-----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, SvCiTDN66hWhex+/HiL3yFWhPyePvvTIDFydjINTkawbSsNOEPyoAVAaIBryZefR M8UGyMiPiNkzlr1AD46d9g== 0000945633-97-000010.txt : 19971104 0000945633-97-000010.hdr.sgml : 19971104 ACCESSION NUMBER: 0000945633-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971103 SROS: NASD 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: 97706953 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 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-59811 FILM NUMBER: 97706954 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 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 September 30, 1997 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 November 3, 1997, United Stationers Inc. had outstanding 15,402,643 shares of Common Stock, par value $0.10 per share, and 382,211 shares of Nonvoting Common Stock, $0.01 par value per share. On November 3, 1997, 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 September 30, 1997 INDEX PART I - FINANCIAL INFORMATION PAGE Important Explanatory Note 3 Independent Accountants' Review Report 4 Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996. 5 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1997 and 1996. 6 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996. 8 Notes to Condensed Consolidated Financial Statements. 9 Management's Discussion and Analysis of Financial Condition and Results of Operations. 12 PART II - OTHER INFORMATION 18 SIGNATURE 20 INDEX TO EXHIBITS 21 -2- 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., a Delaware corporation, and its wholly owned subsidiary, United Stationers Supply Co., 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. -3- 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 September 30, 1997, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 1997 and 1996, and for the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 1997 and 1996. 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 generally accepted auditing standards, 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 generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of United Stationers Inc. as of December 31, 1996, 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 28, 1997, 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, 1996, 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 October 27, 1997 -4- UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS (Unaudited) (Audited) September 30, December 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents $ 16,698 $ 10,619 Accounts receivable, net 314,154 291,401 Inventories 445,787 463,239 Other 19,974 25,221 Total Current Assets 796,613 790,480 PROPERTY, PLANT AND EQUIPMENT, at cost 232,438 225,041 Less-Accumulated depreciation and amortization (67,519) (51,266) Net Property, Plant and Equipment 164,919 173,775 GOODWILL 112,595 115,449 OTHER 27,599 30,163 TOTAL ASSETS $ 1,101,726 $1,109,867 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt and capital lease $ 24,119 $ 46,923 Accounts payable 280,825 238,124 Accrued liabilities 134,189 100,460 Total Current Liabilities 439,133 385,507 DEFERRED INCOME TAXES 35,444 36,828 LONG-TERM OBLIGATIONS: Senior revolver loan 155,000 207,000 Senior subordinated notes 150,000 150,000 Senior term loan - Tranche A 90,723 107,318 Senior term loan - Tranche B 55,761 56,425 Other long-term debt 31,848 31,870 Other long-term liabilities 13,457 15,502 Total Long-Term Obligations 496,789 568,115 REDEEMABLE PREFERRED STOCK - 19,785 REDEEMABLE WARRANTS 41,387 23,812 STOCKHOLDERS' EQUITY 88,973 75,820 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,101,726 $1,109,867 See notes to condensed consolidated financial statements. -5- UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) FOR THE THREE MONTHS ENDED September 30, September 30, 1997 1996 NET SALES $650,912 $576,254 COST OF GOODS SOLD 536,470 478,047 Gross profit 114,442 98,207 OPERATING EXPENSES: Warehousing, marketing and administrative expenses 80,836 69,387 Income from operations 33,606 28,820 INTEREST EXPENSE 12,998 13,576 Income before income taxes 20,608 15,244 INCOME TAXES 8,741 6,463 NET INCOME 11,867 8,781 PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED 611 434 Net income attributable to common stockholders $ 11,256 $ 8,347 Net income per common and common equivalent share - Primary and Fully Diluted $0.74 $0.56 Average number of common shares 15,269 14,842 See notes to condensed consolidated financial statements. -6- UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) FOR THE NINE MONTHS ENDED September 30, September 30, 1997 1996 NET SALES $1,895,974 $1,698,825 COST OF GOODS SOLD 1,568,056 1,410,880 Gross profit 327,918 287,945 OPERATING EXPENSES: Warehousing, marketing and administrative expenses 231,270 206,084 Income from operations 96,648 81,861 INTEREST EXPENSE 41,526 43,217 Income before income taxes 55,122 38,644 INCOME TAXES 23,376 16,381 NET INCOME 31,746 22,263 PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED 1,528 1,296 Net income attributable to common stockholders $ 30,218 $ 20,967 Net income per common and common equivalent share - Primary $2.03 $1.40 Average number of common shares - Primary 14,865 14,976 Net income per common and common equivalent share - Fully Diluted $1.98 $1.40 Average number of common shares - Fully Diluted 15,282 14,976 See notes to condensed consolidated financial statements. -7- UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) FOR THE NINE MONTHS ENDED September 30, September 30, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 31,746 $ 22,263 Depreciation and amortization 20,006 19,528 Transaction costs and other amortization 3,350 4,096 Changes in operating assets and liabilities 72,413 29,544 Net cash provided by operating activities 127,515 75,431 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (8,141) (4,607) Proceeds from disposition of property, plant and equipment 44 10,784 Other - (861) Net cash (used in) provided by investing activities (8,097) 5,316 CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of debt (40,085) (24,887) Net repayments under revolver (52,000) (54,000) Issuance of common shares 18 - Redemption of preferred stock (21,172) - Preferred stock dividends (141) - Other 41 64 Net cash used in financing activities (113,339) (78,823) Net change in cash and cash equivalents 6,079 1,924 Cash and cash equivalents, beginning of period 10,619 11,660 Cash and cash equivalents, end of period $ 16,698 $ 13,584 Other Cash Flow Information: Cash payments during the nine month period for: Income taxes paid $ 13,381 $ 11,735 Interest paid 33,605 35,649 See notes to condensed consolidated financial statements. -8- 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, 1996. 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 generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. 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. These adjustments were of a normal recurring nature and did not have a material impact on the financial statements presented. Certain interim expense and inventory estimates are recognized throughout the fiscal 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. On October 31, 1996, the Company acquired all of the capital stock of Lagasse Bros., Inc. ("Lagasse") for approximately $51.9 million. The acquisition was financed primarily through senior debt. The Lagasse acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition with the excess of cost over fair value of approximately $39.0 million allocated to goodwill. The financial information for the three-month and nine-month periods ended September 30, 1997 include the results of Lagasse. The actual and pro forma effects of this acquisition are not material. 2. Operations The Company is a national wholesale distributor of business products. The Company offers approximately 30,000 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 15,000 resellers -- such as computer products resellers, office furniture dealers, mass merchandisers, sanitary supply distributors, warehouse clubs, mail order houses and office products superstores. The Company has a distribution network of 41 Regional Distribution Centers. Through its integrated computer system, the Company provides a high level of customer service and overnight delivery. In addition, the Company has 16 Lagasse Distribution Centers, specifically serving janitorial and sanitary supply distributors. 3. Reclassification Certain amounts from prior periods have been reclassified to conform to the 1997 basis of presentation. During the fourth quarter of 1996, the Company reclassified certain delivery and occupancy costs from operating expenses to cost of goods sold to conform the Company's presentation to the presentation used by others in the business products industry. The following table sets forth the impact of the reclassification: -9- UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 3. Reclassification (Continued) For the For the Three Months Ended Nine Months Ended September 30, 1996 September 30, 1996 Gross Margin as a Percent of Net Sales: Gross margin prior to the reclassification 20.9% 21.0% Gross margin as reported herein 17.0% 16.9% Operating Expenses as a Percent of Net Sales: Operating expense ratio prior to reclassification 15.9% 16.2% Operating expense ratio as reported herein 12.0% 12.1% 4. Redeemable Warrants The Redeemable Warrants reflected on the Consolidated Balance Sheets are adjusted on an ongoing basis for any exercises to common stock, revaluation based on the current market value of the Company's common stock and any issuance of warrants to counter the dilutive impact resulting from the issuance of other common stock equivalents such as the issuance of stock options by the Company. In July 1997, 173,449 warrants were exercised into common stock. 5. Stock Option Plan Employee stock options granted under the Company's employee stock option plan did not vest to the employee until the occurrence of an event (a "Vesting Event") that caused certain non-public equity investors to have received at least a full return of their investment (at cost) in cash, fully tradable marketable securities or the equivalent. In connection with a stock offering, a Vesting Event caused the Company to recognize compensation expense in the fourth quarter of 1997 based upon the difference between the fair market value of the Company's common stock and the exercise price of the employee stock options. See Footnote 7 "Subsequent Event". 6. Net Income Per Common and Common Equivalent Share Net income per common and common equivalent share is based on net income after preferred stock dividend requirements. Net income per common and common equivalent share for the three and nine months ended September 30, 1997 and 1996 on a primary and fully diluted basis are computed using the weighted average number of shares outstanding adjusted for the effect of stock options and warrants considered to be dilutive common stock equivalents. -10- UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7. Subsequent Event On October 9, 1997, the Company completed a 2.0 million share primary offering and 3.4 million share secondary offering of common stock. The shares were priced at $38.00, before underwriting discounts and commissions of $1.90. The aggregate net proceeds to the Company from this offering of $72.2 million (before deducting expenses) and proceeds of $0.1 million resulting from the conversion of 1,119,038 warrants into common stock were used to (i) redeem $50.0 million of the Company's 12 3/4% Senior Subordinated Notes and pay the redemption premium thereon of $6.4 million (redemption of the Notes requires a thirty day notice which was given on October 10th), (ii) pay fees related to the offering, and (iii) reduce by $15.5 million the indebtedness under the Term Loan Facilities. The repayment of indebtedness under the Term Loan Facilities caused a permanent reduction of the amount borrowable thereunder. As a result of the offering the Company recognized the following nonrecurring charges in the fourth quarter of 1997 (i) a noncash charge of approximately $61.7 million ($36.7 million net of tax benefit of $25.0 million) or approximately $2.34 per share in compensation expense relating to certain employee stock options which became exercisable upon completion of the offering, and (ii) an extraordinary loss from early extinguishment of debt during the fourth quarter of 1997 related to the redemption premium of $6.4 million ($3.8 million net of tax benefit of $2.6 million) and write-off of certain capitalized financing costs of approximately $3.6 million ($2.1 million net of tax benefit of $1.5 million). 8. New Accounting Pronouncement In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods presented to conform to the new method. Under the new requirements "primary" and "fully diluted" earnings per share will be replaced with "basic" and "diluted" earnings per share, respectively. The dilutive effect of common stock equivalents will be excluded in the basic earnings per share calculation. The impact is expected to result in an increase in primary earnings per share of $0.17 and $0.12 for the three- month periods ended September 30, 1997 and 1996, respectively. For the nine-month periods ended September 30, 1997 and 1996, primary earnings per share is expected to increase by $0.43 and $0.32, respectively. The impact of Statement No. 128 on the calculation of fully diluted earnings per share for these periods is not expected to be material. -11- UNITED STATIONERS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comments on Forward Looking Information Certain information presented in this Form 10-Q includes forward-looking statements regarding the Company's future results of operations. The Company believes that its expectations are based on reasonable assumptions given its knowledge of its operations and business. However, there can be no assurance that the Company's actual results will not differ materially from its expectations. The matters referred to in forward-looking statements may be affected by the risks and uncertainties involved in the Company's business (see Form 8-K filed with the Securities and Exchange Commission on October 21, 1996) including, among others, competition with business products manufacturers and other wholesalers, consolidation of the business products industry, the ability to maintain gross profit margins, the ability to achieve future cost savings, changing end-user demands, changes in manufacturer pricing, service interruptions and availability of liquidity and capital resources. Third Quarter Ended September 30, 1997 compared with the Third Quarter Ended September 30, 1996 Net Sales. Net sales were $650.9 million for the third quarter of 1997, up 13.0% compared with net sales of $576.3 million for the third quarter of 1996. This included incremental growth resulting from the Lagasse acquisition. The Company is experiencing sales strength within all geographic regions. Gross Profit. Gross profit as a percent of net sales increased to 17.6% in the third quarter of 1997 from 17.0% in the comparable period of 1996. The increase reflects a shift in the Company's product mix toward higher- margin items. In particular, sales of lower-margin computer hardware declined as a percent of net sales. Operating Expenses. Operating expenses as a percent of net sales increased to 12.4% in the third quarter of 1997 from 12.0% in the third quarter of 1996. The increase in operating expenses reflects the Company's decision to incur costs related to certain discretionary expenses that represent ongoing investments in the Company's future such as strategic planning, use of outside consultants to facilitate additional systems enhancements, and preparation for the Year 2000. Greater sales leverage and systems enhancements should enable the Company to continue to improve its cost structure. -12- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Third Quarter Ended September 30, 1997 compared with the Third Quarter Ended September 30, 1996 (Continued) Income From Operations. Income from operations as a percent of net sales increased to 5.2% in the third quarter of 1997 from 5.0% in the third quarter of 1996. Interest Expense. Interest expense as a percent of net sales was 2.0% in the third quarter of 1997, compared with 2.4% in the comparable period in 1996. This reduction reflects the leveraging of fixed interest costs against higher sales and lower interest rates on variable rate debt, partially offset by interest expense on debt used to acquire Lagasse Bros., Inc. Income Before Income Taxes. Income before income taxes as a percent of net sales was 3.2% in the third quarter of 1997, compared with 2.6% in the third quarter of 1996. Net Income. Net income before preferred stock dividends was $11.9 million in the third quarter of 1997, compared with $8.8 million in the third quarter of 1996. Net Income Attributable to Common Stockholders. Net income attributable to common stockholders was $11.3 million in the third quarter of 1997, compared with $8.3 million in the third quarter of 1996. Nine Months Ended September 30, 1997 compared with the Nine Months Ended September 30, 1996 Net Sales. Net sales were $1,896.0 million in the first nine months of 1997, a 11.6% increase over net sales of $1,698.8 million in the first nine months of 1996. On an equivalent workday basis, sales were up 12.2% from the comparable prior-year first nine months. This included incremental growth resulting from the Lagasse acquisition. The Company is experiencing sales strength within all product segments and geographic regions. Gross Profit. Gross profit as a percent of net sales increased to 17.3% in the first nine months of 1997 from 17.0% in the comparable period of 1996. The increase reflects a shift in the Company's product mix toward higher-margin items. In particular, sales of lower-margin computer hardware declined as a percent to net sales. -13- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nine Months Ended September 30, 1997 compared with the Nine Months Ended September 30, 1996 (Continued) Operating Expenses. Operating expenses as a percent of net sales increased to 12.2% in the first nine months of 1997 from 12.1% in the first nine months of 1996. The increase in operating expenses reflects the Company's decision to incur costs related to certain discretionary expenses that represent ongoing investments in the Company's future such as strategic planning, use of outside consultants to facilitate additional systems enhancements, and preparation for the Year 2000. Greater sales leverage and systems enhancements should enable the Company to continue to improve its cost structure. Income From Operations. Income from operations as a percent of net sales increased to 5.1% in the first nine months of 1997 from 4.9% in the first nine months of 1996. Interest Expense. Interest expense as a percent of net sales was 2.2% in the first nine months of 1997, compared with 2.5% in the comparable period in 1996. This reduction reflects the leveraging of fixed interest costs against higher sales and lower interest rates on variable rate debt, partially offset by interest expense on debt used to acquire Lagasse Bros., Inc. Income Before Income Taxes. Income before income taxes as a percent of net sales was 2.9% in the first nine months of 1997, compared with 2.4% in the first nine months of 1996. Net Income. Net income before preferred stock dividends was $31.7 million in the first nine months of 1997, compared with $22.3 million in the first nine months of 1996. Net Income Attributable to Common Stockholders. Net income attributable to common stockholders was $30.2 million in the first nine months of 1997, compared with $21.0 million in the first nine months of 1996. Liquidity and Capital Resources As of September 30, 1997, the credit facilities under the Amended and Restated Credit Agreement (the "Credit Agreement") consisted of $169.5 million of term loan borrowings (the "Term Loan Facilities"), and up to $325.0 million of revolving loan borrowings (the "Revolving Credit Facility"). This agreement was amended on October 31, 1996 to provide funding for the acquisition of Lagasse Bros., Inc., to extend the maturities, to adjust the pricing and to revise certain covenants. In addition, the Company has $150.0 million of 12 3/4% Senior Subordinated Notes due 2005, $29.8 million of industrial revenue bonds and a $2.1 million mortgage. -14- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources (Continued) The Term Loan Facilities consist of a $112.9 million Tranche A term loan facility (the "Tranche A Facility") and a $56.6 million Tranche B term loan facility (the "Tranche B Facility"). Quarterly payments under the Tranche A Facility range from $4.98 million at September 30, 1997 to $7.54 million at September 30, 2001. Quarterly payments under the Tranche B Facility range from $0.22 million at September 30, 1997 to $6.03 million at September 30, 2003. On March 31, 1997, principal payments of $15.9 million and $7.4 million were paid from Excess Cash Flow (as defined in the Credit Agreement) at December 31, 1996 for the Tranche A and Tranche B Facilities, respectively. The Revolving Credit Facility is limited to the lesser of $325.0 million or a borrowing base equal to: 80% of Eligible Receivables (as defined in the Credit Agreement); plus 50% of Eligible Inventory (as defined in the Credit Agreement) (provided that no more than 60% or, during certain periods 65%, of the Borrowing Base may be attributable to Eligible Inventory); plus the aggregate amount of cover for Letter of Credit Liabilities (as defined in the Credit Agreement). In addition, for each fiscal year, the Company must repay revolving loans so that for a period of 30 consecutive days in each fiscal year the aggregate revolving loans do not exceed $250.0 million. The Revolving Credit Facility matures on October 31, 2001. As of September 30, 1997, $133.0 million remained available for borrowing under the Revolving Credit Facility. 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 the domestic direct and indirect subsidiaries of USSC, certain of the stock of all of the foreign direct and indirect subsidiaries of USSC and security interests in, and liens upon, all accounts receivable, inventory, contract rights and other certain personal and certain real property of USSC and its domestic subsidiaries. The loans outstanding under the Term Loan Facilities and the Revolving Credit Facility bear interest as determined within a set range with the rate based on the ratio of total debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). The Tranche A Facility and the Revolving Credit Facility bear interest at prime plus 0.25% to 1.25% or, at the Company's option, LIBOR plus 1.50% to 2.50%. The Tranche B Facility bears interest at prime plus 1.25% to 1.75% or, at the Company's option, LIBOR plus 2.50% to 3.00%. The Credit Agreement contains representations and warrants, affirmative and negative covenants and events of default customary for financings of this type. As of September 30, 1997, the Company was in compliance with all covenants contained in the Credit Agreement. The Credit Agreement permits capital expenditures for the Company of up to $15.0 million for its fiscal year ending December 31, 1997, plus $6.2 million of unused capital expenditures, approximately $7.8 million of unused Excess Cash Flow (as defined in the Credit Agreement), and $11.1 million of proceeds from the disposition of certain property, plant and equipment from the Company's fiscal year ended December 31, 1996. Capital expenditures will be financed from internally generated funds and available borrowings under the Credit Agreement. The Company expects gross capital expenditures to be approximately $12.0 million to $14.0 million in 1997. On September 2, 1997 the Company completed the redemption of all outstanding shares of Series A and Series C Preferred Stock for an aggregate redemption price of $21.3 million (the "Redemption Price"). The Redemption Price was paid from borrowings under the Revolving Credit Facilities. As of this filing date, the Company does not have any preferred stock outstanding. -15- 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 twelve 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. On October 9, 1997 the Company completed a 2.0 million share primary offering of common stock. The shares were priced at $38.00, before underwriting discounts and commissions of $1.90. The aggregate net proceeds to the Company from this offering of $72.2 million (before deducting expenses) and proceeds of $0.1 million resulting from the conversion of 1,119,038 warrants into common stock were used to (i) redeem $50.0 million of the Company's 12 3/4% Senior Subordinated Notes and pay the redemption premium thereon of $6.4 million (redemption of the Notes requires a thirty day notice which was given on October 10th), (ii) pay fees related to the offering, and (iii) reduce by $15.5 million the indebtedness under the Term Loan Facilities. The repayment of indebtedness under the Term Loan Facilities caused a permanent reduction of the amount borrowable thereunder. 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 indenture governing the Notes contain restrictions on the ability of USSC to transfer cash to United. The Company may attempt to acquire other businesses as part of its growth strategy. The Company currently has no agreements to acquire any such businesses. Should the Company be successful in identifying an acquisition candidate, however, the Company may require additional financing to consummate such a transaction. Acquisitions involve certain inherent risks and uncertainties. Therefore, the Company can give no assurances with respect to whether it will be successful in identifying such a business to acquire, whether it will be able to obtain financing to complete such an acquisition or whether the Company will be successful in operating the acquired business. In addition, the Company is currently pursuing an Asset Backed Securitization (the "ABS") transaction that is intended to be a bankruptcy- remote and off-balance sheet financing, in order to reduce the Company's cost of capital. The ABS transaction would involve the sale of the Company's accounts receivable and, if consummated, is expected to result in a lower accounts receivable balance and senior revolver loan balance than is reported in the Company's historical financial statements included herein. There can be no assurance that the Company will consummate the ABS transaction. -16- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources (Continued) The statements of cash flows for the Company for the periods indicated are summarized below: For the Nine Months Ended September 30, 1997 1996 (in thousands) Net cash provided by operating activities $127,515 $75,431 Net cash (used in) provided by investing activities (8,097) 5,316 Net cash used in financing activities (113,339) (78,823) Net cash provided by operating activities during the first nine months of 1997 increased to $127.5 million from $75.4 million in the comparable prior-year period. This increase was due to higher net income, an increase in accrued liabilities, and a decrease in inventory partially offset by an increase in accounts receivable. Net cash used in investing activities during the first nine months of 1997 was $8.1 million compared with $5.3 million provided in the first nine months of 1996. The increase in cash used was due to an increase in capital investments during 1997 and a decrease in proceeds from the sale of property, plant and equipment. Net cash used in financing activities during the first nine months of 1997 was $113.3 million compared with $78.8 million in the first nine months of 1996. This increase was due to the required payment of $40.1 million paid from Excess Cash Flow (as defined in the Credit Agreement) in 1997 compared with $9.0 million in 1996, and the reduction of debt due to lower working capital requirements. Independent Accountants' Review Report Ernst & Young LLP, independent public accountants, have reviewed the condensed consolidated financial statements of the Company as of and for the three-month and nine-month periods ended September 30, 1997 and 1996. The Independent Accountants' Review Report has been included in this filing. -17- 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 Subsequent Event On October 9, 1997 the Company completed a 2.0 million share primary offering of common stock and 3.4 million share secondary offering of common stock. The shares were priced at $38.00, before underwriting discounts and commissions of $1.90. The aggregate net proceeds to the Company from this offering of $72.2 million (before deducting expenses) and proceeds of $0.1 million resulting from the conversion of 1,119,038 warrants into common stock were used to (i) redeem $50.0 million of the Company's 12 3/4% Senior Subordinated Notes and pay the redemption premium thereon of $6.4 million (redemption of the Notes requires a thirty day notice which was given on October 10th), (ii) pay fees related to the offering, and (iii) reduce by $15.5 million the indebtedness under the Term Loan Facilities. The repayment of indebtedness under the Term Loan Facilities caused a permanent reduction of the amount borrowable thereunder. As a result of the offering the Company recognized the following nonrecurring charges in the fourth quarter of 1997 (i) a noncash charge of approximately $61.7 million ($36.7 million net of tax benefit of $25.0 million) or approximately $2.34 per share in compensation expense relating to certain employee stock options which became exercisable upon completion of the offering, and (ii) an extraordinary loss from early extinguishment of debt during the fourth quarter of 1997 related to the redemption premium of $6.4 million ($3.8 million net of tax benefit of $2.6 million) and write-off of certain capitalized financing costs of approximately $3.6 million ($2.1 million net of tax benefit of $1.5 million). -18- ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Number 2 Not applicable 10 Not applicable 11 Not applicable 15 Letter regarding unaudited interim financial information 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27 Financial Data Schedule (filed only electronically with the SEC) 99 Not applicable -19- 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: November 3, 1997 /s/Daniel H. Bushell Daniel H. Bushell Executive Vice President and Chief Financial Officer -20- UNITED STATIONERS INC. AND SUBSIDIARIES INDEX TO EXHIBITS (a) Exhibit Number 2 Not applicable 10 Not applicable 11 Not applicable 15 Letter regarding unaudited interim financial information 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27 Financial Data Schedule 99 Not applicable -21- EX-15 2 Exhibit 15 November 3, 1997 The Board of Directors United Stationers Inc. We are aware of the incorporation by reference in the Registration Statement (Form S-3 and Form S-8) of United Stationers Inc. for the registration of a total of 2,035,243 and 4,100,000 shares, respectively, of its common stock of our report dated October 27, 1997 relating to the unaudited condensed consolidated interim financial statements of United Stationers Inc. that are included in its Form 10-Q for the period ended September 30, 1997. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a 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
5 0000355999 UNITED STATIONERS INC 1000 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 JUL-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 16698 16698 0 0 321434 321434 7280 7280 445787 445787 796613 796613 232438 232438 67519 67519 1101726 1101726 439133 439133 0 0 0 0 0 0 1171 1171 87802 87802 1101726 1101726 650912 1895974 650912 1895974 536470 1568056 536470 1568056 80199 228955 637 2315 12998 41526 20608 55122 8741 23376 11867 31746 0 0 0 0 0 0 11867 31746 0.74 2.03 0.74 1.98
EX-27.2 4
5 0000945633 UNITED STATIONERS SUPPLY COMPANY 1000 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 JUL-01-1997 JAN-01-1997 SEP-30-1997 SEP-30-1997 16698 16698 0 0 321434 321434 7280 7280 445787 445787 796613 796613 232438 232438 67519 67519 1101726 1101726 439133 439133 0 0 0 0 0 0 1171 1171 87802 87802 1101726 1101726 650912 1895974 650912 1895974 536470 1568056 536470 1568056 80199 228955 637 2315 12998 41526 20608 55122 8741 23376 11867 31746 0 0 0 0 0 0 11867 31746 0.74 2.03 0.74 1.98
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