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 June 30, 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 July 15, 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 July 15, 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
June 30, 1996 and December 31, 1995 5
Condensed Consolidated Statements of Operations
for the Three Months Ended June 30, 1996
and 1995 and the Six Months Ended
June 30, 1996 and 1995 6
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1996 and 1995 8
Notes to Condensed Consolidated Financial Statements 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II - OTHER INFORMATION 19
SIGNATURE 20
INDEX TO EXHIBITS 21
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UNITED STATIONERS INC. AND SUBSIDIARY
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPORTANT EXPLANATORY NOTE
This integrated Form 10-Q is filed pursuant to the Securities Exchange Act of
1934, as amended, for each of United Stationers Inc., a Delaware corporation,
and its wholly owned subsidiary, United Stationers Supply Co., an Illinois
corporation (collectively, the "Company"). United Stationers Inc. is a holding
company with no operations separate from its operating subsidiary, United
Stationers Supply Co. 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. ("United"). 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 and six-months ended June
30, 1996 and the quarter ended June 30, 1995 whereas for the six-months ended
June 30, 1995 these statements reflect the results of Associated only for the
first quarter and the results of the post-Merger Company for the second
quarter. The condensed consolidated balance sheets as of June 30, 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 June 30, 1996, and the related
condensed consolidated statements of operations for the three-month and six-
month periods ended June 30, 1996 and 1995, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 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
July 19, 1996
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UNITED STATIONERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
ASSETS
(Unaudited) (Audited)
June 30, December 31,
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 11,081 $ 11,660
Accounts receivable, net 238,792 265,827
Inventories 360,678 381,618
Other 32,325 30,903
Total Current Assets 642,876 690,008
PROPERTY, PLANT AND EQUIPMENT, at cost 226,537 231,095
Less-Accumulated depreciation
and amortization (41,219) (31,114)
Net Property, Plant and Equipment 185,318 199,981
GOODWILL 77,592 77,786
OTHER 30,867 33,608
TOTAL ASSETS $936,653 $1,001,383
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
debt and capital leases $ 25,073 $ 23,886
Accounts payable 183,317 194,567
Accrued liabilities 103,540 116,090
Total Current Liabilities 311,930 334,543
DEFERRED INCOME TAXES 33,622 34,380
LONG-TERM OBLIGATIONS
Senior revolver loan 151,000 185,000
Senior subordinated notes 150,000 150,000
Senior term loan - Tranche A 72,333 88,284
Senior term loan - Tranche B 66,822 70,869
Other long-term debt 31,959 32,045
Other long-term liabilities 17,925 18,505
TOTAL LONG-TERM OBLIGATIONS 490,039 544,703
REDEEMABLE PREFERRED STOCK 18,903 18,041
REDEEMABLE WARRANTS 29,949 39,692
STOCKHOLDERS' EQUITY 52,210 30,024
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $936,653 $1,001,383
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
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UNITED STATIONERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars, except share data)
(Unaudited)
FOR THE THREE MONTHS ENDED
June 30, June 30,
1996 1995
NET SALES $535,690 $529,429
COST OF GOODS SOLD 425,625 414,958
Gross profit 110,065 114,471
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 86,446 96,592
Income from operations 23,619 17,879
INTEREST EXPENSE, net 14,470 15,340
Income before income taxes 9,149 2,539
INCOME TAXES 3,876 1,015
NET INCOME 5,273 1,524
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 434 583
Net income attributable to
common stockholders $ 4,839 $ 941
Net Income per common and common
equivalent share (Primary and Fully Diluted) $0.32 $0.07
Average number of common shares used
in primary calculation 14,950,953 13,839,632
Average number of common shares used
in fully diluted calculation 15,083,015 13,839,632
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 OPERATIONS
(In thousands of dollars, except share data)
(Unaudited)
FOR THE SIX MONTHS ENDED
June 30, June 30,
1996 1995
NET SALES $1,122,571 $664,426
COST OF GOODS SOLD 886,749 518,526
Gross profit 235,822 145,900
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 182,781 123,266
Restructuring charge -- 9,759
Total operating expenses 182,781 133,025
Income from operations 53,041 12,875
INTEREST EXPENSE, net 29,641 17,543
Income (loss) before income taxes
and extraordinary item 23,400 (4,668)
INCOME TAXES (BENEFIT) 9,918 (1,959)
Income (loss) before extraordinary item 13,482 (2,709)
EXTRAORDINARY ITEM - loss on early retire-
ment of debt, net of taxes ($967) -- (1,449)
NET INCOME (LOSS) 13,482 (4,158)
PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED 862 1,156
Net income (loss) attributable to
common stockholders $ 12,620 $ (5,314)
Net income (loss) per common and common
equivalent share:
Primary:
Income (loss) before extraordinary item $0.84 $(0.41)
Extraordinary item -- (0.16)
Net income (loss) per common and
common equivalent share $0.84 $(0.57)
Average number of common shares 15,045,505 9,353,774
Fully Diluted:
Income (loss) before extraordinary item $0.83 $(0.41)
Extraordinary item -- (0.16)
Net income (loss) per common and
common equivalent share $0.83 $(0.57)
Average number of common shares 15,116,942 9,353,774
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
-7-
UNITED STATIONERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
FOR THE SIX MONTHS ENDED
June 30, June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,482 $ (4,158)
Depreciation and amortization 13,190 9,491
Transaction costs and other amortization 2,746 3,629
Changes in operating assets and liabilities 21,188 40,159
Net cash provided by operating
activities 50,606 49,121
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of the Company - net of cash
acquired of approximately $14,500 -- (258,274)
Capital expenditures (2,533) (1,600)
Proceeds from disposition of property,
plant and equipment 5,034 41
Other (861) --
Net cash provided by (used in) investing
activities 1,640 (259,833)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt -- 686,789
Retirements and principal payments of debt (18,897) (398,903)
Net repayments under revolver (34,000) (52,900)
Financing costs -- (25,288)
Issuance of common stock -- 12,000
Other 72 (321)
Net cash (used in) provided by financing
activities (52,825) 221,377
Net Change in Cash and Cash Equivalents (579) 10,665
Cash and Cash Equivalents, beginning of period 11,660 1,849
Cash and Cash Equivalents, end of period $ 11,081 $ 12,514
Other Cash Flow Information
Cash payments during the six-month period for:
Income taxes paid $ 10,222 $ 3,824
Interest paid 28,079 11,571
Noncash investing and financing activities:
Common stock issued in exchange for
services related to financing the
acquisition of the Company -- $ 4,568
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
-8-
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 for the quarter ended June
30, 1996 and 1995 reflect the results of the post-Merger Company. The
condensed consolidated statements of operations and cash flows for the six
months ended June 30, 1996 reflect the results of the post-Merger Company
whereas for the six months ended June 30, 1995 these statements reflect the
results of Associated only for the first quarter and the results of the post-
Merger Company for the second quarter. The condensed consolidated balance
sheets as of June 30, 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.
-9-
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 six months ended
June 30, 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
Six Months Ended June 30, 1995
(dollars in thousands, except share data)
Net sales $1,114,825
Net income 4,113
Preferred stock dividends
issued and accrued 824
Net income attributable to
common stockholders 3,289
Net income per common and
common equivalent share:
Primary 0.24
Fully diluted 0.24
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.
-10-
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Business Combination and Restructuring Charge (Continued)
The actual results for the six months ended June 30, 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) as
a result of the Acquisition and Merger. The actual results for the six months
ended June 30, 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 six months ended June 30, 1995 include a
restructuring charge of $9.8 million ($5.9 million net of tax benefit of $3.9
million). The restructuring charge included severance costs totaling $1.8
million. The Company's consolidation plan specified that 330 distribution,
sales and corporate positions, 180 of which related to pre-Merger Associated,
were to be eliminated substantially within one year following the Merger. The
Company has achieved its target, with the related termination costs of
approximately $1.6 million charged against the reserve. The restructuring
charge also included distribution center closing costs totaling $6.7 million
and stockkeeping unit reduction costs totaling $1.3 million. The consolidation
plan called 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 included losses on the sale of
inventory items which have been discontinued solely as a result of the
Acquisition. As of June 30, 1996, five of the six redundant pre-Merger
Associated distribution centers have been closed with $2.7 million charged
against the reserve and $0.9 million related to stockkeeping unit reduction
costs have also been charged against the reserve. As of June 30, 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 June 30, 1996 of $4.5 million appears to be adequate to
cover the remaining estimated expenditures related to integration and
transition costs.
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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 certain non-public equity investors to have received at
least a full return of their investment (at cost) in cash, fully tradable
marketable securities or the equivalent. 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 $24.50 and options outstanding as
of June 30, 1996, the Company would recognize a nonrecurring noncash charge of
$34.5 million in compensation expense ($20.7 million net of tax benefit of
$13.8 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 $2.5 million ($1.5 million net of tax effect of $1.0 million).
-12-
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 June 30, 1996 and the related
condensed consolidated statements of operations for the three-month and six-
month periods ended June 30, 1996 and 1995 and statements of cash flows for the
six-month periods ended June 30, 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 second quarter of 1996 and 1995 and
the six months ended June 30, 1996 on a primary and fully diluted basis are
computed using the weighted average number of shares outstanding adjusted for
the effect of stock options and warrants considered to be dilutive common stock
equivalents. For the six months ended June 30, 1995, 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.
-13-
UNITED STATIONERS INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Second Quarter Ended June 30, 1996 Compared with the
Second Quarter Ended June 30, 1995
Net Sales. Net sales were $535.7 million in the second quarter of 1996, a 1.2%
increase over net sales of $529.4 million in the second quarter of 1995.
Gross Profit. Gross profit as a percent of net sales declined to 20.5% in the
second quarter of 1996 from 21.6% in the comparable period of 1995. The lower
margin rate reflects a decline in the rate of inflation across our product mix
and continuing consolidation of our customer base.
Consolidation continues throughout all levels of the office products industry.
Consolidation of commercial dealers and contract stationers has enabled these
dealers to qualify for higher rebates and allowances. Continuing consolidation
of the Company's customer base may result in adverse additional pressure on the
Company's gross margins in the future.
Operating Expenses. Operating expenses as a percent of net sales declined to
16.1% in the second quarter of 1996 from 18.2% in the second quarter of 1995.
The reduction in operating expenses as a percent of net sales is primarily due
to the realization of Merger-related savings and improved productivity.
Income From Operations. Income from operations as a percent of net sales was
4.4% in the second quarter of 1996, compared with 3.4% in the second quarter of
1995.
Interest Expense. Interest expense as a percent of net sales was 2.7% in the
second quarter of 1996, compared with 2.9% in the comparable period in 1995.
Income Before Income Taxes. Income before income taxes as a percent of net
sales was 1.7% in the second quarter of 1996 compared with 0.5% in the second
quarter of 1995. Net income before preferred stock dividends was $5.3 million
in the second quarter of 1996 compared with $1.5 million in the second quarter
of 1995. Net income attributable to common stockholders was $4.8 million in
the second quarter of 1996 compared with $0.9 million in the second quarter of
1995.
-14-
UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Six Months Ended June 30, 1996 Compared with the
Six Months Ended June 30, 1995
Net Sales. Net sales were $1,122.6 million in the first six months of 1996
compared with $664.4 million in the first six months of 1995. This increase is
primarily the result of the Merger.
Gross Profit. Gross profit as a percent of net sales declined to 21.0% in the
first six months of 1996 from 22.0% in the comparable period of 1995. The
lower margin rate reflects a decline in the rate of inflation across our
product mix and continuing consolidation of our customer base.
Consolidation continues throughout all levels of the office products industry.
Consolidation of commercial dealers and contract stationers has enabled these
dealers to qualify for higher rebates and allowances. Continuing consolidation
of the Company's customer base may result in adverse additional pressure on the
Company's gross margins in the future.
Operating Expenses. Operating expenses as a percent of net sales declined to
16.3% in the first six months of 1996 from 20.0% in the first six months of
1995. Actual results for the six months ended June 30, 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 milion
($0.9 million net of tax benefit of $0.6 million). Operating expenses before
the restructuring charge were 18.6% of net sales in the first six months of
1995. The reduction in operating expenses as a percent of net sales is
primarily due to the realization of Merger-related savings and improved
productivity.
Income From Operations. Income from operations as a percent of net sales was
4.7% in the first six months of 1996, compared with 2.0% in the first six
months of 1995 (3.4% before the restructuring charge).
Interest Expense. Interest expense as a percent of net sales was 2.6% in the
first six months of 1996, compared with 2.6% in the comparable period in 1995.
-15-
UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Six Months Ended June 30, 1996 Compared with the
Six Months Ended June 30, 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 2.1% in the
first six months of 1996 compared with a negative 0.6% in the first six months
of 1995. Net income before preferred stock dividends was $13.5 million in the
first six months of 1996 compared to a net loss before extraordinary item and
preferred stock dividends of $2.7 million (net income of $3.2 million before
the restructuring charge) in the first six months of 1995. The net income
(loss) attributable to common stockholders was income of $12.6 million in the
first six months of 1996 compared with a loss of $5.3 million (net loss of $0.6
million before the restructuring charge) in the first six months 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 Six Months Ended June 30, 1996 Compared
with Pro Forma Six Months Ended June 30, 1995
Net Sales. Net sales were $1,123 million in the first six months of 1996,
compared with $1,115 million in the first six months of 1995.
Net Income Attributable to Common Stockholders. Net income attributable to
common stockholders was $12.6 million in the first six months of 1996 compared
with $3.3 million in the first six months 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.
-16-
UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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"), and 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 June 30, 1996, $118.2 million remained available for
borrowing under the Revolving Credit Facility.
-17-
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 June 30, 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.
-18-
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
-19-
UNITED STATIONERS INC. AND SUBSIDIARY
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Registrant)
Date: August 8, 1996 /s/Daniel H. Bushell
Daniel H. Bushell
Executive Vice President and
Chief Financial Officer
-20-
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
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000945633
<NAME> UNITED STATIONERS SUPPLY CO.
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 11081 11081
<SECURITIES> 0 0
<RECEIVABLES> 246307 246307
<ALLOWANCES> 7515 7515
<INVENTORY> 360678 360678
<CURRENT-ASSETS> 642876 642876
<PP&E> 226537 226537
<DEPRECIATION> 41219 41219
<TOTAL-ASSETS> 936653 936653
<CURRENT-LIABILITIES> 311930 311930
<BONDS> 0 0
18903 18903
0 0
<COMMON> 1153 1153
<OTHER-SE> 51057 51057
<TOTAL-LIABILITY-AND-EQUITY> 936653 936653
<SALES> 535690 1122571
<TOTAL-REVENUES> 535690 1122571
<CGS> 425625 886749
<TOTAL-COSTS> 425625 886749
<OTHER-EXPENSES> 86446 182781
<LOSS-PROVISION> 1463 2592
<INTEREST-EXPENSE> 14470 29641
<INCOME-PRETAX> 9149 23400
<INCOME-TAX> 3876 9918
<INCOME-CONTINUING> 5273 13482
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5273 13482
<EPS-PRIMARY> 0.32 0.84
<EPS-DILUTED> 0.32 0.83
</TABLE>
Exhibit 15
July 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 July 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 period ended June 30, 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
