-----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, PkAg6ucfvvGmyzJlP+ZKFLN2kHAUa3HYB6qDuxERaCLCeYpXNd5m4ExlJDgZwzrD yglah3yPQbBM4RGfw/qJ7g== 0000927356-96-000918.txt : 19961016 0000927356-96-000918.hdr.sgml : 19961016 ACCESSION NUMBER: 0000927356-96-000918 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961015 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORPORATE EXPRESS INC CENTRAL INDEX KEY: 0000878130 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 840978360 STATE OF INCORPORATION: CO FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24642 FILM NUMBER: 96643456 BUSINESS ADDRESS: STREET 1: 325 INTERLOCKEN PKWY CITY: BROOMFIELD STATE: CO ZIP: 80021 BUSINESS PHONE: 3033732800 MAIL ADDRESS: STREET 1: 325 INTERLOCKEN PKWY CITY: BROOMFIELD STATE: CO ZIP: 80021 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1996 OR ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _______ Commission File No. 0-24642 -------------- CORPORATE EXPRESS, INC. ----------------------------------- (Exact name of registrant as specified in its charter) Colorado 84-0978360 -------------------------- ------------------- (State of incorporation or (I.R.S. Employer organization) Identification No.) 325 Interlocken Parkway Broomfield, Colorado 80021 ------------------------ ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 373-2800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ---------- The number of shares of the registrant's common stock, par value $.0002 per share, outstanding as of October 9, 1996 was 71,510,293. PART I - FINANCIAL INFORMATION Item 1 - Financial Statements CORPORATE EXPRESS, INC. CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS
August 31, March 2, 1996 1996 ------------ ------------- (Unaudited) Current assets: Cash and cash equivalents $ 89,027 $ 28,664 Trade accounts receivable, net of allowance of $6,796 and $5,380, respectively 344,337 266,360 Notes and other receivables 42,865 27,060 Inventories 141,895 101,995 Deferred income taxes 17,213 18,157 Other current assets 21,852 17,234 ---------- ---------- Total current assets 657,189 459,470 Property and equipment: Land 12,578 8,384 Buildings and leasehold improvements 70,942 32,935 Furniture and equipment 162,120 117,655 ---------- ---------- 245,640 158,974 Less accumulated depreciation (61,815) (49,475) ---------- ---------- 183,825 109,499 Goodwill, net 530,049 324,603 Other assets, net 38,713 16,951 ---------- ---------- Total assets $1,409,776 $ 910,523 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. -2- CORPORATE EXPRESS, INC. CONSOLIDATED BALANCE SHEETS, Continued (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, March 2, 1996 1996 -------------- -------------- (Unaudited) Current liabilities: Accounts payable - trade $ 209,298 $ 135,069 Payable for acquisitions 2,109 2,063 Accrued payroll and benefits 30,275 23,019 Accrued purchase costs 7,941 3,049 Accrued merger and related costs 16,397 24,880 Other accrued liabilities 44,504 33,996 Current portion of long-term debt and capital leases 16,895 20,151 ------------ ------------ Total current liabilities 327,419 242,227 Capital lease obligations 11,185 9,568 Long-term debt 480,120 127,900 Deferred income taxes 15,922 7,374 Minority interest in subsidiaries 25,740 24,843 Other non-current liabilities 5,497 2,097 ------------ ------------ Total liabilities 865,883 414,009 Contingencies (Note 8) Shareholders' equity: Common stock, $.0002 par value, 100,000,000 shares authorized, 70,865,000 and 69,088,000 shares issued and outstanding, respectively 15 14 Additional paid-in capital 527,205 502,559 Retained earnings (accumulated deficit) 14,444 (6,712) Foreign currency translation adjustments 2,229 653 ------------ ------------ Total shareholders' equity 543,893 496,514 ------------ ------------ Total liabilities and shareholders' equity $ 1,409,776 $ 910,523 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. -3- CORPORATE EXPRESS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Three Months Ended Six Months Ended ------------------------------ ---------------------------- August 31, August 26, August 31, August 26, 1996 1995 1996 1995 ------------ ------------- ------------- ------------ (Unaudited) (Unaudited) Net sales $ 602,382 $ 371,058 $1,103,005 $ 701,452 Cost of sales 451,380 274,923 820,558 518,509 ---------- ---------- ---------- ---------- Gross profit 151,002 96,135 282,447 182,943 Warehouse operating and selling expense 108,496 70,309 203,805 132,920 Corporate general and administrative expenses 19,684 10,515 35,617 19,758 ---------- ---------- ---------- ---------- Operating profit 22,822 15,311 43,025 30,265 Interest expense, net 4,045 4,979 7,324 9,015 ---------- ---------- ---------- ---------- Income before income taxes 18,777 10,332 35,701 21,250 Income tax expense 7,942 4,128 15,021 8,425 ---------- ---------- ---------- ---------- Income before minority interest 10,835 6,204 20,680 12,825 Minority interest (330) 449 (101) 564 ---------- ---------- ---------- ---------- Net income $ 11,165 $ 5,755 $ 20,781 $ 12,261 ========== ========== ========== ========== Net income per share $ .15 $ .09 $ .27 $ .19 ========== ========== ========== ========== Weighted average common shares outstanding 76,205 64,510 75,742 63,717 ========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. -4- CORPORATE EXPRESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended -------------------------------- August 31, August 26, 1996 1995 ------------- ------------- (Unaudited) Cash flows from operating activities: Net income $ 20,781 $ 12,261 Adjustments to reconcile net income to net cash ------------- ------------- provided by (used in) operating activities: Depreciation 11,166 6,887 Amortization 7,458 3,858 Minority interest (101) 564 Other 198 1,257 Changes in assets and liabilities, excluding acquisitions: Increase in accounts receivable (9,742) (21,393) Increase in inventory (8,312) (10,742) Increase in other current assets (4,822) (1,637) Increase in other assets (992) (1,035) Increase (decrease) in accounts payable 6,156 (4,846) Increase (decrease) in accrued liabilities (1,510) 420 ------------- ------------- Net cash provided by (used in) operating activities 20,280 (14,406) ------------- ------------- Cash flows from investing activities: Proceeds from sale of assets 625 4,821 Capital expenditures (55,649) (15,887) Payment for acquisitions, net of cash acquired (192,107) (50,731) Purchase of marketable securities (11,575) - Other, net (8,436) (4,522) ------------- ------------- Net cash used in investing activities (267,142) (66,319) ------------- ------------- Cash flows from financing activities: Issuance of common stock 5,585 53,211 Debt issuance costs (7,198) (2,967) Proceeds from long-term borrowings 339,007 15,062 Repayments of long-term borrowings (8,087) (7,325) Proceeds from short-term borrowings 513 - Repayments of short-term borrowings (7,986) (5,893) Net proceeds from (payments on) line of credit (13,686) 31,400 Other (403) (477) ------------- ------------- Net cash provided by financing activities 307,745 83,011 Net cash used by discontinued operations (194) (211) Effect of foreign currency exchange rate changes on cash (326) (402) ------------- ------------- Increase in cash and cash equivalents 60,363 1,673 Cash and cash equivalents, beginning of period 28,664 15,392 ------------- ------------- Cash and cash equivalents, end of period $ 89,027 $ 17,065 ============= =============
-5- The accompanying notes are an integral part of the consolidated financial statements. CORPORATE EXPRESS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued Supplemental schedule of noncash investing and financing activities: Capital lease obligations in the amount of $4,732,000 and $1,695,000 were incurred during the six months ended August 31, 1996 and August 26, 1995, respectively, for equipment and software. During the six months ended August 31, 1996, the Company acquired, for a net cash purchase price of $185,799,000 and 899,000 shares of common stock, 41 office products distributors and 11 delivery companies of which 43 were accounted for as purchases and nine were accounted for as immaterial poolings of interests. During the six months ended August 26, 1995, the Company acquired substantially all of the assets and assumed certain liabilities of 12 office products distributors and ten delivery companies for a net cash outlay of $44,268,000. In conjunction with these acquisitions, liabilities were assumed as follows: Six Months Ended ----------------------------- August 31, August 26, 1996 1995 ---------- ---------- (In thousands) (Unaudited) Fair value of assets acquired $340,333 $97,819 Cash paid, net of cash acquired 185,799 44,268 Issuance of notes payable - 1,000 Issuance of stock 19,523 - Minority interest in subsidiary - 11,138 Purchase price payable, included in current liabilities 1,666 54 -------- ------- Liabilities assumed $133,345 $41,359 ======== ======= In addition to the amounts set forth above, during the six month periods ended August 31, 1996 and August 26, 1995, the Company paid $6,308,000 and $6,463,000, respectively, for prior period acquisitions and prepaid acquisition costs. The accompanying notes are an integral part of the consolidated financial statements. -6- CORPORATE EXPRESS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Significant Accounting Policies The consolidated financial statements include the accounts of Corporate Express, Inc. ("Corporate Express" or the "Company") and its majority owned subsidiaries. U.S. Delivery Systems, Inc. ("Delivery") was merged with and into DSU Acquisition Corp., a wholly-owned subsidiary of the Company, on March 1, 1996, and Richard Young Journal, Inc. ("Young") was merged with and into CEX Acquisition Corp., a wholly-owned subsidiary of the Company, on February 27, 1996. The mergers were accounted for as poolings of interests and, accordingly, the accompanying financial statements have been restated to include the accounts and operations of Delivery and Young for all periods prior to the mergers. Acquisitions accounted for as purchases are included in the accounts and operations as of the effective date of the transaction and immaterial acquisitions accounted for as poolings of interests are included in the accounts and operations as of the beginning of the fiscal period in which the transaction is effective. The Company accounts for its investments in less than 50% owned entities using the equity or cost methods. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim statements reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented. The results of operations for these interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended March 2, 1996. The goodwill balance shown on the Consolidated Balance Sheet is net of accumulated amortization of $22,314,000 as of August 31, 1996 and $16,046,000 as of March 2, 1996. Certain of the Company's locations calculate cost of sales using an estimated gross profit method for interim periods. Cost of sales at these locations are adjusted based on physical inventories which are performed no less than once a year. Certain reclassifications from new warehouse assimilation expenses to warehouse operating and selling expense and corporate general and administrative expense have been made to the August 26, 1995 statement of operations to conform to the August 31, 1996 presentation. 2. Accrued Purchase Costs In conjunction with purchase acquisitions, the Company accrues the direct external costs incurred to consummate the acquisition, external costs associated with closing redundant facilities of acquired companies, and severance and relocation payments to the acquired company's employees. Prior to the adoption of EITF 95-3 in May 1995, the Company also accrued the external incremental costs of converting acquired company computer systems to the Company's systems. -7- The following tables set forth activity in the Company's accrued purchase liabilities for the period ended August 31, 1996. Prior to EITF 95-3:
Warehouse Disposition & System Redundant of Assets Total Integrations Facilities Severance & Other ----- ------------ ---------- ---------- ----------- (In thousands) Balance, March 2, 1996 $1,264 $ 750 $ 403 $ 41 $ 70 Payments (499) (351) (107) (41) -- ------ ------ ------ ------ ----- Balance, August 31, 1996 (1) $ 765 $ 399 $ 296 $ 0 $ 70 ====== ====== ====== ====== =====
(1) Remaining balances relate primarily to current consolidation projects in Florida and Canada and reflect the estimated remaining costs to be incurred in conjunction with these projects. After adoption of EITF 95-3:
Disposition Facility Redundant of Assets Total Exit Costs Facilities Severance & Other ----- ---------- ---------- --------- ----------- (In thousands) Balance, March 2, 1996 $ 1,785 $ 514 $ 198 $ 772 $ 301 Additions 6,478 256 1,570 4,015 637 Payments (1,087) (61) (327) (699) - ------- ------ ------ ------ ----- Balance, August 31, 1996 $ 7,176 $ 709 $1,441 $4,088 $ 938 ======= ====== ====== ====== =====
Accrued purchase costs, after adoption of EITF 95-3, primarily represent the liabilities incurred to consolidate acquired operations into existing Company facilities. Approximately $2,170,000 of the $4,015,000 of severance represent the liabilities incurred to consolidate the recent acquisitions in Australia and Canada. 3. Merger and Other Nonrecurring Charges During the fourth quarter of fiscal 1995, the Company recorded $36,838,000 in merger and other nonrecurring charges primarily in conjunction with the acquisitions of Delivery and Young, of which $24,880,000 was unpaid at the end of the fiscal year. Total expenditures for the six months ended August 31, 1996 of $8,483,000 include $6,803,000 of merger transaction costs. The remaining merger transaction costs of $2,358,000 include employment contract buy-outs for certain former USD employees which are being negotiated. The additional costs associated with a plan to integrate the combined companies' operations is expected to be completed within the next two years. The charge includes the closure of 88 facilities and the reduction of approximately 760 employees. As of August 31, 1996, 13 facilities were closed and 46 employees have been terminated. -8- Accrued Merger and Related Costs ---------------------------------------- Balance Cash Balance March 2, 1996 Payments August 31, 1996 ------------- -------- --------------- Merger transaction costs $9,161 $(6,803) $ 2,358 Severance and terminations 7,165 (934) 6,231 Facility closure and consolidation 8,554 (746) 7,808 ------- -------- ------- $24,880 $(8,483) $16,397 ======= ======== ======= 4. Acquisitions On May 15, 1996, the Company acquired all of the outstanding capital stock of ASAP Software Express, Inc. ("ASAP"), a leading distributor of software to large corporations, for a purchase price of $97,611,000 offset by cash acquired of $13,792,000. In addition, the Company purchased all of the outstanding capital stock of Boulevard Produits De Bureau, Inc. ("Boulevard"), a seller of office supplies, furniture and equipment, for a net cash purchase price of $16,102,000. The Company also repaid $9,498,000 of Boulevard promissory notes with cash of $731,900 and 237,888 shares of the Company's common stock. The excess of the purchase price over the fair market value of the net tangible assets acquired in both acquisitions was allocated to goodwill. The operating results of ASAP and Boulevard are included in the Company's consolidated statement of operations from the effective date of each acquisition. The following pro forma financial information assumes the ASAP and Boulevard acquisitions occurred on February 26, 1995. The pro forma financial information also gives effect to the sale of the Company's 4 1/2% Convertible Notes due July 1, 2000 (the "Notes") in June 1996 as if such sales occurred on February 26, 1995. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the transaction occurred at the beginning of the period, or of results which may occur in the future. The pro forma results listed below are unaudited. Six Months Ended --------------------------------- August 31, 1996 August 26, 1995 --------------- --------------- (In thousands, except per share amounts) Net sales $1,153,998 $799,415 Net income 22,818 14,148 Net income per share 0.30 0.22 In addition to the ASAP and Boulevard acquisitions, the Company acquired 50 contract stationers and delivery operations. Of the 50 acquisitions, 41 were accounted for as purchases for a net cash purchase price of $85,878,000 and 309,000 shares of common stock, and nine were accounted for as immaterial poolings of interests for 590,000 shares of common stock. 5. Computation of Net Income Per Share and Restatement of Common Shares Outstanding Net income per share is calculated by dividing net income by the weighted average shares of common stock and common stock equivalents outstanding. The weighted average shares outstanding for the six months ended August 26, 1995 have been restated to reflect a 50% stock dividend distributed in June 1995. -9- 6. Issuance of Convertible Notes On June 24, 1996, the Company issued $325 million principal amount of Notes. The Notes are convertible into shares of Common Stock of the Company at a conversion price of $50 per share, subject to certain adjustments. A portion of the proceeds from the sale of the Notes was used to repay the Company's revolving credit facility and an acquisition note payable with the remaining proceeds being used to fund acquisitions and for other general corporate purposes. 7. Subsequent Events Subsequent to August 31, 1996, the Company purchased six contract stationers, of which four were in the United States, one was in the United Kingdom, and one was in Canada for a combined cash purchase price of approximately $11,715,000 and 272,000 shares of common stock. On September 11, 1996, the Company announced that it had signed a definitive agreement providing for the merger of the Company with United TransNet, Inc., a same-day local delivery service company based in Roswell, Georgia and having operations in 39 states. The agreement provides that each share of United TransNet's common stock will be exchanged for 0.45 of a share of the Company's common stock. The consummation of the merger is subject to approval by United TransNet stockholders, receipt of all necessary regulatory approvals, satisfactory confirmation that the merger will be treated as a tax-free reorganization and accounted for as a pooling of interests, and other customary conditions. 8. Contingencies The Company is a party to certain legal proceedings in the normal course of business. In the opinion of management, the outcome of such litigation will not have a material adverse effect on the Company's financial position or operating results. -10- CORPORATE EXPRESS, INC. Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net Sales. Consolidated net sales increased 62.3% to $602,382,000 in the three months ended August 31, 1996 from $371,058,000 in the three months ended August 26, 1995, and 57.2% to $1,103,005,000 from $701,452,000 for the respective six-month periods. Net sales for the Company's product distribution business increased 71.4% to $495,334,000 in the three months ended August 31, 1996, from $289,021,000 in the three months ended August 26, 1995 while the service business increased 30.5% to $107,048,000 from $82,038,000 in the respective three-month periods. For the six-month period ends, the product distribution business increased 67.0% to $900,580,000 in the six months ended August 31, 1996, from $539,172,000 in the six months ended August 26, 1995, while the service business increased 24.7% to $202,425,000 from $162,280,000 in the respective six-month periods. These increases are primarily attributable to 81 acquisitions since August 26, 1995, of which 64 were product distribution companies and 17 were service companies. International operations accounted for 17.9% of total sales, or $107,763,000, for the three months ended August 31, 1996 compared to 11.1% of total sales, or $41,120,000, for the three months ended August 26, 1995, and 16.7%, or $183,888,000, for the six months ended August 31, 1996 up from 7.6% or $53,612,000 for the six months ended August 26, 1995. Since August 26, 1995, the Company has purchased 25 companies outside of the United States, including 11 through Corporate Express Australia (eight in Australia and three in New Zealand), seven through Corporate Express United Kingdom, six in Canada and one in Germany. Gross Profit. Cost of sales includes merchandise, occupancy and delivery costs (including fees paid to drivers and transportation and delivery agents). Gross profit as a percentage of sales was 25.1% and 25.6% for the three and six month periods ended August 31, 1996, respectively, compared to 25.9% and 26.1% for the same periods in the prior year. Decreases in the gross profit percentage are primarily a result of the newly acquired software distribution business which has lower merchandise margins. Warehouse Operating and Selling Expenses. Warehouse operating and selling expenses primarily include labor and administrative costs associated with operating regional warehouses and sales offices, selling expenses and commissions related to the Company's direct sales force, and warehouse assimilation costs. Consolidated warehouse operating and selling expenses as a percentage of sales were 18.0% and 18.5% for the three and six month periods ended August 31, 1996, respectively, compared to 18.9% for both periods in the prior year. These decreases as a percentage of sales reflect the continuing efforts to reduce regional operating expenses. Consolidated warehouse operating and selling expenses increased by $38,187,000, or 54.3%, to $108,496,000 in the three months ended August 31, 1996 from $70,309,000 in the three months ended August 26, 1995; and by $70,885,000, or 53.3%, to $203,805,000 in the six months ended August 31, 1996 from $132,920,000 in the six months ended August 26, 1995. These increases are primarily attributable to the 81 acquisitions completed since August 26, 1995. Warehouse operating and selling expenses for international operations increased to 22.6% of international sales for the three months ended August 31, 1996 from 19.3% of international sales in the three months ended August 26, 1995; and to 22.3% from 19.6% of international sales for the respective six- month periods, primarily as a result of Australian warehouse assimilation expenses. Corporate General and Administrative Expenses. Corporate general and administrative expenses include central expenses incurred to provide corporate oversight and support for regional operations and goodwill amortization. Corporate general and administrative expenses increased by $9,169,000 to $19,684,000 for the three months ended August 31, 1996 from $10,515,000 for the three months ended August 26, 1995; and increased by $15,859,000 to -11- $35,617,000 from $19,758,000 for the respective six month periods. As a percentage of net sales, corporate general and administrative expenses increased to 3.3% and 3.2% for the three and six month periods ended August 31, 1996 from 2.8% for both the three and six month periods ended August 26, 1995. These increases reflect the costs associated with developing a larger corporate staff to support acquisition efforts, international expansion and the development and implementation of the Company's proprietary distribution system, and increased goodwill amortization resulting from purchase acquisitions since August 1995. Operating Profit. Consolidated operating profit of $22,822,000 for the three months ended August 31, 1996 increased 49.1% compared to operating profit of $15,311,000 for the three months ended August 26,1995; and 42.2% for the respective six-month period ends to $43,025,000 from $30,265,000. Consolidated operating profit as a percentage of net sales decreased to 3.8% for the three months ended August 31, 1996 from 4.1% for the three months ended August 26, 1995 and to 3.9% from 4.3% for the respective six-month periods primarily as a result of consolidation projects in international operations. International operating profit as a percentage of international sales decreased to an operating loss of .5% for the three months ended August 31, 1996 from an operating profit of 4.0% for the three months ended August 26, 1995 and decreased to .4% from 3.9% for the six month periods ended August 31, 1996 and August 26, 1995, respectively. These decreases are primarily the result of warehouse assimilation costs in Australia related to the consolidation of acquisitions. Operating profit as a percentage of sales for the domestic product distribution segment increased to 4.2% from 3.5% for the three month periods ended August 31, 1996 and August 26, 1995, respectively; and to 4.0% from 3.6% for the six month periods ended August 31, 1996 and August 26, 1995, respectively. These increases reflect the lower warehouse operating and selling expenses as a percentage of net sales. Operating profit as a percentage of sales for the delivery segment increased to 6.7% from 6.2% for the three months ended August 31, 1996 and August 26, 1995, respectively; and to 6.7% from 6.6% for the six month periods ended August 31, 1996 and August 26, 1995, respectively. Interest Expense. Net interest expense of $4,045,000 and $7,324,000 for the three and six month periods ended August 31, 1996 decreased by 18.8% for both periods from $4,979,000 and $9,015,000 for the three and six month periods ended August 26, 1995, respectively. The decrease in net interest expense is a result of the repayment of higher yield Young debt with borrowings from the Company's lower yield senior credit facility, and the issuance of $325,000,000 principal amount of Notes in June 1996. The Company used a portion of the proceeds from the Notes to repay debt which was at a higher interest rate, and invested the unused proceeds. Minority Interest. Minority interest expense decreased by $779,000 to income of $330,000 for the three month period ended August 31, 1996 from an expense of $449,000 for the three months ended August 26, 1995; and by $665,000 to income of $101,000 for the six month period ended August 31, 1996 from an expense of $564,000 for the six months ended August 26, 1995, reflecting the operating losses in Australia. The Company currently owns 52.5% of Corporate Express Australia and 51% of Corporate Express United Kingdom. Net Income. Net income of $11,165,000 and $20,781,000 for the three and six month periods ended August 31, 1996 compared to net income of $5,755,000 and $12,261,000 for the three and six month periods ended August 26, 1995. The after-tax profitability is reduced by an increase in the effective tax rate to 42.3% and 42.1% in the three and six months ended August 31, 1996 from 40.0% and 39.6% in the three and six months ended August 26, 1995 due to the impact of international consolidation projects in fiscal 1996 and the utilization of net operating losses in the fiscal 1995 periods. Other. The net accounts receivable balance at August 31, 1996 of $344,337,000 increased from $266,360,000 at March 2, 1996, primarily as a result of acquired receivables. The allowance for doubtful accounts as a percentage of consolidated accounts receivable was 1.9% and 2.0% at August 31, 1996 and March 2, 1996, respectively, remaining relatively unchanged. -12- The inventory balance at August 31, 1996 of $141,895,000 increased from $101,995,000 at March 2, 1996 primarily as a result of acquired inventories. Goodwill at August 31, 1996 of $530,049,000 increased from $324,603,000 at March 2, 1996, reflecting net additions from acquisitions of $211,714,000, offset by current year amortization of $6,268,000. The trade accounts payable balance at August 31, 1996 of $209,298,000 increased from $135,069,000 at March 2, 1996, primarily as a result of acquired trade payables of $62,378,000. Accrued purchase costs at August 31, 1996 of $7,941,000 increased from the March 2, 1996 balance of $3,049,000. This increase reflects acquisition additions of $6,478,000 and usage of $1,586,000. The remaining balance represents the current estimate for costs to be incurred in conjunction with current consolidation projects and certain newly acquired operations. (See Note 2 in the Consolidated Financial Statements.) The accrued merger and related costs balance at August 31, 1996 of $16,397,000 decreased by $8,483,000 from the March 2, 1996 balance of $24,880,000, primarily as a result of payments of the Delivery and Young merger transaction costs. (See Note 3 in the Consolidated Financial Statements.) Liquidity and Capital Resources The Company has historically financed its operations through internally generated funds and borrowings from commercial banks, and has financed its acquisitions through the use of such funds and the issuance of equity and debt securities. On June 24, 1996, the Company issued $325,000,000 principal amount of Notes. The Notes are convertible into the Company's Common Stock at a conversion price of $50 per share, subject to adjustments under certain conditions. A portion of the proceeds from the sale of the Notes was used to repay the Company's revolving credit facility and an acquisition note payable with the remaining proceeds being used to fund acquisitions and for other general corporate purposes. The Company's revolving credit facility (the "Senior Credit Facility") was amended on May 10, 1996 to increase the Company's borrowing capacity from $90,000,000 to $250,000,000, subject to borrowing base and other restrictions and to lower the cost of its borrowings to LIBOR plus 1.25%. The indebtedness under the Senior Credit Facility is secured by substantially all of the assets, including accounts receivable and inventory of the Company and its United States subsidiaries. On May 31, 1996, the Company borrowed on its Senior Credit Facility and repaid in full the $33,270,000 outstanding Delivery revolving credit facility. On June 24, 1996, the outstanding amounts under the Senior Credit Facility were paid in full from funds generated from the issuance of the Notes. Upon this repayment, the borrowing capacity of the Senior Credit Facility was reduced from the amended capacity of $250,000,000 to $90,000,000, subject to borrowing base and other restrictions. The Company is currently replacing the existing Senior Credit Facility with a multiple currency revolving credit facility with an estimated borrowing capacity of $350,000,000 and lower interest rates. In connection with this change in facility, the Company expects to write- off approximately $1,200,000 in prepaid bank fees in the third fiscal quarter. During the first six months of fiscal 1996, the Company acquired 52 companies, of which 43 were accounted for as purchases and nine were accounted for as poolings of interests not requiring prior period restatement due to immateriality. The 43 companies were acquired for a net cash purchase price of $185,799,000 and 309,000 shares of common stock. Of the nine poolings of interests acquisitions, one was a contract stationer and eight were delivery operations and were acquired for 590,000 shares of common stock. Total liabilities assumed in connection with these acquisitions were $133,345,000. In addition, the Company made -13- payments of approximately $6,308,000 related to acquisitions completed in fiscal 1995 and 1994 and prepaid acquisition costs. The Company had capital expenditures of $55,649,000 in the first six months of fiscal 1996 for the corporate headquarters facility, the purchase and development of the Miami warehouse, the development of the Company's proprietary distribution system, warehouse reconfigurations, telecommunications equipment, delivery vehicles, and leasehold improvements. Cash and cash equivalents increased by $60,363,000 in the first six months of fiscal 1996. This increase reflects net proceeds from the sale of the Notes and other net long-term borrowings of $323,722,000, primarily offset by cash paid for acquisitions of $192,107,000 and net repayments on the line of credit. The Company believes the borrowing capacity under the Senior Credit Facility, together with proceeds from the sale of the Notes, coupled with its cash on hand, capital resources and cash flows, will be sufficient to fund its ongoing operations, anticipated capital expenditures and acquisition activity for the next twelve months. However, actual capital needs may change, particularly in connection with acquisitions which the Company may consummate in the future. Inflation Certain of the Company's product offerings, particularly paper products, have been and are expected to continue to be subject to significant price fluctuations due to inflationary and other market conditions. The Company generally is able to pass such increased costs on to its customers through price increases, although it may not be able to adjust its prices immediately. Significant increases in fuel costs in the future could affect the Company's profitability if these costs cannot be passed on to customers. In general, the Company does not believe that inflation has had a material effect on its results of operations in recent years. However, there can be no assurance that the Company's business will not be affected by inflation in the future. Accounting Standards In fiscal 1996, the Company will adopt SFAS No. 123, "Accounting for Stock- Based Compensation." This standard establishes a fair value method for accounting for stock-based compensation plans either through recognition or disclosure. The Company will adopt this standard through compliance with the disclosure requirements set forth in SFAS No. 123. Adoption of this standard will have no impact on the financial position or results of operations of the Company. -14- PART II -- OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the shareholders of the Company was held on August 8, 1996. Of the 69,132,672 shares of the Company's common stock issued and outstanding and entitled to vote at the meeting, there were present, in person or by proxy, 54,367,561 shares, or 78.64% of those shares eligible to vote, such percentage representing a quorum. The matters voted upon at the annual meeting and the votes cast for, against and abstaining as to each matter, were as follows: (1) The election of directors of the Company to serve until the next meeting of shareholders or until their successors are duly elected and qualified. Name Votes For Votes Withheld ---- ---------- --------------- Jirka Rysavy 54,009,510 358,051 ---------- ------- Robert L. King 54,011,670 355,891 ---------- ------- Janet A. Hickey 53,966,858 400,703 ---------- ------- Clayton K. Trier 54,035,555 332,006 ---------- ------- Mo Siegel 54,018,839 348,722 ---------- ------- (2) To approve an amendment to the Articles of Incorporation to increase the number of Common Stock authorized from 100,000,000 to 300,000,000: For Against Abstain Broker Non-Votes 41,499,622 12,426,043 17,547 424,349 ---------- ---------- ------ ------- -15- (3) To approve an amendment to the 1994 Stock Option and Incentive Plan to increase the number of shares authorized for grant from 1,875,000 to 6,375,000: For Against Abstain Broker Non-Votes 36,106,873 13,413,772 49,474 4,797,442 ---------- ---------- ------ --------- (4) To approve an amendment to the 1994 Executive Stock Option Plan to increase the number of shares authorized for grant from 2,250,000 to 3,750,000: For Against Abstain Broker Non-Votes 37,516,000 12,122,029 189,541 4,539,991 ---------- ---------- ------- --------- (5) To approve the 1996 Stock Option Plan for Outside Directors: For Against Abstain Broker Non-Votes 48,392,996 1,685,414 42,512 4,246,639 ---------- --------- ------ --------- Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits -------- 11.1 Computation of Earnings Per Share (b) Reports on Form 8-K ------------------- Report on Form 8-K/A filed on June 19, 1996. -16- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORPORATE EXPRESS, INC. By: /s/ SAM R. LENO ------------------------------------ Sam R. Leno Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) Date: October 15, 1996 EX-11.1 2 STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE Exhibit 11.1 Corporate Express, Inc. Statement Regarding Computation of Net Income Per Share Primary Earnings Per Share
Three Months Ended Six Months Ended --------------------------------- -------------------------------- August 31, August 26, August 31, August 26, 1996 1995 1996 1995 -------------- ---------------- ---------------- ------------- Net income $ 11,165 $ 5,755 $ 20,781 $ 12,261 ============== ================ ================ ============= Net income per share $ 0.15 $ 0.09 $ 0.27 $ 0.19 ============== ================ ================ ============= Weighted average shares outstanding 70,031 60,264 69,631 59,689 Common Stock Equivalents: Stock options and warrants 6,174 4,246 6,111 4,028 -------------- ---------------- ---------------- ------------- Total weighted average shares outstanding 76,205 64,510 75,742 63,717 ============== ================ ================ =============
Fully Diluted Earnings Per Share Fully diluted earnings per share differs from primary earnings per share by less than 3%. EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Corporate Express, Inc. and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS MAR-01-1997 MAR-03-1996 AUG-31-1996 89,027 0 393,998 6,796 141,895 657,189 183,825 61,815 1,409,776 327,419 480,120 0 0 15 543,878 1,409,776 1,103,005 1,103,005 820,558 239,422 0 0 7,324 35,701 15,021 20,781 0 0 0 20,781 .27 .27
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