<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
--- SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
-------------
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)
<TABLE>
<CAPTION>
<S> <C> <C>
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)
</TABLE>
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 August 8, 2000, United Stationers Inc. had outstanding 34,241,897 shares of
Common Stock, par value $0.10 per share. On August 8, 2000, 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, 2000
INDEX
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
IMPORTANT EXPLANATORY NOTE 1
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
for the Three and Six Months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION 21
---------------------------
SIGNATURE 23
INDEX TO EXHIBITS 24
<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, 2000, and the related condensed
consolidated statements of income for the three month and six month periods
ended June 30, 2000 and 1999, and the condensed consolidated statements of cash
flows for the six month periods ended June 30, 2000 and 1999. 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 auditing standards generally accepted in the United States,
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 accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of United
Stationers Inc. as of December 31, 1999, 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, 2000, 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, 1999, 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 21, 2000
- 2 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27,673 $ 18,993
Accounts receivable, net 300,428 263,432
Inventories 559,610 607,682
Other current assets 20,497 24,424
------------ ------------
Total current assets 908,208 914,531
Property, plant and equipment, net 171,991 167,544
Goodwill, net 178,818 181,456
Other 15,611 16,372
------------ ------------
Total assets $ 1,274,628 $ 1,279,903
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 325,228 $ 346,558
Accrued liabilities 124,285 142,858
Current maturities of long-term debt 36,095 9,567
------------ ------------
Total current liabilities 485,608 498,983
Deferred income taxes 29,531 28,926
Long-term obligations 311,386 345,985
------------ ------------
Total liabilities 826,525 873,894
Stockholders' equity:
Common stock, $0.10 par value, authorized 100,000,000 shares,
issued 37,213,207 shares in 2000 and 1999 3,721 3,721
Additional paid-in capital 303,239 304,288
Treasury stock, at cost - 2,999,453 shares in 2000 and
3,220,481 shares in 1999 (45,758) (49,145)
Retained earnings 188,477 148,262
Accumulated translation adjustment (1,576) (1,117)
------------ ------------
Total stockholders' equity 448,103 406,009
------------ ------------
Total liabilities and stockholders' equity $ 1,274,628 $ 1,279,903
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
- 3 -
<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,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 928,927 $ 800,753
Cost of goods sold 780,588 672,464
------------ ------------
Gross profit 148,339 128,289
Operating expenses:
Warehousing, marketing and
administrative expenses 101,973 88,531
------------ ------------
Income from operations 46,366 39,758
Interest expense 5,557 7,643
Other expense 2,735 2,258
------------ ------------
Income before income taxes and extraordinary item 38,074 29,857
Income taxes 15,306 12,540
------------ ------------
Income before extraordinary item 22,768 17,317
Extraordinary item - loss on early retirement of debt,
net of tax benefit of $4,248 6,476 --
------------ ------------
Net income $ 16,292 $ 17,317
============ ============
Net income (loss) per common share:
Income before extraordinary item $ 0.67 $ 0.51
Extraordinary item (0.19) --
------------ ------------
Net income per share $ 0.48 $ 0.51
============ ============
Average number of common shares outstanding (in thousands) 34,153 34,078
Net income (loss) per common share-assuming dilution:
Income before extraordinary item $ 0.65 $ 0.50
Extraordinary item (0.18) --
------------ ------------
Net income per share $ 0.47 $ 0.50
============ ============
Average number of common shares outstanding - assuming
dilution (in thousands) 34,982 34,476
</TABLE>
See notes to condensed consolidated financial statements.
- 4 -
<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,
-----------------------------
2000 1999
------------- ------------
<S> <C> <C>
Net sales $ 1,908,285 $ 1,625,014
Cost of goods sold 1,602,154 1,362,857
------------ ------------
Gross profit 306,131 262,157
Operating expenses:
Warehousing, marketing and
administrative expenses 209,361 180,513
------------ ------------
Income from operations 96,770 81,644
Interest expense 12,971 15,110
Other expense 5,381 4,457
------------ ------------
Income before income taxes and extraordinary item 78,418 62,077
Income taxes 31,726 26,072
------------ ------------
Income before extraordinary item 46,692 36,005
Extraordinary item - loss on early retirement of debt,
net of tax benefit of $4,248 6,476 --
------------ ------------
Net income $ 40,216 $ 36,005
============ ============
Net income (loss) per common share:
Income before extraordinary item $ 1.37 $ 1.02
Extraordinary item (0.19) --
------------ ------------
Net income per share $ 1.18 $ 1.02
============ ============
Average number of common shares outstanding (in thousands) 34,086 35,451
Net income (loss) per common share-assuming dilution:
Income before extraordinary item $ 1.34 $ 1.00
Extraordinary item (0.19) --
------------ ------------
Net income per share $ 1.15 $ 1.00
============ ============
Average number of common shares outstanding - assuming
dilution (in thousands) 34,881 35,938
</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,
--------------------------
2000 1999
--------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 40,216 $ 36,005
Depreciation and amortization 14,930 14,117
Amortization of capitalized financing costs 855 847
Extraordinary item - early retirement of debt 10,724 --
Changes in operating assets and liabilities (35,893) (8,724)
------------ ------------
Net cash provided by operating activities 30,832 42,245
Cash Flows From Investing Activities:
Capital expenditures (15,378) (16,280)
Proceeds from disposition of property, plant
and equipment -- 3,210
------------ ------------
Net cash used in investing activities (15,378) (13,070)
Cash Flows From Financing Activities:
Retirements and principal payments on debt (104,334) (2,222)
Borrowings under financing agreement 150,000 --
Net (repayments) borrowings under revolver (53,000) 20,000
Issuance of common shares 3,008 2,466
Payment of employee withholding tax related to
stock option exercises (1,989) (2,433)
Repurchase of common stock -- (49,600)
Other (459) 319
------------ ------------
Net cash used in financing activities (6,774) (31,470)
------------ ------------
Net change in cash and cash equivalents 8,680 (2,295)
Cash and cash equivalents, beginning of period 18,993 19,038
------------ ------------
Cash and cash equivalents, end of period $ 27,673 $ 16,743
============ ============
Other Cash Flow Information:
Income taxes paid $ 32,756 $ 25,753
Interest paid 16,557 14,044
Discount on the sale of accounts receivable 5,142 4,328
</TABLE>
See notes to condensed consolidated financial statements.
- 6 -
<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, 1999. These
financial statements have been prepared in accordance with the rules and
regulations of the United States Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States 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, 1999 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.
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, janitorial and sanitation supply distributors,
e-tailers, warehouse clubs, mail order houses and mass merchandisers. For the
six months ended June 30, 2000, no single customer accounted for more than 10%
of the Company's net sales. However, U.S. Office Products Co. accounted for
approximately 8% of the Company's net sales. 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.
The Order People:
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE
("TOP") to operate as its third-party fulfillment provider for product
categories beyond office products. TOP will offer a full set of services
specifically designed to support a wide variety of third-party service needs
including an e-commerce business model. By combining the Company's
state-of-the-art distribution network with a multi-channel Customer Relationship
Management (CRM) capability, clients have the ability to custom design their
order fulfillment experience and then monitor and measure consumer satisfaction.
The Company has extensive experience and ability to pick, pack, ship and track
products with a wide range of physical attributes, making the Company an ideal
partner for e-commerce merchants serving both business to business (B2B) and
business to consumer (B2C), catalog merchants, retailers, and manufacturers. TOP
enables the Company to leverage its core competencies in a broader context for
third-party fulfillment.
- 7 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In connection with TOP, the Company plans to open a new 654,000 state-of-the-art
distribution air hub in Memphis, Tennessee in October 2000. In addition, the
Company signed a lease for a 300,000 square foot distribution facility in
Harrisburg, Pennsylvania, which should be operational in March 2001. Both
distribution facilities will be dedicated to serving TOP's clients.
On July 3, 2000, the Company acquired all of the capital stock of CallCenter
Services, Inc from Corporate Express, a Buhrmann Company. The preliminary
purchase price, subject to final review, was $11.3 million financed through the
Company's Revolving Credit Facility. CallCenter Services is a customer
outsourcing service company. CallCenter Services has two inbound call centers,
in Wilkes-Barre, Pennsylvania and Salisbury, Maryland, with a total of up to
1,000 seats. This acquisition will complement and significantly enhance the
third-party fulfillment business of TOP. This operation is projected to generate
approximately $20.0 million in annual service fee revenue. The acquisition will
be accounted for using the purchase method of accounting and, accordingly, the
purchase price will be allocated to the assets purchased and the liabilities
assumed, based upon the estimated fair values at the date of acquisition. The
pro forma effects of the acquisition are not expected to be material.
Azerty Canada:
On July 7, 2000, the Company completed the acquisition of the net assets of
Azerty Canada from Miami Computer Supply Corporation. The preliminary purchase
price, subject to final review of the assets acquired and the liabilities
assumed, was $31.5 million (U.S. dollars) financed through the Company's
Revolving Credit Facility. Azerty Canada is a specialty wholesale distributor of
computer consumables, peripherals and accessories which generates approximately
$115.0 million (U.S. dollars) in annual sales. The acquisition will be accounted
for using the purchase method of accounting and, accordingly, the purchase price
will be allocated to the assets purchased and the liabilities assumed, based
upon the estimated fair values at the date of acquisition. The pro forma effects
of the acquisition are not expected to be material.
3. COMPREHENSIVE INCOME (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income $ 16,292 $ 17,317 $ 40,216 $ 36,005
Unrealized currency translation adjustment (820) 76 (459) 311
-------- -------- -------- --------
Comprehensive income $ 15,472 $ 17,393 $ 39,757 $ 36,316
======== ======== ======== ========
</TABLE>
4. 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.
- 8 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NUMERATOR:
Income before extraordinary item $ 22,768 $ 17,317 $ 46,692 $ 36,005
Extraordinary item (6,476) -- (6,476) --
---------- ---------- ---------- ----------
Net income $ 16,292 $ 17,317 $ 40,216 $ 36,005
========== ========== ========== ==========
DENOMINATOR (in thousands):
Denominator for basic earnings per share -
Weighted average shares 34,153 34,078 34,086 35,451
Effect of dilutive securities:
Employee stock options 829 398 795 487
---------- ---------- ---------- ----------
Denominator for diluted earnings per share -
Adjusted weighted average shares
and assumed conversions 34,982 34,476 34,881 35,938
========== ========== ========== ==========
Earnings (loss) per common share:
Basic
Income before extraordinary item $ 0.67 $ 0.51 $ 1.37 $ 1.02
Extraordinary item (0.19) -- (0.19) --
---------- ---------- ---------- ----------
Net income per share $ 0.48 $ 0.51 $ 1.18 $ 1.02
========== ========== ========== ==========
Diluted
Income before extraordinary item $ 0.65 $ 0.50 $ 1.34 $ 1.00
Extraordinary item (0.18) -- (0.19) --
---------- ---------- ---------- ----------
Net income per share $ 0.47 $ 0 .50 $ 1.15 $ 1.00
========== ========== ========== ==========
</TABLE>
- 9 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. LONG-TERM DEBT
Long-term debt consisted of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Revolver $ -- $ 53,000
Tranche A term loan, due in installments until March 31, 2004 49,540 53,711
Tranche A-1 term loan, due in installments until June 30, 2005 150,000 --
8.375% Senior Subordinated Notes, due April 15, 2008 100,000 100,000
12.75% Senior Subordinated Notes, due May 1, 2005 -- 100,000
Industrial development bonds, at market interest rates,
maturing at various dates through 2011 14,300 14,300
Industrial development bonds, at 66% to 78% of prime,
maturing at various dates through 2004 15,500 15,500
Other long-term debt 253 416
------------ ------------
Subtotal 329,593 336,927
Less - current maturities (36,095) (9,567)
------------ ------------
Total $ 293,498 $ 327,360
============ ============
</TABLE>
The prevailing prime interest rate at June 30, 2000 and December 31, 1999 was
9.5% and 8.5%, respectively.
On June 30, 2000, the Company entered into the Third Amended and Restated
Revolving Credit and Term Loan Agreement (the "Credit Agreement"). The Credit
Agreement, among other things, provides for an additional $150.0 million, five
year term loan facility (the "Tranche A-1 Facility").
At June 30, 2000, the available credit under the Credit Agreement included
$199.5 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 8.375% Senior Subordinated Notes
due 2008, and $29.8 million of industrial revenue bonds.
The Term Loan Facilities consist of a $49.5 million Tranche A term loan facility
(the "Tranche A Facility") and a $150.0 million Tranche A-1 Facility. Amounts
outstanding under the Tranche A Facility are to be repaid in 15 quarterly
installments ranging from $2.6 million at September 30, 2000 to $3.7 million at
March 31, 2004. Amounts outstanding under the Tranche A-1 Facility are to be
repaid in 20 quarterly installments ranging from $6.3 million at September 30,
2000 to $7.8 million at June 30, 2005.
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. The Company had zero outstanding under the Revolving
Credit Facility at June 30, 2000.
- 10 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12.75% Senior Subordinated Notes:
On May 2, 2000, the Company redeemed the remaining $100.0 million of its 12.75%
Senior Subordinated Notes (the "12.75% Notes"). The 12.75% Notes were redeemed
at the redemption price of 106.375% of the principal amount plus accrued
interest. As a result, the Company recorded an after-tax extraordinary charge of
approximately $6.5 million. This charge includes approximately $2.6 million
(after-tax) related to the write-off of capitalized costs. The redemption was
funded through the Company's Revolving Credit Facility. The Company's annual
interest expense saving will be approximately $4.0 million based on a 325 basis
point reduction to the interest rate and the elimination of the amortization of
capitalized costs.
8.375% Senior Subordinated Notes:
The 8.375% Senior Subordinated Notes (the "8.375% Notes") were issued on April
15, 1998, pursuant to the 8.375% Notes Indenture. As of June 30, 2000, 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 (as defined in
the 8.375% Notes Indenture) 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.
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
USSC. The Azerty Guarantor Subsidiaries and Azerty de Mexico, S.A. de C.V.
(collectively, the "Azerty Business") were acquired on April 3, 1998.
Summarized below is the combined financial data for the Azerty Business
(subsequent to its acquisition by USSC) and Lagasse. Summarized financial data
for the three and six months ended June 30, 2000 reflects the operations of
Lagasse and the Azerty Business.
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Balance Sheet Data:
Current assets $ 261,846 $ 251,323
Total assets 377,944 368,521
Current liabilities 127,072 99,679
Total liabilities 127,451 100,183
</TABLE>
- 11 -
<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,
-------------------------------- ----------------------------------
2000 1999 2000 1999
---------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales $241,739 $ 196,353 $478,313 $ 372,063
Gross margin 23,817 19,271 46,238 37,355
Operating income 14,565 7,197 28,239 13,926
Net income 7,669 4,149 15,218 7,890
</TABLE>
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the United States Securities and Exchange Commission issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides the staff's views in applying generally accepted
accounting principles to selected revenue recognition issues, as well as
examples of how the staff applies revenue recognition guidance to specific
circumstances. The Company does not expect the application of SAB 101 to have a
material impact on the Company's financial position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and 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. In July 1999, FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of
SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. Earlier application is permitted. In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." SFAS No. 138 amends certain terms and conditions of SFAS No.
133. The Company anticipates that SFAS No. 133 and 138 will not have a
material impact on its consolidated financial statements.
- 12 -
<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, customer credit risk, dependence on key personnel and
general economic conditions. A description of these factors, as well as other
factors that could affect the Company's business, is set forth in certain
filings by the Company with the Securities and Exchange Commission. 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.
The Order People:
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE
("TOP") to operate as its third-party fulfillment provider for product
categories beyond office products. TOP will offer a full set of services
specifically designed to support a wide variety of third-party service needs
including an e-commerce business model. By combining the Company's
state-of-the-art distribution network with a multi-channel Customer Relationship
Management (CRM) capability, clients have the ability to custom design their
order fulfillment experience and then monitor and measure consumer satisfaction.
The Company has extensive experience and ability to pick, pack, ship and track
products with a wide range of physical attributes, making the Company an ideal
partner for e-commerce merchants serving both business to business (B2B) and
business to consumer (B2C), catalog merchants, retailers, and manufacturers. TOP
enables the Company to leverage its core competencies in a broader context for
third-party fulfillment.
In connection with TOP, the Company plans to open a new 654,000 state-of-the-art
distribution air hub in Memphis, Tennessee in October 2000. In addition, the
Company signed a lease for a 300,000 square foot distribution facility in
Harrisburg, Pennsylvania, which should be operational in March 2001. Both
distribution facilities will be dedicated to serving TOP's clients.
- 13 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On July 3, 2000, the Company acquired all of the capital stock of CallCenter
Services, Inc. from Corporate Express, a Buhrmann Company. The preliminary
purchase price, subject to final review, was $11.3 million financed through the
Company's Revolving Credit Facility. CallCenter Services is a customer
outsourcing service company. CallCenter Services has two inbound call centers,
in Wilkes-Barre, Pennsylvania and Salisbury, Maryland, with a total of up to
1,000 seats. This acquisition will complement and significantly enhance the
third-party fulfillment business of TOP. This operation is projected to generate
approximately $20.0 million in annual service fee revenue. The acquisition will
be accounted for using the purchase method of accounting and, accordingly, the
purchase price will be allocated to the assets purchased and the liabilities
assumed, based upon the estimated fair values at the date of acquisition. The
pro forma effects of the acquisition are not expected to be material.
Azerty Canada:
On July 7, 2000, the Company completed the acquisition of the net assets of
Azerty Canada from Miami Computer Supply Corporation. The preliminary purchase
price, subject to final review of the assets acquired and the liabilities
assumed, was $31.5 million (U.S. dollars) financed through the Company's
Revolving Credit Facility. Azerty Canada is a specialty wholesale distributor of
computer consumables, peripherals and accessories which generates approximately
$115.0 million (U.S. dollars) in annual sales. The acquisition will be accounted
for using the purchase method of accounting and, accordingly, the purchase price
will be allocated to the assets purchased and the liabilities assumed, based
upon the estimated fair values at the date of acquisition. The pro forma effects
of the acquisition are not expected to be material.
SECOND QUARTER ENDED JUNE 30, 2000 COMPARED WITH THE
SECOND QUARTER ENDED JUNE 30, 1999
NET SALES. Net sales for the second quarter of 2000 totaled $928.9 million, up
16.0%, compared with $800.8 million in the first quarter of 1999. The Company
experienced sales growth in all product categories, customer channels, and
across all geographies.
The Company's sales into the office furniture market grew nearly 23%, compared
with the prior year quarter. The Company is focusing on this product category
recognizing the opportunity for increased sales penetration with existing
customers and introducing new marketing programs to reach new customers. The
continued strong sales growth in this category resulted from increased volume
across all customer channels.
The janitorial and sanitation supply product category continued to achieve
strong growth rates. These products are primarily distributed through the
Lagasse operating unit, which achieved a growth rate of approximately 30%. This
increase is based on continued market expansion into a fragmented industry. The
growth within customer channels is mainly concentrated in national accounts,
mail order, and within independent dealers.
Traditional office products experienced a growth rate in the low-teens versus
the prior year quarter. The Company has been exceptionally successful with
national accounts and mail order partners.
- 14 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The computer supplies category remained strong, posting a growth rate in the low
teens over the prior year quarter. This is a very competitive market with
relatively low margins. However, based on the Company's scale and efficient
distribution capabilities, sales will continue to increase as relationships with
customers are strengthened. National accounts, mail order, and emerging channels
continued to show strong growth.
GROSS MARGIN. Gross margin remained flat at 16.0% in the second quarter of 2000
and 1999.
OPERATING EXPENSES. Operating expenses as a percent of net sales were 11.0% in
the second quarter of 2000 and 1999. The Company continues to take cost out of
the core business by utilizing best practices across all facilities, employing
more advanced technology, and continuing to leverage its infrastructure. This
has allowed the Company to invest in the future by expanding its order
fulfillment capabilities. The Company established TOP to operate as its
third-party fulfillment provider for product categories beyond office products.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
remained flat at 5.0%.
INTEREST EXPENSE. Interest expense as a percent of net sales was 0.6% in 2000,
compared with 1.0% in 1999. This reduction reflects the Company's strong cash
flow and the continued leveraging of interest costs against higher sales. These
transactions were partially offset by slightly higher interest rates on variable
rate debt.
OTHER EXPENSE. Other expense as a percent of net sales was 0.3% in 2000 and
1999. This expense represents the costs associated with the sale of certain
trade accounts receivable through the Receivables Securitization Program (as
defined). Costs related to the Receivables Securitization Program 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 4.1% from 3.7% in
1999.
INCOME TAXES. Income tax expense as a percent of net sales increased to 1.6% in
2000 from 1.5% in 1999. The effective tax rate declined to 40.2% in 2000 from
42.0% in 1999 due to a change in the mix of pre-tax earnings between states and
higher pre-tax earnings with relatively constant nondeductible expenses, such as
goodwill.
INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item totaled $22.8
million, or 2.5% of net sales, compared with $17.3 million, or 2.2% of net
sales. Earnings per share assuming dilution on income before extraordinary item
increased 30% to $0.65 from $0.50 last year.
EXTRAORDINARY ITEM. On May 2, 2000, the Company redeemed the remaining $100.0
million of its 12.75% Senior Subordinated Notes (the "12.75% Notes"). The 12.75%
Notes were redeemed at the redemption price of 106.375% of the principal amount
plus accrued interest. As a result, the Company recorded an after-tax
extraordinary charge of approximately $6.5 million, or 0.7% of net sales. This
charge includes approximately $2.6 million (after-tax) related to the write-off
of capitalized costs.
NET INCOME. Net income as a percent of net sales declined to 1.8% in 2000,
compared with 2.2% in 1999.
- 15 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE
SIX MONTHS ENDED JUNE 30, 1999
NET SALES. Net sales for the first six months of 2000 totaled $1.9 billion, up
17.4%, or 15.6% on equivalent workdays, compared with $1.6 billion in the first
six months of 1999. The Company experienced sales growth in all product
categories, customer channels, and across all geographies.
GROSS MARGIN. Gross margin declined to 16.0% in the first six months of 2000,
compared with 16.1% in 1999. This decline reflects product mix and incremental
freight costs. Pricing margin has been impacted by higher dealer rebates due to
increased sales and strong growth among the Company's larger dealers who receive
a higher rebate percentage due to volume. However, the increased volume also
resulted in higher vendor allowances.
OPERATING EXPENSES. Operating expenses as a percent of net sales declined to
10.9% in the first six months of 2000, compared with 11.1% in the prior year.
This decline reflects the Company's ability to gain operating leverage. At the
same time, the higher than anticipated sales volume resulted in higher payroll
and other warehouse expenses. The Company continues to take cost out of the core
business by utilizing best practices across all facilities, employing more
advanced technology, and continuing to leverage its infrastructure. This has
allowed the Company to invest in the future by expanding its order fulfillment
capabilities. The Company established TOP to operate as its third-party
fulfillment provider for product categories beyond office products.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 5.1% in 2000 from 5.0% in 1999.
INTEREST EXPENSE. Interest expense as a percent of net sales was 0.7% in 2000,
compared with 0.9% in 1999. This reduction reflects the Company's strong cash
flow and the continued leveraging of interest costs against higher sales. These
transactions were partially offset by slightly higher interest rates on variable
rate debt.
OTHER EXPENSES. Other expense as a percent of net sales was 0.3% in 2000 and
1999. This expense represents the costs associated with the sale of certain
trade accounts receivable through the Receivables Securitization Program (as
defined). Costs related to the Receivables Securitization Program 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 4.1% in 2000 from 3.8%
in 1999.
INCOME TAXES. Income tax expense as a percent of net sales was 1.7% in 2000,
compared with 1.6% in 1999. The effective tax rate declined to 40.5% in 2000
from 42.0% in 1999 due to a change in the mix of pre-tax earnings between states
and higher pre-tax earnings with relatively constant nondeductible expenses,
such as goodwill.
INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item totaled $46.7
million, or 2.4% of net sales, compared with $36.0 million, or 2.2% of net
sales. Earnings per share assuming dilution on income before extraordinary item
increased 34% to $1.34 from $1.00 last year.
- 16 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXTRAORDINARY ITEM. On May 2, 2000, the Company redeemed the remaining $100.0
million of its 12.75% Senior Subordinated Notes (the "12.75% Notes"). The 12.75%
Notes were redeemed at the redemption price of 106.375% of the principal amount
plus accrued interest. As a result, the Company recorded an after-tax
extraordinary charge of approximately $6.5 million, or 0.3% of net sales. This
charge includes approximately $2.6 million (after-tax) related to the write-off
of capitalized costs.
NET INCOME. Net income as a percent of net sales declined to 2.1% in 2000,
compared with 2.2% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Credit Agreement
On June 30, 2000, the Company entered into the Third Amended and Restated
Revolving Credit and Term Loan Agreement (the "Credit Agreement"). The Credit
Agreement, among other things, provides for an additional $150.0 million, five
year term loan facility (the "Tranche A-1 Facility").
At June 30, 2000, the available credit under the Credit Agreement included
$199.5 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 8.375% Senior Subordinated Notes
due 2008, and $29.8 million of industrial revenue bonds.
The Term Loan Facilities consist of a $49.5 million Tranche A term loan facility
(the "Tranche A Facility") and a $150.0 million Tranche A-1 Facility. Amounts
outstanding under the Tranche A Facility are to be repaid in 15 quarterly
installments ranging from $2.6 million at September 30, 2000 to $3.7 million at
March 31, 2004. Amounts outstanding under the Tranche A-1 Facility are to be
paid in 20 quarterly installments ranging from $6.3 million at September 30,
2000 to $7.8 million at June 30, 2005.
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. The Company had zero outstanding under the Revolving
Credit Facility at June 30, 2000.
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 (excluding TOP) and certain of the direct and
indirect foreign 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 TOP, and excluding 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. The interest rate is
based on the ratio of total debt to earnings before interest, taxes,
depreciation, and amortization ("EBITDA"), excluding the EBITDA of TOP. The
Tranche A Facility and Revolving Credit Facility bear interest at the prime rate
plus 0% to 1.00%, or, at the Company's option, the London Interbank Offering
Rate ("LIBOR") plus 1.25% to 2.25%. The Tranche A-1 Facility bears interest at
the prime rate plus 0.25% to 1.25%, or, at the Company's option, LIBOR plus
1.50% to 2.50%.
- 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 Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financings of this type.
At June 30, 2000, the Company was in compliance with all covenants.
The right of United to participate in any distribution of earnings or assets of
USSC is subject to the prior claims of USSC's creditors. 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
On May 2, 2000, the Company redeemed the remaining $100.0 million of its 12.75%
Senior Subordinated Notes (the "12.75% Notes"). The 12.75% Notes were redeemed
at the redemption price of 106.375% of the principal amount plus accrued
interest. As a result, the Company recorded an after-tax extraordinary charge of
approximately $6.5 million in the second quarter of 2000. This charge includes
approximately $2.6 million (after-tax) related to the write-off of capitalized
costs. The redemption was funded through the Company's Revolving Credit
Facility. The Company's annual interest expense saving will be approximately
$4.0 million based on a 325 basis point reduction to the interest rate and the
elimination of the amortization of capitalized costs.
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, 2000 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 (as defined in 8.375%
Notes Indenture) on a senior subordinated basis. The Notes are redeemable on
April 15, 2003 in whole or in part, at a redemption price of 104.188%
(percentage of principal amount). 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.
- 18 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Receivables Securitization Program
The Receivables Securitization Program allows the Company to sell eligible
receivables (except for certain excluded receivables, which initially includes
all receivables from the Azerty Business and Lagasse) to the USS Receivables
Company, Ltd. (the "Receivables Company"), a wholly owned offshore,
bankruptcy-remote special purpose limited liability company. This company 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. At June 30, 2000, the Company had $146.0 million
of off-balance-sheet financing provided by this program. Proceeds from this
financing were used to repay certain indebtedness. 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 under
the caption Other Expense.
Affiliates of PNC Bank and Chase Manhattan Bank act as funding agents. Other
commercial banks, in agreement with Chase Manhattan Bank, rated at least
A-1/P-1, provide 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, 2000 exclude approximately $146.0 million
of accounts receivable sold to the Receivables Company.
Cash Flow
The statements of cash flows for the Company for the periods indicated are
summarized below:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
2000 1999
--------- ---------
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 30,832 $ 42,245
Net cash used in investing activities (15,378) (13,070)
Net cash used in financing activities (6,774) (31,470)
</TABLE>
Net cash provided by operating activities for the six months ended June 30,
2000 decreased to $30.8 million from $42.2 million in the comparable prior
year period. This decrease was primarily due to a $17.1 million decrease in
accrued liabilities and a $16.4 million increase in accounts receivable
partially offset by a $10.7 million increase in income before
extraordinary item, a $4.3 million decrease in inventory and a $5.9 million
decrease in prepaid expenses.
- 19 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash used in investing activities for the six months ended June 30, 2000 was
$15.4 million compared with $13.1 million used in the prior period. This
increase is due to lower proceeds from the sale of property, plant, and
equipment totaling $3.2 million partially offset by a $0.9 million reduction in
capital expenditures.
Net cash used in financing activities for the six months ended June 30, 2000 was
$6.8 million compared with $31.5 million in the prior period. This decrease was
primarily due to borrowings under the Tranche A-1 Facility of $150.0 million in
2000 and $50.0 million in financing used during 1999 to repurchase common stock.
These transactions were partially offset by net repayments of $53.0 million
under the Revolving Credit Facility in the current year compared with $20.0
million of net borrowings last year and the repayment of the $100.0 million
12.75% Notes in May 2000.
Year 2000 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, 2000
of $329.6 million and $146.0. million of receivables sold under the Receivables
Securitization Program, whose discount rate varies with market interest rates
("Receivables Exposure"). Approximately 21% 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 $1.9 million annualized increase or decrease in interest expense,
loss on the sale of certain accounts receivable and cash flows.
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 10, 2000, the following matters were voted on:
(a) Election of Directors: For the election of the following
persons to serve as directors of the corporation for a three
year term expiring in 2003, or until their respective
successors shall be duly elected and qualified:
Class II Directors:
<TABLE>
<CAPTION>
Number of Votes
--------------------------------
For Withheld
-------------- --------------
<S> <C> <C>
-- Frederick B. Hegi 26,815,451 185,272
-- Randall W. Larrimore 23,546,110 3,454,613
-- Ilene S. Gordon 26,552,609 448,114
</TABLE>
(b) Approval of 2000 Management Equity Plan:
<TABLE>
<CAPTION>
Number of Votes
----------------------------------------------------
For Against Abstain
-------------- -------------- --------------
<S> <C> <C>
14,750,845 8,685,773 61,203
</TABLE>
(c) Approval of Management Incentive Plan:
<TABLE>
<CAPTION>
Number of Votes
----------------------------------------------------
For Against Abstain
-------------- -------------- --------------
<S> <C> <C>
25,819,003 1,131,016 50,703
</TABLE>
- 21 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 5 OTHER INFORMATION
Not applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
Number
-------
2 Not applicable
11 Not applicable
10.99 Third Amended and Restated Credit Agreement, dated June 29,
2000, among USSC, the Company, the lenders parties thereto,
and The Chase Manhattan Bank, as administrative agent.
10.990 Third Amended and Restated Security Agreement, dated June 29,
2000, between USSC and The Chase Manhattan Bank, as
administrative agent.
10.991 Amended and Restated Subsidiary Guarantee and Security
Agreement, dated June 29, 2000, between each of the
Subsidiaries of USSC and the Chase Manhattan Bank, as
administrative agent.
10.992 Second Amended and Restated Pledge Agreement, dated June
29, 2000, between United and the Chase Manhattan Bank, as
administrative agent.
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
- 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 11, 2000 /s/ Randall W. Larrimore
---------------- --------------------------------------------
Randall W. Larrimore
Director, President, Chief Executive Officer
and Interim Chief Financial Officer
- 23 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
(a) Exhibit
Number
--------
2 Not applicable
11 Not applicable
10.99 Third Amended and Restated Credit Agreement, dated
June 29, 2000, among USSC, the Company, the lenders
parties thereto, and The Chase Manhattan Bank, as
administrative agent.
10.990 Third Amended and Restated Security Agreement, dated
June 29, 2000, between USSC and The Chase Manhattan
Bank, as administrative agent.
10.991 Amended and Restated Subsidiary Guarantee and
Security Agreement, dated June 29, 2000, between each
of the Subsidiaries of USSC and the Chase Manhattan
Bank, as administrative agent.
10.992 Second Amended and Restated Pledge Agreement, dated
June 29, 2000, between United and the Chase
Manhattan Bank, as administrative agent.
15.1 Letter regarding unaudited interim financial
information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
2 Not applicable
27.1 Financial Data Schedule - United Stationers Inc.
27.2 Financial Data Schedule - United Stationers Supply
Co.
99 Not applicable
- 24 -
