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 September 30, 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 60089-1877
Buffalo Grove, Illinois ---------------------------------
- ---------------------------------------- (Zip Code)
(Address of principal executive offices)
(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 November 13, 1996
- -------------------------------------- -----------------------------------
Common stock, par value $.01 per share 33,471,000
BT Office Products International, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 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 12
Part II. Other Information 16
2
Part I. Financial Information
BT Office Products International, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
September 30 December 31
1996 1995
---------------- ---------------
Assets
Current assets:
Cash and cash equivalents $ 6,830 $ 7,568
Receivables, less allowances of $4,297 in 1996
and $4,222 in 1995 201,941 179,858
Inventories 98,318 86,639
Other current assets 29,886 21,531
--------------- ---------------
Total current assets 336,975 295,596
Other assets 29,998 19,099
Property, plant and equipment 123,240 106,674
Accumulated depreciation and amortization (50,201) (42,033)
--------------- ---------------
Net property, plant and equipment 73,039 64,641
Intangibles, net of accumulated amortization of
$41,191 in 1996 and $34,005 in 1995 194,472 149,813
--------------- ---------------
Total assets $ 634,484 $ 529,149
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 18,592 $ 20,176
Accounts payable 91,945 79,130
Other current liabilities 63,084 52,327
--------------- ---------------
Total current liabilities 173,621 151,633
Long-term obligations 159,035 16,403
Long-term obligations with affiliates 17,047 83,148
Other liabilities 19,368 17,730
Stockholders' equity:
Common stock 334 334
Additional paid-in capital 270,684 273,477
Retained earnings (deficit) (4,148) (14,819)
Cumulative translation adjustment (1,457) 1,243
--------------- ---------------
Total stockholders' equity 265,413 260,235
--------------- ---------------
Total liabilities and stockholders' equity $ 634,484 $ 529,149
=============== ===============
See Notes to Condensed Consolidated Financial Statements.
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 Nine months ended
September 30 September 30
-------------------------------- --------------------------------
1995 1995
1996 (as restated) 1996 (as restated)
-------------- --------------- -------------- ---------------
Net sales $ 354,871 $ 277,661 $ 1,036,584 $ 822,488
Cost and expenses:
Costs of products sold 253,415 202,077 739,026 594,117
Selling and administrative 87,593 64,852 252,480 196,014
Depreciation and amortization 3,639 2,411 9,840 7,441
Amortization of intangibles 2,545 2,054 7,402 6,031
-------------- -------------- ------------- --------------
347,192 271,394 1,008,748 803,603
Operating Income 7,679 6,267 27,836 18,885
Other income (expense):
Other income 675 377 1,224 1,161
Interest expense (2,058) (943) (4,025) (2,576)
Interest expense to affiliates (1,291) (1,524) (4,906) (10,844)
(2,674) (2,090) (7,707) (12,259)
-------------- --------------- ------------- ---------------
Income before income taxes 5,005 4,177 20,129 6,626
Income tax expense 2,350 2,080 9,458 3,650
-------------- -------------- ------------- ---------------
Net income $ 2,655 $ 2,097 $ 10,671 $ 2,976
============== ============== ============= ===============
Net income per share $ 0.08 $ 0.07 $ 0.32 $ 0.11
============== ============== ============= ===============
Weighted-average number of
common and common
equivalent shares 33,578 31,443 33,759 26,111
============== ============== ============= ===============
See Notes to Condensed Consolidated Financial Statements.
4
BT Office Products International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine months ended September 30
-------------------------------------
1995
1996 (as restated)
---------------- ----------------
Operating Activities
Net income $ 10,671 $ 2,976
Adjustments to reconcile net income to cash provided by
(used for) operating activities:
Depreciation and amortization 11,126 8,360
Amortization of intangibles 7,402 6,031
Other operating activities 1,515 921
Changes in operating assets and liabilities, net of effects of
business acquisitions:
Receivables (6,096) (24,193)
Inventories (3,505) (11,718)
Other current assets (5,806) (2,571)
Accounts payable and other current liabilities 907 7,066
Income taxes payable 827 2,139
Due to/from affiliates, net 1,142 (883)
---------------- ----------------
Net cash provided by (used for) operating activities 18,183 (11,872)
Investing activities
Purchases of property, plant and equipment (17,869) (13,299)
Acquisitions of businesses, less cash acquired (44,046) (28,571)
Other investing activities (793) (6,332)
---------------- ----------------
Net cash used for investing activities (62,708) (48,202)
Financing activities
Net payments of notes payable (1,362) (3,232)
Net borrowings under long-term obligations 126,449 284
Net transactions and advances with affiliates (81,456) (155,948)
Proceeds from stock options exercised
including related tax benefits 224 -
Capital contribution from parent - 118,000
Issuance of common stock, net - 102,946
---------------- ----------------
Net cash provided by financing activities 43,855 62,050
Effect of exchange rate changes on cash and cash equivalents (68) (153)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (738) 1,823
Cash and cash equivalents at beginning of period 7,568 4,995
---------------- ----------------
Cash and cash equivalents at end of period $ 6,830 $ 6,818
================ ================
See Notes to Condensed Consolidated Financial Statements.
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 N.V. Koninklijke KNP BT
("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 (the "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 costs related to the Offering and
the Corporate Reorganization (the "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. Upon completion of the Offering, the Company entered into a $200
million long-term, multi-currency credit agreement (the "Antilliana Credit
Agreement") with KNP BT Antilliana NV ("Antilliana"), an affiliate of KNP BT.
See Note 7 to the Condensed Consolidated Financial Statements.
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 and nine month periods ended September 30, 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 Annual Report on Form 10-K for the year ended December
31, 1995.
The pro forma unaudited results of operations for the three month and nine month
periods ended September 30, 1995, assuming the Capital Contribution and the Net
Proceeds of the Offering occurred as of January 1, 1995, were as follows (in
thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
------------------------ ------------------------
Sales $277,661 $822,488
Net income 2,164 7,066
Net income per share 0.06 0.21
Weighted-average number of
common and common equivalent
shares 33,400 33,400
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 financial statement presentation.
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(Continued)
The Company engaged legal counsel to investigate the irregularities and pursue
recoveries, if any, from insurance carriers or others. The investigation has
uncovered no basis for any further adjustment to the prior year financial
statements.
The effect of the restatement of 1995 unaudited quarterly results of operations
was as follows (in thousands, except per share amounts):
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
Income before income taxes 2,791 3,016 6,764 8,956 21,527
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
Income before income taxes 1,292 1,157 4,177 7,401 14,027
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 July 1996, the Company acquired the two businesses comprising the Keller &
Roth Group, office products distributors in Germany, in a purchase transaction
for approximately $12.8 million in cash, subject to adjustment as provided in
the purchase agreement. The transfer of consideration for the acquisition is
subject to clearance by the German Federal Cartel Office under the German
Restraint of Competition Act, which has not been obtained.
The transaction resulted in goodwill of $10.9 million.
In July 1996, the Company assumed control of bax Burosysteme
Vertriebsgesellschaft mbH ("Bax"), an indirectly wholly-owned subsidiary of KNP
BT. In October 1996, the Company completed the acquisition of Bax, an office
equipment distributor in Germany, by acquiring the shares of Bax from KNP BT for
approximately $9.8 million in cash. Generally accepted accounting principles
require that the excess purchase price over the net book value of $3.0 million
be charged to additional paid-in capital.
In addition, during the nine months ended September 30, 1996, the Company
acquired four other office products businesses in the U.S. in purchase
transactions for aggregate consideration of $26.7 million, which included $25.9
million of cash and the issuance of $0.8 million of notes payable. These
transactions resulted in goodwill of $21.5 million.
In the year ended December 31, 1995, the Company acquired five U.S. office
products businesses in the U.S. in purchase transactions for aggregate
consideration of $34.2 million, which included $34.0 million of cash and the
issuance of $0.2 million of notes payable. These transactions resulted in
goodwill of $19.2 million and other intangible assets of $2.3 million.
The pro forma unaudited results of operations for the nine month periods ended
September 30, 1996 and 1995, assuming the above-described acquisitions had been
consummated as of January 1, 1995, are as follows (in thousands, except per
share amounts):
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
---------------------- ----------------------
Sales $1,062,291 $ 945,837
Net income 11,030 3,330
Net income per share 0.33 0.13
Weighted-average number of
common and common equivalent
shares 33,759 26,111
The Company also acquired other smaller office products and furniture businesses
in 1996 and 1995. These acquisitions did not have a significant impact on the
consolidated operating results for the nine month periods ended September 30,
1996 and 1995.
9
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
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.
6. Contingencies
On May 14, 1996, the Company was served with a summons and complaint in a class
action 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. Management believes the outcome of
such litigation will not have a material adverse impact on the financial
condition of the Company.
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. Long-term Credit Agreement
On August 2, 1996, the Company entered into a $250 million syndicated bank
Competitive Advance and Revolving Credit Facility Agreement (the "New Credit
Agreement"). As a result, the Company intends to substantially reduce the
commitments available under the Antilliana Credit Agreement. The New Credit
Agreement was used to repay existing debt owing to affiliates of the Company and
will be used for working capital needs and general corporate purposes, including
acquisitions.
The New Credit Agreement provides for a five-year, unsecured, non-amortizing,
multi-currency, revolving credit facility. Under the multi-currency arrangement,
term loans in U.S. Dollars, German Marks, British Pounds and Netherlands
Guilders (other currencies are also available) will bear interest based on a
Debt to EBITDA ratio (leverage ratio) ranging from .35% to .55% over the
applicable interbank rate as determined therein. The facility also provides for
revolving loans in U.S. Dollars at the prevailing prime rate. There is a
facility fee ranging from .125% to .225% on the unused portion of the New Credit
Agreement based on the leverage ratio
10
BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) - Continued
7. Long-term Credit Agreement (Continued)
The New Credit Agreement contains various loan covenants, the most significant
of which are a minimum leverage ratio, a minimum EBITDA less capital
expenditures to interest ratio and a minimum net worth requirement. In addition,
under a change of control clause, an event of default would occur if any person
or group, other than KNP BT or its affiliates, shall own more than 50% of the
voting shares of the Company.
8. Income Taxes
The difference between the effective income tax rate and the U.S. statutory tax
rate is primarily due to the effects of state income taxes and non-deductible
goodwill amortization.
11
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 at 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. 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 $36.2 million to $28.7
million. All prior year amounts, including quarterly results, have been restated
to reflect the changes required as a result of these misstatements. Reference is
made to the Company's Annual Report on 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 engaged legal counsel to investigate the irregularities and pursue
recoveries, if any, from insurance carriers or others. The investigation, which
has been completed, uncovered no basis for any further adjustment to the prior
year financial statements.
Net sales increased to $354.9 million in the third quarter of 1996 from $277.7
million in the comparable period last year, an increase of $77.2 million or
27.8%. Net sales increased to $1,036.6 million in the first nine months of 1996
from $822.5 million in the comparable period last year, an increase of $214.1
million or 26.0%.
Net sales in the United States increased to $276.2 million in the third quarter
of 1996 from $207.4 million in the comparable period last year, an increase of
$68.8 million or 33.2%. Net sales in the United States increased to $806.9
million in the first nine months of 1996 from $601.6 million in the comparable
period last year, an increase of $205.3 million or 34.1%. The Company's 1996
acquisitions and the incremental impact of its 1995 acquisitions accounted for
$32.0 million and $92.6 million of the increases for the third quarter and the
first nine months of 1996, respectively. Increased sales at the Company's
existing operations accounted for $36.8 million, or an internal growth rate of
17.8%, in the third quarter and $112.8 million, or an internal growth rate of
18.7%, for the first nine months of 1996. The Company believes that the
principal factors contributing to this internal growth were increased sales to
existing and new accounts and "add-on" acquisitions at nine divisions.
Net sales in Europe increased to $78.7 million in the third quarter of 1996 from
$70.3 million in the comparable period last year, an increase of $8.4 million or
11.9%. Net sales in Europe increased to $229.7 million in the first nine months
of 1996 from $220.9 million in the comparable period last year, an increase of
$8.8 million or 4.0%. The Company's 1996 acquisitions of the Keller & Roth Group
and Bax accounted for $9.7 million of the increase for the third quarter and
first nine months of 1996. Increased sales at the Company's existing operations,
excluding the effects of currency depreciation against the U.S. dollar,
accounted for $1.9 million, or an internal growth rate of 2.6%, in the third
quarter and $16.9 million, or an internal growth rate of 7.7%, for the first
nine months of 1996. The Company believes that the principal factor contributing
to this internal growth was sales associated with an "add-on" acquisition in
Germany.
12
BT Office Products International, Inc.
Results of Operations (Continued)
Excluding the effects of the "add-on" acquisition in Germany, European sales
have declined due primarily to the softness in the German economy. Offsetting
the increase in net sales from acquisitions and internal growth was $3.2 million
and $9.3 million of currency depreciation against the U.S. dollar for the third
quarter and first nine months of 1996, respectively. In addition, net sales for
the first nine months of 1995 were favorably impacted by $8.6 million for the
personal computer sales and service operations of Bierbrauer & Nagel GmbH & Co.
KG, which was transferred to the Information Systems Division of KNP BT
effective July 1, 1995.
Gross profit as a percentage of net sales was 28.6% in the third quarter of 1996
as compared to 27.2% in the comparable period last year. Gross profit as a
percentage of net sales was 28.7% for the first nine months of 1996 as compared
to 27.8% in the comparable period last year. The increases for the third quarter
and the first nine months of 1996 were attributable primarily to improved margin
management, higher margins on paper and related product sales, and a lower LIFO
charge associated with inventory cost decreases in the U.S., amounting to 0.4%
and 0.2% for the third quarter and first nine months of 1996, respectively.
Selling and administrative expenses as a percentage of net sales were 24.7% in
the third quarter of 1996 as compared to 23.4% in the comparable period last
year. The increase was attributable primarily to declining sales associated with
the existing operations in Germany against a relatively fixed expense base of
0.4%, higher professional fees associated with the New York division
investigation of 0.3%, higher expense levels associated with 1996 and the
incremental impact of 1995 acquisitions of 0.2%, and higher facility costs in
New York associated with a new distribution center of 0.1%. Selling and
administrative expense as a percentage of net sales were 24.4% in the first nine
months of 1996 as compared to 23.8% in the comparable period last year. The
increase was attributable to higher professional fees associated with the New
York division investigation of 0.3%, declining sales associated with the
existing operations in Germany against a relatively fixed expense base of 0.2%,
and the effect of lower selling prices on paper and related products, which
cannot be specifically quantified.
Operating income increased to $7.7 million in the third quarter of 1996 from
$6.3 million in the comparable period last year, an increase of $1.4 million or
22.2%. Operating income increased to $27.8 million in the first nine months of
1996 from $18.9 million in the comparable period last year, an increase of $8.9
million or 47.1%. Operating income in the United States increased to $7.0
million in the third quarter of 1996 from $5.3 million in the comparable period
last year, an increase of $1.7 million or 32.1%. Operating income in the United
States increased to $24.8 million in the first nine months of 1996 from $16.4
million in the comparable period last year, an increase of $8.4 million or
51.2%. Operating income in Europe decreased to $0.7 million in the third quarter
of 1996 from $1.0 million in the comparable period last year, a decrease of $0.3
million or 30.0%. Operating income in Europe increased to $3.0 million in the
first nine months of 1996 from $2.5 million in the comparable period last year,
an increase of $0.5 million or 20.0%.
Operating income as a percentage of net sales was 2.2% in the third quarter of
1996 as compared to 2.3% in the comparable period last year. Operating income as
a percentage of net sales was 2.7% for the first nine months of 1996 as compared
to 2.3% in the comparable period last year. Operating income as a percentage of
net sales in the United States was 2.5% in the third quarter 1996 as compared to
2.6% in the comparable period last year. The decrease was due to increased
operating expenses related primarily to professional fees associated with the
New York division investigation and higher facility costs
13
BT Office Products International, Inc.
Results of Operations (Continued)
in New York associated with a new distribution center. These increases in
expenses were partially offset by increased gross profit margins relating to
improved margin management, paper and related products sales, and a lower LIFO
charge. Operating income as a percentage of net sales in the United States was
3.1% for the first nine months of 1996 as compared to 2.7% in the comparable
period last year. The increase was due primarily to increased gross profit
margins relating to improved margin management, paper and related product sales,
and a lower LIFO charge. This improvement in gross profit margins was partially
offset by increased professional fees associated with the New York division
investigation and higher facility costs in New York associated with a new
distribution center . Operating income as a percentage of net sales in Europe
was 0.9% in the third quarter of 1996 as compared to 1.4% in the comparable
period last year. The decrease was due primarily to lower sales associated with
the existing operations in Germany as a result of the soft market conditions
against a relatively fixed expense base. Operating income as a percentage of net
sales in Europe was 1.3% in the first nine months of 1996 as compared to 1.1% in
the comparable period last year.
Interest expense, including affiliated interest expense, increased to $3.4
million in the third quarter of 1996 from $2.5 million in the comparable period
last year. The increase is the result of higher debt levels primarily associated
with acquisitions and capital investments in 1996 and 1995. Interest expense,
including affiliated interest expense, decreased to $8.9 million for the first
nine months of 1996 from $13.5 million in the comparable period in the prior
year. The decrease was attributable to the reduction in debt as a result of the
Corporate Reorganization and the Offering, and lower interest rates associated
with the Antilliana Credit Agreement and the New Credit Agreement, partially
offset by interest expense on debt associated with the new acquisitions and
capital investments in 1996 and 1995.
Net income increased to $2.7 million in the third quarter of 1996 from $2.1
million in the comparable period last year. Net income increased to $10.7
million in the first nine months of 1996 from $3.0 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% for the first
nine months of 1996 as compared to 55.1% for the comparable period in the prior
year. This rate decrease is primarily due to the effects of non-deductible
goodwill amortization and other permanent differences against a relatively
higher pre-tax income base in 1996.
14
BT Office Products International, Inc.
Liquidity and Capital Resources
Cash provided by operating activities in the first nine months of 1996 was $18.2
million, which included $10.7 million of net income and $18.5 million of
non-cash depreciation and amortization charges. Significant cash requirements in
the first nine months of 1996 included $44.0 million related to acquisitions and
$17.9 million for capital expenditures. These requirements were partially
financed by $43.6 million of net borrowings undernotes payable and long-term
obligations. The Company repaid a significant portion of the borrowings under
the Antilliana Credit Agreement with borrowings under the New Credit Agreement
in the third quarter. See Note 7 to the Condensed Consolidated Finanacial
Statements.
Historically, the Company 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. Upon the completion of the Offering, the
Company also entered into the Antilliana Credit Agreement to provide funds for
working capital and other general corporate purposes.
On August 2, 1996, the Company entered into the New Credit Agreement. The
initial borrowing under the New Credit Agreement was used to repay approximately
$130 million of outstanding indebtedness for the Company's U.S. operations under
the Antilliana Credit Agreement. The Company intends to substantially reduce the
commitments available under the Antilliana Credit Agreement. The New Credit
Agreement provides for a five-year, non-amortizing, unsecured, multi-currency,
revolving credit facility. The New Credit Agreement also extends the maturity
period three years beyond the Antilliana Credit Agreement and provides
additional debt capacity.
The Company believes that internally generated funds and borrowings under its
credit facilities will be sufficient to meet its presently anticipated cash
requirements for acquisitions, capital expenditures and working capital.
However, depending on the development of the Company's business, the Company's
capital needs may change, particularly with respect to financing future
acquisitions.
15
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
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 17, 1996, the Company filed a Current Report on Form 8-K reporting the
acquisition of the Keller & Roth group of companies in Germany.
On September 16, 1996, the Company filed a Current Report on Form 8-K/A-1 to
amend its Current Report on Form 8-K dated July 17, 1996, reporting the
acquisition of the Keller & Roth group of companies in Germany and by appending
to the Form 8-K the financial statements and pro forma information required
pursuant to Item 7 of Form 8-K.
On October 17, 1996, the Company filed a Current Report on Form 8-K reporting
the acquisition of Bax in Germany.
16
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: November 13, 1996
17
INDEX TO EXHIBITS
Exhibit No. Description Page in Sequentially
Numbered Copy
- ----------- ----------------------- --------------------
27 Financial Data Schedule 19
18