<PAGE>
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
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SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 30, 1999, United Stationers Inc. had outstanding 33,972,965 shares of
Common Stock, par value $0.10 per share. On July 30, 1999, 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.
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
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<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
IMPORTANT EXPLANATORY NOTE 1
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income
for the Three and Six Months ended
June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION 21
SIGNATURE 23
INDEX TO EXHIBITS 24
</TABLE>
<PAGE>
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. ("UNITED"), A DELAWARE
CORPORATION, AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO.
("USSC"), 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.
- 1 -
<PAGE>
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 June 30, 1999, and the related condensed
consolidated statements of income for the three month and six month periods
ended June 30, 1999 and 1998 and the condensed consolidated statements of cash
flows for the six month periods ended June 30, 1999 and 1998. 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, 1998, 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 26, 1999, except for Note 18, as to
which the date is March 17, 1999, 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, 1998,
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 20, 1999
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<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,743 $ 19,038
Accounts receivable, net 224,064 203,467
Inventories 511,142 554,940
Other current assets 23,285 21,293
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Total current assets 775,234 798,738
Property, plant and equipment, net 170,964 169,060
Goodwill, net 179,210 181,009
Other 18,954 18,184
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Total assets $ 1,144,362 $ 1,166,991
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 281,954 $ 301,952
Accrued liabilities 125,174 132,053
Current maturities of long-term debt 9,717 7,709
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Total current liabilities 416,845 441,714
Deferred income taxes 26,508 26,223
Long-term obligations 342,802 328,491
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Total liabilities 786,155 796,428
Stockholders' equity:
Common stock, $0.10 par value; 100,000,000
shares authorized; 37,211,427 and 36,652,898,
respectively, issued 3,721 3,691
Additional paid-in capital 304,228 303,330
Treasury stock, at cost - 3,250,000 shares (49,600) --
Retained earnings 100,858 64,853
Accumulated translation adjustment (1,000) (1,311)
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Total stockholders' equity 358,207 370,563
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Total liabilities and stockholders' equity $ 1,144,362 $ 1,166,991
----------- -----------
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</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------
1999 1998
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<S> <C> <C>
Net sales $ 800,753 $ 751,966
Cost of goods sold 672,464 626,076
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Gross profit 128,289 125,890
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Operating expenses:
Warehousing, marketing and
administrative expenses 88,531 87,579
Non-recurring charge -- 13,852
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Total operating expenses 88,531 101,431
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Income from operations 39,758 24,459
Interest expense 7,643 9,516
Other expense 2,258 2,386
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Income before income taxes and extraordinary item 29,857 12,557
Income taxes 12,540 5,328
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Income before extraordinary item 17,317 7,229
Extraordinary item, loss on early retirement of debt,
net of tax benefit of $3,971 -- 5,907
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Net income $ 17,317 $ 1,322
--------- ---------
--------- ---------
Net income per common share:
Income before extraordinary item $ 0.51 $ 0.22
Extraordinary item -- (0.18)
--------- ---------
Net income per share $ 0.51 $ 0.04
--------- ---------
--------- ---------
Average number of common shares outstanding 34,078 32,998
Net income per common share - assuming dilution:
Income before extraordinary item $ 0.50 $ 0.21
Extraordinary item -- (0.17)
--------- ---------
Net income per share $ 0.50 $ 0.04
--------- ---------
--------- ---------
Average number of common shares outstanding-assuming
dilution 34,476 34,730
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1999 1998
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<S> <C> <C>
Net sales $ 1,625,014 $ 1,464,483
Cost of goods sold 1,362,857 1,215,531
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Gross profit 262,157 248,952
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Operating expenses:
Warehousing, marketing and
administrative expenses 180,513 172,616
Non-recurring charge -- 13,852
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Total operating expenses 180,513 186,468
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Income from operations 81,644 62,484
Interest expense 15,110 21,342
Other expense 4,457 2,386
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Income before income taxes and extraordinary item 62,077 38,756
Income taxes 26,072 16,436
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Income before extraordinary item 36,005 22,320
Extraordinary item, loss on early retirement of debt,
net of tax benefit of $3,971 -- 5,907
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Net income $ 36,005 $ 16,413
----------- -----------
----------- -----------
Net income per common share:
Income before extraordinary item $ 1.02 $ 0.69
Extraordinary item -- (0.18)
----------- -----------
Net income per share $ 1.02 $ 0.51
----------- -----------
----------- -----------
Average number of common shares outstanding 35,451 32,498
Net income per common share-assuming dilution:
Income before extraordinary item $ 1.00 $ 0.65
Extraordinary item -- (0.17)
----------- -----------
Net income per share $ 1.00 $ 0.48
----------- -----------
----------- -----------
Average number of common shares outstanding-assuming
dilution 35,938 34,518
</TABLE>
See notes to condensed consolidated financial statements.
- 5 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 36,005 $ 16,413
Depreciation and amortization 14,117 14,278
Amortization of capitalized financing costs 847 1,326
Extraordinary item - early retirement of debt -- 9,877
Changes in operating assets and liabilities (8,724) 222,703
--------- ---------
Net cash provided by operating activities 42,245 264,597
Cash Flows From Investing Activities:
Capital expenditures (16,280) (8,500)
Proceeds from disposition of property, plant
and equipment 3,210 20
Acquisition of Azerty, Inc. -- (115,740)
--------- ---------
Net cash used in investing activities (13,070) (124,220)
Cash Flows From Financing Activities:
Principal payments on debt (2,222) (547,585)
Borrowings under financing agreements -- 350,000
Net borrowing (repayments) under revolver 20,000 (11,000)
Issuance of common shares 2,466 97,024
Payment of employee withholding tax related to
stock option exercises (2,433) (14,411)
Financing costs -- (4,526)
Repurchase of common stock (49,600) --
Other 319 (519)
--------- ---------
Net cash used in financing activities (31,470) (131,017)
--------- ---------
Net change in cash and cash equivalents (2,295) 9,360
Cash and cash equivalents, beginning of period 19,038 12,367
--------- ---------
Cash and cash equivalents, end of period $ 16,743 $ 21,727
--------- ---------
--------- ---------
Other Cash Flow Information:
Income taxes paid $ 25,753 $ 16,993
Interest paid 18,372 19,553
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
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, 1998. 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. Accordingly, the reader of this
Form 10-Q should refer to the Company's Form 10-K for the year ended December
31, 1998 for further information. 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. Certain interim expense and inventory estimates are recognized
throughout the 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.
All share and per share data reflect a two-for-one stock split in the form of a
100% Common Stock dividend paid September 28, 1998.
2. OPERATIONS
The Company operates in a single segment as the nation's largest wholesale
distributor of business products in North America. The Company offers
approximately 35,000 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 20,000
resellers - such as computer products resellers, office furniture dealers,
office products superstores, sanitary supply distributors, internet
providers, warehouse clubs, mail order houses and mass merchandisers. The
Company has a distribution network of 66 regional distribution centers.
Through its integrated mainframe systems, the Company provides a high level
of customer service and overnight delivery.
3. REPURCHASE OF COMMON STOCK
In the first quarter of 1999, the Company's Board of Directors authorized the
repurchase of up to $50.0 million in common stock. During the second quarter of
1999, the Company repurchased 1,035,000 shares of common stock at a cost of
approximately $14.9 million. As of June 30, 1999, the Company had repurchased
3,250,000 shares of common stock at a cost of approximately $49.6 million.
-7-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. COMPREHENSIVE INCOME (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 17,317 $ 1,322 $ 36,005 $ 16,413
Unrealized currency translation
adjustment 76 (391) 311 (514)
-------- -------- -------- --------
Comprehensive income $ 17,393 $ 931 $ 36,316 $ 15,899
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
5. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if dilutive
securities were exercised into common stock. Stock options are considered
dilutive securities. For the three and six months ended June 30, 1999,
options to purchase 1.7 million shares of common stock at exercise prices
ranging from $22.00 to $33.63 were not included in the computation of diluted
EPS because the option exercise prices were higher than the average market
price of the common shares.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NUMERATOR:
Income before extraordinary item $ 17,317 $ 7,229 $ 36,005 $ 22,320
Extraordinary item -- (5,907) -- (5,907)
-------- -------- -------- --------
Net income $ 17,317 $ 1,322 $ 36,005 $ 16,413
-------- -------- -------- --------
-------- -------- -------- --------
DENOMINATOR:
Denominator for basic earnings per share -
Weighted average shares 34,078 32,998 35,451 32,498
Effect of dilutive securities:
Employee stock options 398 1,732 487 2,020
-------- -------- -------- --------
Denominator for diluted earnings per share -
adjusted weighted average shares
and assumed conversions 34,476 34,730 35,938 34,518
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
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<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE:
Basic
Income before extraordinary item $ 0.51 $ 0.22 $ 1.02 $ 0.69
Extraordinary item -- (0.18) -- (0.18)
----------- ----------- ----------- -----------
Net income per share $ 0.51 $ 0.04 $ 1.02 $ 0.51
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted
Income before extraordinary item $ 0.50 $ 0.21 $ 1.00 $ 0.65
Extraordinary item -- (0.17) -- (0.17)
----------- ----------- ----------- -----------
Net income per share $ 0.50 $ 0.04 $ 1.00 $ 0.48
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
6. SUMMARIZED FINANCIAL DATA FOR GUARANTOR SUBSIDIARIES
Azerty Incorporated, Positive ID Wholesale, and AP Support Services
(collectively, the "Azerty Guarantor") and Lagasse Bros., Inc. ("Lagasse")
guarantee the 8.375% Senior Subordinated Notes due 2008 (the "Notes") issued by
United Stationers Supply Co. ("USSC"). The Azerty Guarantor Subsidiaries and
Azerty de Mexico, S.A. de C.V. (collectively, the "Azerty Business") were
acquired on April 3, 1998.
Set forth below is summarized combined financial data for the Azerty Business
(subsequent to its acquisition by USSC) and Lagasse. Summarized financial data
for the six months ended June 30, 1999 reflects the operations of Lagasse and
the Azerty Business. Summarized financial data for the six months ended June 30,
1998 reflects the operations of Lagasse for six months and the Azerty Business,
subsequent to its acquisition by USSC, for the three months ended June 30, 1998.
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Balance Sheet Data:
Current assets $222,918 $175,745
Total assets 344,306 293,914
Current liabilities 107,088 90,498
Total liabilities 107,517 90,560
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales $196,353 $121,447 $372,063 $148,372
Gross margin 19,271 12,933 37,355 18,006
Operating income 7,197 4,370 13,926 6,525
Net income 4,149 2,104 7,890 3,176
</TABLE>
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<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and for Hedging Activities". SFAS No. 133 requires all derivatives
to be recorded on the balance sheet at fair value and establishes "special
accounting" for the following three different types of hedges: hedges of changes
in the fair value of assets, liabilities or firm commitments; hedges of the
variable cash flows of forecasted transactions; and hedges of foreign currency
exposures of net investments in foreign operations. Though the accounting
treatment and criteria for each of the three types of hedges are unique, they
all result in recognizing offsetting changes in value or cash flows of both the
hedge and the hedged item in earnings in the same period. Changes in the fair
value of derivatives that do not meet the criteria of one of these three
categories of hedges are included in earnings in the period of the change. In
June 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS
No. 137 delays the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000. The Company will adopt the new statement beginning January
1, 2001. The Company anticipates that SFAS No. 133 will not have a material
impact on its consolidated financial statements.
8. COMPUTER SERVICES CONTRACT WRITE-OFF - NON RECURRING CHARGE
Associated Stationers, Inc. ("ASI") entered into a Computer Services Contract
with a third-party service provider to perform certain computer services.
Upon completion of the systems integration between USSC and ASI, increasing
differences in the operating processes and technical environment between the
Company and the third party service provider became evident. The Computer
Services Contract was modified to allow the Company, at its discretion, not to
perform any processing at the third-party service provider's facilities.
Accordingly, the related fees were reduced. Payments made to the third-party
service provider subsequent to this final renegotiation were effectively for
disaster recovery purposes only. The Company subsequently consolidated its
disaster recovery services under an agreement with another third-party service
provider. In May 1998, the Company completed an assessment of the future utility
of the Computer Services Contract. Based upon such assessment, the Company has
determined that it is no longer feasible to use the prior third-party service
provider for disaster recovery purposes.
During the second quarter of 1998, the Company wrote off the remaining term of
the Computer Services Contract. As a result, the Company recorded a
non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6
million), which includes a $2.6 million prepaid expense and $11.3 million of
future payments.
- 10 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. THE NEW CREDIT FACILITIES
On April 3, 1998, the Company amended and restated its then-existing credit
agreement (as amended and restated, the "Credit Agreement") governing its senior
secured credit facilities (the "Credit Facilities"). The Credit Facilities
consisted initially of a $250.0 million six-year revolving credit facility (the
"Revolving Credit Facility"), a $150.0 million six-year tranche A term loan
facility (the "Tranche A Term Loan Facility"), and a $100.0 million six and
three-quarter year tranche B term loan facility (the "Tranche B Term Loan
Facility"). The net proceeds from the 12.75% Notes (as defined) offering were
used to permanently repay a substantial portion of indebtedness outstanding
under the Tranche B Term Loan Facility and the remainder of such facility was
permanently repaid with proceeds from the sale of certain receivables, following
which the Tranche B Term Loan Facility was terminated. As a result of the early
retirement of the then-existing credit facilities and the termination of the
Tranche B Term Loan Facility, approximately $9.9 million ($5.9 million net of
tax benefit of $4.0 million) of unamortized financing fees were recorded as a
non-cash extraordinary charge during the second quarter of 1998.
-11 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes appearing elsewhere in this Form 10-Q.
Information contained or incorporated by reference in this Form 10-Q may
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, which can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "anticipate," "believe," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. All statements
other than statements of historical fact included in this Form 10-Q,
including those regarding the Company's financial position, business
strategy, projected costs and plans and objectives of management for future
operations are forward-looking statements. The following matters and certain
other factors noted throughout this Form 10-Q constitute cautionary
statements identifying important factors with respect to any such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements. Such risks and uncertainties include, but are not
limited to, the highly-competitive environment in which the Company operates,
the integration of acquisitions, changes in end-users' traditional demands
for business products, reliance by the Company on certain key suppliers, the
effects on the Company of fluctuations in manufacturers' pricing, potential
service interruptions, dependence on key personnel and general economic
conditions. A description of these factors, as well as other factors which
could affect the Company's business, is set forth in filings by the Company
with the Securities and Exchange Commission, including the Company's
Registration Statement filed on June 9, 1998. All forward-looking statements
contained in this Form 10-Q and/or any subsequent written or oral
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by such
cautionary statements. The Company undertakes no obligation to release the
results of any revisions to these forward-looking statements that may be made
to reflect any future events or circumstances.
SECOND QUARTER ENDED JUNE 30, 1999 COMPARED WITH
THE SECOND QUARTER ENDED JUNE 30, 1998
NET SALES. Net sales increased 6.5% to $800.8 million in the second quarter of
1999 compared with $752.0 million in the second quarter of 1998. The Company
experienced sales growth in all geographic regions.
During the second quarter of 1999, the Company sales growth continued to be
impacted by the discontinuance of laptop and desktop computers and office
products at Azerty, decisions by certain customers to use an alternate
wholesaler and a change in inventory management strategy by certain customers.
Considering the strategic initiatives currently underway, the Company should be
able to build sales momentum as it progresses through the year.
GROSS MARGIN. Gross margin declined to 16.0% in the second quarter of 1999
compared with 16.7% in 1998. This reduction reflects changes in product mix and
an increased level of promotional activities in the areas of paper sales, toner
cartridges and special orders.
OPERATING EXPENSES. Operating expenses as a percent of net sales declined to
11.0% in 1999 compared with 11.6%, before a non-recurring charge, in 1998.
The reduction in the operating expense ratio represents the Company's effort
in controlling expenses and continually improving warehouse and systems
efficiencies to produce the highest levels of customer and consumer
satisfaction. Management believes that the Company has significant
opportunities to further reduce operating expenses.
- 12 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The non-recurring charge recorded in 1998 of $13.9 million ($8.3 million net of
tax benefit of $5.6 million) relates to the write-off of a contract for computer
services from a vendor. Operating expenses as a percent of net sales, including
the aforementioned charges, was 13.5% in 1998.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
declined to 5.0% in 1999 compared with 5.1% in 1998, excluding the non-recurring
charge. Including the non-recurring charge, income from operations as a percent
of net sales was 3.2% in 1998.
INTEREST EXPENSE. Interest expense as a percent of net sales was 1.0% compared
with 1.3% in 1998. This reduction reflects the continued leveraging of interest
costs against higher sales and the repayment of indebtedness with the proceeds
received from the June 1998 equity offering partially offset by the funding
required to repurchase 3.3 million shares of the Company's common stock.
OTHER EXPENSE. Other expense as a percent of net sales remained flat at 0.3%.
This expense represents the costs associated with the sale of certain trade
accounts receivable through the Receivables Securitization Program (as defined).
These costs vary on a monthly basis and are generally related to certain
interest rates.
INCOME BEFORE TAXES AND EXTRAORDINARY ITEM. Income before taxes and
extraordinary item as a percent of net sales increased to 3.7% from 3.5% in
1999, excluding the non-recurring charge. Including the non-recurring charge,
income before income taxes and extraordinary item as a percent of net sales was
1.6% in 1998.
NET INCOME. Net income as a percent of net sales increased to 2.2% compared with
2.1% in 1998, excluding the non-recurring charge and extraordinary item.
Net income in 1998 includes a non-recurring charge of $13.9 million ($8.3
million net of tax benefit of $5.6 million) and an extraordinary item, loss on
the early retirement of debt of $9.9 million ($5.9 million net of tax benefit of
$4.0 million). Including the impact of the non-recurring charge and the
extraordinary item, net income as a percent of net sales was 0.2% in 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales were $1.6 billion in the first six months of 1999, an
11.0% increase over net sales of $1.5 billion in 1998. The increase reflects
the impact of the Azerty acquisition, which closed on April 3, 1998. Organic
sales in the first six months of 1999 increased by 3.9%.
During the first six months of 1999, the Company sales growth continued to be
impacted by the discontinuance of laptop and desktop computers and office
products at Azerty, decisions by certain customers to use an alternate
wholesaler and a change in inventory management strategy by certain customers.
Considering the strategic initiatives currently underway, the Company should be
able to build sales momentum as it progresses through the year.
- 13 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS MARGIN. Gross margin declined to 16.1% in the first six months of 1999
compared with 17.0% in 1998. This decrease is primarily the result of the
blending of the lower-margin computer consumables business (Azerty) into the
Company's overall margin mix. In addition, this reduction reflects changes in
product mix and an increased level of promotional activities in the areas of
paper sales, toner cartridges and special orders.
OPERATING EXPENSES. Operating expenses as a percent of net sales declined to
11.1% in 1999 compared with 11.8%, excluding a non-recurring charge in 1998.
The reduction in the operating expense ratio represents the blending of the
Azerty business, which operates at a lower expense ratio than the supply
division, into the Company's overall expense ratio. In addition, the
reduction in the operating expense ratio represents the Company's effort in
controlling expenses and continually improving warehouse and systems
efficiencies to produce the highest levels of customer and consumer
satisfaction. Management believes that the Company has significant
opportunities to further reduce operating expenses.
The non-recurring charge recorded in the second quarter of 1998 of $13.9 million
($8.3 million net of tax benefit of $5.6 million) relates to the write-off of a
contract for computer services from a vendor. Operating expenses as a percent of
net sales, including the aforementioned charges, was 12.7% in 1998.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
declined to 5.0% in 1999 compared with 5.2% in 1998, excluding the non-recurring
charge. Including the non-recurring charge, income from operations as a percent
of net sales was 4.3% in 1998.
INTEREST EXPENSE. Interest expense as a percent of net sales was 0.9% compared
with 1.5% in 1998. This reduction reflects the continued leveraging of interest
costs against higher sales and the repayment of indebtedness with the proceeds
received from the June 1998 equity offering, and the Receivables Securitization
Program (as defined). These transactions were partially offset by the
acquisition of Azerty, in April of 1998, for a purchase price of approximately
$115.7 million, the placement of $100.0 million of Senior Subordinated Notes at
8.375% (as defined) in April of 1998 and the $49.6 million of funding required
to repurchase 3.3 million shares of the Company's common stock during 1999.
OTHER EXPENSE. Other expense as a percent of net sales was 0.3% in 1999 compared
with 0.2% in 1998. This expense represents the costs associated with the sale of
certain trade accounts receivable through the Receivables Securitization Program
(as defined). These costs vary on a monthly basis and are generally related to
certain interest rates.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item as a percent of net sales increased to 3.8% from 3.5% in
1998, excluding the non-recurring charge. Including the non-recurring charge,
income before income taxes and extraordinary item as a percent of net sales was
2.6% in 1998.
NET INCOME. Net income as a percent of sales increased to 2.2% compared with
2.1% in 1998, excluding the non-recurring charge and extraordinary item.
- 14 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income in 1998 includes a non-recurring charge of $13.9 million ($8.3
million net of tax benefit of $5.6 million) and an extraordinary item, loss on
the early retirement of debt of $9.9 million ($5.9 million net of tax benefit of
$4.0 million). Including the impact of the non-recurring charge and the
extraordinary item, net income as a percent of net sales was 1.1% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Credit Agreement
At June 30, 1999, the available credit under the Second Amended and Restated
Credit Agreement (the "Credit Agreement") included $57.4 million of term loan
borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving
loan borrowings (the "Revolving Credit Facility"). In addition, the Company has
$100.0 million of 12.75% Senior Subordinated Notes due 2005, $100.0 million of
8.375% Senior Subordinated Notes due 2008, $29.8 million of industrial revenue
bonds and a $1.8 million mortgage.
The Term Loan Facilities consist of a $57.4 million Tranche A term loan facility
("Tranche A Facility"). Amounts outstanding under the Tranche A Facility are to
be repaid in 19 quarterly installments ranging from $1.6 million at September
30, 1999 to $3.7 million at March 31, 2004.
The Revolving Credit Facility is limited to $250.0 million, less the aggregate
amount of letter of credit liabilities, and contains a provision for swingline
loans in an aggregate amount up to $25.0 million. The Revolving Credit Facility
matures on March 31, 2004 and $44.0 million was outstanding at June 30, 1999.
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 domestic direct and
indirect subsidiaries of USSC, certain of the stock of Lagasse and Azerty, and
certain of the foreign and direct and indirect subsidiaries of USSC (excluding
USS Receivables Company, Ltd.) and security interests and liens upon all
accounts receivable, inventory, contract rights and certain real property of
USSC and its domestic subsidiaries other than accounts receivables sold in
connection with the Receivables Securitization Program.
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 Revolving Credit Facility
bear interest at prime to prime plus 0.75%, or, at the Company's option, the
London Interbank Offering Rate ("LIBOR") plus 1.00% to 2.00%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financings of this type.
At June 30, 1999, the Company was in compliance with all covenants contained in
the Credit Agreement.
- 15 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate protection agreements, including collar
agreements, to reduce the impact of fluctuations in interest rates on a
portion of its variable rate debt. These agreements generally require the
Company to pay to or entitle the Company to receive from the other party the
amount, if any, by which the Company's interest payments fluctuate beyond the
rates specified in the agreements. The Company is subject to the credit risk
that the other party may fail to perform under such agreements. The Company's
allocated cost of such agreements is amortized to interest expense over the
term of the agreements, and the unamortized cost is included in other assets.
Payments received or made as a result of the agreements, if any, are recorded
as an addition or a reduction to interest expense. At June 30, 1999, the
Company had interest rate collar agreements expiring October 1999 on $200.0
million of borrowings at LIBOR rates between 5.2% and 8.0%. For the three and
six month periods ended June 30, 1999 and 1998, the Company recorded
$104,047, $193,905, $39,583 and $211,415, respectively, to interest expense
resulting from LIBOR rate fluctuations below the floor rate specified in the
collar agreements.
The right of United to participate in any distribution of earnings or assets of
USSC is subject to the prior claims of the creditors of USSC. In addition, the
Credit Agreement contains certain restrictive covenants, including covenants
that restrict or prohibit USSC's ability to pay cash dividends and make other
distributions to United.
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 12 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.
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 indentures governing the
Notes contain restrictions on the ability of USSC to transfer cash to United.
12.75% Senior Subordinated Notes
The 12.75% Senior Subordinated Notes ("12.75% Notes") originally were issued on
May 3, 1995, pursuant to the 12.75% Notes Indenture. As of June 30, 1999, the
aggregate outstanding principal amount of the 12.75% Notes was $100.0 million.
The 12.75% Notes are unsecured senior subordinated obligations of USSC, and
payment of the 12.75% Notes is fully and unconditionally guaranteed by the
Company and USSC's domestic "restricted" subsidiaries on a senior subordinated
basis. The 12.75% Notes mature on May 1, 2005, and bear interest at the rate of
12.75% per annum, payable semi-annually on May 1 and November 1 of each year.
- 16 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
8.375% Senior Subordinated Notes
The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April 15,
1998, pursuant to the 8.375% Notes Indenture. As of June 30, 1999, the aggregate
outstanding principal amount of 8.375% Notes was $100.0 million. The 8.375%
Notes are unsecured senior subordinated obligations of USSC, and payment of the
8.375% Notes is fully and unconditionally guaranteed by the Company and USSC's
domestic "restricted" subsidiaries that incur indebtedness on a senior
subordinated basis. The 8.375% Notes mature on April 15, 2008, and bear interest
at the rate of 8.375% per annum, payable semi-annually on April 15 and
October 15 of each year.
Receivables Securitization Program
On April 3, 1998, in connection with the refinancing of its credit facilities,
the Company entered into a $163.0 million Receivables Securitization Program
pursuant to which the Company sells its eligible receivables (except for certain
excluded receivables, which initially includes all receivables from the Azerty
Business and Lagasse) to the Receivables Company, a wholly owned offshore,
bankruptcy-remote special purpose limited liability company, which in turn
ultimately transfers the eligible receivables to a third-party, multi-seller
asset-backed commercial paper program existing solely for the purpose of issuing
commercial paper rated A-1/P-1 or higher. The sale of trade receivables includes
not only those eligible receivables that existed on the closing date of the
Receivables Securitization Program, but also eligible receivables created
thereafter. The Company received approximately $160.0 million in proceeds from
the initial sale of certain eligible receivables on April 3, 1998. These
proceeds were used to repay a portion of the Term Loan Facilities and certain
other indebtedness under the Credit Agreement. Costs related to this facility
vary on a monthly basis and generally are related to certain interest rates.
These costs are included in the Consolidated Statements of Income, included
elsewhere herein, under the caption Other Expense.
The Chase Manhattan Bank acts as funding agent and, with other commercial banks
rated at least A-1/P-1, provides standby liquidity funding to support the
purchase of the receivables by the Receivables Company under a 364-day liquidity
facility. The proceeds from the Receivables Securitization Program were used to
reduce borrowings under the Company's Revolving Credit Facility. The Receivables
Company retains an interest in the eligible receivables transferred to the third
party. As a result of the Receivables Securitization Program, the balance sheet
assets of the Company as of June 30, 1999, exclude approximately $145.9 million
of accounts receivable sold to the Receivables Company.
- 17 -
<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:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
1999 1998
-------- ---------
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 42,245 $ 264,597
Net cash used in investing activities (13,070) (124,220)
Net cash used in financing activities (31,470) (131,017)
</TABLE>
Net cash provided by operating activities during the first six months of 1999
decreased to $42.2 million from $264.6 million in the comparable prior-year
period. This decrease was primarily due to the initial sale of $160.0 million of
certain accounts receivable in 1998, an increase in accounts receivable during
1999 and a decrease in accounts payable during 1999.
Net cash used in investing activities during the first six months of 1999 was
$13.1 million compared with $124.2 million used in the first six months of 1998.
The cash used in investing activities in 1998 included the acquisition of the
Azerty businesses for $115.7 million. Capital expenditures for the six months
ended June 30, 1999 totaled $16.3 million compared with $8.5 million in the same
period last year.
Net cash used in financing activities during the first six months of 1999 was
$31.5 million compared with $131.0 million for the first six months of 1998.
This decrease was due primarily to increased borrowings under the revolver and
lower debt principal payments (due to the elimination of the excess cash flow
payment required by the credit agreement in 1998) partially offset by the
repurchase of $49.6 million in common stock.
Year 2000 Modifications
The Company relies on both information technology ("IT") and non-IT computer
systems in its operations. The mission-critical IT systems include the
Company's operating and accounting systems, such as IT software applications
that allow the Company to maintain inventory and customer information and to
communicate with its suppliers and customers. The non-IT systems are
primarily telecommunications systems and the embedded microprocessors that
control warehouse and other building systems, such as inventory control
devices, security systems, lighting, fire and safety systems, and heating,
ventilating and air conditioning systems.
- 18 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In 1996, the Company began to address the year 2000 problem (that is, the fact
that some systems may fail or produce inaccurate results using dates in or
around the year 2000). The Company formed a year 2000 task force under its Chief
Information Officer to coordinate and implement measures designed to prevent
disruption in its business operations related to the year 2000 problem. The
Company believes that it completed the remediation of its mission-critical IT
applications software in December 1998 and is scheduled to complete an
end-to-end test of its IT systems by November 1999. The Company is assessing the
effect of the year 2000 problem on its non-IT systems and intends to replace
non-IT systems as necessary to become year 2000 ready by December 1999.
The Company also is working with its customers and suppliers to determine
whether the year 2000 problem will have an adverse effect on the Company's
relationship with them. Beginning with the Company's catalog for 1999, the
Company's product suppliers have assured the Company that their products will be
year 2000 ready. However, the Company does not control its suppliers and relies
on a variety of utilities, telecommunications companies and other suppliers in
order to continue its business.
The Company is analyzing its business to identify its most reasonably likely
worst case scenario and is developing contingency plans to address the risks
created by the year 2000 problem. These plans include procuring alternative
suppliers, when available, when the Company is able to conclude that an existing
supplier will not be year 2000 ready. The Company is scheduled to complete these
contingency plans by August 1999.
The Company's year 2000 remediation utilizes both internal and external
resources. During 1998 and 1997, the Company incurred approximately $1.5 million
and $1.4 million, respectively, related to this issue. For the six months ended
June 30, 1999, the Company incurred $0.8 million and expects to incur an
additional $0.7 million to $1.2 million of year 2000 remediation expenses during
the balance of the year. Funding for year 2000 expenses will be generated from
ongoing operations and available borrowings under the Credit Agreement.
There can be no assurance that year 2000 remediation by the Company or third
parties will be completed properly and timely, failure to do so could have a
material adverse effect on the Company's financial condition. The Company cannot
predict the actual effects to it of the year 2000 issue, which depends on
numerous uncertainties such as: (i) whether major third parties address this
issue properly and timely and (ii) whether broad-based or systemic economic
failures may occur. The Company currently is unaware of any events, trends, or
conditions regarding this issue that may have a material effect on the Company's
results of operations, liquidity, or financial position. If the year 2000 issue
is not resolved by January 1, 2000, the Company's results of operations or
financial condition could be materially adversely affected.
- 19 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Quantitative and Qualitative Disclosure About Market Risk
The Company is subject to market risk associated principally with changes in
interest rates and foreign currency exchange rates. Interest rate exposure is
principally limited to the Company's outstanding long-term debt at June 30,
1999, of $333.2 million and $145.9 million of receivables sold under the
Receivables Securitization Program, whose discount rate varies with market
interest rates ("Receivables Exposure"). Approximately 42% of the outstanding
debt and Receivables Exposure are priced at interest rates that are fixed. The
remaining debt and Receivables Exposure is priced at interest rates that float
with the market. A 50 basis point movement in interest rates would result in an
approximate $1.4 million annualized increase or decrease in interest expense,
loss on the sale of certain accounts receivable and cash flows. The Company has
entered into interest rate collar agreements, under which the interest rates on
$200.0 million of floating rate debt can vary between LIBOR rates of 5.2% and
8.0%. The Company will from time to time enter into interest rate swaps or
collars on its debt. The Company does not use derivative financial or commodity
instruments for trading purposes. Typically, the use of such derivative
instruments is limited to interest rate swaps or collars on the Company's
outstanding long-term debt. The Company's exposure related to such derivative
instruments is, in the aggregate, not material to the Company's financial
position, results of operations and cash flows.
The Company's foreign currency exchange rate risk is limited principally to the
Mexican Peso, Canadian Dollar, Italian Lira, as well as product purchases from
Asian countries currently paid in U.S. dollars. Many of the products which the
Company sells in Mexico and Canada are purchased in U.S. dollars while the sale
is invoiced in the local currency. The Company's foreign currency exchange rate
risk is not material to the Company's financial position, results of operations
and cash flows. The Company has not previously hedged these transactions, but is
considering such a program, and may enter into such transactions when it
believes there is a clear financial advantage to do so.
- 20 -
<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 12, 1999, the following matter was voted on:
(a) Election of Directors
Each of the following members of the Board of Directors
was elected for the term listed below:
Class I Directors - term expiring in May 2002:
<TABLE>
<CAPTION>
Number of Votes
---------------------------------
For Withheld
---------- --------
<S> <C> <C>
-- Daniel J. Good 33,277,848 537,303
-- Max D. Hopper 33,162,494 652,657
-- James A. Johnson 33,289,442 525,709
</TABLE>
ITEM 5 OTHER INFORMATION
Not applicable
- 21 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
(continued)
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number
-------
2 Not applicable
11 Not applicable
15.1 Letter regarding unaudited interim
financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27.1 Financial Data Schedule - United
Stationers Inc.
27.2 Financial Data Schedule - United
Stationers Supply Co.
99 Not applicable
(b) The Company filed a report on Form 8-K on August 6,
1999 reporting under Item 5 that the Company's Board of
Directors approved the adoption of a Stockholder Rights
Plan.
- 22 -
<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 9, 1999 /s/ Daniel H. Bushell
---------------- ---------------------
Daniel H. Bushell
Executive Vice President,
Chief Development Officer
and Chief Financial Officer
- 23 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(a) Exhibit
Number
-------
2 Not applicable
11 Not applicable
15.1 Letter regarding unaudited interim
financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27.1 Financial Data Schedule - United Stationers
Inc.
27.2 Financial Data Schedule - United Stationers
Supply Co.
99 Not applicable
- 24 -
<PAGE>
Exhibit 15.1
August 9, 1999
The Board of Directors
United Stationers Inc.
We are aware of the incorporation by reference in the Registration Statement on
Form S-8 of United Stationers Inc. for the registration of 8,200,000 shares of
its common stock of our report dated July 20, 1999 relating to the unaudited
condensed consolidated interim financial statements of United Stationers Inc.
which are included in its Form 10-Q for the quarter ended June 30, 1999.
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000355999
<NAME> UNITED STATIONERS INC
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 16,743 16,743
<SECURITIES> 0 0
<RECEIVABLES> 235,711 235,711
<ALLOWANCES> 11,647 11,647
<INVENTORY> 511,142 511,142
<CURRENT-ASSETS> 775,234 775,234
<PP&E> 280,363 280,363
<DEPRECIATION> 109,399 109,399
<TOTAL-ASSETS> 1,144,362 1,144,362
<CURRENT-LIABILITIES> 416,845 416,845
<BONDS> 0 0
0 0
0 0
<COMMON> 3,721 3,721
<OTHER-SE> 354,486 354,486
<TOTAL-LIABILITY-AND-EQUITY> 1,144,362 1,144,362
<SALES> 800,753 1,625,014
<TOTAL-REVENUES> 800,753 1,625,014
<CGS> 672,464 1,362,857
<TOTAL-COSTS> 672,464 1,362,857
<OTHER-EXPENSES> 90,789 184,970
<LOSS-PROVISION> 1,191 3,349
<INTEREST-EXPENSE> 7,643 15,110
<INCOME-PRETAX> 29,857 62,077
<INCOME-TAX> 12,540 26,072
<INCOME-CONTINUING> 17,317 36,005
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,317 36,005
<EPS-BASIC> 0.51 1.02
<EPS-DILUTED> 0.50 1.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000945633
<NAME> UNITED STATIONERS SUPPLY CO
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 16,743 16,743
<SECURITIES> 0 0
<RECEIVABLES> 235,711 235,711
<ALLOWANCES> 11,647 11,647
<INVENTORY> 511,142 511,142
<CURRENT-ASSETS> 775,234 775,234
<PP&E> 280,363 280,363
<DEPRECIATION> 109,399 109,399
<TOTAL-ASSETS> 1,114,362 1,114,362
<CURRENT-LIABILITIES> 416,845 416,845
<BONDS> 0 0
0 0
0 0
<COMMON> 3,721 3,721
<OTHER-SE> 354,486 354,486
<TOTAL-LIABILITY-AND-EQUITY> 1,144,362 1,144,362
<SALES> 800,753 1,625,014
<TOTAL-REVENUES> 800,753 1,625,014
<CGS> 672,464 1,362,857
<TOTAL-COSTS> 672,464 1,362,857
<OTHER-EXPENSES> 90,789 184,970
<LOSS-PROVISION> 1,191 3,349
<INTEREST-EXPENSE> 7,643 15,110
<INCOME-PRETAX> 29,857 62,077
<INCOME-TAX> 12,540 26,072
<INCOME-CONTINUING> 17,317 36,005
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,317 36,005
<EPS-BASIC> 0.51 1.02
<EPS-DILUTED> 0.50 1.00
</TABLE>
