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United States Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
| (Mark One) | |
ý |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the year ended December 31, 2003 |
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or |
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o |
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 INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware (State or Other Jurisdiction of Incorporation or Organization) |
36-3141189 (I.R.S. Employer Identification No.) |
|
2200 East Golf Road Des Plaines, Illinois 60016-1267 (847) 699-5000 (Address, Including Zip Code and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) |
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value per share
(Title of Class)
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 for such shorter period that each registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)
Yes ý No o
The aggregate market value of the common stock of United Stationers Inc. held by non-affiliates as of June 30, 2003 was approximately $1,155,403,847.
On March 8, 2004, United Stationers Inc. had 33,923,155 shares of Common Stock outstanding.
Documents Incorporated by Reference:
Certain portions of United Stationers Inc.'s definitive Proxy Statement relating to its 2004 Annual Meeting of Stockholders, to be filed within 120 days after the end of United Stationers Inc.'s fiscal year, are incorporated by reference into Part III.
UNITED STATIONERS INC.
FORM 10-K
For The Year Ended December 31, 2003
General
With 2003 net sales of $3.8 billion, United Stationers Inc. ("United") is North America's largest broad line wholesale distributor of business products and a provider of marketing and logistics services to resellers. United markets its products and services in the U.S., Canada and Mexico through its United Stationers, Azerty and Lagasse divisions and subsidiaries.
United was incorporated in 1981 under the laws of the State of Delaware. United's operating company and its only direct wholly owned subsidiary is United Stationers Supply Co. ("USSC"), which was incorporated in 1922 under the laws of the State of Illinois. Except where the context otherwise requires, the term "Company" refers to United and its consolidated subsidiaries, including USSC.
Products
The Company distributes more than 40,000 stockkeeping units ("SKUs"), which currently are classified into five categories:
Computer Consumables. The Company is one of the largest wholesale distributors of computer supplies and peripherals in North America. It offers almost 9,000 items to value-added computer resellers, office products dealers, drug stores and grocery chains. Computer consumables accounted for approximately 41% of the Company's 2003 net sales.
Traditional Office Products. Traditional office products accounted for approximately 25% of the Company's net sales for 2003. The Company is the largest national wholesale distributor of a broad line of office supplies, including such items as writing instruments, paper products, organizers, calendars and general office accessories. The Company offers approximately 20,000 brand-name products as well as its own private brand products.
Office Furniture. The Company is the largest national office furniture wholesaler. It currently offers more than 4,000 items—such as leather chairs, wooden and steel desks and computer furniture—from more than 60 different manufacturers. This product group accounted for approximately 11% of the Company's 2003 net sales.
Janitorial/Sanitation Supplies. The Company is the largest national wholesaler of janitorial and sanitation supplies in North America. It offers over 5,000 items in these major categories: janitorial and sanitation supplies, safety and security items, and shipping and mailing supplies. Janitorial/Sanitation accounted for approximately 11% of the Company's net sales during 2003.
Business Machines and Presentation Products. The Company is a leading wholesale distributor of business machines—from calculators to telephones—as well as presentation products and supplies. This product class accounted for approximately 9% of the Company's 2003 net sales.
The remaining 3% of the Company's net sales for 2003 were derived from miscellaneous revenue.
For more information on revenue by product category, see Note 4 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Customers
The Company's more than 15,000 customers include independent office products dealers and contract stationers, national mega-dealers, office products superstores, computer products resellers, office furniture dealers, mass merchandisers, mail order companies, sanitary supply distributors, drug and
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grocery store chains, and e-commerce merchants. Of its 15,000 customers, no single customer accounted for more than 6.5% of the Company's net sales in 2003.
Independent resellers contributed about 80% of United's revenues in 2003. The Company provides these customers with specialized services designed to aid them in achieving efficiencies and eliminating costs in their overall operations.
Marketing and Customer Support
The products distributed by the Company generally are available to its customers at similar prices from many other sources. Most customers purchase their products from more than one source. To differentiate itself from its competition, the Company focuses its marketing efforts on providing value-added services to resellers. These include product breadth and in-stock availability, high-quality customer service, and national distribution capabilities that enable same-day or overnight delivery. United's marketing programs emphasize two other major components. First, the Company produces an extensive array of catalogs for commercial dealers, contract stationers and retail dealers. These catalogs usually are custom printed with each reseller's name and then sold to these resellers who, in turn, distribute the catalogs to their customers. Second, the Company provides its resellers with a variety of dealer support and marketing services. These services are designed to help resellers differentiate themselves from their competitors by addressing the needs of the end-user's procurement process.
Nearly all of the Company's 40,000 SKUs are sold through its comprehensive annual general line catalog (available in both print and electronic versions) and semi-annual specialty catalogs. Promotional catalogs are typically produced quarterly.
The Company also produces separate quarterly flyers covering the majority of its product categories, including Universal® private brand products. Catalogs provide product exposure to end-consumers and generate demand; therefore the Company tries to maximize the distribution of its catalogs by offering various incentives to resellers, which resellers can use to offset the cost of the catalogs.
Resellers can place orders with the Company through the Internet, by phone, fax, e-mail and through a variety of electronic order entry systems. Use of electronic order entry systems allow the reseller to forward its customers' orders directly to the Company, resulting in the delivery of pre-sold products to the reseller. In 2003, the Company received approximately 80% of its orders electronically.
The Company employs a sales force of approximately 240 field salespeople, 160 tele-salespeople and approximately 400 customer care representatives in support of its sales, marketing and customer service activities. The Company's sales force tailors its service offerings to optimally serve the customer's needs and reduce costs.
Distribution
USSC has a network of 35 business products regional distribution centers located in 24 states. Most of these centers carry the Company's complete offering of business products. The Company's 24 Lagasse distribution centers carry a comprehensive line of janitorial and sanitation supplies. The Company also operates two distribution centers in Mexico that serve computer supply resellers and two Azerty distribution centers that serve the Canadian marketplace. United's domestic operations account for $3.5 billion and its foreign operations account for $0.3 billion of its total net sales of $3.8 billion.
The Company supplements its regional distribution centers with 20 local distribution points throughout the United States, which serve as re-distribution points for orders filled at the regional distribution centers. The Company uses a dedicated fleet of more than 400 trucks, most of which are contracted for by the Company, to enable direct delivery to resellers from the regional distribution centers and local distribution points.
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The Company enhances its distribution capabilities through a proprietary computerized inventory locator system. If a reseller places an order for an item that is out of stock at the nearest distribution center, the system has the capability to search for it at other nearby distribution centers. If the item is available at another location, the system automatically forwards the order back to the primary facility. The alternate location coordinates shipping with the primary facility and, for the majority of resellers, provides a single on-time delivery of all items. The system effectively gives the Company added inventory support while minimizing working capital requirements. This means the Company can provide higher service levels to the reseller, reduce back orders and minimize time spent searching for merchandise substitutes. All of these factors contribute to a high order fill rate and efficient levels of inventory. In order to meet the Company's delivery commitments and to maintain a high order fill rate, the Company carries a significant amount of inventory, which contributes to its overall working capital requirements.
The "wrap and label" program is another service the Company offers to its resellers. This gives resellers the option to receive individually packaged orders customized to meet the needs of their specific customer. For example, when a reseller receives orders for several individual consumers, the Company can group and wrap the orders separately, identifying each specific consumer, so that the reseller need only deliver the already individualized packages. Resellers like the "wrap and label" program because it eliminates the need to break down bulk shipments and repackage orders before delivery.
Purchasing and Merchandising
As the largest wholesale business products distributor in North America, the Company's merchandising strategy is to offer a broad product selection. The Company obtains products from over 400 manufacturers. As a result of its purchasing volume, United qualifies for substantial volume allowances and can realize significant economies of scale in its logistics and distribution activities. In 2003, the Company's largest supplier was Hewlett Packard, representing approximately 24% of the Company's aggregate purchases. The Company's centralized Merchandising Department is responsible for selecting, purchasing and pricing merchandise as well as managing the entire supplier relationship. Product selection is based upon end-user acceptance, anticipated demand for the product and the manufacturer's total service, price and product quality. The Company has recently introduced its Preferred Supplier Program, which is designed to strengthen supplier relationships by developing product category strategies to reduce overall supply chain costs.
Competition
The Company competes with office products manufacturers and with other national, regional and specialty wholesalers of office products, office furniture, computer consumables and janitorial and sanitation supplies. In most cases, competition is based primarily upon net pricing, minimum order quantity, speed of delivery, and value-added marketing and logistics services.
United competes with manufacturers who often sell their products directly to resellers and may offer lower prices. The Company believes it provides an attractive alternative to manufacturer direct purchases by offering a combination of value-added services, including 1) marketing and catalog programs; 2) same-day and next-day delivery; 3) a broad line of business products from multiple manufacturers on a "one-stop shop" basis; and 4) lower minimum order quantities.
Competition with other wholesalers is based primarily on breadth of product lines, availability of products, speed of delivery to resellers, order fill rates, net pricing to resellers, and quality of marketing and other value-added services. The Company competes with local and regional office products wholesalers who typically offer limited product lines as well as one national broad line office products competitor. In addition, the Company competes with various national distributors of computer consumables.
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Competition in the office products industry amplifies price awareness among end users. As a result, purchasers of commodity office products appear increasingly more price sensitive. The Company has addressed this by emphasizing to resellers the continuing advantages of its value-added services and competitive strengths (compared with those of manufacturers and other wholesalers).
Employees
As of March 8, 2004, the Company employed approximately 5,700 people.
Management considers its relations with employees to be good. Approximately 800 of the shipping, warehouse and maintenance employees at certain of the Company's Philadelphia, Baltimore, Los Angeles and New York City facilities are covered by collective bargaining agreements. Agreements with employees in Philadelphia and Los Angeles will expire on June 30, 2004 and August 31, 2004, respectively. The other agreements expire at various times during the next three years. The Company has not experienced any work stoppages during the past five years.
Availability of the Company's Reports
The Company's Internet Web site address is www.unitedstationers.com. The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and amendments and exhibits to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through the Company's Web site as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. You may request a copy of these filings (excluding exhibits) at no cost by contacting the Investor Relations Department at:
| United Stationers Inc. Attn: Investor Relations Department 2200 East Golf Road Des Plaines, IL 60016-1267 Telephone: (847) 699-5000 Fax: (847) 699-4716 E-mail: IR@ussco.com |
The Company considers its properties to be suitable with adequate capacity for their intended uses. The Company continually evaluates its properties to improve efficiency and customer service and leverage potential economies of scale. Substantially all owned facilities are subject to liens under USSC's debt agreements (see the information under the caption "Liquidity and Capital Resources" included below under Item 7). As of December 31, 2003, these properties consisted of the following:
Executive Offices. The Company owns its approximately 184,000 square foot headquarters office in Des Plaines, Illinois. In addition, it leases approximately 48,000 square feet of additional office space in Des Plaines, Illinois and Mt. Prospect, Illinois. The Company also owns approximately 48,000 square feet of office space in Orchard Park, New York. The Company's Canadian division leases approximately 17,000 square feet of office space in Montreal, Quebec. In addition, the Company leases approximately 22,000 square feet of office space in Harahan, Louisiana and approximately 6,000 square feet of office space in Metarie, Louisiana.
Distribution Centers. The Company utilizes approximately 11 million square feet of warehouse space. USSC has 35 business products distribution centers located throughout the United States. The Company maintains 24 Lagasse janitorial and sanitation supply distribution centers in the United States, two distribution centers in Mexico that serve computer supply resellers and two Azerty distribution centers that serve the Canadian marketplace. Of the 11 million square feet of distribution center space,
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three million square feet are owned and eight million square feet are leased. In addition, the Company has two distribution centers available for sale, which consist of approximately 420,000 square feet of space.
The Company is involved in legal proceedings arising in the ordinary course of its business. The Company is not involved in any legal proceedings that management expects will result, individually or in the aggregate, in a material adverse effect upon its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of 2003.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company are as follows:
| Name, Age and Position with the Company |
Business Experience |
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|---|---|---|
| Richard W. Gochnauer 54, President and Chief Executive Officer |
Richard W. Gochnauer became the Company's President and Chief Executive Officer in December 2002, after joining the Company as its Chief Operating Officer and as a Director in July 2002. From 1994 until he joined the Company, Mr. Gochnauer held the positions of Vice Chairman and President, International, and President and Chief Operating Officer of Golden State Foods, a privately held food company that manufactures and distributes food and paper products. Prior to that, he served as Executive Vice President of the Dial Corporation, with responsibility for its Household and Laundry Consumer Products businesses. Mr. Gochnauer also served as President of the Stella Cheese Company, then a division of Universal Foods, and as President of the International Division of Schreiber Foods, Inc. | |
S. David Bent 43, Senior Vice President and Chief Information Officer |
S. David Bent joined the Company as its Senior Vice President and Chief Information Officer in May 2003. From August 2000 until such time, Mr. Bent served as the Corporate Vice President and Chief Information Officer of Acterna Corporation, a multi-national telecommunications test equipment and services company, and also served as General Manager of its Software Division from October 2002. Previously, he spent 18 years with the Ford Motor Company. During his Ford tenure, Mr. Bent most recently served during 1999 and 2000 as the Chief Information Officer of Visteon Automotive Systems, a tier one automotive supplier, and from 1998 through 1999 as its Director, Enterprise Processes and Systems. |
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Ronald C. Berg 44, Senior Vice President, Inventory Management and Facility Support |
Ronald C. Berg has been the Senior Vice President, Inventory Management and Facility Support, of the Company since October 2001. He had served previously as the Company's Vice President, Inventory Management, since 1997, and as a Director, Inventory Management, since 1994. He began his career with the Company in 1987 as an Inventory Rebuyer, and spent several years thereafter in various product and furniture or general inventory management positions. Prior to joining the Company, Mr. Berg managed Solar Cine Products, Inc., a family-owned, photographic equipment business. |
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Brian S. Cooper 47, Senior Vice President and Treasurer |
Brian S. Cooper has served as the Company's Senior Vice President and Treasurer since February 2001. From 1997 until he joined the Company, he was the Treasurer of Burns International Services Corporation, a provider of physical security systems and services. Prior to that time, Mr. Cooper spent twelve years in U.S. and international finance assignments with Amoco Corporation, a global petroleum and chemicals company. He also held the position of Chief Financial Officer for Amoco's operations in Norway. |
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Kathleen S. Dvorak 47, Senior Vice President and Chief Financial Officer |
Kathleen S. Dvorak has been the Company's Senior Vice President and Chief Financial Officer since October 2001. In that role, she oversees the Company's financial planning, accounting, treasury and investor relations activities and serves as its primary liaison to the financial/investor community. Ms. Dvorak previously served as the Senior Vice President of Investor Relations and Financial Administration from October 2000, and as Vice President, Investor Relations, from July 1997. Ms. Dvorak has been with the Company since 1982, and has been involved in various aspects of the financial function at the Company for the past 20 years. |
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James K. Fahey 53, Senior Vice President, Merchandising |
James K. Fahey is the Company's Senior Vice President, Merchandising, with responsibility for product management and merchandising, vendor logistics and advertising services. From September 1992 until he assumed that position in October 1998, Mr. Fahey served as Vice President, Merchandising of the Company. Prior to that time, he served as the Company's Director of Merchandising. Before he joined the Company in 1991, Mr. Fahey had an extensive career in both retail and consumer direct-response marketing. |
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Deidra D. Gold 49, Senior Vice President, General Counsel and Secretary |
Deidra D. Gold has served as the Company's Senior Vice President, General Counsel and Secretary since November 2001. She was Vice President and General Counsel of eLoyalty Corporation, an IT consulting services and systems integration company, from 2000 until such time, and Counsel and Corporate Secretary of Ameritech Corporation, a communications company, from early 1998 through the end of 1999, following its acquisition. Prior to such time, she was a partner in the law firms of Goldberg, Kohn and Jones, Day, Reavis & Pogue and served as Vice President and General Counsel of Premier Industrial (renamed Premier Farnell) Corporation, a wholesale distributor of electronic and industrial products. |
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Mark J. Hampton 50, Senior Vice President, Marketing |
Mark J. Hampton is the Company's Senior Vice President, Marketing, with responsibility for marketing and category management activities. He previously served as Senior Vice President, Marketing and Field Support Services, from late 2001 until early 2003, Senior Vice President, Marketing, and President and Chief Operating Officer of The Order People Company, during 2001 and Senior Vice President, Marketing, from October 2000. Mr. Hampton began his career with the Company in 1980 and left the Company to work in the office products dealer community in 1991. Upon his return to the Company in 1992, he served as Midwest Regional Vice President, Vice President and General Manager of the Company's MicroUnited division and, from 1994, Vice President, Marketing. |
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Jeffrey G. Howard 48, Senior Vice President, National Accounts and New Business Development |
Jeffrey G. Howard has served as the Company's Senior Vice President, National Accounts and New Business Development, since early 2003. From October 2001 until such time, he was Senior Vice President, Sales and Customer Support Services. Mr. Howard previously held the positions of Senior Vice President, National Accounts, from late 2000 and Vice President, National Accounts, from 1994. He joined the Company in 1990 as General Manager of its Los Angeles distribution center, and was promoted to Western Region Vice President in 1992. Mr. Howard began his career in the office products industry in 1973 with Boorum & Pease Company, which was acquired by Esselte Pendaflex in 1985. |
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P. Cody Phipps 42, Senior Vice President, Operations |
P. Cody Phipps joined the Company in August 2003 as its Senior Vice President, Operations. Prior to joining the Company, Mr. Phipps was a partner at McKinsey & Company, Inc., a global management consulting firm, which he joined in 1990. During his tenure at McKinsey, he became a leader in the firm's North American Operations Effectiveness Practice and co-founded and led its Service Strategy and Operations Initiative, which focused on driving significant operational improvements in complex service and logistics environments. Prior to joining McKinsey, Mr. Phipps worked as a consultant with The Information Consulting Group, a systems consulting firm, and as an IBM account marketing representative. |
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Stephen A. Schultz 37, President, Lagasse, Inc. and Vice President, Category Management, Janitorial/Sanitation |
Stephen A. Schultz is the President of Lagasse, Inc., a wholly owned subsidiary of the Company, a position he has held since August 2001. In October 2003, he assumed the additional position of Vice President, Category Management—Janitorial/Sanitation, of the Company. Mr. Schultz joined Lagasse in early 1999 as Vice President, Marketing and Business Development, and became a Senior Vice President of Lagasse in late 2000. Before joining Lagasse, he served for nearly 10 years in various executive sales and marketing roles for Hospital Specialty Company, a manufacturer and distributor of hygiene products for the institutional janitorial and sanitation industry. |
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John T. Sloan 52, Senior Vice President, Human Resources |
John T. Sloan has been the Company's Senior Vice President, Human Resources since January 2002. Before he joined the Company, Mr. Sloan held various human resources management positions with Sears, Roebuck & Co., a retailer of apparel, home and automotive products and services, serving most recently as its Executive Vice President, Human Resources, from early 1998 through the end of 2000. Previously, he served in various senior human resource and administrative management positions with The Tribune Company, a media company, and various divisions within Philip Morris Incorporated, including The Seven-Up Company. |
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Joseph R. Templet 57, Senior Vice President, Field Sales |
Joseph R. Templet has served as Senior Vice President, Field Sales, since early 2003. From October 2001 until such time, Mr. Templet was the Company's Senior Vice President, Field Sales and Operations. He previously served as the Company's Senior Vice President, South Region, from October 2000, and Vice President, South Region, from 1992. Mr. Templet joined the Company in 1985 and thereafter held various managerial positions, including Vice President, Central Region, and Vice President, Marketing and Corporate Sales. Prior to joining the Company, Mr. Templet held sales and sales management positions with the Parker Pen Company, Polaroid Corporation and Procter & Gamble. |
Executive officers are elected by the Board of Directors. Except as required by individual employment agreements between executive officers and the Company, there exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her successor is appointed and qualified or until his or her earlier removal or resignation.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Common Stock Information
The Company's common stock is quoted through The NASDAQ Stock Market® ("NASDAQ") under the symbol USTR. The following table shows the high and low closing sale prices per share for the Company's common stock as reported by NASDAQ:
| |
High |
Low |
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|---|---|---|---|---|---|---|
| 2003 | ||||||
| First Quarter | $ | 27.36 | $ | 18.00 | ||
| Second Quarter | 35.83 | 21.45 | ||||
| Third Quarter | 41.30 | 35.67 | ||||
| Fourth Quarter | 42.37 | 37.21 | ||||
2002 |
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| First Quarter | $ | 42.40 | $ | 33.35 | ||
| Second Quarter | 41.28 | 29.57 | ||||
| Third Quarter | 30.43 | 23.60 | ||||
| Fourth Quarter | 32.83 | 25.69 | ||||
On March 8, 2004, there were approximately 757 holders of record of common stock.
The Company did not repurchase any of its common stock during 2003, compared with repurchases of 1.4 million shares at a cost of $38.3 million during 2002. As of December 31, 2003, the Company had authority from its Board of Directors and is permitted under its debt agreements to repurchase up to $27 million of its common stock. For further information on the Company's stock repurchases, see Note 1 to the Consolidated Financial Statements.
Dividends
The Company's policy has been to reinvest earnings to enhance its financial flexibility and to fund future growth. Accordingly, the Company has not paid cash dividends and has no plans to declare cash dividends on its common stock at this time. Furthermore, as a holding company, United's ability to pay cash dividends in the future depends upon the receipt of dividends or other payments from its operating subsidiary, USSC. The Company's debt agreements impose restrictions on the payment of dividends. For further information on the Company's debt agreements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and Note 8 to the Consolidated Financial Statements.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by Item 201(d) of Regulation S-K (Securities Authorized for Issuance under Equity Compensation Plans) is included in Item 12 of this report.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data of the Company for the years ended December 31, 1999 through 2003 have been derived from the Consolidated Financial Statements of the Company, which have been audited by Ernst & Young LLP, independent auditors. The selected consolidated financial data below should be read in conjunction with, and is qualified in its entirety by, the Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company. Except for per share data, all amounts presented are in thousands:
| |
Years Ended December 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2003 |
2002 |
2001 |
2000 |
1999 |
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| Income Statement Data: | |||||||||||||||||
| Net sales | $ | 3,847,722 | $ | 3,701,564 | $ | 3,925,936 | $ | 3,944,862 | $ | 3,442,696 | |||||||
| Cost of goods sold | 3,287,189 | 3,163,589 | 3,306,143 | 3,301,018 | 2,878,539 | ||||||||||||
| Gross profit | 560,533 | 537,975 | 619,793 | 643,844 | 564,157 | ||||||||||||
| Operating expenses: | |||||||||||||||||
| Warehousing, marketing and administrative expenses | 414,917 | 415,980 | 444,434 | 435,809 | 377,055 | ||||||||||||
| Goodwill amortization(1) | — | — | 5,701 | 5,489 | 4,908 | ||||||||||||
| Restructuring and other charges, net(2)(3) | — | 6,510 | 47,603 | — | — | ||||||||||||
| Total operating expenses | 414,917 | 422,490 | 497,738 | 441,298 | 381,963 | ||||||||||||
| Income from operations | 145,616 | 115,485 | 122,055 | 202,546 | 182,194 | ||||||||||||
| Interest expense | (6,816 | ) | (16,860 | ) | (25,872 | ) | (30,171 | ) | (30,044 | ) | |||||||
| Interest income | 324 | 165 | 2,079 | 2,942 | 849 | ||||||||||||
| Loss on early retirement of debt(4)(5) | (6,693 | ) | — | — | (10,724 | ) | — | ||||||||||
| Other expense, net(6) | (4,826 | ) | (2,421 | ) | (4,621 | ) | (11,201 | ) | (9,432 | ) | |||||||
| Income before income taxes and cumulative effect of a change in accounting principle | 127,605 | 96,369 | 93,641 | 153,392 | 143,567 | ||||||||||||
| Income tax expense | 48,495 | 36,141 | 36,663 | 61,225 | 60,158 | ||||||||||||
| Income before cumulative effect of a change in accounting principle | 79,110 | 60,228 | 56,978 | 92,167 | 83,409 | ||||||||||||
| Cumulative effect of a change in accounting principle(7) | (6,108 | ) | — | — | — | — | |||||||||||
| Net income | $ | 73,002 | $ | 60,228 | $ | 56,978 | $ | 92,167 | $ | 83,409 | |||||||
| Net income per share—basic: | |||||||||||||||||
| Income before cumulative effect of a change in accounting principle | $ | 2.39 | $ | 1.81 | $ | 1.70 | $ | 2.70 | $ | 2.40 | |||||||
| Cumulative effect of a change in accounting principle | (0.19 | ) | — | — | — | — | |||||||||||
| Net income per common share—basic | $ | 2.20 | $ | 1.81 | $ | 1.70 | $ | 2.70 | $ | 2.40 | |||||||
| Net income per share—diluted: | |||||||||||||||||
| Income before cumulative effect of a change in accounting principle | $ | 2.37 | $ | 1.78 | $ | 1.68 | $ | 2.65 | $ | 2.37 | |||||||
| Cumulative effect of a change in accounting principle | (0.19 | ) | — | — | — | — | |||||||||||
| Net income per common share—diluted | $ | 2.18 | $ | 1.78 | $ | 1.68 | $ | 2.65 | $ | 2.37 | |||||||
| Cash dividends declared per share | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||
Balance Sheet Data: |
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| Working capital(8) | $ | 386,868 | $ | 400,587 | $ | 412,766 | $ | 495,456 | $ | 415,548 | |||||||
| Total assets(8) | 1,295,010 | 1,349,229 | 1,380,587 | 1,481,417 | 1,311,236 | ||||||||||||
| Total debt and capital leases(9) | 17,324 | 211,249 | 271,705 | 409,867 | 336,927 | ||||||||||||
| Total stockholders' equity | 672,978 | 558,884 | 538,681 | 478,439 | 406,009 | ||||||||||||
Statement of Cash Flows Data: |
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| Net cash provided by operating activities | $ | 167,667 | $ | 105,730 | $ | 191,156 | $ | 38,718 | $ | 53,581 | |||||||
| Net cash used in investing activities | (10,931 | ) | (23,039 | ) | (46,327 | ) | (83,534 | ) | (26,011 | ) | |||||||
| Net cash (used in) provided by financing activities | (164,416 | ) | (93,917 | ) | (135,783 | ) | 45,655 | (27,615 | ) | ||||||||
Other Data: |
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| Pro forma amounts assuming the accounting change for EITF Issue No. 02-16: | |||||||||||||||||
| Net income | $ | 79,110 | $ | 58,862 | $ | 58,353 | $ | 91,784 | $ | 82,918 | |||||||
| Earnings per share: | |||||||||||||||||
| Basic | $ | 2.39 | $ | 1.77 | $ | 1.74 | $ | 2.69 | $ | 2.39 | |||||||
| Diluted | $ | 2.37 | $ | 1.74 | $ | 1.72 | $ | 2.64 | $ | 2.36 | |||||||
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FORWARD LOOKING INFORMATION
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management's current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, but are not limited to:
Readers should not place undue reliance on forward-looking statements contained in this Annual Report on Form 10-K. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it. The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
The Company is the largest broad line wholesale distributor of business products and a provider of marketing and logistics services to resellers, with 2003 net sales of $3.8 billion. Through its national distribution network, the Company distributes its products to 15,000 resellers, who in turn sell directly to end-users. Products are distributed through computer-linked networks of 35 United Stationers Supply Company regional distribution centers, 24 Lagasse distribution centers that serve the janitorial and sanitation industry and two distribution centers in each of Mexico and Canada that primarily serve computer supply resellers.
The following is a summary of selected trends that are known, or expected, to have a significant impact on the Company's performance.
Despite these challenges, in 2003 the Company increased its net sales, net income and operating cash flow over 2002 results. Several factors contributed to the Company's 2003 performance and will be important to its future results, including the following:
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Overview of Recent Results
Sales for 2004 through this filing date were up slightly compared with the same period last year. While some indicators are showing signs of economic improvement, the "jobless recovery" appears to be restraining the Company's sales growth.
Critical Accounting Policies, Judgments and Estimates
The Company's significant accounting policies are more fully described in Note 2 of the Consolidated Financial Statements. As described in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results may differ from those estimates. The Company believes that such differences would have to vary significantly from historical trends to have a material impact on the Company's financial results. Historically, actual results have not deviated significantly from estimates.
The Company's critical accounting policies are those that are important to portraying the Company's financial condition and results and require especially difficult, subjective or complex judgments or estimates by management. In most cases, critical accounting policies require management to make estimates on matters that are uncertain at the time the estimate is made. The basis for the estimates is historical experience, terms of existing contracts, observance of industry trends, information provided by customers or vendors, and information available from other outside sources, as appropriate. The most
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significant accounting policies and estimates inherent in the preparation of the Company's financial statements include the following:
Revenue Recognition
Revenue is recognized when a service is rendered or when title to the product has transferred to the customer. Management records an estimate for future product returns related to revenue recognized in the current period. This estimate is based on historical product-return trends and the gross margin associated with those returns. In determining estimates for future product returns, management must make certain estimates and judgments. The risk in the methodology used is the dependence on historical information for product returns and gross margins to record an estimate of future product returns. If actual product returns on current period sales differ from historical trends, the amounts estimated for product returns (which reduce net sales) for the period may be overstated or understated.
Valuation of Accounts Receivable
The Company makes judgments as to the collectability of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which represents the collectability of trade accounts receivable. This allowance adjusts gross trade accounts receivable downward to its estimated net realizable value. To determine the allowance for doubtful accounts, management reviews specific customer risks and the Company's accounts receivable aging.
The primary risk in the methodology used to estimate the allowance for doubtful accounts is its dependence on historical information to predict the collectability of accounts receivable. To the extent actual collections of accounts receivable differ from historical trends, the allowance for doubtful accounts and related expense for the current period may be overstated or understated.
Customer Rebates
Customer rebates and discounts are common in the business products industry and have a significant impact on the Company's overall sales and gross margin. Such rebates are reported in the Consolidated Financial Statements as a reduction of sales.
Customer rebates include volume rebates, sales growth incentives, advertising allowances, participation in promotions and other miscellaneous discount programs. These rebates are paid to customers monthly, quarterly and/or annually. Volume rebates and growth incentives are based on the Company's annual sales volumes to its customers. The aggregate amount of customer rebates depends on product sales mix and customer mix changes.
Manufacturers' Allowances and Cumulative Effect of a Change in Accounting Principle
Manufacturers' allowances (fixed or variable) are common practice in the business products industry and have a significant impact on the Company's overall gross margin. Gross margin is determined by, among other items, file margin (determined by reference to invoiced price), as reduced by customer discounts and rebates as discussed above, and increased by manufacturers' allowances and promotional incentives.
Approximately 40% to 45% of the Company's annual manufacturers' allowances and incentives are fixed and are based on vendor participation in various Company advertising and marketing publications. Fixed allowances and incentives are taken to income through lower cost of goods sold as inventory is sold. The remaining 55% to 60% of the Company's annual manufacturers' allowances and incentives are variable, based on the volume of the Company's product purchases from manufacturers. These variable allowances are recorded based on the Company's annual inventory purchase volumes and are included in the Company's financial statements as a reduction to cost of goods sold, thereby reflecting the net
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inventory purchase cost. Manufacturers' allowances and incentives attributable to unsold inventory are carried as a component of net inventory cost. The potential amount of variable manufacturers' allowances often differs based on purchase volumes by manufacturer and product category. As a result, lower Company sales volume (which reduce inventory purchase requirements) and product sales mix changes (especially because higher-margin products often benefit from higher manufacturers' allowance rates) can make it difficult to reach some manufacturers' allowance growth hurdles. To the extent the Company's sales volumes or product sales mix differ from those estimated, the variable allowances for the current period may be overstated or understated.
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