-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IvtDNazAu9ygz5er3ZIH1hjwx5uuxYUrpnPWbYMHN057deLJbffesUzRnWwUJMk9 fZTqWdNU09x0NIRFmgyQSA== 0000927356-97-001166.txt : 19971015 0000927356-97-001166.hdr.sgml : 19971015 ACCESSION NUMBER: 0000927356-97-001166 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970830 FILED AS OF DATE: 19971014 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE EXPRESS INC CENTRAL INDEX KEY: 0000878130 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 840978360 STATE OF INCORPORATION: CO FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24642 FILM NUMBER: 97695489 BUSINESS ADDRESS: STREET 1: 325 INTERLOCKEN PKWY CITY: BROOMFIELD STATE: CO ZIP: 80021 BUSINESS PHONE: 3033732800 MAIL ADDRESS: STREET 1: 325 INTERLOCKEN PKWY CITY: BROOMFIELD STATE: CO ZIP: 80021 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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 August 30,1997 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 No. 0-24642 ------- CORPORATE EXPRESS, INC. ----------------------- (Exact name of registrant as specified in its charter) Colorado 84-0978360 -------------------------- ---------- (State of incorporation or (I.R.S. Employer organization) Identification No.) 1 Environmental Way Broomfield, Colorado 80021 ------------------------ ------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 664-2000 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 ---------- ---------- The number of shares of the registrant's common stock, par value $.0002 per share, outstanding as of October 8, 1997 was 130,073,050.
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS CORPORATE EXPRESS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS August 30, March 1, 1997 1997 ------------------ ---------------- (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 39,290 $ 54,499 Trade accounts receivable, net of allowance of $14,567 and $13,004, respectively 519,040 494,199 Notes and other receivables 50,336 55,530 Inventories 201,354 187,558 Deferred income taxes 28,363 29,076 Other current assets 36,332 28,548 ------------------ ---------------- Total current assets 874,715 849,410 Property and equipment: Land 13,831 14,105 Buildings and leasehold improvements 104,198 106,824 Furniture and equipment 286,628 249,693 ------------------ ---------------- 404,657 370,622 Less accumulated depreciation (124,077) (106,891) ------------------ ---------------- 280,580 263,731 Goodwill, net of $45,896 and $36,471 of accumulated amortization, respectively 680,396 671,967 Other assets, net 71,274 58,869 ------------------ ---------------- Total assets $ 1,906,965 $ 1,843,977 ================== ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -2- CORPORATE EXPRESS, INC. CONSOLIDATED BALANCE SHEETS, CONTINUED (IN THOUSANDS) LIABILITIES AND SHAREHOLDERS' EQUITY
August 30, March 1, 1997 1997 ---------------- ------------- (Unaudited) (Audited) Current liabilities: Accounts payable $ 307,722 $ 297,119 Accrued payroll and benefits 57,709 45,512 Accrued purchase costs 11,307 12,888 Accrued merger and related costs 12,292 18,484 Other accrued liabilities 47,929 52,012 Current portion of long-term debt and capital leases 25,976 29,742 ---------------- ------------- Total current liabilities 462,935 455,757 Capital lease obligations 11,398 11,545 Long-term debt 626,216 621,705 Deferred income taxes 38,350 26,819 Minority interest in subsidiaries 22,285 22,015 Other non-current liabilities 13,178 12,529 ---------------- ------------- Total liabilities 1,174,362 1,150,370 Contingencies (Note 7) Shareholders' equity: Preferred stock, $.0001 par value, 25,000,000 shares authorized, none issued or outstanding - - Common stock, $.0002 par value, 300,000,000 shares authorized, 129,840,434 and 126,171,467 shares 26 25 issued and outstanding, respectively Common stock, non-voting, $.0002 par value, 3,000,000 shares authorized, none issued or outstanding - - Additional paid-in capital 666,461 646,536 Retained earnings 72,811 48,222 Foreign currency translation adjustments (6,695) (1,176) ---------------- ------------- Total shareholders' equity 732,603 693,607 ---------------- ------------- Total liabilities and shareholders' equity $ 1,906,965 $ 1,843,977 ================ =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -3- CORPORATE EXPRESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended --------------------------------- --------------------------------------- August 30, August 31, August 30, August 31, 1997 1996 1997 1996 --------------- ---------------- ------------------- ----------------- (Unaudited) (Unaudited) Net sales $ 941,634 $ 755,009 $ 1,854,976 $ 1,405,870 Cost of sales 719,410 572,195 1,418,524 1,058,727 --------------- ---------------- ------------------- ----------------- Gross profit 222,224 182,814 436,452 347,143 Warehouse operating and selling expense 161,857 131,841 320,900 249,281 Corporate general and administrative expenses 25,997 22,886 55,480 44,124 --------------- ---------------- ------------------- ----------------- Operating profit 34,370 28,087 60,072 53,738 Interest expense, net 9,279 5,965 19,194 10,669 --------------- ---------------- ------------------- ----------------- Income before income taxes 25,091 22,122 40,878 43,069 Income tax expense 10,621 9,035 17,331 17,670 --------------- ---------------- ------------------- ----------------- Income before minority interest 14,470 13,087 23,547 25,399 Minority interest (97) (330) (1,042) (100) --------------- ---------------- ------------------- ----------------- Net income $ 14,567 $ 13,417 $ 24,589 $ 25,499 =============== ================ =================== ================= Pro forma net income $ 14,567 $ 13,090 $ 24,589 $ 24,842 =============== ================ =================== ================= Pro forma net income per share $ .11 $ .10 $ .18 $ .19 =============== ================ =================== ================= Weighted average common shares outstanding 137,061 128,961 133,786 128,267 =============== ================ =================== =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -4- CORPORATE EXPRESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Six Months Ended ------------------------------ August 30, August 31, 1997 1996 -------------- ------------- (Unaudited) Cash flows from operating activities: Net income $ 24,589 $ 25,499 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,337 13,432 Amortization 11,028 7,946 Adjustment to conform fiscal years - (430) Minority interest (1,042) (100) Other 2,299 881 Changes in assets and liabilities, excluding acquisitions: (Increase) decrease in accounts receivable (16,778) (8,255) (Increase) decrease in inventory (12,194) (5,174) (Increase) decrease in other current assets (2,232) (4,208) (Increase) decrease in other assets (1,605) (108) Increase (decrease) in accounts payable 5,087 4,882 Increase (decrease) in accrued liabilities 8,819 (4,269) -------------- ------------- Net cash provided by operating activities 38,308 30,096 -------------- ------------- Cash flows from investing activities: Proceeds from sale of assets 13,040 752 Capital expenditures (47,447) (59,135) Payment for acquisitions, net of cash acquired (14,603) (199,085) Purchase of marketable securities (12,762) (11,575) Other 3,507 (8,241) -------------- ------------- Net cash used in investing activities (58,265) (277,284) -------------- ------------- Cash flows from financing activities: Issuance of common stock 4,261 5,810 Issuance of subsidiary common stock 2,434 - Debt issuance costs (155) (7,198) Proceeds from long-term borrowings 7,423 343,967 Repayments of long-term borrowings (19,033) (6,236) Proceeds from short-term borrowings 7,085 2,011 Repayments of short-term borrowings (5,711) (8,366) Net (payments on) proceeds from all lines of credit 9,305 (19,285) Other (67) (3,056) -------------- ------------- Net cash (used in) provided by financing activities 5,542 307,647 Effect of foreign currency exchange rate changes on cash (794) (314) -------------- ------------- (Decrease) increase in cash and cash equivalents (15,209) 60,145 Cash and cash equivalents, beginning of period 54,499 29,813 -------------- ------------- Cash and cash equivalents, end of period $ 39,290 $ 89,958 ============== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -5- CORPORATE EXPRESS, INC. NOTES TO CONSOLIDATED STATEMENTS Supplemental schedule of noncash investing and financing activities: Capital lease obligations in the amount of $3,342,000 and $4,732,000 were incurred during the six months ended August 30, 1997 and August 31, 1996, respectively, for equipment and vehicles. During the six months ended August 30, 1997, the Company acquired nine companies accounted for as purchases for a net cash purchase price of $10,467,000 and approximately 105,000 shares of common stock and seven companies accounted for as immaterial poolings of interest for 2,056,000 shares of common stock. During the six months ended August 31, 1996, the Company acquired 47 companies accounted for as purchases for a net cash purchase price of $192,724,000 and approximately 617,000 shares of common stock, and nine companies accounted for as immaterial poolings of interest for 924,000 shares of common stock. In conjunction with these acquisitions, liabilities were assumed as follows:
Six Months Ended ----------------- August 30, August 31, 1997 1996 ---- ---- (In thousands) (Unaudited) Fair value of assets and goodwill acquired $ 35,164 $ 356,563 Cash paid, net of cash acquired (10,467) (192,724) Issuance of stock (5,248) (25,326) Purchase price payable, included in current liabilities ( 57) (1,916) -------- --------- Liabilities assumed $ 19,392 $ 136,597 ======== =========
In addition to the amounts set forth above, during the six months ended August 30, 1997, the Company paid $4,136,000 and issued approximately 354,000 shares of common stock for prior period acquisitions and acquired the remaining 49% interest in Corporate Express United Kingdom for shares of common stock of the Company. During the six months ended August 31, 1996, the Company paid $6,361,000 for prior period acquisitions. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 6 CORPORATE EXPRESS, INC. NOTES TO CONSOLIDATED STATEMENTS 1. Basis of Presentation and Significant Accounting Policies The consolidated financial statements include the accounts of Corporate Express, Inc. ("Corporate Express" or the "Company") and its majority-owned subsidiaries. The following acquisitions were accounted for as poolings of interests and, accordingly, the accompanying financial statements have been restated to include their accounts and operations: . Nimsa S.A. ("Nimsa") was acquired by the Company on October 31, 1996. . Bevo Acquisition Corp., Inc., a wholly-owned subsidiary of the Company, was merged with and into United TransNet, Inc. ("UT") on November 8, 1996. . IMS Acquisition, Inc., a wholly-owned subsidiary of the Company, was merged with and into Sofco Mead, Inc. ("Sofco") on January 24, 1997. . H.M. Acquisition Corp., a wholly-owned subsidiary of the Company, was merged with and into Hermann Marketing, Inc. ("HMI") on January 30, 1997. Acquisitions accounted for as purchases are included in the accounts and operations as of the effective date of the transaction and immaterial acquisitions accounted for as poolings of interests are included in the accounts and operations as of the beginning of the fiscal quarter in which the transaction is effective. The Company accounts for its investments in less than 50% owned entities using the equity or cost methods. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended March 1, 1997. Certain of the Company's locations calculate cost of sales using an estimated gross profit method for interim periods. Cost of sales at these locations are adjusted based on physical inventories which are performed no less than once a year. New Accounting Standards: In the fourth quarter of fiscal 1997, the Company will adopt SFAS No. 128, "Earnings per Share." This statement simplifies the standards for computing earnings per share found in APB Opinion No. 15, "Earnings per Share" and makes them comparable to international earnings per share standards. Had SFAS No. 128 been effective during the six months ended August 30, 1997 and August 31, 1996, (i) "Basic earnings per share" under SFAS No. 128 would have been $.19 and $.21, respectively, and (ii) "Dilutive earnings per share" under SFAS No. 128 would have been $.18 and $.19, respectively. Had SFAS No. 128 been effective during the three months ended August 30, 1997 and August 31, 1996, (i) "Basic earnings per share" under SFAS No. 128 would have been $.11 and $.11, respectively, and (ii) "Dilutive earnings per share" under SFAS No. 128 would have been $.11 and $.10, respectively. 7 CORPORATE EXPRESS, INC. NOTES TO CONSOLIDATED STATEMENTS 2. Accrued Purchase Costs In conjunction with purchase acquisitions, the Company accrues certain of the direct costs associated with closing redundant facilities of acquired companies, and severance and relocation payments for the acquired company's employees. The following table sets forth activity in the Company's accrued purchase liability accounts for the six months ended August 30, 1997:
Disposition Facility Redundant of Assets Total Exit Costs Facilities Severance & Other ------------ ----------- ----------- ---------- ---------- (In thousands) Balance, March 1, 1997 $12,888 $ 1,845 $3,269 $ 6,149 $1,625 Additions/Adjustments 4,280 724 864 2,699 (7) Payments (5,681) (1,364) (829) (3,301) (187) Reversals to goodwill (180) -- (71) (109) -- ------- ------- ------ ------- ------ Balance, August 30, 1997 $11,307 $ 1,205 $3,233 $ 5,438 $1,431 ======= ======= ====== ======= ======
3. Merger and Other Nonrecurring Charges During the second quarter of fiscal 1997, the Company incurred $754,000 of merger transaction costs related to second quarter acquisitions accounted for as immaterial poolings of interests. Additionally, the Company reduced previous charges by $874,000 to reflect actual exit costs to be incurred. Due to the immateriality of these net amounts, they are included in corporate general and administrative expenses in the consolidated statement of operations. During the third and fourth quarters of fiscal 1996, the Company recorded an estimated net merger and other nonrecurring charge in connection with the Company's acquisition of UT, Nimsa, HMI and Sofco. This charge was adjusted in the second quarter of fiscal 1997 to reflect the actual merger transaction costs incurred. The following table sets forth the usage of this charge for the six months ended August 30, 1997:
Balance Cash Non-Cash Balance 3/1/97 Payments Usage Adjustment 8/30/97 ------- -------- -------- ---------- ------- (In thousands) Merger transaction costs (1) $ 2,568 $ (915) -- $(235) $ 1,418 Severance and terminations (2) 4,573 (1,494) -- -- 3,079 Facility closure and consolidation (3) 3,473 (361) -- -- 3,112 ------- ------- -------- ----- -------- Accrued merger and related costs, balance 10,614 (2,770) -- (235) 7,609 Other asset write-downs and costs (4 ) 2,049 -- $(285) -- 1,764 ------- ------- -------- ----- -------- Total $12,663 $(2,770) $(285) $(235) $ 9,373 ======= ======= ======== ===== ========
(1) Remaining merger transaction costs are primarily for the UT acquisition and include contract buy-outs for certain employees. These amounts are expected to be resolved by the end of fiscal 1997. (2) Severance and employee termination costs are related to the elimination of duplicative management positions and facility closures and consolidations. Approximately 236 of the 485 employees originally estimated to be terminated have been terminated as of August 30, 1997. The remaining terminations will occur in conjunction with the facility closures and be concluded by the end of fiscal 1998. (3) Of the 115 facilities estimated to be closed or consolidated, 36 have been closed or consolidated as of August 30, 1997. The remaining facilities are expected to be closed by the end of fiscal 1998. (4) Other asset write-downs and costs are recorded as contra assets and include software, leasehold improvements and equipment being abandoned or written off as a result of the UT acquisition and the facility consolidations. 8 CORPORATE EXPRESS, INC. NOTES TO CONSOLIDATED STATEMENTS During the fourth quarter of fiscal 1995, the Company recorded a merger and other nonrecurring charge primarily in conjunction with the U.S. Delivery Systems, Inc. ("Delivery") and Richard Young Journal, Inc. acquisitions. This liability was adjusted in fiscal 1996 to reflect the actual merger transaction costs incurred and revised plans primarily as a result of the integration of UT with Delivery. The Company expected to complete this plan within two years; however, due to the acquisition of UT in the third quarter of fiscal 1996, the exit plan is expected to be completed by the end of the first quarter of fiscal 1998. This liability was adjusted by $639,000 during the second fiscal quarter to reflect the actual exit costs to be incurred. The following table sets forth the usage of this charge for the six months ended August 30, 1997:
Balance Cash Non-Cash Balance 3/1/97 Payments Usage Adjustment 8/30/97 ------- -------- -------- ---------- ------- (In thousands) Merger transaction costs (1) $ 1,514 $(1,075) -- -- $ 439 Severance and terminations (2) 3,092 (648) -- $(448) 1,996 Facility closure and consolidation (3) 3,264 (886) -- (191) 2,187 ------- ------- ----- ----- -------- Accrued merger and related costs, balance 7,870 (2,609) (639) 4,622 Other asset write-downs and costs (4 ) 2,103 -- $(737) -- 1,366 ------- ------- ----- ----- -------- Total $ 9,973 $(2,609) $(737) $(639) $ 5,988 ======= ======= ===== ===== ========
(1) Remaining merger transactions costs represent the estimated contract buy- outs for certain former Delivery employees which are being negotiated and will be resolved in the third quarter of fiscal 1997. (2) Severance and termination costs are the severance payments related to facility closures and centralization of certain shared services. Of the 391 employees planned to be terminated, 67 have been terminated as of August 30, 1997. The Company expects to complete the facility closures and related terminations by the end of the first quarter in fiscal 1998. The centralization of certain shared services has begun in the second quarter of fiscal 1997 and will continue through the first quarter of fiscal 1998. (3) Facility closure and consolidation costs are the estimated costs to close duplicate facilities, lease costs, and other costs associated with closed facilities. Thirty-six of the 70 facilities planned to be closed or consolidated have been; the remaining 34 facilities are expected to be closed by the end of the first quarter in fiscal 1998. (4) Other asset write-downs and costs are recorded as contra assets and include software, leasehold improvements and equipment being abandoned or written off as a result of the acquisition. The remaining balance primarily represents assets that will be disposed of in conjunction with facility closures which are expected to be completed by the end of the first quarter in fiscal 1998. 4. PRO FORMA ACQUISITION RESULTS On May 15, 1996, the company acquired all of the outstanding capital stock of ASAP Software Express, Inc. ("ASAP"), a leading distributor of software to large corporations for a purchase price of approximately $98 million. In addition, the Company purchased all of the outstanding capital stock of Boulevard Produits De Bureau, Inc. ("Boulevard"), a seller of office supplies, furniture and equipment, for a net cash purchase price of $16,102,000. The Company also repaid $9,498,000 of Boulevard promissory notes with cash of $731,900 and 356,832 shares of the Company's common stock. The excess of the purchase price over the fair market value of the net tangible assets acquired in both acquisitions was allocated to goodwill and is being amortized over 40 years. The operating results of ASAP and Boulevard are included in the Company's consolidated statement of operations from the effective date of each acquisition. The following pro forma financial information assumes the ASAP and Boulevard acquisitions occurred at the beginning of the six-month period ended August 31, 1996. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the transaction occurred at the beginning of the period, or of results which may occur in the future. The pro forma results listed below are unaudited and reflect purchase price adjustments. Six Months Ended August 31, 1996 ------------------ (In thousands, except per share amounts)
Net sales $1,456,863 Net income 26,169 Net income per share 0.20
9 CORPORATE EXPRESS, INC. NOTES TO CONSOLIDATED STATEMENTS 5. Pro Forma Net Income: The pro forma net income and pro forma net income per share reflects the tax adjustment for a fiscal 1996 acquisition accounted for as a pooling of interests that was previously an S corporation for income tax purposes, as if the acquired company had filed a C corporation tax return for all periods presented. The effect is as follows:
Three Months Ended Six Months Ended August 31, 1996 August 31, 1996 ------------------ ---------------- Net income before pro forma adjustments, per consolidated statements of operations $13,417 $25,499 Pro forma provision for income taxes 327 657 ------- ------- Pro forma net income $13,090 $24,842 ======= =======
6. Subsequent Events On September 10, 1997, the Company announced that a definitive agreement had been executed providing for the merger with Data Documents, Inc. ("DDI"), a provider of forms management services and systems, custom business forms and pressure-sensitive labels for large corporate customers. Pursuant to the merger agreement DDI will become a wholly-owned subsidiary of the Company and each outstanding share of DDI's common stock will be converted into 1.1 shares of the Company's common stock. The exchange ratio is subject to adjustment if the price per share of the Company's common stock is greater than $18.20 or less than $15.00 during a specified period prior to the closing date of the merger, as provided in the merger agreement. In addition, the parties have the right to terminate the merger agreement in certain circumstances. The shares of the Registrant's common stock to be issued to DDI's shareholders will be registered on a Registration Statement on Form S-4 filed under the Securities Act of 1933, as amended. The consummation of the merger is subject to approval by DDI's stockholders, receipt of all necessary regulatory approvals, satisfactory confirmation that the merger will be treated as a tax-free reorganization and accounted for as a pooling of interests, and other customary conditions. The merger agreement may be terminated by the parties if the merger is not consummated by December 31, 1997. 7. CONTINGENCIES In the normal course of business, the Company is subject to certain legal proceedings. In the opinion of management, the outcome of such litigation will not have a material adverse effect on the Company's financial position or operating results. 10 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net Sales. Consolidated net sales increased 24.7% to $941,634,000 in the three months ended August 30, 1997 from $755,009,000 in the same period last year and 31.9% to $1,854,976,000 from $1,405,870,000 for the respective six- month periods. Net sales for the Company's product distribution business increased 27.8% to $734,168,000 in the three months ended August 30, 1997 from $574,413,000 in the same period last year, while net sales in the service business increased 14.9% to $207,466,000 from $180,596,000 for the respective three-month periods. Net sales for the Company's product distribution business increased 35.3% to $1,434,490,000 in the six months ended August 30, 1997 from $1,060,469,000 in the same period last year, while net sales in the service business increased 21.7% to $420,486,000 from $345,401,000 for the respective six-month periods. These increases were primarily attributable to 60 acquisitions completed since August 31, 1996. Also contributing to the sales increase was strong internal growth reflecting increased market penetration in domestic product distribution. International operations accounted for 17.7% of consolidated net sales, or $166,351,000, in the three months ended August 30, 1997 and 16.4% of consolidated net sales, or $123,896,000, in the same period last year and 18.4% of consolidated net sales, or $340,728,000, for the six months ended August 30, 1997 compared to 15.5% of consolidated net sales, or $218,396,000, for the same period last year. The Company has expanded its international operations since August 31, 1996 by acquiring 16 entities and expanding into France and Italy. Gross Profit. Cost of sales includes merchandise, occupancy and delivery costs. Gross profit as a percentage of sales was 23.6% for the three months ended August 30, 1997 and 24.2% for the same period last year compared to 23.5% and 24.7% for the respective six-month periods. The decrease in the gross profit percentage is primarily attributable to the service business, which has experienced reduced gross profit margins as a result of consolidation costs, increases in driver and vehicle related costs, and pricing. Also affecting gross profit were lower international gross margins primarily as a result of increased competitive pressures and the addition of a desktop software line of products, offset by increased vendor rebates reflecting improved programs due to the integration of acquisitions to common vendors. Warehouse Operating and Selling Expenses. Warehouse operating and selling expenses as a percentage of sales decreased to 17.2% for the three months ended August 30, 1997 from 17.5% for the same period last year and to 17.3% from 17.7% for the respective six-month periods. The improvement in operating expenses as a percentage of sales primarily reflects the recent consolidation cost savings and elimination of duplicative administrative functions in the service and international segments. Warehouse operating and selling expenses increased to $161,857,000 in the three months ended August 30, 1997 from $131,841,000 in the same period last year and to $320,900,000 from $249,281,000 for the respective six-month periods. This dollar increase is primarily attributable to the 24.7% increase in net sales in the comparable three-month period and 31.9% increase in the comparable six-month period. Corporate General and Administrative Expenses. Corporate general and administrative expenses include central expenses incurred to provide corporate oversight and support for regional operations and goodwill amortization. Corporate general and administrative expenses increased to $25,997,000 in the three months ended August 30, 1997 from $22,886,000 in the same period last year and to $55,480,000 from $44,124,000 for the respective six-month periods. This increase reflects the costs associated with developing a larger corporate staff to support the expanded operations, including an expanded information systems staff, and increased amortization of goodwill resulting from purchase acquisitions since August 1996. As a percentage of net sales, corporate general and administrative expenses decreased to 2.8% in the three months ended August 30, 1997 from 3.0% in the same period last year, and to 3.0% from 3.1% for the respective six-month periods. These decreases reflect the leveraging of these expenses as the Company's sales increase. 11 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONT' Operating Profit. Consolidated operating profit was $34,370,000, or 3.7% of net sales, for the three months ended August 30, 1997 compared to consolidated operating profit of $28,087,000, or 3.7% of net sales, for the same period last year. Consolidated operating profit was $60,072,000, or 3.2% of net sales, for the six months ended August 30, 1997 compared to consolidated operating profit of $53,738,000, or 3.8% of net sales, for the same period last year. Operating profit for the product distribution segment increased to $28,338,000, or 3.9% of product distribution net sales, in the three months ended August 30, 1997 from $19,946,000, or 3.5% of product distribution net sales, in the same period last year, and to $46,871,000, or 3.3% of product distribution net sales, from $37,897,000, or 3.6% of product distribution net sales, for the corresponding six-month periods. The increase in operating profit as a percentage of product distribution net sales for the respective three-month periods primarily reflects increased international operating profits. Operating profit for the service segment decreased to $6,032,000, or 2.9% of service net revenues, in the three months ended August 30, 1997 from $8,142,000, or 4.5% of service net revenues, in the same period last year, and to $13,201,000 or 3.1% of service net sales, from $15,842,000, or 4.6% of service net sales, for the corresponding six-month periods. The decrease in operating profit for the service segment reflects restructuring efforts and weak performance at several delivery locations, partially offset by some cost savings from consolidation efforts and the elimination of duplicative personnel. Operating profit for international operations increased to 1.2% of net international sales in the three months ended August 30, 1997 from break even in the same period last year, and to 1.2% from 1.0% in the respective six-month periods, primarily reflecting operating profits in Canada, Australia, and France, partially offset by operating losses in the United Kingdom, Germany, and Italy. Recent consolidations in the United Kingdom and Italy have negatively impacted operating profits. Interest Expense. Net interest expense of $9,279,000 in the three months ended August 30, 1997 increased from $5,965,000 in the same period last year, and to $19,194,000 from $10,669,000 for the respective six-month periods. The increase in net interest expense reflects increased Company debt to fund international and domestic expansion and reflects the interest on the $325,000,000 principal amount of 4.5% Convertible Notes due July 1, 2000 which were issued June 24, 1996 (the "Convertible Notes"). Minority Interest. Minority interest income of $97,000 in the three months ended August 30, 1997 compares to minority interest income of $330,000 in the same period last year, and to $1,042,000 from $100,000 for the respective six- month periods. The minority interest income for the three months ended August 30, 1997 reflects the 47.4% minority interest in the operating profits at Corporate Express Australia ("CEA"), offset by the 49% minority interest operating losses at Corporate Express United Kingdom ("CEUK") through June 30, 1997. On July 1, 1997, the Company acquired the remaining 49% interest in CEUK. The minority interest income for the six months ended August 30, 1997 reflects the 47.4% minority interest in the operating losses at CEA and the 49% minority interest operating losses at CEUK through June 30, 1997. Net Income. Net income of $14,567,000 in the three months ended August 30, 1997 compared to net income of $13,417,000 in the same period last year, and to $24,589,000 from $25,499,000 for the respective six-month periods. The after- tax profitability was reduced by an increase in the effective tax rate to 42.3% in the three months ended August 30, 1997 from 40.8% in the same period last year, and to 42.4% from 41.0% for the respective six-month periods. Other. Goodwill at August 30, 1997 of $680,396,000 increased $8,429,000 from $671,967,000 at March 1, 1997, reflecting net additions from acquisitions of $17,854,000, offset by current year amortization of $9,425,000. Accrued purchase costs at August 30, 1997 of $11,307,000 decreased by $1,581,000 from the March 1, 1997 balance of $12,888,000. This decrease reflects acquisition additions of $4,280,000, usage of $5,681,000 and reversals to goodwill of $180,000. The remaining balance primarily represents the current estimate for costs 12 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONT' to be incurred in conjunction with planned consolidation projects in Canada, the United Kingdom, Italy, Germany, and certain domestic locations. (See Note 2 to the Consolidated Financial Statements.) The accrued merger and related costs balance at August 30, 1997 of $12,292,000 decreased by $6,192,000 from the March 1, 1997 balance of $18,484,000, primarily as a result of severance and termination costs related to the Delivery and UT mergers and final payments for the acquisitions of Delivery and Richard Young Journal, Inc. transaction costs. (See Note 3 to the Consolidated Financial Statements.) Liquidity and Capital Resources Historically, the Company has financed its operations through internally generated funds and borrowings from commercial banks and has financed its acquisitions through the use of such funds and the issuance of equity and debt securities. On June 24, 1996, the Company issued the Convertible Notes, which are convertible into shares of Common Stock of the Company at a conversion price of $33.33 per share, subject to certain conditions. A portion of the proceeds from the sale of the Convertible Notes was used to repay the Company's revolving credit facility (the "Senior Credit Facility") and an acquisition note payable with the remaining proceeds being used to fund acquisitions and for other general corporate purposes. The Company's Senior Credit Facility was expanded on September 10, 1997 to increase the borrowing capacity from $350,000,000 to $500,000,000 and the cost of borrowings under the Facility was increased to LIBOR plus .75%. The Senior Credit Facility was previously amended and restated on November 26, 1996 to increase the borrowing capacity from $90,000,000 to $350,000,000, extend the facility termination date to March 31, 2000, release the assets of the Company (the previous facility was secured by substantially all of the assets, including accounts receivable and inventory of the Company and its United States subsidiaries), and to make certain other changes. During the six months ended August 30, 1997, the Company purchased 16 companies for a net cash purchase price of $10,467,000 and approximately 2,161,000 shares of common stock. Total liabilities assumed in connection with these acquisitions were $19,392,000. In addition, the Company made payments of approximately $4,136,000 and issued approximately 354,000 shares of common stock related to acquisitions completed in prior fiscal years. During the six months ended August 30, 1997, the Company had capital expenditures of $47,447,000 for computer systems and software, warehouse reconfigurations, telecommunications equipment, delivery vehicles, leasehold improvements and investments in facilities. The Company continues to invest in the development of its proprietary computer software and the upgrade of its computer systems. Significant uses of cash in the six months ended August 30, 1997 were as follows: capital expenditures of $47,447,000, cash paid for acquisitions of $14,603,000, purchase of marketable securities of $12,762,000 and net debt repayments of $931,000, partially offset by cash provided by operating activities of $38,308,000, proceeds from the sale of assets of $13,040,000, issuance of common stock of $4,261,000, issuance of subsidiary common stock of $2,434,000, and net other activities of $2,491,000. The Company believes that the borrowing capacity under the Senior Credit Facility, together with proceeds from future debt and equity financings, in addition to the Company's cash on hand, capital resources and cash flows, will be sufficient to fund the Company's ongoing operations, anticipated capital expenditures and acquisition activity for the next twelve months. However, actual capital needs may change, particularly in connection with acquisitions which the Company may complete in the future. 13 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONT' INFLATION Certain of the Company's product offerings, particularly paper products, have been and are expected to continue to be subject to significant price fluctuations due to inflationary and other market conditions. The Company generally is able to pass such increased costs on to its customers through price increases, although it may not be able to adjust its prices immediately. Significant increases in fuel costs in the future could affect the Company's profitability if these costs cannot be passed on to customers. In general, the Company does not believe that inflation has had a material effect on its 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. 14 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES On June 13, 1997, in connection with a business acquisition, the Company issued 5,297 shares of common stock to former shareholders of an acquired company in exchange for such shareholders' shares of capital stock. This issuance was made pursuant to exemptions from registration under Section 4(2) under the Securities Act of 1933, as amended. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the shareholders of the Company was held on July 17, 1997. Of the 127,113,436 shares of the Company's common stock issued and outstanding and entitled to vote at the meeting, there were present, in person or by proxy, 112,036,351 shares, or 88.1% of those shares eligible to vote, such percentage representing a quorum. The matters voted upon at the annual meeting and the votes cast for, against and abstaining as to each matter, were as follows: (1) The election of directors of the Company to serve until the next meeting of shareholders or until their successors are duly elected and qualified.
Name Votes For Votes Withheld ---- --------- -------------- Jirka Rysavy 110,677,668 1,358,683 Janet A. Hickey 110,495,631 1,540,720 Robert L. King 110,674,221 1,362,130 Mo Siegel 110,597,545 1,438,806 James P. Argyropoulos 110,750,021 1,286,330
(2) To approve an amendment to the 1994 Stock Option and Incentive Plan to increase the number of shares authorized for grant from 9,562,500 to 13,562,500: For Against Abstain Broker Non-Vote --- ------- ------- --------------- 97,253,988 14,635,170 100,358 46,835 76.5% of outstanding voting in favor; 11.5% against. ITEM 5. OTHER INFORMATION None. 15 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Computation of Earnings Per Share 27.1 Financial Data Schedule (b) Reports on Form 8-K None. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORPORATE EXPRESS, INC. By: /s/ Sam R. Leno ---------------- Sam R. Leno Executive Vice President and Chief Financial Officer Date: October 14, 1997 (Principal Financial Officer and Duly Authorized Officer) 17 EX-11.1 2 COMPUTATION OF NET INCOME PER SHARE Exhibit 11.1 CORPORATE EXPRESS, INC. STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE PRIMARY EARNINGS PER SHARE
Three Months Ended Six Months Ended ------------------------------------- -------------------------------------- August 30, August 31, August 30, August 31, 1997 1996 1997 1996 ----------------- ----------------- ----------------- ----------------- Pro forma net income $ 14,567 $ 13,090 $ 24,589 $ 24,842 ================= ================= ================= ================= Pro forma net income per share $ 0.11 $ 0.10 $ 0.18 $ 0.19 ================= ================= ================= ================= Weighted average shares outstanding 129,574 119,700 128,196 119,100 Common Stock Equivalents: Stock options and warrants 7,487 9,261 5,590 9,167 ----------------- ----------------- ----------------- ----------------- Total weighted average shares outstanding 137,061 128,961 133,786 128,267 ================= ================= ================= =================
FULLY DILUTED EARNINGS PER SHARE Fully diluted earnings per share differs from primary earnings per share by less than 3%. EX-27.1 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Corporate Express Consolidated Financial Statements and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS FEB-28-1998 MAR-02-1997 AUG-30-1997 39,920 0 533,607 14,567 201,354 874,715 404,657 124,077 1,906,965 462,935 626,216 0 0 26 732,577 1,906,965 1,854,976 1,854,976 1,418,524 376,380 0 0 19,194 40,878 17,331 24,589 0 0 0 24,589 .18 .18
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