-----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, F8fV8qiNvzmMvljAy/u89mVVDJcSKZGBo6Hk7O4EWfC3eU+ONumxgLphIzmae76f oCMtVZnh7L+NwvT7hHwgqQ== 0001047469-99-020575.txt : 19990517 0001047469-99-020575.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020575 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99623403 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: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-59811 FILM NUMBER: 99623404 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, 1999 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 12, 1999, United Stationers Inc. had outstanding 33,990,155 shares of Common Stock, par value $0.10 per share. On May 12, 1999, 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, 1999 INDEX
PART I - FINANCIAL INFORMATION PAGE - ------------------------------ ---- IMPORTANT EXPLANATORY NOTE 1 Independent Accountants' Review Report 2 Condensed Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998. 3 Condensed Consolidated Statements of Income for the Three Months ended March 31, 1999 and 1998. 4 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 1999 and 1998. 5 Notes to Condensed Consolidated Financial Statements. 6 Management's Discussion and Analysis of Financial Condition and Results of Operations. 11 PART II - OTHER INFORMATION 17 - --------------------------- 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, 1999, and the related condensed consolidated statements of income and cash flows for the three month periods ended March 31, 1999 and 1998. 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, 1998, 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, 1999, except for Note 18, as to which the date is March 17, 1999, 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, 1998, 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 23, 1999 -2- UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
(Unaudited) (Audited) March 31, December 31, 1999 1998 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 23,449 $ 19,038 Accounts receivable, net 215,549 203,467 Inventories 516,746 554,940 Other current assets 25,225 21,293 ----------- ----------- Total current assets 780,969 798,738 Property, plant and equipment, net 168,986 169,060 Goodwill, net 180,412 181,009 Other 18,502 18,184 ----------- ----------- Total assets $ 1,148,869 $ 1,166,991 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 267,976 $ 301,952 Accrued liabilities 138,708 132,053 Current maturities of long-term debt 8,183 7,709 ----------- ----------- Total current liabilities 414,867 441,714 Deferred income taxes 26,344 26,223 Long-term obligations 351,882 328,491 ----------- ----------- Total liabilities 793,093 796,428 Stockholders' equity: Common stock, $0.10 par value; 100,000,000 shares authorized; 37,201,669 and 36,912,173, respectively, issued 3,720 3,691 Additional paid-in capital 304,247 303,330 Treasury stock, at cost - 2,215,000 shares (34,656) -- Retained earnings 83,541 64,853 Accumulated translation adjustment (1,076) (1,311) ----------- ----------- Total stockholders' equity 355,776 370,563 ----------- ----------- Total liabilities and stockholders' equity $ 1,148,869 $ 1,166,991 ----------- ----------- ----------- -----------
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, ------------------------------ 1999 1998 ------------ ------------ Net sales $ 824,261 $ 712,517 Cost of goods sold 690,393 589,455 ------------ ------------ Gross profit 133,868 123,062 ------------ ------------ Operating expenses: Warehousing, marketing and administrative expenses 91,982 85,037 ------------ ------------ Income from operations 41,886 38,025 Interest expense 7,467 11,826 Other expense 2,199 -- ------------ ------------ Income before income taxes 32,220 26,199 Income taxes 13,532 11,108 ------------ ------------ Net income $ 18,688 $ 15,091 ------------ ------------ ------------ ------------ Net income per common share $ 0.51 $ 0.47 ------------ ------------ ------------ ------------ Average number of common shares outstanding 36,840 31,990 Net income per common share - assuming dilution $ 0.50 $ 0.44 ------------ ------------ ------------ ------------ Average number of common shares outstanding - assuming dilution 37,409 34,196
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, ------------------------------ 1999 1998 ----------- ----------- Cash Flows From Operating Activities: Net income $ 18,688 $ 15,091 Depreciation and amortization 6,804 7,433 Amortization of capitalized financing costs 358 930 Changes in operating assets and liabilities (6,464) 44,046 ----------- ----------- Net cash provided by operating activities 19,386 67,500 Cash Flows From Investing Activities: Capital expenditures (8,702) (3,984) Proceeds from disposition of property, plant and equipment 3,200 9 ----------- ----------- Net cash used in investing activities (5,502) (3,975) Cash Flows From Financing Activities: Principal payments on debt (1,119) (29,934) Net borrowing (repayments) under revolver 26,000 (32,000) Issuance of common shares 2,447 243 Payment of employee withholding tax related to stock option exercises (2,381) (2,571) Repurchase of common stock (34,656) -- Other 236 (126) ----------- ----------- Net cash used in financing activities (9,473) (64,388) ----------- ----------- Net change in cash and cash equivalents 4,411 (863) Cash and cash equivalents, beginning of period 19,038 12,367 ----------- ----------- Cash and cash equivalents, end of period $ 23,449 $ 11,504 ----------- ----------- ----------- ----------- Other Cash Flow Information: Income taxes paid $ 1,196 $ 742 Interest paid 3,842 10,424
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, 1998. 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. Accordingly, the reader of this Form 10-Q should refer to the Company's Form 10-K for the year ended December 31, 1998 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 a national wholesale distributor of business products. 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, mass merchandisers, sanitary supply distributors, warehouse clubs, mail order houses and office products superstores. The Company has a distribution network of 40 business products distribution centers, 19 janitorial and sanitation distribution centers and six computer consumables, peripherals and accessories distribution centers. In addition to its broad product offering, the Company provides value-added marketing and logistics services to both manufacturers and resellers. 3. REPURCHASE OF COMMON STOCK In the first quarter of 1999, the Company's Board of Directors authorized the repurchase of up to $50.0 million in common stock. During the first quarter of 1999, the Company repurchased 2,215,000 shares of common stock at a cost of approximately $34.7 million. As of March 31, 1999, the Company had authorization remaining to repurchase up to $15.3 million in common stock out of the $50.0 million approved by the Board of Directors in the first quarter of 1999. 4. COMPREHENSIVE INCOME Total comprehensive income was $18,923,000 and $14,968,000 for the three month periods ended March 31, 1999 and 1998, respectively. -6- UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Basic earnings per share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the quarter. Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options are considered dilutive securities. 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, --------------------------------- 1999 1998 ----------- ----------- NUMERATOR: Net income $ 18,688 $ 15,091 ----------- ----------- ----------- ----------- DENOMINATOR: Denominator for basic earnings per share - Weighted average shares 36,840 31,990 Effect of dilutive securities: Employee stock options 569 2,206 ----------- ----------- Denominator for diluted earnings per share - Adjusted weighted average shares and assumed conversions 37,409 34,196 ----------- ----------- ----------- ----------- Earnings per common share: Net income per share - Basic $ 0.51 $ 0.47 Net income per share - Diluted $ 0.50 $ 0.44
-7- UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. SEGMENT INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which was adopted by the Company in 1998. SFAS No. 131 requires companies to report financial and descriptive information about its reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segment assets, as well as information about the revenues derived from the Company's products and services, the countries in which the Company earns revenues and holds assets, and major customers. This statement also requires companies that have a single reportable segment to disclose information about products and services, information about geographic areas, and information about major customers. This statement requires the use of the management approach to determine the information to be reported. The management approach is based on the way management organizes the enterprise to assess performance and make operating decisions regarding the allocation of resources. It is management's opinion that, at this time, the Company has several operating segments, however only one reportable segment. The following discussion sets forth the required disclosure regarding single segment information: The Company operates as a single reportable segment as the largest general line business products wholesaler in the United States, operations outside the United States were immaterial, with 1998 net sales of $3.1 billion. The Company sells its products through national distribution networks to more than 20,000 resellers, who in turn sell directly to end-users. These products are distributed through a computer-based network of warehouse facilities and truck fleets radiating from 40 regional distribution centers, 19 janitorial and sanitation distribution centers and six computer consumables, peripherals and accessories distribution centers. The Company's product offerings, comprised of more than 35,000 stockkeeping units (SKUs), may be divided into five primary categories: (i) The Company's core business continues to be traditional office products, which includes both brand-name products and the Company's private brand products. Traditional office products include writing instruments, paper products, organizers and calendars and various office accessories; (ii) The Company offers computer supplies, and peripherals to computer resellers and office products dealers; (iii) The Company's sale of office furniture such as leather chairs, wooden and steel desks and computer furniture has enabled it to become the nation's largest office furniture wholesaler. The Company currently offers nearly 4,000 furniture items from 50 different manufacturers; (iv) A fourth category of products is facility supplies, including janitorial and sanitation supplies, safety and security items, and shipping and mailing supplies. In October 1996, the Company acquired Lagasse Bros. Inc., the largest pure wholesaler of janitorial and sanitation supplies in North America. The Company distributes these products through 19 janitorial and sanitation distribution centers to sanitary supply dealers; and (v) The Company also distributes business machines and audio-visual equipment and supplies. The Company sells to more than 20,000 resellers of office products, including office product dealers, office furniture dealers, office products superstores, mass merchandisers, computer products resellers, mail order companies and sanitary supply distributors. Of its 20,000 customers, no single reseller accounted for more than 6% of the Company's net sales during the first quarter of 1999. -8- UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The following table sets forth net sales by product category for the three month periods ended March 31, 1999 and 1998 (dollars in millions):
Three Month Period Ended March 31, ---------------------------------- 1999 1998 -------------- --------------- Traditional office products $ 284 $ 307 Computer supplies and peripherals 298 179 Office furniture 106 109 Facility supplies 57 47 Business machines and audio-visual equipment 79 71 ----------- ----------- Total net sales $ 824 $ 713 ----------- ----------- ----------- -----------
7. 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. Set forth below is summarized combined financial data for the Azerty Business (subsequent to its acquisition by USSC) and Lagasse. Summarized combined financial data as of March 31, 1999 and December 31, 1998 reflect both Lagasse and the Azerty Business. The summarized combined income statement data for the three months ended March 31, 1999 reflects the operations of Lagasse and the Azerty Business. Summarized financial data for the three months ended March 31, 1998 reflect Lagasse only.
As of As of March 31, December 31, 1999 1998 -------------- -------------- Balance Sheet Data: Current assets $ 218,455 $ 175,745 Total assets 335,999 293,914 Current liabilities 96,403 90,498 Total liabilities 96,765 90,560
Three Months Ended March 31, ------------------------------------- 1999 1998 ---------------- ----------------- Income Statement Data: Net sales $ 175,710 $ 35,080 Gross margin 18,084 6,373 Operating income 6,729 2,460 Net income 3,741 1,373
-9- UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and for Hedging Activities". 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 are 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 will adopt SFAS No. 133 on January 1, 2000. The Company anticipates that SFAS No. 133 will not have a material impact on its consolidated financial statements. -10- 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, dependence on key personnel and general economic conditions. A description of these factors, as well as other factors which could affect the Company's business, is set forth in filings by the Company with the Securities and Exchange Commission, including the Company's Registration Statement filed on June 9, 1998. 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, 1999 compared with the First Quarter Ended March 31, 1998 - ---------------------------------------------------- NET SALES. Net sales were $824.3 million in the first quarter of 1999, a 15.7% increase over net sales of $712.5 million in the first quarter of 1998. The increase reflects the impact of the Azerty acquisition which closed on April 3, 1998. Organic sales in the first quarter of 1999 increased by 1.5%. During the first quarter of 1999, the Company experienced slowing sales growth due to the discontinuance of laptop and desktop computers and office products at Azerty, decisions by certain customers to use an alternate wholesaler and a change in inventory management strategy by certain customers. Considering the strategic initiatives currently underway, the Company expects to build sales momentum as it progresses through the year. GROSS MARGIN. Gross margin declined to 16.3% in the first quarter of 1999 compared with 17.2% in 1998. This decrease is primarily the result of the blending of the lower-margin computer consumables business (Azerty) into the Company's overall margin mix. OPERATING EXPENSES. Operating expenses as a percent of net sales declined to 11.2% in 1999 compared with 11.9% in 1998. This reduction represents the impact of Azerty's lower operating expense ratio. The Company believes there are significant opportunities to further reduce its operating expense ratio, primarily through best practices and ongoing productivity improvements. INCOME FROM OPERATIONS. Income from operations as a percent of net sales decreased to 5.1% in 1999 compared with 5.3% in 1998. -11- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTEREST EXPENSE. Interest expense as a percent of net sales was 0.9% compared with 1.7% in 1998. This reduction reflects the continued leveraging of fixed interest costs against higher sales and the repayment of indebtedness with the proceeds received from the June 1998 equity offering, and the Receivables Securitization Program (as defined). These transactions were partially offset by the acquisition of Azerty, in April of 1998, for a purchase price of approximately $115.7 million and the placement of $100.0 million of Senior Subordinated Notes at 8.375% (as defined) in April of 1998. OTHER EXPENSE. Other expense as a percent of net sales was 0.3% in 1999. This expense represents the costs associated with the sale of certain trade accounts receivable through the Receivables Securitization Program (as defined). These costs vary on a monthly basis and are generally related to certain interest rates. INCOME BEFORE INCOME TAXES. Income before income taxes as a percent of net sales increased to 3.9% from 3.6% in 1998. NET INCOME. Net income as a percent of net sales increased to 2.3% compared with 2.1% in 1998. LIQUIDITY AND CAPITAL RESOURCES CREDIT AGREEMENT At March 31, 1999, the available credit under the Second Amended and Restated Credit Agreement (the "Credit Agreement") included $58.4 million of term loan borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving loan borrowings (the "Revolving Credit Facility"). The Term Loan Facilities consisted initially of a $150.0 million Tranche A term loan facility ("Tranche A Facility") and a $100.0 million Tranche B term loan facility ("Tranche B Facility"). The Company repaid a substantial portion of the Tranche A Facility with proceeds from the June 1998 equity offering. Amounts outstanding under the Tranche A Facility are to be repaid in 20 quarterly installments ranging from $1.6 million at June 30, 1999 to $3.7 million at March 31, 2004. All amounts outstanding under the Tranche B Facility have been repaid as of April 15, 1998, with net proceeds from the sale of $100.0 million of 8.375% Senior Subordinated Notes (as defined) and from a portion of the proceeds generated from the sale of certain receivables under the Receivables Securitization Program (as defined). 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 $50.0 million was outstanding at March 31, 1999. 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, with the rate 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%. -12- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for financings of this type. At March 31, 1999, the Company was in compliance with all covenants contained in the Credit Agreement. The Company is exposed to market risk for changes in interest rates. The Company may enter into interest rate protection agreements, including collar agreements, to reduce the impact of fluctuations in interest rates on a portion of its variable rate debt. These agreements generally require the Company to pay to or entitle the Company to receive from the other party the amount, if any, by which the Company's interest payments fluctuate beyond the rates specified in the agreements. The Company is subject to the credit risk that the other party may fail to perform under such agreements. The Company's allocated cost of such agreements is amortized to interest expense over the term of the agreements, and the unamortized cost is included in other assets. Payments received or made as a result of the agreements, if any, are recorded as an addition or a reduction to interest expense. At March 31, 1999, the Company had interest rate collar agreements expiring October 1999 on $200.0 million of borrowings at LIBOR rates between 5.2% and 8.0%. For the three months ended March 31, 1999 and 1998, the Company recorded $0.1 million and $0.2 million, respectively, to interest expense resulting from LIBOR rate fluctuations below the floor rate specified in the collar agreements. The right of United to participate in any distribution of earnings or assets of USSC is subject to the prior claims of the creditors of USSC. 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. 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, 1999, 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. 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, 1999, 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 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. -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 On April 3, 1998, in connection with the refinancing of its credit facilities, the Company entered into a $163.0 million Receivables Securitization Program pursuant to which the Company sells its eligible receivables (except for certain excluded receivables, which initially includes all receivables from the Azerty Business and Lagasse) to the Receivables Company, a wholly owned offshore, bankruptcy-remote special purpose limited liability company, which 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. The Company received approximately $160.0 million in proceeds from the initial sale of certain eligible receivables on April 3, 1998. These proceeds were used to repay a portion of the Tranche B Facility and certain other indebtedness under the Credit Agreement. 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, included elsewhere herein, under the caption Other Expense. The Chase Manhattan Bank acts as funding agent and, with other commercial banks rated at least A-1/P-1, provides 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, 1999, exclude approximately $160.0 million of accounts receivable sold to the Receivables Company. The statements of cash flows for the Company for the periods indicated are summarized below:
For the Three Months Ended March 31, ------------------------------ 1999 1998 ------- -------- (dollars in thousands) Net cash provided by operating activities $19,386 $ 67,500 Net cash used in investing activities (5,502) (3,975) Net cash used in financing activities (9,473) (64,388)
Net cash provided by operating activities during the first three months of 1999 decreased to $19.4 million from $67.5 million in the comparable prior-year period. This decrease was primarily the result of a decrease in accounts payable and an increase in accounts receivable partially offset by a decrease in inventory. Net cash used in investing activities during the first three months of 1999 was $5.5 million compared with $4.0 million used in the first three months of 1998. The increase in cash used was primarily due to an increase in capital expenditures partially offset by higher proceeds from the sale of property, plant, and equipment. Net cash used in financing activities during the first three months of 1999 was $9.5 million compared with $64.4 million for the first three months of 1998. This decrease was due primarily to increased borrowings under the revolver and lower debt principal payments (due to the elimination of the excess cash flow payment required by the credit agreement in 1998) partially offset by the repurchase of common stock. -14- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Year 2000 Modifications The Company relies on both information technology ("IT") and non-IT computer systems in its operations. The mission-critical IT systems include the Company's operating and accounting systems, such as IT software applications that allow the Company to maintain inventory and customer information and to communicate with its suppliers and customers. The non-IT systems are primarily telecommunications systems and the embedded microprocessors that control warehouse and other building systems, such as inventory control devices, security systems, lighting, fire and safety systems, and heating, ventilating and air conditioning systems. In 1996, the Company began to address the year 2000 problem (that is, the fact that some systems may fail or produce inaccurate results using dates in or around the year 2000). The Company formed a year 2000 task force under its Chief Information Officer to coordinate and implement measures designed to prevent disruption in its business operations related to the year 2000 problem. The Company believes that it completed the remediation of its mission-critical IT applications software in December 1998 and is scheduled to complete an end-to-end test of its IT systems by September 1999. The Company is assessing the effect of the year 2000 problem on its non-IT systems and intends to replace non-IT systems as necessary to become year 2000 ready by December 1999. The Company also is working with its customers and suppliers to determine whether the year 2000 problem will have an adverse effect on the Company's relationship with them. Beginning with the Company's catalog for 1999, the Company's product suppliers have assured the Company that their products will be year 2000 ready. However, the Company does not control its suppliers and relies on a variety of utilities, telecommunications companies and other suppliers in order to continue its business. The Company is analyzing its business to identify its most reasonably likely worst case scenario and is developing contingency plans to address the risks created by the year 2000 problem. These plans include procuring alternative suppliers, when available, when the Company is able to conclude that an existing supplier will not be year 2000 ready. The Company is scheduled to complete these contingency plans by July 1999. The Company's year 2000 remediation utilizes both internal and external resources. During 1998 and 1997, the Company incurred approximately $1.5 million and $1.4 million, respectively, related to this issue. For the three months ended March 31, 1999, the Company incurred $0.5 million and expects to incur an additional $1.0 million to $1.5 million of year 2000 remediation expenses during the balance of the year. Funding for year 2000 expenses will be generated from ongoing operations and available borrowings under the Credit Agreement. There can be no assurance that year 2000 remediation by the Company or third parties will be properly and timely completed and failure to do so could have a material adverse effect on the Company's financial condition. The Company cannot predict the actual effects to it of the year 2000 issue, which depends on numerous uncertainties such as: (i) whether major third parties address this issue properly and timely and (ii) whether broad-based or systemic economic failures may occur. The Company currently is unaware of any events, trends, or conditions regarding this issue that may have a material effect on the Company's results of operations, liquidity, or financial position. If the year 2000 issue is not resolved by January 1, 2000, the Company's results of operations or financial condition could be materially adversely affected. -15- UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) 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, 1999, of $340.3 million and $160.0 million of receivables sold under the Receivables Securitization Program, whose discount rate varies with market interest rates ("Receivables Exposure"). Approximately 40% of the outstanding debt and Receivables Exposure is priced at interest rates that are fixed. 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 $1.5 million annualized increase or decrease in interest expense, loss on the sale of certain accounts receivable and cash flows. The Company has entered into interest rate collar agreements, under which the interest rates on $200.0 million of floating rate debt can vary between LIBOR rates of 5.2% and 8.0%. 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. -16- 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
(b) The Company filed a report on Form 8-K on March 23, 1999 reporting under Item 5 that the Company's Board of Directors and senior lenders approved the adoption of a stock repurchase program. -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 12, 1999 /s/ Daniel H. Bushell ------------------- ------------------------------- Daniel H. Bushell Executive Vice President and 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 12, 1999 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 23, 1999 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, 1999. /s/ Ernst & Young LLP EX-27.1 3 EXHIBIT 27.1
5 0000355999 UNITED STATIONERS, INC. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 23,449 0 226,766 11,217 516,746 780,969 272,837 103,851 1,148,869 414,867 0 0 0 3,720 352,056 1,148,869 824,261 824,261 690,393 690,393 94,181 2,158 7,467 32,220 13,537 18,688 0 0 0 18,688 0.51 0.50
EX-27.2 4 EXHIBIT 27.2
5 0000945633 UNITED STATIONERS SUPPLY COMPANY 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 23,449 0 226,766 11,217 516,746 780,969 272,837 103,851 1,148,869 414,867 0 0 0 3,720 352,056 1,148,869 824,261 824,261 690,393 690,393 94,181 2,158 7,467 32,220 13,537 18,688 0 0 0 18,688 0.51 0.50
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