UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 quarterly period ended March 31, 2013
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-10653
UNITED STATIONERS INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 36-3141189 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
One Parkway North Boulevard
Suite 100
Deerfield, Illinois 60015-2559
(847) 627-7000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
On April 26, 2013, the registrant had outstanding 40,558,392 shares of common stock, par value $0.10 per share.
UNITED STATIONERS INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2013
2
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited) | (Audited) | |||||||
As of March 31, 2013 |
As of December 31, 2012 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ | 20,522 | $ | 30,919 | ||||
Accounts receivable, less allowance for doubtful accounts of $22,980 in 2013 and $22,716 in 2012 |
632,247 | 658,760 | ||||||
Inventories |
726,217 | 767,206 | ||||||
Other current assets |
33,356 | 30,118 | ||||||
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Total current assets |
1,412,342 | 1,487,003 | ||||||
Property, plant and equipment, net |
139,345 | 143,523 | ||||||
Goodwill |
357,907 | 357,226 | ||||||
Intangible assets, net |
65,497 | 67,192 | ||||||
Other long-term assets |
22,179 | 20,260 | ||||||
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Total assets |
$ | 1,997,270 | $ | 2,075,204 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 431,940 | $ | 495,278 | ||||
Accrued liabilities |
172,726 | 205,228 | ||||||
Short-term debt |
1,162 | | ||||||
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Total current liabilities |
605,828 | 700,506 | ||||||
Deferred income taxes |
16,285 | 18,054 | ||||||
Long-term debt |
535,885 | 524,376 | ||||||
Other long-term liabilities |
84,138 | 94,176 | ||||||
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Total liabilities |
1,242,136 | 1,337,112 | ||||||
Stockholders equity: |
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Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2013 and 2012 |
7,444 | 7,444 | ||||||
Additional paid-in capital |
405,039 | 404,196 | ||||||
Treasury stock, at cost 33,760,943 shares in 2013 and 34,116,220 shares in 2012 |
(957,124 | ) | (963,220 | ) | ||||
Retained earnings |
1,351,631 | 1,343,437 | ||||||
Accumulated other comprehensive loss |
(51,856 | ) | (53,765 | ) | ||||
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Total stockholders equity |
755,134 | 738,092 | ||||||
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Total liabilities and stockholders equity |
$ | 1,997,270 | $ | 2,075,204 | ||||
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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)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
Net sales |
$ | 1,250,485 | $ | 1,271,647 | ||||
Cost of goods sold |
1,061,960 | 1,090,718 | ||||||
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Gross profit |
188,525 | 180,929 | ||||||
Operating expenses: |
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Warehousing, marketing and administrative expenses |
163,284 | 149,337 | ||||||
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Operating income |
25,241 | 31,592 | ||||||
Interest expense, net |
3,113 | 7,166 | ||||||
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Income before income taxes |
22,128 | 24,426 | ||||||
Income tax expense |
8,254 | 9,314 | ||||||
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Net income |
$ | 13,874 | $ | 15,112 | ||||
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Net income per share - basic: |
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Net income per share - basic |
$ | 0.35 | $ | 0.36 | ||||
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Average number of common shares outstanding - basic |
39,972 | 41,574 | ||||||
Net income per share - diluted: |
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Net income per share - diluted |
$ | 0.34 | $ | 0.36 | ||||
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Average number of common shares outstanding - diluted |
40,628 | 42,420 | ||||||
Dividends declared per share |
$ | 0.14 | $ | 0.13 | ||||
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See notes to condensed consolidated financial statements.
4
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
Net income |
$ | 13,874 | $ | 15,112 | ||||
Other comprehensive income, net of tax |
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Unrealized foreign currency translation adjustment |
745 | 1,618 | ||||||
Amortization of prior service costs and unrecognized loss included in net periodic benefit cost |
1,020 | | ||||||
Unrealized interest rate swap adjustments |
144 | 2,144 | ||||||
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Total other comprehensive income, net of tax |
1,909 | 3,762 | ||||||
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Comprehensive income |
$ | 15,783 | $ | 18,874 | ||||
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See notes to condensed consolidated financial statements.
5
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
For the Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
Cash Flows From Operating Activities: |
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Net income |
$ | 13,874 | $ | 15,112 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
9,475 | 8,607 | ||||||
Share-based compensation |
2,420 | 1,926 | ||||||
Loss (gain) on the disposition of property, plant and equipment |
14 | (49 | ) | |||||
Amortization of capitalized financing costs |
224 | 241 | ||||||
Excess tax benefits related to share-based compensation |
(1,477 | ) | (464 | ) | ||||
Deferred income taxes |
(2,079 | ) | (1,944 | ) | ||||
Changes in operating assets and liabilities: |
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Decrease in accounts receivable, net |
26,267 | 17,640 | ||||||
Decrease in inventory |
40,828 | 69,959 | ||||||
(Increase) decrease in other assets |
(3,999 | ) | 15,681 | |||||
Decrease in accounts payable |
(77,404 | ) | (63,520 | ) | ||||
Increase (decrease) in checks in-transit |
14,201 | (1,758 | ) | |||||
Decrease in accrued liabilities |
(27,304 | ) | (19,427 | ) | ||||
Decrease in other liabilities |
(8,407 | ) | (14,108 | ) | ||||
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Net cash (used in) provided by operating activities |
(13,367 | ) | 27,896 | |||||
Cash Flows From Investing Activities: |
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Capital expenditures |
(9,096 | ) | (4,479 | ) | ||||
Proceeds from the disposition of property, plant and equipment |
86 | 84 | ||||||
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Net cash used in investing activities |
(9,010 | ) | (4,395 | ) | ||||
Cash Flows From Financing Activities: |
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Net borrowings under debt arrangements |
12,672 | 15,393 | ||||||
Net proceeds (disbursements) from share-based compensation arrangements |
10,840 | (942 | ) | |||||
Acquisition of treasury stock, at cost |
(7,124 | ) | (33,575 | ) | ||||
Payment of cash dividends |
(5,571 | ) | (5,436 | ) | ||||
Excess tax benefits related to share-based compensation |
1,477 | 464 | ||||||
Payment of debt issuance costs |
(345 | ) | | |||||
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Net cash provided by (used in) financing activities |
11,949 | (24,096 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
31 | 10 | ||||||
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Net change in cash and cash equivalents |
(10,397 | ) | (585 | ) | ||||
Cash and cash equivalents, beginning of period |
30,919 | 11,783 | ||||||
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Cash and cash equivalents, end of period |
$ | 20,522 | $ | 11,198 | ||||
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Other Cash Flow Information: |
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Income tax payments (refunds), net |
$ | 9,843 | $ | (9,334 | ) | |||
Interest paid |
4,443 | 6,887 |
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 represent United Stationers Inc. (USI) with its wholly owned subsidiary United Stationers Supply Co. (USSC), and USSCs subsidiaries (collectively, United or the Company). The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of USI and its subsidiaries. All intercompany transactions and balances have been eliminated. The Company operates in a single reportable segment as a leading distributor of business products.
The accompanying Condensed Consolidated Financial Statements are unaudited, except for the Condensed Consolidated Balance Sheet as of December 31, 2012, which was derived from the December 31, 2012 audited financial statements. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Companys Annual Report on Form 10-K for the year ended December 31, 2012 for further information.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of United at March 31, 2013 and the results of operations and cash flows for the three months ended March 31, 2013 and 2012. The results of operations for the three months ended March 31, 2013 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year.
Acquisition of O.K.I. Supply Co.
During the fourth quarter of 2012, USSC completed the acquisition of all of the capital stock of O.K.I. Supply Co. (OKI), a welding, safety and industrial products wholesaler. This acquisition was completed with a purchase price of $90 million. The purchase price includes approximately $4.5 million reserved for as a payable upon completion of a two year indemnification period. In total the purchase price, net of cash acquired, was $79.8 million. The acquisition extends the Companys position as the leading pure-wholesale industrial distributor in the United States and brings expanded categories and services to customers. The purchase was financed through the Companys existing debt agreements.
The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations, with the excess purchase price over the fair market value of the assets acquired and liabilities assumed allocated to goodwill. Based on the preliminary purchase price allocation, the Company has recorded goodwill of $29.8 million and intangible assets of $17.1 million with definite lives related to trademarks and trade names, content, customer lists, and certain non-compete agreements as of March 31, 2013. Additionally, included within the purchase price allocation was $3.3 million of facilities and related equipment which the Company has sold or plans to sell in 2013. These assets are valued at their fair-value at the date of acquisition less the estimated cost to sell these assets.
The purchase price for OKI has been allocated to the assets acquired and liabilities assumed based on estimated fair values at the date of the acquisition. The Company is in the process of obtaining or finalizing appraisals of tangible and intangible assets and is continuing to evaluate the initial purchase price allocations, as of the acquisition date, which will be adjusted as additional information relative to the fair values of the assets and liabilities of the businesses become known. Accordingly, management has used its best estimate in the initial purchase price allocation as of the date of these financial statements.
New Accounting Pronouncements
On January 1, 2013 the Company adopted ASU No. 2012-02, IntangiblesGoodwill and Other (Topic 350)Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02), which was issued by the FASB in July 2012. Under the guidance, testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill has been simplified. The guidance allows an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is more likely than not that the asset is impaired. Upon adoption of this guidance on January 1, 2013, there was no impact on the Companys financial condition or results of operations.
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), to improve the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required
7
under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company has adopted the guidance for the reporting period ending March 31, 2013. There was no impact on the Companys financial condition or results of operations due to the adoption.
2. Share-Based Compensation
As of March 31, 2013, the Company has two active equity compensation plans. Under the Amended and Restated 2004 Long-Term Incentive Plan, award vehicles include, but are not limited to, stock options, restricted stock awards, restricted stock units, and performance-based awards. Associates and non-employee directors of the Company are eligible to become participants in the plan. The Nonemployee Directors Deferred Stock Compensation Plan allows non-employee directors to elect to defer receipt of all or a portion of their retainer and meeting fees.
The Company granted 29,990 shares of restricted stock and 152,513 restricted stock units (RSUs) during the first three months of 2013. During the first three months of 2012, the Company granted 192,326 shares of restricted stock and 204,686 RSUs. There were no stock options granted during the first three months of 2013 or 2012.
3. Severance and Restructuring Charges
During the first quarter 2013, the Company recorded a $14.4 million pre-tax charge related to a workforce reduction and facility closures. These actions were substantially completed in the first quarter of 2013. The pre-tax charge is comprised of certain OKI facility closure expenses of $1.2 million and severance and workforce reduction related expense of $13.2 million which were included in operating expenses. Cash outflows for this action will occur primarily during 2013 and 2014. Cash outlays associated with this charge in the three months ended March 31, 2013 were $0.6 million. As of March 31, 2013, the Company had accrued liabilities for these actions of $13.8 million.
During the first quarter 2012, the Company approved a distribution network optimization and cost reduction program. This program was substantially completed in the first quarter of 2012 and the Company recorded a $6.2 million pre-tax charge in that period in connection with these actions. The pre-tax charge is comprised of facility closure expenses of $2.6 million and severance and workforce reduction related expense of $3.6 million which were included in operating expenses. Cash outflows for this action occurred during 2012 and will continue in 2013. Cash outlays associated with this charge in the three months ended March 31, 2013 were $1.0 million. As of March 31, 2013 and December 31, 2012, the Company had accrued liabilities for these actions of $0.9 million and $1.9 million, respectively.
4. Accumulated Other Comprehensive Income (Loss)
The change in Accumulated Other Comprehensive Income (Loss) (AOCI) by component, net of tax, for the first quarter of 2013 is as follows:
(amounts in thousands) |
Foreign Currency Translation |
Cash Flow Hedges |
Defined Benefit Pension Plans |
Total | ||||||||||||
AOCI, balance as of December 31, 2012 |
$ | (5,760 | ) | $ | (713 | ) | $ | (47,292 | ) | $ | (53,765 | ) | ||||
Other comprehensive income before reclassifications |
745 | 3 | | 748 | ||||||||||||
Amounts reclassified from AOCI |
| 141 | 1,020 | 1,161 | ||||||||||||
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Net other comprehensive income |
745 | 144 | 1,020 | 1,909 | ||||||||||||
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AOCI, balance as of March 31, 2013 |
$ | (5,015 | ) | $ | (569 | ) | $ | (46,272 | ) | $ | (51,856 | ) | ||||
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8
The following table details the amounts reclassified out of AOCI into the income statement during the three-month periods ending March 31, 2013 and 2012 respectively:
Details About AOCI Components |
Amount Reclassified
From AOCI |
Affected Line Item In
The Statement Where Net Income Is Presented | ||||
For the Three Months Ended March 31, 2013 |
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Losses on interest rate swap cash flow hedges, before tax |
$ | 228 | Interest expense, net | |||
(87 | ) | Tax provision | ||||
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$ | 141 | Net of tax | ||||
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Amortization of defined benefit pension plan items: (1) |
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Prior service cost and unrecognized loss |
$ | 1,625 | Warehousing, marketing and administrative expenses | |||
(605 | ) | Tax provision | ||||
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1,020 | Net of tax | |||||
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Total reclassifications for the period |
$ | 1,161 | Net of tax | |||
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(1) | In the first quarter of 2013, the Company began to record the amortization of actuarial gains and losses and prior service costs recognized as a component of net periodic pension costs to AOCI. Prior to that date on a quarterly basis the Company recorded the amortization of actuarial gains and losses and prior service costs recognized as a component of net periodic pension cost to long term liabilities, with the amount being recorded to AOCI on an annual basis. |
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, restricted stock and deferred stock units are considered dilutive securities. For the three-month period ending March 31, 2012, 0.1 million stock options were excluded from the computation of diluted earnings per share because the options exercise prices were greater than the average market price of the common shares, and therefore, the effect would be antidilutive. For the three-month period ending March 31, 2013, all shares of common stock outstanding were included in the computation of diluted earnings per share because there were no antidilutive securities outstanding. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
9
For the Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
Numerator: |
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Net income |
$ | 13,874 | $ | 15,112 | ||||
Denominator: |
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Denominator for basic earnings per share - |
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weighted average shares |
39,972 | 41,574 | ||||||
Effect of dilutive securities: |
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Employee stock options and restricted units |
656 | 846 | ||||||
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Denominator for diluted earnings per share - |
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Adjusted weighted average shares and the effect of dilutive securities |
40,628 | 42,420 | ||||||
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Net income per share: |
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Net income per share - basic |
$ | 0.35 | $ | 0.36 | ||||
Net income per share - diluted |
$ | 0.34 | $ | 0.36 |
Common Stock Repurchases
As of December 31, 2012, the Company had Board authorization to repurchase $55.1 million of USI common stock. During the three-month periods ended March 31, 2013 and 2012, the Company repurchased 208,274 and 1,128,155 shares of USIs common stock at an aggregate cost of $7.8 million and $33.6 million, respectively. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its common stock at any time without notice. Acquired shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data. During the first three months of 2013 and 2012, the Company reissued 563,551 and 196,739 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.
6. Debt
USI is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its direct operating subsidiary, USSC, and from borrowings by USSC. The 2011 Credit Agreement (as defined in Note 9 of the Companys Form 10-K for the year ended December 31, 2012), the 2007 Note Purchase Agreement (as defined in Note 9 of the Companys Form 10-K for the year ended December 31, 2012), and the current Receivables Securitization Program (as defined below) contain restrictions on the use of cash transferred from USSC to USI.
On January 18, 2013, the Companys accounts receivable securitization program (Receivables Securitization Program or Program) was amended and restated to increase the maximum amount of financing from $150 million to $200 million and to extend the term of the Program through January 18, 2016. The parties to the Program are USI, USSC, United Stationers Financial Services LLC (USFS), United Stationers Receivables, LLC (USR), and PNC Bank, National Association (the Investor). The Receivables Securitization Program is governed by the following agreements:
| The Transfer and Administration Agreement among USSC, USFS, USR, and the Investor; |
| The Receivables Sale Agreement between USSC and USFS; |
| The Receivables Purchase Agreement between USFS and USR; and |
| The Performance Guaranty executed by USI in favor of USR. |
The receivables sold to the Investor remain on USIs Condensed Consolidated Balance Sheets, and amounts advanced to USR by the Investor or any successor Investor are recorded as debt on USIs Condensed Consolidated Balance Sheets. The cost of such debt is recorded as interest expense on USIs Condensed Consolidated Statements of Income. As of March 31, 2013 and December 31, 2012, $380.5 million and $400.2 million, respectively, of receivables had been sold to the Investor. USR had $199.7 million and $150.0 million outstanding as of March 31, 2013 and December 31, 2012, respectively, under the Program.
10
Debt consisted of the following amounts (in millions):
As of March 31, 2013 |
As of December 31, 2012 |
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2011 Credit Agreement |
$ | 200.9 | $ | 238.1 | ||||
2007 Master Note Purchase Agreement (Private Placement) |
135.0 | 135.0 | ||||||
2009 Receivables Securitization Program |
199.7 | 150.0 | ||||||
Mortgage & Capital Lease |
1.4 | 1.3 | ||||||
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Total |
$ | 537.0 | $ | 524.4 | ||||
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As of March 31, 2013, 100% of the Companys outstanding debt is priced at variable interest rates based primarily on the applicable bank prime rate or London InterBank Offered Rate (LIBOR).
7. Pension and Post-Retirement Benefit Plans
The Company maintains pension plans covering union and certain non-union employees. For more information on the Companys retirement plans, see Notes 11 and 12 to the Companys Consolidated Financial Statements in the Form 10-K for the year ended December 31, 2012. A summary of net periodic pension cost related to the Companys pension plans for the three-months ended March 31, 2013 and 2012 is as follows (dollars in thousands):
Pension Benefits | ||||||||
For the Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Service cost - benefit earned during the period |
$ | 304 | $ | 241 | ||||
Interest cost on projected benefit obligation |
2,097 | 2,104 | ||||||
Expected return on plan assets |
(2,842 | ) | (2,501 | ) | ||||
Amortization of prior service cost |
48 | 44 | ||||||
Amortization of actuarial loss |
1,577 | 1,548 | ||||||
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Net periodic pension cost |
$ | 1,184 | $ | 1,436 | ||||
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The Company made cash contributions of $13.0 million to its pension plans during each of the first three months ended March 31, 2013 and 2012. Additional fundings, if any, for 2013 have not yet been determined. As of March 31, 2013 and December 31, 2012, respectively, the Company had accrued $37.5 million and $51.0 million of pension liability within Other Long-Term Liabilities on the Condensed Consolidated Balance Sheets.
Defined Contribution Plan
The Company has defined contribution plans covering certain salaried associates and non-union hourly paid associates (the Plan). The Plan permits associates to defer a portion of their pre-tax and after-tax salary as contributions to the Plan. The Plan also provides for company-funded discretionary contributions as well as matching associates salary deferral contributions, at the discretion of the Board of Directors. The Company recorded expense of $1.4 million for the Company match of employee contributions to the Plan for the three months ended March 31, 2013. During the same period last year, the Company recorded $1.4 million to match employee contributions.
8. Derivative Financial Instruments
Interest rate movements create a degree of risk to the Companys operations by affecting the amount of interest payments. Interest rate swap agreements are used to manage the Companys exposure to interest rate changes. The Company designates its floating-to-fixed interest rate swaps as cash flow hedges of the variability of future cash flows at the inception of the swap contract to support hedge accounting.
USSC entered into four separate swap transactions to mitigate USSCs floating rate risk on the noted aggregate notional amount of LIBOR-based interest rate risk noted in the table below. These swap transactions occurred as follows:
| On November 6, 2007, USSC entered into an interest rate swap transaction (the November 2007 Swap Transaction) with U.S. Bank National Association as the counterparty. This swap matured on January 15, 2013. |
| On December 20, 2007, USSC entered into another interest rate swap transaction (the December 2007 Swap Transaction) with Key Bank National Association as the counterparty. This swap transaction matured on June 21, 2012. |
| On March 13, 2008, USSC entered into an interest rate swap transaction (the March 2008 Swap Transaction) with U.S. Bank National Association as the counterparty. This swap transaction matured on June 29, 2012. |
11
| On July 18, 2012, USSC entered into a two-year forward, three-year interest rate swap transaction (the July 2012 Swap Transaction) with U.S. Bank National Association as the counterparty. The swap transaction has an effective date of July 18, 2014 and a maturity date of July 18, 2017. |
As of March 31, 2013, none of the Companys current outstanding debt interest payments were designated as hedged forecasted transactions.
The Companys outstanding swap transaction was accounted for as a cash flow hedge and was recorded at fair value on the statement of financial position as of March 31, 2013, at the following amount (in thousands):
As of March 31, 2013 |
Notional Amount |
Receive |
Pay | Maturity Date | Fair Value Net Liability (1) |
|||||||||||||
July 2012 Swap Transaction |
$ | 150,000 | Floating 1-month LIBOR | 1.054 | % | July 18, 2017 | $ | (841 | ) |
(1) | This interest rate derivative qualifies for hedge accounting, and is in a net liability position. Therefore, the fair value of the interest rate derivative is included in the Companys Condensed Consolidated Balance Sheets as a component of Other Long-Term Liabilities, with an offsetting component in Stockholders Equity as part of Accumulated Other Comprehensive Loss. |
Under the terms of the July 2012 Swap Transaction, USSC will be required to make monthly fixed rate payments to the counterparty calculated based on the notional amounts noted in the table above at a fixed rate also noted in the table above, while the counterparty is obligated to make monthly floating rate payments to USSC based on the one-month LIBOR on the same referenced notional amount.
The hedged transaction described above qualifies as a cash flow hedge in accordance with accounting guidance on derivative instruments. This guidance requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The Company does not offset fair value amounts recognized for interest rate swaps executed with the same counterparty.
For derivative instruments that are designated and qualify as a cash flow hedge (for example, hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings (for example, in interest expense when the hedged transactions are interest cash flows associated with floating-rate debt).
The July 2012 Swap Transaction effectively converts a portion of the Companys future floating-rate debt to a fixed-rate basis. It reduces the impact of interest rate changes on future interest expense. By using such derivative financial instruments, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty to the interest rate swap (as noted above) will fail to perform under the terms of the agreement. The Company attempts to minimize the credit risk in these agreements by only entering into transactions with counterparties the Company determines are creditworthy. The market risk is the adverse effect on the value of a derivative financial instrument that results from a change in interest rates.
The Companys agreement with its derivative counterparty provides that if an event of default occurs on any Company debt of $25 million or more, the counterparty can terminate the swap agreement. If an event of default had occurred and the counterparty had exercised its early termination rights under the outstanding swap transactions as of March 31, 2013, the Company would have been required to pay the aggregate fair value net liability of $0.8 million plus accrued interest to the counterparty.
The swap transaction that was in effect as of March 31, 2013 and the other swap transaction that were in effect as of March 31, 2012 contained no ineffectiveness; therefore, all gains or losses on those derivative instruments were reported as a component of other comprehensive income (OCI) and reclassified into earnings as interest expense in the same period or periods during which they affected earnings. The following table depicts the effect of these derivative instruments on the statements of income and comprehensive income for the three-month periods ended March 31, 2013 and March 31, 2012.
12
Amount of Gain (Loss) Recognized in OCI on Derivative |
Amount of Gain (Loss) Reclassified |
|||||||||||||||||
(Effective Portion) | from Accumulated OCI into Income | |||||||||||||||||
For the Three | For the Three | (Effective Portion) | ||||||||||||||||
Months Ended March 31, 2013 |
Months Ended March 31, 2012 |
Location of Gain (Loss) Reclassified from |
For the Three Months Ended March 31, 2013 |
For the Three Months Ended March 31, 2012 |
||||||||||||||
November 2007 Swap Transaction |
$ | (77 | ) | $ | (698 | ) | Interest expense, net |
$ | (228 | ) | $ | (1,409 | ) | |||||
December 2007 Swap Transaction |
| (730 | ) | Interest expense, net | | (1,779 | ) | |||||||||||
March 2008 Swap Transaction |
| (282 | ) | Interest expense, net | | (666 | ) | |||||||||||
July 2012 Swap Transaction |
(7 | ) | | Interest expense, net | | |
9. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including interest rate swap derivatives, based on the mark-to-market position of the Companys positions and other observable interest rates (see Note 8 Derivative Financial Instruments, for more information on these interest rate swaps).
Accounting guidance on fair value establishes a hierarchy for those instruments measured at fair value which distinguishes between assumptions based on market data (observable inputs) and the Companys own assumptions (unobservable inputs). The hierarchy consists of three levels:
| Level 1Quoted market prices in active markets for identical assets or liabilities; |
| Level 2Inputs other than Level 1 inputs that are either directly or indirectly observable; and |
| Level 3Unobservable inputs developed using estimates and assumptions developed by the Company which reflect those that a market participant would use. |
Determining which level to apply to an asset or liability requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The following table summarizes the financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheet as of March 31, 2013 (in thousands):
Fair Value Measurements as of March 31, 2013 | ||||||||||||||||
Quoted Market Prices in Active Markets for Identical Assets or Liabilities |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap liability |
$ | 841 | $ | | $ | 841 | $ | | ||||||||
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The carrying amount of accounts receivable at March 31, 2013, including $380.5 million of receivables sold under the Current Receivables Securitization Program, approximates fair value because of the short-term nature of this item.
Accounting guidance on fair value measurements requires separate disclosure of assets and liabilities measured at fair value on a recurring basis, as noted above, from those measured at fair value on a nonrecurring basis. As of March 31, 2013, no assets or liabilities are measured at fair value on a nonrecurring basis.
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10. Other Assets and Liabilities
The Company had receivables related to supplier allowances totaling $69.2 million and $96.9 million included in Accounts receivable in the Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, respectively.
Accrued customer rebates of $36.1 million and $56.3 million as of March 31, 2013 and December 31, 2012, respectively, were included in Accrued liabilities in the Condensed Consolidated Balance Sheets.
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements often contain words such as expects, anticipates, estimates, intends, plans, believes, seeks, will, is likely, scheduled, positioned to, continue, forecast, predicting, projection, potential or similar expressions. Forward-looking statements include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on managements current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, without limitation, those set forth in Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year-ended December 31, 2012.
Readers should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it.
Company Background
United is a leading distributor of business products with 2012 net sales of approximately $5.1 billion. United stocks over 130,000 items from over 1,400 manufacturers. These items include a broad spectrum of manufacturer-branded and private brand technology products, traditional office products, office furniture, janitorial and breakroom supplies, and industrial supplies. United sells its products through a network of 65 distribution centers to its approximately 25,000 reseller customers, who in turn sell directly to end-consumers. The Companys customers include independent office products dealers; contract stationers; office products superstores; computer products resellers; office furniture dealers; mass merchandisers; mail order companies; sanitary supply, paper and foodservice distributors; drug and grocery store chains; healthcare distributors; e-commerce merchants; oil field, welding supply and industrial/MRO distributors; and other independent distributors.
Overview of Strategy, Key Trends and Recent Results
| United is focused on two primary strategies: 1) strengthen our core businesses and 2) diversify our business portfolio into higher margin categories and channels. We measure progress on these strategies in several ways. The first measure is sustained sales and margin growth that outperforms the underlying markets in which we compete. The second is to continue to diversify our business through targeted acquisitions as well as through organic growth in the industrial and janitorial and breakroom businesses. Achieving these goals and other activities are then expected to further drive improved operating income and improve our capital efficiency and return on investment. |
| Additionally, United remains disciplined in controlling costs by taking necessary actions to right size our business and fund growth initiatives. During the first quarter of 2013, the Company implemented cost reduction actions specifically aimed towards workforce reductions in back office, operations, and sales. The Company took additional headcount actions than originally anticipated which increased the charge and expected benefits. At the same time, we also streamlined our distribution network with seven facility closures related to the recently acquired OKI, which was fully integrated into the Companys industrial business platform. One-time charges associated with these actions totaled approximately $14.4 million of which $13.2 million related to the workforce reductions and $1.2 million related to OKI facility closures. These actions are expected to generate annual savings in excess of $17 million. Management plans to invest a portion of these savings in growth and capability-building initiatives. |
| First quarter sales were unfavorably impacted by corporate and government spending reductions, an uncertain economic outlook, low inflation and muted business confidence as real jobs growth and small business confidence remained soft. The digitization of the workplace and the jobless recovery create a challenging environment for our core office products business. However, we will constantly adapt and evolve our Company to make progress on the factors we can control, notwithstanding the challenging economic times that we face. United is well positioned to help our supply chain partners win in the migration to an online marketplace. By executing on these strategies, we can strengthen our position as a leading distribution services company across our categories and channels while enabling our partners to succeed as well. |
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| During the first quarter of 2013, we continued to make progress on our strategic initiatives and delivered solid results despite a difficult demand environment. GAAP diluted earnings per share for the latest quarter was $0.34, compared with $0.36 in the prior-year period. Adjusted diluted earnings per share were up 24% to $0.56 from $0.45 in the prior-year quarter. These adjusted results exclude the impact of the $14.4 million charge in the first quarter of 2013, and the cost reduction and facility closure charge of $6.2 million in the first quarter of 2012. Increased operating income, lower interest expense and lower average shares outstanding during the quarter benefited earnings per share in 2013. |
| Operating income for the quarter ended March 31, 2013 was $25.2 million or 2.0% of sales, versus $31.6 million or 2.5% of sales in the first quarter of 2012. Excluding the charges noted above, first quarter 2013 adjusted operating income was $39.7 million or 3.2% of sales, compared with $37.8 million or 3.0% of sales in the prior-year quarter. |
| Sales for the first quarter remained flat to the prior year quarter, after adjusting for one less selling day in this years quarter. Sales of $1.25 billion included strong growth in the industrial supplies category with sales up 35.7%. The OKI acquisition was a major contributor to year-over-year growth with core organic growth in the low single digits. Janitorial and breakroom supplies also increased 3.0%. These gains were offset by decreased sales in the technology, office products and furniture categories of 5.9%, 6.5%, and 3.0%, respectively. |
| The gross margin for the quarter was $188.5 million or 15.1% of sales, compared with $180.9 million or 14.2% of sales in the prior-year quarter. This 85 basis point improvement was due to a more favorable product category mix, margin improvement initiatives, and higher purchase-related supplier allowances. War on Waste (WOW) cost savings also contributed to the improvement in gross margin. Partially offsetting these gross margin increases were lower inflation trends, net of LIFO inventory impacts, and increased transportation costs |
| First quarter operating expenses were $163.3 million or 13.1% of sales, compared with $149.3 million or 11.7% of sales in the first quarter of 2012. Adjusted for the cost reduction and facility closure charges noted previously, operating expenses were $148.9 million or 11.9% of sales, up from $143.1 million or 11.3% in the prior-year quarter. Higher operating expenses in the first quarter of 2013 were driven by incremental costs related to the OKI acquisition, and increased healthcare and workers compensation costs. |
For a further discussion of selected trends, events or uncertainties the Company believes may have a significant impact on its future performance, readers should refer to Key Trends and Recent Results under Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations in the Companys Annual Report on Form 10-K for the year-ended December 31, 2012.
Critical Accounting Policies, Judgments and Estimates
During the first three months of 2013, there were no significant changes to the Companys critical accounting policies, judgments or estimates from those disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2012.
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Adjusted Operating Income, Net Income and Earnings Per Share
The following table presents Adjusted Operating Expenses, Operating Income, Net Income, and Earnings Per Share for the three-month period ended March 31, 2013 and 2012 (in thousands, except per share data) excluding the effects of pre-tax charges related to workforce reductions and facility closures in the first quarters of 2013 and 2012, respectively. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income. Management believes that excluding these items is an appropriate comparison of its ongoing operating results to last year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.
For the Three Months Ended March 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
% to | % to | |||||||||||||||
Amount | Net Sales | Amount | Net Sales | |||||||||||||
Net Sales |
$ | 1,250,485 | 100.00 | % | $ | 1,271,647 | 100.00 | % | ||||||||
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Gross profit |
$ | 188,525 | 15.08 | % | $ | 180,929 | 14.23 | % | ||||||||
Operating expenses |
$ | 163,284 | 13.06 | % | $ | 149,337 | 11.74 | % | ||||||||
Workforce reduction and facility closure charge |
(14,432 | ) | (1.15 | )% | (6,247 | ) | (0.49 | )% | ||||||||
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Adjusted operating expenses |
$ | 148,852 | 11.91 | % | $ | 143,090 | 11.25 | % | ||||||||
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Operating income |
$ | 25,241 | 2.02 | % | $ | 31,592 | 2.49 | % | ||||||||
Operating expense item noted above |
14,432 | 1.15 | % | 6,247 | 0.49 | % | ||||||||||
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Adjusted operating income |
$ | 39,673 | 3.17 | % | $ | 37,839 | 2.98 | % | ||||||||
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Net income |
$ | 13,874 | $ | 15,112 | ||||||||||||
Operating expense item noted above, net of tax |
8,948 | 3,873 | ||||||||||||||
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Adjusted net income |
$ | 22,822 | $ | 18,985 | ||||||||||||
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Diluted earnings per share |
$ | 0.34 | $ | 0.36 | ||||||||||||
Per share operating expense item noted above |
0.22 | 0.09 | ||||||||||||||
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Adjusted diluted earnings per share |
$ | 0.56 | $ | 0.45 | ||||||||||||
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Adjusted diluted earnings per share - growth rate over the prior year period |
24.4 | % | ||||||||||||||
Weighted average number of common shares - diluted |
40,628 | 42,420 |
Results of OperationsThree Months Ended March 31, 2013 Compared with the Three Months Ended March 31, 2012
Net Sales. Net sales for the first quarter of 2013 were $1.25 billion, flat compared with the prior-year quarter after adjusting for one less workday in the current year quarter. The following table summarizes net sales by product category for the three-month periods ended March 31, 2013 and 2012 (in thousands):
Three Months Ended March 31, | ||||||||
2013 | 2012 (1) | |||||||
Technology products |
$ | 364,390 | $ | 393,340 | ||||
Traditional office products (including cut-sheet paper) |
320,293 | 347,814 | ||||||
Janitorial and breakroom supplies |
325,319 | 320,776 | ||||||
Industrial supplies |
129,733 | 97,154 | ||||||
Office furniture |
77,653 | 81,384 | ||||||
Freight revenue |
25,309 | 23,641 | ||||||
Services, Advertising and Other |
7,788 | 7,538 | ||||||
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Total net sales |
$ | 1,250,485 | $ | 1,271,647 | ||||
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(1) | Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes between several product categories due to several specific products being reclassified to different categories. These changes did not impact the Condensed Consolidated Statements of Income. |
Sales in the technology products category decreased in the first quarter of 2013 by 5.9% versus the first quarter of 2012, after adjusting for one less workday in the current quarter. This category, which continues to represent the largest percentage of the Companys consolidated net sales, accounted for 29.1% of net sales for the first quarter of 2013. Overall reductions in corporate and government spending and the digitization of the workplace have led to declines in this area, particularly in printer imaging supplies.
Sales of traditional office products declined in the first quarter of 2013 by 6.5% versus the first quarter of 2012, after adjusting for one less selling day. Traditional office supplies represented 25.6% of the Companys consolidated net sales for the first quarter of 2013. Within this category, the decline was driven by reduced cut-sheet paper and lower sales to the independent dealer channel. New channels and national accounts sales were relatively even with the prior-year quarter.
Sales in the janitorial and breakroom supplies product category increased 3.0% in the first quarter of 2013 compared to the first quarter of 2012. This category accounted for 26.0% of the Companys first quarter of 2013 consolidated net sales. This growth was driven by continued improvements in cross-selling janitorial/breakroom products into office product dealers and other channels. This growth more than offset declines within the national accounts channel which has experienced a shift of some janitorial and breakroom business to direct customer purchases from manufacturers.
Industrial supplies sales in the first quarter of 2013 increased 35.7% compared to the same prior-year period. Sales of industrial supplies accounted for 10.4% of the Companys net sales for the first quarter of 2013. Sales growth in industrial supplies was largely driven by the acquisition of OKI in November of 2012. Without this acquisition, industrial supplies grew in the low single digits over the prior year quarter as underlying demand for industrial products has moderated versus the prior-year quarter.
Office furniture sales in the first quarter of 2013 declined 3.0% compared to the first quarter of 2012. Office furniture accounted for 6.2% of the Companys first quarter of 2013 consolidated net sales. First quarter sales declines in this category were driven by some timing differences in customer purchase patterns, continued weakness in demand for office furniture, and reduced corporate and government spending.
The remainder of the Companys first quarter 2013 net sales was composed of freight and other revenues.
Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the first quarter of 2013 was $188.5 million, compared to $180.9 million in the first quarter of 2012. The gross margin rate of 15.1% was up 85 basis points (bps) from the prior-year quarter gross margin rate of 14.2%. The gross margin rate increased due to a favorable product category mix and margin improvement initiatives (110 bps), increased purchase-related supplier allowances (55 bps), and WOW cost savings (20 bps). These improvements were partially offset by lower inflation trends net of LIFO inventory impacts (75 bps) and increased freight costs (25 bps).
Operating Expenses. Operating expenses for the latest quarter were $163.3 million or 13.1% of sales, compared with $149.3 million or 11.7% of sales in the same period last year. Excluding the cost reduction and facility closure charges in each quarter, as previously noted, first quarter 2013 adjusted operating expenses were $148.9 million or 11.9% of sales, compared with last years adjusted $143.1 million or 11.3% of sales. Adjusted operating expenses in the first quarter of 2013 were up $5.8 million including approximately $4 million of OKI operating expenses. Healthcare and workers compensation costs of approximately $2 million contributed roughly 20 bps to the unfavorable operating expense ratio change versus the prior-year quarter. In addition, the Company continued to make investments in building capabilities and in initiatives to drive growth. Finally, lower sales and one less workday in the period this year, led to deleveraging of fixed costs which contributed to higher operating expenses as a percent of sales.
Interest Expense, net. Interest expense, net for the first quarter of 2013 was $3.1 million, down by $4.1 million from the same period in 2012, mainly due to the maturity of three interest rate swaps since the prior-year quarter and utilization of borrowings with a lower interest rate.
Income Taxes. Income tax expense was $8.3 million for the first quarter of 2013, compared with $9.3 million for the same period in 2012. The Companys effective tax rate was 37.3% for the current-year quarter and 38.1% for the same period in 2012.
Net Income. Net income for the first quarter of 2013 totaled $13.9 million, or $0.34 per diluted share, compared with net income of $15.1 million, or $0.36 per diluted share for the same three-month period in 2012. Adjusted for the impact of the $14.4 million facility closure and severance charge in the first quarter of 2013, net income was $22.8 million and diluted earnings per share were $0.56. Adjusted net income was $19.0 million and diluted earnings per share were $0.45 in the prior-year quarter after excluding the effects of the $6.2 million workforce reduction and facility closure in the prior-year quarter. Lower average shares outstanding due to ongoing stock repurchases contributed approximately 2 cents per share to the current quarter results.
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Liquidity and Capital Resources
Uniteds growth has historically been funded by a combination of cash provided by operating activities and debt financing. The Company believes that its cash from operations and collections of receivables, coupled with its sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements. These requirements include payments of interest and dividends, scheduled debt repayments, capital expenditures, working capital needs, restructuring activities, the funding of pension plans, and funding for additional share repurchases and acquisitions, if any. Due to our credit rating over the years, external funds have been available at an acceptable cost. We believe that current credit arrangements are sound and that the strength of our balance sheet affords us the financial flexibility to respond to both internal growth opportunities and those available through acquisitions.
Financing available from debt and the sale of accounts receivable as of March 31, 2013, is summarized below (in millions):
Availability
Maximum financing available under: |
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2011 Credit Agreement |
$ | 700.0 | ||||||
2007 Master Note Purchase Agreement |
135.0 | |||||||
Receivables Securitization Program (1) |
200.0 | |||||||
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Maximum financing available |
$ | 1,035.0 | ||||||
Amounts utilized: |
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2011 Credit Agreement |
200.9 | |||||||
2007 Master Note Purchase Agreement |
135.0 | |||||||
Receivables Securitization Program (1) |
199.7 | |||||||
Outstanding letters of credit |
9.4 | |||||||
Mortgage & Other |
1.4 | |||||||
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Total financing utilized |
546.4 | |||||||
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Available financing, before restrictions |
488.6 | |||||||
Restrictive covenant limitation |
142.6 | |||||||
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Available financing as of March 31, 2013 |
$ | 346.0 | ||||||
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(1) | The Receivables Securitization Program provides for maximum funding available of the lesser of $200.0 million or the total amount of eligible receivables less excess concentrations and applicable reserves. |
Cash Flows
The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flow.
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2013 totaled $13.4 million, compared with cash provided by operating activities of $27.9 million in the same three-month period of 2012. Operating cash flow in the first quarter of 2013 was negatively impacted by the timing of payments for year-end inventory investment buys. Payables leverage declined from 65% in the prior year to 59% as a result of this timing. Inventory reductions in the first quarter of 2013 were not as deep as in the prior-year quarter mainly due to year-end 2012 investment buys and softer sales than anticipated in our core office product categories during the 2013 quarter. Accounts receivable collections were stronger in the current year as the trade days outstanding declined by roughly one day. Operating cash flows during the first quarter of 2012 were also positively impacted by an approximate $9 million inflow related to an income tax refund during the quarter. In the current quarter, tax payments were approximately $10 million.
Investing Activities
Net cash used in investing activities for the first three months of 2013 was $9.0 million, compared to net cash used in investing activities of $4.4 million for the three months ended March 31, 2012. For the full year 2013, the Company expects capital spending to be approximately $35 million.
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Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2013 totaled $11.9 million, compared with net cash used in financing activities of $24.1 million in the prior-year period. Net cash provided by financing activities during the first three months of 2013 was impacted by $12.7 million in net borrowings under debt arrangements and $10.8 million in net proceeds from share-based compensation arrangements. These cash inflows were partially offset by $7.1 million in share repurchases and $5.6 million in payment of cash dividends.
Debt
The Companys outstanding debt consisted of the following amounts (in millions):
As of March 31, 2013 |
As of December 31, 2012 |
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2011 Credit Agreement |
$ | 200.9 | $ | 238.1 | ||||
2007 Master Note Purchase Agreement (Private Placement) |
135.0 | 135.0 | ||||||
Receivables Securitization Program |
199.7 | 150.0 | ||||||
Mortgage & Capital Lease |
1.4 | 1.3 | ||||||
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Debt |
537.0 | 524.4 | ||||||
Stockholders equity |
755.1 | 738.1 | ||||||
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Total capitalization |
$ | 1,292.1 | $ | 1,262.5 | ||||
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Debt-to-total capitalization ratio |
41.6 | % | 41.5 | % | ||||
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The 2007 Note Purchase Agreement allows USSC to issue up to $1 billion of senior secured notes, subject to the debt restrictions contained in the 2011 Credit Agreement. Pursuant to the 2007 Note Purchase Agreement, USSC sold $135 million of floating rate senior secured notes due October 15, 2014 at par in a private placement. Interest on the notes is payable quarterly in arrears at a rate per annum equal to three-month LIBOR plus 1.30%.
The 2011 Credit Agreement is a revolving credit facility with an aggregate committed principal amount of $700 million. Borrowings under the 2011 Credit Agreement bear interest at LIBOR for specified interest periods or at the Alternate Base Rate (as defined in the 2011 Credit Agreement), plus, in each case, a margin determined based on the Companys permitted debt to EBITDA ratio (calculated as provided in Section 6.20 of the 2011 Credit Agreement) (the Leverage Ratio). In addition, the Company is required to pay the lenders a fee on the unutilized portion of the commitments under the 2011 Credit Agreement at a rate per annum determined based on the Companys Leverage Ratio.
The 2011 Credit Agreement prohibits the Company from exceeding a Leverage Ratio of 3.50 to 1.00 and imposes limits on the Companys ability to repurchase stock and issue dividends when the Leverage Ratio is greater than 3.00 to 1.00.
On January 18, 2013, the Companys accounts receivable securitization program (as amended to date, the Receivables Securitization Program or the Program) was amended and restated to increase the maximum amount of financing from $150 million to $200 million and to extend the term of the Program through January 18, 2016. The parties to the Program are USI, USSC, United Stationers Financial Services (USFS), United Stationers Receivables, LLC (USR), and PNC Bank, National Association (the Investor). The Program is governed by the following agreements:
| The Transfer and Administration Agreement among USSC, USFS, USR, and the Investor; |
| The Receivables Sale Agreement between USSC and USFS; |
| The Receivables Purchase Agreement between USFS and USR; and |
| The Performance Guaranty executed by USI in favor of USR. |
Pursuant to the Receivables Sale Agreement, USSC sells to USFS, on an on-going basis, all the customer accounts receivable and related rights originated by USSC. Pursuant to the Receivables Purchase Agreement, USFS sells to USR, on an on-going basis, all the accounts receivable and related rights purchased from USSC. Pursuant to the Transfer and Administration Agreement, USR then sells the receivables and related rights to the Investor. The Program now provides for maximum funding available of the lesser of $200 million or the total amount of eligible receivables less excess concentrations and applicable reserves.
Each of the 2007 Note Purchase Agreement, the 2011 Credit Agreement and the Receivable Securitization Program contains representations and warranties, covenants and events of default that are customary for such facilities. The agreements also contain cross-default provisions under which, if a termination event occurs under any of the agreements, the lenders under all of the agreements may cease to make additional loans, accelerate any loans then outstanding and/or terminate the agreements to which they are party.
19
Contractual Obligations
During the three-month period ended March 31, 2013, the Company entered into several operating lease extensions committing the Company to an additional $23.6 million in contractual obligations from those disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2012.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates. There were no material changes to the Companys exposures to market risk during the first three months of 2013 from those disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2012.
ITEM 4. | CONTROLS AND PROCEDURES. |
Attached as exhibits to this Quarterly Report are certifications of the Companys President and Chief Executive Officer (CEO) and Senior Vice President and Chief Financial Officer (CFO), which are required in accordance with Rule 13a-14 under the Exchange Act. This Controls and Procedures section includes information concerning the controls and controls evaluation referred to in such certifications.
Inherent Limitations on Effectiveness of Controls
The Companys management, including the CEO and CFO, does not expect that the Companys Disclosure Controls or its internal control over financial reporting will prevent or detect all error or all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. The design of a control system must reflect the existence of resource constraints. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the fact that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by managerial override. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and no design is likely to succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks, including that controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report the Companys management performed an evaluation, under the supervision and with the participation of the Companys CEO and CFO, of the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Such disclosure controls and procedures (Disclosure Controls) are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in the Companys reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to the Companys management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Managements quarterly evaluation of Disclosure Controls includes an evaluation of some components of the Companys internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis.
Based on this evaluation, the Companys management (including its CEO and CFO) concluded that as of March 31, 2013, the Companys Disclosure Controls were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes to the Companys internal control over financial reporting during the quarter ended March 31, 2013, that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
20
ITEM 1. | LEGAL PROCEEDINGS. |
The Company is involved in legal proceedings arising in the ordinary course of or incidental to its business. The Company has established reserves, which are not material, for potential losses that are probable and reasonably estimable that may result from those proceedings. In many cases, however, it is difficult to determine whether a loss is probable or even possible or to estimate the amount or range of potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated. The Company believes that pending legal proceedings will be resolved with no material adverse effect upon its financial condition or results of operations.
ITEM 1A. | RISK FACTORS. |
For information regarding risk factors, see Risk Factors in Item 1A of Part I of the Companys Form 10-K for the year ended December 31, 2012. There have been no material changes to the risk factors described in such Form 10-K.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
(a) | Not applicable. |
(b) | Not applicable. |
(c) | Common Stock Purchases. |
During the three-month periods ended March 31, 2013 and 2012, the Company repurchased 208,274 and 1,128,155 shares of USIs common stock at an aggregate cost of $7.8 million and $33.6 million, respectively. The Company repurchased 0.4 million shares for $13.9 million year-to-date through April 26, 2013. As of that date, the Company had approximately $41.2 million remaining of existing share repurchase authorization from the Board of Directors.
2013 Fiscal Month |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of a Publicly Announced Program |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
||||||||||||
January 1, 2013 to January 31, 2013 |
| $ | | | $ | 55,093,151 | ||||||||||
February 1, 2013 to February 28, 2013 |
| | | 55,093,151 | ||||||||||||
March 1, 2013 to March 31, 2013 |
208,274 | 37.59 | 208,274 | 47,264,314 | ||||||||||||
|
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|
|
|
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Total First Quarter |
208,274 | $ | 37.59 | 208,274 | $ | 47,264,314 | ||||||||||
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ITEM 6. | EXHIBITS |
(a) | Exhibits |
This Quarterly Report on Form 10-Q includes as exhibits certain documents that the Company has previously filed with the SEC. Such previously filed documents are incorporated herein by reference from the respective filings indicated in parentheses at the end of the exhibit descriptions (all made under the Companys file number of 0-10653). Each of the management contracts and compensatory plans or arrangements included below as an exhibit is identified as such by a double asterisk at the end of the related exhibit description.
Exhibit |
Description | |
3.1 | Second Restated Certificate of Incorporation of the Company, dated as of March 19, 2002 (Exhibit 3.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2001, filed on April 1, 2002) | |
3.2 | Amended and Restated Bylaws of the Company, dated as of July 16, 2009 (Exhibit 3.1 to the Companys Form 10-Q for the quarter ended September 30, 2009, filed on November 5, 2009) | |
4.1 | Master Note Purchase Agreement, dated as of October 15, 2007, among United Stationers Inc. (USI), United Stationers Supply Co. (USSC), and the note Purchasers identified therein (Exhibit 4.1 to the Companys Form 10-Q for the quarter ended June 30, 2010, filed on August 6, 2010) | |
4.2 | Parent Guaranty, dated as of October 15, 2007, by USI in favor of holders of the promissory notes identified therein (Exhibit 4.4 to the Companys Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007) | |
4.3 | Subsidiary Guaranty, dated as of October 15, 2007, by Lagasse, Inc., United Stationers Technology Services LLC (USTS) and United Stationers Financial Services LLC (USFS) in favor of the holders of the promissory notes identified therein (Exhibit 4.5 to the Companys Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007) | |
10.1 | Second Omnibus Amendment to Transaction Documents, dated as of January 18, 2013, between USSC., United Stationers Receivables, LLC, USFS, Bank of America, National Association, and PNC Bank, National Association (Exhibit 10.1 to the Companys Current Report on Form 8-K, filed on January 25, 2013) | |
10.2* | Form of Restricted Stock Unit Award Agreement under the Amended and Restated 2004 Long-Term Incentive Plan** | |
31.1* | Certification of Chief Executive Officer, dated as of April 30, 2013, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Chief Financial Officer, dated as of April 30, 2013, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certification of Chief Executive Officer and Chief Financial Officer, dated as of April 30, 2013, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101* | The following financial information from United Stationers Inc.s Quarterly Report on Form 10-Q for the period ended March 31, 2013, filed with the SEC on April 30, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statement of Income for the three-month periods ended March 31, 2013 and 2012, (ii) the Condensed Consolidated Balance Sheet at March 31, 2013 and December 31, 2012, (iii) the Condensed Consolidated Statement of Cash Flows for the three-month periods ended March 31, 2013 and 2012, and (iv) Notes to Condensed Consolidated Financial Statements. |
* | - Filed herewith |
** | Represents a management contract or compensatory plan or arrangement. |
22
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. | ||
(Registrant) | ||
Date: April 30, 2013 |
/s/ Fareed A. Khan | |
Fareed A. Khan | ||
Senior Vice President and Chief Financial Officer (Duly authorized signatory and principal financial officer) |
23
EXHIBIT 10.2
UNITED STATIONERS INC.
2004 LONG-TERM INCENTIVE PLAN
Performance Based Restricted Stock Unit Award Agreement
This Restricted Stock Unit Award Agreement (this Agreement), dated March 1, 2013, (the Award Date), is by and between «First_Name» «Last_Name» (the Participant), and United Stationers Inc., a Delaware corporation (the Company). Any term capitalized but not defined in this Agreement will have the meaning set forth in the Companys 2004 Long-Term Incentive Plan (the Plan).
In the exercise of its discretion to grant awards under the Plan, the Committee has determined that the Participant should receive an award of restricted stock units (Units) under the Plan, on the following terms and conditions:
1. | Grant. The Company hereby grants to the Participant a Restricted Stock Unit Award (the Award) consisting of XX Units (the Target Number of Units), subject to possible increase to as many as two times the Target Number of Units (the Maximum Number of Units) noted above depending on the degree to which the Company has satisfied the performance-based objectives specified in Appendix A to this Agreement. Each Unit that vests represents the right to receive one share of the Companys common stock as provided in Section 5 of this Agreement. The Award will be subject to the terms and conditions of the Plan and this Agreement. |
2. | No Rights as a Stockholder. The Units granted pursuant to this Award do not entitle the Participant to any rights of a stockholder of the Companys Stock. The Participants rights with respect to the Units shall remain forfeitable at all times until satisfaction of the vesting conditions set forth in Section 3 of this Agreement. |
3. | Vesting; Effect of Date of Termination. For purposes of this Agreement, Vesting Date means any date, including the Scheduled Vesting Dates (as defined below), on which Units subject to this Award vest as provided in this Section 3. |
(a) | (Subject to paragraphs 3(b) through 3(f), a portion of the Participants Units will be eligible to vest on each of March 1, 2014, March 1, 2015 and March 1, 2016 (the Scheduled Vesting Dates). Units will vest on a Scheduled Vesting Date (i) if the Participants Date of Termination has not occurred before that Scheduled Vesting Date, and (ii) only to the extent the Units have been earned as provided in Section 4 during the applicable performance period from January 1, 2013 to the most recent December 31 prior to that Scheduled Vesting Date. The following table summarizes the dates, time periods and corresponding terminology relevant to this Award: |
Performance Period |
Applicable Determination Date |
Applicable Scheduled Vesting Date | ||
1/1/2013 12/31/2013 |
December 31, 2013 | March 1, 2014 | ||
1/1/2013 12/31/2014 |
December 31, 2014 | March 1, 2015 | ||
1/1/2013 12/31/2015 |
December 31, 2015 | March 1, 2016 |
The period from March 1, 2013 through March 1, 2016 is referred to as the Vesting Period. If the Participants Date of Termination occurs for any reason during the Vesting Period, the Participants Units that have not yet vested will be forfeited on and after the Participants Date of Termination, except as provided in paragraphs 3(b) through 3(f).
(b) | If the Participants Date of Termination occurs during the Vesting Period by reason of the Participants death or Permanent and Total Disability (as defined in paragraph 3(g)), a portion of the then unvested Units subject to this Award will become vested as of the Participants Date of Termination. That portion shall be equal to a number of Units determined by multiplying the lesser of (i) one-third of the Target Number of Units or (ii) the Target Number of Units not yet vested immediately prior to the Participants Date of Termination, by a fraction, the numerator of which shall be the number of whole months elapsed from the most recent March 1 prior to the Date of Termination, and the denominator of which shall be twelve. Any remaining Units subject to this Award that do not vest as provided in this paragraph shall be forfeited. |
(c) | If the Participants Date of Termination occurs during the Vesting Period by reason of the Participants Retirement (as defined in paragraph 3(j)), then the unvested Units at that time will continue to vest on the remaining Scheduled Vesting Dates to the extent that the Units have been earned as provided in Section 4 during the Performance Period |
March 2013 Long-Term Incentive Grant | Page 1 of 4 |
corresponding to each such Scheduled Vesting Date, but only if the following conditions have been satisfied: (i) the Participant has provided the Company with written notice of his or her intent to retire at least 3 months prior to the Participants Date of Termination (but such advance notice shall not be required if Retirement occurs as a result of Participants involuntary separation from service without Cause, Participants death or Disability, or Participants separation from service for Good Reason); and (ii) the Participant executes prior to such Date of Termination a release of claims and an agreement not to compete in such forms as the Company may prescribe. If these conditions are not satisfied prior to Participants Date of Termination, any unvested Units as of the Date of Termination shall be forfeited. |
(d) | If a Change of Control occurs during the Vesting Period and prior to the Participants Date of Termination, then a portion of the then unvested Units will become fully vested as of the date of such Change of Control. That portion shall be equal to the greater of (i) 50% of the Target Number of Units not yet vested immediately prior to the Change of Control, or (ii) an amount determined by multiplying 50% of the Target Number of Units not yet vested immediately prior to the Change of Control by the Performance Factor (determined as provided in Appendix A) for the Performance Period associated with the most recent Scheduled Vesting Date (if any) prior to the date of the Change in Control. The remaining Units subject to this Award that do not vest in accordance with the previous sentence shall remain subject to the vesting provisions of this Agreement, with all Units that have vested as a result of the Change of Control deemed Earned Units for purposes of applying the formula specified in Appendix A. |
(e) | If, during the Vesting Period but within two years after a Change of Control described in paragraph 3(d), the Participants Date of Termination occurs by reason of the involuntary termination of the Participants employment by the Company or its Subsidiaries without Cause or by the Participant for Good Reason (as defined in paragraph 3(h)), all of the Target Number of Units that did not vest as a result of the Change of Control as provided in paragraph 3(d) will vest as of the Participants Date of Termination. |
(f) | If the Participants Date of Termination occurs during the Vesting Period and during an Anticipated Change of Control by reason of the involuntary termination of the Participants employment by the Company or its Subsidiaries without Cause or by the Participant for Good Reason, and a Change of Control then occurs within two years following the Participants Date of Termination, a number of shares of Stock equal to the portion of the Target Number of Units forfeited on the Participants Date of Termination (subject to paragraph 5.2(f) of the Plan) shall be issued to the Participant on a fully vested basis promptly, but in no event later than two and one-half months after the end of the calendar year in which the Change of Control occurred. |
(g) | For purposes of this Agreement, the term Permanent and Total Disability means the Participants inability, due to illness, accident, injury, physical or mental incapacity or other disability, effectively to carry out his duties and obligations as an employee of the Company or its Subsidiaries or to participate effectively and actively as an employee of the Company or its Subsidiaries for 90 consecutive days or shorter periods aggregating at least 180 days (whether or not consecutive) during any twelve-month period. |
(h) | For purposes of this Agreement, Good Reason shall mean: (i) any material breach by the Company of this Agreement or of any employment agreement with the Participant without Participants written consent, (ii) any material reduction, without the Participants written consent, in the Participants duties, responsibilities or authority; provided, however, that for purposes of this clause (ii), neither (A) a change in the Participants supervisor or the number or identity of the Participants direct reports, nor (B) a change in the Participants title, duties, responsibilities or authority as a result of a realignment or restructuring of the Companys executive organizational chart nor (C) a change in the Participants title, duties, responsibilities or authority as a result of a realignment or restructuring of the Company shall be deemed by itself to materially reduce Participants duties, responsibilities or authority, as long as, in the case of either (B) or (C), Participant continues to report to either the supervisor to whom he or she reported immediately prior to the Change of Control or a supervisor of equivalent responsibility and authority; or (iii) without Participants written consent: (A) a material reduction in the Participants base salary, or (B) the relocation of the Participants principal place of employment more than fifty (50) miles from its location on the date of a Change in Control. For purposes of this Agreement, a Change of Control, alone, does not constitute Good Reason. Furthermore, notwithstanding the above, the occurrence of any of the events described above will not constitute Good Reason unless the Participant gives the Company written notice within thirty (30) days after the initial occurrence of any of such events that the Participant believes that such event constitutes Good Reason, and the Company thereafter fails to cure any such event within sixty (60) days after receipt of such notice. |
(i) | For purposes of this Agreement, a Date of Termination shall be deemed to have occurred only if on such date the Participant has also experienced a separation from service as defined in the regulations promulgated under Section 409A of the Internal Revenue Code, as amended (the Code). |
(j) | For purposes of this Agreement, Retirement means the Participants separation from service (as defined in the regulations promulgated under Code Section 409A) occurring after the Participant has reached age 60 and has completed at least 10 years of Service with the Company and its Subsidiaries. |
(k) | For purposes of this Agreement, a Change of Control shall be deemed to have occurred only if such event would also be deemed to constitute a change in ownership or effective control, or a change in the ownership of a substantial portion of the assets, of the Company under Code Section 409A. |
March 2013 Long-Term Incentive Grant | Page 2 of 4 |
Except as otherwise specifically provided, the Company will not have any further obligations to the Participant under this Agreement if the Participants Units are forfeited as provided herein.
4. | Earned Units. The number of Units subject to this Award that the Participant will be deemed to have earned (Earned Units) and that are eligible for vesting as of each Scheduled Vesting Date during the Vesting Period will be determined by the extent to which the Company has satisfied the performance-based objectives for the Performance Period ending on the applicable Determination Date as set forth in Appendix A to this Agreement. The portion of the Units subject to this Award that will be deemed Earned Units as of each Scheduled Vesting Date during the Vesting Period will be determined according to the formula specified in Appendix A, but in no event will the cumulative number of Units that are deemed Earned Units as of any Scheduled Vesting Date during the Vesting Period exceed the Maximum Number of Units. Any Units that are not earned and do not vest as of either of the first two Scheduled Vesting Dates during the Performance Period solely because of the failure to fully satisfy an applicable performance-based objective shall remain eligible to be earned and to vest as of a subsequent Scheduled Vesting Date during the Vesting Period. Any Units that are not earned and do not vest as of the last Scheduled Vesting Date will be forfeited. |
5. | Settlement of Units. After any Units vest pursuant to Section 3, the Company will promptly, but in no event later than two and one-half months after the Vesting Date, cause to be issued to the Participant, or to the Participants beneficiary or legal representative in the event of Participants death, one share of Stock in payment and settlement of each vested Unit. Such issuance shall be evidenced by a stock certificate or appropriate entry on the books of the Company or a duly authorized transfer agent of the Company, shall be subject to the tax withholding provisions of Section 6, and shall be in complete satisfaction of such vested Units. If the Units that vest include a fractional Unit, the Company will round the number of vested Units down to the nearest whole Unit prior to issuance of the shares as provided herein. Notwithstanding the foregoing, if any amount shall be payable with respect to this Award as a result of the Participants separation from service at such time as the Participant is a specified employee (as those terms are defined in regulations promulgated under Code Section 409A) and such amount is subject to the provisions of Code Section 409A, then no payment shall be made, except as permitted under Code Section 409A, prior to the first day of the seventh calendar month beginning after the Participants separation from service (or the date of Participants earlier death), or as soon as administratively practicable thereafter. |
6. | Tax Matters. The Committee may require the Participant, or the alternate recipient identified in Section 5, to satisfy any potential federal, state, local or other tax withholding liability. Such liability must be satisfied at the time such Units are settled in shares of Stock. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied: (i) through a cash payment by the Participant, (ii) through the surrender of shares of Stock that the Participant already owns (provided, however, to the extent shares described in this clause (ii) are used to satisfy more than the minimum statutory withholding obligation, as described below, then payments made with shares of Stock in accordance with this clause (ii) shall be limited to shares held by the Participant for not less than six months prior to the payment date), (iii) through the surrender of shares of Stock to which the Participant is otherwise entitled in respect of the Award under this Agreement; provided, however, that such shares under this clause (iii) may be used to satisfy not more than the minimum statutory withholding obligation of the Company or applicable Subsidiary (based on minimum statutory withholding rates for federal, state and local tax purposes, including payroll taxes, that are applicable to such supplemental taxable income), or (iv) any combination of clauses (i), (ii) and (iii); provided, however, that the Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (ii)-(iv) and that the Committee may require that the method of satisfying such an obligation be in compliance with Section 16 of the Exchange Act (if the Participant is subject thereto) and any other applicable laws and the respective rules and regulations thereunder. Any fraction of a share of Stock which would be required to satisfy such an obligation will be disregarded and the remaining amount due will be paid in cash by the Participant. |
7. | Compliance with Laws. Despite the provisions of Section 5 hereof, the Company is not required to issue or deliver any certificates for shares of Stock if at any time the Company determines that the listing, registration or qualification of such shares upon any securities exchange or under any law, the consent or approval of any governmental body or the taking of any other action is necessary or desirable as a condition of, or in connection with, the issuance or delivery of the shares hereunder in compliance with all applicable laws and regulations, unless such listing, registration, qualification, consent, approval or other action has been effected or obtained, free of any conditions not acceptable to the Company. |
8. | No Right to Employment. Nothing herein confers upon the Participant any right to continue in the employ of the Company or any Subsidiary. |
9. | Nontransferability. Except as otherwise provided by the Committee or as provided in Section 5, and except with respect to shares of Stock issued in settlement of vested Units, the Participants interests and rights in and under this Agreement may not be assigned, transferred, exchanged, pledged or otherwise encumbered other than as designated by the Participant by will or by the laws of descent and distribution. Issuance of shares of Stock in settlement of Units will be made only to the Participant; or, if the Committee has been provided with evidence acceptable to it that the Participant is legally incompetent, the Participants personal representative; or, if the Participant is deceased, to the designated beneficiary or other appropriate recipient in accordance with Section 5 hereof. The Committee may require personal receipts or endorsements of a Participants personal representative, designated beneficiary or alternate recipient provided for herein, and the Committee shall extend to those individuals the rights otherwise exercisable by the Participant with regard to any withholding tax election in accordance with Section 6 hereof. Any effort to otherwise assign or transfer any Units or any rights or interests therein or thereto under this Agreement will be wholly ineffective, and will be grounds for termination by the Committee of all rights and interests of the Participant and his or her beneficiary in and under this Agreement. |
March 2013 Long-Term Incentive Grant | Page 3 of 4 |
10. | Administration and Interpretation. The Committee has the authority to control and manage the operation and administration of the Plan. Any interpretations of the Plan by the Committee and any decisions made by it under the Plan are final and binding on the Participant and all other persons. |
11. | Governing Law. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the state of Delaware, without regard to principles of conflicts of law of Delaware or any other jurisdiction. |
12. | Sole Agreement. Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to all of the terms and conditions of the Plan (as the same may be amended in accordance with its terms), a copy of which may be obtained by the Participant from the office of the Secretary of the Company. In addition, this Agreement and the Participants rights hereunder shall be subject to all interpretations, determinations, guidelines, rules and regulations adopted or made by the Committee from time to time pursuant to the Plan. This Agreement is the entire agreement between the parties to it with respect to the subject matter hereof, and supersedes any and all prior oral and written discussions, commitments, undertakings, representations or agreements (including, without limitation, any terms of any employment offers, discussions or agreements between the parties). |
13. | Binding Effect. This Agreement will be binding upon and will inure to the benefit of the Company and the Participant and, as and to the extent provided herein and under the Plan, their respective heirs, executors, administrators, legal representatives, successors and assigns. |
14. | Amendment and Waiver. This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement between the Company and the Participant without the consent of any other person. No course of conduct or failure or delay in enforcing the provisions of this Agreement will affect the validity, binding effect or enforceability of this Agreement. |
IN WITNESS WHEREOF, the Company has duly executed this Agreement as of the Award Date.
Very truly yours, |
UNITED STATIONERS INC. |
By: |
Charles Crovitz |
Chairman of the Board |
March 2013 Long-Term Incentive Grant | Page 4 of 4 |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, P. Cody Phipps, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of United Stationers Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2013 | /s/ P. Cody Phipps | |
P. Cody Phipps | ||
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Fareed A. Khan, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of United Stationers Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2013 | /s/ Fareed A. Khan | |
Fareed A. Khan | ||
Senior Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of United Stationers Inc. (the Company) on Form 10-Q for the quarterly period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Report), P. Cody Phipps, President and Chief Executive Officer of the Company, and Fareed A. Khan, Senior Vice President and Chief Financial Officer of the Company, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ P. Cody Phipps |
P. Cody Phipps |
President and Chief Executive Officer |
April 30, 2013 |
/s/ Fareed A. Khan |
Fareed A. Khan |
Senior Vice President and Chief Financial Officer |
April 30, 2013 |
Other Assets and Liabilities - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
Mar. 31, 2013
|
Dec. 31, 2012
|
---|---|---|
Supplier Allowances [Member]
|
||
Regulatory Assets And Liabilities [Line Items] | ||
Receivables related to supplier allowances | $ 69.2 | $ 96.9 |
Customer Rebates [Member]
|
||
Regulatory Assets And Liabilities [Line Items] | ||
Accrued liabilities | $ 36.1 | $ 56.3 |
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