<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 September 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
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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.
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(Exact name of registrant as specified in its charter)
United Stationers Inc.: Delaware United Stationers Inc.: 36-3141189
United Stationers Supply Co.: Illinois United Stationers Supply Co.:36-2431718
---------------------------- -------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 East Golf Road, Des Plaines, Illinois 60016-1267
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 699-5000
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
United Stationers Inc.: Yes ( X ) No ( )
United Stationers Supply Co.: Yes ( X ) No ( )
On November 9, 2000, United Stationers Inc. had outstanding 34,237,400 shares of
Common Stock, par value $0.10 per share. On November 9, 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 SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
IMPORTANT EXPLANATORY NOTE 1
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income
for the Three and Nine Months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II - OTHER INFORMATION 22
---------------------------
SIGNATURE 23
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INDEX TO EXHIBITS 24
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</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 September 30, 2000, and the
related condensed consolidated statements of income for the three month and
nine month periods ended September 30, 2000 and 1999, and the condensed
consolidated statements of cash flows for the nine month periods ended
September 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
October 20, 2000
- 2 -
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,525 $ 18,993
Accounts receivable, net 342,977 263,432
Inventories 597,484 607,682
Other current assets 24,348 24,424
----------- -----------
Total current assets 987,334 914,531
Property, plant and equipment, net 186,059 167,544
Goodwill, net 181,326 181,456
Other 18,650 16,372
----------- -----------
Total assets $ 1,373,369 $ 1,279,903
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 377,577 $ 346,558
Accrued liabilities 152,273 142,858
Current maturities of long-term debt 38,220 9,567
----------- -----------
Total current liabilities 568,070 498,983
Deferred income taxes 21,382 28,926
Long-term obligations 308,563 345,985
----------- -----------
Total liabilities 898,015 873,894
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 303,021 304,288
Treasury stock, at cost - 2,940,330 shares in 2000 and
3,220,481 shares in 1999 (44,851) (49,145)
Retained earnings 214,905 148,262
Accumulated translation adjustment (1,442) (1,117)
----------- -----------
Total stockholders' equity 475,354 406,009
----------- -----------
Total liabilities and stockholders' equity $ 1,373,369 $ 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
September 30,
-----------------------
2000 1999
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<S> <C> <C>
Net sales $998,976 $877,802
Cost of goods sold 835,080 733,752
-------- --------
Gross profit 163,896 144,050
Operating expenses:
Warehousing, marketing and administrative expenses 110,015 96,200
-------- --------
Income from operations 53,881 47,850
Interest expense 6,855 6,853
Other expense 2,834 2,575
-------- --------
Income before income taxes 44,192 38,422
Income taxes 17,765 16,129
-------- --------
Net income $ 26,427 $ 22,293
======== ========
Net income per common share:
Net income per share $ 0.77 $ 0.66
======== ========
Average number of common shares outstanding (in thousands) 34,239 33,970
Net income per common share-assuming dilution:
Net income per share $ 0.76 $ 0.65
======== ========
Average number of common shares outstanding (in thousands) 34,926 34,472
</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>
Three Months Ended
September 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net sales $2,907,261 $2,502,816
Cost of goods sold 2,437,234 2,096,609
---------- ----------
Gross profit 470,027 406,207
Operating expenses:
Warehousing, marketing and administrative expenses 319,376 276,713
---------- ----------
Income from operations 150,651 129,494
Interest expense 19,826 21,963
Other expense 8,215 7,032
---------- ----------
Income before income taxes and extraordinary item 122,610 100,499
Income taxes 49,491 42,201
---------- ----------
Income before extraordinary item 73,119 58,298
Extraordinary item - loss on early retirement of debt,
net of tax benefit of $4,248 6,476 --
---------- ----------
Net income $ 66,643 $ 58,298
========== ==========
Net income (loss) per common share:
Income before extraordinary item $ 2.14 $ 1.67
Extraordinary item (0.19) --
---------- ----------
Net income per share $ 1.95 $ 1.67
========== ==========
Average number of common shares outstanding (in thousands) 34,137 34,952
Net income (loss) per common share-assuming dilution:
Income before extraordinary item $ 2.10 $ 1.64
Extraordinary item (0.19) --
---------- ----------
Net income per share $ 1.91 $ 1.64
========== ==========
Average number of common shares outstanding (in thousands) 34,890 35,448
</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>
Nine Months Ended
September 30,
2000 1999
----------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 66,643 $ 58,298
Depreciation and amortization 22,906 21,614
Amortization of capitalized financing costs 1,260 1,339
Extraordinary item - early retirement of debt 10,724 --
Changes in operating assets and liabilities (18,204) 9,748
--------- ---------
Net cash provided by operating activities 83,329 90,999
Cash Flows From Investing Activities:
Capital expenditures (29,459) (21,641)
Acquisition of CallCenter Services (10,590) --
Acquisition of Azerty Canada (31,717) --
Proceeds from disposition of property, plant
and equipment -- 3,260
--------- ---------
Net cash used in investing activities (71,766) (18,381)
Cash Flows From Financing Activities:
Retirements and principal payments on debt (113,235) (6,115)
Borrowings under financing agreement 150,000 --
Net repayments under revolver (46,000) (24,000)
Issuance of common shares 3,877 2,656
Payment of employee withholding tax related to
stock option exercises (2,447) (2,519)
Repurchase of common stock -- (49,600)
Other (226) 523
--------- ---------
Net cash used in financing activities (8,031) (79,055)
--------- ---------
Net change in cash and cash equivalents 3,532 (6,437)
Cash and cash equivalents, beginning of period 18,993 19,038
--------- ---------
Cash and cash equivalents, end of period $ 22,525 $ 12,601
========= =========
Other Cash Flow Information:
Income taxes paid $ 50,292 $ 41,067
Interest paid 19,137 15,590
Discount on the sale of accounts receivable 7,797 6,516
</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
nine months ended September 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 67 regional distribution centers and three distribution centers that
serve the Canadian marketplace. 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. 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. TOP enables the Company to leverage these core competencies in a
broader context for third-party logistics and fulfillment.
In connection with TOP, the Company has opened a new 654,000 square foot
state-of-the-art distribution and service center in Memphis, Tennessee and
plans to open a 300,000 square foot distribution facility in Harrisburg,
Pennsylvania, in March 2001. In addition, the Company is planning the
addition of a West Coast facility to open in the second quarter of 2001.
These distribution facilities will give the Company an optimal distribution
model for third-party logistics and fulfillment dedicated to serving TOP's
clients.
-7-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On July 3, 2000, the Company acquired all of the capital stock of CallCenter
Services, Inc. from Corporate Express, a Buhrmann Company. The purchase
price, subject to final adjustments, was $10.6 million financed through the
Company's Senior 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 was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated on a
preliminary basis 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 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 purchase price,
subject to final adjustments, was $31.7 million (U.S. dollars) financed
through the Company's Senior 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 was accounted for using the purchase method of accounting
and, accordingly, the purchase price was allocated on a preliminary basis 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 material.
3. STOCK REPURCHASE PROGRAM
On October 23, 2000, the Company's Board of Directors authorized a share
repurchase program of up to $50.0 million of the company's common stock.
Purchases will be made from time-to-time in the open market or in privately
negotiated transactions. As of November 9, 2000, the Company had repurchased
65,000 shares of common stock at a cost of approximately $1.8 million.
4. COMPREHENSIVE INCOME (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 26,427 $ 22,293 $ 66,643 $ 58,298
Unrealized currency translation adjustment 134 (51) (325) 260
----------- ---------- ---------- ----------
Comprehensive income $ 26,561 $ 22,242 $ 66,318 $ 58,558
=========== ========== ========== ==========
</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.
-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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- ----------- --------
<S> <C> <C> <C> <C>
NUMERATOR:
Income before extraordinary item $26,427 $22,293 $ 73,119 $58,298
Extraordinary item -- -- (6,476) --
------- ------- ---------- -------
Net income $26,427 $22,293 $ 66,643 $58,298
======= ======= ========== =======
DENOMINATOR (in thousands):
Denominator for basic earnings per share -
Weighted average shares 34,239 33,970 34,137 34,952
Effect of dilutive securities:
Employee stock options 687 502 753 496
------- ------- ---------- -------
Denominator for diluted earnings per share -
Adjusted weighted average shares
and assumed conversions 34,926 34,472 34,890 35,448
======= ======= ========== =======
Earnings (loss) per common share:
Basic
Income before extraordinary item $ 0.77 $ 0.66 $ 2.14 $ 1.67
Extraordinary item -- -- (0.19) --
------- ------- ---------- -------
Net income per share $ 0.77 $ 0.66 $ 1.95 $ 1.67
======= ======= ========== =======
Diluted
Income before extraordinary item $ 0.76 $ 0.65 $ 2.10 $ 1.64
Extraordinary item -- -- (0.19) --
------- ------- ---------- -------
Net income per share $ 0.76 $ 0 .65 $ 1.91 $ 1.64
======= ======= ========== =======
</TABLE>
-9-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. LONG-TERM DEBT
Long-term debt consisted of the following amounts (dollars in thousands):
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
2000 1999
-------------- ------------
<S> <C> <C>
Revolver $ 7,000 $ 53,000
Tranche A term loan, due in installments until March 31, 2004 46,932 53,711
Tranche A-1 term loan, due in installments until September 30, 2005 143,750 --
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 284 416
--------- ---------
Subtotal 327,766 336,927
Less - current maturities (38,220) (9,567)
--------- ---------
Total $ 289,546 $ 327,360
========= =========
</TABLE>
The prevailing prime interest rate at September 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 September 30, 2000, the available credit under the Credit Agreement included
$190.7 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 $46.9 million Tranche A term loan facility
(the "Tranche A Facility") and a $143.8 million Tranche A-1 Facility. Amounts
outstanding under the Tranche A Facility are to be repaid in 14 quarterly
installments ranging from $2.6 million at December 31, 2000 to $3.7 million at
March 31, 2004. Amounts outstanding under the Tranche A-1 Facility are to be
repaid in 19 quarterly installments ranging from $6.3 million at December 31,
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 $7.0 million outstanding under the
Revolving Credit Facility at September 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 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 (the "8.375% Notes") were issued on April
15, 1998, pursuant to the 8.375% Notes Indenture. As of September 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.
7. 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 and
Lagasse.
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
2000 1999
------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Current assets $ 275,675 $ 251,323
Total assets 391,206 368,521
Current liabilities 136,850 99,679
Total liabilities 137,219 100,183
</TABLE>
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<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ --------------------------------------
2000 1999 2000 1999
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales $252,533 $ 220,089 $730,846 $ 592,152
Gross margin 25,090 21,587 71,329 58,942
Operating income 13,936 8,119 42,175 22,045
Net income 8,450 4,563 23,668 12,453
</TABLE>
8. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus in
EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs,"
agreeing that shipping and handling fees billed to a customer in a sale
transaction represent revenues earned for the goods provided and should be
classified as revenue. In September 2000, the EITF agreed that shipping and
handling costs can be classified anywhere in the statement of earnings,
except they cannot be netted against sales. If shipping and handling costs
are not included in costs of goods sold, the amount and classification of
these expenses must be disclosed in the footnotes to the financial
statements. Currently, the Company classifies shipping and handling fees as
an offset to shipping and handling costs in cost of goods sold. This
consensus must be adopted no later than the fourth quarter of fiscal years
beginning after December 15, 1999. The Company will adopt EITF Issue 00-10 in
the fourth quarter of 2000 and restate all prior periods presented to comply
with the classification guidelines of this Issue. The adoption of EITF Issue
00-10 will result in an increase to net sales and an increase to cost of
goods sold, resulting in no impact to earnings before interest and taxes.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
replaces SFAS No. 125 with the same title. It revises the standards for
securitizations and other transfers of financial assets and collateral and
requires certain additional disclosures, but otherwise retains most of SFAS
No. 125's provisions. The Company sells certain trade receivables to a third
party, and this statement may require the Company to disclose more
information about these transactions. The Company will adopt SFAS No. 140 in
the fourth quarter of 2000, when the new disclosure requirements become
effective. The Company is evaluating the financial statement impact of SFAS
No. 140.
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>
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
-13-
<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. 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. TOP enables the Company to leverage its core competencies in a
broader context for third-party logistics and fulfillment.
In connection with TOP, the Company has opened a new 654,000 square foot
state-of-the-art distribution and service center in Memphis, Tennessee and
plans to open a 300,000 square foot distribution facility in Harrisburg,
Pennsylvania, in March 2001. In addition, the Company is planning the
addition of a West Coast facility to open in the second quarter of 2001.
These distribution facilities will give the Company an optimal distribution
model for third-party logistics and fulfillment dedicated to serving TOP's
clients.
-14-
<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 adjustments, was $10.6 million financed through
the Company's Senior 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 was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated on a
preliminary basis 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 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 adjustments, was $31.7 million (U.S.
dollars) financed through the Company's Senior 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 was accounted for using the purchase method of
accounting and, accordingly, the purchase price was allocated on a
preliminary basis 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 material.
Third Quarter Ended September 30, 2000 compared with the
Third Quarter Ended September 30, 1999
--------------------------------------------------------
NET SALES. Net sales for the third quarter of 2000 totaled $999.0 million, up
13.8%, compared with $877.8 million in the third quarter of 1999. The Company
experienced sales growth in all product categories, customer channels, and
across all geographies.
The Company's sales of office furniture grew nearly 16%, 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 29%. 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 continues to be successful with national
accounts and mail order partners.
-15-
<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
mid-single digits over the prior- year quarter. This is a very competitive
market with relatively low margins. However, the Company believes sales will
continue to increase as relationships with customers are strengthened and based
on the Company's scale and efficient distribution capabilities the EBIT rate is
expected to remain strong. National accounts, mail order, and emerging channels
continued to show strong growth.
GROSS MARGIN. Gross margin remained flat at 16.4% in the third quarter of
2000 and 1999. The Company continues to experience strong growth with its
larger customers resulting in higher dealer discounts offset by the Company's
ability to achieve higher levels of allowances and discounts from its vendors.
OPERATING EXPENSES. Operating expenses as a percent of net sales were 11.0%
in the third quarter of 2000 and 10.9% in 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. The Company invested approximately $1.7 million in TOP
during the third quarter of 2000. Excluding these investments, the operating
expense ratio would have been 10.8%.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
declined to 5.4%, or 5.6% excluding the TOP investments, in 2000 compared
with 5.5% in 1999.
INTEREST EXPENSE. Interest expense as a percent of net sales was 0.7% in 2000,
compared with 0.8% in 1999. This reduction reflects the Company's continued
leveraging of interest costs against higher sales and the interest expense
savings related to the redemption of the 12.75% Notes 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. Income before taxes as a percent of net sales remained flat
at 4.4% in the third quarter of 2000 and 1999.
INCOME TAXES. Income tax expense as a percent of net sales remained flat at 1.8%
in the third quarter of 2000 and in 1999.
NET INCOME. Net income totaled $26.4 million, or 2.6% of net sales, compared
with $22.3 million, or 2.6% of net sales. Earnings per share assuming dilution
increased 17% to $0.76 from $0.65 last year.
-16-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 compared with the
Nine Months Ended September 30, 1999
------------------------------------------------------
NET SALES. Net sales for the first nine months of 2000 totaled $2.9 billion, up
16.2%, or 15.6% on equivalent workdays, compared with $2.5 billion in the first
nine months of 1999. The Company experienced sales growth in all product
categories, customer channels, and across all geographies.
GROSS MARGIN. Gross margin remained flat at 16.2% for the first nine months of
2000 and 1999. 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 were flat at
11.0% in the first nine months 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 to expand
its order fulfillment capabilities.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
remained flat at 5.2% in 2000 and 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 continued
leveraging of interest costs against higher sales and the interest expense
savings related to the redemption of the 12.75% Notes 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 4.2% in 2000 from 4.0%
in 1999.
INCOME TAXES. Income tax expense as a percent of net sales was 1.7% in 2000 and
in 1999. The effective tax rate declined to 40.4% 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
$73.1 million, or 2.5% of net sales, compared with $58.3 million, or 2.3% of
net sales in 1999. Earnings per share assuming dilution based on income
before extraordinary item increased 28% to $2.10 from $1.64 last year.
-17-
<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 0.2% 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 remained flat at 2.3% in 2000
and 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 September 30, 2000, the available credit under the Credit Agreement included
$190.7 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 $46.9 million Tranche A term loan facility
(the "Tranche A Facility") and a $143.8 million Tranche A-1 Facility. Amounts
outstanding under the Tranche A Facility are to be repaid in 14 quarterly
installments ranging from $2.6 million at December 31, 2000 to $3.7 million at
March 31, 2004. Amounts outstanding under the Tranche A-1 Facility are to be
paid in 19 quarterly installments ranging from $6.3 million at December 31, 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 $7.0 million outstanding under the
Revolving Credit Facility at September 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 receivable 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%.
-18-
<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 September 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 September 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.
-19-
<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 September 30, 2000, the Company had $160.0
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 September 30, 2000 exclude approximately $160.0
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 Nine Months
Ended September 30,
--------------------------------
2000 1999
-------- ----------
(dollars in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 83,329 $ 90,999
Net cash used in investing activities (71,766) (18,381)
Net cash used in financing activities (8,031) (79,055)
</TABLE>
Net cash provided by operating activities for the nine months ended September
30, 2000 decreased to $83.3 million from $91.0 million in the comparable prior
year period. This decrease was primarily due to a $13.1 million decrease in
accounts payable, a $11.3 million decrease in accrued liabilities, and a $8.6
million increase in accounts receivable partially offset by a $14.8 million
increase in income before extraordinary item, and a $12.5 million decrease in
prepaid expenses.
-20-
<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 nine months ended September 30,
2000 was $71.8 million compared with $18.4 million used in the prior period.
This increase is primarily due to acquisition of CallCenter Services for
$11.3 million, Azerty Canada for $31.5 million and $10.6 million of
incremental net capital expenditures during 2000.
Net cash used in financing activities for the nine months ended September 30,
2000 was $8.0 million compared with $79.1 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 $46.0 million under the Revolving Credit Facility in the current
year compared with $24.0 million of net borrowings last year, the repayment of
the $100.0 million 12.75% Notes in May 2000 and $7.1 million of incremental
scheduled debt payments in 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 September 30,
2000 of $327.8 million and $160.0. 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.
-21-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable
ITEM 2 CHANGES IN SECURITIES
Not applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5 OTHER INFORMATION
Not applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(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 the following reports on Form 8-K:
- The Company reported under Item 5 on October 3, 2000,
the election of Eileen A. Kamerick as a Executive
Vice Precedent and Chief Financial Officer.
- The Company reported under Item 5 on
October 20, 2000, announcing that it will
broadcast its third quarter 2000 financial
results conference call live over the
Internet on October 25, 2000 at 8:00 a.m.
central time.
- The Company reported under item 7 on
October 24, 2000, a press release dated
October 23, 2000, announcing the results of
operations for its fiscal quarter ended
September 30, 2000 and announcing a share
repurchase program.
</TABLE>
-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: NOVEMBER 10, 2000 /s/ Eileen A. Kamerick
-----------------------------
Eileen A. Kamerick
Executive Vice President and
Chief Financial Officer
-23-
<PAGE>
UNITED STATIONERS INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
(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
</TABLE>
-25-
