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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of registrant as specified in its charter)
United Stationers Inc.: Delaware United Stationers Inc.: 36-3141189
United Stationers Supply Co.: Illinois United Stationers Supply Co.: 36-2431718
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 East Golf Road, Des Plaines, Illinois 60016-1267
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 699-5000
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
United Stationers Inc.: Yes ( X ) No ( )
United Stationers Supply Co.: Yes ( ) No ( X )
On October 28, 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 October 31,
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.
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UNITED STATIONERS INC. AND SUBSIDIARY
Form 10-Q For The Quarter Ended September 30, 1996
INDEX
PART I - FINANCIAL INFORMATION PAGE
Important Explanatory Note 3
Independent Accountant's Review Report 4
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995. 5
Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 1996
and 1995, and the Nine Months Ended
September 30, 1996 and 1995. 6
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 nine-months ended September 30, 1996 and
the quarter ended September 30, 1995 whereas for the nine-months ended
September 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 and third quarters. The condensed consolidated balance
sheets as of September 30, 1996 and December 31, 1995 are comparable.
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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 September 30, 1996, and
the related condensed consolidated statements of operations for the
three-month and nine-month periods ended September 30, 1996 and 1995,
and the condensed consolidated statements of cash flows for the nine-
month periods ended September 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
October 18, 1996
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UNITED STATIONERS INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
ASSETS
(Unaudited) (Audited)
September 30, December 31,
1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 13,584 $ 11,660
Accounts receivable, net 279,822 265,827
Inventories 384,958 381,618
Other 37,977 30,903
Total Current Assets 716,341 690,008
PROPERTY, PLANT AND EQUIPMENT, at cost 219,802 231,095
Less-Accumulated depreciation and amortization (44,833) (31,114)
Net Property, Plant and Equipment 174,969 199,981
GOODWILL 77,070 77,786
OTHER 29,693 33,608
TOTAL ASSETS $ 998,073 $1,001,383
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt and capital leases $ 25,098 $ 23,886
Accounts payable 243,916 194,567
Accrued liabilities 120,764 116,090
Total Current Liabilities 389,778 334,543
DEFERRED INCOME TAXES 34,672 34,380
LONG-TERM OBLIGATIONS:
Senior revolver loan 131,000 185,000
Senior subordinated notes 150,000 150,000
Senior term loan - Tranche A 66,592 88,284
Senior term loan - Tranche B 66,592 70,869
Other long-term debt 31,915 32,045
Other long-term liabilities 17,761 18,505
TOTAL LONG-TERM OBLIGATIONS 463,860 544,703
REDEEMABLE PREFERRED STOCK 19,337 18,041
REDEEMABLE WARRANTS 25,653 39,692
STOCKHOLDERS' EQUITY 64,773 30,024
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 998,073 $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
September 30, September 30,
1996 1995
NET SALES $576,254 $537,624
COST OF GOODS SOLD 455,840 421,000
Gross profit 120,414 116,624
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 91,594 95,103
Income from operations 28,820 21,521
INTEREST EXPENSE, net 13,576 14,070
Income before income taxes 15,244 7,451
INCOME TAXES 6,463 3,278
NET INCOME 8,781 4,173
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 434 421
Net income attributable to
common stockholders $ 8,347 $ 3,752
Net income per common and common
equivalent share - Primary and
Fully Diluted $0.56 $0.27
Average number of common shares - Primary 14,828,274 13,896,213
Average number of common shares - Fully Diluted 14,842,094 13,911,647
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 NINE MONTHS ENDED
September 30, September 30,
1996 1995
NET SALES $1,698,825 $1,202,050
COST OF GOODS SOLD 1,342,589 939,526
Gross profit 356,236 262,524
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 274,375 218,369
Restructuring charge - 9,759
Total operating expenses 274,375 228,128
Income from operations 81,861 34,396
INTEREST EXPENSE, net 43,217 31,613
Income before income taxes
and extraordinary item 38,644 2,783
INCOME TAXES 16,381 1,319
Income before extraordinary item 22,263 1,464
EXTRAORDINARY ITEM - loss on early retire-
ment of debt, net of taxes ($967) - (1,449)
NET INCOME 22,263 15
PREFERRED STOCK DIVIDENDS ISSUED AND ACCRUED 1,296 1,577
Net income (loss) attributable to
common stockholders $ 20,967 $ (1,562)
Net income (loss) per common and common
equivalent share - Primary and Fully Diluted:
Income (loss) before extraordinary item $1.40 $(0.01)
Extraordinary item - (0.14)
Net income (loss) per common and
common equivalent share $1.40 $(0.15)
Average number of common shares - Primary 14,975,633 10,265,975
Average number of common shares - Fully Diluted 14,975,880 10,265,975
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 CASH FLOWS
(In thousands of dollars)
(Unaudited)
FOR THE NINE MONTHS ENDED
September 30, September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,263 $ 15
Depreciation and amortization 19,528 16,982
Transaction costs and other amortization 4,096 4,909
Changes in operating assets and liabilities 29,544 82,300
Net cash provided by operating activities 75,431 104,206
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of the Company - net of cash
acquired of approximately $14,500 - (258,274)
Capital expenditures (4,607) (5,998)
Proceeds from disposition of property,
plant and equipment 10,784 49
Other (861) -
Net cash provided by (used in) investing activities 5,316 (264,223)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt - 686,854
Retirements and payments of debt (24,887) (408,439)
Net repayments under revolver (54,000) (88,608)
Financing costs - (25,290)
Issuance of common stock - 12,006
Retirement of Class B Preferred Stock - (7,000)
Cash dividend (Class C Preferred Stock) - (252)
Other 64 (491)
Net cash (used in) provided by financing activities (78,823) 168,780
Net Change in Cash and Cash Equivalents 1,924 8,763
Cash and Cash Equivalents, beginning of period 11,660 1,849
Cash and Cash Equivalents, end of period $ 13,584 $ 10,612
Other Cash Flow Information
Cash payments during the nine month period for:
Income taxes paid $ 11,735 $ 7,572
Interest paid 35,649 20,049
Noncash investing and financing activities:
Common stock issued in exchange for
services related to financing the
acquisition of the Company $ - $ 4,600
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
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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
September 30, 1996 and 1995 reflect the results of the post-Merger
Company. The condensed consolidated statements of operations and cash
flows for the nine months ended September 30, 1996 reflect the results of
the post-Merger Company whereas for the nine months ended September 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 and
third quarters. The condensed consolidated balance sheets as of September
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.
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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 nine months
ended September 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
exclude estimated cost savings of $19.5 million pursuant to the Company's
consolidation plan.
Pro Forma
Nine Months Ended September 30, 1995
(dollars in thousands, except share data)
Net sales $1,652,449
Net income 8,285
Preferred stock dividends
issued and accrued 1,245
Net income attributable to
common stockholders 7,040
Net income per common and
common equivalent share:
Primary $0.51
Fully diluted $0.51
Weighted average number of
common shares outstanding:
Primary 13,863,617
Fully diluted 13,892,740
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.
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UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Business Combination and Restructuring Charge (Continued)
The actual results for the nine months ended September 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 nine months ended September 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 nine months ended September 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 $1.7 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 September 30, 1996, five of the six redundant pre-
Merger Associated distribution centers have been closed with $3.7 million
charged against the reserve and $2.1 million related to stockkeeping unit
reduction costs have also been charged against the reserve. As of
September 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 September
30, 1996 of $2.3 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. Upon
completion of its physical inventory and to reflect actual experience, the
Company makes adjustments to these estimates. These adjustments had a
favorable impact on gross margin in the third quarter of 1996.
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
$21.00 and options outstanding as of September 30, 1996, the Company would
recognize a nonrecurring noncash charge of $24.2 million in compensation
expense ($14.5 million net of tax benefit of $9.7 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).
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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 September 30,
1996 and the related condensed consolidated statements of operations for
the three-month and nine-month periods ended September 30, 1996 and 1995
and statements of cash flows for the nine-month periods ended September
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 third quarter of 1996
and 1995 and the nine months ended September 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 nine months
ended September 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.
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UNITED STATIONERS INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Third Quarter Ended September 30, 1996 compared with the
Third Quarter Ended September 30, 1995
Net Sales. Net sales were $576 million in the third quarter of 1996, a
7.2% increase over net sales of $538 million in the third quarter of 1995.
On an equivalent workday basis, sales were up 5.5% in the third quarter of
1996. All of the Company's marketing initiatives showed year-over-year
improvements.
Gross Profit. Gross profit as a percent of net sales declined to 20.9% in
the third quarter of 1996 from 21.7% in the comparable period of 1995.
The lower margin rate reflects a decline in the rate of inflation across
our product mix, a shift in 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.
The Company records certain interim expense and inventory estimates
throughout the year. Upon completion of its physical inventory and to
reflect actual experience, the Company makes adjustments to these
estimates. These adjustments had a favorable impact on gross margin in
the third quarter.
Operating Expenses. Operating expenses as a percent of net sales declined
to 15.9% in the third quarter of 1996 from 17.7% in the third quarter of
1995. The reduction in operating expenses as a percent of net sales is
primarily due to the realization of Merger-related savings, improved
productivity, and leveraging of fixed expenses on a higher sales base.
Income From Operations. Income from operations as a percent of net sales
was 5.0% in the third quarter of 1996, compared with 4.0% in the third
quarter of 1995.
Interest Expense. Interest expense as a percent of net sales was 2.4% in
the third quarter of 1996, compared with 2.6% in the comparable period in
1995.
Income Before Income Taxes. Income before income taxes as a percent of
net sales was 2.6% in the third quarter of 1996 compared with 1.4% in the
third quarter of 1995. Net income before preferred stock dividends was
$8.8 million in the third quarter of 1996, compared with $4.2 million in
the third quarter of 1995. Net income attributable to common stockholders
was $8.3 million in the third quarter of 1996, compared with $3.8 million
in the third quarter of 1995.
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UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 compared with the
Nine Months Ended September 30, 1995
Net Sales. Net sales were $1.7 billion in the first nine months of 1996
compared with $1.2 billion in the first nine 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 nine months of 1996 from 21.8% in the comparable period of 1995.
The lower margin rate reflects a decline in the rate of inflation across
our product mix, a shift in 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.
The Company records certain interim expense and inventory estimates
throughout the year. Upon completion of its physical inventory and to
reflect actual experience, the Company makes adjustments to these
estimates. These adjustments had a favorable impact on gross margin in
the third quarter.
Operating Expenses. Operating expenses as a percent of net sales declined
to 16.2% in the first nine months of 1996 from 19.0% in the first nine
months of 1995. Actual results for the nine months ended September 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 18.2% of net sales in the first nine 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 4.8% in the first nine months of 1996, compared with 2.8% in the first
nine months of 1995 (3.7% before the restructuring charge).
Interest Expense. Interest expense as a percent of net sales was 2.5% in
the first nine months of 1996, compared with 2.6% in the comparable period
in 1995.
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UNITED STATIONERS INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 compared with the
Nine Months Ended September 30, 1995 (Continued)
Income Before Income Taxes and Extraordinary Item. Income before income
taxes and extraordinary item as a percent of net sales was 2.3% in the
first nine months of 1996 compared with 0.2% in the first nine months of
1995. Net income before preferred stock dividends was $22.3 million in
the first nine months of 1996, compared with $0.02 million ($5.9 million
before the restructuring charge) in the first nine months of 1995. The
net income (loss) attributable to common stockholders was income of $21.0
million in the first nine months of 1996, compared with a loss of $1.6
million (net income of $4.3 million before the restructuring charge) in
the first nine 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 Nine Months Ended September 30, 1996 compared
with Pro Forma Nine Months Ended September 30, 1995
Net Sales. Net sales were $1.7 billion in the first nine months of 1996,
compared with $1.7 billion in the first nine months of 1995.
Net Income Attributable to Common Stockholders. Net income attributable
to common stockholders was $21.0 million in the first nine months of 1996
compared with $7.0 million in the first nine 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-
<PAGE>
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"), 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 September 30, 1996, $143.7 million remained available for
borrowing under the Revolving Credit Facility.
-17-
<PAGE>
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 September 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.
The Company is currently in the process of amending its Senior Credit
Agreement. The purpose is to finance the acquisition of Lagasse Bros.,
Inc. (see Item 5 - "Subsequent Event") and to renegotiate borrowing rates
based on our strong financial performance to date as well as to take
advantage of the current favorable conditions in the bank market.
Comments on Forward Looking Information
In connection with the "Safe Harbor" provision of the Private Securities
Litigation Reform Act of 1995, the Company filed a Form 8-K with the
Securities Exchange Commission on October 21, 1996 outlining cautionary
statements and identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company. Such
forward-looking statements, as made within this Form 10-Q, should be
considered in conjunction with the information included within the Form 8-
K.
-18-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 5 SUBSEQUENT EVENT
United Stationers Inc. announced on October 1, 1996 that its
subsidiary, United Stationers Supply Co., signed an agreement
to acquire Lagasse Bros., Inc. Lagasse Bros., Inc. is a closely
held wholesaler of sanitary and maintenance products headquartered
in New Orleans, LA. with annual revenues of approximately $80
million. The Company has received antitrust (Hart-Scott-Rodino)
clearance and expects to close the transaction by October 31, 1996
subject to obtaining the necessary approvals and the completion of
due diligence.
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 Financial Data Schedule
99 Not applicable
(b) The Company filed a Report on Form 8-K on October 21, 1996
reporting under Item 5 cautionary statements regarding the
"Safe Harbor" provisions of the Private Securities Litigation
Act of 1995.
-19-
<PAGE>
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.
UNITED STATIONERS SUPPLY CO.
(Registrant)
Date: October 28, 1996 /s/Daniel H. Bushell
Daniel H. Bushell
Executive Vice President and
Chief Financial Officer
-20-
<PAGE>
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 Financial Data Schedule
99 Not applicable
-21-
<PAGE>
Exhibit 15
October 18, 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 October 18, 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
September 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
<PAGE>
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