UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 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 number: 1-13858
BT OFFICE PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3245865
(State of incorporation or organization) (IRS Employer Identification No.)
2150 E. Lake Cook Road
Buffalo Grove, Illinois 60089-1877
(Address of principal executive offices) (Zip Code)
(847) 793-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Class of Common Stock Shares outstanding as of May 15, 1996
Common stock, par value $.01 per share 33,400,000
BT Office Products International, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1996
Index of Information Included in Report
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets ...................... 3
Condensed consolidated statements of operations ............ 4
Condensed consolidated statements of cash flows ............ 5
Notes to condensed consolidated financial statements ....... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ........... 11
Part II. Other Information ............................................... 14
2
Part I. Financial Information
BT Office Products International, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
March 31 December 31
1996 1995
(Unaudited) (Audited)
---------- ----------
Assets
Current assets:
Cash and cash equivalents ........................ $ 9,586 $ 8,568
Receivables, less allowances of $4,233 in 1996 and
$4,222 in 1995 .............................. 190,217 179,858
Inventories ...................................... 88,946 86,639
Other current assets ............................. 23,820 21,531
--------- ---------
Total current assets .......................... 312,569 296,596
Other assets ......................................... 20,315 19,099
Property, plant and equipment ........................ 114,689 106,674
Accumulated depreciation and amortization ............ (44,680) (42,033)
--------- ---------
Net property, plant and equipment .................... 70,009 64,641
Intangibles, net of accumulated amortization of
$36,164 in 1996 and $34,005 in 1995 ............... 170,443 149,813
========= =========
Total assets .................................. $ 573,336 $ 530,149
========= =========
Liabilities and Stockholders' Equity Current liabilities:
Notes payable .................................... $ 23,768 $ 20,176
Accounts payable ................................. 86,722 82,880
Other current liabilities ........................ 58,727 47,717
--------- ---------
Total current liabilities ..................... 169,217 150,773
Long-term obligations with affiliates ................ 106,768 85,008
Other long-term obligations .......................... 16,450 16,403
Other liabilities .................................... 18,199 17,730
Stockholders' equity:
Common stock ..................................... 334 334
Additional paid-in capital ....................... 273,477 273,477
Retained earnings (deficit) ...................... (10,748) (14,819)
Cumulative translation adjustments ............... (361) 1,243
--------- ---------
Total stockholders' equity .................... 262,702 260,235
========= =========
Total liabilities and stockholders' equity .... $ 573,336 $ 530,149
========= =========
See notes to condensed consolidated financial statements.
3
BT Office Products International, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three months ended March 31
1996 1995
(as restated)
--------- ---------
Net Sales .................................... $ 342,656 $ 269,200
Costs and expenses:
Costs of products sold .................... 245,313 193,508
Selling and administrative ................ 81,693 65,044
Depreciation and amortization ............. 3,037 2,456
Amortization of intangibles ............... 2,367 1,931
--------- ---------
332,410 262,939
--------- ---------
Operating income ............................. 10,246 6,261
Other income (expense):
Other income .............................. 292 511
Interest expense .......................... (966) (839)
Interest expense to affiliates ............ (1,891) (4,641)
--------- ---------
(2,565) (4,969)
--------- ---------
Income before income taxes .................. 7,681 1,292
Income tax expense .......................... 3,610 828
========= =========
Net income .................................. $ 4,071 $ 464
========= =========
Net income per share ......................... $ .12 $ .02
========= =========
Weighted-average number of
common and common
equivalent shares ......................... 33,838 23,400
========= =========
See notes to condensed consolidated financial statements.
4
BT Office Products International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months ended March 31
1996 1995
(as restated)
------------------------------
Operating Activities
Net income .................................................................... $ 4,071 $ 464
Adjustments to reconcile net income to cash provided by
(used for) operating activities:
Depreciation and amortization ........................................... 3,432 2,677
Amortization of intangibles ............................................. 2,367 1,931
Other operating activities .............................................. (334) (322)
Changes in operating assets and liabilities, net of effects of business
acquisitions:
Receivables ............................................................. 425 (7,638)
Inventories ............................................................. 1,096 (5,280)
Other current assets .................................................... (3,640) (3,600)
Accounts payable and other current liabilities .......................... 1,693 8,011
Income taxes payable .................................................... 2,822 (1,901)
Due to/from affiliates, net ............................................. 2,082 1,316
-------- --------
Net cash provided by (used for) operating activities ................ 14,014 (4,342)
Investing activities
Purchases of property, plant and equipment .................................... (7,447) (3,170)
Acquisitions of businesses, less cash acquired ................................ (23,831) (20,834)
Other investing activities .................................................... (55) (1,920)
-------- --------
Net cash used for investing activities .............................. (31,333) (25,924)
Financing activities
Net payments of notes payable ................................................. (3,605) (2,820)
Payments of long-term obligations ............................................. (8) (135)
Issuance of common stock, net ................................................. - (555)
Net transactions and advances with affiliates ................................. 22,064 35,098
-------- --------
Net cash provided by financing activities ............................ 18,451 31,588
Effect of exchange rate changes on cash and cash equivalents ................... (114) 92
-------- --------
Net increase in cash and cash equivalents ............................ 1,018 1,414
Cash and cash equivalents at beginning of period ............................... 8,568 4,995
-------- --------
Cash and cash equivalents at end of period ..................................... $ 9,586 $ 6,409
======== ========
<FN>
See notes to condensed consolidated financial statements.
</FN>
5
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Formation and Basis of Presentation
BT Office Products International, Inc. was organized in 1984 as BT USA, Inc., a
subsidiary of Buhrmann-Tetterode NV, the predecessor of KNP BT, a
Netherlands-based diversified distribution and manufacturing company.
On June 30, 1995, KNP BT and BT Office Products International, Inc. effected a
series of transactions described below (collectively, the "Corporate
Reorganization") in order to reorganize the legal ownership of various of their
businesses and to recapitalize the ongoing office products distribution
business, which now constitutes the "Company". Prior to the Corporate
Reorganization, BT Office Products International, Inc. was a holding company
(the "Holding Company"), which operated KNP BT's U.S. office products
distribution business (through its ownership of its U.S. office products
companies), as well as certain other businesses, which are unrelated to the U.S.
office products distribution business.
The Corporate Reorganization included among other things: (1) KNP BT's
contribution of the net assets of its European office products businesses and
one U.S. business to the Company, (2) the transfer of the Holding Company's
unrelated businesses to KNP BT, (3) a capital contribution of $118.0 million in
the form of an exchange of indebtedness of the Holding Company under interest
bearing advances by KNP BT for shares of common stock, (4) a stock split which
resulted in 23.4 million shares issued and outstanding, and (5) the execution of
various agreements related to income tax matters, financing arrangements and
shared services.
In July 1995, the Company completed the sale of 10 million shares of common
stock, at a price of $11.50 per share, in an initial public offering ("the
Offering"). After the Offering, KNP BT beneficially owns approximately 70% of
the Company's outstanding common stock. The net proceeds received from the
Offering, after underwriting commissions and estimated costs related to the
Offering and the Corporate Reorganization ("Net Proceeds"), were $98.5 million.
Of the Net Proceeds, the Company used $65.8 million to repay in full
non-interest bearing advances from affiliates of KNP BT made in 1994 and 1995 to
finance several acquisitions. The Company used the remaining Net Proceeds to
reduce outstanding indebtedness under the interest bearing advances from
affiliates of KNP BT made to the Company for working capital and other general
corporate purposes.
6
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) -- Continued
1. Formation and Basis of Presentation (continued)
The accompanying unaudited condensed consolidated financial statements present
information in accordance with generally accepted accounting principles for
interim financial information and applicable rules of Regulation S-X.
Accordingly, they do not include all information or footnotes required by
generally accepted accounting principles for complete financial statements.
Management believes the financial statements include all normal accrual
adjustments necessary for a fair presentation. Operating results for the three
month period ended March 31, 1996 do not necessarily reflect the results that
may be expected for the full year. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1995.
The pro forma unaudited results of operations for the three months ended March
31, 1995, assuming the Capital Contribution and Net Proceeds of the Offering
occurred as of January 1, 1995, were as follows (in thousands, except per share
amounts):
Three Months Ended
March 31, 1995
------------------
Sales ...................................................... $269,200
Net income ................................................. 2,453
Net income per share ....................................... .07
Weighted-average number of
common and common equivalent ............................. 33,400
shares
2. Restatement of 1995 Previously Reported Unaudited Quarterly Results
In March 1996, the Company discovered certain accounting and financial reporting
irregularities at its New York operating division. The irregularities involved
misstatements in the reporting of gross profit margins and operating expenses
principally in 1995 and 1994, as well as the concealment, in the accounting
records, of theft of Company assets.
Based on the results of its investigations, the Company determined the impact of
the charges associated with these issues to be a reduction of previously
reported unaudited operating income for 1995 by approximately $7.5 million.
7
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) -- Continued
2. Restatement of 1995 Previously Reported Unaudited Quarterly Results (cont.)
The Company has engaged legal counsel to investigate the irregularities and
pursue recoveries from insurance carriers or others, if any. Recoveries, if any,
in the future will be recorded as received.
The effect of the restatement of fiscal 1995 unaudited quarterly results of
operations is as follows (in thousands, except per share data):
1995 Previously Reported
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
--------- --------- --------- --------- ---------
Sales .............................. $ 269,200 $ 275,627 $ 277,661 $ 309,882 $1,132,370
Costs of products sold ............. 192,591 197,798 201,074 223,865 815,328
Operating income ................... 7,760 8,216 8,854 11,343 36,173
Net income ......................... 1,316 1,441 3,694 4,739 11,190
Net income per share ............... .06 .06 .12 .14 .40
1995 Restated
--------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
--------- --------- --------- --------- ---------
Sales .............................. $ 269,200 $ 275,627 $ 277,661 $ 309,882 $1,132,370
Costs of products sold ............. 193,508 198,532 202,077 224,961 819,078
Operating income ................... 6,261 6,357 6,267 9,788 28,673
Net income ......................... 464 415 2,097 3,714 6,690
Net income per share ............... .02 .02 .07 .11 .24
8
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) -- Continued
3. Business Acquisitions
In January 1996, the Company acquired three office products businesses in the
U.S. in purchase transactions for aggregate consideration of $14.2 million.
In 1995, the Company acquired the net assets of three U.S. office products
businesses and all of the outstanding shares of two U.S. office products
businesses. These acquisitions were accounted for as purchase transactions for
aggregate consideration of $34.2 million.
The pro forma unaudited results of operations for the three months ended March
31, 1995, assuming the 1995 and 1996 acquisitions had been consummated as of
January 1, 1995, are as follows (in thousands, except per share amounts):
Three Months Ended
March 31, 1995
------------------
Sales ...................................................... $298,342
Net income ................................................. 207
Net income per share ....................................... .01
Weighted-average number of
common and common equivalent ............................. 23,400
shares
The Company also acquired other smaller office products and furniture businesses
in 1995 and 1996. These acquisitions did not have a significant impact on the
consolidated operating results for the three month period ended March 31, 1996.
4. Inventories
Inventories consist of products held for resale and are carried at the lower of
cost or market using the last-in, first out (LIFO) method for U.S. inventories
and the first in, first out (FIFO) method for foreign inventories.
5. Per Share Data
Net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding, adjusted for dilutive
common share equivalents attributed to outstanding options to purchase common
stock.
9
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) -- Continued
6. Contingencies
On May 14, 1996, the Company was served with a summons and complaint in a class
action captioned Irene L. Wright v. BT Office Products International, Inc.,
Rudolf A.J. Huyzer, John J. McKiernan, N.V. Koninklijke KNP BT and Howard L.
Brown, filed on April 16, 1996 in the United States District Court for the
Southern District of New York. The action, brought under Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, alleges
claims against the Company, KNP BT and certain of its officers in connection
with the financial reporting matters discussed in Note 2. The complaint seeks
damages on behalf of a class consisting of purchasers of the Company's stock
from January 30, 1996 through March 28, 1996. The Company is evaluating the
litigation and intends to vigorously defend it. It is not possible at this time
to determine what outcome might result from the litigation.
The Company is involved in various other legal actions arising in the normal
course of business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that the ultimate resolution of
these other matters over and above previously established accruals will not have
a material adverse effect on the financial position, net cash flows or results
of operations of the Company.
7. Subsequent Acquisitions
Through May 15, 1996, the Company has acquired five office products businesses
in the U.S. in purchase transactions for aggregate consideration of $17.5
million. These acquisitions would not have a significant impact on the
consolidated operating results for the three months ended March 31, 1996.
10
BT Office Products International, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
In March 1996, following the preliminary fiscal year 1995 accounting close and
public release of unaudited fourth quarter and fiscal year 1995 operating
results, the Company discovered certain accounting and financial reporting
irregularities in its New York Division. The irregularities involved
misstatements in the reporting of gross profit margins and operating expenses
principally in 1995 and 1994 as well as concealment in the accounting records of
theft of Company assets. Refer to the Company's Form 10-K for the year ended
December 31, 1995 for further information on the restatement of 1994 operating
results and adjustment to opening retained earnings as of January 1, 1993 for
years prior to 1994.
The Company has engaged legal counsel to investigate the irregularities and
pursue recoveries. The Company believes that the full adverse impact of the
accounting irregularities has been reflected in the financial statements.
Recoveries in the future, if any, from insurance or restitution, will be
recorded as received.
As a result of the discovery of these irregularities, the Company has reduced
previously reported unaudited operating income for 1995 by approximately $7.5
million from the previously reported unaudited amount of $36.2 million to $28.7
million. All prior year figures have been restated to reflect the changes
required as a result of these accounting irregularities.
Net sales increased to $342.7 million in the first quarter of 1996 from $269.2
million in the comparable period last year, an increase of $73.5 million or
27.3%.
Net sales in the United States increased to $266.6 million in the first quarter
of 1996 from $195.3 million in the comparable period last year, an increase of
$71.3 million or 36.5%. The Company's 1996 acquisitions and the incremental
impact of its 1995 acquisitions accounted for $31.4 million of this increase.
Increased sales at the Company's existing operations accounted for the balance
of the increase of $39.9 million or 20.4%. While no single factor contributed to
a significant portion of the internal sales increase in the first three months
of 1996, the Company believes the principal factors included sales associated
with "add-on" acquisitions at the Florida, New York, Pacific Northwest,
Pittsburgh and Washington DC divisions and increased sales to existing and new
accounts.
Net sales in Europe increased to $76.1 million in the first quarter of 1996 from
$73.9 million in the comparable period last year, an increase of $2.2 million or
3.0%. Effective July 1, 1995, the personal computer sales and service operation
of Bierbrauer & Nagel GmbH & Co. KG was transferred to the Information Systems
Division of KNP BT at net book value. Removing the effects of this transferred
operation, European sales would have increased by 8.9%, of which 8.8% would have
been attributed to internal growth and .1% to currency appreciation against the
U.S. dollar. The Company believes the principal factors of the increase include
sales associated with an "add-on" acquisition in Germany and increased sales to
existing and new accounts.
11
BT Office Products International, Inc.
Results of Operations (Continued)
Costs of products sold include costs of inventory as well as delivery and
occupancy expenses of distribution facilities. Costs of products sold increased
to $245.3 million in the first quarter of 1996 from $193.5 million in the
comparable period last year, an increase of $51.8 million or 26.8%. The
Company's 1996 acquisitions and the incremental impact of the Company's 1995
acquisitions accounted for $22.3 million of this increase. The balance of the
increase of $29.5 million was attributable to higher sales levels at existing
operations in the U.S. and Europe.
Gross profit, as a percentage of net sales, was 28.4% in the first quarter of
1996 as compared to 28.1% in the comparable period last year, an increase of
.3%. The increase was primarily attributable to a lower LIFO charge associated
with inventory cost decreases in the U.S. of .2%.
Selling and administrative expenses increased to $81.7 million in the first
quarter of 1996 from $65.0 million in the comparable period last year, an
increase of $16.7 million or 25.7%. The Company's 1996 acquisitions and the
incremental impact of its 1995 acquisitions accounted for $6.6 million of this
increase. The balance of the increase of $10.1 million was attributable to the
existing U.S. divisions (accounting for $9.4 million) and European divisions
(accounting for $.7 million).
Operating income increased to $10.2 million in the first quarter of 1996 from
$6.3 million in the comparable period last year, an increase of $3.9 million or
61.9%. Operating income in the U.S. increased to $9.6 million in the first
quarter of 1996 from $5.5 million in the comparable period last year, an
increase of $4.1 million or 74.5%. Operating income in Europe decreased to $.6
million in the first quarter of 1996 from $.8 million in the comparable period
last year, a decrease of $.2 million. The decrease in Europe was primarily due
to a one-time $.7 million charge at Veenman related to staffing changes
associated with the realignment of the operations along business units.
Interest expense to affiliates decreased to $1.9 million in the first quarter of
1996 from $4.6 million in the comparable period last year. The decrease in
affiliated interest expense was attributable to the effects of the Corporate
Reorganization, the Offering, and the new Credit Agreement which has resulted in
lower interest rates (see Note 1).
Net income increased to $4.1 million in the first quarter of 1996 from $.5
million in the comparable period last year. The increase in net income was due
to increased operating income at existing operations, acquisitions, lower
interest costs and a lower effective income tax rate. The effective income tax
rate was 47.0% in the first three months of 1996 as compared to 64.1% for the
comparable period in the prior year. This decrease is primarily due to the
effects of non-deductible goodwill amortization and other permanent differences
against a higher income base.
12
BT Office Products International, Inc.
Liquidity and Capital Resources
Historically, the Company has relied upon capital contributions from KNP BT,
cash from revolving credit facilities with KNP BT and cash flow from operations
to fund working capital and investments in acquisitions. In July 1995, the
Company completed the sale of 10 million shares of common stock in the Offering
(see Note 1). Of the Net Proceeds of $98.5 million, the Company used $65.8
million to repay in full non-interest bearing advances from affiliates of KNP BT
made in 1994 and 1995 to finance several acquisitions. The Company used the
remaining Net Proceeds to reduce outstanding indebtedness under the interest
bearing advances from affiliates of KNP BT made to the Company for working
capital and other general corporate purposes.
Cash provided by operating activities in the first three months of 1996 was
$14.0 million. The Company generated cash flows of $4.1 million from net income
and $5.8 million from non-cash depreciation and amortization charges.
Significant cash requirements in the first three months of 1996 included $23.8
million related to acquisitions, $7.4 million for capital expenditures and $3.6
million for the net repayment of notes payable and long-term obligations. The
Company funded its cash requirements through operations and $22.1 million of
borrowings under its Credit Agreement.
The Company entered into a Credit Agreement with KNP BT Antilliana NV
("Antilliana"), an affiliate of KNP BT, which became effective upon the
completion of the Offering. Under the Credit Agreement, Antilliana has agreed to
lend the Company directly or through an affiliate up to $200 million of
long-term financing. Under the Credit Agreement, the Company is obligated to
compensate Antilliana for any tax withholding that may be imposed by applicable
tax treaties. The tax withholding rate in the U.S. tax treaty with the
Netherlands Antilles is due to change on July 1, 1996, from 0% to 30%. The
Company is exploring other financing alternatives to reduce or avoid the effect
of the foregoing change in the tax withholding rate. It is anticipated that
funds generated from operations and those available under the Credit Agreement
or other financing alternatives will be sufficient to meet requirements for
acquisitions, capital expenditures and general corporate purposes.
13
Part II. Other Information
BT Office Products International, Inc.
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable.
(b) Reports on Form 8-K
On March 29, 1996, the Company filed a Current Report on Form 8-K regarding its
press release issued on March 28, 1996.
14
BT Office Products International, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BT Office Products International, Inc.
/s/ John J. McKiernan
-------------------------
John J. McKiernan
Vice President-- Finance and Administration
and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
Date: May 15, 1996
15