-----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, JnUvbXrKh7hUTPXKl1SmmiG/MNXAlpwnSc9CV8hwxSmHSGY2tnjeW+KUt7cglvuw kNqK9xQ6qLaMXmEoUX4iMA== 0000927356-96-000854.txt : 19960923 0000927356-96-000854.hdr.sgml : 19960923 ACCESSION NUMBER: 0000927356-96-000854 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960919 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960920 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24642 FILM NUMBER: 96632535 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 8-K 1 CORPORATE EXPRESS - FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 19, 1996 ------------------ CORPORATE EXPRESS, INC. ----------------------------- (Exact name of registrant as specified in its charter) Commission File No. 0-24642 ----------- Colorado 84-0978360 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation) Identification No.) 325 Interlocken Parkway Broomfield, Colorado 80021 ------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 373-2800 -------------- ITEM 5. OTHER EVENTS This Current Report on Form 8-K (this "Form 8-K") is being filed by the Registrant for the purpose of complying with Rule 3-05 under Regulation S-X, in contemplation of the filing by the Registrant of one or more registration statements under the Securities Act of 1933, as amended, which registration statement(s) will incorporate by reference this Form 8-K. This Form 8-K includes certain audited and unaudited financial statements, as well as pro forma financial statements, with respect to thirteen companies whose stock or assets were acquired or are probable of being acquired by the Registrant subsequent to its fiscal year end on March 2, 1996 (the "Acquired Companies"). The aggregate consideration paid by the Registrant for the stock and assets of the Acquired Companies was approximately $38.5 million, which consideration was paid in cash, promissory notes and common stock of the Registrant. The source of the cash used in the acquisition of the Acquired Companies was a portion of the proceeds received from the issuance of the Registrant's 4 1/2% Convertible Notes due on July 1, 2000 (the "Notes). The nature and amount of consideration paid in connection with the Acquired Companies was determined based on negotiations between the Registrant and the sellers of the Acquired Companies (the "Sellers"). Prior to the acquisitions, there were no material relationships between the Registrant or any of its affiliates, directors or officers or any associates thereof and the Acquired Companies or the Sellers. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired . The audited financial statements of Check Office Equipment Company, Inc. as of and for the year ended February 29, 1996. . The audited financial statements of Enbee Company as of and for the year ended December 31, 1995, and the unaudited financial statements as of March 23, 1996 and for the period January 1, 1996 through March 23, 1996. . The audited consolidated financial statements of Miller Stationers Ltd. as of and for the year ended January 31, 1996 (in Canadian dollars). . The unaudited financial statements of Miller Stationers Ltd. as of and for the four months ended May 31, 1996 (in Canadian dollars). . The unaudited financial statements of Howard's Office Supplies, Inc. as of and for the year ended December 31, 1995, and the unaudited financial statements as of May 31, 1996 and for the five months ended May 31, 1996. . The unaudited financial statements of Center Office Products, Inc. as of and for the twelve months ended July 6, 1996. . The unaudited financial statements of Laser Perfect Office Products, Inc. as of and for the twelve months ended June 30, 1996. . The audited financial statements of Forms and Supplies, Inc. as of and for the year ended December 31, 1995. . The unaudited financial statements of Forms and Supplies, Inc. as of and for the six months ended June 30, 1996. . The unaudited financial statements of Carolina Ribbon and Carbon Sales Corporation as of and for the year ended September 30, 1995. . The unaudited financial statements of Carolina Ribbon and Carbon Sales Corporation as of and for the ten months ended July 31, 1996. . The audited financial statements of Dock Truck Express Inc. as of and for the year ended December 31, 1995, and the unaudited financial statements as of and for the six months ended June 30, 1996. . The audited financial statements of Pronto Delivery Service, Inc. as of and for the year ended December 31, 1995, and the unaudited financial statements as of and for the six months ended June 30, 1996. . The unaudited combined financial statements of H and H Associates, Inc. and Classic Air, Inc. ("The Classic Companies") as of and for the year ended December 31, 1995, and the unaudited financial statements as of and for the six months ended June 30, 1996. . The audited financial statements of RUSHTRUCKING, Inc. as of and for the year ended December 31, 1995, and the unaudited financial statements as of and for the six months ended June 30, 1996. . The audited financial statements of Virginia Impression Products Co., Inc. as of and for the years ended December 31, 1995 and 1994. . The unaudited financial statements of Virginia Impression Products Co., Inc. as of and for the eight months ended August 31, 1996. (b) Pro Forma Financial Information . The unaudited pro forma combined balance sheet of Corporate Express, Inc. and the Acquired Companies as of June 1, 1996. . The unaudited pro forma combined statements of operations of Corporate Express, Inc. and the Acquired Companies for the three months ended June 1, 1996 and for the year ended March 2, 1996. (c) Exhibits 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of McGee, Wheeler & Co., P.C. 23.3 Consent of KPMG 23.4 Consent of Horne CPA Group 23.5 Consent of Arthur Andersen LLP 23.6 Consent of Schutrumpf & Koren, P.C. CHECK OFFICE EQUIPMENT COMPANY REPORT OF AUDIT OF FINANCIAL STATEMENTS AS OF FEBRUARY 29, 1996 AND FOR THE YEAR THEN ENDED Report of Independent Accountants The Board of Directors and Shareholder Check Office Equipment Company, Inc.: We have audited the accompanying balance sheet of Check Office Equipment Company as of February 29, 1996, and the related statements of operations, stockholder's equity (parent company investment), and cash flows for the year then ended as defined in Note 1. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Check Office Equipment Company as of February 29, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Kansas City, Missouri August 30, 1996 Check Office Equipment Company Balance Sheet February 29, 1996
ASSETS Current assets: Cash and cash equivalents $ 107,320 Trade accounts receivable 854,502 Other receivables 2,563 Inventories 972,863 Other current assets 9,525 Deferred tax asset 14,000 -------------- Total current assets 1,960,773 Plant and equipment, net 124,707 -------------- Total assets $ 2,085,480 ============== LIABILITIES AND STOCKHOLDER'S EQUITY (PARENT COMPANY INVESTMENT) Current liabilities: Accounts payable $ 205,029 Accrued payroll and benefits 95,268 Other accrued liabilities 99,069 Notes payable 117,514 -------------- Total current liabilities 516,880 Deferred income taxes -- -------------- Total liabilities 516,880 -------------- Stockholder's equity (parent company investment): Parent company investment 1,568,600 -------------- Total liabilities and stockholder's equity (parent company investment) $ 2,085,480 ==============
The accompanying notes are an integral part of these financial statements. Check Office Equipment Company Statement of Operations for the year ended February 29, 1996 Net sales $ 7,531,106 Cost of sales 4,815,223 ----------- Gross profit 2,715,883 Selling, general and administrative expenses 2,291,750 ----------- Operating profit 424,133 Other income (expense): Interest expense, net of interest income of $3,042 (17,443) Other income 4,662 ----------- Net income before income taxes 411,352 Pro forma income tax provision 158,500 ----------- Pro forma net income $ 252,852 ===========
The accompanying notes are an integral part of these financial statements. Check Office Equipment Company Statement of Cash Flows for the year ended February 29, 1996 Cash flows from operating activities: Net income before income taxes $ 411,352 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 60,426 Loss on sale of assets 4,304 Provision for bad debts 10,196 Changes in assets and liabilities: Increase in accounts receivable (350,556) Increase in inventory (32,948) Increase in other current assets (12,088) Increase in accounts payable 67,497 Increase in accrued liabilities 52,862 ---------- Net cash provided by operating activities 211,045 ---------- Cash flows used in investing activities: Payments for plant and equipment (67,884) ---------- Net cash used in investing activities (67,884) ---------- Cash flows used in financing activities: Payments on related party debt (5,498) Payments on bank debt (42,000) ---------- Net cash used in financing activities (47,498) ---------- Net increase in cash 95,663 Cash and cash equivalents, beginning of period 11,657 ---------- Cash and cash equivalents, end of period $ 107,320 ========== Supplemental cash flow information: Cash paid during the year for interest $ 9,967
The accompanying notes are an integral part of these financial statements. Check Office Equipment Company Statement of Stockholder's Equity (Parent Company Investment) for the year ended February 29, 1996 Balance, March 1, 1995 $ 1,157,248 Net income before income taxes for year ended February 29, 1996 411,352 ------------ Balance, February 29, 1996 $ 1,568,600 ============
The accompanying notes are an integral part of these financial statements. Check Office Equipment Company Notes to Financial Statements 1. Basis of Presentation: Certain assets and liabilities of Check Office Equipment Company, Inc., (the "Company") were acquired by a subsidiary of Corporate Express, Inc. at the close of business on March 3, 1996. These financial statements include certain defined assets, liabilities, revenues and expenses of the operations which comprised the Company and were acquired by Corporate Express, Inc. The accompanying financial statements as of and for the 12 months ended February 29, 1996 have been prepared as if the assets and liabilities acquired had operated as an independent entity and are presented on a historical cost basis. The pro forma income tax provision has been presented to reflect the tax provision on a separate company basis. No current tax liability has been presented in the financial statements as the liability for income taxes remains the obligation of the parent company pursuant to the Asset Purchase Agreement with Corporate Express, Inc. The Company markets office equipment, supplies and furniture and provides routine maintenance and support for office equipment. The Company's customers are primarily located in the state of Missouri. 2. Summary of Significant Accounting Policies: a. Cash and Cash Equivalents: Cash and cash equivalents include highly liquid investments with original maturities of three months or less. As of February 29, 1996, cash held on deposit exceeded federally insured limits by approximately $17,000. The fair market value of cash and cash equivalents approximates book value. b. Inventories: Inventories consist of finished goods. Inventories are primarily valued at the lower of first-in, first-out (FIFO) cost or market. c. Plant and Equipment: Plant and equipment are stated at cost. The cost and related accumulated depreciation of plant and equipment retired or sold are removed from the applicable accounts and any gain or loss is included in operations. Depreciation is computed for financial reporting purposes using both straight-line and accelerated methods over the estimated useful lives of the assets as follows: Equipment 5-7 years Furniture and fixtures 5-7 years Leasehold improvements 5-31.5 years Check Office Equipment Company Notes to Financial Statements, Continued d. Accounting for Income Taxes: Under the asset and liability method of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. All of Check Office Equipment Company's operations for the year ended February 29, 1996 are included in the Parent Company's federal and state consolidated income tax returns. The pro-forma provision for income taxes reflects taxes calculated on a separate return basis. No liability for potential future income tax assessments relating to prior years is included in the financial statements. Such liability would be the obligation of the Parent Company pursuant to the Asset Purchase Agreement with Corporate Express, Inc. e. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Plant and Equipment: The major classes of plant and equipment at February 29, 1996 are as follows: Equipment $ 245,500 Furniture and fixtures 201,366 Leasehold improvements 33,097 ---------- 479,963 Less accumulated depreciation 355,256 ---------- $ 124,707 ==========
Check Office Equipment Company Notes to Financial Statements, Continued 4. Related Party Transactions: The Company leases certain office facilities under month-to-month operating lease agreements from a related company owned by the sole shareholder of the Company. Rent expense on these facilities was $183,060 for 1996. The Company has issued notes payable to several related entities that are owned, in part, by the sole shareholder of the Company. These notes are demand notes and bear interest ranging from 9.5% to 11.5%. Interest expense on these notes was $12,739 for 1996. The carrying value of these notes approximates the fair value of these instruments based on the short-term nature of the notes and management's best estimate of interest rates that would be available on similar debt obligations as of February 29, 1996. 5. Pro Forma Income Taxes: The components of the provision (benefit) for income taxes at February 29, 1996 are as follows: Current $ 160,500 Deferred (2,000) ---------- Total provision $ 158,500 ==========
The effective income tax rate on income before income taxes differed from the U.S. federal statutory rate as of February 29, 1996 for the following reasons: U.S. federal statutory rate 35.0 % Effect of graduated rates (1.0) U.S. state and local taxes, net of federal benefit 4.5 ------ 38.5 % ======
Check Office Equipment Company Notes to Financial Statements, Continued The components of the net deferred income tax asset are recognized in the accompanying balance sheet at February 29, 1996. The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to a significant portion of the deferred income tax assets relate primarily to items recognized in book income which are not yet recognized for tax. SFAS 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Based upon prior positive earnings and the expectations that taxable income will continue for the foreseeable future, management believes it is more likely than not that the Company will realize its deferred tax assets and accordingly, no valuation allowance has been provided as of February 29, 1996. 6. Employee Benefit Plans: The Company maintains a retirement plan which is qualified under section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company matches 25% of employee contributions on the first 4% of salary. Profit sharing contributions may be made at the discretion of the Board of Directors. Total expenses related to the Plan, including matching and profit sharing contributions were $13,000 in 1996. The Company does not offer other post-employment or post-retirement benefits. INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Board of Directors Enbee Company Houston, Texas We have audited the accompanying balance sheets of ENBEE COMPANY (an S Corporation) as of December 31, 1995, and the related statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ENBEE COMPANY as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. McGEE, WHEELER & CO., P.C. /s/ McGee, Wheeler & Co., P.C. Certified Public Accountants Houston, Texas February 26, 1996, except as to Note 13 as to which the date is March 4, 1996 ENBEE COMPANY HOUSTON, TEXAS BALANCE SHEETS A S S E T S -----------
DECEMBER 31, MARCH 23, 1995 1996 ------------ ---------- (UNAUDITED) Current assets: Cash $ 64,548 $ 1,721 Accounts receivable - (net of allowance for doubtful accounts of $10,000) 1,382,177 1,149,852 Accounts receivable: Employees 21,442 63,159 Notes receivable - employees 8,386 - Inventory 551,397 487,121 Prepaid expenses 27,402 20,258 ------------ ---------- Total current assets 2,055,352 1,722,111 ------------ ---------- Property and equipment: Furniture and fixtures 268,364 272,159 Transportation equipment 15,497 15,497 Buildings and improvements 518,192 518,192 Land 100,000 100,000 ------------ ---------- 902,053 905,848 Less accumulated depreciation 412,430 430,458 ------------ ---------- Net property and equipment 489,623 475,390 ------------ ---------- Other assets: Cash surrender value of officers' life insurance 1,116 1,116 Deposits 2,415 2,243 Notes receivable - employees 11,554 - Employee receivables (net of allowance for doubtful accounts of $64,958 at December 31, 1995) - - ------------ ---------- Total other assets 15,085 3,359 ------------ ---------- TOTAL ASSETS $ 2,560,060 $ 2,200,860 ============ ===========
SEE INDEPENDENT AUDITOR'S REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. ENBEE COMPANY HOUSTON, TEXAS BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
DECEMBER 31, MARCH 23, 1995 1996 ------------ ----------- (UNAUDITED) Current liabilities: Accounts payable $ 1,044,855 $ 639,183 Bank overdraft - 249,763 Commissions payable 214,064 224,887 Accrued liabilities 150,346 96,457 Accrued expenses 59,414 61,667 Line of credit 230,000 - Capital lease obligations 26,797 22,373 ----------- ----------- Total current liabilities 1,725,476 1,294,330 ----------- ----------- Stockholders' equity: Common stock, $1 par value, 100,000 shares authorized, 11,959 shares issued and outstanding at December 31, 1995 11,959 11,959 Contributed capital 408,541 408,541 Subscriptions receivable (216,173) (209,307) Retained earnings 630,257 695,337 ----------- ----------- Total stockholders' equity 834,584 906,530 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,560,060 $ 2,200,860 =========== ===========
SEE INDEPENDENT AUDITOR'S REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. ENBEE COMPANY HOUSTON, TEXAS STATEMENTS OF INCOME
FOR THE PERIOD FOR THE YEAR JANUARY 1, 1995 ENDED DECEMBER THROUGH MARCH 31, 1995 23, 1996 -------------- --------------- (UNAUDITED) Sales $ 8,915,783 $ 2,342,411 Cost of goods sold 5,769,287 1,569,774 -------------- --------------- Gross profit 3,146,496 772,637 Selling, general and administrative expenses 2,891,114 703,627 -------------- --------------- Income from operations 255,382 69,010 -------------- --------------- Other income (expense): Interest income 20,684 1,906 Miscellaneous income 5,618 - Interest expense (78,756) (2,836) -------------- --------------- Net other income (expense) (52,454) (930) -------------- --------------- Net income before state income tax 202,928 68,080 State income tax 9,214 3,000 -------------- --------------- Net Income $ 193,714 $ 65,080 ============== =============== PRO-FORMA EFFECT OF FEDERAL INCOME TAXES (UNAUDITED): Federal income tax 60,559 20,514 -------------- --------------- Net income after pro-forma effect of federal income tax $ 133,155 $ 44,566 ============== ===============
SEE INDEPENDENT AUDITOR'S REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. ENBEE COMPANY HOUSTON, TEXAS STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL CONTRI- STOCK- COMMON BUTED SUBSCRIPTIONS RETAINED HOLDERS' STOCK CAPITAL RECEIVABLE EARNINGS EQUITY ------- -------- -------------- --------- --------- Balance at December 31, 1994 9,500 125,500 - 501,388 636,388 Issuance of common stock 2,459 283,041 (216,173) - 69,327 Distributions - - - (64,845) (64,845) Net income - - - 193,714 193,714 ------- -------- ------------- -------- -------- Balance at December 31, 1995 11,959 408,541 (216,173) 630,257 834,584 (UNAUDITED) Collections of subscriptions receivable - - 6,866 - 6,866 Net income - - - 65,080 65,080 ------- -------- ------------- -------- -------- Balance at March 23, 1996 $11,959 $408,541 $(209,307) $695,337 $906,530 ======= ======== ============= ======== ========
SEE INDEPENDENT AUDITOR'S REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. ENBEE COMPANY HOUSTON, TEXAS STATEMENTS OF CASH FLOWS
FOR THE FOR THE PERIOD YEAR ENDED JANUARY 1, DECEMBER 31, 1996 THROUGH 1995 MARCH 23, 1996 ------------ -------------- (UNAUDITED) Cash flows from operating activities: Cash received from customers $ 8,636,223 $ 2,554,934 Cash paid to suppliers and employees (8,185,543) (2,629,168) Interest received 25,860 105 Interest paid (79,888) (7,108) Other income 5,618 - ------------ -------------- Net cash provided by (used in) operating activities 402,270 (81,237) ------------ -------------- Cash flows from investing activities: Purchase of property and equipment (18,327) (3,795) ------------ -------------- Net cash used in investing activities (18,327) (3,795) ------------ -------------- Cash flows from financing activities: Gross proceeds from line-of-credit 250,000 - Gross payments on line-of-credit (472,579) (230,000) Proceeds from bank overdraft - 249,763 Net proceeds from issuance of common stock 40,300 - Collections on subscriptions receivable 29,027 6,866 Repayments of long-term debt and capital leases (195,420) (4,424) Stockholder distributions (64,845) - ------------ -------------- Net cash used in financing activities (413,517) 22,205 ------------ -------------- Net (decrease) increase in cash (29,574) (62,827) Cash at beginning of period 94,122 64,548 ------------ -------------- Cash at end of period $ 64,548 $ 1,721 ============ ==============
SEE INDEPENDENT AUDITOR'S REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. ENBEE COMPANY HOUSTON, TEXAS STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE FOR THE PERIOD YEAR ENDED JANUARY 1, DECEMBER 31, 1996 THROUGH 1995 MARCH 23, 1996 ------------ -------------- (UNAUDITED) Reconciliation of net income to net cash provided by operating activities: Net income $ 193,714 $ 65,080 ------------ -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 79,090 18,028 Increase in cash surrender value (1,116) - (Increase) decrease in current assets: Accounts receivable (244,798) 232,327 Accounts receivable - employees 95,254 (21,777) Accounts receivable - other 8,576 172 Prepaid expenses 5,066 7,144 Inventory (86,078) 64,276 Note receivable - stockholder 75,936 - Increase (decrease) in current liabilities: Accounts payable and accrued expenses 222,194 (457,310) Commissions payable 54,432 10,823 ------------ -------------- Total adjustments 208,556 (146,317) ------------ -------------- Net cash provided by (used in) operating activities $ 402,270 $ (81,237) ============ ==============
Supplemental data on non-cash activities: During 1995, certain employee accounts receivable and notes receivable totalling $54,248 were written off as bad debts. An additional $64,958 was treated as additional compensation. A stockholder receivable in the amount of $75,936 was treated as additional compensation. In March 1995, additional shares of common stock were issued in exchange for notes receivable totaling $245,700. SEE INDEPENDENT AUDITOR'S REPORT AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23, 1996 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION --------------------- The accompanying financial statements include the audited financial statements as of December 31, 1995 and the unaudited financial statements as of March 23, 1996. In the opinion of management, all adjustments necessary for a fair presentation as of March 23, 1996 have been included. Operating results for the period January 1, 1996 through March 23, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996 (See Note 14). The statements of income present the proforma effect of federal income taxes as though the Company were taxed as a regular C corporation (See Note 13). The proforma federal income tax expense may not be indicative of the actual expense. NOTE 2 - NATURE OF BUSINESS ------------------ Enbee Company is a professional advertising specialty counselor that provides specially designed promotional and award items to customers in the United States and Canada. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Allowance for Doubtful Accounts ------------------------------- The Company uses the reserve method for write-off of bad debts. Bad debt expense for 1995 was $68,458, including the bad debt expense incurred for employee receivables. Management has reserved those employee receivables which may not be collectible. Federal Income Taxes -------------------- The Company has elected by consent of its stockholders to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay corporate income taxes on its taxable income. Instead, the stockholders are liable for individual income taxes on the Company's taxable income. The Company is subject to the Texas franchise tax. SEE INDEPENDENT AUDITOR'S REPORT. (CONTINUED NEXT PAGE) ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23, 1996 (UNAUDITED) NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) -------------------------------------------------------- Inventory --------- Inventory is valued at the lower of cost or market, determined by the first-in, first-out method. Property and Equipment ---------------------- Depreciation for vehicles and equipment purchased prior to 1992 are provided principally using accelerated methods. Depreciation for vehicles and equipment purchased after December 31, 1991 is provided using the straight-line method. Depreciation for buildings and improvements is computed on the straight-line method. Estimated useful lives of the assets are as follows: Vehicles 5 years Equipment 7 years Office fixtures 10 years Buildings and improvements 25 years Depreciation expense was $79,090 for the year ended December 31, 1995. Expenditures for major acquisitions and improvements are capitalized while expenditures for maintenance and repairs are charged to operations. The cost of assets sold or retired and the related accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations. Cash and Cash Equivalents ------------------------- For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SEE INDEPENDENT AUDITOR'S REPORT. (CONTINUED NEXT PAGE) ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23, 1996 (UNAUDITED) NOTE 4 - FINANCIAL INSTRUMENTS --------------------- Financial instruments that are exposed to concentration of credit risk include balances at commercial banks, trade accounts receivable, and notes receivable. The Company maintains cash accounts at commercial banks located in Houston, Texas. The Company's average collected balances exceed the Federal Deposit Insurance Corporation (FDIC) insured limit of $100,000 by approximately $155,000 and at December 31, 1995 exceeded the FDIC limit by approximately $28,000. The Company grants credit to commercial businesses and other customers located in the United States and Canada, but primarily based in Houston, Texas. The receivables are not collateralized. The carrying amounts reflected in the balance sheet for cash, receivables, and notes payable approximate the respective fair values due to the short maturities of those instruments. NOTE 5 - NOTES RECEIVABLE - EMPLOYEES ---------------------------- During 1994, certain employee and a former employee receivables were converted to notes receivable. The terms of these notes were interest at 10.5%, receivable in 48 monthly payments beginning June 1995 through May 1999, unsecured. During 1995, notes totaling $58,248 were written off as bad debts. During 1995, one note with a balance of $6,440 including accrued interest of $612 was renegotiated to be paid in full by March 1996. A new note issued during 1995 totaling $13,500 bears interest at 10% and is receivable in 48 monthly payments beginning April 1996 through March 2000. Estimated annual maturities are as follows: YEAR AMOUNT ---- ------- 1996 $ 8,386 1997 3,166 1998 3,497 1999 3,863 2000 1,028 ------- Total $19,940 ======= SEE INDEPENDENT AUDITOR'S REPORT. (CONTINUED NEXT PAGE) ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23, 1996 (UNAUDITED) NOTE 6 - LINES OF CREDIT --------------- The Company has two revolving loan agreements whereby it can borrow a maximum of $750,000 and $100,000. Advances bear interest at prime rate plus 1.5%. The interest is payable monthly with all accrued and unpaid interest and principal payable in full on May 1, 1996. The loans are secured by accounts receivable, inventory, real estate, assignment of a life insurance policy on the majority stockholder, and the personal guaranty of the majority stockholder. The line of credit places restrictions on the Company as to incurring debt, capital expenditures, distributions to shareholders and requires the Company to maintain certain financial ratios. The Company was in compliance with the covenant requirements at December 31, 1995. NOTE 7 - COMMITMENTS AND CONTINGENCIES ----------------------------- Leases ------ The Company is leasing a warehouse facility for $1,250 per month expiring April 1996 and an automobile for $736 per month expiring October 1996. Total operating lease expense was $23,832 for the year ended December 31, 1995. The Company is leasing computer and telephone equipment under capital leases expiring in 1996. The cost of the equipment at December 31, 1995 was $104,084. Accumulated amortization at December 31, 1995 was $77,292. At December 31, 1995, future minimum capital lease payments due in 1996 totalled $26,797 including interest. Letter of credit ---------------- The Company has an agreement with its bank to facilitate the purchase of goods by issuing letters of credit to various vendors. The letters of credit are collateralized by inventory. At December 31, 1995, the Company had outstanding letters of credit for $10,000 expiring May 1, 1996. SEE INDEPENDENT AUDITOR'S REPORT. (CONTINUED NEXT PAGE) ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23, 1996 (UNAUDITED) NOTE 7 - COMMITMENTS AND CONTINGENCIES - (CONTINUED) ------------------------------------------- Litigation ---------- The Company is currently involved in litigation incidental to its business. In the opinion of management, the ultimate resolution of such litigation will not have a significant effect on the accompanying financial statements. NOTE 8 - RELATED PARTY TRANSACTIONS -------------------------- At December 31, 1994, the Company had a note receivable from the majority stockholder in the amount of $75,936. The note was interest bearing at 4.5% with interest payable annually and a balloon payment on January 2, 1996. During 1995, the note was distributed to the majority stockholder as additional salary. The Company had receivables from employees totaling $41,382 as of December 31, 1995. Accounts payable includes $14,583 payable to related parties at December 31, 1995. The related parties are related through common stockholders of each company. During 1995, the Company paid $60,000 in consulting fees to a director. NOTE 9 - SUBSCRIPTIONS RECEIVABLE ------------------------ On March 1, 1995 additional shares of common stock were issued. The shares were exchanged for $40,300 cash and $245,000 in notes receivable. The notes bear interest at prime plus 2% and are receivable in 60 monthly installments beginning April 1995 through March 2000. Estimated annual collections on the notes receivable are as follows: YEAR AMOUNT ---- -------- 1996 $ 42,961 1997 47,460 1998 52,429 1999 57,919 2000 15,404 -------- Total $216,173 ======== SEE INDEPENDENT AUDITOR'S REPORT. (CONTINUED NEXT PAGE) ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23, 1996 (UNAUDITED) NOTE 10 - EMPLOYEE BENEFIT PLAN --------------------- The Company has a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all employees. The Company did not contribute to the plan during 1995. NOTE 11 - STOCKHOLDER AGREEMENT --------------------- The Company entered into an agreement with all stockholders whereby upon the death or permanent incapacity of a stockholder, the Company is obligated to purchase the stockholder's stock at book value. Upon termination of employment of a stockholder, the Company is obligated to purchase the stock at 75% of book value. NOTE 12 - SUBSEQUENT EVENT ---------------- On March 4, 1996 the shareholders signed a letter of intent to sell all of their stock in Enbee Company to a third party for an amount in excess of book value. The sale is for substantially all of the assets of the Company. NOTE 13 - PROFORMA EFFECT OF FEDERAL INCOME TAX EXPENSE (UNAUDITED) --------------------------------------------------------- There are timing differences in the recognition of income and expenses for financial and income tax reporting purposes. The differences arise from the use of different methods of computing depreciation and the timing of recognition of certain payroll expenses and income. The effective rate on income before income taxes was less than the statutory rate of 35% due to the graduated tax rates, and the effect of non-deductible life insurance and entertainment expenses. SEE INDEPENDENT AUDITOR'S REPORT. (CONTINUED NEXT PAGE) ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23,1996 (UNAUDITED) NOTE 13 - PROFORMA EFFECT OF FEDERAL INCOME TAX EXPENSE (UNAUDITED)-(CONTINUED) --------------------------------------------------------------------- The following summary reconciles taxes at the federal statutory rate with the effective rate:
FOR THE YEAR FOR THE PERIOD ENDED JANUARY 1, 1995 DECEMBER 31, THROUGH 1995 MARCH 23, 1996 ------------ --------------- Federal income taxes at statutory rate $ 67,800 $ 22,778 Tax effect of nondeductible expenses 9,417 1,011 Tax effect of timing differences (9,787) (2,672) Tax effect of graduated rates (6,871) (603) ------------ ------------ Federal income tax expense $ 60,559 $ 20,514 ============ ============ The components of federal income tax expense are as follows: Current $ 58,385 $ 42,456 Deferred 2,174 (21,939) ------------ ------------ Federal income tax expense 60,559 $ 20,514 ============ ============
SEE INDEPENDENT AUDITOR'S REPORT. (CONTINUED NEXT PAGE) ENBEE COMPANY HOUSTON, TEXAS NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 23, 1996 (UNAUDITED) NOTE 14 - NOTES TO THE MARCH 23, 1996 UNAUDITED FINANCIAL STATEMENTS ----------------------------------------------------------- (UNAUDITED) ----------- The following information updates the December 31, 1995 Notes to Financial Statements for the period ended March 23, 1996. SHAREHOLDERS SALE OF STOCK - Effective March 23, 1996 the stockholders of the Company sold all of the outstanding stock to a third party. BAD DEBT EXPENSE - The Company did not incur any bad debt expense for the period ended March 23, 1996. DEPRECIATION EXPENSE - Depreciation expense for the period ended March 23, 1996 was $18,028. NOTES RECEIVABLE EMPLOYEE - During the period ended March 23, 1996 all employee notes receivable were charged off as employee compensation. LINES OF CREDIT - The lines of credit were fully paid prior to March 23, 1996. LEASES - Total expenses for operating leases for the period ended March 23, 1996 was $2,208. The cost of equipment under capital lease at March 23, 1996 was $104,084 and amortization was $82,517. Total future minimum capital lease payments of $22,693 are due in 1996. LETTERS OF CREDIT - The Company had outstanding letters of credit in the amount of $10,000 at March 23, 1996 expiring in May 1996. The letters of credit were retired in April 1996. RELATED PARTY TRANSACTIONS - The Company paid $15,000 in consulting fees to a director for the period ended March 23, 1996. The Company had $63,159 in employee receivables as of March 23, 1996. EMPLOYEE BENEFIT PLAN - The Company did not contribute to the plan during the period ended March 23, 1996. SEE INDEPENDENT AUDITOR'S REPORT. [LETTERHEAD OF KPMG APPEARS HERE] AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheet of Miller Stationers Ltd. as at January 31, 1996 and the consolidated statements of earnings and retained earnings and changes in financial position for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 1996 and the results of its operations and the changes in its financial position for the year then ended in accordance with generally accepted accounting principles. /s/ KPMG Chartered Accountants Edmonton, Canada April 4, 1996 MILLER STATIONERS LTD. Consolidated Balance Sheet January 31, 1996, with comparative figures for 1995
- -------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------- ASSETS Current assets: Accounts receivable (note 11) $ 4,073,375 $ 3,785,627 Inventory 3,099,259 3,127,427 Prepaid expenses 102,549 77,717 - -------------------------------------------------------------------------------- 7,275,183 6,990,771 Investments (note 2) 869,936 1,390,272 Deferred financing costs (note 3) - 57,553 Property and equipment (note 4): Land, buildings and equipment 18,755,639 18,776,571 Accumulated amortization 8,404,867 7,881,889 - -------------------------------------------------------------------------------- 10,350,772 10,894,682 - -------------------------------------------------------------------------------- $18,495,891 $19,333,278 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 5) $ 573,394 $ 1,290,388 Accounts payable and accrued liabilities (note 11) 2,343,763 3,304,671 Income taxes payable 495,058 10,464 Principal due within one year on long-term debt 384,043 386,685 Principal due within one year on capital leases 122,352 137,768 - -------------------------------------------------------------------------------- 3,918,610 5,129,976 Long-term debt (note 6) 9,456,097 10,050,633 Obligations under capital leases (note 7) 207,250 334,239 Advances from shareholders (note 8) 572,819 376,701 Deferred income taxes 391,969 318,009 Shareholders' equity: Share capital (note 9) 771,873 771,873 Retained earnings 3,177,273 2,351,847 - -------------------------------------------------------------------------------- 3,949,146 3,123,720 Commitments and contingency (note 13) Subsequent events (notes 13 and 14) - -------------------------------------------------------------------------------- $18,495,891 $19,333,278 ================================================================================
See accompanying notes to consolidated financial statements. MILLER STATIONERS LTD. Consolidated Statement of Earnings and Retained Earnings Year ended January 31, 1996, with comparative figures for 1995
- ----------------------------------------------------------------------- 1996 1995 - ----------------------------------------------------------------------- Sales $33,077,005 $30,118,257 Cost of goods sold 23,755,461 21,864,867 - ----------------------------------------------------------------------- 9,321,544 8,253,390 Expenses: Warehouse and delivery 2,503,551 2,585,290 Selling 2,702,037 2,768,879 General and administrative 2,149,541 1,970,131 Building occupancy costs 1,044,570 961,951 Amortization 175,965 175,808 Interest on non-current indebtedness 69,432 69,797 Purchase discounts and rebates (936,325) (658,372) - ----------------------------------------------------------------------- 7,708,771 7,873,484 - ----------------------------------------------------------------------- Earnings from operations 1,612,773 379,906 Other income (expense): Loss from building operations including amortization (note 10) (330,982) (512,507) Share in income of affiliated companies 107,159 114,890 Gain on sale of investment 4,316 - Amortization of goodwill (36,170) (36,170) Income from property net of amortization of $13,950 (1995 - $14,685) 44,597 47,560 - ----------------------------------------------------------------------- (211,080) (386,227) - ----------------------------------------------------------------------- Earnings (loss) before income taxes 1,401,693 (6,321) Income taxes: Current 502,307 10,458 Deferred (reduction) 73,960 (16,654) - ----------------------------------------------------------------------- 576,267 (6,196) - ----------------------------------------------------------------------- Net earnings (loss) 825,426 (125) Retained earnings, beginning of year 2,351,847 2,351,972 - ----------------------------------------------------------------------- Retained earnings, end of year $ 3,177,273 $ 2,351,847 =======================================================================
See accompanying notes to consolidated financial statements. MILLER STATIONERS LTD. Consolidated Statement of Changes in Financial Position Year ended January 31, 1996, with comparative figures for 1995
- ---------------------------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------------------------- Cash provided by (used in): Operations: Net earnings (loss) $ 825,426 $ (125) Items which do not involve cash: Loss (gain) on disposal of property and equipment (2,751) 1,966 Amortization of property and equipment 568,003 586,283 Amortization of deferred financing costs 57,553 57,553 Deferred income tax (reduction) 73,960 (16,654) Share in income of affiliated companies (107,159) (114,890) Gain on sale of investments (4,316) - Amortization of goodwill 36,170 36,170 Change in non-cash operating working capital (760,726) 39,720 - ---------------------------------------------------------------------------------- 686,160 590,023 Financing: Increase in long-term debt - 193,607 Increase (decrease) in advances from shareholders 196,118 (157,453) Repayment of long-term debt (597,178) (420,636) Increase in obligations under capital lease - 161,939 Payment of capital leases (142,405) (111,355) - ---------------------------------------------------------------------------------- (543,465) (333,898) Investments: Purchase of investment (3,937) - Proceeds on sale of investment 440,565 - Net decrease (increase) in investments 84,013 (19,542) Dividends received from equity investment 75,000 - Proceeds on disposal of property and equipment 17,450 1,028 Additions to property and equipment (38,792) (305,723) - ---------------------------------------------------------------------------------- 574,299 (324,237) - ---------------------------------------------------------------------------------- Decrease (increase) in bank indebtedness 716,994 (68,112) Bank indebtedness, beginning of year 1,290,388 1,222,276 - ---------------------------------------------------------------------------------- Bank indebtedness, end of year $ 573,394 $1,290,388 ==================================================================================
See accompanying notes to consolidated financial statements. MILLER STATIONERS LTD. Notes to Consolidated Financial Statements Year ended January 31, 1996 - -------------------------------------------------------------------------------- The Company is a private company incorporated under the Business Corporations Act of Alberta and operates under the trade name of Miller Office Group. Its principal business activities include the sale of stationery supplies and office furniture. 1. SIGNIFICANT ACCOUNTING POLICIES: (a) Basis of consolidation: These consolidated financial statements include the accounts of Miller Furniture Finance Ltd., a wholly-owned subsidiary company. Significant intercompany transactions and balances have been eliminated. (b) Investments: The Company's investments in its affiliated companies are accounted for in the accompanying financial statements by the equity method under which such investments initially are recorded at cost, the carrying value of the investments is increased to recognize the Company's proportionate share of the increases in the underlying net book equity of the subsidiary companies subsequent to the respective dates of the investments therein, and the Company's share of the net earnings of the subsidiary companies is included in the determination of the net earnings of the Company. Goodwill arose on the acquisition of an affiliated company. It represents the portion of the purchase price in excess of the fair market value of the identifiable net assets acquired and is being amortized on the straight-line basis over a period of 10 years. (c) Inventory: Inventory has been valued at the lower of cost and net realizable value. (d) Property and equipment: Property and equipment are stated at cost. Amortization is provided over the estimated useful lives of the assets. The following methods and annual rates are used:
Asset Basis Rate ----------------------------------------------------- ----------------------------------------------------- Building Declining balance 5% Equipment and fixtures Declining balance 20% Automotive equipment Declining balance 30% Computer hardware Declining balance 30% Computer software Straight-line 5 Years Leasehold improvements Straight-line 8 Years -----------------------------------------------------
MILLER STATIONERS LTD. Notes to Consolidated Financial Statements, continued Year ended January 31, 1996 - ------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: (e) Deferred financing costs: Deferred financing costs are amortized over a five year period using the straight-line method. 2. INVESTMENTS:
----------------------------------------------------------------------------------- 1996 1995 ----------------------------------------------------------------------------------- Affiliated companies, at equity: Menzies Printers Ltd. (50% owned): Common shares $500,000 $ 500,000 Amortization of goodwill (72,340) (36,170) Share of undistributed earnings 241,169 237,265 ----------------------------------------------------------------------------------- 668,829 701,095 Premier Envelope Ltd. (38% owned): Common shares - 418 Cash advances and management fee receivable - 90,240 Share of undistributed earnings - 435,831 ----------------------------------------------------------------------------------- - 526,489 Creative Paper and Office Supplies Ltd. (49% owned): Common shares 49 49 Cash advances and management fee receivable 90,929 84,701 Share of undistributed earnings 65,758 37,503 ----------------------------------------------------------------------------------- 156,736 122,253 Other investments, at cost: Gold Leaf Office Products Ltd. (9.1% owned): Common shares 100 100 S-Marque Inc. 3,936 - Centre Club 7,000 7,000 Nu Gold Technology 33,335 33,335 ----------------------------------------------------------------------------------- $869,936 $1,390,272 ===================================================================================
Cash advances to affiliated companies and Gold Leaf Office Products Ltd. bear interest at prime plus 1% and are without specific terms of repayment. The cash advances will not be materially reduced during the next fiscal year and accordingly, they have been excluded from current assets. MILLER STATIONERS LTD. Notes to Consolidted Financial Statements, continued Year ended January 31, 1996
- ------------------------------------------------------------------------------------------------------- 3. DEFERRED FINANCING COSTS: ------------------------------------------------------------------------------------------------- 1996 1995 ------------------------------------------------------------------------------------------------- Cost $ 288,959 $ 288,959 Accumulated amortization 288,959 231,406 -------------------------------------------------------------------------------------------------- $ - $ 57,553 ================================================================================================== 4. PROPERTY AND EQUIPMENT: ------------------------------------------------------------------------------------------------- 1996 1995 ------------------------------------------------------------------------------------------------- Accumulated Net book Net book Cost amortization value value ------------------------------------------------------------------------------------------------- 105 Street Building: Land $ 147,689 $ - $ 147,689 $ 147,689 Building 832,144 567,088 265,056 279,006 --------------------------------------------------------------------------------------------- 979,833 567,088 412,745 426,695 Miller Building: Land 2,252,273 - 2,252,273 2,252,273 Building 13,039,952 5,854,377 7,185,575 7,561,764 --------------------------------------------------------------------------------------------- 15,292,225 5,854,377 9,437,848 9,814,037 Computer hardware and software 696,826 536,935 159,891 193,780 Equipment and fixtures 896,786 706,440 190,346 247,304 Automotive equipment 648,751 498,809 149,942 212,866 Leasehold improvements 241,218 241,218 - - ------------------------------------------------------------------------------------------------ $18,755,639 $ 8,404,867 $10,350,772 $10,894,682 ================================================================================================
5. BANK INDEBTEDNESS: Bank operating loans and bank overdrafts bear interest at the bank prime rate plus 1% and are due on demand. They are secured by an assignment of accounts receivable and inventory, a MILLER STATIONERS LTD. Notes to Consolidated Financial Statements, continued Year ended January 31, 1996 - ------------------------------------------------------------------------------- general floating charge over all assets of the Company and an assignment of a life insurance policy on a major shareholder. MILLER STATIONERS LTD. Notes to Consolidated Financial Statements, continued Year ended January 31, 1996
- -------------------------------------------------------------------------------- 6. LONG-TERM DEBT: --------------------------------------------------------------------------- 1996 1995 -------------------------------------------------------------------------- Mortgage payable bearing interest at 11.375% compounded semi-annually, requiring monthly payments of principal and interest of $69,188, due January 31, 2002. Secured by a first mortgage on the Miller Building $ 6,734,853 $ 6,811,852 Roynat loan A bearing interest at 10.75%, requiring monthly payments of principal and interest of $24,777, due January 15, 2004 1,601,279 1,719,465 Roynat loan B bearing interest at the average cost of short-term funds plus 1.75% payable monthly together with a monthly principal payment of $13,875, due December 15, 2003 1,334,000 1,500,500 Notes payable to employees, former employees and former shareholders, bearing interest at prime plus 1%, no fixed terms of repayment, unsecured 170,008 230,501 Note payable in semi-annual principal instalments of $12,500 plus interest at 12% - 175,000 ---------------------------------------------------------------------------- 9,840,140 10,437,318 Less principal included in current liabilities 384,043 386,685 ---------------------------------------------------------------------------- $ 9,456,097 $10,050,633 ============================================================================
Both Roynat loans are secured by a second mortgage on the Miller Building, a first mortgage on the 105 Street Building, a second charge on specific assets and a pledge of the shareholdings of the controlling shareholder in the capital stock of the Company to a maximum of $4,000,000. Principal repayments due within each of the next five years on long-term debt are approximately as follows: --------------------------------------------------------------------------- 1997 $384,043 1998 408,962 1999 436,737 2000 467,695 2001 502,200 --------------------------------------------------------------------------- MILLER STATIONERS LTD. Notes to Consolidated Financial Statements, continued Year ended January 31, 1996 - ------------------------------------------------------------------------------- 7. OBLIGATIONS UNDER CAPITAL LEASES: The Company leases several vehicles, a computer and a telephone system that may be purchased for nominal amounts on expiration of the leases. The expiry of the leases range from June, 1996 to September, 1999. The delivery vehicles, main computer and telephone system with a total approximate cost of $782,000 (1995 - $887,000) and an approximate net book value of $284,000 (1995- $409,000) are included in property and equipment. Future minimum lease payments required under the capital leases at January 31, 1996 are as follows: --------------------------------------------------------------------------- 1997 $ 154,324 1998 141,244 1999 60,737 2000 30,191 --------------------------------------------------------------------------- 386,496 Less amounts representing interest at rates of 7.7% to 14.5% (56,894) --------------------------------------------------------------------------- Present value of net minimum lease payments 329,602 Less portion included in current liabilities (122,352) --------------------------------------------------------------------------- $ 207,250 --------------------------------------------------------------------------- 8. ADVANCES FROM SHAREHOLDERS: The advances from shareholders bear interest at the bank prime rate plus 1%. There are no specified repayment terms except in the event a shareholder is no longer employed by the Company. Upon termination of a shareholder's employment, repayments commence within thirty days and continue on an annual basis for a further six years. Although the advances are of a demand nature, the shareholders have agreed that the balance will not be materially reduced during the next fiscal year and accordingly, the advances have been excluded from current liabilities. MILLER STATIONERS LTD. Notes to consolidated Financial Statements, continued Year ended January 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------ 9. SHARE CAPITAL: ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 ------------------------------------------------------------------------------------------------------------------------------- Authorized: 10,000 Common voting shares 90,000 Class A non-voting shares An unlimited number of Class B voting shares An unlimited number of Class C non-voting shares An unlimited number of redeemable, retractable Class D preferred shares Issued and outstanding: 2,604 Common shares $ 521 $ 521 11,635 Class A shares 2,327 2,327 2,396 Class B shares 59,900 59,900 28,365 Class C shares 709,125 709,125 ------------------------------------------------------------------------------------------------------------------------------ $771,873 $771,873 ============================================================================================================================== 10. MILLER BUILDING OPERATIONS: The building operations are summarized as follows: ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 ------------------------------------------------------------------------------------------------------------------------------- Rental revenue: Miller Office Group, internal $ 684,885 $ 626,244 Tenants, external 536,291 524,354 ------------------------------------------------------------------------------------------------------------------------------ 1,221,176 1,150,598 Expenses: Financing costs of related long-term debt 1,169,535 1,172,654 Maintenance 468,023 501,605 Property taxes 288,515 331,400 Amortization of deferred financing costs 62,553 57,553 Administration 34,185 27,705 Insurance 28,445 19,679 Lease up costs 22,128 7,061 Operating cost recoveries (899,314) (850,342) ------------------------------------------------------------------------------------------------------------------------------ 1,174,070 1,267,315 ------------------------------------------------------------------------------------------------------------------------------ Income (loss) before amortization 47,106 (116,717) Amortization 378,088 395,790 ------------------------------------------------------------------------------------------------------------------------------ Loss on Miller Building operations $ 330,982 $ 512,507
MILLER STATIONERS LTD. Notes to consolidated Financial Statements, continued Year ended January 31, 1996 - ------------------------------------------------------------------------------- 10. MILLER BUILDING OPERATIONS, CONTINUED: Internal rental revenue is recognized as an expense of operations in building occupancy costs in the consolidated statement of earnings. 11. RELATED PARTY TRANSACTIONS:
(a) Transactions with affiliated and other investee companies: --------------------------------------------------------------------------------------------------------------------------- Creative Gold Leaf Paper and Office Premier Menzies Office Products Envelopes Printers Supplies Ltd. Ltd. Ltd. Ltd. ---------------------------------------------------------------------------------------------------------------------------- Inventory purchased $ -- $ 5,759,733 $ 189,870 $ 3,779 Rebate revenue -- 368,664 -- -- Sales of inventory 808,626 -- -- 1,646,522 Gross rent received -- -- 92,955 -- Data processing fees -- 12,100 -- -- Management fees 10,000 -- -- 90,000 Interest on cash advances 6,228 -- 2,090 1,691 ============================================================================================================================ All purchases are made at normal purchase prices. Sales to Menzies Printers Ltd. and Creative Paper and Office Supplies Ltd. are at cost plus a mark-up for handling costs. (b) Accounts receivable from affiliated and other investee companies: --------------------------------------------------------------------------------------------------------------------------- 1996 1995 --------------------------------------------------------------------------------------------------------------------------- Creative Paper and Office Supplies Ltd. $ 80,920 $124,305 Gold Leaf Office Products Ltd. 64,070 1,124 Menzies Printers Ltd. 119,818 279,987 --------------------------------------------------------------------------------------------------------------------------- $264,808 $405,416 =========================================================================================================================== (c) Accounts payable to other investee company, Gold Leaf Office Products Ltd. $ -- $822,478 ===========================================================================================================================
MILLER STATIONERS LTD. Notes to Consolidated Financial Statements, continued Year ended January 31, 1996 - -------------------------------------------------------------------------------- 12. PENSION PLAN: The Company sponsors a defined contribution pension plan which is partially funded by the Company. The plan is available to all employees over age 21 with a minimum of one year's service and is at the option of the employee. As a condition of membership, employees contribute to the pension plan. The Company contributes 3.5% of annual pensionable earnings in the case of employees who are shareholders and 2.0% of annual pensionable earnings for all other employees. 13. COMMITMENTS AND CONTINGENCY: The Company has agreed to pay $48,000 annually for general consulting services over the next year, and a commission based on specific office supplies sales to a maximum of $54,000 annually over the next two years. Miller Stationers Ltd. has issued a letter of credit in the amount of $270,000 in favor of S-Marque Inc. due to expire on November 24, 1996. Subsequent to year end, the letter of credit was increased to $360,000 on March 1, 1996. The Company is committed to payments under operating leases for equipment and vehicles through 1999 in the total amount of approximately $97,784. Annual payments are 1997 - $53,787; 1998 - $30,625; and 1999 - $13,373. 14. SUBSEQUENT EVENT: Subsequent to the year end, the Company sold its 105 Street property for proceeds of $525,000. 15. COMPARATIVE FIGURES: Certain comparative figures have been reclassified to conform with the financial statement presentation adopted in the current year. MILLER STATIONERS LTD. BALANCE SHEET (Unaudited) (CDN$ in thousands)
May 31, 1996 ------------ ASSETS Current assets: Receivables, net $ 4,089 Inventories 3,194 Other current assets 195 ------------ Total current assets 7,478 Property and Equipment, net 9,784 Other assets, net 907 ------------ Total assets 18,169 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank overdraft 1,045 Accounts payable 1,869 Accrued liabilities 456 Current portion of long-term debt and capital leases 506 ------------ Total current liabilities 3,876 Capital leases obligations 167 Long-term debt 8,660 Deferred income taxes 390 Other non-current liabilities 600 ------------ Total liabilities 13,693 Shareholders' equity: Capital 772 Retained earnings 3,704 ------------ Total shareholders' equity 4,476 ------------ Total liabilities and shareholders' equity $ 18,169 ============
MILLER STATIONERS LTD. STATEMENT OF OPERATIONS (Unaudited) (CDN$ in thousands)
Four Months Ended May 31, 1996 ------------ Net sales $ 12,143 Cost of sales 9,375 ------------ Gross profit 2,768 Selling, general and administrative expenses 2,248 ------------ Operating profit 520 Other income 83 ------------ Income before income taxes 603 Income tax expense 27 ------------ Net income $ 576 ============
MILLER STATIONERS LTD. STATEMENT OF CASH FLOWS (Unaudited) (CDN$ in thousands) Four Months Ended May 31, 1996 ------------ Cash Flows From Operating Activities: Net Income $ 576 Adjustments to Reconcile Net Income to Net Cash From Operating Activities: Depreciation 138 Gain on disposal of property and equipment (92) Change in non-cash operating working capital (1,342) ------------ Net Cash Provided From Operating Activities (720) ------------ Cash Flows From Financing Activities: Repayment of long-term debt (272) Dividends paid (49) Repayment of capital leases (39) ------------ Net Cash Used In Investing Activities (360) ------------ Cash Flows From Investing Activities: Net decrease in investments 117 Proceeds on disposal of property and equipment 504 Capital expenditures (11) ------------ Net Cash Used In Financing Activities 610 ------------ Increase in bank indebtedness (470) Bank indebtedness at Beginning of Period (575) ------------ Bank Indebtedness at End of Period $ (1,045) ============ MILLER STATIONERS LTD. STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) (CDN$ in thousands)
Retained Capital Earnings Total ------------------------------ Balance, January 31, 1996 $ 772 $ 3,177 $ 3,949 Dividends paid (49) (49) Net income 576 576 ------------------------------ Balance, May 31, 1996 $ 772 $ 3,704 $ 4,476 ==============================
HOWARD'S OFFICE SUPPLIES, INC. BALANCE SHEETS (Unaudited) May 31, 1996 December 31, 1995 --------------- ----------------- ASSETS CURRENT ASSETS Cash $ 597,634 $ 402,841 Accounts receivable 854,086 928,448 Inventories 716,536 937,761 Prepaid expenses 12,225 21,124 --------------- ----------------- TOTAL CURRENT ASSETS 2,180,481 2,290,174 PROPERTY AND EQUIPMENT-net 1,042,215 1,046,016 OTHER ASSETS Deposits 13,272 13,272 Origination fees-net 2,027 2,062 --------------- ----------------- TOTAL ASSETS 3,237,995 3,351,524 --------------- ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt 26,667 26,667 Accounts payable, trade 508,515 520,203 Deferred compensation plan 8,989 13,389 Accrued rent 8,206 8,207 Accrued state and local taxes 79,622 96,780 Accrued payroll and related taxes 62,091 74,099 --------------- ----------------- TOTAL CURRENT LIABILITIES 694,090 739,345 LONG-TERM DEBT - net of current portion 240,613 251,724 --------------- ----------------- TOTAL LIABILITIES 934,703 991,069 STOCKHOLDERS' EQUITY Common stock 8,000 8,000 Retained earnings 2,295,292 2,352,455 --------------- ----------------- TOTAL STOCKHOLDER'S EQUITY 2,303,292 2,360,455 --------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,237,995 $ 3,351,524 =============== ================= HOWARD'S OFFICE SUPPLIES, INC. STATEMENTS OF INCOME (Unaudited) Five Months Year Ended Ended May 31, December 31, 1996 1995 -------------- ------------- NET SALES $ 4,297,870 $ 9,646,916 COST OF GOODS SOLD 2,962,419 6,548,372 -------------- ------------- GROSS MARGIN 1,335,451 3,098,544 OPERATING, SELLING AND ADMINISTRATIVE EXPENSES 1,176,436 2,627,919 -------------- ------------- INCOME (LOSS)FROM OPERATIONS 159,015 470,625 OTHER INCOME (EXPENSE) Interest expense (9,656) (31,315) Interest income 4,485 900 Amortization of excess net assets acquired over cost thereof - 9,884 Other 1,393 3,343 Gain on sale of assets 600 1,659 -------------- ------------- (3,178) (15,529) -------------- ------------- NET INCOME $ 155,837 $ 455,096 ============== ============= HOWARD'S OFFICE SUPPLIES, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Retained Earnings ------------------------------ Accumulated Accumulated Total Common Adjustments Earnings and Stockholder's Stock Account Profits Equity ------------- ------------ -------------- --------------- BALANCES AT DECEMBER 31, 1994 $ 8,000 $ 178,682 $ 1,749,477 $ 1,936,129 NET INCOME - 455,096 - 455,096 DISTRIBUTIONS TO STOCKHOLDERS - (30,770) - (30,770) ------------- ------------ -------------- --------------- BALANCES AT DECEMBER 31, 1995 8,000 603,008 1,749,447 2,360,455 NET INCOME - 155,837 - 155,837 DISTRIBUTIONS TO STOCKHOLDERS - (213,000) - (213,000) ------------- ------------ -------------- --------------- BALANCES AT MAY 31, 1996 $ 8,000 $ 545,845 $ 1,749,447 $ 2,303,292 ============= ============ ============== ===============
HOWARD'S OFFICE SUPPLIES, INC. STATEMENTS OF CASH FLOWS (Unaudited)
Five Months Ended Year Ended May 31, 1996 December 31, 1995 -------------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 155,837 $ 455,096 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 15,273 87,758 Amortization of loan origination fees 35 312 Amortization of excess of net assets acquired over cost - (9,884) Gain on disposal and abandonment of property and equipment (600) (1,659) (Increase) decrease in: Accounts receivable 74,362 (5,009) Inventories 221,225 (51,284) Prepaid expenses 8,899 (16,785) Increase (decrease) in: Accounts payable (11,688) (1,743) Other current liabilities (33,567) 21,647 ------------------- ----------------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 429,776 478,449 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (11,472) (31,255) Proceeds from sale of property and equipment 600 1,665 -------------------- ----------------- CASH FLOWS (USED) BY INVESTING ACTIVITIES (10,872) (29,590) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line-of-credit,net - (100,000) Principal payment of long-term debt (11,111) (55,558) Distributions to stockholders (213,000) (30,770) ------------------- ------------------ CASH FLOWS (USED) BY FINANCING ACTIVITIES (224,111) (186,328) INCREASE IN CASH 194,793 262,531 CASH AT BEGINNING OF YEAR 402,841 140,310 ------------------- ----------------- CASH AT END OF YEAR $ 597,634 $ 402,841 =================== ================= SUPPLEMENTAL DATA Interest paid during the year $ 9,656 $ 31,315 =================== =================
CENTER OFFICE PRODUCTS, INC. BALANCE SHEET July 6, 1996 (Unaudited) _______
ASSETS Current assets: Cash $ 55,706 Trade accounts receivable 700,448 Inventories 431,390 ----------- Total current assets 1,187,544 ----------- Furniture and equipment 374,835 Less accumulated depreciation (244,255) ----------- 130,580 ----------- Total assets $ 1,318,124 =========== LIABILITIES AND RETAINED EARNINGS Current liabilities: Accounts payable $ 435,677 Accrued payroll and benefits 37,234 Cash overdraft 123,734 Other accrued liabilities 11,477 ----------- Total current liabilities 608,122 ----------- Retained earnings 710,002 ----------- Total liabilities and retained earnings $ 1,318,124 ===========
The accompanying notes are an integral part of these financial statements. CENTER OFFICE PRODUCTS, INC. STATEMENT OF OPERATIONS for the 12 months ended July 6, 1996 (Unaudited) _______
Net sales $ 6,457,769 Cost of sales 4,452,749 ------------- Gross profit 2,005,020 Warehouse operating and selling expenses 1,281,503 Corporate general and administrative expenses 510,044 ------------- Operating profit 213,473 Other income 1,213 ------------- Net income before pro forma income taxes 214,686 Pro forma income taxes 82,815 ------------- Pro forma net income $ 131,871 =============
The accompanying notes are an integral part of these financial statements. CENTER OFFICE PRODUCTS, INC. STATEMENT OF CASH FLOWS for the 12 months ended July 6, 1996 (Unaudited) _______
Cash flows from operating activities: Net income before pro forma income taxes $ 214,686 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 46,822 Changes in assets and liabilities: Accounts receivable (168,882) Inventory (118,541) Accounts payable (12,298) Accrued liabilities 3,544 ----------- Net cash used in operating activities (34,669) ----------- Cash flows from investing activities: Payments for furniture and equipment (63,453) ----------- Net cash used in investing activities (63,453) ----------- Cash flows from financing activities: Increase in cash overdraft 123,734 ----------- Net cash provided by financing activities 123,734 ----------- Net increase in cash 25,612 Cash, beginning of period 30,094 ----------- Cash, end of period $ 55,706 ===========
The accompanying notes are an integral part of these financial statements. CENTER OFFICE PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) ----------- 1. Basis of Presentation: --------------------- Center Office Products, Inc. (the "Company") was acquired by a subsidiary of Corporate Express, Inc. at the close of business on July 7, 1996. The accompanying financial statements are presented on an historical cost basis. The accompanying financial statements for the 12 months ended July 6, 1996 have been prepared as if the Company had operated as an independent stand- alone entity. These financial statements include certain defined assets, liabilities, revenues and expenses of the operations which were acquired by Corporate Express, Inc. The Company markets office supplies and provides printing services to large and small businesses. 2. Summary of Significant Accounting Policies: ------------------------------------------ Revenue Recognition: The Company recognizes revenue upon shipment. Inventories: Inventories consist of finished goods. Inventories are primarily valued at the lower of first-in, first-out (FIFO) cost or market. Furniture and Equipment: Furniture and equipment are stated at cost. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, generally over five years. Impairment of Long-Lived Assets: The Company assesses the recoverability of long-lived assets by comparing their carrying amounts with the replacement value. If the carrying amounts exceed the replacement value, the assets are written down to their fair value. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CENTER OFFICE PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) ----------- 2. Summary of Significant Accounting Policies, continued: ------------------------------------------ Income Taxes: The stockholders have elected to be taxed individually on the income of the Company as provided under Subchapter S of the Internal Revenue Code. Accordingly, the provision has been made for income taxes on a pro forma basis in the accompanying financial statements. 3. Commitments and Contingencies: ----------------------------- The Company leases certain equipment under noncancelable operating lease agreements which expire at various dates through 2001. Rent expense was $23,575 for 1996. The approximate future minimum lease payments under these leases as of July 7, 1996 are as follows: 1997 $ 43,000 1998 40,000 1999 38,000 2000 38,000 2001 19,000 4. Employee Benefit Plans: ---------------------- The Company maintains a retirement plan which is qualified under section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company matching and profit-sharing contributions may be made at the discretion of the Board of Directors. The Company made no contributions to the Plan for the 12 months ended July 6, 1996. The Company does not offer other post-employment or post-retirement benefits. 5. Related Party: ------------- The Company will lease certain office facilities under a noncancelable operating lease agreement from a related party which expires in 1998. The annual lease payment for 1997 and 1998 will be $80,520. CENTER OFFICE PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) ----------- 6. Pro Forma Income Taxes: ---------------------- The components of the pro forma provision for income taxes at July 6, 1996 are as follows: Federal $ 69,522 State 13,293 $ 82,815 ---------- The effective income tax rate on income before pro forma income taxes differed from the U.S. federal statutory rate as of July 6, 1996 for the following reasons: U.S. federal statutory rate 35% State and local taxes 4 ------ 39% ====== LASER PERFECT PRODUCTS INC. BALANCE SHEET June 30, 1996 (Unaudited) _______
ASSETS Current assets: Cash and cash equivalents $ -- Trade accounts receivable, net of allowance for doubtful accounts of $3,500 754,464 Inventories 707,136 Other current assets 13,807 ------------- Total current assets 1,475,407 ------------- Plant and equipment, net: Leasehold improvements 54,520 Furniture and equipment 206,149 ------------- 260,669 Less accumulated depreciation 158,263 ------------- Total plant and equipment 102,406 ------------- Other assets, net 3,940 ------------- Total assets $ 1,581,753 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Cash overdraft $ 121,953 Accounts payable 811,303 Accrued payroll and benefits 44,905 Other accrued liabilities 77,117 Loans from officers 52,818 ------------- Total current liabilities 1,108,096 ------------- Commitments and contingencies Stockholders' equity: Common stock, no par value, 2,000 shares authorized; 400 shares issued and outstanding 50,000 ------------- Retained earnings 423,657 ------------- Total liabilities and stockholders' equity $ 1,581,753 =============
The accompanying notes are an integral part of these financial statements. LASER PERFECT PRODUCTS, INC. STATEMENT OF OPERATIONS for the 12 months ended June 30, 1996 (Unaudited) _______
Net sales $ 10,261,966 Cost of sales 8,371,526 ------------ Gross profit 1,890,440 Warehouse operating and selling expenses 1,020,110 Corporate general and administrative expenses 464,425 ------------ Operating profit 405,905 Interest expense, net 19,046 Other income 589 ------------ Income before income taxes 387,448 Income tax expense 19,083 ------------ Net income before pro forma income taxes 368,365 Pro forma income tax expense 138,030 ------------ Pro forma net income $ 230,335 ============
The accompanying notes are an integral part of these financial statements. LASER PERFECT PRODUCTS , INC. STATEMENT OF CASH FLOWS for the 12 months ended June 30, 1996 (Unaudited) _______
Cash flows from operating activities: Net income before pro forma income taxes $ 368,365 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,591 Changes in assets and liabilities: (Increase) in accounts receivable (163,671) Decrease in inventory 331,839 (Increase) in prepaid expenses and other assets (8,221) Increase in accounts payable 89,237 Decrease in accrued liabilities (124,378) ----------- Net cash provided by operating activities 520,762 ----------- Cash flows from investing activities: Payment for plant and equipment (51,377) ----------- Net cash used in investing activities (51,377) ----------- Cash flows from financing activities: Repayment of line of credit (275,000) Proceeds from officers 68,224 Repayment to officers (93,037) Distributions to stockholders (312,140) ----------- Net cash provided by financing activities (611,953) ----------- Net decrease in cash (142,568) Cash and cash equivalents, beginning of period 20,615 ----------- Cash overdraft, end of period $ (121,953) ===========
The accompanying notes are an integral part of these financial statements. LASER PERFECT PRODUCTS, INC. STATEMENT OF STOCKHOLDERS' EQUITY for the 12 months ended June 30, 1996 (Unaudited) _______
Common Stock ------------------ Retained Shares Amount Earnings ------ ------ --------- Balance, June 30, 1995 400 $ 50,000 $ 367,432 Distributions to stockholders -- -- (312,140) Net income before pro forma income taxes, June 30, 1996 -- -- 368,365 ------- -------- ---------- Balance, June 30, 1996 400 $ 50,000 $ 423,657 ======= ======== ==========
The accompanying notes are an integral part of these financial statements. LASER PERFECT PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) _______ 1. Basis of Presentation: --------------------- Laser Perfect Products, Inc. Commercial division was acquired by a subsidiary of Corporate Express, Inc. at the close of business of July 7, 1996. The accompanying financial statements are presented on an historical cost basis. The accompanying financial statements for the 12 months ended June 30, 1996 have been prepared as if the Laser Perfect division had operated as an independent stand-alone entity. These financial statements include certain defined assets, liabilities, revenues and expenses of the operations which comprised the Laser Perfect division and were acquired by Corporate Express, Inc. The Company markets office supplies to large and small businesses and provides support for janitorial and coffee service. 2. Summary of Significant Accounting Policies: ------------------------------------------ Cash and Cash Equivalents: Cash and cash equivalents include highly liquid investments with original maturates of three months or less. As of June 30, 1996, cash was held on deposit at one federally insured financial institution. The fair market value of cash and cash equivalents approximates book value. Inventories Inventory consists of finished goods. Inventories are primarily valued at the lower of first-in, first-out (FIFO) cost or market. Plant and Equipment: Plant and equipment are stated at cost. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets, ranging from two to seven years. Impairment of Long-Lived Assets: The Company assesses the recoverability of long-lived assets by comparing their carrying amounts with the replacement value. If the carrying amounts exceed the replacement value, the assets are written down to their fair value. LASER PERFECT PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS, Continued (Unaudited) _______ 2. Summary of Significant Accounting Policies, continued: ------------------------------------------ Accounting for Income Taxes: The Company, with the consent of its stockholders, has elected under the Internal Revenue Code to be an S Corporation. In lieu of corporation income taxes, the stockholders of S corporations are taxed on their proportionate share of the Company's taxable income. Therefore, the provision for federal income taxes has been included in these financial statements on a pro forma basis. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Property, Plant and Equipment: ----------------------------- The major classes of property, plant and equipment at June 30, 1996 are as follows:
Asset Life ------- Furniture and fixtures $ 177,599 5 - 7 Office equipment 22,837 5 - 7 Leasehold improvements 54,520 10 - 20 Software 5,713 ----------- 260,669 Less accumulated depreciation 158,263 ----------- $ 102,406 ===========
Depreciation expense was $27,591 for 1996. LASER PERFECT PRODUCTS , INC. NOTES TO FINANCIAL STATEMENTS, Continued (Unaudited) _______ 4. Commitments and Contingencies: ----------------------------- The Company leases certain office facilities, vehicles and equipment under noncancelable operating lease agreements which expire at various dates through 1997. Rent expense was $71,845 for 1996. The approximate future minimum lease payments under these leases as of June 30, 1996 are as follows:
Year Amount ------------ ------ 1996 $ 63,960 1997 21,320 1998 -- 1999 -- 2000 -- Thereafter -- -------- $ 85,280 ========
The Company has a $500,000 line-of-credit from a bank with interest at prime plus .75%. This note is collateralized with all business assets. The note is also personally guaranteed by the stockholders of the corporation. The availability at June 30, 1996 was $500,000. 5. Pro Forma Income Taxes: ---------------------- The components of the pro forma provision for income taxes at June 30, 1996 are as follows: Federal $ 118,657 State 38,456 ----------- $ 157,113 =========== The effective income tax rate on income before pro forma income taxes differed from the U.S. federal statutory rate as of June 30, 1996 for the following reasons: U.S. federal statutory rate 35% State and local taxes 6 ----- 41% ===== 6. Subsequent Event: ---------------- The stock of the Company was acquired by Corporate Express on July 7, 1996.
CONTENTS Pages ------- Independent Auditor's Report 1 Balance Sheets 2 Statements of Income and Retained Earnings 3 Statements of Cash Flows 4 Notes to Financial Statements 5 - 11
INDEPENDENT AUDITOR'S REPORT Stockholders Forms and Supplies, Inc. Memphis, Tennessee We have audited the accompanying balance sheet of Forms and Supplies, Inc. as of December 31, 1995, and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements for the year ended December 31, 1994, were audited by other auditors whose report, dated February 17, 1995, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1995 financial statements referred to above present fairly, in all material respects, the financial position of Forms and Supplies, Inc. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ Horne CPA Group Jackson, Mississippi February 21, 1996 FORMS AND SUPPLIES, INC. Balance Sheets December 31, 1995 and 1994
Assets 1995 1994 ---------- ---------- Current Assets Cash $ 9,945 $ 17,330 Trade accounts receivable, less allowance for doubtful accounts of $12,000 and $11,000 2,931,799 2,458,850 Inventory 903,532 937,022 Other receivables 45,757 48,570 Prepaid expenses 31,661 36,788 Deferred income taxes (Note 5) 14,916 - Refundable income taxes 49,179 6,000 ---------- ---------- Total Current Assets 3,986,789 3,504,560 ---------- ---------- Property and Equipment, Net (Note 2) 607,565 451,098 ---------- ---------- Other Assets Goodwill, net of accumulated amortization of $52,952 at December 31, 1995 (Note 6) 1,308,671 - Receivables from stockholders and employees 49,363 57,591 Other 48,226 52,555 Deferred income taxes (Note 5) - 24,596 ---------- ---------- Total Other Assets 1,406,260 134,742 ---------- ---------- Total Assets $6,000,614 $4,090,400 ========== ==========
See accompanying notes. Liabilities and Stockholders' Equity
1995 1994 ---------- ---------- Current Liabilities Book overdraft in bank accounts $ 663,530 $ 612,968 Line of credit (Note 3) - 1,219,610 Current portion of long-term debt (Note 3) 237,546 38,873 Accounts payable 1,031,280 1,079,714 Accrued expenses 580,353 549,085 ---------- ---------- Total Current Liabilities 2,512,709 3,500,250 ---------- ---------- Long-Term Debt, Less Current Portion (Note 3) 2,851,781 66,809 ---------- ---------- Deferred Lease Obligation 48,741 51,422 ---------- ---------- Deferred Income Taxes (Note 5) 20,354 - ---------- ---------- Commitments and Contingencies (Note 4) Stockholders' Equity Common stock, no par value, 1,000 shares authorized, issued and outstanding 10,000 10,000 Additional paid-in capital 92,553 92,553 Retained earnings 464,476 369,366 ---------- ---------- Total Stockholders' Equity 567,029 471,919 ---------- ---------- Total Liabilities and Stockholders' Equity $6,000,614 $4,090,400 ========== ==========
FORMS AND SUPPLIES, INC. Statements of Income and Retained Earnings Years Ended December 31, 1995 and 1994
1995 1994 ------------ ------------ Net Sales $24,724,258 $22,008,586 Cost of Goods Sold 16,858,439 15,314,679 ----------- ----------- Gross Profit 7,865,819 6,693,907 Selling, General and Administrative 7,429,345 6,596,852 Expenses ----------- ----------- Operating Income 436,474 97,055 ----------- ----------- Other (Income) Expense Interest 311,802 178,171 Other, net (21,618) (71,965) ----------- ----------- Total Other Expense 290,184 106,206 ----------- ----------- Income (Loss) Before Income Taxes 146,290 (9,151) Income Tax Expense (Note 5) 51,180 4,144 ----------- ----------- Net Income (Loss) 95,110 (13,295) Retained Earnings, Beginning of Year 369,366 382,661 ----------- ----------- Retained Earnings, End of Year $ 464,476 $ 369,366 =========== ===========
See accompanying notes. FORMS AND SUPPLIES, INC. Statements of Cash Flows Years Ended December 31, 1995 and 1994
1995 1994 --------- --------- Cash Flows from Operating Activities Net income (loss) $ 95,110 $ (13,295) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 177,974 141,730 Gain on sale of fixed assets (8,149) - Provision for bad debts 11,330 5,694 Deferred income taxes 30,034 4,144 Deferred lease obligation (2,681) (5,272) Other - (29,372) Changes in assets and liabilities, net of effects from purchase of Victor Business Systems, Inc. (Increase) decrease in trade accounts receivable (235,642) 279,909 Decrease in inventory 127,199 14,756 Decrease in other receivables 6,138 46,375 Decrease in prepaid expenses 5,127 19,061 Increase in refundable income taxes (43,179) - Decrease in other assets 4,329 - Decrease in accounts payable (107,930) (337,776) Increase (decrease) in accrued liabilities 6,900 (52,982) --------- --------- Net Cash Provided by Operating Activities 66,560 72,972 --------- --------- Cash Flows from Investing Activities Purchases of property and equipment (193,457) (198,511) Proceeds from sale of property and equipment 14,306 - Repayments from stockholders and employees 8,228 7,158 Payment for purchase of Victor Business Systems, Inc. (800,000) - Other - 7,997 --------- --------- Net Cash Used by Investing Activities (970,923) (183,356) --------- --------- Cash Flows from Financing Activities Book overdraft in bank account (67,057) 240,606 Net borrowings (payments) under line of credit 492,799 (224,787) Proceeds from long-term debt issuance 633,354 102,228 Payments of long-term debt (162,118) (6,292) --------- --------- Net Cash Provided by Financing Activities 896,978 111,755 --------- --------- Net Increase (Decrease) in Cash (7,385) 1,371 Cash, Beginning of Year 17,330 15,959 --------- --------- Cash, End of Year $ 9,945 $ 17,330 ========= ========= Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest $ 311,802 $ 178,000 ========= ========= Cash paid during the year for income taxes $ 68,000 $ - ========= ========= Supplemental Disclosure of Noncash Investing and Financing Activities See Note 6 regarding the acquisition of Victor Business Systems, Inc.
See accompanying notes. FORMS AND SUPPLIES, INC. Notes to Financial Statements Note 1: Nature of Business and Significant Accounting Policies ------------------------------------------------------- O Nature of Business: Forms and Supplies, Inc. (the "Company") was incorporated in Tennessee in 1975 and is a distributor of business and computer forms and computer-related supplies and equipment. The Company also specializes in office interiors and design services. The corporate office is in Memphis, Tennessee with branch locations in Nashville, Tennessee; Little Rock, Arkansas; Birmingham, Alabama; Paducah, Kentucky; Jackson, Mississippi; and Tupelo, Mississippi. O Inventory: Inventory is stated at the lower of cost, determined on a moving weighted-average basis, or market. O Property and Equipment: Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the following estimated useful lives:
Years ----- Furniture, fixtures and office equipment 5 - 7 Computer equipment 5 - 7 Automobiles and trucks 4 - 5
O Deferred Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets relate primarily to the deferred lease obligation, and deferred tax liabilities relate primarily to property and equipment. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. FORMS AND SUPPLIES, INC. Notes to Financial Statements Note 1: (Continued) O Amortization of Goodwill: Goodwill represents the excess of the cost of a company acquired over the fair value of its net assets at date of acquisition and is being amortized on the straight-line method over 15 years. O Reclassification: Certain prior year amounts have been reclassified to conform with the current year presentation. O Fair Value of Financial Instruments: The fair value of the Company's long-term debt and line of credit is estimated based on the quoted market price for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. At December 31, 1995, the carrying value of these financial instruments approximates the fair value. Note 2: Property and Equipment ---------------------- Property and equipment consists of the following as of December 31, 1995 and 1994:
1995 1994 ---------- ---------- Furniture, fixtures and office $ 731,422 $ 496,338 equipment Computer equipment and software 570,094 404,636 Automobiles and trucks 171,200 144,804 Leasehold improvements 32,936 26,956 Print shop equipment 3,366 - ---------- ---------- 1,509,018 1,072,734 Less accumulated depreciation 901,453 621,636 ---------- ---------- Property and Equipment, Net $ 607,565 $ 451,098 ========== ==========
Substantially all property and equipment is pledged as collateral for indebtedness. FORMS AND SUPPLIES, INC. Notes to Financial Statements Note 3: Long-Term Debt -------------- Long-term debt consists of the following as of December 31, 1995 and 1994:
1995 1994 ---------- ---------- Line-of-credit agreements (see description below) $1,712,408 $1,219,610 9.00 percent note payable, due in monthly installments of $13,333, plus interest; final installment due June 2000 693,334 - 8.91 percent note payable, collateralized by equipment, inventory, accounts receivable and general intangibles; due in monthly installments of $3,333, plus interest; final installment due July 2000 176,667 - 20.00 percent unsecured notes payable to stockholders and employees; due on June 1, 1998 400,000 - 9.76 percent capital lease obligation payable in monthly installments of $840, including interest, collateralized by equipment; final installment due January 1999 31,062 - 10.00 percent capital lease obligation payable in monthly installments of $583, including interest, collateralized by equipment; final installment due July 1997 11,070 18,613 9.0 percent note payable, collateralized by automobile; due in monthly installments of of $639, including interest; final installment due December 1999 24,736 29,851 9.25 percent note payable, collateralized by automobile; due in monthly installments of of $700, including interest; final installment due December 1998 21,342 27,431
FORMS AND SUPPLIES, INC. Notes to Financial Statements
Note 3: (Continued) 1995 1994 ---------- ---------- 8.00 percent note payable, collateralized by automobile; due in monthly installments of of $610, including interest; final installment due October 1998 $ 18,708 $ 23,655 10.00 percent capital lease obligation payable in monthly installments of $300, including interest, collateralized by equipment - 6,132 ---------- ---------- Total Long-Term Debt 3,089,327 1,325,292 Less Current Maturities 237,546 1,258,483 ---------- ---------- Long-Term Debt, Less Current Maturities $2,851,781 $ 66,809 ========== ==========
Aggregate maturities required on long-term debt as of December 31, 1995, are due in future years as follows:
Year Ending December 31, Amount ------------ ---------- 1996 $ 237,546 1997 311,045 1998 2,263,172 1999 207,549 2000 70,015 ---------- Total $3,089,327 ==========
The Company had a $2,500,000 line-of-credit agreement with an outstanding balance of $1,219,610 bearing interest at 10.5 percent at December 31, 1994. As defined in the agreement, borrowings were limited to 85 percent of eligible accounts receivable plus 50 percent of eligible inventories. These borrowings were payable on demand and were reflected as current liabilities in the accompanying balance sheets. The line of credit required the Company to maintain tangible net worth of at least $160,000 and was secured by all assets of the Company and the personal guaranty of the Company's president. FORMS AND SUPPLIES, INC. Notes to Financial Statements Note 3: (Continued) During 1995, the Company paid off the above mentioned line of credit and obtained a new line of credit with another financial institution. The new line of credit agreement is for the lessor of $2,500,000 or the Company's borrowing base, which is defined in the agreement as 85 percent of eligible accounts receivable plus the lessor of 50 percent of eligible inventories or $1,000,000. The line of credit bears interest at lender's "index rate" plus 1/2 percent (9 percent at December 31, 1995). The Company has outstanding advances in the amount of $1,712,408 at December 31, 1995. The line of credit is due on June 1, 1998, and is included in the above schedule of long-term debt. The Company's line of credit is secured by all assets of the Company and the personal guaranty of the Company's president. In addition to certain general requirements, the Company is required to maintain certain financial ratios. Note 4: Commitments and Contingencies ----------------------------- The Company leases certain buildings and equipment under noncancellable operating leases ranging in length from one to seven years. Future minimum lease payments under operating leases subsequent to December 31, 1995, are as follows:
Year Ending December 31, Amount ------------ -------- 1996 $ 330,848 1997 277,955 1998 225,267 1999 84,500 --------- Total $ 918,570 =========
The Company is a party to various legal proceedings arising in the normal course of business. In management's opinion, the outcome of these matters will not have a significant impact on the Company's financial condition or results of operations. In connection with the acquisition of Victor Business Systems, Inc., the Company has an agreement with the former stockholder of Victor Business Systems, Inc. to provide additional payments in the amount of $573,000 contingent upon the former stockholder remaining under the employment of the Company as well as obtaining certain annual gross profit goals over the next five years. The additional payments will be recorded as compensation in the periods that the gross profit goals are met. None of the transactions relating to this contingency have been recorded as of December 31, 1995. FORMS AND SUPPLIES, INC. Notes to Financial Statements Note 5: Income Taxes ------------ Net deferred tax (assets) liabilities consists of the following components as of December 31, 1995 and 1994:
1995 1994 ------- ------- Deferred Tax Liabilities Property and equipment $40,980 $18,045 ------- -------- Deferred Tax Assets Receivable allowance 4,080 5,764 Inventory unicap adjustments 6,171 7,042 Deferred revenue 4,665 4,677 Deferred lease obligation 20,626 19,064 Accrued vacation and other expenses - 6,094 ------- -------- 35,542 42,641 ------- -------- Total $ 5,438 $(24,596) ======= ========
The deferred tax amounts mentioned above have been classified on the accompanying balance sheets as of December 31, 1995 and 1994, as follows:
1995 1994 -------- -------- Noncurrent Liabilities $ 20,354 $ - Current Assets (14,916) - Noncurrent Assets - (24,596) -------- -------- Total $ 5,438 $(24,596) ======== ========
The provision for income taxes charged to operations for the years ended December 31, 1995 and 1994, consists of the following:
1995 1994 ------- ------ Current Expense $21,146 $ - Deferred Expense 30,034 4,144 ------- ------ Total $51,180 $4,144 ======= ======
FORMS AND SUPPLIES, INC. Notes to Financial Statements Note 6: Acquisition of Victor Business Systems, Inc. and Goodwill --------------------------------------------------------- On June 6, 1995, the Company acquired all of the common stock of Victor Business Systems, Inc. in a business combination accounted for as a purchase. Victor Business Systems, Inc. was primarily engaged in distribution of business and computer forms and computer-related supplies and equipment. The results of operations of Victor Business Systems, Inc, are included in the accompanying financial statements since the date of acquisition. The total cost of the acquisition was $1,600,000, which exceeded the fair value of the net assets of Victor Business Systems, Inc. by $1,361,623. The excess is being amortized on the straight-line method over 15 years. The Company paid $800,000 cash at acquisition and entered into a note payable with the former stockholder of Victor Business Systems, Inc. for the remaining $800,000. The balance of the note payable was $693,334 at December 31, 1995. Effective December 31, 1995, the board of directors dissolved Victor Business Systems, Inc. Note 7: Employee Benefit Plan --------------------- The Company has a 401(k) profit sharing plan ("the Plan") which covers all employees of the Company who meet certain eligibility requirements. Certain members of management serve as trustees for the Plan. Employees may contribute up to 15 percent of their compensation to the Plan. The Company matches a portion of the employees' contributions. The Company made matching contributions of approximately $14,000 to the Plan in 1995 and 1994. The Company may discontinue matching employee contributions at any time. FORMS AND SUPPLIES, INC. CONSOLIDATED BALANCE SHEET (in thousands) ( Unaudited )
June 30, ASSETS 1996 ------------- CURRENT ASSETS: Cash and cash equivalents $ 36 Accounts receivable 2,834 Inventories 850 Notes and other receivables 58 Other current assets 79 ------------- Total current assets 3,857 PROPERTY AND EQUIPMENT, NET 629 OTHER ASSETS, NET 1,300 ------------- Total assets 5,786 ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 1,120 Current portion of debt 1,941 Accrued liabilities 1,032 ------------- Total current liabilities 4,093 Long-term debt 952 Other long-term liabilities 47 ------------- Total liabilities 999 STOCKHOLDERS' EQUITY Common stock 10 Additional paid in capital 93 Retained earnings 591 ------------- Total shareholders' equity 694 ------------- Total liabilities and shareholders' equity $ 5,786 =============
FORMS AND SUPPLIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands) (Unaudited)
Six Months Ended June 30,1996 --------------- Net sales $ 13,934 Cost of sales 9,196 --------------- Gross profit 4,738 Selling, general and administrative expenses 4,399 --------------- Operating profit 339 Interest expense, net 163 Other expense (21) --------------- Income before income taxes 197 Income tax expense 70 --------------- Net income $ 127 ===============
FORMS AND SUPPLIES, INC. STATEMENT OF SHAREHOLDERS' EQUITY (in thousands) (Unaudited)
COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------------------------------------------ BALANCE SEPTEMBER 30, 1995 $ 10 $ 93 $ 464 $ 567 NET INCOME 127 127 ------------------------------------------ BALANCE JULY 31, 1996 $ 10 $ 93 $ 591 $ 694 ==========================================
FORMS AND SUPPLIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended June 30,1996 ---------------- Cash Flows From Operating Activities: Net Income $ 127 Adjustments to Reconcile Net Income to Net Cash From Operating Activities Depreciation 64 Amortization 46 Decrease in Accounts Receivable 100 Decrease in Inventory 28 Decrease in Other Assets (36) Increase in Accounts Payable 88 Increase in Accrued Liabilities 121 Other, net 23 ---------------- Net Cash Provided From Operating Activities 561 ---------------- Cash Flows From Investing Activities: Capital expenditures (36) Repayments from employees and stockholders 12 ---------------- Net Cash Used In Investing Activities (24) ---------------- Cash Flows From Financing Activities: Repayments Of Long-Term Borrowings (215) Bank overdraft (291) Net repayments under line of credit (5) ---------------- Net Cash Used In Financing Activities (511) ---------------- Increase ( Decrease ) in Cash 26 Cash at Beginning of Period 10 ---------------- Cash at End of Period $ 36 ================
CAROLINA RIBBON AND CARBON SALES CORPORATION BALANCE SHEETS September 30, 1995 and October 1, 1994 (Unaudited)
ASSETS 1995 1994 - ---------------------------------------------------------------------- Current Assets Cash and cash equivalents (Note 7) $ 130,124 $ 350,453 Temporary cash investments 11,417 11,417 Trade receivables, less allowance for doubtful accounts 1995 $34,577; 1994 $30,395 3,234,054 2,919,807 Accounts receivable, affiliates 42,566 48,396 (Note 4) Advances to employees 7,010 8,700 Merchandise inventory (Note 2) 1,549,146 1,422,359 Prepaid expenses 14,285 16,058 --------------------------- Total current assets 4,988,602 4,777,190 --------------------------- Investments and Other Assets Cash value of life insurance 44,818 41,240 Accounts receivable, officers 8,500 88,961 Deposits 148,839 93,682 --------------------------- 202,157 223,883 --------------------------- Property and Equipment (Note 5) Land 43,328 43,328 Parking lot 46,129 46,129 Buildings 526,794 526,794 Vehicles 65,264 65,264 Furniture and equipment 1,005,702 983,798 ------------------------------ 1,687,217 1,665,313 Less accumulated depreciation 1,078,350 898,606 ------------------------------ 608,867 766,707 ------------------------------ Intangibles, less accumulated amortization 1995 $349,729; 1994 $307,526 119,341 161,544 ------------------------------ $5,918,967 $ 5,929,324 ==============================
See Notes to Financial Statements.
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 - --------------------------------------------------------------------- Current Liabilities Current maturities of long-term debt and obligations under capitalized leases (Note 6) $ - $ 9,271 Current maturity of noncompete agreement - 14,167 Accounts payable: Trade 1,416,428 1,318,650 Payroll and sales tax 77,792 52,867 Other 25,531 29,803 Accrued expenses: Salaries and wages 330,326 325,868 Profit-sharing contribution (Note 3) 100,000 100,000 --------------------------- Total current liabilities 1,950,077 1,850,626 --------------------------- Stockholders' Equity Capital stock: Class A voting, no stated par; authorized 10,000 shares, issued and outstanding 500 shares 5,000 5,000 Class B nonvoting; no stated par; authorized 90,000 shares; issued and outstanding 4,500 shares 45,000 45,000 Retained earnings 3,918,890 4,028,698 ----------------------------- 3,968,890 4,078,698 ----------------------------- $ 5,918,967 $ 5,929,324 =============================
CAROLINA RIBBON AND CARBON SALES CORPORATION STATEMENTS OF INCOME Years Ended September 30, 1995 and October 1, 1994 (Unaudited) 1995 1994 ---------------------------------------------------------- Amount Percent Amount Percent - ----------------------------------------------------------------------------------------------- Income: Net sales (Note 4) $ 27,474,932 99.83% $ 27,360,105 99.74% Commission income 45,469 0.17 71,310 0.26 ---------------------------------------------------------- 27,520,401 100.00 27,431,415 100.00 ---------------------------------------------------------- Cost of merchandise sold: Inventory, beginning 1,422,359 5.17 1,413,559 5.15 Purchases (Note 4) 21,854,896 79.41 21,650,441 78.93 Freight-in 47,231 0.17 48,221 0.18 ---------------------------------------------------------- 23,324,486 84.75 23,112,221 84.26 Less inventory, ending 1,549,146 5.62 1,422,359 5.19 ---------------------------------------------------------- Cost of merchandise sold 21,775,340 79.13 21,689,862 79.07 ---------------------------------------------------------- Gross profit 5,745,061 20.87 5,741,553 20.93 Selling and administrative expenses (Notes 3 and 6) 5,293,137 19.23 4,940,075 18.01 ---------------------------------------------------------- Operating income 451,924 1.64 801,478 2.92 ---------------------------------------------------------- Nonoperating income (expenses): Rental 10,350 0.04 9,720 0.04 Interest income 30,197 0.11 24,318 0.09 Dividends - - 106 - Gain on disposal of equipment - - 1,336 - Miscellaneous income 8,690 0.03 Gain on sale of investments - - 87,278 0.32 Officers' life insurance (384) - (15,856) (0.06) Donations (400) - (175) - Interest expense (185) - (4,657) (0.02) ---------------------------------------------------------- 48,268 0.18 102,070 0.37 ---------------------------------------------------------- Net income $ 500,192 1.82% $ 903,548 3.29% ----------------------------------------------------------
See Notes to Financial Statements.
CAROLINA RIBBON AND CARBON SALES CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended September 30, 1995 and October 1, 1994 (Unaudited) Capital Stock --------------------------- Class A Class B Voting Nonvoting Retained ` Common Common Earnings - ---------------------------------------------------------------------------------- Balance, October 3, 1992 $ 5,000 $ 45,000 $ 3,363,294 Net income 903,548 Dividends on common stock, $48 per (238,144) share ------------------------------------------ Balance, October 1, 1994 5,000 45,000 4,028,698 Net income 500,192 Dividends on common stock, $122 per (610,000) share ------------------------------------------ Balance, September 30, 1995 $ 5,000 $ 45,000 $ 3,918,890 ==========================================
See Notes to Financial Statements. CAROLINA RIBBON AND CARBON SALES CORPORATION STATEMENTS OF CASH FLOWS Years Ended September 30, 1995 and October 1, 1994 (Unaudited)
1995 1994 - ---------------------------------------------------------------------- Cash Flows From Operating Activities Net income $ 500,192 $ 903,548 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 179,744 119,396 Amortization 42,203 110,832 Gain on sale of property and equipment - (1,336) Gain on sale of investment - (87,278) Noncash compensation - 20,410 Payments under noncompete agreement (14,167) (56,667) Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (308,417) (340,232) Merchandise inventory (126,787) (8,800) Prepaid expenses 1,773 (1,951) Accrued interest receivable - 599 Increase (decrease) in: Accounts payable 118,431 88,886 Accrued expenses 4,458 1,571 Deposits - (10,144) ---------------------------- Net cash provided by operating 397,430 738,834 activities ---------------------------- Cash Flows From Investing Activities Purchase of property and equipment (21,904) (359,340) Increase in cash value of life insurance (3,578) (2,342) Deposits (55,157) 11,442 Change in accounts receivable, officers 80,461 3,375 Payment for intangibles - (49,070) Proceeds from sale of property and equipment - 26,874 Proceeds from sale of investments - 92,460 Other, net 1,690 2,172 ---------------------------- Net cash provided by (used in) 1,512 (274,429) investing activities ----------------------------
(Continued) CAROLINA RIBBON AND CARBON SALES CORPORATION STATEMENTS OF CASH FLOWS (CONTINUED) Years Ended September 30, 1995 and October 1, 1994 (Unaudited) 1995 1994 - ------------------------------------------------------------------------------ Cash Flows From Financing Activities Principal payments on long-term borrowings, including capital lease obligations $ (9,271) $ (67,127) Cash dividends paid (610,000) (238,144) ------------------------------------ Net cash used in financing (619,271) (305,271) activities ------------------------------------ Net increase (decrease) in (220,329) 159,134 cash and cash equivalents Cash and cash equivalents: Beginning 350,453 191,319 ------------------------------------ Ending $ 130,124 $ 350,453 ------------------------------------ Supplemental Disclosures of Cash Flow Information Cash payments for interest $ 185 $ 4,657 ====================================
See Notes to Financial Statements. CAROLINA RIBBON AND CARBON SALES CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- Note 1. Nature of Business and Significant Accounting Policies Nature of business: The Company's operations are in the sale of office products - ------------------ and supplies. The Company sells on credit terms it establishes for individual customers. A summary of the Company's significant accounting policies follows: Fiscal year: The Company's fiscal year ends on the Saturday closest to - ----------- September 30th each year. The years ended September 30, 1995 and October 1, 1994 each consisted of 52 weeks. Cash and cash equivalents: For purposes of reporting cash flows, the Company - ------------------------- considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories are stated at the lower of cost (last-in, first-out - ----------- method) or market. Property and equipment: Property and equipment is stated at cost. Depreciation - ---------------------- and amortization are computed principally by accelerated methods over the following estimated useful lives: buildings 20 to 40 years; furniture and equipment 5 to 10 years; vehicles 5 years. Amortization of property and equipment leased under capital leases is included in depreciation expense. Intangible assets: The intangible assets purchased from Southern Cartridge, - ----------------- Inc. are amortized on the straight-line basis over the estimated useful lives of the assets which range from 9 months to 10 years. Income taxes: The Company has elected to be taxed as an S Corporation for - ------------ federal income tax purposes. Consequently, taxable income reported by the Company in its federal income tax returns is reported by the stockholders in their individual income tax returns, and the Company is not liable for federal income taxes on such taxable income. Estimates: The preparation of financial statements in conformity with generally - --------- accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2. Inventories Valuation of inventories under the first-in, first-out (FIFO) method would have been $26,775 in excess of LIFO valuation at September 30, 1995 and $(30,721) less than the LIFO valuation at October 1, 1994. CAROLINA RIBBON AND CARBON SALES CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- Note 3. Employee Benefit Plans Profit-Sharing Plan: The Company has a profit-sharing plan which covers all - ------------------- full-time employees meeting the eligibility requirements. Contributions to the plan by participating employees may be made voluntarily but none are required. The Company's contribution to the plan was $100,000 for each of the years ended September 30, 1995 and October 1, 1994, respectively. Salary Deferral Plan, 401(k): Contributions made by the Company to an employee - ---------------------------- retirement savings plan, meeting the provisions of Internal Revenue Code Section 401(k), amounted to $26,580 and $18,400 for the years ended September 30, 1995 and October 1, 1994, respectively. The plan provides that employees may contribute to the plan, through payroll deductions, in amounts not to exceed 10% of their gross compensation. The Company will make monthly contributions of amounts equal to 50% of the participant's deposits. Note 4. Related Party Transactions and Balances The Company had the following significant transactions and balances with stockholders, employees, and companies affiliated through common ownership.
1995 1994 ---------------------------- Accounts receivable, affiliates $ 42,566 $ 48,396 Net sales 1,285,719 1,487,307 Purchases 69,687 26,521
Note 5. Capitalized Leases The Company has certain office equipment and vehicle leases accounted for as capitalized leases. Cost and accumulated amortization for this equipment is as follows:
1995 1994 --------------------------- Vehicles $ 11,480 $ 11,480 Office equipment 145,603 145,603 --------------------------- 157,083 157,083 Less accumulated amortization 155,982 154,773 --------------------------- $ 1,101 $ 2,310 ===========================
CAROLINA RIBBON AND CARBON SALES CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- Note 6. Operating Leases The Company leases office space from a stockholder under an operating lease. Rent expense for 1995 amounted to $64,304, of which $40,500 was paid to a stockholder. Rent expense for 1994 amounted to $49,006 of which $36,000 was paid to a stockholder. The Company has the following operating lease commitments:
Year Amount - ------------------------------------------------------------------------------ 1996 $ 54,000 1997 54,000 1998 54,000 1999 54,000 2000 40,500
This operating lease expires June 30, 2000, and may be extended for an additional five years with the monthly rental to be renegotiated. Note 7. Credit Risk The Company maintains cash and cash equivalents with various commercial banks and financial institutions. The relative credit standing of these financial institutions are considered in the Company's investment strategy and the Company believes the funds in these institutions do not pose any significant credit risk. CAROLINA RIBBON AND SALES CORPORATION CONSOLIDATED BALANCE SHEET (in thousands) ( Unaudited )
July 31, ASSETS 1996 --------------- CURRENT ASSETS: Cash and cash equivalents $ 113 Accounts receivable 3,503 Inventories 1,554 Notes and other receivables 122 Other current assets 116 --------------- Total current assets 5,408 PROPERTY AND EQUIPMENT: Land, buildings & leasehold improvements 620 Furniture and equipment 1,161 Less accumulated depreciation (1,190) --------------- 591 OTHER ASSETS, NET 47 --------------- Total assets 6,046 =============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 1,401 Accrued liabilities 292 --------------- Total liabilities 1,693 STOCKHOLDERS' EQUITY Common stock 50 Retained earnings 4,303 --------------- Total shareholders' equity 4,353 --------------- Total liabilities and shareholders' equity $ 6,046 ===============
CAROLINA RIBBON AND SALES CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (in thousands) (Unaudited)
Ten Months Ended July 31,1996 ---------------- Net sales $ 25,438 Cost of sales 19,852 ---------------- Gross profit 5,586 Selling, general and administrative expenses 4,628 ---------------- Operating profit 958 Other expense 103 ----------------- Income before income taxes 855 ----------------- Income tax expense 229 Net income $ 626 =================
CAROLINA RIBBON AND SALES CORPORATION STATEMENT OF SHAREHOLDERS' EQUITY (in thousands) (Unaudited)
COMMON RETAINED STOCK EARNINGS TOTAL ------------------------------------------ BALANCE SEPTEMBER 30, 1995 $ 50 $ 3,919 $3,969 DIVIDENDS PAID (242) (242) NET INCOME 626 626 ------------------------------------------ BALANCE JULY 31, 1996 $ 50 $ 4,303 $4,353 ==========================================
CAROLINA RIBBON AND SALES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Ten Months Ended July 31,1996 ------------ Cash Flows From Operating Activities: Net Income $ 626 Adjustments to Reconcile Net Income to Net Cash From Operating Activities Depreciation 116 Amortization 33 Increase in Accounts Receivable (269) Increase in Inventory (5) Decrease in Other Current Assets (5) Decrease in Other Assets 35 Increase in Accounts Payable (15) Decrease in Accrued Liabilities (243) ------------- Net Cash Provided From Operating Activities 273 ------------- Cash Flows From Investing Activities: Capital expenditures (48) ------------- Net Cash Used In Investing Activities (48) ------------- Cash Flows From Financing Activities: Payment of dividends (242) ------------- Net Cash Used In Financing Activities (242) Increase ( Decrease ) in Cash (17) Cash at Beginning of Period 130 ------------- Cash at End of Period $ 113 =============
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Dock Truck Express Inc.: We have audited the accompanying balance sheet of Dock Truck Express Inc. (a Minnesota corporation) as of December 31, 1995, and the related statements of income, stockholder's equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dock Truck Express Inc. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Houston, Texas August 29, 1996 DOCK TRUCK EXPRESS INC. ----------------------- BALANCE SHEETS -------------- ASSETS ------
December 31, June 30, 1995 1996 ------------- ----------- (Unaudited) CURRENT ASSETS: Cash $ 57,887 $ 60,664 Accounts receivable 183,181 192,166 Employee advances 6,225 3,102 --------- --------- Total current assets 247,293 255,932 PROPERTY AND EQUIPMENT: Land 5,000 5,000 Vehicles 575,195 575,195 Buildings and improvements 40,674 40,674 Furniture and equipment 16,626 18,473 --------- --------- 637,495 639,342 Less- Accumulated depreciation (169,936) (228,632) --------- --------- 467,559 410,710 --------- --------- Total assets $ 714,852 $ 666,642 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable, trade $ 13,812 $ 22,446 Accrued payroll and benefits 21,067 42,648 Other accrued liabilities 44,404 45,650 Current portion of long-term debt 150,000 115,000 --------- --------- Total current liabilities 229,283 225,744 LONG-TERM DEBT, net of current maturities 182,693 133,635 --------- --------- Total liabilities 411,976 359,379 COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Common stock, $10 par, 100 shares authorized and outstanding 1,000 1,000 Retained earnings 301,876 306,263 --------- --------- Total stockholder's equity 302,876 307,263 --------- --------- Total liabilities and stockholder's equity $ 714,852 $ 666,642 ========= =========
The accompanying notes are an integral part of these financial statements. DOCK TRUCK EXPRESS INC. ----------------------- STATEMENTS OF INCOME --------------------
Year Ended December 31, Six Months Ended June 30 ------------------------ 1995 1995 1996 ------------ ---------- ---------- (Unaudited) REVENUES $1,348,663 $ 648,694 $ 716,059 DIRECT COST OF DELIVERY SERVICE: Payments to drivers 550,231 266,440 307,989 Company-owned vehicle expense 194,840 91,877 109,382 Delivery equipment depreciation 98,971 51,374 58,124 Other expenses 15,830 9,860 12,256 ---------- ---------- ---------- Total direct cost of delivery service 859,872 419,551 487,751 ---------- ---------- ---------- Gross profit on service 488,791 229,143 228,308 ---------- ---------- ---------- INDIRECT COST OF DELIVERY SERVICE: Occupancy costs 31,626 14,615 14,315 ---------- ---------- ---------- Total indirect cost of delivery service 31,626 14,615 14,315 ---------- ---------- ---------- Gross profit 457,165 214,528 213,993 ---------- ---------- ---------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Office salaries and benefits 53,271 26,645 26,431 Depreciation 1,142 572 572 Bad debt expense 6,250 6,250 - Other expenses 25,321 7,648 20,860 ---------- ---------- ---------- Total selling, general and administrative expenses 85,984 41,115 47,863 ---------- ---------- ---------- Operating income 371,181 173,413 166,130 INTEREST EXPENSE 23,994 12,360 11,743 ---------- ---------- ---------- NET INCOME $ 347,187 $ 161,053 $ 154,387 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. DOCK TRUCK EXPRESS INC. ----------------------- STATEMENTS OF STOCKHOLDER'S EQUITY ----------------------------------
Common Stock Total ------------ Retained Stockholder's Shares Amount Earnings Equity --------- --------- ------------ -------------- BALANCE AT DECEMBER 31, 1994 100 $1,000 $ 244,689 $ 245,689 Net income - - 347,187 347,187 Distributions - - (290,000) (290,000) --- ------ --------- --------- BALANCE AT DECEMBER 31, 1995 100 1,000 301,876 302,876 Net income (unaudited) - - 154,387 154,387 Distributions (unaudited) - - (150,000) (150,000) --- ------ --------- --------- BALANCE AT JUNE 30, 1996 (Unaudited) 100 $1,000 $ 306,263 $ 307,263 === ====== ========= =========
The accompanying notes are an integral part of these financial statements. DOCK TRUCK EXPRESS INC. ----------------------- STATEMENTS OF CASH FLOWS ------------------------
Year Ended December 31, Six Months Ended June 30 -------------------------- 1995 1995 1996 ------------- ---------- ---------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 347,187 $ 161,053 $ 154,387 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 100,113 51,946 58,696 Changes in operating assets and liabilities- (Increase) decrease in- Accounts receivable (19,292) 269 (8,985) Prepaid and other assets 7,560 10,512 3,123 Increase (decrease) in- Accounts payable and accrued liabilities 9,130 (6,706) 31,461 ---------- ---------- ---------- Net cash provided by operating activities 444,698 217,074 238,682 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (171,823) (41,396) (1,847) ---------- ---------- ---------- Net cash used in investing activities (171,823) (41,396) (1,847) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (202,557) (54,709) (84,058) Proceeds from long-term debt 194,500 - - Distributions to stockholder (290,000) (150,000) (150,000) ---------- ---------- ---------- Net cash used in financing activities (298,057) (204,709) (234,058) ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH (25,182) (29,031) 2,777 CASH AT BEGINNING OF PERIOD 83,069 83,069 57,887 ---------- ---------- ---------- CASH AT END OF PERIOD $ 57,887 $ 54,038 $ 60,664 ========== ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for- Interest $ 23,994 $ 12,360 $ 11,743
The accompanying notes are an integral part of these financial statements. DOCK TRUCK EXPRESS INC. ----------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- 1. BUSINESS AND ORGANIZATION: -------------------------- Dock Truck Express Inc. (the Company) was formed on December 13, 1991. The Company is a provider of same-day scheduled and on-demand courier service primarily within the state of Minnesota. The stockholder of the Company entered into a definitive agreement with U.S. Delivery Systems, Inc. (U.S. Delivery), a subsidiary of Corporate Express, Inc., in July 1996, pursuant to which U.S. Delivery acquired all of the assets and liabilities of the Company in an asset purchase. 2. SIGNIFICANT ACCOUNTING POLICIES: -------------------------------- Basis of Presentation - --------------------- The Company maintains its records, and the accompanying financial statements have been prepared, on the accrual basis of accounting. Interim Financial Information - ----------------------------- The interim financial statements are unaudited, and certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been omitted. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the financial position, results of operations and cash flows with respect to the interim financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Fixed Assets - ------------ Equipment is recorded at cost. The Company capitalizes fixed assets over $1,000. Depreciation is computed on a straight-line basis over the asset's useful life. The categories and useful lives are as follows:
Category Life -------- ---- Vehicles 5 years Buildings and improvements 7-39 years Furniture and equipment 5 years
Revenue Recognition - ------------------- Revenue is recognized when the services are provided to the Company's customers. -2- Income Taxes - ------------ The Company has elected S Corporation status as defined by the Internal Revenue Code whereby the Company is not subject to taxation for federal or state purposes. Under S Corporation status, the stockholder reports his share of the Company's taxable earnings or losses in his personal tax return. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk - ---------------------------- Concentration of credit risk with respect to trade receivables is limited to the wide variety of customers and markets into which Dock Truck Express Inc. deliveries are performed. As a result, the Company does not consider itself to have any significant concentrations of credit risk. The Company performs ongoing credit evaluations of its customers. In addition, the Company maintains allowances for potential credit losses, and historical losses have been within management's expectations. 3. LONG-TERM OBLIGATIONS: ---------------------- Long-term obligations consist of the following as of December 31, 1995: Notes payable to a bank, due 1996 to 1999, interest rates ranging from 7.25% to 10.0%, secured by vehicles and buildings $ 332,693 Less- Current maturities 150,000 --------- $ 182,693 =========
At December 31, 1995, the aggregate amounts of annual principal maturities of long-term debt are as follows: 1996 $ 150,000 1997 98,653 1998 70,369 1999 13,671 --------- $ 332,693 =========
The Company has a noncancelable operating lease agreement which expires on June 30, 1997. At December 31, 1995, the remaining commitment under this noncancelable operating lease was $16,650 in 1996 and $8,550 in 1997. Rent expense related to operating leases amounted to $17,028 for the year ended December 31, 1995. 4. COMMITMENTS AND CONTINGENCIES: ------------------------------ The Company is, from time to time, a party to litigation arising in the normal course of its business, most of which involves claims for personal injury and property damage incurred in connection with its operations. The Company maintains insurance coverage, subject to deductibles, in order to reduce exposure of losses resulting from these claims. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the financial position or results of operations of the Company. -3- 5. RELATED-PARTY TRANSACTIONS: --------------------------- On April 19, 1994, the Company and Trudeau Distributing Company, Inc., an affiliate of the Company, entered into a contract to purchase real property in Isle, Minnesota. Each company owns 50 percent of the property which was purchased for $76,208. The purchase was financed by a note for $55,765 with both parties as debtors. The remainder of the purchase price was paid in cash. The Company recorded its 50 percent share of the property as follows: Building $ 33,104 Land 5,000 -------- $ 38,104 ========
In addition, the Company recorded a liability for its 50 percent share of the note, $27,883. At December 31, 1995, $1,967 had been recorded in accumulated depreciation and $23,420 was outstanding on the Company's portion of the note. The terms of the note with Dakota Bank are that each party is jointly and severally liable for the entire note balance. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Pronto Delivery Service, Inc.: We have audited the accompanying balance sheet of Pronto Delivery Service, Inc. (a Texas corporation), as of December 31, 1995, and the related statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pronto Delivery Service, Inc., as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Houston, Texas August 15, 1996 PRONTO DELIVERY SERVICE, INC. ----------------------------- BALANCE SHEETS --------------
December 31, June 30, 1995 1996 ------------- ---------- (Unaudited) ASSETS ------ CURRENT ASSETS: Cash $ 367,768 $ 645,759 Accounts receivable, less allowance of $20,751 and $28,961 211,722 253,867 Deferred income taxes - 1,598 Other current assets 5,927 12,240 --------- --------- Total current assets 585,417 913,464 PROPERTY AND EQUIPMENT: Leasehold improvements 10,743 10,743 Furniture and equipment 169,354 172,170 --------- --------- 180,097 182,913 Less-Accumulated depreciation (154,943) (163,813 --------- --------- 25,154 19,100 OTHER ASSETS 2,031 2,031 --------- --------- Total assets $ 612,602 $ 934,595 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ LIABILITIES: Accounts payable, trade $ 84,000 $ 155,770 Federal income tax payable 63,177 190,547 Other accrued liabilities 13,896 11,905 Deferred income taxes 43,110 - --------- --------- Total liabilities 204,183 358,222 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.10 par, 100 shares authorized and outstanding 10 10 Additional paid-in capital 24,840 24,840 Retained earnings 383,569 551,523 --------- --------- Total stockholders' equity 408,419 576,373 --------- --------- Total liabilities and stockholders' equity $ 612,602 $ 934,595 ========= =========
The accompanying notes are an integral part of these financial statements. PRONTO DELIVERY SERVICE, INC. ----------------------------- STATEMENTS OF INCOME --------------------
Year Ended December 31, Six Months Ended June 30 ---------------------------- 1995 1995 1996 ------------- ------------- ------------- (Unaudited) REVENUES $2,396,153 $1,142,954 $1,770,863 DIRECT COST OF DELIVERY SERVICE: Payments to drivers 1,380,352 640,035 759,737 Company-owned vehicle expense 88,286 45,250 55,951 Agent and airline costs 111,196 63,195 356,990 Other expenses 25,010 9,741 9,962 ---------- ---------- ---------- Total direct cost of 1,604,844 758,221 1,182,640 delivery service ---------- ---------- ---------- Gross profit on service 791,309 384,733 588,223 ---------- ---------- ---------- INDIRECT COST OF DELIVERY SERVICE: Occupancy costs 116,478 25,071 62,596 ---------- ---------- ---------- Total indirect cost 116,478 25,071 62,596 of delivery service ---------- ---------- ---------- Gross profit 674,831 359,662 525,627 ---------- ---------- ---------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Office salaries and benefits 330,086 163,357 168,030 Amortization 785 383 383 Depreciation 16,130 8,065 8,487 Bad debt expense - - 8,210 Other expenses 213,270 128,057 82,593 ---------- ---------- ---------- Total selling, general and 560,271 299,862 267,703 administrative expenses ---------- ---------- ---------- Operating income 114,560 59,800 257,924 INTEREST INCOME 9,811 1,234 5,265 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 124,371 61,034 263,189 PROVISION FOR INCOME TAXES 45,703 22,049 95,235 ---------- ---------- ---------- NET INCOME $ 78,668 $ 38,985 $ 167,954 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. PRONTO DELIVERY SERVICE, INC. ----------------------------- STATEMENTS OF STOCKHOLDERS' EQUITY ----------------------------------
Additional Total Common Stock Paid-In Retained Stockholders' -------------- Shares Amount Capital Earnings Equity ------ ------ ---------- --------- ------------- BALANCE AT DECEMBER 31, 1994 100 $10 $24,840 $304,901 $329,751 Net income - - - 78,668 78,668 --- --- ------- -------- -------- BALANCE AT DECEMBER 31, 1995 100 10 24,840 383,569 408,419 Net income (unaudited) - - - 167,954 167,954 --- --- ------- -------- -------- BALANCE AT JUNE 30, 1996 (Unaudited) 100 $10 $24,840 $551,523 $576,373 === === ======= ======== ========
The accompanying notes are an integral part of these financial statements. PRONTO DELIVERY SERVICE, INC. ----------------------------- STATEMENTS OF CASH FLOWS ------------------------
Year Ended December 31, Six Months Ended June 30 -------------------------- 1995 1995 1996 ------------- ------------ ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 78,668 $ 38,985 $167,954 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 16,915 8,448 8,870 Deferred tax benefit (16,254) - (44,708) Changes in operating assets and liabilities- (Increase) decrease in- Accounts receivable, net (8,501) - (42,145) Prepaid and other assets 7,286 (7,552) (6,313) Increase in- Accounts payable and accrued liabilities 30,811 5,802 197,149 -------- -------- -------- Net cash provided by operating activities 108,925 45,683 280,807 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (3,608) (1,619) (2,816) -------- -------- -------- Net cash used in investing activities (3,608) (1,619) (2,816) -------- -------- -------- NET INCREASE IN CASH 105,317 44,064 277,991 CASH AT BEGINNING OF PERIOD 262,451 262,451 367,768 -------- -------- -------- CASH AT END OF PERIOD $367,768 $306,515 $645,759 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for- Income taxes $ 10,590 $ 8,010 $ 2,237
The accompanying notes are an integral part of these financial statements. PRONTO DELIVERY SERVICE, INC. ----------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- 1. BUSINESS AND ORGANIZATION: -------------------------- Pronto Delivery Service, Inc. (the Company), was formed on March 15, 1982. The Company is a provider of same-day scheduled and on-demand courier service primarily within the state of Texas. The stockholders of the Company entered into a definitive agreement with U.S. Delivery Systems, Inc., a subsidiary of Corporate Express, Inc., in August 1996, pursuant to which Corporate Express, Inc., acquired all of the issued and outstanding stock of the Company in a merger accounted for as a pooling of interests. 2. SIGNIFICANT ACCOUNTING POLICIES: -------------------------------- Basis of Presentation - --------------------- The Company maintains its records, and the accompanying financial statements have been prepared, on the accrual basis of accounting. Interim Financial Information - ----------------------------- The interim financial statements are unaudited, and certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the financial position, results of operations and cash flows with respect to the interim financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Fixed Assets - ------------ Equipment is recorded at cost. The Company capitalizes fixed assets over $1,000. Depreciation is computed on the MACRS basis, which approximates straight-line basis, over the asset's useful life. The categories and useful lives are as follows:
Category Life -------- ---- Computer equipment 3 years Leasehold improvements Life of lease Furniture and equipment 4 years
Revenue Recognition - ------------------- Revenue is recognized when the services are provided to the Company's customers. Income Taxes - ------------ The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," for all periods presented. This statement provides for a liability approach to accounting for income taxes. Deferred income taxes are provided for differences in the recognition of revenue and expense for tax and financial reporting purposes. Temporary differences result primarily from differences between cash basis reporting for income tax purposes and accrual basis reporting for financial reporting purposes. -2- Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk - ---------------------------- Concentration of credit risk with respect to trade receivables is limited to the wide variety of customers for which and markets into which Pronto Delivery Services, Inc., deliveries are performed. As a result, the Company does not consider itself to have any significant concentrations of credit risk. The Company performs ongoing credit evaluations of its customers. In addition, the Company maintains allowances for potential credit losses, and historical losses have been within management's expectations. 3. INCOME TAXES: -------------
Federal income and state income taxes are as follows for the period ending December 31, 1995: Federal- Current $ 58,368 Deferred (14,838) State- Current 3,589 Deferred (1,416) -------- $ 45,703 ======== The components of deferred income tax liabilities and assets are as follows: Deferred income tax liabilities- Cash to accrual differences, net $ 50,995 -------- Total deferred income tax liabilities 50,995 -------- Deferred income tax assets- Allowance for doubtful accounts 7,885 -------- Total deferred income tax assets 7,885 -------- Total net current deferred income tax liabilities $ 43,110 ========
4. COMMITMENTS AND CONTINGENCIES: ------------------------------ The Company is, from time to time, a party to litigation arising in the normal course of its business, most of which involves claims for personal injury and property damage incurred in connection with its operations. The Company maintains insurance coverage, subject to deductibles, in order to reduce exposure of losses resulting from these claims. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the financial position or results of operations of the Company. THE CLASSIC COMPANIES CONSOLIDATED BALANCE SHEETS ( Unaudited )
DECEMBER 31, JUNE 30, ASSETS 1995 1996 ------------- -------------- CURRENT ASSETS: Cash and cash equivalents - $ 51,115 Accounts receivable $ 263,183 292,237 Notes and other receivables - 1,769 Other current assets 9,889 7,089 ------------- -------------- Total current assets 273,072 352,210 PROPERTY AND EQUIPMENT: Furniture and equipment 94,998 99,540 Less accumulated depreciation (66,011) (72,937) ------------- -------------- 28,987 26,603 OTHER ASSETS, NET 4,455 4,065 ------------- -------------- Total assets 306,514 382,878 ============= ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 36,564 37,248 Accrued liabilities 50,838 45,000 Current portion of long-term debt 13,379 13,379 ------------- -------------- Total current liabilities 100,781 95,627 LONG-TERM DEBT 52,152 14,412 ------------- -------------- Total liabilities 152,933 110,039 STOCKHOLDERS' EQUITY Common stock 1,900 1,900 Additional paid-in capital 99,500 99,500 Retained earnings 52,181 171,439 ------------- -------------- Total shareholders' equity 153,581 272,839 ------------- -------------- Total liabilities and shareholders' equity $ 306,514 $ 382,878 ============= ==============
THE CLASSIC COMPANIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Six Months Year Ended Ended 12/31/95 6/30/96 -------------- -------------- Net sales $ 1,952,650 $ 1,200,902 Cost of sales 1,251,714 715,114 -------------- -------------- Gross profit 700,936 485,788 Selling, general and administrative expenses 438,383 250,404 -------------- -------------- Operating profit 262,553 235,384 Interest expense, net 9,260 1,540 Other ( income) expense 4,970 3,233 -------------- -------------- Net Income $ 248,323 $ 230,611 ============== ==============
THE CLASSIC COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Twelve Months Six Months Ended Ended 12/31/95 6/30/96 ----------------- ---------------- Cash Flows From Operating Activities: Net Income $ 248,323 $ 230,611 Adjustments to Reconcile Net Income to Net Cash From Operating Activities Depreciation 16,876 6,925 Amortization 782 391 Increase in Accounts Receivable (114,349) (30,823) Decrease in Other Current Assets 2,820 2,800 Decrease in Other Assets 2,621 - Increase in Accounts Payable 9,530 684 Decrease in Accrued Liabilities (23,150) (5,838) ----------------- ----------------- Net Cash Provided From Operating Activities 143,453 204,750 ================= ================= Cash Flows From Investing Activities: Capital expenditures (2,807) (4,542) ----------------- ----------------- Net Cash Used In Investing Activities (2,807) (4,542) ----------------- ----------------- Cash Flows From Financing Activities: Repayments Of Long-Term Borrowings (91,914) (37,740) S Corporation Dividends (59,422) (111,353) ----------------- ----------------- Net Cash Used In Financing Activities (151,336) (149,093) ----------------- ----------------- Increase (Decrease) in Cash (10,690) 51,115 Cash at Beginning of Period 10,690 - ----------------- ----------------- Cash at End of Period $ - $ 51,115 ================= =================
THE CLASSIC COMPANIES STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------------------------------------------------ BALANCE DECEMBER 31, 1994 $ 1,900 $ 99,500 $(136,720) $ (35,320) NET INCOME 248,323 248,323 SUB-CHAPTER S DISTRIBUTIONS (59,422) (59,422) ------------------------------------------------ BALANCE DECEMBER 31, 1995 1,900 99,500 52,181 153,581 NET INCOME 230,611 230,611 SUB-CHAPTER S DISTRIBUTIONS (111,353) (111,353) ------------------------------------------------ BALANCE JUNE 30, 1996 $ 1,900 $ 99,500 $ 171,439 $ 272,839 ================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To RUSHTRUCKING, Inc.: We have audited the accompanying balance sheet of RUSHTRUCKING, Inc. (a California corporation), as of December 31, 1995, and the related statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RUSHTRUCKING, Inc., as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Houston, Texas August 22, 1996 RUSHTRUCKING, INC. ------------------ BALANCE SHEETS --------------
December 31, June 30, 1995 1996 ------------ ----------- ASSETS (Unaudited) ------ CURRENT ASSETS: Cash $220,262 $ 33,452 Accounts receivable, less allowance of $19,356 and $22,879 557,752 540,541 Other receivables 1,348 1,348 Prepaid insurance 43,789 27,800 Other current assets 20,774 34,503 -------- -------- Total current assets 843,925 637,644 PROPERTY AND EQUIPMENT: Furniture and equipment 184,452 199,840 Less- Accumulated depreciation (73,536) (94,401) -------- -------- 110,916 105,439 OTHER ASSETS 2,500 2,500 -------- -------- Total assets $957,341 $745,583 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable, trade $ 98,203 $ 43,531 Accrued payroll and benefits 35,722 47,488 Other accrued liabilities 69,182 95,000 Current portion of long-term debt 21,165 16,258 -------- -------- Total current liabilities 224,272 202,277 LONG-TERM DEBT, net of current maturities 33,706 28,300 -------- -------- Total liabilities 257,978 230,577 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $1.00 par, 100,000 shares authorized, 500 shares outstanding 500 500 Retained earnings 698,863 514,506 -------- -------- Total stockholders' equity 699,363 515,006 -------- -------- Total liabilities and stockholders' equity $957,341 $745,583 ======== ========
The accompanying notes are an integral part of these financial statements. RUSHTRUCKING, INC. ------------------ STATEMENTS OF INCOME --------------------
Year Ended December 31, Six Months Ended June 30 ------------------------------ 1995 1995 1996 -------------- -------------- -------------- (Unaudited) REVENUES $4,931,114 $2,267,537 $2,756,047 DIRECT COST OF DELIVERY SERVICE: Payments to drivers 2,770,001 1,319,963 1,539,233 Company-owned vehicle expense 300,092 125,169 245,959 Delivery equipment depreciation 36,108 14,380 14,608 Other expenses 84,612 37,222 57,722 ---------- ---------- ---------- Total direct cost of delivery service 3,190,813 1,496,734 1,857,522 ---------- ---------- ---------- Gross profit on service 1,740,301 770,803 898,525 ---------- ---------- ---------- INDIRECT COST OF DELIVERY SERVICE: Occupancy costs 58,881 47,533 15,975 ---------- ---------- ---------- Total indirect cost of delivery service 58,881 47,533 15,975 ---------- ---------- ---------- Gross profit 1,681,420 723,270 882,550 ---------- ---------- ---------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Office salaries and benefits 701,890 390,962 405,634 Depreciation 11,434 4,508 6,257 Bad debt expense 38,549 19,833 4,451 Other expenses 350,336 124,099 136,057 ---------- ---------- ---------- Total selling, general and administrative expenses 1,102,209 539,402 552,399 ---------- ---------- ---------- Operating income 579,211 183,868 330,151 OTHER INCOME (EXPENSE): Interest expense (7,944) (4,830) (2,073) Interest income 3,796 1,265 2,907 ---------- ---------- ---------- NET INCOME $ 575,063 $ 180,303 $ 330,985 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. RUSHTRUCKING, INC. ------------------ STATEMENTS OF STOCKHOLDERS' EQUITY ----------------------------------
Common Stock Total --------------- Retained Stockholders' Shares Amount Earnings Equity ------ ------- ------------ -------------- BALANCE AT DECEMBER 31, 1994 500 $500 $ 290,764 $ 291,264 Net income - - 575,063 575,063 Distributions - - (166,964) (166,964) ------ ------- --------- --------- BALANCE AT DECEMBER 31, 1995 500 500 698,863 699,363 Net income (unaudited) - - 330,985 330,985 Distributions (unaudited) - - (515,342) (515,342) ------ ------- --------- --------- BALANCE AT JUNE 30, 1996 (Unaudited) 500 $500 $ 514,506 $ 515,006 ====== ======= ========= =========
The accompanying notes are an integral part of these financial statements. RUSHTRUCKING, INC. ------------------ STATEMENTS OF CASH FLOWS ------------------------
Year Ended December 31, Six Months Ended June 30 -------------------------- 1995 1995 1996 ------------- ------------ ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 575,063 $ 180,303 $ 330,985 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation 47,542 18,888 20,865 Changes in operating assets and liabilities- (Increase) decrease in- Accounts receivable, net (231,102) 59,034 17,211 Prepaid and other assets 93,937 19,887 2,260 Decrease in- Accounts payable and accrued liabilities (62,647) (117,535) (17,088) --------- --------- --------- Net cash provided by operating activities 422,793 160,577 354,233 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (23,005) (26,075) (15,388) Proceeds from sales of property and equipment 22,100 - - --------- --------- --------- Net cash used in investing activities (905) (26,075) (15,388) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (123,842) (42,251) (10,313) Distributions to stockholders (166,964) (10,000) (515,342) --------- --------- --------- Net cash used in financing activities (290,806) (52,251) (525,655) --------- --------- --------- NET INCREASE (DECREASE) IN CASH 131,082 82,251 (186,810) CASH AT BEGINNING OF PERIOD 89,180 89,180 220,262 --------- --------- --------- CASH AT END OF PERIOD $ 220,262 $ 171,431 $ 33,452 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for- Interest $ 7,944 $ 4,830 $ 2,073
The accompanying notes are an integral part of these financial statements. RUSHTRUCKING, INC. ------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- 1. BUSINESS AND ORGANIZATION: -------------------------- RUSHTRUCKING, Inc. (the Company), was formed on March 13, 1990. The Company is a provider of same-day scheduled and on-demand courier service within the state of California. The stockholders of the Company entered into a definitive agreement with U.S. Delivery Systems, Inc., a subsidiary of Corporate Express, Inc., in August 1996, pursuant to which Corporate Express, Inc., acquired all of the issued and outstanding stock of the Company in a merger accounted for as a pooling of interests. 2. SIGNIFICANT ACCOUNTING POLICIES: -------------------------------- Basis of Presentation - --------------------- The Company maintains its records, and the accompanying financial statements have been prepared, on the accrual basis of accounting. Interim Financial Information - ----------------------------- The interim financial statements are unaudited, and certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been omitted. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the financial position, results of operations and cash flows with respect to the interim financial statements, have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. Fixed Assets - ------------ Equipment is recorded at cost. The Company capitalizes fixed assets over $1,000. Depreciation is computed on a straight-line basis over the asset's useful life. The categories and useful lives are as follows:
Category Life -------- ---- Computer equipment 5 years Furniture and equipment 7 years Vehicles 5 years
Revenue Recognition - ------------------- Revenue is recognized when the services are provided to the Company's customers. Income Taxes - ------------ The Company has elected S Corporation status as defined by the Internal Revenue Code whereby the Company is not subject to taxation for federal or state purposes. Under S Corporation status, the stockholders report their share of the Company's taxable earnings or losses in their personal tax returns. -2- Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Concentration of Credit Risk - ---------------------------- Concentration of credit risk with respect to trade receivables is limited to the wide variety of customers and markets into which the Company's deliveries are performed. As a result, the Company does not consider itself to have any significant concentrations of credit risk. The Company performs ongoing credit evaluations of its customers. In addition, the Company maintains allowances for potential credit losses, and historical losses have been within management's expectations. 3. LONG-TERM DEBT: --------------- Long-term obligations consist of the following as of December 31, 1995: Notes payable to a bank, due 1997 and 1999, interest ranging from 9.7% to 10.9%, secured by $ 54,871 vehicles Less- Current maturities 21,165 -------- $ 33,706 ========
At December 31, 1995, the aggregate amounts of annual principal maturities of long-term debt are as follows: 1996 $21,165 1997 16,377 1998 9,585 1999 7,744 -------- $54,871 ========
The Company leases certain vehicles, buildings and equipment under noncancelable lease agreements which expire at various dates. At December 31, 1995, minimum annual rental commitments under these leases are as follows:
1996 $58,116 1997 53,589 1998 34,086 1999 5,010 -------- Total minimum lease payments $150,801 ========
Rent expense related to operating leases amounted to $23,118 for the year ended December 31, 1995. 4. COMMITMENTS AND CONTINGENCIES: ------------------------------ The Company is, from time to time, a party to litigation arising in the normal course of its business, most of which involves claims for personal injury and property damage incurred in connection with its operations. The Company maintains insurance coverage, subject to deductibles, in order to reduce exposure of losses resulting from these claims. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the financial position or results of operations of the Company. [LETTERHEAD OF SCHUTRUMPF & KOREN, P.C. APPEARS HERE] INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Virginia Impression Products Co., Inc. Richmond, Virginia 23227 We have audited the accompanying Balance Sheets of Virginia Impression Products Co., Inc. as of December 31, 1995 and 1994, and the related Statements of Income and Retained Earnings, and Cash Flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Virginia Impression Products Co., Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ SCHUTRUMPF & KOREN, P.C. --------------------------- SCHUTRUMPF & KOREN, P.C. Certified Public Accountants March 4, 1996 Page 2 BALANCE SHEETS -------------- AS OF DECEMBER 31, 1995 AND 1994 ASSETS ------ 1995 1994 ----------- ------------ CURRENT ASSETS: - --------------- Cash-Central Fidelity Bank $ 58,294 $ 0 Cash-Hanover Bank 404,739 183,608 Cash-other banks 409,483 405,154 Cash-First Virginia Bank 0 545,736 Cash-Franklin Federal 100,000 254,895 Accounts receivable - net (Note 1.d) 1,979,995 1,761,954 Accounts receivable - USOPA (Note 11) 476,778 94,577 Inventories (Note 1.c) 1,483,149 981,548 Deferred income tax (Note 4) 110,375 80,587 Other current assets (Note 5) 94,894 283,360 ----------- ------------ Total Current Assets $ 5,117,707 $ 4,591,419 -------------------- ----------- ------------ PROPERTY AND EQUIPMENT: - ----------------------- Automobiles $ 146,058 $ 136,315 Furniture and equipment 632,938 616,409 Building improvements 139,544 132,639 ----------- ------------ $ 918,540 $ 885,363 Less accumulted depreciation (Note 1.b) (568,101) (507,828) ----------- ------------ Undepreciated Cost $ 350,439 $ 377,535 ------------------ ----------- ------------ OTHER ASSETS: - ------------- Investments - closely held $ 107,500 $ 107,500 Mortgage receivable (Note 10) 472,020 545,134 Cash value life insurance (Note 8) 31,650 29,863 ----------- ------------ Total Other Assets $ 611,170 $ 682,497 ------------------ ----------- ------------ Total Assets $ 6,079,316 $ 5,651,451 ------------ =========== ============ The accompanying notes are an integral part of the financial statements Page 3 BALANCE SHEETS -------------- As of December 31, 1995 and 1994 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ 1995 1994 ----------- ----------- CURRENT LIABILITIES: - -------------------- Accounts payable $ 279,405 $ 287,579 Sales tax payable 7,143 6,857 Payroll taxes accrued and withheld 0 47,945 Accrued salaries and expenses (Note 6) 72,366 70,853 Income taxes payable (Note 4) 87,354 0 ----------- ----------- Total Current Liabilities $ 446,268 $ 413,234 ------------------------- ----------- ----------- LONG-TERM LIABILITIES: - ---------------------- Deferred income taxes (Note 4) $ 42,020 $ 34,242 Note payable (Note 2) 0 5,921 ----------- ----------- Total Long-Term Liabilities $ 42,020 $ 40,163 --------------------------- ----------- ----------- Total Liabilities $ 488,288 $ 453,397 ----------------- ----------- ----------- STOCKHOLDERS' EQUITY - -------------------- Common stock, par value $.10 250,000 authorized, 200,000 issued $ 20,000 $ 20,000 Additional paid-in capital 188,871 188,871 Retained earnings (Note 12) 5,382,157 4,989,183 ----------- ----------- Total Stockholders' Equity $ 5,591,028 $ 5,198,054 -------------------------- ----------- ----------- Total Liabilities and --------------------- Stockholders' Equity $ 6,079,316 $ 5,651,451 -------------------- =========== =========== The accompanying notes are an integral part of the financial statements Page 4 STATEMENTS OF INCOME and RETAINED EARNINGS ------------------------------------------ For the Years Ended December 31, 1995 and 1994
% OF % OF 1995 SALES 1994 SALES ------------ ------------ ------------ ----------- SALES $ 15,592,709 100.00 $14,702,040 100.00 - ----- COST OF GOODS SOLD (Schedule 1) 11,344,858 72.76 10,594,985 72.06 - ------------------ ------------ ------------ ------------- ----------- Gross Profit $ 4,247,851 27.24 $ 4,107,055 27.94 ------------ ------------ ------------ ------------- ------------ EXPENSES: - --------- Selling expenses (Schedule 2) $ 1,903,928 12.21 $ 2,017,543 13.72 Operating expenses (Schedule 3) 1,847,215 11.85 1,757,450 11.95 ------------ ------------ ------------ ----------- Total Expenses $ 3,751,143 24.06 $ 3,774,993 25.68 -------------- ------------ ------------ ------------ ----------- Operating Income $ 496,708 3.19 $ 332,062 2.26 ---------------- OTHER INCOME 141,974 0.91 114,923 0.78 - ------------ ------------ ------------ ------------ ----------- Income Before Income Taxes $ 638,682 4.10 $ 446,985 3.04 -------------------------- PROVISION FOR INCOME TAXES (Note 4) 245,708 1.58 161,646 1.10 - ----------------------------------- ------------ ------------ ------------ ----------- Net Income 392,974 2.52 285,339 1.94 ---------- RETAINED EARNINGS - January 1 4,989,183 32.00 4,703,844 31.99 - ----------------- ------------ ------------ ------------ ----------- RETAINED EARNINGS - December 31 $ 5,382,157 34.52 $ 4,989,183 33.94 - ----------------- ============ ============ ============ ===========
The accompanying notes are an integral part of the financial statements Page 5 STATEMENTS OF CASH FLOWS ------------------------ Increase (Decrease) in Cash and Cash Equivalents ------------------------------------------------ For the Years Ended December 31, 1995 and 1994
1995 1994 -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: - ------------------------------------- Net income $ 392,974 $ 285,339 Adjustment to reconcile net income to net cash provided (used) by operating activities: Depreciation 96,088 100,188 Bad debts 27,728 13,358 (Gain) loss on disposal of assets (8,921) (4,305) Change in assets and liabilities: Accounts receivable (245,769) (153,840) Accounts receivalbe - USOPA (382,201) 6,869 Inventory (501,601) 35,431 Other current assets 194,895 (162,903) Deferred income taxes (22,010) (18,330) Cash value of life insurance (1,787) (3,843) Accounts payable (8,174) 74,942 Unredeemed coupons 0 (7,040) Sales and payroll taxes (47,659) 9,299 Accrued salaries and expenses 1,513 (61,730) Income taxes payable 87,354 (9,456) ---------- ----------- Net Cash Provided (Used) by --------------------------- Operating Activities $ (417,570) $ 103,979 -------------------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: - ------------------------------------- Proceeds from sales of property and equipment $ 3,000 $ 11,841 Loans receivable (491) (2,866) Payments received on mortgage receivable 67,176 61,721 Purchase of investments 0 (7,500) Capital expenditures (68,992) (95,919) ------------ ----------- Net Cash Used in Investing Activities $ 693 $ (32,723) ------------------------------------- ------------ ----------- Net Increase (Decrease) in Cash $ (416,877) $ 71,256 ------------------------------- CASH AND CASH EQUIVALENTS - January 1 1,389,393 1,318,137 - ------------------------- ----------- ----------- CASH AND CASH EQUIVALENTS - December 31 $ 972,516 $ 1,389,393 - ------------------------- =========== ===========
The accompanying notes are an integral part of the financial statements Page 6 NOTES TO THE FINANCIAL STATEMENTS --------------------------------- Virginia Impression Products Co., Inc. (the "Company") is a distributor of approximately 2,000 office products. The Company consists of two sales divisions: one which services commercial and state/local accounts within the Commonwealth of Virginia, and a second division, Federal Marketing Company, which services hundreds of Federal Agencies, both nationwide and overseas. 1. Significant Accounting Policies and Practices: --------------------------------------------- (a) Sales are recorded as income when delivery is made to customers. Expenses are recorded on the accrual method. (b) Depreciation expense is computed using the straight line method. Depreciation expense was $96,088 and $100,188 for the years ending December 31, 1995 and 1994, respectively. (c) Inventories are determined at the lower of cost or market on the first-in, first-out method. (d) Bad debts are accounted for using the reserve method. As of December 31, 1995, a reserve for bad debts has been established in the amount of $54,300. As of December 31, 1994, the reserve was $54,300. (e) Some amounts have been reclassified to make these statements comparative. (f) For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of one year or less to be cash equivalents. (g) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 2. Note Payable ------------ Note payable is due to a former officer of the Company. This loan was satisfied in early 1995. 3. Leases ------ Office and warehouse facilities at the Company's headquarters are rented from its majority stockholder at a rental of $9,720 per month, plus taxes and insurance, for a term of ten years commencing February 1, 1992. Office and warehouse space is leased in Virginia Beach, Virginia from an unrelated party thru April, 1999 at $1,350 per month. Lease commitments are as follows: Page 7 NOTES TO THE FINANCIAL STATEMENTS --------------------------------- Minimum Year ending Payments ----------- -------- 1996 $ 132,840 1997 130,090 1998 129,840 1999 121,040 2000 116,640 Thereafter 126,360 --------- Total $ 756,810 ========= 4. Income Taxes (See Note 12, also) ------------ Income taxes are provided for the tax effects of transactions reported in the financial statements. They consist of taxes currently due plus deferred taxes. Deferred taxes arise primarily from timing differences of income and expenses in the financial statements, as compared to the timing of these items on the tax returns. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Components of income tax expense are as follows: 1995 1994 ---------- ---------- Current income taxes $ 267,718 $ 179,976 Deferred income taxes (22,010) (18,330) ---------- ---------- Total $ 245,708 $ 161,646 ========== ========== Deferred tax assets and liabilities consist of the following: 1995 1994 ---------- ---------- CURRENT ------- Deferred tax asset $ 110,375 $ 84,404 Deferred tax liability -0- (3,817) ---------- ---------- Net Deferred Tax Asset $ 110,375 $ 80,587 ========== ========== NONCURRENT ---------- Deferred tax liability $ 42,020 $ 34,242 ========== ========== Page 8 NOTES TO THE FINANCIAL STATEMENTS --------------------------------- The deferred tax asset results from an allowance for bad debts that is not deductible for tax purposes until losses are identified and written off, and inventory adjustments under Internal Revenue Code Section 263A "Uniform Capitalization rules" which require certain costs to be allocated to inventory and tax deductions to be reduced. The deferred tax liability results from certain costs which are allowed to be deducted for income tax purposes, but are capitalized under generally accepted accounting principles, and the use of accelerated methods of depreciation of property and equipment. 5. Other Current Assets -------------------- 1995 1994 ---------- ---------- Loans receivable - other $ 7,857 $ 7,366 Commissions receivable -0- 1,844 Prepaid insurance 8,953 8,953 Mortgage receivable (current portion) 73,114 67,176 Other prepaid items 4,970 11,596 Prepaid income taxes -0- 186,425 ---------- ---------- Total $ 94,894 $ 283,360 ----- ========== ========== 6. Accrued Salaries and Expenses ----------------------------- 1995 1994 ---------- ---------- Commissions payable $ 46,493 $ 51,777 Salary payable 1,783 1,692 Other expenses -0- 706 Vacation payable 24,090 16,678 ---------- ---------- Total $ 72,366 $ 70,853 ----- ========== ========== 7. Employee Stock Ownership Plan ----------------------------- In 1985, the Company formed an Employee Stock Ownership Plan (ESOP). The plan currently owns 94,750 shares of Company stock which represents 47% of the outstanding stock. For the year ending December 31, 1995, the Company is entitled to deduct, for tax purposes, all contributions made before September 15, 1996. Contributions to the plan were $102,500 and $40,000 for 1995 and 1994, respectively. Page 9 NOTES TO THE FINANCIAL STATEMENTS --------------------------------- 8. Cash Value Life Insurance ------------------------- Insurance Company Face Value Cash Value Policy Loan ----------------- ---------- ---------- ----------- Minnesota Mutual $ 25,000 $ 34,136 $ 6,810 Globe Life Insurance Co. 50,000 4,324 -0- 9. Supplemental Disclosures of Cash Flow Information ------------------------------------------------- Cash paid for income taxes is as follows: 1995 1994 ---- ---- Income tax expense - cash basis $ (6,025) $ 375,857 10. Mortgage Receivable ------------------- The Company loaned to Mr. and Mrs. D.H. Redman $784,000 in January of 1992. Mr. Redman is currently employed by the Company as the Chief Executive Officer. The loan is secured by a deed of trust note, dated January 31, 1992, and collateralized by the Hanover County land and building that the Company currently occupies and leases. The note bears interest at eight and one-half percent (8.5%), and is due in monthly installments of $9,720 for a term of ten years. Interest income of $49,469 and $54,925 has been included in the income statements for 1995 and 1994, respectively. 11. Accounts Receivable - USOPA --------------------------- Regional member companies of the United Specialty Office Products Association (USOPA) wanted to maximize their discount from a supplier (Hewlett-Packard) by buying in large quantities. Virginia Impression Products Co., Inc. (a USOPA member) agreed to act on behalf of themselves and the other USOPA members and the supplier. None of this activity is included in the income statement of the Company, since there is no sale in the normal course of business. However, the net of accounts receivable from USOPA members, and related accounts payable to the supplier are included in the balance sheet. 12. Change in Accounting Principle ------------------------------ During 1994, the Company adopted SFAS Statement No. 109 - Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually Page 10 NOTES TO THE FINANCIAL STATEMENTS --------------------------------- for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. Financial statements for the year ended December 31, 1993 have been restated to reflect the adoption of SFAS No. 109 effective January 1, 1993, and its impact is as follows:
Before After Adoption Adoption ---------- ---------- ASSETS ------ Deferred income taxes - current $ -0- $ 53,144 Deferred income taxes - noncurrent 44,843 -0- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Deferred income taxes - noncurrent $ -0- $ 25,129 Retained earnings 4,720,676 4,703,848 INCOME STATEMENT ---------------- Net income before income taxes $ 954,638 $ 954,638 Provision for income taxes 363,376 363,656 ---------- ---------- Net income $ 591,262 $ 590,982 ========== ==========
13. Contingencies ------------- During 1995, the Internal Revenue Service concluded an examination of the Company's 1992, 1993, and 1994 tax returns. In September, 1995, the IRS proposed that the Company was subject to the accumulated earnings tax in the amount of $515,787 for the years under examination. The Company strongly contests these proposed adjustments, and as of January 31, 1996, had filed a written protest with the Richmond appeals office. As of the date of our report, no date has been set to meet with the appeals office. Management believes that this matter is without basis, and intends to vigorously defend its position. As such, there has been no accrual of the proposed tax increase. The Company is currently defending itself from a lawsuit filed by a competitor for violation of a 1982 consent decree whereby the Company is allowed to do business as "F.M.C. of Virginia" in the District of Columbia. As damages, the suit seeks the profit on sales found to be in violation of the consent decree. As of the date of our report, the amount of damages are indeterminate, and the Company is vigorously defending the suit. As such, management has made no accrual for any potential liability. OTHER FINANCIAL INFORMATION --------------------------- [LETTERHEAD OF SCHUTRUMPF & KOREN, P.C. APPEARS HERE] INDEPENDENT AUDITORS' REPORT ---------------------------- ON SUPPLEMENTARY INFORMATION ---------------------------- The Board of Directors Virginia Impression Products Co., Inc. Richmond, Virginia 23227 The additional financial information which follows is presented for supplementary analysis purposes and is not considered necessary for a fair presentation of the basic financial statements. Our audit of the basic financial statements for the years ended December 31, 1995 and 1994, which is presented in the first section of this report, was made for the primary purpose of formulating an opinion on those statements. This additional information has been subjected to the applicable audit procedures we performed in our original audits of the related basic financial statements. In our opinion, the supplementary financial information is fairly stated in all material respects in relation to the basic financial statements taken as a whole, and is subject to disclosures contained therein. /s/ SCHUTRUMPF & KOREN SCHUTRUMPF & KOREN, P.C. Certified Public Accountants March 4, 1996 Page 12 COST OF GOODS SOLD ------------------ For the years Ended December 31, 1995 and 1994 Schedule 1 ----------
% OF % OF 1995 SALES 1994 SALES ----------- ----- ----------- ----- Inventory - Beginning of Year $ 981,548 6.29 $ 1,016,979 6.92 Purchases - Net of Discounts 11,421,723 73.25 10,106,585 68.74 Freight 424,736 2.72 452,969 3.08 ---------- ----- ---------- ----- Cost of Goods Available $12,828,007 82.27 $11,576,533 78.74 ----------------------- Inventory - End of Year (1,483,149) (9.51) (981,548) (6.68) ---------- ----- ---------- ----- Cost of Goods Sold $11,344,858 72.76 $10,594,985 72.06 ------------------ ========== ===== ========== =====
The accompanying notes are an integral part of the financial statements Page 13 SELLING EXPENSES ---------------- For the Years Ended December 31, 1995 and 1994 Schedule 2 ----------
% OF % OF 1995 SALES 1994 SALES ----------- ----- ----------- ----- Officer's salary - sales portion $ 221,949 1.42 $ 237,937 1.62 Salesman salaries 1,097,469 7.04 1,241,593 8.45 Commissions (Non-employees) 1,311 0.01 4,454 0.03 Warehouse salaries and expense 198,609 1.27 203,710 1.39 Remanufacturing salaries 65,971 0.42 37,531 0.26 Advertising 88,931 0.57 27,279 0.19 Auto and truck expense 11,549 0.07 30,889 0.21 Postage 60,803 0.39 51,364 0.35 Travel and entertainment 16,405 0.11 15,709 0.11 Depreciation 28,320 0.18 37,068 0.25 Telephone 112,611 0.72 130,009 0.88 ----------- ----- --------- ----- Total $ 1,903,928 12.21 $2,017,543 13.72 =========== ===== ========== =====
The accompanying notes are an integral part of the financial statements Page 14 OPERATING EXPENSES ------------------ For the Years Ended December 31, 1995 and 1994 Schedule 3 ---------- % OF % OF 1995 SALES 1994 SALES ----------- ----- ----------- ----- Officer's salary - administrative portion $ 414,382 2.66 $ 454,345 3.09 Office salaries and expense 549,175 3.52 553,622 3.77 Rent 138,752 0.89 129,686 0.88 Taxes and licenses 219,449 1.41 197,409 1.34 Depreciation 67,768 0.43 63,120 0.43 Utilities 29,478 0.19 31,764 0.22 Insurance - business 24,530 0.16 24,962 0.17 Insurance - employee benefits 184,607 1.18 186,090 1.27 Repair and maintenance 19,252 0.12 23,417 0.16 Legal and accounting 69,594 0.45 39,677 0.27 Bad debts 27,728 0.18 13,358 0.09 Profit sharing plan (Note 6) 102,500 0.66 40,000 0.27 ----------- ----- ----------- ----- Total $ 1,847,215 11.85 $ 1,757,450 11.95 =========== ===== =========== ===== The accompanying notes are an integral part of the financial statements VIRGINIA IMPRESSION PRODUCTS COMPANY, INC. BALANCE SHEET (Unaudited) (in thousands)
August 31, 1996 ---------- ASSETS Current assets: Cash and cash equivalents $ 2,970 Receivables, net 2,158 Inventories 1,441 Other current assets 179 ---------- Total current assets 6,748 Property and Equipment, net 336 Other assets, net 40 ---------- Total assets 7,124 ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 1,070 Accrued liabilities 93 ---------- Total current liabilities 1,163 Deferred income taxes 44 ---------- Total liabilities 1,207 Shareholders' equity: Common stock 20 Additional paid in capital 189 Retained earnings (deficit) 5,708 ---------- Total shareholders' equity 5,917 ---------- Total liabilities and shareholders' equity $ 7,124 ==========
VIRGINIA IMPRESSION PRODUCTS COMPANY, INC. STATEMENT OF OPERATIONS (Unaudited) (in thousands)
Eight Months Ended August 31, 1996 --------------- Net sales $ 10,935 Cost of sales 8,052 --------------- Gross profit 2,883 Selling, general and administrative expenses 2,461 --------------- Operating profit 422 Other income 102 --------------- Income before income taxes 524 Income tax expense 199 --------------- Net income $ 325 ===============
VIRGINIA IMPRESSION PRODUCTS COMPANY, INC. STATEMENT OF CASH FLOWS (Unaudited) (in thousands)
Eight Months Ended August 31, 1996 --------------- Cash Flows From Operating Activities: Net Income $ 325 Adjustments to Reconcile Net Income to Net Cash From Operating Activities: Depreciation 68 Decrease in Accounts Receivable 299 Decrease in Inventory 42 Decrease in Other Current Assets 4 Decrease in Other Assets 100 Increase in Accounts Payable 791 Decrease in Accrued Liabilities (73) --------------- Net Cash Provided From Operating Activities 1,556 --------------- Cash Flows From Investing Activities: Payments received on mortgage receivable 497 Capital expenditures (54) --------------- Net Cash Used in Investing Activities 443 --------------- Increase in Cash 1,999 Cash at Beginning of Period 971 --------------- Cash at End of Period $ 2,970 ===============
VIRGINIA IMPRESSION PRODUCTS COMPANY, INC. STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) (in thousands)
Common Additional Retained Stock Paid in Capital Earnings Total -------------------------------------------- Balance, December 31, 1995 $ 20 $ 189 $ 5,383 $ 5,592 Net Income 325 325 -------------------------------------------- Balance, August 31, 1996 $ 20 $ 189 $ 5,708 $ 5,917 ============================================
CORPORATE EXPRESS, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The unaudited pro forma combined balance sheet gives effect to the Acquired Companies as if they were acquired on June 1, 1996. The unaudited pro forma combined balance sheet also gives effect to the sales by the Company in June 1996 of the Notes as if such sales had been made on June 1, 1996. The unaudited pro forma combined balance sheet as of June 1, 1996 includes the Company's unaudited balance sheet as of June 1, 1996 and the following unaudited balance sheets of the Acquired Companies: Miller Stationers Ltd. and Howard's Office Supplies, Inc. as of May 31, 1996; Center Office Products, Inc. as of July 6, 1996; Carolina Ribbon Carbon and Sales Corporation as of July 31, 1996; Laser Perfect Office Products, Inc., Forms and Supplies, Inc., Dock Truck Express, Inc., Pronto Delivery Service, Inc., The Classic Companies and RUSHTRUCKING, Inc. as of June 30, 1996; and Virginia Impression Products Co., Inc. as of August 31, 1996. Enbee Company and Check Office Equipment Company, Inc. were acquired by the Company prior to June 1, 1996; therefore, these companies' statements of position are included in the Company's consolidated balance sheet at June 1, 1996. The unaudited pro forma combined statement of operations for the three months ended June 1, 1996 gives effect to the Acquired Companies as if they were acquired on February 26, 1995. The unaudited pro forma combined statement of operations also gives effect to the sales by the Company in June 1996 of the Notes as if such sales had been made on February 26, 1995. The unaudited pro forma combined statement of operations for the quarter ended June 1, 1996 includes the unaudited results of operations of the Company for the three months ended June 1, 1996 and the following unaudited results of operations of the Acquired Companies: Miller Stationers Ltd. and Howard's Office Supplies, Inc. for the three months ended May 31, 1996; Center Office Products, Inc. for the three months ended July 6, 1996; Carolina Ribbon Carbon and Sales Corporation for the three months ended July 31, 1996; Laser Perfect Office Products, Inc., Forms and Supplies, Inc., Dock Truck Express, Inc., Pronto Delivery Service, Inc., The Classic Companies and RUSHTRUCKING, Inc. for the three months ended June 30, 1996; and Virginia Impression Products Co., Inc. for the three months ended August 31, 1996. Enbee Company and Check Office Equipment Company, Inc. were acquired by the Company in the beginning of the quarter ended June 1, 1996; therefore, the substantial portion of these companies' operating results are included in the Company's consolidated results of operations for the quarter ended June 1, 1996. The unaudited pro forma combined statement of operations for the year ended March 2, 1996 gives effect to the Acquired Companies as if they were acquired on February 26, 1995. The unaudited pro forma combined statement of operations also gives effect to the sales by the Company in June 1996 of the Notes as if such sales had been made on February 25, 1995. The unaudited pro forma combined statement of operations for the year ended March 2, 1996 includes the audited results of operations of the Company for the year ended March 2, 1996 and the following results of operations of the Acquired Companies: Check Office Equipment Company, Inc. for the year ended February 29, 1996 (audited); Miller Stationers Ltd. for the year ended January 31, 1996 (audited); Enbee Company, Forms and Supplies, Inc., Dock Truck Express, Inc., Pronto Delivery, Inc., Virginia Impression Products Co., Inc. and RUSHTRUCKING, Inc. for the year ended December 31, 1995 (audited); Howard's Office Supplies, Inc., Center Office Products, Inc., Laser Perfect Office Products, Inc., and The Classic Companies for the year ended December 31, 1995 (unaudited); and Carolina Ribbon & Carbon Sales Corporation for the twelve months ended December 31, 1995 (unaudited). The pro forma combined financial data are based on available information and on certain assumptions and adjustments described in the accompanying notes which management believes are reasonable. The pro forma combined financial data are provided for informational purposes only and do not purport to present the results of operations of the Company had the transactions assumed therein occurred on or as of the dates indicated, nor are they necessarily indicative of the results of operations which may be achieved in the future. CORPORATE EXPRESS, INC. PRO FORMA COMBINED BALANCE SHEET JUNE 1, 1996 (Unaudited) (in thousands)
Corporate Acquired Pro Forma Pro Forma ASSETS Express Companies Adjustments Combined --------- --------- ------------- ----------------- Current assets: Cash and cash equivalents $30,079 $4,564 ($19,131)(1) $ 325,747 (7,667)(2) 318,500 (3) (598)(8) Receivables, net 292,062 14,811 306,873 Inventories 119,408 7,845 (1,084)(1) 125,824 (345)(8) Other current assets 68,171 1,118 (4)(8) 69,285 --------- --------- ------------- ----------------- Total current assets 509,720 28,338 289,671 827,729 Property and Equipment, net 141,752 10,517 (1,757)(1) 149,502 (1,010)(8) Goodwill, net 445,108 25 26,264 (1) 471,397 Other assets, net 18,072 2,053 6,500 (3) 26,610 (15)(8) --------- --------- ------------- ----------------- Total assets 1,114,652 40,933 319,653 1,475,238 ========= ========= ============= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 213,346 6,971 (72)(8) 220,245 Accrued liabilities 61,834 3,606 670 (4) 66,079 (31)(8) Accrued purchase costs 4,169 1,475 (1) 5,644 Accrued merger and related costs 19,431 19,431 Current portion of long-term debt and capital leases 9,461 2,481 1,126 (5) 13,041 (27)(8) Other non-current liabilities 126 11 137 --------- --------- ------------- ----------------- Total current liabilities 308,367 13,069 3,141 324,577 Capital lease obligations 10,694 122 10,816 Long-term debt 241,684 7,690 (7,667)(2) 566,466 (241)(8) 325,000 (3) Deferred income taxes 12,390 375 (285)(1) 12,480 Minority interest in subsidiaries 26,302 26,302 Other non-current liabilities 2,918 438 3,356 --------- --------- ------------- ----------------- Total liabilities 602,355 21,694 319,948 943,997 Shareholders' equity: Common stock 14 92 (92)(6) 14 Additional paid-in capital 506,914 3,724 (3,596)(6) 524,620 17,578 (7) Retained earnings (deficit) 3,065 15,423 (12,584)(6) 4,303 (1,601)(8) Foreign currency translation adjustment 2,304 2,304 --------- --------- ------------- ----------------- Total shareholders' equity 512,297 19,239 (295) 531,241 --------- --------- ------------- ----------------- Total liabilities and shareholders' equity $1,114,652 $40,933 $319,653 $1,475,238 ========= ========= ============= =================
- -------- (1) To record the use of cash as part of the consideration for certain of the Acquired Companies accounted for under the purchase method of accounting and related purchase price allocation (including estimated direct costs). The portion of the consideration assigned to goodwill represents the excess of the cost over the fair value of the net assets acquired. (2) To record the repayment of certain debt of the Acquired Companies. (3) To record the net proceeds from the sale of the Notes and the capitalization of debt issuance costs. (4) To record the short-term payable portion of consideration for an Acquired Company accounted for under the purchase method of accounting. (5) To record the notes payable portion of consideration for certain of the Acquired Companies accounted for under the purchase method of accounting. (6) To record the elimination of the historical equity of the Acquired Companies accounted for under the purchase method of accounting. (7) To record the issuance of shares of Corporate Express common stock as part of the consideration for certain of the Acquired Companies accounted for under the purchase method of accounting. (8) To reflect the adjustment for assets and liabilities of an Acquired Company not purchased by the Company. CORPORATE EXPRESS, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS QUARTER ENDED JUNE 1, 1996 (Unaudited) (in thousands, except per share data)
Corporate Acquired Pro Forma Pro Forma Express Companies Adjustments Combined ------------- ------------ ----------- ------------- Net sales $ 500,624 $ 46,255 $ $ 546,879 Cost of sales 369,178 34,613 403,791 ------------- ------------ ----------- ------------- Gross profit 131,446 11,642 - 143,088 Warehouse operating and selling expenses 95,309 9,752 (18)(1) 105,043 Corporate general & administrative expenses 15,933 - 164 (2) 16,097 ------------- ------------ ----------- ------------- Operating profit (loss) 20,204 1,890 (146) 21,948 Interest expense, net 3,279 113 3,656 (3) 3,123 325 (4) (134)(5) (4,116)(6) Other income - 4 4 ------------- ------------ ----------- ------------- Income before income taxes 16,925 1,781 123 18,829 Income tax expense 7,079 349 305 (7) 7,733 ------------- ------------ ----------- ------------- Income (loss) before minority interest 9,846 1,432 (182) 11,096 Minority interest 230 - 230 ------------- ------------ ----------- ------------- Income (loss) from continuing operations $ 9,616 $ 1,432 $ (182) $ 10,866 ============= ============ =========== ============= Net income per common share Continuing operations $ 0.13 $ 0.14 ============= ============= Weighted average common shares outstanding 75,139 790 (8) 75,929 ============= =========== ============= - ----------------- (1) Adjustment to eliminate excess compensation. (2) Adjustment to reflect the amortization of goodwill recorded in connection with the Acquired Companies accounted for under the purchase method of accounting. The goodwill is being amortized over an estimated life of 40 years. (3) Adjustment to reflect increase in interest expense due to the sale of the Notes. (4) Adjustment to reflect amortization of debt issuance costs over the term of the Notes. (5) Adjustment to reflect interest expense not incurred on Acquired Companies' debt paid by the Company. (6) Adjustment to reflect the increase in interest income as a result of the investment of the proceeds of the Notes in commercial paper. (7) Adjustment to reflect the income tax effect of pro forma adjustments and the adjustment of the Acquired Companies' (accounted for under the purchase method of accounting) income tax provision to the Company's effective tax rate. (8) Adjustment to reflect the issuance of additional shares of Corporate Express common stock as part of the consideration for certain of the Acquired Companies accounted for under the purchase method of accounting and for all Acquired Companies accounted for under the pooling of interests method of accounting.
CORPORATE EXPRESS, INC. PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED MARCH 2, 1996 (Unaudited) (in thousands, except per share data)
Corporate Acquired Pro Forma Pro Forma Express Companies Adjustments Combined ------------ ---------- ----------- ----------- Net sales $ 1,590,104 $ 144,380 $ 1,734,484 Cost of sales 1,173,255 102,997 1,276,252 Merger related inventory provisions 5,952 - 5,952 ------------ ---------- ----------- ----------- Gross profit 410,897 41,383 - 452,280 Warehouse operating and selling expenses 297,275 35,283 (73)(1) 332,485 Corporate general & administrative expenses 46,980 - 657 (2) 47,637 Merger and other non-recurring charges 36,838 - 36,838 ------------ ---------- ----------- ----------- Operating profit (loss) 29,804 6,100 (584) 35,320 Interest expense, net 15,396 579 14,625 (3) 14,898 1,300 (4) (537)(5) (16,465)(6) Other income 724 (94) 630 ------------ ---------- ----------- ----------- Income before income taxes 15,132 5,427 493 21,052 Income tax expense 10,952 1,238 815 (7) 13,005 ------------ ---------- ----------- ----------- Income (loss) before minority interest 4,180 4,189 (322) 8,047 Minority interest 1,436 - 1,436 ------------ ---------- ----------- ----------- Income (loss) from continuing operations $ 2,744 $ 4,189 $ (322) $ 6,611 ============ ========== =========== =========== Net income per common share Continuing operations $ 0.04 $ 0.10 ============ ========== =========== =========== Weighted average common shares outstanding 68,057 790 (8) 68,847 ============ ========== =========== =========== - ------------------------- (1) Adjustment to eliminate excess compensation. (2) Adjustment to reflect the amortization of goodwill recorded in connection with the Acquired Companies accounted for under the purchase method of accounting. The goodwill is being amortized over an estimated life of 40 years. (3) Adjustment to reflect increase in interest expense due to the sale of the Notes. (4) Adjustment to reflect amortization of debt issuance costs over the term of the Notes. (5) Adjustment to reflect interest expense not incurred on Acquired Companies' debt paid by the Company. (6) Adjustment to reflect the increase in interest income as a result of the investment of the proceeds of the Notes in commercial paper. (7) Adjustment to reflect the income tax effect of pro forma adjustments and the adjustment of the Acquired Companies' (accounted for under the purchase method of accounting) income tax provision to the Company's effective tax rate. (8) Adjustment to reflect the issuance of additional shares of Corporate Express common stock as part of the consideration for certain of the Acquired Companies accounted for under the purchase method of accounting and for all Acquired Companies accounted for under the pooling of interests method of accounting.
EX-23.1 2 CONSENT OF COOPERS & LYBRAND L.L.P. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Corporate Express, Inc. on Form S-8 (File No. 33-86574) and on Form S-4 (File No. 333-07909) of our report dated August 30, 1996 on our audit of the financial statements of Check Office Equipment Company as of February 29, 1996 and the related statements of operations, stockholder's equity (parent company investment), and cash flows for the year then ended. Coopers & Lybrand L.L.P. /s/ Coopers & Lybrand L.L.P. Denver, Colorado September 19, 1996 EX-23.2 3 CONSENT OF MCGEE, WHEELER & CO., P.C. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Corporate Express, Inc. on on Form S-8 (File No. 33-86574) and on Form S-4 (File No. 333-07909) of our report dated February 29, 1996, except for Note 13 as to which the date is March 4, 1996, on our audit of the financial statements of Enbee Company as of December 31, 1995 and for the year then ended. McGee, Wheeler & Co., P.C. /s/ McGee, Wheeler & Co., P.C. Certified Public Accountants Houston, Texas September 19, 1996 EX-23.3 4 CONSENT OF KPMG CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Corporate Express, Inc. on Form S-8 (File No. 33-86574) and on Form S-4 (File No. 333-07909) of our report dated April 4, 1996 relating to the consolidated balance sheet of Miller Stationers Ltd. as of January 31, 1996 and the related statements of earnings and retained earnings and changes in financial position for the year then ended. /s/ KPMG Chartered Accountants Edmonton, Canada September 19, 1996 EX-23.4 5 CONSENT OF HORNE CPA GROUP CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Corporate Express, Inc. on Form S-8 (File No. 33-86574) and on Form S-4 (File No. 333-07909) of our report dated February 21, 1996 on our audit of the financial statements of Forms and Supplies, Inc. as of December 31, 1995 and for the year ended December 31, 1995. HORNE CPA GROUP /s/ Richard C. Turner September 19, 1996 EX-23.5 6 CONSENT OF ARTHUR ANDERSEN L.L.P. CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports on Dock Truck Express Inc., dated August 29, 1996, Pronto Delivery Service, Inc., dated August 15, 1996, and RUSHTRUCKING, Inc., dated August 22, 1996 on the audited financial statements included in this Form 8-K, into the previously filed registration statements of Corporate Express, Inc. on Form S-8 (File No. 33-86574) and on Form S-4 (File No. 333-07909). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP September 19, 1996 Houston, Texas EX-23.6 7 CONSENT OF SCHUTRUMPF & KOREN, P.C. CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Corporate Express, Inc. on Form S-8 (File No. 33-86574) and on Form S-4 (File No. 333-07909) of our report dated March 4, 1996 on our audit of the financial statements of Virginia Impression Products Co., Inc. as of December 31, 1995 and for the year then ended. /s/ Schutrumpf & Koren, P.C. Schutrumpf & Koren, P.C. Certified Public Accountants September 19, 1996 -----END PRIVACY-ENHANCED MESSAGE-----