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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 June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of registrant as specified in its charter)
United Stationers Inc.: Delaware United Stationers Inc.: 36-3141189
United Stationers Supply Co.: Illinois United Stationers Supply Co.: 36-2431718
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 East Golf Road, Des Plaines, Illinois 60016-1267
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 699-5000
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
United Stationers Inc.: Yes ( X ) No ( )
United Stationers Supply Co.: Yes ( X ) No ( )
On July 29, 1997, United Stationers Inc. had outstanding 11,619,755
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 29,
1997, 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 SUBSIDIARIES
Form 10-Q For The Quarter Ended June 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE
Important Explanatory Note 3
Independent Accountant's Review Report 4
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 5
Condensed Consolidated Statements of Income
for the Three Months and Six Months Ended
June 30, 1997 and 1996 6
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997
and 1996 8
Notes to Condensed Consolidated Financial Statements 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION 17
SIGNATURE 19
INDEX TO EXHIBITS 20
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UNITED STATIONERS INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPORTANT EXPLANATORY NOTE
This integrated Form 10-Q is filed pursuant to the Securities Exchange
Act of 1934, as amended, for each of United Stationers Inc., 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. and its
subsidiaries. No separate financial information for United Stationers
Supply Co. and its subsidiaries has been provided herein because
management for the Company believes such information would not be
meaningful because (i) United Stationers Supply Co. is the only direct
subsidiary of United Stationers Inc., which has no operations other
than those of United Stationers Supply Co. and (ii) all assets and
liabilities of United Stationers Inc. are recorded on the books of
United Stationers Supply Co. There is no material difference between
United Stationers Inc. and United Stationers Supply Co. for the
disclosure required by the instructions to Form 10-Q and therefore,
unless otherwise indicated, the responses set forth herein apply to
each of United Stationers Inc. and United Stationers Supply Co.
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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 Subsidiaries as of June 30, 1997, and the
related condensed consolidated statements of income for the three-month
and six-month periods ended June 30, 1997 and 1996, and for the
condensed consolidated statements of cash flows for the six month
periods ended June 30, 1997 and 1996. 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, 1996, 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 28,
1997, 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,
1996, 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 25, 1997
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
(Unaudited) (Audited)
June 30, December 31,
1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 18,313 $ 10,619
Accounts receivable, net 262,887 291,401
Inventories 425,801 463,239
Other 23,659 25,221
Total Current Assets 730,660 790,480
PROPERTY, PLANT AND EQUIPMENT, at cost 229,268 225,041
Less-Accumulated depreciation and amortization (62,385) (51,266)
Net Property, Plant and Equipment 166,883 173,775
GOODWILL 113,337 115,449
OTHER 28,245 30,163
TOTAL ASSETS $ 1,039,125 $ 1,109,867
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt and capital lease $ 23,714 $ 46,923
Accounts payable 219,199 238,124
Accrued liabilities 110,747 100,460
Total Current Liabilities 353,660 385,507
DEFERRED INCOME TAXES 37,318 36,828
LONG-TERM OBLIGATIONS:
Senior revolver loan 161,000 207,000
Senior subordinated notes 150,000 150,000
Senior term loan - Tranche A 96,255 107,318
Senior term loan - Tranche B 55,983 56,425
Other long-term debt 31,776 31,870
Other long-term liabilities 13,761 15,502
Total Long-Term Obligations 508,775 568,115
REDEEMABLE PREFERRED STOCK 20,702 19,785
REDEEMABLE WARRANTS 30,966 23,812
STOCKHOLDERS' EQUITY 87,704 75,820
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,039,125 $ 1,109,867
See notes to condensed consolidated financial statements.
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
FOR THE THREE MONTHS ENDED
June 30, June 30,
1997 1996
NET SALES $610,041 $535,690
COST OF GOODS SOLD 505,307 448,478
Gross profit 104,734 87,212
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 73,730 63,593
Income from operations 31,004 23,619
INTEREST EXPENSE 13,867 14,470
Income before income taxes 17,137 9,149
INCOME TAXES 7,267 3,876
NET INCOME 9,870 5,273
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 462 434
Net income attributable to
common stockholders $ 9,408 $ 4,839
Net income per common and common
equivalent share - Primary $0.64 $0.32
Average number of common shares 14,636,704 14,950,953
Net income per common and common
equivalent share - Fully Diluted $0.63 $0.32
Average number of common shares 14,836,900 15.083,015
See notes to condensed consolidated financial statements.
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(Unaudited)
FOR THE SIX MONTHS ENDED
June 30, June 30,
1997 1996
NET SALES $1,245,062 $1,122,571
COST OF GOODS SOLD 1,031,586 932,833
Gross profit 213,476 189,738
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 150,434 136,697
Income from operations 63,042 53,041
INTEREST EXPENSE 28,528 29,641
Income before income taxes 34,514 23,400
INCOME TAXES 14,635 9,918
NET INCOME 19,879 13,482
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 917 862
Net income attributable to
common stockholders $ 18,962 $ 12,620
Net income per common and common
equivalent share - Primary $1.30 $0.84
Average number of common shares 14,623,996 15,045,505
Net income per common and common
equivalent share - Fully Diluted $1.28 $0.83
Average number of common shares 14,864,900 15.116,942
See notes to condensed consolidated financial statements.
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
FOR THE SIX MONTHS ENDED
June 30, June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,879 $ 13,482
Depreciation and amortization 13,581 13,190
Transaction costs and other amortization 2,269 2,746
Changes in operating assets and liabilities 57,175 21,188
Net cash provided by operating activities 92,904 50,606
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,482) (2,533)
Proceeds from disposition of property,
plant and equipment 31 5,034
Other - (861)
Net cash (used in) provided by
investing activities (4,451) 1,640
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (34,808) (18,897)
Net repayments under revolver (46,000) (34,000)
Other 49 72
Net cash used in financing activities (80,759) (52,825)
Net change in cash and cash equivalents 7,694 (579)
Cash and cash equivalents, beginning of period 10,619 11,660
Cash and cash equivalents, end of period $ 18,313 $ 11,081
Other Cash Flow Information:
Cash payments during the six-month period for:
Income taxes paid $ 8,936 $ 10,222
Interest paid 24,007 28,079
See notes to condensed consolidated financial statements.
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UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements are
unaudited, except for the Consolidated Balance Sheet as of December 31,
1996. 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. 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 refinements to these estimates based on
actual experience are recorded when known.
On October 31, 1996, the Company acquired all of the capital stock of
Lagasse Bros., Inc. ("Lagasse") for approximately $51.9 million. The
acquisition was financed primarily through senior debt. The Lagasse
acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the estimated fair values
at the date of acquisition with the excess of cost over fair value of
approximately $39.0 million allocated to goodwill. The financial
information for the three-month and six-month periods ended June 30, 1997
include the results of Lagasse. The actual and pro forma effects of this
acquisition are not material.
2. Operations
The Company is a national wholesale distributor of business products. The
Company offers approximately 30,000 items from more than 500
manufacturers. This includes a broad spectrum of office products,
computer supplies, office furniture and facilities management supplies.
The Company primarily serves commercial and contract office products
dealers. Its customers include more than 15,000 resellers -- such as
computer products resellers, office furniture dealers, mass merchandisers,
sanitary supply distributors, warehouse clubs, mail order houses and
office products superstores. The Company has a distribution network of 41
Regional Distribution Centers. Through its integrated computer system,
the Company provides a high level of customer service and overnight
delivery. In addition, the Company has 14 Lagasse Distribution Centers,
specifically serving janitorial and sanitary supply distributors.
3. Reclassification
Certain amounts from prior periods have been reclassified to conform to
the 1997 basis of presentation. During the fourth quarter of 1996, the
Company reclassified certain delivery and occupancy costs from operating
expenses to cost of goods sold to conform the Company's presentation to
the presentation used by others in the business products industry. The
following table sets forth the impact of the reclassification:
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UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Reclassification (Continued)
For the Three Months For the Six Months
Ended June 30, 1996 Ended June 30, 1996
Gross Margin as a Percent of Net Sales:
Gross margin prior to the reclassification 20.5% 21.0%
Gross margin as reported herein 16.3% 16.9%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to
reclassification 16.1% 16.3%
Operating expense ratio as reported herein 11.9% 12.2%
4. Redeemable Warrants
The Redeemable Warrants reflected on the Consolidated Balance Sheets are
adjusted on an ongoing basis for any exercises to Common Stock,
revaluation based on the current market value of the Company's Common
Stock and any issuance of Warrants to counter the dilutive impact
resulting from the issuance of other common stock equivalents such as the
issuance of stock options by the Company.
5. Stock Option Plan
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 Company's common stock and
the exercise price of the employee stock options. Based upon a stock
price of $25.25 and options outstanding as of June 30, 1997, the Company
would recognize a nonrecurring noncash pre-tax charge of $28.8 million in
compensation expense if a Vesting Event were to occur. Each $1.00 change
in the fair market value of common stock could result in a maximum pre-tax
adjustment to such compensation expense of approximately $2.4 million.
6. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is based on net income
after preferred stock dividend requirements. Net income per common and
common equivalent share for the three and six months ended June 30, 1997
and 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.
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UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods presented to conform to the new method. Under the new
requirements for calculating primary earnings per share, the dilutive
effect of common stock equivalents will be excluded. The impact is
expected to result in an increase in primary earnings per share of $0.13
and $0.08 for the three-month periods ended June 30, 1997 and 1996,
respectively. For the six-month periods ended June 30, 1997 and 1996
primary earnings per share is expected to increase by $0.25 and $0.19,
respectively. The impact of Statement No. 128 on the calculation of fully
diluted earnings per share for these periods is not expected to be
material.
8. Review
Ernst & Young LLP, independent public accountants, have reviewed the
condensed consolidated balance sheet of the Company as of June 30, 1997
and the related condensed consolidated statements of income for the three-
month and six-month periods ended June 30, 1997 and 1996 and statements of
cash flows for the six month periods ended June 30, 1997 and 1996. 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, 1996 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.
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UNITED STATIONERS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comments on Forward Looking Information
Certain information presented in this Form 10-Q includes forward-looking
statements regarding the Company's future results of operations. The
Company is confident that its expectations are based on reasonable
assumptions given its knowledge of its operations and business. However,
there can be no assurance that the Company's actual results will not
differ materially from its expectations. The matters referred to in
forward-looking statements may be affected by the risks and uncertainties
involved in the Company's business (see Form 8-K filed with the Securities
and Exchange Commission on October 21, 1996) including, among others,
competition with business products manufacturers and other wholesalers,
consolidation of the business products industry, the ability to maintain
gross profit margins, the ability to achieve future cost savings, changing
end-user demands, changes in manufacturer pricing, service interruptions
and availability of liquidity and capital resources.
Second Quarter Ended June 30, 1997 compared with the
Second Quarter Ended June 30, 1996
Net Sales. Net sales were $610.0 million in the second quarter of 1997, a
13.9% increase over net sales of $535.7 million in the second quarter of
1996. This included incremental growth resulting from the Lagasse
acquisition. The Company is experiencing sales strength within all
product segments and geographic regions.
Gross Profit. Gross profit as a percent of net sales increased to 17.2%
in the second quarter of 1997 from 16.3% in the comparable period of 1996.
The increase reflects the favorable impact of inventory investment buys
and lower delivery costs as a percent of net sales.
Operating Expenses. Operating expenses as a percent of net sales
increased to 12.1% in the second quarter of 1997 from 11.9% in the second
quarter of 1996. The increase in operating expenses reflects the use of
outside consultants to facilitate additional systems enhancements, and to
accelerate the Company's strategic planning process. These were planned
expenditures which are expected to contribute to the Company's long-term
growth and profitability. Greater sales leverage and systems enhancements
should enable the Company to continue to improve its cost structure.
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UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter Ended June 30, 1997 compared with the
Second Quarter Ended June 30, 1996 (Continued)
Income From Operations. Income from operations as a percent of net sales
increased to 5.1% in the second quarter of 1997 from 4.4% in the second
quarter of 1996.
Interest Expense. Interest expense as a percent of net sales was 2.3% in
the second quarter of 1997, compared with 2.7% in the comparable period in
1996. This reduction reflects the leveraging of fixed interest costs
against higher sales and lower interest rates on variable rate debt,
partially offset by interest expense on debt used to acquire Lagasse
Bros., Inc.
Income Before Income Taxes. Income before income taxes as a percent of
net sales was 2.8% in the second quarter of 1997, compared with 1.7% in
the second quarter of 1996.
Net Income. Net income before preferred stock dividends was $9.9 million
in the second quarter of 1997, compared with $5.3 million in the second
quarter of 1996.
Net Income Attributable to Common Stockholders. Net income attributable
to common stockholders was $9.4 million in the second quarter of 1997,
compared with $4.8 million in the second quarter of 1996.
Six Months Ended June 30, 1997 compared with the
Six Months Ended June 30, 1996
Net Sales. Net sales were $1,245.1 million in the first six months of
1997, a 10.9% increase over net sales of $1,122.6 million in the first six
months of 1996. On an equivalent workday basis, sales were up 11.8% from
the comparable prior-year first six months. This included incremental
growth resulting from the Lagasse acquisition. The Company is
experiencing sales strength within all product segments and geographic
regions.
Gross Profit. Gross profit as a percent of net sales increased to 17.2%
in the first six months of 1997 from 16.9% in the comparable period of
1996. The increase reflects the favorable impact of inventory investment
buys and lower delivery costs as a percent of net sales.
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UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 compared with the
Six Months Ended June 30, 1996 (Continued)
Operating Expenses. Operating expenses as a percent of net sales declined
to 12.1% in the first six months of 1997 from 12.2% in the first six
months of 1996. The decline in operating expenses as a percent of net
sales is primarily the result of improved productivity and the leveraging
of fixed expenses on a higher sales base. However, the six month results
were impacted by incremental expenses related to the use of outside
consultants to facilitate additional systems enhancements and to
accelerate the Company's strategic planning process. These were planned
expenditures which are expected to contribute to the Company's long-term
growth and profitability.
Income From Operations. Income from operations as a percent of net sales
increased to 5.1% in the first six months of 1997 from 4.7% in the first
six months of 1996.
Interest Expense. Interest expense as a percent of net sales was 2.3% in
the first six months of 1997, compared with 2.6% in the comparable period
in 1996. This reduction reflects the leveraging of fixed interest costs
against higher sales and lower interest rates on variable rate debt,
partially offset by interest expense on debt used to acquire Lagasse
Bros., Inc.
Income Before Income Taxes. Income before income taxes as a percent of
net sales was 2.8% in the first six months of 1997, compared with 2.1% in
the first six months of 1996.
Net Income. Net income before preferred stock dividends was $19.9 million
in the first six months of 1997, compared with $13.5 million in the first
six months of 1996.
Net Income Attributable to Common Stockholders. Net income attributable
to common stockholders was $19.0 million in the first six months of 1997,
compared with $12.6 million in the first six months of 1996.
Liquidity and Capital Resources
As of June 30, 1997, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $174.7 million of
term loan borrowings (the "Term Loan Facilities"), and up to $325.0
million of revolving loan borrowings (the "Revolving Credit Facility").
This agreement was amended on October 31, 1996 to provide funding for the
acquisition of Lagasse Bros., Inc., to extend the maturities, to adjust
the pricing and to revise certain covenants. In addition, the Company has
$150.0 million of 12 3/4% Senior Subordinated Notes due 2005, $29.8
million of industrial revenue bonds and a $2.2 million mortgage.
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UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
The Term Loan Facilities consist of a $117.8 million Tranche A term loan
facility (the "Tranche A Facility") and a $56.9 million Tranche B term
loan facility (the "Tranche B Facility"). Quarterly payments under the
Tranche A Facility range from $4.98 million at June 30, 1997 to $8.30
million at September 30, 2001. Quarterly payments under the Tranche B
Facility range from $0.22 million at June 30, 1997 to $6.64 million at
September 30, 2003. On March 31, 1997, principal payments of $15.9
million and $7.4 million were paid from Excess Cash Flow (as defined in
the Credit Agreement) at December 31, 1996 for the Tranche A and Tranche B
Facilities, 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 in
the Credit Agreement); plus 50% of Eligible Inventory (as defined in the
Credit Agreement) (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 in the Credit Agreement). In addition, for each
fiscal year, 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 $250.0 million. The Revolving Credit Facility matures on
October 31, 2001. As of June 30, 1997, $118.5 million remained available
for borrowing under the Revolving Credit Facility.
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 loans outstanding under the Term Loan Facilities and the Revolving
Credit Facility bear interest as determined within a set range with the
rate based on the ratio of total debt to earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The Tranche A Facility and the
Revolving Credit Facility bear interest at prime plus 0.25% to 1.25% or,
at the Company's option, LIBOR plus 1.50% to 2.50%. The Tranche B
Facility bears interest at prime plus 1.25% to 1.75% or, at the Company's
option, LIBOR plus 2.50% to 3.00%.
The Credit Agreement contains representations and warrants, affirmative
and negative covenants and events of default customary for financings of
this type. As of June 30, 1997, the Company was in compliance with all
covenants contained in the Credit Agreement.
The Credit Agreement permits capital expenditures for the Company of up to
$15.0 million for its fiscal year ending December 31, 1997, plus $6.2
million of unused capital expenditures, approximately $7.8 million of
unused Excess Cash Flow (as defined in the Credit Agreement), and $11.1
million of proceeds from the disposition of certain property, plant and
equipment from the Company's fiscal year ended December 31, 1996. Capital
expenditures will be financed from internally generated funds and
available borrowings under the Credit Agreement. The Company expects
gross capital expenditures to be approximately $12.0 million to $14.0
million in 1997.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and available borrowings under the Credit
Agreement, will be sufficient to meet the short-term (less than 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.
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UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
United is a holding company and, as a result, its primary source of funds
is cash generated from operating activities of its operating subsidiary,
USSC, and bank borrowings by USSC. The Credit Agreement and the indenture
governing the Notes contain restrictions on the ability of USSC to
transfer cash to United.
The statements of cash flows for the Company for the periods indicated are
summarized below:
For the Six Months
Ended June 30,
1997 1996
(dollars in thousands)
Net cash provided by operating activities $92,904 $50,606
Net cash (used in) provided by investing
activities (4,451) 1,640
Net cash used in financing activities (80,759) (52,825)
Net cash provided by operating activities during the first six months of
1997 increased to $92.9 million from $50.6 million in the comparable prior-
year period. This increase was due to higher net income, a decrease in
accounts receivable, and a decrease in inventory offset by a decrease in
accounts payable.
Net cash used in investing activities during the first six months of 1997
was $4.5 million compared with $1.6 million provided in the first six
months of 1996. The increase in cash used was due to an increase in
capital investments during 1997 and a decrease in proceeds from the sale
of property, plant and equipment.
Net cash used in financing activities during the first six months of 1997
was $80.8 million compared with $52.8 million in the first six months of
1996. This increase was due to the required payment of $23.3 million paid
from Excess Cash Flow (as defined in the Credit Agreement) in 1997
compared with $9.0 million in 1996 and the reduction of debt due to lower
working capital requirements.
-16-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable
ITEM 2 CHANGES IN SECURITIES
Not applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of United Stationers
Inc. held on May 14, 1997, the following matter was voted on:
1. Election of Directors
Each of the following members of the Board of
Directors was elected for the term listed below:
Class II Directors - term expiring in May 2000:
-- Frederick B. Hegi, Jr.
-- Gary G. Miller
-- Michael D. Rowsey
ITEM 5 OTHER INFORMATION
Not applicable
-17-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
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 Financial Data Schedule (filed only electronically
with the SEC)
99 Not applicable
-18-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Registrant)
Date: August 8, 1997 /s/Daniel H. Bushell
Daniel H. Bushell
Executive Vice President and
Chief Financial Officer
-19-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
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
-20-
<PAGE>
Exhibit 15
August 7, 1997
The Board of Directors
United Stationers Inc.
We are aware of the incorporation by reference in the Registration
Statement (Form S-3 No. 333-02247) of United Stationers Inc. for the
registration of a total of 2,035,243 shares of its common stock of our
report dated July 25, 1997 relating to the unaudited condensed consolidated
interim financial statements of United Stationers Inc. that are included
in its Form 10-Q for the period ended June 30, 1997.
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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