,933)
Financing activities
Net repayments of notes payable (5,126) (4,307)
Net borrowings under long-term obligations 6,072 3,835
------- -------
Net cash provided by (used for) financing activities 946 (472)
Effect of exchange rate changes on cash
and cash equivalents (281) (512)
------- -------
Net increase in cash and cash equivalents 1,843 6,882
Cash and cash equivalents at beginning of period 19,466 20,163
------- -------
Cash and cash equivalents at end of period $21,309 $27,045
======= =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
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, 1998 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, 1997.
2. 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 is being used for working capital needs
and general corporate purposes, including acquisitions.
As of March 31, 1998, the Company is in compliance with the financial covenants
under the Bank Credit Agreement. The Company does, however, expect that one or
more defaults or events of default may arise in 1998 as a result of breaches of
existing financial covenants. Accordingly, indebtedness under the Bank Credit
Agreement has been classified as current portion of long-term obligations in the
financial statements at December 31, 1997 and March 31, 1998. The Company's
majority shareholder, KNP BT, has advised the Company that it will support the
Company during 1998 and use its best efforts to prevent any default or event of
default that may arise under the Bank Credit Agreement. As described in Note 6,
the Company announced that KNP BT has reached an agreement in principle to
acquire in a cash merger the outstanding minority interest in the Company. KNP
BT has advised the Company that it intends to reduce or eliminate its existing
indebtedness under the Bank Credit Agreement and/or otherwise cause such
indebtedness to be refinanced.
3. Earnings Per Share
Basic earnings per share is computed by dividing the net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding, adjusted for the dilutive common share
equivalents attributed to outstanding options to purchase common stock.
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 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.
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BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
5. Comprehensive Income
During the three months ended March 31, 1998, the Company adopted the provision
of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." As of March 31, 1998 and December 31, 1997, accumulated other
comprehensive loss, as reflected on the condensed consolidated balance sheet,
was comprised entirely of the currency translation adjustment. Total
comprehensive income (loss) for the three months ended March 31, 1998 and 1997
was as follows:
Three Months Ended March 31
1998 1997
-------- --------
Net income $ 4,333 $ 4,368
Other comprehensive loss:
Unrealized currency translation loss (3,104) (6,896)
-------- --------
Total comprehensive income(loss) $ 1,229 $ (2,528)
======== ========
6. Subsequent Event
On January 22, 1998, KNP BT, the Company's 70% stockholder, announced that it
was prepared to make an offer to acquire the approximately 30% of the Company's
stock that is publicly traded for a cash purchase price of $10.50 per share. The
Company formed an independent committee of its Board of Directors (the "Special
Committee") to represent the interests of the minority shareholders. The Special
Committee, together with independent financial and legal advisors it retained,
evaluated the proposal. The Company was served with several class action
complaints that have been filed in the Court of Chancery of the State of
Delaware. The actions allege breach of fiduciary duties and related claims
against KNP BT, the Company and certain of its directors in connection with the
January 22, 1998 announcement.
On May 7, 1998, the Company announced that KNP BT has reached an agreement in
principle with the Special Committee of the Board of Directors to acquire in a
cash merger the outstanding minority interest in the Company for $13.75 per
share. The agreement is subject to definitive documentation, final board
approval by the Company's Board of Directors, and approval by a majority of the
Company's public stockholders. On May 7, 1998, the Company also announced that
KNP BT has reached an agreement in principle to settle the class action lawsuits
that were filed challenging the transaction. This settlement is subject to Court
approval. The fees and expenses associated with such settlement are not expected
to be material to the financial condition of the Company.
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BT Office Products International, Inc.
Management's Discussion and Analysis of Financial Condition
and
Results of Operations
Results of Operations
Net sales increased to $444.2 million in the first quarter of 1998 from $401.6
million in the comparable period last year, an increase of $42.6 million or
10.6%. The increase in sales was driven by sales from existing locations of
10.4% and growth from acquisitions of 2.9%, while currency translation had a
negative impact of 2.7%.
Net sales in the United States increased to $312.6 million in the first quarter
of 1998 from $288.5 million in the comparable period last year, an increase of
$24.1 million or 8.4%. The Company believes the principal factors contributing
to its internal growth were increased sales to existing customers and new
accounts. Net sales in the United States continue to be negatively impacted by
increasing competitive market conditions and lower paper prices.
Net sales in Europe increased to $131.6 million in the first quarter of 1998
from $113.1 million in the comparable period last year, an increase of $18.5
million or 16.4%. The incremental impact of the Company's 1997 acquisitions
accounted for 10.2% of the European sales growth in the first quarter of 1998.
Excluding the effects of foreign currency depreciation against the U.S. dollar
of 9.6%, sales growth at existing locations increased 15.8% for the first
quarter, compared to the same period last year. Europe's internal growth was
driven by the continued double digit growth from the late 1996 acquisitions in
Sweden and the Netherlands, the addition of new, large accounts in Germany and,
to a lesser extent, two new sales offices in Germany.
Gross profit as a percentage of net sales was 27.0% in the first quarter of 1998
as compared to 28.8% in the comparable period last year, a decrease of 1.8%. The
decrease was attributable primarily to highly competitive market conditions
resulting in lower product margins and a shift in product mix in Europe.
Selling and administrative expenses, expressed as a percentage of net sales,
were 22.8% in the first quarter of 1998 as compared to 24.2% in the comparable
period last year, a decrease of 1.4%. With the recent sales growth, the Company
has leveraged its operating and logistics costs while at the same time invested
in additional personnel to support the business. The Company continues to focus
on initiatives to improve its cost structure.
In December 1997, the Company announced its U.S. plan to implement an
enterprise-wide system solution, known as Project Millennium, which is designed
to standardize business processes, centralize certain business functions, and
enhance customer service capabilities. As part of the first phase of the
project, customers will gradually transition from the various legacy systems to
the national sales and order management system. The operating costs in the first
quarter of 1998 and the comparable quarter last year included $3.4 million and
$1.9 million, respectively, associated with the design and implementation of
Project Millennium and the enhanced national sales and order management system.
Operating income as a percentage of net sales was 2.6% in the first quarter of
1998 as compared to 2.9% in the comparable period last year. Excluding the
Project Millennium costs described above, operating income as a percentage of
sales would have been 3.3% in the first quarter of 1998 and 3.4% in the
comparable period in the prior year. Excluding the Project Millennium costs
described above, operating income in the United States, expressed as a
percentage of net sales, was 4.0% in the first quarter of 1998 and 4.1% in the
comparable quarter last year. Operating income as a percentage of net sales in
Europe in the first quarter of 1998 and 1997 was 1.8% and 1.5%, respectively.
Net income decreased to $4.3 million in the first quarter of 1998 from $4.4
million in the comparable period last year. Lower gross margins and additional
costs associated with Project Millennium offset the favorable experience of
higher sales and operating cost reductions.
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Liquidity and Capital Resources
Cash provided by operating activities in the first quarter of 1998 of $8.6
million was the result of $12.4 million of net income, depreciation,
amortization and other non-cash items offset by $3.8 million of net increases in
working capital mostly in accounts receivable. Cash provided by financing
activities included $0.9 million for net borrowings of notes payable and
long-term obligations. Significant cash requirements in the first three months
of 1998 included $7.8 million for capital expenditures and $0.4 million related
to acquisitions of businesses.
As of March 31, 1998, the Company is in compliance with the financial covenants
under the Bank Credit Agreement. The Company does, however, expect that one or
more defaults or events of default may arise in 1998 as a result of breaches of
existing financial covenants. Accordingly, indebtedness under the Bank Credit
Agreement has been classified as current portion of long-term obligations in the
financial statements at December 31, 1997 and March 31, 1998. The Company's
majority shareholder, KNP BT, has advised the Company that it will support the
Company during 1998 and use its best efforts to prevent any default or event of
default that may arise under the Bank Credit Agreement. On May 7, 1998, the
Company announced that KNP BT has reached an agreement in principle to acquire
in a cash merger the outstanding minority interest in the Company. KNP BT has
advised the Company that it intends to reduce or eliminate its existing
indebtedness under the Bank Credit Agreement and/or otherwise cause such
indebtedness to be refinanced.
The Company continues to actively pursue acquiring established quality office
products distributors in the U.S. and Europe as an integral part of its long
term strategy. The Company anticipates significant future acquisition funding,
to the extent required, will necessitate obtaining additional debt and/or equity
capital resources. The Company continues to examine and evaluate several
alternatives.
Other
In June 1997, the FASB issued Statement No. 131 ("SFAS 131"), "Disclosure about
Segments of an Enterprise and Related Information." This statement, effective
for financial statements for periods beginning after December 15, 1997, requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments. The
Company is evaluating the effects of this pronouncement.
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 ability to finance and successfully complete and
integrate future acquisitions; mix of sales by product category and country;
continual competitive pressure on pricing and margins; delays in implementing
the technological and operational changes planned under Project Millennium; the
volatility of paper prices; the fluctuation in interest rates; and the expansion
into international markets, including currency exchange rates and general market
conditions.
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<PAGE>
Part II. Other Information
BT Office Products International, Inc.
Item 1. Legal Proceedings
The Company was served with several class action complaints that have been filed
in the Court of Chancery of the State of Delaware. The actions allege breach of
fiduciary duties and related claims against KNP BT, the Company and certain of
its directors in connection with the January 22, 1998 announcement. On May 7,
1998, the Company announced that KNP BT has reached an agreement in principle to
settle the class action lawsuits that were filed challenging the transaction.
This settlement is subject to Court approval. The fees and expenses associated
with such settlement are not expected to be material to the financial condition
of the Company.
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
27.1 Financial Data Schedule
99.1 BT Office Products International, Inc. Press Relase dated
May 7, 1998
(b) Reports on Form 8-K
On January 22, 1998, the Company filed a Current Report on Form 8-K to
report that the Company had been served with several class action complaints in
connection with KNP BT's announcement of its intent to make an offer to
repurchase the remaining outstanding shares of the Company.
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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 15, 1998
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BT OFFICE PRODUCTS INTERNATIONAL, INC.
INDEX TO EXHIBITS
Filed with the Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 1998
Exhibit No. Description
27.1 Financial Data Schedule
99.1 BT Office Products International, Inc. Press Release
dated May 7, 1998
<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, 1998 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-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 21,309
<SECURITIES> 0
<RECEIVABLES> 244,360
<ALLOWANCES> (9,623)
<INVENTORY> 120,933
<CURRENT-ASSETS> 431,576
<PP&E> 158,803
<DEPRECIATION> (68,513)
<TOTAL-ASSETS> 768,942
<CURRENT-LIABILITIES> 439,667
<BONDS> 32,838
<COMMON> 335
0
0
<OTHER-SE> 270,132
<TOTAL-LIABILITY-AND-EQUITY> 768,942
<SALES> 444,223
<TOTAL-REVENUES> 444,223
<CGS> 324,474
<TOTAL-COSTS> 432,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,033
<INCOME-PRETAX> 8,033
<INCOME-TAX> 3,700
<INCOME-CONTINUING> 4,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,333
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
Contact: Thomas F. Cullen Frederic J. Spar
General Counsel Jason Lynch
BT Office Products International, Inc. Kekst and Company
847-793-7500 847-521-4800
FOR IMMEDIATE RELEASE
BT OFFICE PRODUCTS INTERNATIONAL ANNOUNCES "AGREEMENT
IN PRINCIPLE" BETWEEN SPECIAL COMMITTEE AND KNP BT
CHICAGO, ILLINOIS, May 7, 1998 - BT Office Products International, Inc.
(NYSE:BTF) ("BTOPI") today announced that NV Koninklijke KNP BT ("KNP BT"), the
majority owner of the outstanding capital stock of BTOPI, has reached an
agreement in principle with the Special Committee of the Board of Directors of
BTOPI to acquire in a cash merger the outstanding minority interest in BTOPI for
$13.75 per share. The agreement is subject to definitive documentation, final
board approval by BT Office Products and approval by a majority of the BTOPI
public stockholders. No Hart-Scott-Rodino filing will be required to consummate
the transaction.
BTOPI also announced that KNP BT has reached an agreement in principle to settle
the class action lawsuits that were filed in Delaware Chancery Court challenging
the transaction has been reached. This settlement is subject to Court approval.
BT Office Products International, Inc. is a leading full-service distributor of
office products, serving primarily medium- and large-size businesses and
institutions in major markets in both the United States and Europe. The Company
distributes over 10,000 general office products, business furniture, computer
supplies and accessories and promotional products, including recycled and
recyclable products and items manufactured by minority-owned businesses.
