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 June 30, 1998
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
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(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 August 3, 1998
- -------------------------------------- ---------------------------------------
Common stock, par value $.01 per share 33,504,470
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BT Office Products International, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1998
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 9
Part II. Other Information 12
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Part I. Financial Information
BT Office Products International, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
June 30 December 31
1998 1997
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 12,823 $ 19,466
Accounts receivable, less allowances of
$9,909 in 1998 and $9,753 in 1997 238,296 219,118
Other receivables 24,581 33,429
Inventories 125,269 123,324
Other current assets 35,322 29,524
--------- ---------
Total current assets 436,291 424,861
Other assets 30,036 26,786
Property, plant and equipment 168,139 152,137
Accumulated depreciation and amortization 73,643 64,212
--------- ---------
Net property, plant and equipment 94,496 87,925
Intangibles, net of accumulated amortization of
$58,490 in 1998 and $53,726 in 1997 242,911 224,129
--------- ---------
Total assets $ 803,734 $ 763,701
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 20,990 $ 24,591
Accounts payable 134,373 140,780
Current portion of long-term obligations 201,290 200,816
Other current liabilities 75,176 70,688
--------- ---------
Total current liabilities 431,829 436,875
Long-term obligations 69,093 31,837
Other liabilities 23,815 21,276
Commitments and contingencies
Stockholders' equity:
Common stock 335 335
Additional paid-in capital 270,437 270,132
Retained earnings 23,303 17,137
Accumulated other comprehensive loss (15,078) (13,891)
--------- ---------
Total stockholders' equity 278,997 273,713
--------- ---------
Total liabilities and stockholders' equity $ 803,734 $ 763,701
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements
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BT Office Products International, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three months ended Six months ended
June 30 June 30
------------------------------- ---------------------------------
1998 1997 1998 1997
-------------- --------------- --------------- ---------------
Net sales $ 434,435 $ 390,668 $ 878,658 $ 792,230
Costs and expenses:
Costs of products sold 314,722 278,219 639,196 564,230
Selling and administrative expenses 104,169 93,331 205,635 190,374
Depreciation and amortization 4,736 3,869 9,229 8,075
Amortization of intangibles 2,427 2,619 4,818 5,302
------------ ------------ ------------ ------------
426,054 378,038 858,878 767,981
Operating income 8,381 12,630 19,780 24,249
Other income (expense):
Interest income and other 628 658 1,295 1,309
Interest expense (4,076) (3,888) (8,109) (7,940)
------------ ------------ ------------ ------------
(3,448) (3,230) (6,814) (6,631)
Income before income taxes and extraordinary item 4,933 9,400 12,966 17,618
Income tax expense 2,100 4,425 5,800 8,275
------------ ------------ ------------ ------------
Income before extraordinary item 2,833 4,975 7,166 9,343
Extraordinary item - going private costs, net of tax (1,000) - (1,000) -
------------ ------------ ------------ ------------
Net income $ 1,833 $ 4,975 $ 6,166 $ 9,343
=========== =========== ============ ============
Basic earnings per share:
Income before extraordinary item $ 0.08 $ 0.15 $ 0.21 $ 0.28
Extraordinary item (0.03) - (0.03) -
------------ ------------ ------------ ------------
Net income $ 0.05 $ 0.15 $ 0.18 $ 0.28
=========== =========== ============ ============
Diluted earnings per share:
Income before extraordinary item $ 0.08 $ 0.15 $ 0.21 $ 0.28
Extraordinary item (0.03) - (0.03) -
------------ ------------ ------------ ------------
Net income $ 0.05 $ 0.15 $ 0.18 $ 0.28
=========== =========== ============ ============
Average shares outstanding, basic 33,485 33,471 33,478 33,471
=========== =========== ============ ============
Average shares outstanding, diluted 33,852 33,491 33,752 33,481
=========== =========== ============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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BT Office Products International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six months ended
June 30
----------------------------------
1998 1997
-------------- --------------
Operating Activities
Net income $ 6,166 $ 9,343
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 9,931 8,934
Amortization of intangibles 4,818 5,303
Other 1,977 1,716
Changes in operating assets and liabilities, net of effects of
business acquisitions:
Receivables (10,265) (6,194)
Inventories 3,522 5,230
Other current assets 5,658 3,469
Accounts payable and other current liabilities (12,099) 1,401
------------ ------------
Net cash provided by operating activities 9,708 29,202
Investing activities
Purchases of property, plant and equipment (15,367) (11,181)
Acquisitions of businesses, less cash acquired (32,098) (5,383)
Other 998 (1,155)
------------ ------------
Net cash used for investing activities (46,467) (17,719)
Financing activities
Net repayments of notes payable (3,655) (10,168)
Net borrowings(repayments) under long-term obligations 32,358 (1,795)
Proceeds from stock options exercised including related tax benefits 305 -
------------ ------------
Net cash provided by (used for) financing activities 29,008 (11,963)
Effect of exchange rate changes on cash and cash equivalents 1,108 851
------------ ------------
Net increase (decrease) in cash and cash equivalents (6,643) 371
Cash and cash equivalents at beginning of period 19,466 20,163
------------ ------------
Cash and cash equivalents at end of period $ 12,823 $ 20,534
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
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 six month periods ended June 30, 1998 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, 1997.
2. Business Acquisitions
In June 1998, the Company acquired the Werprasent AG group of companies
("Werprasent"), an office products distributor in Austria, in a purchase
transaction for approximately $26.3 million in cash, subject to adjustment as
provided in the purchase agreement. The transaction resulted in goodwill of
$21.4 million.
The pro forma unaudited results of operations for the six month period ended
June 30, 1998 and June 30, 1997, assuming the above-described acquisition had
been consummated as of January 1, 1997 and translated at historical rates, is as
follows (in thousands, except per share amounts):
Six months ended Six months ended
June 30, 1998 June 30, 1997
------------- -------------
Sales $ 896,658 $ 817,030
Income before extraordinary item 7,191 9,393
Net Income 6,191 9,393
Basic earnings per share
Income before extraordinary item $ 0.21 $ 0.28
Net Income $ 0.18 $ 0.28
Diluted earnings per share
Income before extraordinary item $ 0.21 $ 0.28
Net Income $ 0.18 $ 0.28
Average shares outstanding, basic 33,478 33,471
Average shares outstanding, diluted 33,752 33,481
The Company also acquired other smaller office products businesses in 1998 and
1997. These acquisitions did not have a significant impact on the consolidated
results for the six month periods ended June 30, 1998 and 1997.
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BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
3. Long-term Obligations
On August 2, 1996, the Company entered into a $250 million syndicated bank
Competitive Advance and Revolving Credit Facility Agreement (the "Bank Credit
Agreement"). The Bank Credit Agreement is being used for working capital needs
and general corporate purposes, including acquisitions.
In August 1998, the Bank Credit Agreement was amended to provide covenant
relief, specifically the leverage and interest coverage ratios, for the period
ended June 30, 1998. The Bank Credit Agreement, as amended, contains various
loan covenants including a maximum leverage ratio based on total debt to pro
forma EBITDA calculated based on a four quarter rolling period (3.75 to 1
through March 31, 1998; 4.0 to 1 as of June 30, 1998; and 3.25 to 1 after June
30, 1998), a minimum interest coverage ratio based on EBITDA less capital
expenditures to interest costs calculated based on a four quarter rolling period
(2.50 to 1 through March 31, 1998; 2.0 to 1 as of June 30, 1998; and 3.0 to 1
after June 30, 1998), a maximum subsidiary debt level requirement, 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 Buhrmann NV
("Buhrmann"), formerly known as NV Koninklijke KNP BT, or its affiliates, shall
own more than 50% of the voting shares of the Company. As a result of the August
1998 amendment, the Company is in compliance with the financial covenants under
the Bank Credit Agreement as of June 30, 1998. The Company does, however, expect
that one or more defaults or events of default under the Bank Credit Agreement
may arise during the remainder of 1998 as a result of breaches of existing
financial covenants. Accordingly, indebtedness under the Bank Credit Agreement
has been classified as current portion of long-term obligations in the financial
statements at June 30, 1998. Similar breaches of financial covenants were
expected during 1998 and, accordingly, the long-term obligations were reported
as current portion of long-term obligations in the financial statements at
December 31, 1997.
The Company's majority shareholder, Buhrmann, has advised the Company that it
will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in Note 8, the Company has announced that Buhrmann and the Company
have entered into an agreement pursuant to which Buhrmann would acquire in a
cash merger the outstanding minority interest in the Company subject to approval
by a majority of the Company's public stockholders. Buhrmann has advised the
Company it intends to reduce or eliminate its existing indebtedness under the
Bank Credit Agreement and/or otherwise cause such indebtedness to be refinanced.
4. Income Taxes
The difference between the effective income tax rate and the U.S. statutory tax
rate is primarily due to the effects of foreign and state income taxes and
non-deductible goodwill amortization.
5. Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding during the period, adjusted for the dilutive
common share equivalents attributed to outstanding options to purchase common
stock (367,000 shares and 20,000 shares for the three months ended June 30, 1998
and 1997 and 274,000 shares and 10,000 shares for the six months ended June 30,
1998 and 1997, respectively).
6. Contingencies
The Company is involved in various 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 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.
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BT Office Products International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Comprehensive Income (Loss)
During 1998, the Company adopted the provision of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." As of June 30,
1998 and December 31, 1997, accumulated other comprehensive loss, as reflected
on the condensed balance sheet, was comprised entirely of the foreign currency
translation adjustment. Total comprehensive income(loss) for the three month and
six month periods ended June 30, 1998 and 1997 were as follows:
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
---------- --------- ----------- ---------
Net income $ 1,833 $ 4,975 $ 6,166 $ 9,343
Other comprehensive loss:
Unrealized currency translation gain (loss) 1,917 (2,946) (1,187) (9,842)
---------- --------- ----------- ---------
Total comprehensive income (loss) $ 3,750 $ 2,029 $ 4,979 $ (499)
========= ========= =========== =========
8. Going Private Transaction
On January 22, 1998, Buhrmann, the Company's 70% stockholder, announced that it
was prepared to make an offer to acquire the approximately 30% of the Company's
stock that is publicly traded for a cash purchase price of $10.50 per share. The
Company formed an independent committee of its Board of Directors (the "Special
Committee") to represent the interests of the minority stockholders. The Special
Committee, together with independent financial and legal advisors it retained,
evaluated the proposal. On May 7, 1998, the Company announced that Buhrmann has
reached an agreement in principle with the Special Committee of the Board of
Directors to acquire in a cash merger the outstanding minority interest in the
Company for $13.75 per share. The agreement is subject to definitive
documentation, final board approval by the Company's Board of Directors, and
approval by a majority of the Company's public stockholders. On June 2, 1998,
the Board of Directors of the Company unanimously approved and adopted an
Agreement and Plan of Merger that was entered into with Buhrmann on such date
(the "Merger Agreement") and resolved that the Merger Agreement be recommended
to the Stockholders of the Company for consideration and adoption at a Special
Meeting of Stockholders. A preliminary proxy statement was filed with the
Securities and Exchange Commission (the "SEC") on June 17, 1998.
The total amount of funds required to pay the merger consideration is estimated
to be approximately $138.5 million. In addition, approximately $6.5 million will
be required to pay holders of outstanding options upon cancellation of such
options. While no final decisions have been reached, Buhrmann intends to provide
the necessary funds by means of a contribution of capital, intercompany debt, or
as a combination of both. After the consummation of the transaction, Buhrmann
will own 100% of the Company.
The Company was served with several class action complaints that have been filed
in the Court of Chancery of the State of Delaware relating to the going private
transaction. The actions allege breach of fiduciary duties and related claims
against Buhrmann, the Company and certain of its directors in connection with
the January 22, 1998 announcement. On May 7, 1998, the Company also announced
that Buhrmann has reached an agreement in principle to settle the class action
lawsuits that were filed challenging the transaction. This settlement is subject
to Court approval. The fees and expenses associated with such settlement are not
expected to be material to the financial condition of the Company.
9. Extraordinary Item - Going private costs
Expenses of the "going private" transaction described in Note 8 have been
recorded as an extraordinary item. As of June 30, 1998, the Company had incurred
approximately $1.0 million in costs consisting mainly of fees for legal and
financial advisors. The total costs for these and other filing costs are
estimated to be $2.6 million. The Company has determined that these expenses are
not deductible for income tax purposes and accordingly no tax effect has been
recorded.
The Merger Agreement calls for an acceleration of the vesting schedule for all
options outstanding under the Company's stock option plan. Under the provisions
of APB No. 25 "Accounting for Stock Issued to Employees," the portion of options
which has accelerated vesting privileges is deemed compensation expense. As
such, additional compensation expense of $1.3 million, net of related tax
benefits, will be treated as an extraordinary item if the transactions
contemplated by the Merger Agreement are consummated.
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BT Office Products International, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Net sales increased to $434.4 million in the second quarter of 1998 from $390.7
million in the comparable period last year, an increase of $43.7 million or
11.2%. The increase in sales was led by an increase in sales from existing
locations of 8.0% and growth from acquisitions of 4.2%, offset by currency
translation which had a negative impact of 1.0%. Net sales increased to $878.7
million in the first six months of 1998 from $792.2 million in the comparable
period last year, an increase of $86.5 million or 10.9%. The increase in sales
was led by an increase in sales from existing locations of 9.2% and growth from
acquisitions of 3.6%, offset by currency translation which had a negative impact
of 1.9%.
Net sales in the United States increased to $301.4 million in the second quarter
of 1998 from $278.7 million in the comparable period last year, an increase of
$22.7 million or 8.1%. Net sales in the United States increased to $614.0
million in the first six months of 1998 from $567.1 million in the comparable
period last year, an increase of $46.9 million or 8.3%. The Company believes the
principal factors contributing to its internal growth were increased sales to
existing customers and new accounts. Net sales in the United States continue to
be negatively impacted by increasing competitive market conditions and lower
paper prices.
Net sales in Europe increased to $133.0 million in the second quarter of 1998
from $112.0 million in the comparable period last year, an increase of $21.0
million or 18.8%. The incremental impact of the Company's 1997 and 1998
acquisitions accounted for 14.8% of the European sales growth in the second
quarter of 1998. Excluding the effects of foreign currency depreciation against
the U.S. dollar of 3.4%, sales growth at existing locations increased 7.4% for
the second quarter, compared to the same period last year. Net sales in Europe
increased to $264.6 million in the first six months of 1998 from $225.1 million
in the comparable period last year, an increase of $39.5 million or 17.6%. The
incremental impact of the Company's 1997 and 1998 acquisitions accounted for
12.5% of the European sales growth in the first six months of 1998. Excluding
the effects of foreign currency depreciation against the U.S. dollar of 6.5%,
sales growth at existing locations increased 11.6% for the first six months,
compared to the same period last year. Europe's internal growth was driven by
the continued double digit growth from the late 1996 acquisitions in Sweden and
the Netherlands, the addition of new, large accounts in Germany and, to a lesser
extent, two new sales offices in Germany.
Gross profit as a percentage of net sales was 27.6% in the second quarter of
1998 as compared to 28.8% in the comparable period last year, a decrease of
1.2%. Gross profit as a percentage of net sales was 27.3% in the first six
months of 1998 as compared to 28.8% in the comparable period last year, a
decrease of 1.5%. These decreases were attributable primarily to highly
competitive market conditions resulting in lower product margins in the United
States and Europe and a shift in product mix in Europe.
Selling and administrative expenses, expressed as a percentage of net sales,
were 24.0% in the second quarter of 1998 as compared to 23.9% in the comparable
period last year, an increase of 0.1%. Selling and administrative expenses,
expressed as a percentage of net sales, were 23.4% in the first six months of
1998 as compared to 24.0% in the comparable period last year, a decrease of
0.6%. With the recent sales growth, the Company has leveraged its operating and
logistics costs while at the same time invested in additional personnel to
support the business. The Company continues to focus on initiatives to improve
its cost structure.
In December 1997, the Company announced its U.S. plan to implement an
enterprise-wide system solution, known as Project Millennium, which is designed
to standardize business processes, centralize certain business functions, and
enhance customer service capabilities. As part of the first phase of the
project, customers will gradually transition from the various legacy systems to
the national sales and order management system. The operating costs associated
with the design and implementation of Project Millennium and the enhanced
national sales and order management system in the second quarter of 1998 and the
comparable quarter last year totaled $4.1 million and $1.3 million,
respectively. Similar operating costs in the first six months of 1998 and the
comparable period last year included $7.5 million and $3.2 million,
respectively.
Operating income, expressed as a percentage of net sales, was 1.9% in the second
quarter of 1998 as compared to 3.2% in the comparable period last year.
Excluding the Project Millennium costs described above, operating income as a
percentage of sales would have been 2.9% in the second quarter of 1998 and 3.6%
in the comparable period in the prior year. Operating income in the United
States, excluding the costs of Project Millennium described above, would have
been $10.5 million, or 3.5% in the second quarter of 1998 and $12.0 million, or
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4.3% in the same period last year. Operating income as a percentage of net sales
in Europe in the second quarter of 1998 and 1997 was 1.4% and 1.8%,
respectively. Operating income as a percentage of net sales was 2.3% in the
first six months of 1998 as compared to 3.1% in the comparable period last year.
Excluding the Project Millennium costs described above, operating income as a
percentage of sales would have been 3.1% in the first six months of 1998 and
3.5% in the comparable period in the prior year. Operating income in the United
States, excluding the costs of Project Millennium described above, would have
been $22.9 million, or 3.7% in the first six months of 1998 and $23.9 million,
or 4.2% in the same period last year. Operating income as a percentage of net
sales in Europe in the first six months of 1998 and 1997 was 1.6%.
An extraordinary expense was recorded in the second quarter of 1998 related to
expenses associated with the "going private" transaction described in Note 8. As
of June 30, 1998, the Company had incurred approximately $1.0 million of costs
consisting mainly of fees for legal and financial advisors. The total costs for
these and other filing costs are estimated to be $2.6 million. The Company has
determined that these expenses are not deductible for income tax purposes and
accordingly no tax effect has been recorded.
Net income decreased to $1.8 million in the second quarter of 1998 from $5.0
million in the comparable period last year. Net income decreased to $6.2 million
in the first six months of 1998 from $9.3 million in the comparable period last
year. Lower gross margins and additional costs associated with Project
Millennium offset the favorable experience of higher sales and operating cost
reductions.
Liquidity and Capital Resources
Cash provided by operating activities in the first six months of 1998 of $9.7
million was the result of $22.9 million of net income, depreciation,
amortization and other non-cash items offset by $13.2 million of net increases
in working capital. Cash provided by financing activities included $28.7 million
for net borrowings of notes payable and long-term obligations. Significant cash
requirements in the first six months of 1998 included $15.4 million for capital
expenditures, of which $7.8 million related to Project Millennium, and $32.1
million related to acquisitions of businesses.
As a result of the August 1998 amendment, the Company is in compliance with the
financial covenants under the Bank Credit Agreement as of June 30, 1998. The
Company does, however, expect that one or more defaults or events of default
under the Bank Credit Agreement may arise during the remainder of 1998 as a
result of breaches of existing financial covenants. Accordingly, indebtedness
under the Bank Credit Agreement has been classified as current portion of
long-term obligations in the financial statements at June 30, 1998. Similar
breaches of financial covenants were expected during 1998 and, accordingly, the
long-term obligations were reported as current portion of long-term obligations
in the financial statements at December 31, 1997.
The Company's majority shareholder, Buhrmann, has advised the Company that it
will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in Note 8, the Company has announced that Buhrmann and the Company
have entered into an agreement pursuant to which Buhrmann would acquire in a
cash merger the outstanding minority interest in the Company subject to approval
by a majority of the Company's public stockholders. Buhrmann has advised the
Company it intends to reduce or eliminate its existing indebtedness under the
Bank Credit Agreement and/or otherwise cause such indebtedness to be refinanced.
The Company continues to actively pursue acquiring established quality office
products distributors in Europe and, to a lesser extent, in the United States as
an integral part of its long term strategy. The Company anticipates significant
future acquisition funding, to the extent required, will necessitate obtaining
additional debt and/or equity capital resources. There can be no assurance that
the Company could obtain such additional resources. The Company continues to
examine and evaluate several alternatives.
Euro Currency Matters
By June 1998, eleven of the fifteen members of the European Union agreed to
adopt fixed conversion rates on January 1, 1999 between their national currency
and the Euro currency. The respective national currencies will also remain legal
tender until January 1, 2002. The Company operates in three countries--The
Netherlands, Germany and Austria--that will adopt the Euro currency as their
common currency on January 1, 1999. The Company is not certain when, or if, its
other European operations in the United Kingdom and Sweden (also members of the
European Union) will be subject to Euro currency conversion. The Company's
European operations currently use the local currency as the functional currency
in translating the financial statements. The introduction of the Euro currency
-10-
requires that the Company's systems have the ability to transact in
dual-currencies. However, a change in the functional currency is not anticipated
until the local currency is no longer legal tender.
The Company has completed its initial assessment of their systems in
anticipation of the dual currencies starting January 1, 1999 or later. These
changes are being coordinated with other system changes required to be Year 2000
compliant (see discussion below). Full system conversion to the Euro is not
required until at least January 1, 2002. However, to the extent the Company does
not have the ability to invoice customers in the Euro, or that customers would
be unable to order product or pay invoices in the Euro, the Company's business
could be materially adversely affected.
Year 2000 Issues
The Company has completed its initial assessment of the impact of the Year 2000
issue on the majority of its systems and is addressing the issues identified.
The Company currently believes it will be able to modify or replace its affected
systems in time to minimize any detrimental effects on operations. During the
first six months of 1998, the Company expensed $0.4 million for consulting fees
in conjunction with the initial assessment of the Year 2000 impact. Management
currently expects that full implementation of this project will involve a
commitment of internal and external resources of approximately $7 million to $10
million over the next 18 months. While it is not possible, at present, to know
the actual cost of this work, the Company expects that such costs may be
material to the Company's results of operations in one or more fiscal quarters
or years. The Company is unable to ascertain whether its customers' and vendors'
systems are, or will be, Year 2000 compliant. However, to the extent that
customers would be unable to order products or pay invoices, vendors would be
unable to manufacture and ship products, or the Company is unable to achieve
Year 2000 compliance, the Company's business could be materially adversely
affected.
Other
In June 1997, the FASB issued Statement No. 131 ("SFAS 131"), "Disclosure about
Segments of an Enterprise and Related Information." This statement, effective
for financial statements for periods beginning after December 15, 1997, requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments. The
Company is evaluating the effects of this pronouncement.
On June 15, 1998, the FASB issued Statement No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 is effective for
all fiscal years beginning after June 15, 1999. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of
transaction. The Company anticipates that, due to its limited use of derivative
instruments, the adoption of SFAS 133 will not have a significant effect on the
Company's results of operations or its financial position.
Forward Looking Statements
Various statements made within this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly
Report on Form 10-Q constitute "forward looking statements" for purposes of the
Securities and Exchange Commission's "safe harbor" provisions under the Private
Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities
Exchange Act of 1934, as amended. Investors are cautioned that all forward
looking statements involve risks and uncertainties, including those detailed in
the Company's filings with the Securities and Exchange Commission. There can be
no assurance that actual results will not differ from the Company's
expectations. Factors which could cause materially different results include,
among others, uncertainties related to the introduction of the Company's
products and services; the ability to finance and successfully complete and
integrate future acquisitions; mix of sales by product category and country;
continual competitive pressure on pricing and margins; delays in implementing
the technological and operational changes planned under Project Millennium; Year
2000 implementation costs, the volatility of paper prices; the fluctuation in
interest rates; and the expansion into international markets, including currency
exchange rates and general market conditions.
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Part II. Other Information
BT Office Products International, Inc.
Item 1. Legal Proceedings
The Company was served with several class action complaints that have been filed
in the Court of Chancery of the State of Delaware. The actions allege breach of
fiduciary duties and related claims against Buhrmann, the Company and certain of
its directors in connection with the January 22, 1998 announcement relating to
the going private transaction. On May 7, 1998, the Company announced that
Buhrmann has reached an agreement in principle to settle the class action
lawsuits that were filed challenging the transaction. This settlement is subject
to Court approval. The fees and expenses associated with such settlement are not
expected to be material to the financial condition of the Company.
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
10.1 Amendment No. 3 dated August 13, 1998 to the Competitive Advance
and Revolving Credit Facility Agreement
10.2 Collective bargaining agreement between BT Office Products
International, Inc. Pittsburgh Division and General Teamsters,
Chauffeurs, and Helpers Local Union No. 249 dated August 10, 1998
10.3 Collective bargaining agreement between BT Office Products
International, Inc. Washington Division and Graphic Communications
Union, Local 449-S dated May 25, 1998
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On June 8, 1998, the Company filed a Current Report on Form 8-K to
report that the Company has signed a definitive merger agreement with Buhrmann
(formerly known as NV Konkinklijke KNP BT) as of June 2, 1998.
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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/ Francis J. Leonard
-----------------------------------------------
Francis J. Leonard
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
Date: August 13, 1998
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BT OFFICE PRODUCTS INTERNATIONAL, INC.
INDEX TO EXHIBITS
Filed with the Quarterly Report on Form 10-Q
for the Quarterly Period Ended June 30, 1998
Exhibit No. Description
10.1 Amendment No. 3 dated August 13, 1998 to the Competitive Advance
and Revolving Credit Facility Agreement
10.2 Collective bargaining agreement between BT Office Products
International, Inc. Pittsburgh Division and General Teamsters,
Chauffeurs, and Helpers Local Union No. 249 dated August 10,
1998
10.3 Collective bargaining agreement between BT Office Products
International, Inc. Washington Division and Graphic
Communications Union, Local 449-S dated May 25, 1998
27.1 Financial Data Schedule
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