-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KVkJlSA9f9ntOaYJT0R1yznQEe7KXlWXZu9UH8fQbNWLQfN18yU6LDROTdtaGWoB Fg9JVGaq9Yp9lvPe2RtKew== 0000912057-00-023448.txt : 20000512 0000912057-00-023448.hdr.sgml : 20000512 ACCESSION NUMBER: 0000912057-00-023448 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATIONERS INC CENTRAL INDEX KEY: 0000355999 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 363141189 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10653 FILM NUMBER: 626830 BUSINESS ADDRESS: STREET 1: 2200 E GOLF RD CITY: DES PLAINES STATE: IL ZIP: 60016-1267 BUSINESS PHONE: 8476995000 MAIL ADDRESS: STREET 1: 2200 E GOLF ROAD STREET 2: 2200 E GOLF ROAD CITY: DES PLAINES STATE: IL ZIP: 600161267 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATIONERS SUPPLY CO CENTRAL INDEX KEY: 0000945633 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 362431718 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-59811 FILM NUMBER: 626831 BUSINESS ADDRESS: STREET 1: 2200 E GOLF RD CITY: DES PLAINES STATE: IL ZIP: 60016-1267 BUSINESS PHONE: 7086995000 MAIL ADDRESS: STREET 1: 2200 E GOLF ROAD STREET 2: 2200 E GOLF ROAD CITY: DES PLAINES STATE: IL ZIP: 600161267 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 2000 --------------- 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 numbers: United Stationers Inc.: 0-10653 United Stationers Supply Co.: 33-59811 UNITED STATIONERS INC. UNITED STATIONERS SUPPLY CO. ----------------------------------- (Exact name of registrant as specified in its charter) United Stationers Inc.: Delaware United Stationers Inc.: 36-3141189 United Stationers Supply Co.: Illinois United Stationers Supply Co.: 36-2431718 - --------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2200 East Golf Road, Des Plaines, Illinois 60016-1267 - ------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 699-5000 Indicate by check mark whether each 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 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. United Stationers Inc.: Yes /X/ No / / United Stationers Supply Co.: Yes /X/ No / / On May 10, 2000, United Stationers Inc. had outstanding 34,203,792 shares of Common Stock, par value $0.10 per share. On May 10, 2000, United Stationers Supply Co. had 880,000 shares of Common Stock, $1.00 par value per share, outstanding; United Stationers Inc. owns 100% of these shares. UNITED STATIONERS INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 INDEX -------
PART I - FINANCIAL INFORMATION PAGE IMPORTANT EXPLANATORY NOTE 1 Independent Accountants' Review Report 2 Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Income for the Three Months ended March 31, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION 16 SIGNATURE 18 INDEX TO EXHIBITS 19
UNITED STATIONERS INC. AND SUBSIDIARIES PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IMPORTANT EXPLANATORY NOTE THIS INTEGRATED FORM 10-Q IS FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, FOR EACH OF UNITED STATIONERS INC. ("UNITED"), A DELAWARE CORPORATION, AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO. ("USSC"), AN ILLINOIS CORPORATION (COLLECTIVELY, THE "COMPANY"). UNITED STATIONERS INC. IS A HOLDING COMPANY WITH NO OPERATIONS SEPARATE FROM ITS OPERATING SUBSIDIARY, UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES. NO SEPARATE FINANCIAL INFORMATION FOR UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES HAS BEEN PROVIDED HEREIN BECAUSE MANAGEMENT FOR THE COMPANY BELIEVES SUCH INFORMATION WOULD NOT BE MEANINGFUL BECAUSE (i) UNITED STATIONERS SUPPLY CO. IS THE ONLY DIRECT SUBSIDIARY OF UNITED STATIONERS INC., WHICH HAS NO OPERATIONS OTHER THAN THOSE OF UNITED STATIONERS SUPPLY CO. AND (ii) ALL ASSETS AND LIABILITIES OF UNITED STATIONERS INC. ARE RECORDED ON THE BOOKS OF UNITED STATIONERS SUPPLY CO. THERE IS NO MATERIAL DIFFERENCE BETWEEN UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO. FOR THE DISCLOSURE REQUIRED BY THE INSTRUCTIONS TO FORM 10-Q AND THEREFORE, UNLESS OTHERWISE INDICATED, THE RESPONSES SET FORTH HEREIN APPLY TO EACH OF UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO. - 1 - INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors United Stationers Inc. We have reviewed the accompanying condensed consolidated balance sheet of United Stationers Inc. and Subsidiaries as of March 31, 2000, and the related condensed consolidated statements of income for the three month periods ended March 31, 2000 and 1999, and the condensed consolidated statements of cash flows for the three month periods ended March 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of United Stationers Inc. as of December 31, 1999, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein) and in our report dated January 26, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP Chicago, Illinois April 21, 2000 - 2 - UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
(Unaudited) (Audited) March 31, December 31, 2000 1999 -------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 28,829 $ 18,993 Accounts receivable, net 265,302 263,432 Inventories 583,089 607,682 Other current assets 23,469 24,424 ----------- ----------- Total current assets 900,689 914,531 Property, plant and equipment, net 169,077 167,544 Goodwill, net 180,143 181,456 Other 18,115 16,372 ----------- ----------- Total assets $ 1,268,024 $ 1,279,903 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 337,857 $ 346,558 Accrued liabilities 144,745 142,858 Current maturities of long-term debt 10,585 9,567 ----------- ----------- Total current liabilities 493,187 498,983 Deferred income taxes 29,010 28,926 Long-term obligations 315,100 345,985 ----------- ----------- Total liabilities 837,297 873,894 Stockholders' equity: Common stock, $0.10 par value, authorized 100,000,000 shares, issued 37,213,207 shares in 2000 and 1999 3,721 3,721 Additional paid-in capital 303,970 304,288 Treasury stock, at cost - 3,170,699 shares in 2000 and 3,220,481 shares in 1999 (48,395) (49,145) Retained earnings 172,187 148,262 Accumulated translation adjustment (756) (1,117) ----------- ------------ Total stockholders' equity 430,727 406,009 ----------- ----------- Total liabilities and stockholders' equity $ 1,268,024 $ 1,279,903 =========== ===========
See notes to condensed consolidated financial statements. - 3 - UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (Unaudited)
Three Months Ended March 31, -------------------------------------------- 2000 1999 --------------------- ---------------- Net sales $ 979,358 $ 824,261 Cost of goods sold 821,566 690,393 --------------- ------------- Gross profit 157,792 133,868 Operating expenses: Warehousing, marketing and administrative expenses 107,388 91,982 --------------- -------------- Income from operations 50,404 41,886 Interest expense 7,414 7,467 Other expense 2,646 2,199 --------------- -------------- Income before income taxes 40,344 32,220 Income taxes 16,420 13,532 --------------- -------------- Net income $ 23,924 $ 18,688 =============== ============== Net income per common share $ 0.70 $ 0.51 =============== ============== Average number of common shares outstanding (in thousands) 34,019 36,840 Net income per common share - assuming dilution $ 0.69 $ 0.50 =============== ============== Average number of common shares outstanding - assuming dilution (in thousands) 34,751 37,409
See notes to condensed consolidated financial statements. - 4 - UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Three Months Ended March 31, ------------------------------------ 2000 1999 ------------ ------------ Cash Flows From Operating Activities: Net income $ 23,924 $ 18,688 Depreciation and amortization 7,598 6,804 Amortization of capitalized financing costs 492 358 Changes in operating assets and liabilities 14,100 (6,464) ----------- ---------- Net cash provided by operating activities 46,114 19,386 Cash Flows From Investing Activities: Capital expenditures (7,163) (8,702) Proceeds from disposition of property, plant and equipment - - 3,200 ----------- ---------- Net cash used in investing activities (7,163) (5,502) Cash Flows From Financing Activities: Principal payments on debt (1,705) (1,119) Net (repayments) borrowings under revolver (28,000) 26,000 Issuance of common shares 648 2,447 Acquisition of treasury stock - - (34,656) Payment of employee withholding tax related to stock option exercises (419) (2,381) Other 361 236 ----------- ---------- Net cash used in financing activities (29,115) (9,473) ----------- ---------- Net change in cash and cash equivalents 9,836 4,411 Cash and cash equivalents, beginning of period 18,993 19,038 ----------- ---------- Cash and cash equivalents, end of period $ 28,829 $ 23,449 =========== ========== Other Cash Flow Information: Income taxes paid $ 3,101 $ 1,196 Interest paid 2,695 1,635 Discount on the sale of accounts receivable 2,540 2,207
See notes to condensed consolidated financial statements. - 5 - UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements are unaudited, except for the Consolidated Balance Sheet as of December 31, 1999. These financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. Accordingly, the reader of this Form 10-Q should refer to the Company's Form 10-K for the year ended December 31, 1999 for further information. In the opinion of the Company's management, the condensed consolidated financial statements for the unaudited interim periods presented include all adjustments necessary to fairly present the results of such interim periods and the financial position as of the end of said periods. Certain interim expense and inventory estimates are recognized throughout the year relating to marginal income tax rates, shrinkage, price changes and product mix. Any refinements to these estimates based on actual experience are recorded when known. 2. OPERATIONS The Company operates in a single segment as the nation's largest wholesale distributor of business products in North America. The Company offers approximately 35,000 items from more than 500 manufacturers. This includes a broad spectrum of office products, computer supplies, office furniture and facilities management supplies. The Company primarily serves commercial and contract office products dealers. Its customers include more than 20,000 resellers - such as computer products resellers, office furniture dealers, office products superstores, janitorial and sanitation supply distributors, e-tailers, warehouse clubs, mail order houses and mass merchandisers. The Company has a distribution network of 66 regional distribution centers. Through its integrated mainframe systems, the Company provides a high level of customer service and overnight delivery. On April 18, 2000, the Company announced that it had signed an operating lease for a warehouse located in Memphis, Tennessee, dedicated to third party fulfillment. This new 654,000 square foot facility will act as an air hub enabling the Company's e-Nited Business Solutions Division to provide both ground and overnight express delivery capability. The warehouse, which is expected to open in September 2000, will incorporate the latest warehouse and distribution technology. 3. COMPREHENSIVE INCOME (in thousands)
Three Months Ended March 31, ---------------------------- 2000 1999 -------- ------- Net income $23,924 $18,688 Unrealized currency translation adjustment 361 235 ------- ------- Comprehensive income $24,285 $18,923 ======= =======
4. EARNINGS PER SHARE Basic earnings per share ("EPS") is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options are considered dilutive securities. - 6 - UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended March 31, ------------------------------- 2000 1999 ----------- ------------ NUMERATOR: Net income $ 23,924 $ 18,688 ========= ========= DENOMINATOR (in thousands): Denominator for basic earnings per share - Weighted average shares 34,019 36,840 Effect of dilutive securities: Employee stock options 732 569 --------- --------- Denominator for diluted earnings per share - Adjusted weighted average shares And assumed conversions 34,751 37,409 ========= ========= EARNINGS PER COMMON SHARE: Net income per share - basic $ 0.70 $ 0.51 Net income per share - diluted $ 0.69 $ 0.50
5. LONG-TERM DEBT Long-term debt consisted of the following amounts (dollars in thousands):
As of As of March 31, December 31, 2000 1999 ----------- ------------ Revolver $ 25,000 $ 53,000 Tranche A term loan, due in installments until March 31, 2004 52,147 53,711 8.375% Senior Subordinated Notes, due April 15, 2008 100,000 100,000 12.75% Senior Subordinated Notes, due May 1, 2005 100,000 100,000 Industrial development bonds, at market interest rates, maturing at various dates through 2011 14,300 14,300 Industrial development bonds, at 66% to 78% of prime, maturing at various dates through 2004 15,500 15,500 Other long-term debt 275 416 ----------- ------------ Subtotal 307,222 336,927 Less - current maturities (10,585) (9,567) ----------- ------------ Total $ 296,637 $ 327,360 ============ ============
- 7 - UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The prevailing prime interest rate at March 31, 2000 and December 31, 1999 was 9.0% and 8.5%, respectively. At March 31, 2000, the available credit under the Second Amended and Restated Credit Agreement (the "Credit Agreement") included $52.1 million of term loan borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving loan borrowings (the "Revolving Credit Facility"). In addition, the Company had $100.0 million of 12.75% Senior Subordinated Notes due 2005 (as defined), $100.0 million of 8.375% Senior Subordinated Notes due 2008, and $29.8 million of industrial revenue bonds. Amounts outstanding under the Term Loan Facilities are to be repaid in 16 quarterly installments ranging from $2.6 million at June 30, 2000 to $3.7 million at March 31, 2004. The Revolving Credit Facility is limited to $250.0 million, less the aggregate amount of letter of credit liabilities, and contains a provision for swingline loans in an aggregate amount up to $25.0 million. The Revolving Credit Facility matures on March 31, 2004, and $25.0 million was outstanding at March 31, 2000. 12.75% Senior Subordinated Notes: The 12.75% Senior Subordinated Notes ("12.75% Notes") were originally issued on May 3, 1995, pursuant to the 12.75% Notes Indenture. As of March 31, 2000, the aggregate outstanding principal amount of the 12.75% Notes was $100.0 million. The 12.75% Notes are unsecured senior subordinated obligations of USSC, and payment of the 12.75% Notes is fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries on a senior subordinated basis. The 12.75% Notes mature on May 1, 2005, and bear interest at the rate of 12.75% per annum, payable semi-annually on May 1 and November 1 of each year. On May 2, 2000, $100.0 million of the Company's 12.75% Notes were redeemed at the redemption price of 106.375% of the principal amount plus accrued interest. As a result, the Company will record an after-tax extraordinary charge of approximately $6.5 million in the second quarter of 2000. This charge includes approximately $2.6 million (after-tax) related to the write-off of capitalized costs. The redemption was funded through the Company's Revolving Credit Facility. The Company's annual interest expense saving will be approximately $4.0 million based on a 375 basis point reduction to the interest rate and the elimination of the amortization of capitalized costs. 8.375% Senior Subordinated Notes: The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April 15, 1998, pursuant to the 8.375% Notes Indenture. As of March 31, 2000, the aggregate outstanding principal amount of 8.375% Notes was $100.0 million. The 8.375% Notes are unsecured senior subordinated obligations of USSC, and payment of the 8.375% Notes is fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries that incur indebtedness (as defined in the 8.375% Notes Indenture) on a senior subordinated basis. The 8.375% Notes mature on April 15, 2008, and bear interest at the rate of 8.375% per annum, payable semi-annually on April 15 and October 15 of each year. - 8 - UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. SUMMARIZED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES Azerty Incorporated, Positive ID Wholesale, and AP Support Services (collectively, the "Azerty Guarantor") and Lagasse Bros., Inc. ("Lagasse") guarantee the 8.375% Senior Subordinated Notes due 2008 (the "Notes") issued by United Stationers Supply Co. ("USSC"). The Azerty Guarantor Subsidiaries and Azerty de Mexico, S.A. de C.V. (collectively, the "Azerty Business") were acquired on April 3, 1998. Summarized below is the combined financial data for the Azerty Business (subsequent to its acquisition by USSC) and Lagasse. Summarized financial data for the three months ended March 31, 2000 reflects the operations of Lagasse and the Azerty Business.
As of As of March 31, December 31, 2000 1999 ---------------- ----------------- Balance Sheet Data: Current assets $ 254,442 $ 247,413 Total assets 371,090 364,551 Current liabilities 117,627 99,679 Total liabilities 114,390 96,275
Three Months Ended March 31, ------------------------------ 2000 1999 ---------- ----------- Income Statement Data: Net sales $ 211,999 $ 175,710 Gross margin 20,259 18,084 Operating income 7,293 6,729 Net income 3,492 3,741
7. RECENT ACCOUNTING PRONOUNCEMENT The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was issued in June 1998 and was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. Earlier application is permitted. SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes "special accounting" for the following three different types of hedges: hedges of changes in the fair value of assets, liabilities or firm commitments; hedges of the variable cash flows of forecasted transactions; and hedges of foreign currency exposures of net investments in foreign operations. Though the accounting treatment and criteria for each of the three types of hedges is unique, they all result in recognizing offsetting changes in value or cash flows of both the hedge and the hedged item in earnings in the same period. Changes in the fair value of derivatives that do not meet the criteria of one of these three categories of hedges are included in earnings in the period of the change. The Company anticipates that SFAS No. 133 will not have a material impact on its consolidated financial statements. - 9 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-Q. Information contained or incorporated by reference in this Form 10-Q may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. All statements other than statements of historical fact included in this Form 10-Q, including those regarding the Company's financial position, business strategy, projected costs and plans and objectives of management for future operations are forward-looking statements. The following matters and certain other factors noted throughout this Form 10-Q constitute cautionary statements identifying important factors with respect to any such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties include, but are not limited to, the highly-competitive environment in which the Company operates, the integration of acquisitions, changes in end-users' traditional demands for business products, reliance by the Company on certain key suppliers, the effects on the Company of fluctuations in manufacturers' pricing, potential service interruptions, customer credit risk, dependence on key personnel and general economic conditions. A description of these factors, as well as other factors that could affect the Company's business, is set forth in certain filings by the Company with the Securities and Exchange Commission. All forward-looking statements contained in this Form 10-Q and/or any subsequent written or oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by such cautionary statements. The Company undertakes no obligation to release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. First Quarter Ended March 31, 2000 compared with the First Quarter Ended March 31, 1999 - ----------------------------------------------------- NET SALES. Net sales for the first quarter of 2000 totaled $979.4 million, up 18.8% or 15.2% on equivalent workdays, compared with $824.3 million in the first quarter of 1999. The Company experienced sales growth in all product categories, customer channels, and across all geographies. The janitorial and sanitation supply product category continued to achieve strong growth rates. These products are primarily distributed through the Lagasse business unit, which achieved a growth rate of nearly 30%. This increase is based on continued market expansion into a fragmented industry. Consolidated purchasing power has allowed the Company to leverage pricing to become more competitive in the marketplace. The growth within customer channels is mainly concentrated in national accounts, mail order, and within independent dealers. The Company's sales into the office furniture market grew 20%, compared with the prior year quarter. The Company is focusing on this product category recognizing the opportunity for increased sales penetration with existing customers and introducing new marketing programs to reach new customers. The continued strong sales growth in this category resulted from increased volume across all customer channels. - 10 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Traditional office product growth was in the low teens versus the prior year quarter. As sales grow the Company is able to leverage pricing, thus gaining market share. The Company has been exceptionally successful with national accounts and mail order partners. The computer supplies category remained strong posting a growth rate in the low teens over the prior year quarter. This is a very competitive market with relatively low margins. However, based on the Company's scale and efficient distribution capabilities, sales will continue to increase as relationships with customers are strengthened. National accounts, mail order, and emerging channels continued to show exceptional growth. However, sales growth to retail stores fell to the high single digits, reflecting the initial build-up of inventory. It is expected that sell-through to the retail channel will remain at current levels. GROSS MARGIN. Gross margin declined to 16.1% in the first quarter of 2000, compared with 16.3% in 1999. This decline reflects product mix and incremental freight costs. Pricing margin has been impacted by higher dealer rebates due to increased sales and strong growth among our national account dealers who receive a higher rebate percentage due to volume. However, during the first quarter the Company experienced approximately 1.0% inflation resulting in higher margin and the increased volume has created higher vendor allowances. OPERATING EXPENSES. Operating expenses as a percent of net sales declined to 11.0% in the first quarter of 2000, compared with 11.2% in the prior year. This decline reflects the Company's ability to gain operating leverage, at the same time the higher than anticipated sales volume resulted in higher payroll and other warehouse expenses. There is ongoing opportunity to reduce operating expenses as the Company installs best practices across all facilities, more advanced technology, and continues to leverage its infrastructure. INCOME FROM OPERATIONS. Income from operations as a percent of net sales remained flat at 5.1%. INTEREST EXPENSE. Interest expense as a percent of net sales was 0.8% in 2000, compared with 0.9% in 1999. This reduction reflects the Company's strong cash flow and the continued leveraging of interest costs against higher sales. These transactions were partially offset by slightly higher interest rates on variable rate debt. OTHER EXPENSE. Other expense as a percent of net sales was 0.3% in 2000 and 1999. This expense represents the costs associated with the sale of certain trade accounts receivable through the Receivables Securitization Program (as defined). Costs related to the Receivables Securitization Program vary on a monthly basis and are generally related to certain interest rates. INCOME BEFORE TAXES. Income before taxes as a percent of net sales increased to 4.0% from 3.9% in 1999. NET INCOME. Net income as a percent of net sales increased to 2.4% in 2000, compared with 2.3% in 1999. - 11 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Credit Agreement At March 31, 2000, the available credit under the Second Amended and Restated Credit Agreement (the "Credit Agreement") included $52.1 million of term loan borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving loan borrowings (the "Revolving Credit Facility"). In addition, the Company had $100.0 million of 12.75% Senior Subordinated Notes due 2005 (as defined), $100.0 million of 8.375% Senior Subordinated Notes due 2008 and $29.8 million of industrial revenue bonds. The Term Loan Facilities consist of a $52.1 million Tranche A term loan facility ("Tranche A Facility"). Amounts outstanding under the Tranche A Facility are to be repaid in 16 quarterly installments ranging from $2.6 million at June 30, 2000 to $3.7 million at March 31, 2004. The Revolving Credit Facility is limited to $250.0 million, less the aggregate amount of letter of credit liabilities, and contains a provision for swingline loans in an aggregate amount up to $25.0 million. The Revolving Credit Facility matures on March 31, 2004 and $25.0 million was outstanding at March 31, 2000. The Term Loan Facilities and the Revolving Credit Facility are secured by first priority pledges of the stock of USSC, all of the stock of domestic direct and indirect subsidiaries of USSC, certain of the stock of Lagasse and Azerty, and certain of the foreign and direct and indirect subsidiaries of USSC (excluding USS Receivables Company, Ltd.) and security interests and liens upon all accounts receivable, inventory, contract rights and certain real property of USSC and its domestic subsidiaries other than accounts receivables sold in connection with the Receivables Securitization Program. The loans outstanding under the Term Loan Facilities and the Revolving Credit Facility bear interest as determined within a set range. The interest rate is based on the ratio of total debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA"). The Tranche A Facility and Revolving Credit Facility bear interest at prime to prime plus 0.75%, or, at the Company's option, the London Interbank Offering Rate ("LIBOR") plus 1.00% to 2.00%. The Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for financings of this type. At March 31, 2000, the Company was in compliance with all covenants. The right of United to participate in any distribution of earnings or assets of USSC is subject to the prior claims of USSC's creditors. In addition, the Credit Agreement contains certain restrictive covenants, including covenants that restrict or prohibit USSC's ability to pay cash dividends and make other distributions to United. - 12 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Management believes that the Company's cash on hand, anticipated funds generated from operations and available borrowings under the Credit Agreement, will be sufficient to meet the short-term (less than 12 months) and long-term operating and capital needs of the Company as well as to service its debt in accordance with its terms. There is, however, no assurance that this will be accomplished. United is a holding company and, as a result, its primary source of funds is cash generated from operating activities of its operating subsidiary, USSC, and bank borrowings by USSC. The Credit Agreement and the indentures governing the Notes contain restrictions on the ability of USSC to transfer cash to United. 12.75% Senior Subordinated Notes The 12.75% Senior Subordinated Notes ("12.75% Notes") originally were issued on May 3, 1995, pursuant to the 12.75% Notes Indenture. As of March 31, 2000, the aggregate outstanding principal amount of the 12.75% Notes was $100.0 million. The 12.75% Notes are unsecured senior subordinated obligations of USSC, and payment of the 12.75% Notes is fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries on a senior subordinated basis. The Notes are redeemable on May 1, 2000, in whole or in part, at a redemption price of 106.375% (percentage of principal amount). The 12.75% Notes mature on May 1, 2005, and bear interest at the rate of 12.75% per annum, payable semi-annually on May 1 and November 1 of each year. On May 2, 2000, $100.0 million of the Company's 12.75% Notes were redeemed at the redemption price of 106.375% of the principal amount plus accrued interest. As a result, the Company will record an after-tax extraordinary charge of approximately $6.5 million in the second quarter of 2000. This charge includes approximately $2.6 million (after-tax) related to the write-off of capitalized costs. The redemption was funded through the Company's Revolving Credit Facility. The Company's annual interest expense saving will be approximately $4.0 million based on a 375 basis point reduction to the interest rate and the elimination of the amortization of capitalized costs. 8.375% Senior Subordinated Notes The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April 15, 1998, pursuant to the 8.375% Notes Indenture. As of March 31, 2000 the aggregate outstanding principal amount of 8.375% Notes was $100.0 million. The 8.375% Notes are unsecured senior subordinated obligations of USSC, and payment of the 8.375% Notes is fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries that incur indebtedness (as defined in 8.375% Notes Indeture) on a senior subordinated basis. The Notes are redeemable on April 15, 2003 in whole or in part, at a redemption price of 104.188% (percentage of principal amount). The 8.375% Notes mature on April 15, 2008, and bear interest at the rate of 8.375% per annum, payable semi-annually on April 15 and October 15 of each year. - 13 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Receivables Securitization Program The Receivables Securitization Program allows the Company to sell eligible receivables (except for certain excluded receivables, which initially includes all receivables from the Azerty Business and Lagasse) to the USS Receivables Company, Ltd. (the "Receivables Company"), a wholly owned offshore, bankruptcy-remote special purpose limited liability company. This company in turn ultimately transfers the eligible receivables to a third-party, multi-seller asset-backed commercial paper program existing solely for the purpose of issuing commercial paper rated A-1/P-1 or higher. The sale of trade receivables includes not only those eligible receivables that existed on the closing date of the Receivables Securitization Program, but also eligible receivables created thereafter. At March 31, 2000, the Company had $160.0 million of off-balance-sheet financing provided by this program. Proceeds from this financing were used to repay certain indebtedness. Costs related to this facility vary on a monthly basis and generally are related to certain interest rates. These costs are included in the Consolidated Statements of Income under the caption Other Expense. Affiliates of PNC Bank and Chase Manhattan Bank act as funding agents. Other commercial banks, in agreement with Chase Manhattan Bank, rated at least A-1/P-1, provide standby liquidity funding to support the purchase of the receivables by the Receivables Company under a 364-day liquidity facility. The proceeds from the Receivables Securitization Program were used to reduce borrowings under the Company's Revolving Credit Facility. The Receivables Company retains an interest in the eligible receivables transferred to the third party. As a result of the Receivables Securitization Program, the balance sheet assets of the Company as of March 31, 2000 exclude approximately $160.0 million of accounts receivable sold to the Receivables Company. Cash Flow The statements of cash flows for the Company for the periods indicated are summarized below:
For the Three Months Ended March 31, ---------------------------- 2000 1999 ---------- ----------- (dollars in thousands) Net cash provided by operating activities $ 46,114 $ 19,386 Net cash used in investing activities (7,163) (5,502) Net cash used in financing activities (29,115) (9,473)
Net cash provided by operating activities for the three months ended March 31, 2000 increased to $46.1 million from $19.4 million in the comparable prior year period. This increase was primarily due to a $5.2 million increase in net income, a $25.3 million increase in accounts payable, and a $10.2 million increase in accounts receivable partially offset by a $13.6 million increase in inventory. Net cash used in investing activities for the three months ended March 31, 2000 was $7.2 million compared with $5.5 million used in the prior period. This increase is due to lower proceeds from the sale of property, plant, and equipment totaling $3.2 million partially offset by a $1.5 million reduction in capital expenditures. - 14 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Net cash used in financing activities for the three months ended March 31, 2000 was $29.1 million compared with $9.5 million in the prior period. This increase was due primarily to repayments of $28.0 million under the Revolving Credit Facility in the current year compared with $26.0 millon of borrowings in the last year partially offset by $34.7 million in treasury stock purchases. Year 2000 Quantitative and Qualitative Disclosure About Market Risk The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates. Interest rate exposure is principally limited to the Company's outstanding long-term debt at March 31, 2000 of $307.2 million and $160.0 million of receivables sold under the Receivables Securitization Program, whose discount rate varies with market interest rates ("Receivables Exposure"). Approximately 43% of the outstanding debt and Receivables Exposure are priced at interest rates that are fixed, or approximately 27% after taking into account the 12.75% Notes redemption. The remaining debt and Receivables Exposure is priced at interest rates that float with the market. A 50 basis point movement in interest rates would result in an approximate $1.3 million annualized increase or decrease in interest expense, loss on the sale of certain accounts receivable and cash flows, or approximately $1.8 million after taking into account the 12.75% Notes redemption. The Company will from time to time enter into interest rate swaps or collars on its debt. The Company does not use derivative financial or commodity instruments for trading purposes. Typically, the use of such derivative instruments is limited to interest rate swaps or collars on the Company's outstanding long-term debt. The Company's exposure related to such derivative instruments is, in the aggregate, not material to the Company's financial position, results of operations and cash flows. The Company's foreign currency exchange rate risk is limited principally to the Mexican Peso, Canadian Dollar, Italian Lira, as well as product purchases from Asian countries currently paid in U.S. dollars. Many of the products which the Company sells in Mexico and Canada are purchased in U.S. dollars while the sale is invoiced in the local currency. The Company's foreign currency exchange rate risk is not material to the Company's financial position, results of operations and cash flows. The Company has not previously hedged these transactions, but is considering such a program, and may enter into such transactions when it believes there is a clear financial advantage to do so. - 15 - UNITED STATIONERS INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS Not applicable ITEM 2 CHANGES IN SECURITIES Not applicable ITEM 3 DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5 OTHER INFORMATION Not applicable ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number ------ 2 Not applicable 11 Not applicable 15.1 Letter regarding unaudited interim financial information 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27.1 Financial Data Schedule - United Stationers Inc. 27.2 Financial Data Schedule - United Stationers Supply Co. 99 Not applicable
- 16 - UNITED STATIONERS INC. AND SUBSIDIARIES PART II - OTHER INFORMATION (b) The Company filed a report with the Securities and Exchange Commission on Form 8-K on January 19, 2000 reporting under Item 5 that the Company elected Ilene S. Gordon to its Board of Directors. The Company filed a report with the Securities and Exchange Commission on Form 8-K on March 6, 2000 reporting under Item 5 that Daniel H. Bushell resigned as Executive Vice President, Chief Development Officer, and Chief Financial Officer of the Company. The Company filed a report with the Securities and Exchange Commission on Form 8-K on March 24, 2000 reporting under Item 5 that United Stationers Inc. announced that United Stationers Supply Co., its wholly owned subsidiary, is calling the remaining $100.0 million of its 12.75% Senior Subordinated Notes on May 2, 2000. - 17 - UNITED STATIONERS INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED STATIONERS INC. UNITED STATIONERS SUPPLY CO. --------------------------------------------- (Registrant) Date: May 11, 2000 /s/ Randall W. Larrimore ------------------- ---------------------------------------------- Randall W. Larrimore Director, President, Chief Executive Officer and Interim Chief Financial Officer - 18 - UNITED STATIONERS INC. AND SUBSIDIARIES INDEX TO EXHIBITS
(a) Exhibit Number ------ 2 Not applicable 11 Not applicable 15.1 Letter regarding unaudited interim financial information 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27.1 Financial Data Schedule - United Stationers Inc. 27.2 Financial Data Schedule - United Stationers Supply Co. 99 Not applicable
- 19 - EX-15.1 2 EXHIBIT 15.1 Exhibit 15.1 May 11, 2000 The Board of Directors United Stationers Inc. We are aware of the incorporation by reference in the Registration Statement on Form S-8 of United Stationers Inc. for the registration of 8,200,000 shares of its common stock of our report dated April 21, 2000, relating to the unaudited condensed consolidated interim financial statements of United Stationers Inc. which are included in its Form 10-Q for the quarter ended March 31, 2000. Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young LLP EX-27.1 3 EXHIBIT 27.1
5 0000355999 UNITED STATIONERS, INC. 1,000 USD 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 28,829 0 277,990 12,688 583,089 900,689 293,559 124,482 1,268,024 493,187 0 0 0 3,721 427,006 430,727 979,358 979,358 821,566 821,566 110,034 1,050 7,414 40,344 16,420 23,924 0 0 0 23,924 0.70 0.69
EX-27.2 4 EXHIBIT 27.2
5 0000945633 UNITED STATIONERS SUPPLY CO. 1,000 USD 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 28,829 0 277,990 12,688 583,089 900,689 293,559 124,482 1,268,024 493,187 0 0 0 3,721 427,006 430,727 979,358 979,358 821,566 821,566 110,034 1,050 7,414 40,344 16,420 23,924 0 0 0 23,924 0.70 0.69
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