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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, 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 November 3, 1997, United Stationers Inc. had outstanding 15,402,643
shares of Common Stock, par value $0.10 per share, and 382,211 shares of
Nonvoting Common Stock, $0.01 par value per share. On November 3, 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 September 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE
Important Explanatory Note 3
Independent Accountants' Review Report 4
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996. 5
Condensed Consolidated Statements of Income
for the Three Months and Nine Months Ended
September 30, 1997 and 1996. 6
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 18
SIGNATURE 20
INDEX TO EXHIBITS 21
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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 ACCOUNTANTS' 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 September 30, 1997, and the
related condensed consolidated statements of income for the three-month
and nine-month periods ended September 30, 1997 and 1996, and for the
condensed consolidated statements of cash flows for the nine-month periods
ended September 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
October 27, 1997
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
(Unaudited) (Audited)
September 30, December 31,
1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 16,698 $ 10,619
Accounts receivable, net 314,154 291,401
Inventories 445,787 463,239
Other 19,974 25,221
Total Current Assets 796,613 790,480
PROPERTY, PLANT AND EQUIPMENT, at cost 232,438 225,041
Less-Accumulated depreciation and amortization (67,519) (51,266)
Net Property, Plant and Equipment 164,919 173,775
GOODWILL 112,595 115,449
OTHER 27,599 30,163
TOTAL ASSETS $ 1,101,726 $1,109,867
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt and capital lease $ 24,119 $ 46,923
Accounts payable 280,825 238,124
Accrued liabilities 134,189 100,460
Total Current Liabilities 439,133 385,507
DEFERRED INCOME TAXES 35,444 36,828
LONG-TERM OBLIGATIONS:
Senior revolver loan 155,000 207,000
Senior subordinated notes 150,000 150,000
Senior term loan - Tranche A 90,723 107,318
Senior term loan - Tranche B 55,761 56,425
Other long-term debt 31,848 31,870
Other long-term liabilities 13,457 15,502
Total Long-Term Obligations 496,789 568,115
REDEEMABLE PREFERRED STOCK - 19,785
REDEEMABLE WARRANTS 41,387 23,812
STOCKHOLDERS' EQUITY 88,973 75,820
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,101,726 $1,109,867
See notes to condensed consolidated financial statements.
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
FOR THE THREE MONTHS ENDED
September 30, September 30,
1997 1996
NET SALES $650,912 $576,254
COST OF GOODS SOLD 536,470 478,047
Gross profit 114,442 98,207
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 80,836 69,387
Income from operations 33,606 28,820
INTEREST EXPENSE 12,998 13,576
Income before income taxes 20,608 15,244
INCOME TAXES 8,741 6,463
NET INCOME 11,867 8,781
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 611 434
Net income attributable to
common stockholders $ 11,256 $ 8,347
Net income per common and common
equivalent share - Primary and Fully Diluted $0.74 $0.56
Average number of common shares 15,269 14,842
See notes to condensed consolidated financial statements.
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
FOR THE NINE MONTHS ENDED
September 30, September 30,
1997 1996
NET SALES $1,895,974 $1,698,825
COST OF GOODS SOLD 1,568,056 1,410,880
Gross profit 327,918 287,945
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 231,270 206,084
Income from operations 96,648 81,861
INTEREST EXPENSE 41,526 43,217
Income before income taxes 55,122 38,644
INCOME TAXES 23,376 16,381
NET INCOME 31,746 22,263
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 1,528 1,296
Net income attributable to
common stockholders $ 30,218 $ 20,967
Net income per common and common
equivalent share - Primary $2.03 $1.40
Average number of common shares - Primary 14,865 14,976
Net income per common and common
equivalent share - Fully Diluted $1.98 $1.40
Average number of common shares - Fully Diluted 15,282 14,976
See notes to condensed consolidated financial statements.
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UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
FOR THE NINE MONTHS ENDED
September 30, September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,746 $ 22,263
Depreciation and amortization 20,006 19,528
Transaction costs and other amortization 3,350 4,096
Changes in operating assets and liabilities 72,413 29,544
Net cash provided by operating activities 127,515 75,431
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,141) (4,607)
Proceeds from disposition of property, plant
and equipment 44 10,784
Other - (861)
Net cash (used in) provided by
investing activities (8,097) 5,316
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (40,085) (24,887)
Net repayments under revolver (52,000) (54,000)
Issuance of common shares 18 -
Redemption of preferred stock (21,172) -
Preferred stock dividends (141) -
Other 41 64
Net cash used in financing activities (113,339) (78,823)
Net change in cash and cash equivalents 6,079 1,924
Cash and cash equivalents, beginning of period 10,619 11,660
Cash and cash equivalents, end of period $ 16,698 $ 13,584
Other Cash Flow Information:
Cash payments during the nine month period for:
Income taxes paid $ 13,381 $ 11,735
Interest paid 33,605 35,649
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 nine-month periods ended September 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 16 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 For the
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
Gross Margin as a Percent of Net Sales:
Gross margin prior to the reclassification 20.9% 21.0%
Gross margin as reported herein 17.0% 16.9%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to reclassification 15.9% 16.2%
Operating expense ratio as reported herein 12.0% 12.1%
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. In July 1997, 173,449 warrants
were exercised into common stock.
5. Stock Option Plan
Employee stock options granted under the Company's employee stock option
plan did not vest to the employee until the occurrence of an event (a
"Vesting Event") that caused 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. In connection
with a stock offering, a Vesting Event caused the Company to recognize
compensation expense in the fourth quarter of 1997 based upon the
difference between the fair market value of the Company's common stock and
the exercise price of the employee stock options. See Footnote 7
"Subsequent Event".
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 nine months ended September 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. Subsequent Event
On October 9, 1997, the Company completed a 2.0 million share primary
offering and 3.4 million share secondary offering of common stock. The
shares were priced at $38.00, before underwriting discounts and
commissions of $1.90. The aggregate net proceeds to the Company from this
offering of $72.2 million (before deducting expenses) and proceeds of $0.1
million resulting from the conversion of 1,119,038 warrants into common
stock were used to (i) redeem $50.0 million of the Company's 12 3/4%
Senior Subordinated Notes and pay the redemption premium thereon of $6.4
million (redemption of the Notes requires a thirty day notice which was
given on October 10th), (ii) pay fees related to the offering, and (iii)
reduce by $15.5 million the indebtedness under the Term Loan Facilities.
The repayment of indebtedness under the Term Loan Facilities caused a
permanent reduction of the amount borrowable thereunder.
As a result of the offering the Company recognized the following
nonrecurring charges in the fourth quarter of 1997 (i) a noncash charge of
approximately $61.7 million ($36.7 million net of tax benefit of $25.0
million) or approximately $2.34 per share in compensation expense relating to
certain employee stock options which became exercisable upon completion of the
offering, and (ii) an extraordinary loss from early extinguishment of debt
during the fourth quarter of 1997 related to the redemption premium of $6.4
million ($3.8 million net of tax benefit of $2.6 million) and write-off of
certain capitalized financing costs of approximately $3.6 million ($2.1
million net of tax benefit of $1.5 million).
8. 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 "primary" and "fully diluted" earnings per share will be
replaced with "basic" and "diluted" earnings per share, respectively. The
dilutive effect of common stock equivalents will be excluded in the basic
earnings per share calculation. The impact is expected to result in an
increase in primary earnings per share of $0.17 and $0.12 for the three-
month periods ended September 30, 1997 and 1996, respectively. For the
nine-month periods ended September 30, 1997 and 1996, primary earnings per
share is expected to increase by $0.43 and $0.32, 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.
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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 believes 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.
Third Quarter Ended September 30, 1997 compared with the
Third Quarter Ended September 30, 1996
Net Sales. Net sales were $650.9 million for the third quarter of 1997,
up 13.0% compared with net sales of $576.3 million for the third quarter
of 1996. This included incremental growth resulting from the Lagasse
acquisition. The Company is experiencing sales strength within all
geographic regions.
Gross Profit. Gross profit as a percent of net sales increased to 17.6%
in the third quarter of 1997 from 17.0% in the comparable period of 1996.
The increase reflects a shift in the Company's product mix toward higher-
margin items. In particular, sales of lower-margin computer hardware
declined as a percent of net sales.
Operating Expenses. Operating expenses as a percent of net sales
increased to 12.4% in the third quarter of 1997 from 12.0% in the third
quarter of 1996. The increase in operating expenses reflects the
Company's decision to incur costs related to certain discretionary
expenses that represent ongoing investments in the Company's future such
as strategic planning, use of outside consultants to facilitate additional
systems enhancements, and preparation for the Year 2000. 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
Third Quarter Ended September 30, 1997 compared with the
Third Quarter Ended September 30, 1996 (Continued)
Income From Operations. Income from operations as a percent of net sales
increased to 5.2% in the third quarter of 1997 from 5.0% in the third
quarter of 1996.
Interest Expense. Interest expense as a percent of net sales was 2.0% in
the third quarter of 1997, compared with 2.4% 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 3.2% in the third quarter of 1997, compared with 2.6% in the
third quarter of 1996.
Net Income. Net income before preferred stock dividends was $11.9 million
in the third quarter of 1997, compared with $8.8 million in the third
quarter of 1996.
Net Income Attributable to Common Stockholders. Net income attributable
to common stockholders was $11.3 million in the third quarter of 1997,
compared with $8.3 million in the third quarter of 1996.
Nine Months Ended September 30, 1997 compared with the
Nine Months Ended September 30, 1996
Net Sales. Net sales were $1,896.0 million in the first nine months of
1997, a 11.6% increase over net sales of $1,698.8 million in the first
nine months of 1996. On an equivalent workday basis, sales were up 12.2%
from the comparable prior-year first nine 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 17.3%
in the first nine months of 1997 from 17.0% in the comparable period of
1996. The increase reflects a shift in the Company's product mix toward
higher-margin items. In particular, sales of lower-margin computer
hardware declined as a percent to net sales.
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UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 compared with the
Nine Months Ended September 30, 1996 (Continued)
Operating Expenses. Operating expenses as a percent of net sales
increased to 12.2% in the first nine months of 1997 from 12.1% in the
first nine months of 1996. The increase in operating expenses reflects
the Company's decision to incur costs related to certain discretionary
expenses that represent ongoing investments in the Company's future such
as strategic planning, use of outside consultants to facilitate additional
systems enhancements, and preparation for the Year 2000. Greater sales
leverage and systems enhancements should enable the Company to continue to
improve its cost structure.
Income From Operations. Income from operations as a percent of net sales
increased to 5.1% in the first nine months of 1997 from 4.9% in the first
nine months of 1996.
Interest Expense. Interest expense as a percent of net sales was 2.2% in
the first nine months of 1997, compared with 2.5% 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 2.9% in the first nine months of 1997, compared with 2.4% in
the first nine months of 1996.
Net Income. Net income before preferred stock dividends was $31.7 million
in the first nine months of 1997, compared with $22.3 million in the first
nine months of 1996.
Net Income Attributable to Common Stockholders. Net income attributable
to common stockholders was $30.2 million in the first nine months of 1997,
compared with $21.0 million in the first nine months of 1996.
Liquidity and Capital Resources
As of September 30, 1997, the credit facilities under the Amended and
Restated Credit Agreement (the "Credit Agreement") consisted of $169.5
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 $2.1
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 $112.9 million Tranche A term loan
facility (the "Tranche A Facility") and a $56.6 million Tranche B term
loan facility (the "Tranche B Facility"). Quarterly payments under the
Tranche A Facility range from $4.98 million at September 30, 1997 to $7.54
million at September 30, 2001. Quarterly payments under the Tranche B
Facility range from $0.22 million at September 30, 1997 to $6.03 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 September 30, 1997, $133.0 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 September 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.
On September 2, 1997 the Company completed the redemption of all
outstanding shares of Series A and Series C Preferred Stock for an
aggregate redemption price of $21.3 million (the "Redemption Price"). The
Redemption Price was paid from borrowings under the Revolving Credit
Facilities. As of this filing date, the Company does not have any
preferred stock outstanding.
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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)
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.
On October 9, 1997 the Company completed a 2.0 million share primary
offering of common stock. The shares were priced at $38.00, before
underwriting discounts and commissions of $1.90. The aggregate net
proceeds to the Company from this offering of $72.2 million (before
deducting expenses) and proceeds of $0.1 million resulting from the
conversion of 1,119,038 warrants into common stock were used to (i) redeem
$50.0 million of the Company's 12 3/4% Senior Subordinated Notes and pay
the redemption premium thereon of $6.4 million (redemption of the Notes
requires a thirty day notice which was given on October 10th), (ii) pay
fees related to the offering, and (iii) reduce by $15.5 million the
indebtedness under the Term Loan Facilities. The repayment of
indebtedness under the Term Loan Facilities caused a permanent reduction
of the amount borrowable thereunder.
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 Company may attempt to acquire other businesses as part of its growth
strategy. The Company currently has no agreements to acquire any such
businesses. Should the Company be successful in identifying an
acquisition candidate, however, the Company may require additional
financing to consummate such a transaction. Acquisitions involve certain
inherent risks and uncertainties. Therefore, the Company can give no
assurances with respect to whether it will be successful in identifying
such a business to acquire, whether it will be able to obtain financing to
complete such an acquisition or whether the Company will be successful in
operating the acquired business.
In addition, the Company is currently pursuing an Asset Backed
Securitization (the "ABS") transaction that is intended to be a bankruptcy-
remote and off-balance sheet financing, in order to reduce the Company's
cost of capital. The ABS transaction would involve the sale of the
Company's accounts receivable and, if consummated, is expected to result
in a lower accounts receivable balance and senior revolver loan balance
than is reported in the Company's historical financial statements included
herein. There can be no assurance that the Company will consummate the
ABS transaction.
-16-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Continued)
The statements of cash flows for the Company for the periods indicated are
summarized below:
For the Nine Months
Ended September 30,
1997 1996
(in thousands)
Net cash provided by operating activities $127,515 $75,431
Net cash (used in) provided by
investing activities (8,097) 5,316
Net cash used in financing activities (113,339) (78,823)
Net cash provided by operating activities during the first nine months of
1997 increased to $127.5 million from $75.4 million in the comparable
prior-year period. This increase was due to higher net income,
an increase in accrued liabilities, and a decrease in inventory partially
offset by an increase in accounts receivable.
Net cash used in investing activities during the first nine months of 1997
was $8.1 million compared with $5.3 million provided in the first nine
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 nine months of 1997
was $113.3 million compared with $78.8 million in the first nine months of
1996. This increase was due to the required payment of $40.1 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.
Independent Accountants' Review Report
Ernst & Young LLP, independent public accountants, have reviewed the
condensed consolidated financial statements of the Company as of and for
the three-month and nine-month periods ended September 30, 1997 and 1996.
The Independent Accountants' Review Report has been included in this
filing.
-17-
<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
Not applicable
ITEM 5 OTHER INFORMATION
Subsequent Event
On October 9, 1997 the Company completed a 2.0 million share primary
offering of common stock and 3.4 million share secondary offering of
common stock. The shares were priced at $38.00, before underwriting
discounts and commissions of $1.90. The aggregate net proceeds to the
Company from this offering of $72.2 million (before deducting expenses)
and proceeds of $0.1 million resulting from the conversion of 1,119,038
warrants into common stock were used to (i) redeem $50.0 million of the
Company's 12 3/4% Senior Subordinated Notes and pay the redemption premium
thereon of $6.4 million (redemption of the Notes requires a thirty day
notice which was given on October 10th), (ii) pay fees related to the
offering, and (iii) reduce by $15.5 million the indebtedness under the
Term Loan Facilities. The repayment of indebtedness under the Term Loan
Facilities caused a permanent reduction of the amount borrowable
thereunder.
As a result of the offering the Company recognized the following
nonrecurring charges in the fourth quarter of 1997 (i) a noncash charge
of approximately $61.7 million ($36.7 million net of tax benefit of
$25.0 million) or approximately $2.34 per share in compensation expense
relating to certain employee stock options which became exercisable upon
completion of the offering, and (ii) an extraordinary loss from early
extinguishment of debt during the fourth quarter of 1997 related to the
redemption premium of $6.4 million ($3.8 million net of tax benefit of
$2.6 million) and write-off of certain capitalized financing costs of
approximately $3.6 million ($2.1 million net of tax benefit of $1.5 million).
-18-
<PAGE>
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
-19-
<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: November 3, 1997 /s/Daniel H. Bushell
Daniel H. Bushell
Executive Vice President and
Chief Financial Officer
-20-
<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
-21-
<PAGE>
Exhibit 15
November 3, 1997
The Board of Directors
United Stationers Inc.
We are aware of the incorporation by reference in the Registration
Statement (Form S-3 and Form S-8) of United Stationers Inc. for the
registration of a total of 2,035,243 and 4,100,000 shares,
respectively, of its common stock of our report dated October 27, 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 September 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
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