United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from or
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of registrant as specified in its charter)
United Stationers Inc.: Delaware United Stationers Inc.: 36-3141189
United Stationers Supply Co.: Illinois United Stationers Supply Co.: 36-2431718
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
2200 East Golf Road
Des Plaines, Illinois 60016-1267
(847) 699-5000
(Address, including Zip Code and Telephone Number, Including Area Code, of
registrant's
principal executive offices)
Indicate by check mark whether each registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
United Stationers Inc.: Yes ( X ) No ( )
United Stationers Supply Co.: Yes ( ) No ( X )
On April 23, 1996, United Stationers Inc. had outstanding 11,446,306 shares of
Common Stock, par value $0.10 per share, and 758,994 shares of Nonvoting Common
Stock, $0.01 par value per share. On April 23, 1996, United Stationers Supply
Co. had 880,000 shares of Common Stock, $1.00 par value per share, outstanding;
United Stationers Inc. owns 100% of these shares.
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Important Explanatory Note 3
Independent Accountant's Review Report 4
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995. 5
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1996
and 1995. 6
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1996 and
1995. 7
Notes to Condensed Consolidated Financial Statements. 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations. 13
PART II - OTHER INFORMATION 17
SIGNATURE 18
INDEX TO EXHIBITS 19
-2-
UNITED STATIONERS INC. AND SUBSIDIARY
IMPORTANT EXPLANATORY NOTE
This integrated Form 10-Q is filed pursuant to the Securities Exchange Act of
1934, as amended, for each of United Stationers Inc., a Delaware corporation,
and its wholly owned subsidiary, United Stationers Supply Co., an Illinois
corporation (collectively, the "Company"). United Stationers Inc. is a holding
company with no operations separate from its operating subsidiary, United
Stationers Supply Co. No separate financial information for United Stationers
Supply Co. has been provided herein because management for the Company believes
such information would not be meaningful because (i) United Stationers Supply
Co. is the only direct subsidiary of United Stationers Inc., which has no
operations other than those of United Stationers Supply Co. and (ii) all assets
and liabilities of United Stationers Inc. are recorded on the books of United
Stationers Supply Co. There is no material difference between United
Stationers Inc. and United Stationers Supply Co. for the disclosure required by
the instructions to Form 10-Q and therefore, unless otherwise indicated, the
responses set forth herein apply to each of United Stationers Inc. and United
Stationers Supply Co.
On March 30, 1995, Associated Holdings, Inc. ("Associated") was merged with
United Stationers Inc. Although the Company was the surviving corporation in
the merger, the transaction was treated as a reverse acquisition for accounting
purposes, with Associated as the acquiring corporation. The condensed
consolidated statements of operations and cash flows reflect the results of the
post-Merger Company for the quarter ended March 31, 1996 whereas for the
quarter ended March 31, 1995 these statements reflect the results of Associated
only. The condensed consolidated balance sheets as of March 31, 1996 and
December 31, 1995 are comparable.
-3-
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
The Board of Directors
United Stationers Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
United Stationers Inc. and Subsidiary as of March 31, 1996, and the related
condensed consolidated statements of operations and cash flows for the three-
month periods ended March 31, 1996 and 1995. These financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United Stationers Inc. as of
December 31, 1995, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated January 29, 1996, except for Note 16, as to
which the date is March 27, 1996, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1995, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/Ernst & Young LLP
Chicago, Illinois
April 19, 1996
-4-
UNITED STATIONERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
ASSETS
(Unaudited)
March 31, December 31,
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 18,109 $ 11,660
Accounts receivable, net 259,461 265,827
Inventories 391,282 381,618
Other 31,069 30,903
Total Current Assets 699,921 690,008
PROPERTY, PLANT AND EQUIPMENT, at cost 226,548 231,095
Less-Accumulated depreciation
and amortization (35,996) (31,114)
Net Property, Plant and Equipment 190,552 199,981
GOODWILL 78,149 77,786
ASSETS 32,656 33,608
TOTAL ASSETS $1,001,278 $1,001,383
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt
and capital leases $ 25,049 $ 23,886
Accounts payable 191,770 194,567
Accrued liabilities 111,096 116,090
Total Current Liabilities 327,915 334,543
DEFERRED INCOME TAXES 34,039 34,380
LONG-TERM OBLIGATIONS
Senior Revolver Loan 198,000 185,000
Senior Subordinated Notes 150,000 150,000
Senior Term Loan - Tranche A 78,074 88,284
Senior Term Loan - Tranche B 67,052 70,869
Other Long-Term Debt 32,003 32,045
Other Long-Term Liabilities 18,321 18,505
TOTAL LONG-TERM OBLIGATIONS 543,450 544,703
REDEEMABLE PREFERRED STOCK 18,469 18,041
REDEEMABLE WARRANTS 27,495 39,692
STOCKHOLDERS' EQUITY 49,910 30,024
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,001,278 $1,001,383
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
-5-
UNITED STATIONERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except share data)
(Unaudited)
FOR THE THREE MONTHS ENDED
March 31, March 31,
1996 1995
NET SALES $586,881 $134,997
COST OF GOODS SOLD 461,124 103,568
Gross profit 125,757 31,429
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 96,335 26,674
Restructuring charge -- 9,759
Total operating expenses 96,335 36,433
Income (loss) from operations 29,422 (5,004)
INTEREST EXPENSE, net 15,171 2,203
Income (loss) before income taxes
and extraordinary item 14,251 (7,207)
INCOME TAXES (BENEFIT) 6,042 (2,973)
Income (loss) before extraordinary item 8,209 (4,234)
EXTRAORDINARY ITEM - loss on early retire-
ment of debt, net of tax benefit ($967) -- (1,449)
NET INCOME (LOSS) 8,209 (5,683)
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 428 573
Net income (loss) attributable to
common stockholders $ 7,781 $ (6,256)
Net Income (Loss) per common and common
equivalent share (Primary and Fully Diluted):
Income (loss) before extraordinary item $0.51 $(0.72)
Extraordinary item -- (0.22)
Net income (loss) per common and common
equivalent share $0.51 $(0.94)
Average number of common shares used
in primary and fully diluted calculation 15,135,257 6,642,286
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
-6-
UNITED STATIONERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
FOR THE THREE MONTHS ENDED
March 31, March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,209 $ (5,683)
Depreciation and amortization 6,569 1,473
Transaction costs and other amortization 1,385 2,416
Changes in operating assets and liabilities (8,040) 3,881
Net cash provided by operating
activities 8,123 2,087
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of the Company - net of cash
acquired of approximately $14,500 -- (257,259)
Capital expenditures, net (956) (182)
Other (861) --
Net cash used in investing activities (1,817) (257,441)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt -- 536,708
Retirements and principal payments of debt (12,906) (266,920)
Borrowings under revolver 13,000 18,100
Financing costs -- (24,873)
Issuance of common stock -- 12,000
Other 49 (154)
Net cash provided by financing activities 143 274,861
Net Change in Cash and Cash Equivalents 6,449 19,507
Cash and Cash Equivalents, beginning of period 11,660 2,104
Cash and Cash Equivalents, end of period $ 18,109 $ 21,611
Other Cash Flow Information
Cash payments during the quarter for:
Income taxes paid $ 1,286 $ 1,834
Interest paid 8,162 2,050
Noncash investing and financing activities:
Common stock issued in exchange for
services related to financing the
acquisition of the Company $ -- $ 2,162
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
-7-
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Business Combination and Restructuring Charge
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5% of
the then outstanding shares of the common stock, $0.10 par value ("Common
Stock") of United Stationers Inc. ("United") for approximately $266.6 million
in the aggregate pursuant to a tender offer (the "Offer"). Immediately
thereafter, Associated merged with and into United (the "Merger" and,
collectively with the Offer, the "Acquisition"), and Associated Stationers,
Inc., ("ASI"), a wholly owned subsidiary of Associated merged with and into
United Stationers Supply Co. ("USSC"), a wholly owned subsidiary of United,
with United and USSC continuing as the respective surviving corporations.
United, as the surviving corporation following the Merger, is referred to
herein as the "Company." As a result of share conversions in the Merger,
immediately after the Merger, (i) the former holders of common stock and common
stock equivalents of Associated owned shares of Common Stock and warrants or
options to purchase shares of Common Stock constituting in the aggregate
approximately 80% of the shares of Common Stock on a fully diluted basis, and
(ii) holders of pre-Merger United common stock owned in the aggregate
approximately 20% of the shares of Common Stock on a fully diluted basis.
Although United was the surviving corporation in the Merger, the transaction
was treated as a reverse acquisition for accounting purposes with Associated as
the acquiring corporation.
The condensed consolidated statements of operations and cash flows reflect the
results of the post-Merger Company for the quarter ended March 31, 1996 whereas
for the quarter ended March 31, 1995 these statements reflect the results of
Associated only. The condensed consolidated balance sheets as of March 31,
1996 and December 31, 1995 are comparable. All common and common equivalent
shares have been adjusted to reflect the 100% stock dividend effective November
9, 1995.
Immediately following the Merger, the number of outstanding shares of Common
Stock was 11,996,154 (or 13,947,440 on a fully diluted basis), of which (i) the
former holders of Class A Common Stock, $0.01 par value, and Class B Common
Stock, $0.01 par value, of Associated (collectively "Associated Common Stock")
and warrants or options to purchase Associated Common Stock in the aggregate
owned 9,206,666 shares constituting approximately 76.7% of the outstanding
shares of Common Stock and outstanding warrants or options for 1,951,286 shares
(collectively 80.0% on a fully diluted basis) and (ii) pre-Merger holders of
shares of Common Stock (other than Associated-owned and treasury shares) in the
aggregate owned 2,789,488 shares of Common Stock constituting approximately
23.3% of the outstanding shares (or 20.0% on a fully diluted basis). As used
in this paragraph, the term "Common Stock" includes shares of Nonvoting Common
Stock, $0.01 par value, of the Company, which are immediately convertible into
Voting Common Stock.
-8-
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Business Combination and Restructuring Charge (Continued)
Summarized unaudited pro forma results of operations for the three months ended
March 31, 1995 are presented below. The unaudited pro forma operating data is
presented giving effect to the Acquisition as if it had been consummated
January 1, 1995 and, therefore, reflects the results of United and Associated
on a consolidated basis. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that actually would have resulted had the combination been in effect
on the date indicated, or which may result in the future. The pro forma
results exclude one-time non-recurring charges or credits directly attributable
to the transaction and estimated cost savings of $6.5 million pursuant to the
Company's consolidation plan.
Pro Forma
Three Months Ended March 31, 1995
(dollars in thousands, except share data)
Net sales $585,396
Net income 2,589
Preferred stock dividends
issued and accrued 442
Net income attributable to
common stockholders 2,147
Net income per common and
common equivalent share:
Primary 0.16
Fully diluted 0.16
Weighted average number of
common shares outstanding:
Primary 13,788,152
Fully diluted 13,797,514
The pro forma income statement adjustments consist of (i) incremental
depreciation expense resulting from the write-up of certain fixed assets to
fair value, (ii) incremental goodwill amortization, (iii) incremental interest
expense due to debt issued, net of debt retired, and (iv) reduction in
preferred stock dividends due to the repurchase of the Series B preferred
stock.
-9-
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Business Combination and Restructuring Charge (Continued)
The actual results for the quarter ended March 31, 1995 include compensation
expense relating to an increase in the value of employee stock options of
approximately $1.5 million ($0.9 million net of tax benefit of $0.6 million).
The actual results for the quarter ended March 31, 1995 also include an
extraordinary write-off of approximately $2.4 million ($1.4 million net of tax
benefit of $1.0 million) of financing costs and original issue discount
relating to debt retired.
The actual results for the quarter ended March 31, 1995 include a restructuring
charge of $9.8 million ($5.9 million net of tax benefit of $3.9 million). The
restructuring charge includes severance costs totaling $1.8 million. The
Company's consolidation plan specifies that 330 distribution, sales and
corporate positions, 180 of which relate to pre-Merger Associated, will be
eliminated substantially within one year following the Merger. As of March 31,
1996, the Company has completed the termination of approximately 180 Associated
employees, with the related termination costs of approximately $1.4 million
charged against the reserve. The restructuring charge also includes
distribution center closing costs totaling $6.7 million and stockkeeping unit
reduction costs totaling $1.3 million. The consolidation plan calls for the
closing of eight redundant distribution centers, six of which relate to pre-
Merger Associated facilities, and the elimination of overlapping inventory
items from the Company's catalogs substantially within the one-year period
following the Merger. Estimated distribution center closing costs include (i)
the net occupancy costs of leased facilities after they are vacated until
expiration of leases and (ii) the losses on the sale of owned facilities and
the facilities' furniture, fixtures, and equipment. Estimated stockkeeping
unit reduction costs include losses on the sale of inventory items which have
been discontinued solely as a result of the Acquisition. As of March 31, 1996,
five of the six redundant pre-Merger Associated distribution centers have been
closed with $1.1 million charged against the reserve and $0.4 million related
to stockkeeping unit reduction costs have also been charged against the
reserve. As of March 31, 1996, the Company's consolidation plan has been
substantially completed. Seven of the eight redundant distribution centers
have been closed. The restructuring reserve balance at March 31, 1996 of $6.8
million appears to be adequate to cover the remaining estimated expenditures
related to integration and transition costs.
-10-
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited,
except for the Consolidated Balance Sheet as of December 31, 1995. Certain
prior-year amounts have been reclassified to conform with the current year
presentation.
These financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the
Company's management, the condensed consolidated financial statements for the
unaudited interim periods presented include all adjustments necessary to fairly
present the results of such interim periods and the financial position as of
the end of said periods. Other than the restructuring charge, the
extraordinary item and the compensation expense relating to employee stock
options, these adjustments were of a normal recurring nature and did not have a
material impact on the financial statements presented. Certain interim expense
and inventory estimates are recognized throughout the fiscal year relating to
marginal income tax rates, shrinkage, price changes and product mix. Any
appropriate adjustments to reflect actual experience, which historically have
been immaterial, will be recognized in the fourth quarter.
The Redeemable Warrants reflected on the Consolidated Balance Sheets are
adjusted on an ongoing basis for any exercises to Common Stock, the revaluation
to the current market price of the Company's common stock and any dilutive
impact such as the issuance of stock options by the Company.
Employee stock options granted under the Company's employee stock option plan
do not vest to the employee until the occurrence of an event (a "Vesting
Event") that causes the present non-public equity investors to have received at
least a full return of their investment (at cost) in cash, fully tradable
marketable securities or the equivalent. A Vesting Event will cause the
Company to recognize compensation expense based upon the difference between the
fair market value of the Common Stock and the exercise price of the employee
stock options. Based upon a stock price of $22.50 and options outstanding as
of March 31, 1996, the Company would recognize a nonrecurring noncash charge
and related tax effect of $31.1 million in compensation expense ($18.7 million
net of tax benefit of $12.4 million), if a Vesting Event were to occur. Each
$1.00 change in the Common Stock price will result in an adjustment to such
compensation expense of approximately $2.6 million ($1.6 million net of tax
effect of $1.0 million).
-11-
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Review
Ernst & Young LLP, independent public accountants, have reviewed the condensed
consolidated balance sheet of the Company as of March 31, 1996 and the related
condensed consolidated statements of operations and cash flows for the three-
month periods ended March 31, 1996 and 1995. Since they did not perform an
audit, they express no opinion on these statements. They have previously
audited the consolidated balance sheet of the Company as of December 31, 1995
from which the condensed consolidated balance sheet as of that date has been
derived. The Independent Accountant's Review Report has been included in this
filing.
(4) Net Income (Loss) Per Common and Common Equivalent Share
Net income (loss) per common and common equivalent share is based on net income
(loss) after preferred stock dividend requirements. Net income (loss) per
common and common equivalent share in the first quarter of 1996 and 1995 on a
primary and fully diluted basis are computed using the weighted average number
of shares outstanding adjusted for the effect of stock options and warrants
considered to be dilutive common stock equivalents. For the three months ended
March 31, 1995, the stock options and warrants were excluded from the
calculation of net loss per common and common equivalent share as they would
have been anti-dilutive. The number of common and common equivalent shares
before the Merger have been adjusted to reflect the post-Merger capital
structure. In addition, the number of common and common equivalent shares have
been adjusted for the 100% common stock dividend effective November 9, 1995.
-12-
UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter Ended March 31, 1996 Compared to the
First Quarter Ended March 31, 1995
Net Sales. Net sales were $587 million in the first quarter of 1996 compared
to $135 million in the first quarter of 1995. This increase is primarily the
result of the Merger.
Gross Profit. Gross profit as a percent of net sales declined to 21.4% in the
first quarter of 1996 from 23.3% in the comparable period of 1995. The lower
margin rate reflects a shift in product mix. In addition, gross profit was
adversely affected by higher sales, as a percentage of total revenues, of
computer-related products which typically carry lower gross profit margins.
Operating Expenses. Operating expenses as a percent of net sales declined to
16.4% in the first quarter of 1996 from 27.0% in the first quarter of 1995.
Actual results for the three months ended March 31, 1995 included the impact of
a restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9
million) and Merger-related compensation expense relating to an increase in the
value of employee stock options of approximately $1.5 million ($0.9 million net
of tax benefit of $0.6 million). Operating expenses before the restructuring
charge were 19.8% of net sales in the first quarter of 1995. The reduction in
operating expenses as a percent of net sales before the restructuring charge is
primarily due to increased operating efficiencies and improved productivity.
Income (Loss) From Operations. Income (loss) from operations as a percent of
net sales was 5.0% in the first quarter of 1996 compared with a negative 3.7%
in the first quarter of 1995 (a positive 3.5% before the restructuring charge).
Interest Expense. Interest expense as a percent of net sales was 2.6% in the
first quarter of 1996 compared with 1.6% in the comparable period in 1995. The
increase reflects additional debt required to consummate the Acquisition and
Merger and higher interest rates in 1996.
-13-
UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter Ended March 31, 1996 Compared to the
First Quarter Ended March 31, 1995 (Continued)
Income (Loss) Before Income Taxes and Extraordinary Item. Income (loss) before
income taxes and extraordinary item as a percent of net sales was 2.4% in the
first quarter of 1996 compared with a negative 5.3% in the first quarter of
1995. Net income before preferred stock dividends was $8.2 million in the
first quarter of 1996 compared to a net loss before extraordinary item and
preferred stock dividends of $4.2 million (net income of $1.5 million before
the restructuring charge) in the first quarter of 1995. The net income (loss)
attributable to common stockholders was a positive $7.8 million in the first
quarter of 1996 compared to a negative $6.3 million (net loss of $0.5 million
before the restructuring charge) in the first quarter of 1995. An
extraordinary item, the loss on early retirement of debt related to the Merger
of $2.4 million ($1.4 million net of tax benefit of $1.0 million), was
recognized in the first quarter of 1995.
Historical First Quarter Ended March 31, 1996 Compared
to Pro Forma First Quarter Ended March 31, 1995
Net Sales. Net sales were $587 million in the first quarter of 1996 compared
to $585 million in the first quarter of 1995. Sales in the first quarter of
1996 were affected by a loss of certain customers and unit sales to competition
following the merger integration, severe weather and curtailment of federal
government activities during January 1996.
Net Income. Net income was $8.2 million in the first quarter of 1996 compared
to $2.6 million in the first quarter of 1995. The increase in net income was
primarily due to a reduction in operating expenses as a percent to net sales
partially offset by a lower gross margin rate.
-14-
UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1995, the credit facilities under the Credit Agreement (the
"Credit Facilities") consisted of $181.9 million of term loan borrowings (the
"Term Loan Facilities"), up to $325.0 million of revolving loan borrowings
under the Revolving Credit Facility. In addition, the Company has $150.0
million of 12 3/4% Senior Subordinated Notes due 2005.
The Term Loan Facilities consist of a $110.1 million Tranche A term loan
facility (the "Tranche A Facility") and a $71.8 million Tranche B term loan
facility (the "Tranche B Facility"). Amounts outstanding under the Tranche A
Facility are required to be repaid in 20 consecutive installments, the first
four of which (each in the aggregate principal amount of $3.63 million) were
due and paid on the last day of each of the first four calendar quarters which
commenced with the quarter ended June 30, 1995. Subsequent quarterly payments
under the Tranche A Facility are each in the aggregate principal amount of
$5.74 million for each of the eight consecutive calendar quarters commencing
with the quarter ending June 30, 1996 and $6.89 million for each of the eight
consecutive calendar quarters commencing with the quarter ending June 30, 1998.
On March 29, 1996 a principal payment of $5.39 million under the Tranche A
Facility was paid from excess cash flow at December 31, 1995. Amounts
outstanding under the Tranche B Facility are required to be repaid in 28
consecutive quarterly installments, the first twenty of which (in the aggregate
principal amount of $0.23 million each) are due on the last day of each of the
first twenty calendar quarters which commenced with the quarter ended June 30,
1995. The remaining eight installments in the aggregate principal amount of
$8.04 million each will be due on the last day of each calendar quarter
commencing with the quarter ending June 30, 2000. On March 29, 1996 a
principal payment of $3.62 million under the Tranche B Facility was paid from
excess cash flow at December 31, 1995. The final installments under the
Tranche A Facility and the Tranche B Facility will be payable on March 31, 2000
and March 31, 2002, respectively.
The Revolving Credit Facility is limited to the lesser of $325.0 million or a
borrowing base equal to: 80% of Eligible Receivables (as defined); plus 50% of
Eligible Inventory (as defined) (provided that no more than 60% or, during
certain periods 65%, of the Borrowing Base may be attributable to Eligible
Inventory); plus the aggregate amount of cover for Letter of Credit Liabilities
(as defined). The Revolving Credit Facility provides that, for each fiscal
year commencing January 1, 1996, the Company must repay revolving loans so that
for a period of 30 consecutive days in each fiscal year the aggregate revolving
loans do not exceed $200.0 million. The Revolving Credit Facility matures on
March 31, 2000. As of March 31, 1996, $75.1 million remained available for
borrowing under the Revolving Credit Facility.
-15-
UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Liquidity and Capital Resources (Continued)
The Term Loan Facilities and the Revolving Credit Facility are secured by first
priority pledges of the stock of USSC, all of the stock of the domestic direct
and indirect subsidiaries of USSC, certain of the stock of all of the foreign
direct and indirect subsidiaries of USSC and security interests in, and liens
upon, all accounts receivable, inventory, contract rights and other certain
personal and certain real property of USSC and its domestic subsidiaries.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financings of this type.
As of March 31, 1996, the Company was in compliance with all covenants
contained in the Credit Agreement.
The Credit Facilities permit capital expenditures for the Company of up to
$12.0 million for its fiscal year ending December 31, 1996, plus $4.1 million
of unused capital expenditures and approximately $3.0 million of unused excess
cash flow (as defined) for the Company's fiscal year ended December 31, 1995.
Capital expenditures will be financed from internally generated funds and
available borrowings under the Credit Facilities. The Company expects gross
capital expenditures to be approximately $10 to $12 million in 1996.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and available borrowings under the Credit Facilities,
will be sufficient to meet the short-term (less than twelve months) and long-
term operating and capital needs of the Company as well as to service its debt
in accordance with its terms. There is, however, no assurance that this will
be accomplished.
-16-
UNITED STATIONERS INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number
2 Not applicable
10 Not applicable
11 Not applicable
15 Letter regarding unaudited interim
financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Not applicable
99 Not applicable
-17-
UNITED STATIONERS INC. AND SUBSIDIARY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATIONERS INC.
(Registrant)
Date: May 10, 1996 /s/Daniel H. Bushell
Executive Vice President and
Chief Financial Officer
-18-
UNITED STATIONERS INC. AND SUBSIDIARY
INDEX TO EXHIBITS
(a) Exhibit
Number
2 Not applicable
10 Not applicable
11 Not applicable
15 Letter regarding unaudited interim
financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Not applicable
99 Not applicable
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000945633
<NAME> UNITED STATIONERS SUPPLY CO.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 18109
<SECURITIES> 0
<RECEIVABLES> 252614
<ALLOWANCES> 6847
<INVENTORY> 391282
<CURRENT-ASSETS> 699921
<PP&E> 226548
<DEPRECIATION> 35996
<TOTAL-ASSETS> 1001278
<CURRENT-LIABILITIES> 327915
<BONDS> 0
18469
0
<COMMON> 1153
<OTHER-SE> 48757
<TOTAL-LIABILITY-AND-EQUITY> 1001278
<SALES> 586881
<TOTAL-REVENUES> 586881
<CGS> 461124
<TOTAL-COSTS> 461124
<OTHER-EXPENSES> 96335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15171
<INCOME-PRETAX> 14251
<INCOME-TAX> 6042
<INCOME-CONTINUING> 8209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8209
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
Exhibit 15
April 19, 1996
The Board of Directors
United Stationers Inc.
We are aware of the incorporation by reference in the Registration
Statements (Nos. 33-62739 and 333-02247) on Form S-3 of United Stationers
Inc. for the registration of a total of 2,035,243 shares of its common
stock of our report dated April 19, 1996 relating to the unaudited
condensed consolidated interim financial statements of United Stationers
Inc. which are included in its Form 10-Q for the quarter ended March 31,
1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a
part of the registration statement prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
/s/Ernst & Young LLP
