-----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, Veau3P/T02m5c7Hq0aM4GECjwi+JNrjGzcasyMOOqOdqF7Du5ayVQhAmvMrSY7uL vCXpnxKfda7+FxkDAA9hXw== 0001047469-99-031049.txt : 19990812 0001047469-99-031049.hdr.sgml : 19990812 ACCESSION NUMBER: 0001047469-99-031049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99684327 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: 99684328 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 June 30, 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 July 30, 1999, United Stationers Inc. had outstanding 33,972,965 shares of Common Stock, par value $0.10 per share. On July 30, 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 JUNE 30, 1999 INDEX -----
PAGE PART I - FINANCIAL INFORMATION IMPORTANT EXPLANATORY NOTE 1 Independent Accountants' Review Report 2 Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3 Condensed Consolidated Statements of Income for the Three and Six Months ended June 30, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 1999 and 1998 6 Notes to Condensed Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION 21 SIGNATURE 23 INDEX TO EXHIBITS 24
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 June 30, 1999, and the related condensed consolidated statements of income for the three month and six month periods ended June 30, 1999 and 1998 and the condensed consolidated statements of cash flows for the six month periods ended June 30, 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 July 20, 1999 - 2 - UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
(Unaudited) (Audited) June 30, December 31, 1999 1998 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 16,743 $ 19,038 Accounts receivable, net 224,064 203,467 Inventories 511,142 554,940 Other current assets 23,285 21,293 ----------- ----------- Total current assets 775,234 798,738 Property, plant and equipment, net 170,964 169,060 Goodwill, net 179,210 181,009 Other 18,954 18,184 ----------- ----------- Total assets $ 1,144,362 $ 1,166,991 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 281,954 $ 301,952 Accrued liabilities 125,174 132,053 Current maturities of long-term debt 9,717 7,709 ----------- ----------- Total current liabilities 416,845 441,714 Deferred income taxes 26,508 26,223 Long-term obligations 342,802 328,491 ----------- ----------- Total liabilities 786,155 796,428 Stockholders' equity: Common stock, $0.10 par value; 100,000,000 shares authorized; 37,211,427 and 36,652,898, respectively, issued 3,721 3,691 Additional paid-in capital 304,228 303,330 Treasury stock, at cost - 3,250,000 shares (49,600) -- Retained earnings 100,858 64,853 Accumulated translation adjustment (1,000) (1,311) ----------- ----------- Total stockholders' equity 358,207 370,563 ----------- ----------- Total liabilities and stockholders' equity $ 1,144,362 $ 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 June 30, ---------------------------- 1999 1998 --------- --------- Net sales $ 800,753 $ 751,966 Cost of goods sold 672,464 626,076 --------- --------- Gross profit 128,289 125,890 --------- --------- Operating expenses: Warehousing, marketing and administrative expenses 88,531 87,579 Non-recurring charge -- 13,852 --------- --------- Total operating expenses 88,531 101,431 --------- --------- Income from operations 39,758 24,459 Interest expense 7,643 9,516 Other expense 2,258 2,386 --------- --------- Income before income taxes and extraordinary item 29,857 12,557 Income taxes 12,540 5,328 --------- --------- Income before extraordinary item 17,317 7,229 Extraordinary item, loss on early retirement of debt, net of tax benefit of $3,971 -- 5,907 --------- --------- Net income $ 17,317 $ 1,322 --------- --------- --------- --------- Net income per common share: Income before extraordinary item $ 0.51 $ 0.22 Extraordinary item -- (0.18) --------- --------- Net income per share $ 0.51 $ 0.04 --------- --------- --------- --------- Average number of common shares outstanding 34,078 32,998 Net income per common share - assuming dilution: Income before extraordinary item $ 0.50 $ 0.21 Extraordinary item -- (0.17) --------- --------- Net income per share $ 0.50 $ 0.04 --------- --------- --------- --------- Average number of common shares outstanding-assuming dilution 34,476 34,730
See notes to condensed consolidated financial statements. - 4 - UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (Unaudited)
Six Months Ended June 30, -------------------------------- 1999 1998 ----------- ----------- Net sales $ 1,625,014 $ 1,464,483 Cost of goods sold 1,362,857 1,215,531 ----------- ----------- Gross profit 262,157 248,952 ----------- ----------- Operating expenses: Warehousing, marketing and administrative expenses 180,513 172,616 Non-recurring charge -- 13,852 ----------- ----------- Total operating expenses 180,513 186,468 ----------- ----------- Income from operations 81,644 62,484 Interest expense 15,110 21,342 Other expense 4,457 2,386 ----------- ----------- Income before income taxes and extraordinary item 62,077 38,756 Income taxes 26,072 16,436 ----------- ----------- Income before extraordinary item 36,005 22,320 Extraordinary item, loss on early retirement of debt, net of tax benefit of $3,971 -- 5,907 ----------- ----------- Net income $ 36,005 $ 16,413 ----------- ----------- ----------- ----------- Net income per common share: Income before extraordinary item $ 1.02 $ 0.69 Extraordinary item -- (0.18) ----------- ----------- Net income per share $ 1.02 $ 0.51 ----------- ----------- ----------- ----------- Average number of common shares outstanding 35,451 32,498 Net income per common share-assuming dilution: Income before extraordinary item $ 1.00 $ 0.65 Extraordinary item -- (0.17) ----------- ----------- Net income per share $ 1.00 $ 0.48 ----------- ----------- ----------- ----------- Average number of common shares outstanding-assuming dilution 35,938 34,518
See notes to condensed consolidated financial statements. - 5 - UNITED STATIONERS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Six Months Ended June 30, ------------------------------ 1999 1998 --------- --------- Cash Flows From Operating Activities: Net income $ 36,005 $ 16,413 Depreciation and amortization 14,117 14,278 Amortization of capitalized financing costs 847 1,326 Extraordinary item - early retirement of debt -- 9,877 Changes in operating assets and liabilities (8,724) 222,703 --------- --------- Net cash provided by operating activities 42,245 264,597 Cash Flows From Investing Activities: Capital expenditures (16,280) (8,500) Proceeds from disposition of property, plant and equipment 3,210 20 Acquisition of Azerty, Inc. -- (115,740) --------- --------- Net cash used in investing activities (13,070) (124,220) Cash Flows From Financing Activities: Principal payments on debt (2,222) (547,585) Borrowings under financing agreements -- 350,000 Net borrowing (repayments) under revolver 20,000 (11,000) Issuance of common shares 2,466 97,024 Payment of employee withholding tax related to stock option exercises (2,433) (14,411) Financing costs -- (4,526) Repurchase of common stock (49,600) -- Other 319 (519) --------- --------- Net cash used in financing activities (31,470) (131,017) --------- --------- Net change in cash and cash equivalents (2,295) 9,360 Cash and cash equivalents, beginning of period 19,038 12,367 --------- --------- Cash and cash equivalents, end of period $ 16,743 $ 21,727 --------- --------- --------- --------- Other Cash Flow Information: Income taxes paid $ 25,753 $ 16,993 Interest paid 18,372 19,553
See notes to condensed consolidated financial statements. - 6 - 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. All share and per share data reflect a two-for-one stock split in the form of a 100% Common Stock dividend paid September 28, 1998. 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, sanitary supply distributors, internet providers, 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. 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 second quarter of 1999, the Company repurchased 1,035,000 shares of common stock at a cost of approximately $14.9 million. As of June 30, 1999, the Company had repurchased 3,250,000 shares of common stock at a cost of approximately $49.6 million. -7- UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 4. COMPREHENSIVE INCOME (in thousands)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- -------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Net income $ 17,317 $ 1,322 $ 36,005 $ 16,413 Unrealized currency translation adjustment 76 (391) 311 (514) -------- -------- -------- -------- Comprehensive income $ 17,393 $ 931 $ 36,316 $ 15,899 -------- -------- -------- -------- -------- -------- -------- --------
5. 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. For the three and six months ended June 30, 1999, options to purchase 1.7 million shares of common stock at exercise prices ranging from $22.00 to $33.63 were not included in the computation of diluted EPS because the option exercise prices were higher than the average market price of the common shares. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended Six Months Ended June 30, June 30, ------------------------- -------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- NUMERATOR: Income before extraordinary item $ 17,317 $ 7,229 $ 36,005 $ 22,320 Extraordinary item -- (5,907) -- (5,907) -------- -------- -------- -------- Net income $ 17,317 $ 1,322 $ 36,005 $ 16,413 -------- -------- -------- -------- -------- -------- -------- -------- DENOMINATOR: Denominator for basic earnings per share - Weighted average shares 34,078 32,998 35,451 32,498 Effect of dilutive securities: Employee stock options 398 1,732 487 2,020 -------- -------- -------- -------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 34,476 34,730 35,938 34,518 -------- -------- -------- -------- -------- -------- -------- --------
- 8 - UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- ----------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- EARNINGS PER COMMON SHARE: Basic Income before extraordinary item $ 0.51 $ 0.22 $ 1.02 $ 0.69 Extraordinary item -- (0.18) -- (0.18) ----------- ----------- ----------- ----------- Net income per share $ 0.51 $ 0.04 $ 1.02 $ 0.51 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Diluted Income before extraordinary item $ 0.50 $ 0.21 $ 1.00 $ 0.65 Extraordinary item -- (0.17) -- (0.17) ----------- ----------- ----------- ----------- Net income per share $ 0.50 $ 0.04 $ 1.00 $ 0.48 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
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. Set forth below is summarized combined financial data for the Azerty Business (subsequent to its acquisition by USSC) and Lagasse. Summarized financial data for the six months ended June 30, 1999 reflects the operations of Lagasse and the Azerty Business. Summarized financial data for the six months ended June 30, 1998 reflects the operations of Lagasse for six months and the Azerty Business, subsequent to its acquisition by USSC, for the three months ended June 30, 1998.
As of As of June 30, December 31, 1999 1998 -------- -------- Balance Sheet Data: Current assets $222,918 $175,745 Total assets 344,306 293,914 Current liabilities 107,088 90,498 Total liabilities 107,517 90,560
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Income Statement Data: Net sales $196,353 $121,447 $372,063 $148,372 Gross margin 19,271 12,933 37,355 18,006 Operating income 7,197 4,370 13,926 6,525 Net income 4,149 2,104 7,890 3,176
- 9 - UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. 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. In June 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS No. 137 delays the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company will adopt the new statement beginning January 1, 2001. The Company anticipates that SFAS No. 133 will not have a material impact on its consolidated financial statements. 8. COMPUTER SERVICES CONTRACT WRITE-OFF - NON RECURRING CHARGE Associated Stationers, Inc. ("ASI") entered into a Computer Services Contract with a third-party service provider to perform certain computer services. Upon completion of the systems integration between USSC and ASI, increasing differences in the operating processes and technical environment between the Company and the third party service provider became evident. The Computer Services Contract was modified to allow the Company, at its discretion, not to perform any processing at the third-party service provider's facilities. Accordingly, the related fees were reduced. Payments made to the third-party service provider subsequent to this final renegotiation were effectively for disaster recovery purposes only. The Company subsequently consolidated its disaster recovery services under an agreement with another third-party service provider. In May 1998, the Company completed an assessment of the future utility of the Computer Services Contract. Based upon such assessment, the Company has determined that it is no longer feasible to use the prior third-party service provider for disaster recovery purposes. During the second quarter of 1998, the Company wrote off the remaining term of the Computer Services Contract. As a result, the Company recorded a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million), which includes a $2.6 million prepaid expense and $11.3 million of future payments. - 10 - UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 9. THE NEW CREDIT FACILITIES On April 3, 1998, the Company amended and restated its then-existing credit agreement (as amended and restated, the "Credit Agreement") governing its senior secured credit facilities (the "Credit Facilities"). The Credit Facilities consisted initially of a $250.0 million six-year revolving credit facility (the "Revolving Credit Facility"), a $150.0 million six-year tranche A term loan facility (the "Tranche A Term Loan Facility"), and a $100.0 million six and three-quarter year tranche B term loan facility (the "Tranche B Term Loan Facility"). The net proceeds from the 12.75% Notes (as defined) offering were used to permanently repay a substantial portion of indebtedness outstanding under the Tranche B Term Loan Facility and the remainder of such facility was permanently repaid with proceeds from the sale of certain receivables, following which the Tranche B Term Loan Facility was terminated. As a result of the early retirement of the then-existing credit facilities and the termination of the Tranche B Term Loan Facility, approximately $9.9 million ($5.9 million net of tax benefit of $4.0 million) of unamortized financing fees were recorded as a non-cash extraordinary charge during the second quarter of 1998. -11 - 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. SECOND QUARTER ENDED JUNE 30, 1999 COMPARED WITH THE SECOND QUARTER ENDED JUNE 30, 1998 NET SALES. Net sales increased 6.5% to $800.8 million in the second quarter of 1999 compared with $752.0 million in the second quarter of 1998. The Company experienced sales growth in all geographic regions. During the second quarter of 1999, the Company sales growth continued to be impacted by 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 should be able to build sales momentum as it progresses through the year. GROSS MARGIN. Gross margin declined to 16.0% in the second quarter of 1999 compared with 16.7% in 1998. This reduction reflects changes in product mix and an increased level of promotional activities in the areas of paper sales, toner cartridges and special orders. OPERATING EXPENSES. Operating expenses as a percent of net sales declined to 11.0% in 1999 compared with 11.6%, before a non-recurring charge, in 1998. The reduction in the operating expense ratio represents the Company's effort in controlling expenses and continually improving warehouse and systems efficiencies to produce the highest levels of customer and consumer satisfaction. Management believes that the Company has significant opportunities to further reduce operating expenses. - 12 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The non-recurring charge recorded in 1998 of $13.9 million ($8.3 million net of tax benefit of $5.6 million) relates to the write-off of a contract for computer services from a vendor. Operating expenses as a percent of net sales, including the aforementioned charges, was 13.5% in 1998. INCOME FROM OPERATIONS. Income from operations as a percent of net sales declined to 5.0% in 1999 compared with 5.1% in 1998, excluding the non-recurring charge. Including the non-recurring charge, income from operations as a percent of net sales was 3.2% in 1998. INTEREST EXPENSE. Interest expense as a percent of net sales was 1.0% compared with 1.3% in 1998. This reduction reflects the continued leveraging of interest costs against higher sales and the repayment of indebtedness with the proceeds received from the June 1998 equity offering partially offset by the funding required to repurchase 3.3 million shares of the Company's common stock. OTHER EXPENSE. Other expense as a percent of net sales remained flat at 0.3%. 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 TAXES AND EXTRAORDINARY ITEM. Income before taxes and extraordinary item as a percent of net sales increased to 3.7% from 3.5% in 1999, excluding the non-recurring charge. Including the non-recurring charge, income before income taxes and extraordinary item as a percent of net sales was 1.6% in 1998. NET INCOME. Net income as a percent of net sales increased to 2.2% compared with 2.1% in 1998, excluding the non-recurring charge and extraordinary item. Net income in 1998 includes a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) and an extraordinary item, loss on the early retirement of debt of $9.9 million ($5.9 million net of tax benefit of $4.0 million). Including the impact of the non-recurring charge and the extraordinary item, net income as a percent of net sales was 0.2% in 1998. SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1998 NET SALES. Net sales were $1.6 billion in the first six months of 1999, an 11.0% increase over net sales of $1.5 billion in 1998. The increase reflects the impact of the Azerty acquisition, which closed on April 3, 1998. Organic sales in the first six months of 1999 increased by 3.9%. During the first six months of 1999, the Company sales growth continued to be impacted by 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 should be able to build sales momentum as it progresses through the year. - 13 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GROSS MARGIN. Gross margin declined to 16.1% in the first six months of 1999 compared with 17.0% 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. In addition, this reduction reflects changes in product mix and an increased level of promotional activities in the areas of paper sales, toner cartridges and special orders. OPERATING EXPENSES. Operating expenses as a percent of net sales declined to 11.1% in 1999 compared with 11.8%, excluding a non-recurring charge in 1998. The reduction in the operating expense ratio represents the blending of the Azerty business, which operates at a lower expense ratio than the supply division, into the Company's overall expense ratio. In addition, the reduction in the operating expense ratio represents the Company's effort in controlling expenses and continually improving warehouse and systems efficiencies to produce the highest levels of customer and consumer satisfaction. Management believes that the Company has significant opportunities to further reduce operating expenses. The non-recurring charge recorded in the second quarter of 1998 of $13.9 million ($8.3 million net of tax benefit of $5.6 million) relates to the write-off of a contract for computer services from a vendor. Operating expenses as a percent of net sales, including the aforementioned charges, was 12.7% in 1998. INCOME FROM OPERATIONS. Income from operations as a percent of net sales declined to 5.0% in 1999 compared with 5.2% in 1998, excluding the non-recurring charge. Including the non-recurring charge, income from operations as a percent of net sales was 4.3% in 1998. INTEREST EXPENSE. Interest expense as a percent of net sales was 0.9% compared with 1.5% in 1998. This reduction reflects the continued leveraging of 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, the placement of $100.0 million of Senior Subordinated Notes at 8.375% (as defined) in April of 1998 and the $49.6 million of funding required to repurchase 3.3 million shares of the Company's common stock during 1999. OTHER EXPENSE. Other expense as a percent of net sales was 0.3% in 1999 compared with 0.2% in 1998. 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 AND EXTRAORDINARY ITEM. Income before income taxes and extraordinary item as a percent of net sales increased to 3.8% from 3.5% in 1998, excluding the non-recurring charge. Including the non-recurring charge, income before income taxes and extraordinary item as a percent of net sales was 2.6% in 1998. NET INCOME. Net income as a percent of sales increased to 2.2% compared with 2.1% in 1998, excluding the non-recurring charge and extraordinary item. - 14 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net income in 1998 includes a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) and an extraordinary item, loss on the early retirement of debt of $9.9 million ($5.9 million net of tax benefit of $4.0 million). Including the impact of the non-recurring charge and the extraordinary item, net income as a percent of net sales was 1.1% in 1998. LIQUIDITY AND CAPITAL RESOURCES Credit Agreement At June 30, 1999, the available credit under the Second Amended and Restated Credit Agreement (the "Credit Agreement") included $57.4 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 has $100.0 million of 12.75% Senior Subordinated Notes due 2005, $100.0 million of 8.375% Senior Subordinated Notes due 2008, $29.8 million of industrial revenue bonds and a $1.8 million mortgage. The Term Loan Facilities consist of a $57.4 million Tranche A term loan facility ("Tranche A Facility"). Amounts outstanding under the Tranche A Facility are to be repaid in 19 quarterly installments ranging from $1.6 million at September 30, 1999 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 $44.0 million was outstanding at June 30, 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%. The Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for financings of this type. At June 30, 1999, the Company was in compliance with all covenants contained in the Credit Agreement. - 15 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) 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 June 30, 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 and six month periods ended June 30, 1999 and 1998, the Company recorded $104,047, $193,905, $39,583 and $211,415, 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 June 30, 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. - 16 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) 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 June 30, 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. 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 Term Loan Facilities 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 June 30, 1999, exclude approximately $145.9 million of accounts receivable sold to the Receivables Company. - 17 - 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 Six Months Ended June 30, ------------------------------- 1999 1998 -------- --------- (dollars in thousands) Net cash provided by operating activities $ 42,245 $ 264,597 Net cash used in investing activities (13,070) (124,220) Net cash used in financing activities (31,470) (131,017)
Net cash provided by operating activities during the first six months of 1999 decreased to $42.2 million from $264.6 million in the comparable prior-year period. This decrease was primarily due to the initial sale of $160.0 million of certain accounts receivable in 1998, an increase in accounts receivable during 1999 and a decrease in accounts payable during 1999. Net cash used in investing activities during the first six months of 1999 was $13.1 million compared with $124.2 million used in the first six months of 1998. The cash used in investing activities in 1998 included the acquisition of the Azerty businesses for $115.7 million. Capital expenditures for the six months ended June 30, 1999 totaled $16.3 million compared with $8.5 million in the same period last year. Net cash used in financing activities during the first six months of 1999 was $31.5 million compared with $131.0 million for the first six 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 $49.6 million in common stock. 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. - 18 - UNITED STATIONERS INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) 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 November 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 August 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 six months ended June 30, 1999, the Company incurred $0.8 million and expects to incur an additional $0.7 million to $1.2 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 completed properly and timely, 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. - 19 - 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 June 30, 1999, of $333.2 million and $145.9 million of receivables sold under the Receivables Securitization Program, whose discount rate varies with market interest rates ("Receivables Exposure"). Approximately 42% of the outstanding debt and Receivables Exposure are 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 $1.4 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. - 20 - 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 At the Annual Meeting of Stockholders of United Stationers Inc., held on May 12, 1999, the following matter was voted on: (a) Election of Directors Each of the following members of the Board of Directors was elected for the term listed below: Class I Directors - term expiring in May 2002:
Number of Votes --------------------------------- For Withheld ---------- -------- -- Daniel J. Good 33,277,848 537,303 -- Max D. Hopper 33,162,494 652,657 -- James A. Johnson 33,289,442 525,709
ITEM 5 OTHER INFORMATION Not applicable - 21 - UNITED STATIONERS INC. AND SUBSIDIARIES PART II - OTHER INFORMATION (continued) 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 August 6, 1999 reporting under Item 5 that the Company's Board of Directors approved the adoption of a Stockholder Rights Plan. - 22 - 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: August 9, 1999 /s/ Daniel H. Bushell ---------------- --------------------- Daniel H. Bushell Executive Vice President, Chief Development Officer and Chief Financial Officer - 23 - 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 - 24 - EX-15.1 2 EXHIBIT 15.1 Exhibit 15.1 August 9, 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 July 20, 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 June 30, 1999. /s/ Ernst & Young LLP EX-27.1 3 EXHIBIT 27-1
5 0000355999 UNITED STATIONERS INC 1,000 3-MOS 6-MOS DEC-31-1999 DEC-31-1999 APR-01-1999 JAN-01-1999 JUN-30-1999 JUN-30-1999 16,743 16,743 0 0 235,711 235,711 11,647 11,647 511,142 511,142 775,234 775,234 280,363 280,363 109,399 109,399 1,144,362 1,144,362 416,845 416,845 0 0 0 0 0 0 3,721 3,721 354,486 354,486 1,144,362 1,144,362 800,753 1,625,014 800,753 1,625,014 672,464 1,362,857 672,464 1,362,857 90,789 184,970 1,191 3,349 7,643 15,110 29,857 62,077 12,540 26,072 17,317 36,005 0 0 0 0 0 0 17,317 36,005 0.51 1.02 0.50 1.00
EX-27.2 4 EXHIBIT 27-2
5 0000945633 UNITED STATIONERS SUPPLY CO 1,000 3-MOS 6-MOS DEC-31-1999 DEC-31-1999 APR-01-1999 JAN-01-1999 JUN-30-1999 JUN-30-1999 16,743 16,743 0 0 235,711 235,711 11,647 11,647 511,142 511,142 775,234 775,234 280,363 280,363 109,399 109,399 1,114,362 1,114,362 416,845 416,845 0 0 0 0 0 0 3,721 3,721 354,486 354,486 1,144,362 1,144,362 800,753 1,625,014 800,753 1,625,014 672,464 1,362,857 672,464 1,362,857 90,789 184,970 1,191 3,349 7,643 15,110 29,857 62,077 12,540 26,072 17,317 36,005 0 0 0 0 0 0 17,317 36,005 0.51 1.02 0.50 1.00
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