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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the year ended December 31, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period
from __________ to ____________
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of Registrant as specified in its charter)
UNITED STATIONERS INC.: DELAWARE UNITED STATIONERS INC.: 36-3141189
UNITED STATIONERS SUPPLY CO.: ILLINOIS UNITED STATIONERS SUPPLY CO.: 36-2431718
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
(847) 699-5000
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrants' Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
NONE N/A
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
United Stationers Inc.: Common Stock $0.10 par value
(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 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 ( )
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENT
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( X )
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES OF UNITED
STATIONERS INC. AS OF MARCH 6, 1998, BASED ON THE LAST SALE PRICE OF THE COMMON
STOCK AS QUOTED BY THE NASDAQ NATIONAL MARKET SYSTEM ON SUCH DATE: $746,141,914
UNITED STATIONERS SUPPLY CO. HAS NO SHARES OF COMMON STOCK OUTSTANDING HELD BY
NON-AFFILIATES.
ON MARCH 6, 1998, UNITED STATIONERS INC. HAD OUTSTANDING 16,024,019 SHARES OF
COMMON STOCK, PAR VALUE $0.10 PER SHARE. ON MARCH 6, 1998, UNITED STATIONERS
SUPPLY CO. HAD 880,000 SHARES OF COMMON STOCK, $1.00 PAR VALUE PER SHARE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K
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Part III Portions of United Stationers Inc.'s definitive Proxy Statement
relating to the 1998 Annual Meeting of Stockholders of United
Stationers Inc., to be filed within 120 days of the year end of
United Stationers Inc.
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UNITED STATIONERS INC. AND SUBSIDIARIES
UNITED STATIONERS SUPPLY CO.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
CONTENTS AND CROSS REFERENCE SHEET
FURNISHED PURSUANT TO GENERAL INSTRUCTION G(4) OF FORM 10-K
FORM 10-K FORM 10-K FORM 10-K
PART NO. ITEM NO. DESCRIPTION PAGE NO.
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I Explanatory Note 1
1 Business 1
General 1
Products 1-2
Customers 2
Marketing and Customer Support 3
Distribution 3-4
Purchasing and Merchandising 4
Competition 4
Employees 4
2 Properties 5
3 Legal Proceedings 5
4 Submission of Matters to a Vote of Security Holders 5
II 5 Market for Registrant's Common Equity
and Related Stockholder Matters 6
Quarterly Stock Price Data 6-7
6 Selected Consolidated Financial Data 7-11
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
8 Financial Statements and Supplementary Data 19-42
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 42
III 10 Directors and Executive Officers of the Registrant 43-45
11 Executive Compensation 45
12 Security Ownership of Certain Beneficial
Owners and Management 45
13 Certain Relationships and Related Transactions 45
IV 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 46-49
Signatures 50
PART I
EXPLANATORY NOTE
THIS INTEGRATED FORM 10-K IS FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, FOR EACH OF UNITED STATIONERS INC., A DELAWARE CORPORATION,
AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO., AN ILLINOIS
CORPORATION (COLLECTIVELY, THE "COMPANY"). UNITED STATIONERS INC. IS A HOLDING
COMPANY WITH NO OPERATIONS SEPARATE FROM ITS OPERATING SUBSIDIARY, UNITED
STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES. NO SEPARATE FINANCIAL INFORMATION
FOR UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES HAS BEEN PROVIDED HEREIN
BECAUSE MANAGEMENT FOR THE COMPANY BELIEVES SUCH INFORMATION WOULD NOT BE
MEANINGFUL BECAUSE (i) UNITED STATIONERS SUPPLY CO. IS THE ONLY DIRECT
SUBSIDIARY OF UNITED STATIONERS INC., WHICH HAS NO OPERATIONS OTHER THAN THOSE
OF UNITED STATIONERS SUPPLY CO. AND (ii) ALL ASSETS AND LIABILITIES OF UNITED
STATIONERS INC. ARE RECORDED ON THE BOOKS OF UNITED STATIONERS SUPPLY CO. THERE
IS NO MATERIAL DIFFERENCE BETWEEN UNITED STATIONERS INC. AND UNITED STATIONERS
SUPPLY CO. FOR THE DISCLOSURES REQUIRED BY THE INSTRUCTIONS TO FORM 10-K AND
THEREFORE, UNLESS OTHERWISE INDICATED, THE RESPONSES SET FORTH HEREIN APPLY TO
EACH OF UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO.
ITEM 1. BUSINESS
GENERAL
On March 30, 1995, Associated Holdings, Inc., ( "Associated" ), was merged with
and into United Stationers Inc., ( "United" ), with United surviving (the
"Merger"). Immediately thereafter, Associated Stationers, Inc. ("ASI"), the
wholly owned subsidiary of Associated, was merged with and into United
Stationers Supply Co. ("USSC"), the wholly owned subsidiary of United, with USSC
surviving. Although United was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation.
The terms "Associated" and "United" will be used to refer to either the
respective pre-Merger corporations or specific aspects of the post-Merger
Company's business. United is the parent company of its direct wholly owned
subsidiary, USSC. Except where the context clearly indicates otherwise,
including references to the capital structure of United Stationers Inc., the
term "Company" hereinafter used includes United Stationers Inc. together with
its subsidiary.
On October 31, 1996, USSC acquired all of the capital stock of Lagasse Bros.,
Inc. ("Lagasse"), an $80 million wholesaler of janitorial and sanitary supplies.
Lagasse operates as a subsidiary of USSC.
The Company is the largest general line business products wholesaler in the
United States with 1997 net sales of $2.6 billion. The Company sells its
products through a single national distribution network to more than 15,000
resellers, who in turn sell directly to end users. These products are
distributed through a computer-based network of warehouse facilities and truck
fleets radiating from 41 distribution centers and 16 Lagasse distribution
centers.
PRODUCTS
The Company's current product offerings, comprised of more than 30,000
stockkeeping units (SKUs), may be divided into five primary categories:
TRADITIONAL OFFICE PRODUCTS. The Company's core business continues to be
traditional office products, which includes both brand-name products and the
Company's private brand products. Traditional office products include writing
instruments, paper products, organizers and calendars and various office
accessories. The Company's traditional office product offerings are quite
deep, including, for example, more than 1,000 different SKUs of ring binders
and 800 types of file folders.
COMPUTERS AND RELATED SUPPLIES. The Company offers computer supplies,
peripherals and hardware with major brand names to computer resellers and
office products dealers. These products constituted approximately 22% of the
Company's 1997 net sales.
OFFICE FURNITURE. The Company's sale of office furniture such as leather
chairs, wooden and steel desks and computer furniture has enabled it to
become the nation's largest office furniture wholesaler, with the Company
currently offering nearly 4,000 furniture items from 50 different
manufacturers. Office furniture constituted approximately 15% of the
Company's 1997 net sales. The Company's "Pro-Image" consulting program
enables resellers with no previous expertise to provide high-end furniture
and office design services to end users. The Company offers national delivery
and product "set-up" capabilities to support office products dealers as well
as to attract new furniture dealers.
JANITORIAL AND SANITATION SUPPLIES. The Company's dedicated marketing effort
for janitorial and sanitation supplies was created in 1993 with the
development of United Facility Supply. In October 1996, the Company acquired
Lagasse, the largest pure wholesaler of janitorial and sanitation supplies in
North America. The Company currently distributes these products through 16
Lagasse distribution centers.
OTHER PRODUCTS. The Company's newest product categories encompass facilities
management supplies, specialty mailroom and warehouse items, kitchen and
cafeteria items, first aid products and ergonomic products designed to
enhance worker productivity, comfort and safety. Another one of the Company's
niche markets is business presentation products, including audio visual
equipment, flip charts and dry erase boards. Additionally, the Company offers
its "Signature Image" program, which provides resellers with access into the
advertising specialties market (such as imprinted and logo items).
CUSTOMERS
The Company sells principally to resellers of office products, consisting
primarily of commercial dealers and contract stationers, retail dealers,
superstores, mail order companies and mass merchandisers. In addition, the
Company sells to office furniture dealers, computer resellers and janitorial and
sanitary supply distributors. Of its 15,000 customers, no single reseller
accounted for more than 6% of the Company's net sales in 1997.
Commercial dealers and contract stationers are the most significant reseller
channel for office products distribution and typically serve large businesses,
institutions and government agencies. Through industry consolidation, the number
of such dealers has decreased, with the remaining dealers growing larger. As a
result, net sales to these commercial dealers and contract stationers as a group
have grown rapidly.
The number of retail dealers has been declining for some time as the result of
individual retail dealers' inability to compete successfully with the growing
number of superstores and, more recently, as a result of dealerships being
acquired and brought under an umbrella of common ownership. To adapt to this
highly competitive environment, many retail dealers, commercial dealers and
contract stationers have joined marketing or buying groups in order to increase
purchasing leverage. The Company believes it is the leading wholesale source for
many of these groups, providing not only merchandise but also special programs
that enable these dealers to take advantage of their combined purchasing power.
While the Company maintains and builds its business with commercial dealers,
contract stationers (including the contract stationer divisions of national
office product superstores) and retail dealers, it also had relationships
with most major office products superstore chains. In addition, the Company
supplies inventory and other fulfillment services to the retail operations of
certain superstores, including their direct-to-business delivery programs and
to non-stocking resellers.
MARKETING AND CUSTOMER SUPPORT
The Company concentrates its marketing efforts on providing value-added services
to resellers. The Company distributes products that are generally available at
similar prices from multiple sources, and most of its customers purchase their
products from more than one source. As a result, the Company seeks to
differentiate itself from its competitors through a broader product offering, a
higher degree of product availability, a variety of high quality customer
services and prompt distribution capabilities. In addition to emphasizing its
broad product line, extensive inventory, computer integration and national
distribution capabilities, the Company's marketing programs have relied upon two
additional major components. First, the Company produces an extensive array of
catalogs for commercial dealers, contract stationers and retail dealers that are
usually custom imprinted with each reseller's name and 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,
including business management systems, promotional programs and pricing
services. These services are designed to aid the reseller in differentiating
itself from its competitors by addressing the steps in the end-user's
procurement process.
Substantially all of the Company's 30,000 SKUs are sold through its
comprehensive general line catalogs, promotional pieces and specialty catalogs
for the office products, office furniture, facilities management supplies and
other specialty markets. The Company produces the following annual catalogs:
General Line Catalog; Office Furniture Catalog featuring furniture and
accessories; Universal Catalog promoting the Company's private-brand
merchandise; Computer Products Catalog offering hardware, supplies, accessories
and furniture; Facilities and Maintenance Supplies Catalog featuring janitorial,
maintenance, food service, warehouse, mailroom supplies and products and
supplies used for meetings and presentations; and the Lagasse Catalog offering
janitorial and sanitation supplies. In addition, the Company produces the
following quarterly promotional catalogs: Action 2000, featuring over 1,000
high-volume commodity items, and Computer Concepts, featuring computer supplies,
peripherals, accessories and furniture. The Company also produces separate
quarterly flyers covering general office supplies, office furniture and
Universal products. The majority of the expenses related to the production of
such catalogs is borne by the Company's suppliers. Because commercial dealers,
contract stationers and retail dealers typically distribute only one
wholesaler's catalogs in order to streamline and concentrate order entry, the
Company attempts to maximize the distribution of its catalogs by offering
advertising credits to resellers, which can be used to offset the cost of
catalogs. Also, the Company offers an electronic catalog available on CD-ROM and
through the Company's web site, www.unitedstationers.com.
The Company also offers to its resellers a variety of electronic order entry
systems and business management and marketing programs that enhance the
resellers' ability to manage their businesses profitably. For instance, the
Company maintains electronic data interchange systems that link the Company to
selected resellers and interactive order systems that link the Company to
selected resellers and such resellers to the ultimate end user. In addition, the
Company's 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 or directly to its customers. The Company estimates
that in 1997, it received approximately 90% of its orders electronically.
In addition to marketing its products and services through the use of its
catalogs, the Company employs a sales force of approximately 140 salespersons.
The sales force is responsible for sales and service to resellers with which the
Company has an existing relationship, as well as for establishing new
relationships with additional resellers. The Company supplements the efforts of
its sales force through telemarketing.
DISTRIBUTION
The Company has a network of 41 business products regional distribution centers
located in 37 metropolitan areas in 25 states in the United States, most of
which carry the Company's full line of inventory. The Company also maintains 16
Lagasse distribution centers that carry a full line of janitorial and sanitation
supplies. The Company supplements its regional distribution centers with 24
local distribution points throughout the United States that serve as reshipment
points for orders filled at the regional distribution centers. The Company
utilizes more than 400 trucks, substantially all of which are contracted for by
the Company, to enable direct delivery from the regional distribution centers
and local distribution points to resellers.
The Company's distribution capabilities are aided by its proprietary,
computer-driven inventory locator system. If a reseller places an order for an
item that is out of stock at the Company location which usually serves the
particular reseller, the Company's system will automatically search for the item
at alternative distribution centers. If the item is available at an alternative
location, the system will automatically forward the order to that alternate
location, which will then coordinate shipping with the primary facility and, for
the majority of resellers, provide a single on-time delivery. The system
effectively provides the Company with added inventory support that enables it to
provide higher service levels to the reseller, to reduce back orders and to
minimize time spent searching for merchandise substitutes, all of which
contribute to the Company's high order fill rate and efficient levels of
inventory balances.
Another service offered by the Company to resellers is its "wrap and label"
program, that offers resellers the option to receive prepackaged orders
customized to meet the specifications of particular end users. For example, when
a reseller receives orders from a number of separate end users, the Company can
group and wrap the items separately by end user so that the reseller need only
deliver the package. The "wrap and label" program is attractive to resellers
because it eliminates the need to break down case shipments and to repackage the
orders before delivering them to the end user. The Company also can ship orders
directly to end users on behalf of resellers.
PURCHASING AND MERCHANDISING
As the largest business products wholesaler in North America, the Company
qualifies for substantial volume allowances and can realize significant
economies of scale. The Company obtains products from over 500 manufacturers,
for many of whom the Company believes it is a significant customer. In 1997, no
supplier accounted for more than 14% of the Company's aggregate purchases. As a
centralized corporate function, the Company's merchandising department
interviews and selects suppliers and products for inclusion in the catalogs.
Selection is based upon end-user acceptance and demand for the product and the
manufacturer's total service, price and product quality offering.
COMPETITION
The Company competes with office products manufacturers and with other national,
regional and specialty wholesalers of office products, office furniture,
computers and related items, and facility management supplies. Competition
between the Company and manufacturers is based primarily upon net pricing,
minimum order quantity and product availability. Although manufacturers may
provide lower prices to resellers than the Company does, the Company's marketing
and catalog programs, combined with speed of delivery and its ability to offer
resellers a broad line of business products from multiple manufacturers on a
"one-stop shop" basis and with lower minimum order quantities, are important
factors in enabling the Company to compete effectively. Manufacturers
typically sell their products through a variety of distribution channels,
including wholesalers and resellers.
Competition between the Company and 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 the quality of its
marketing and other services. The Company believes it is competitive in each of
these areas. Most wholesale distributors of office products conduct operations
regionally and locally, sometimes with limited product lines such as writing
instruments or computer products. Only one other national wholesaler carries a
general line of office products.
Increased competition in the office products industry, together with increased
advertising, has heightened price awareness among end users. As a result,
purchasers of commodity type office products have become extremely price
sensitive, and therefore, the Company has increased its efforts to market to
resellers the continuing advantages of its competitive strengths (as compared to
those of manufacturers and other wholesalers).
EMPLOYEES
As of December 31, 1997, the Company employed approximately 5,500 persons.
The Company considers its relations with employees to be good. Approximately
1,000 of the shipping, warehouse and maintenance employees at certain of the
Chicago, Detroit, Philadelphia, Baltimore, Los Angeles, Minneapolis and New York
City facilities are covered by collective bargaining agreements. The agreements
expire at various times during the next three years. The Company has not
experienced any work stoppages during the past five years.
ITEM 2. PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. These properties consist of the following:
EXECUTIVE OFFICES. The Company's office facility in Des Plaines, Illinois has
approximately 135,800 square feet of office and storage space. In addition,
approximately 47,000 square feet of office space located in Mt. Prospect,
Illinois is leased by the Company. This lease expires in September of 1999 with
an option to renew for two five-year terms.
USSC REGIONAL DISTRIBUTION CENTERS. The Company presently operates 41
distribution centers in 25 states. These centers represent, in total,
approximately 7.3 million square feet, of which approximately 4.3 million is
owned and the balance is leased.
LOCAL DISTRIBUTION POINTS. The Company also operates 24 local distribution
points. Two are leased by the Company; the other local distribution points are
operated through cross-docking arrangements with third party distribution
companies.
LAGASSE DISTRIBUTION CENTERS. Lagasse operates 16 leased distribution centers,
specifically serving janitorial and sanitary supply distributors. These centers
represent, in total, approximately 589,000 square feet. Its New Orleans
distribution center also includes 22,000 square feet of executive office space.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary course of
its business. The Company is not involved in any legal proceeding that it
believes 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
On September 5, 1997, the Company issued notice and proxy statements for action
to be taken by written consent, expiring on October 6, 1997, in lieu of a
special meeting of stockholders for the purpose of considering approval of the
amendments to the Company's Management Equity Plan.
The tabulation of the votes was as follows:
For Against Abstain Not Voted
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10,356,381 341,809 6,335 915,230
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THE COMPANY
Income (Loss)
Income (Loss) Per Share
Before Net Before Net Income
Year Ended Net Gross Extraordinary Income Extraordinary (Loss)
December 31, 1997 Sales Profit (1) Item (Loss) Item (2) Per Share (2)
- ----------------- ----------- ---------- ------------- -------- ------------- -------------
First Quarter $ 635,021 $108,742 $ 10,009 $ 10,009 $0.65 $0.65
Second Quarter 610,041 104,734 9,870 9,870 0.64 0.64
Third Quarter 650,912 114,442 11,867 11,867 0.74 0.74
Fourth Quarter (3) 662,161 118,013 (23,558) (29,442) (1.52)(4) (1.90)(4)
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Totals (3) $2,558,135 $445,931 $ 8,188 $ 2,304 0.43 0.05
---------- -------- -------- --------
---------- -------- -------- --------
Year Ended
December 31, 1996
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First Quarter $ 586,881 $102,526 $ 8,209 $ 8,209 $0.51 $0.51
Second Quarter 535,690 87,212 5,273 5,273 0.32 0.32
Third Quarter 576,254 98,207 8,781 8,781 0.56 0.56
Fourth Quarter 599,345 103,016 9,730 9,730 0.63 0.63
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Totals $2,298,170 $390,961 $ 31,993 $ 31,993 2.03 2.03
---------- -------- -------- --------
---------- -------- -------- --------
(1) Gross profit is net of delivery and occupancy costs. See Note 3
(Reclassification) to the Consolidated Financial Statements of the Company
included elsewhere herein.
(2) As a result of changes in the number of common and common equivalent shares
during the year, the sum of quarterly earnings per share will not equal
earnings per share for the total year.
(3) The fourth quarter and year ended December 31, 1997 reflect a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a cash charge of $5.3 million ($3.2 million net of tax
benefit of $2.1 million) related to the vesting of stock options and the
termination of certain management advisory service agreements. In addition,
during the fourth quarter of 1997, the Company recorded an extraordinary
loss of $9.8 million ($5.9 million net of tax benefit of $3.9 million)
related to the early retirement of debt. See Note 1 to the Consolidated
Financial Statements of the Company included elsewhere herein.
(4) Net loss per common share during the fourth quarter of 1997 is calculated
using only the weighted average number of common shares outstanding.
QUARTERLY STOCK PRICE DATA
The Common Stock is quoted through the NASDAQ National Market System under the
symbol "USTR." The following table sets forth on a per share basis, for the
periods indicated, the high and low closing sale prices per share for the Common
Stock as reported by the NASDAQ National Market System.
High Low
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1996
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First Quarter $30 1/4 $21 1/2
Second Quarter $24 1/2 $19 1/2
Third Quarter $24 1/2 $17 1/2
Fourth Quarter $23 $19 1/2
1997
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First Quarter $21 3/4 $18 3/4
Second Quarter $27 1/2 $19
Third Quarter $38 1/4 $23 7/8
Fourth Quarter $48 5/8 $37 1/4
On February 25, 1998, there were approximately 1,095 holders of record of Common
Stock.
The Company does not currently intend to pay any cash dividends on the Common
Stock. Furthermore, as a holding company, the ability of United to pay
dividends in the future is dependent upon the receipt of dividends or other
payments from its operating subsidiary, USSC. The payment of dividends by USSC
is subject to certain restrictions imposed by the Company's debt agreements.
See Note 6 to the Consolidated Financial Statements of the Company included
elsewhere herein.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is the selected historical consolidated financial data for the
Company. Although United was the surviving corporation in the Merger, the
Acquisition was treated as a reverse acquisition for accounting purposes, with
Associated as the acquiring corporation. Therefore, the income statement,
operating, and other data for the year ended December 31, 1995 reflect the
financial information of Associated only for the three months ended March 30,
1995, and the results of the Company for the nine months ended December 31,
1995. The balance sheet data at December 31, 1997, 1996 and 1995 reflects the
consolidated balances of the Company, including various Merger-related
adjustments. Income statement data for all periods presented reflect a
reclassification of delivery and occupancy costs to cost of goods sold from
operating expenses.
The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." For further discussion, see Note 3 (New Accounting Pronouncements) to
the Consolidated Financial Statements of the Company, included elsewhere herein.
THE COMPANY/ASSOCIATED
The selected consolidated financial data for the years ended December 31, 1993
and 1994 has been derived from the Consolidated Financial Statements of
Associated which have been audited by Arthur Andersen LLP, independent public
accountants. The selected consolidated financial data of the Company for the
years ended December 31, 1997, 1996 and 1995 (which for Income Statement,
Operating, and Other Data includes Associated only for the three months ended
March 30, 1995 and the results of the Company for the nine months ended December
31, 1995) have been derived from the Consolidated Financial Statements of the
Company which have been audited by Ernst & Young LLP, independent auditors. All
selected consolidated financial data set forth below should be read in
conjunction with, and is qualified in its entirety by, "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Historical
Results of Operations of the Company/Associated," "Liquidity and Capital
Resources of the Company/Associated" and the Consolidated Financial Statements
of the Company included elsewhere in this Form 10-K.
The Company
----------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
(dollars in thousands, except per share data)
Income Statement Data:
- ----------------------
Net sales $2,558,135 $2,298,170 $1,751,462 $470,185 $455,731
Cost of goods sold 2,112,204 1,907,209 1,446,949 382,299 375,226
---------- ---------- ---------- -------- --------
Gross profit 445,931 390,961 304,513 87,886 80,505
Operating expenses:
Warehousing, marketing and
administrative expenses 311,002 277,957 246,956(2) 69,765 69,527
Non-recurring charges 64,698(1) - - - - - - - -
---------- ---------- ---------- -------- --------
Total operating expenses 375,700 277,957 246,956(2) 69,765 69,527
---------- ---------- ---------- -------- --------
Income from operations 70,231 113,004 57,557 18,121 10,978
Interest expense, net 53,511 57,456 46,186 7,725 7,235
---------- ---------- ---------- -------- --------
Income before income taxes
and extraordinary item 16,720 55,548 11,371 10,396 3,743
Income taxes 8,532 23,555 5,128 3,993 781
---------- ---------- ---------- -------- --------
Income before extraordinary
item 8,188 31,993 6,243 6,403 2,962
Extraordinary item - loss on
early retirement of debt, net of
tax benefit of $3,956 in 1997
and $967 in 1995 (5,884) - - (1,449) - - - -
---------- ---------- ---------- -------- --------
Net income $ 2,304 $ 31,993 $ 4,794 $ 6,403 $ 2,962
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Net income attributable to
common stockholders $ 776 $ 30,249 $ 2,796 $ 4,210 $ 915
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Net income per common
share - assuming dilution
Income before extraordinary item $0.43 $2.03 $0.33 $0.51 $0.11
Extraordinary item (0.38) - - (0.11) - - - -
---------- ---------- ---------- -------- --------
Net income $0.05 $2.03 $0.22 $0.51 $0.11
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Cash dividends declared per
common share - - - - - - - - - -
Operating and Other Data:
- -------------------------
EBITDA (3) $ 96,272 $ 139,046 $ 81,241 $ 23,505 $ 16,481
EBITDA margin (4) 3.8%(5) 6.1% 4.6%(6) 5.0% 3.6%
Depreciation and
amortization (7) $ 26,041 $ 26,042 $ 23,684 $ 5,384 $ 5,503
Capital expenditures 12,991 (2,886)(8) 8,017 554 3,273
The Company
----------------------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------------------
1997(9) 1996 1995(10) 1994 1993
---------- ---------- ---------- -------- --------
(dollars in thousands, except per share data)
Operating Results Before Charges: (9)(10)
- ---------------------------------
Income from operations $134,929 $113,004 $67,316 $18,121 $10,978
Net income attributable to
common stockholders 45,364 30,249 10,081 4,210 915
Net income per common
share - assuming dilution 2.95 2.03 0.79 0.51 0.11
EBITDA 160,970 139,046 91,000 23,505 16,481
EBITDA margin 6.3% 6.1% 5.2% 5.0% 3.6%
The Company
----------------------------------------------------------------------
As of December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
(dollars in thousands)
Balance Sheet Data:
- -------------------
Working capital $ 451,449 $ 404,973 $ 355,465 $ 56,454 $ 57,302
Total assets 1,148,021 1,109,867 1,001,383 192,479 190,979
Total debt and capital lease (11) 537,135 600,002 551,990 64,623 86,350
Redeemable preferred stock - - 19,785 18,041 23,189 20,996
Redeemable warrants - - 23,812 39,692 1,650 1,435
Total stockholders' equity 223,308 75,820 30,024 24,775 11,422
(1) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the vesting
of stock options and the termination of certain management advisory
service agreements.
(2) Includes a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) for the year ended December 31, 1995.
(3) EBITDA for 1997 would have been $161.0 million excluding the non-recurring
charges. EBITDA is defined as earnings before interest, taxes, depreciation
and amortization and extraordinary item and is presented because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service and incur debt. EBITDA should not be
considered in isolation, from or as a substitute for, net income, cash
flows from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(4) EBITDA margin represents EBITDA as a percent of net sales.
(5) EBITDA margin would have been 6.3% excluding the non-recurring charges.
(6) EBITDA margin would have been 5.2% excluding the restructuring charge.
(7) Excludes $4.3 million of amortization related to deferred financing costs,
which is a component of interest expense.
(8) Includes $11.1 million of proceeds from the sale of property, plant and
equipment.
(9) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a non-recurring cash charge of $5.3 million
($3.2 million net of tax benefit of $2.1 million) related to the vesting
of stock options and the termination of certain management advisory
service agreements. In addition, during the fourth quarter of 1997 the
Company recorded an extraordinary loss of $9.8 million ($5.9 million net
of tax benefit of $3.9 million) related to early retirement of debt.
(10) During 1995, the Company recorded a restructuring charge of $9.8 million
($5.9 million net of tax benefit of $3.9 million) and an extraordinary loss
of $2.4 million ($1.4 million net of tax benefit of $1.0 million) related
to early retirement of debt.
(11) Total debt and capital lease include current maturities.
UNITED
The selected consolidated financial data of United (a predecessor of the
Company) set forth below for the seven months ended March 30, 1995 (at which
time United and Associated merged to create the Company) have been derived from
the Consolidated Financial Statements of United which have been audited by Ernst
& Young LLP, independent auditors. The selected financial data at and for the
seven-month period ended March 31, 1994 are unaudited and in the opinion of
management reflects all adjustments considered necessary for a fair presentation
of such data. The selected consolidated financial data of United for each of the
two fiscal years ended August 31, 1994 and 1993 have been derived from the
Consolidated Financial Statements of United which have been audited by Arthur
Andersen LLP, independent public accountants.
All selected consolidated financial data set forth below should be read in
conjunction with, and is qualified in its entirety by, "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Historical
Results of Operations of United," included elsewhere herein.
UNITED
-----------------------------------------------------
SEVEN MONTHS ENDED YEARS ENDED AUGUST 31,
------------------------ -------------------------
MARCH 30, MARCH 31,
1995 1994 1994 1993
-------- -------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales $980,575 $871,585 $1,473,024 $1,470,115
Cost of sales 814,780 717,546 1,220,245 1,197,664
-------- -------- ---------- ----------
Gross profit on sales 165,795 154,039 252,779 272,451
Operating expenses 133,098 128,594 216,485 226,337
Merger-related costs 27,780(1) - - - - - -
-------- -------- ---------- ----------
Income from operations 4,917 25,445 36,294 46,114
Interest expense, net 7,500 5,837 10,461 9,550
Other income, net 41 117 225 355
-------- -------- ---------- ----------
Income (loss) before income taxes (2,542) 19,725 26,058 36,919
Income taxes 4,692 8,185 10,309 15,559
-------- -------- ---------- ----------
Net income (loss) $ (7,234) $ 11,540 $ 15,749 $ 21,360
-------- -------- ---------- ----------
-------- -------- ---------- ----------
Net income (loss) per common
share - assuming dilution $ (0.39) $ 0.62 $ 0.85 $ 1.15
Cash dividends declared per share 0.30 0.30 0.40 0.40
OPERATING AND OTHER DATA:
EBITDA(2) 17,553 37,665 57,755 67,712
EBITDA margin(3) 1.8% 4.3% 3.9% 4.6%
Depreciation and amortization $ 12,595 $ 12,103 $ 21,236 $ 21,243
Net capital expenditures 7,764 4,287 10,499 29,958
BALANCE SHEET DATA (AT PERIOD END):
Working capital 257,600 297,099 239,827 216,074
Total assets 711,839 608,728 618,550 634,786
Total debt and capital leases(4) 233,406 227,626 155,803 150,251
Stockholders' investment 233,125 243,636 246,010 237,697
(1) In connection with the Merger, United incurred approximately $27.8 million
of Merger-related costs, consisting of severance payments under employment
contracts ($9.6 million); insurance benefits under employment contracts
($7.4 million); legal, accounting and other professional services fees
($5.2 million); retirement of stock options ($3.0 million); and fees for
letters of credit related to employment contracts and other costs ($2.6
million).
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation, from or as a
substitute, for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) Total debt and capital leases include current maturities.
ITEM 7. 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-K.
Certain information presented in this Form 10-K includes forward-looking
statements regarding the Company's future results of operations. The Company is
confident that its expectations are based on reasonable assumptions given its
knowledge of its operations and business. However, there can be no assurance
that the Company's actual results will not differ materially from its
expectations. The matters referred to in forward-looking statements may be
affected by the risks and uncertainties involved in the Company's business
including, among others, competition with business products manufacturers and
other wholesalers, consolidation of the business products industry, the ability
to maintain gross profit margins, the ability to reduce operating expenses as a
percent of net sales, changing end-user demands, changes in manufacturers'
pricing, service interruptions and availability of liquidity and capital
resources.
OVERVIEW
On October 10, 1997, the Company completed a 2.0 million share primary offering
of Common Stock and a 3.4 million share secondary offering of Common Stock
("Equity Offering"). The shares were priced at $38.00 per share, before
underwriting discounts and a commission of $1.90 per share. The aggregate net
proceeds to the Company from this Equity Offering of $72.2 million (before
deducting expenses) and proceeds of $0.1 million resulting from the conversion
of 1,119,038 warrants into common stock were used to (i) redeem $50.0 million of
the Company's 12 3/4% Senior Subordinated Notes and pay the redemption premium
thereon of $6.4 million, (ii) pay fees related to the Equity Offering, and (iii)
reduce the indebtedness under the Term Loan Facilities by $15.5 million. The
repayment of indebtedness resulted in an extraordinary loss of $9.8 million
($5.9 million net of tax benefit of $3.9 million) and caused a permanent
reduction of the amount borrowable under the Term Loan Facilities.
On March 30, 1995, Associated merged with and into United. Although United
was the surviving corporation in the Merger, the transaction was treated as a
reverse acquisition for accounting purposes, with Associated as the acquiring
corporation. Therefore, the results of operations for the year ended December
31, 1995 reflects the financial information of Associated only for the three
months ended March 30, 1995 and the results of the Company for the nine months
ended December 31, 1995. As a result of the Merger, the results of operations of
the Company for the year ended December 31, 1995 are not comparable to those of
previous and subsequent periods.
To facilitate a meaningful comparison, the following supplemental discussion and
analysis is based on the pro forma results of operations for the Company for the
year ended December 31, 1995. The pro forma results of operations do not purport
to be indicative of the results that would have been obtained had such
transactions been completed for the periods presented or that may be obtained in
the future.
GENERAL INFORMATION
EMPLOYEE STOCK OPTIONS. The Management Equity Plan (the "Plan"), as amended, is
administered by the Board of Directors, although the Plan allows the Board of
Directors of the Company to designate an option committee to administer the
Plan. The Plan provides for the issuance of shares of Common Stock through the
exercise of options, to key officers and management employees of the Company,
either as incentive stock options or as non-qualified stock options.
In October 1997, the Company's stockholders approved an amendment to the Plan
which provided for the issuance of approximately 1.5 million additional options
to key management employees and directors of the Company. During 1997,
approximately 0.3 million options were granted to management employees and
directors at fair market value.
In September 1995, the Company's Board of Directors approved an amendment to the
Plan which provided for the issuance of options in connection with the Merger
("Merger Incentive Options") to key management employees of the Company
exercisable for up to 2.2 million additional shares of its Common Stock.
Subsequently, approximately 2.2 million options were granted during 1995 and
1996 to management employees. Some of the options were granted at an option
price below market value and the option price of certain options increased by
$0.625 on a quarterly basis effective April 1, 1996.
These Merger Incentive Options were granted in order to provide incentives to
management with respect to the successful development of ASI and the integration
of ASI with the Company. All Merger Incentive Options were vested and became
exercisable with the completion of the Equity Offering in October 1997. All
Common Stock issued from the exercise of Merger Incentive Options is subject to
a six month holding period which expires on April 10, 1998. In the fourth
quarter of 1997 the Company was required to recognize compensation expense based
upon the difference between the fair market value of the Common Stock and the
exercise prices. Based on the closing stock price on October 10, 1997 of
$39.125 and options outstanding as of October 10, 1997, the Company recognized a
non-recurring non-cash charge of $59.4 million ($35.5 million net of tax benefit
of $23.9 million).
RESTRUCTURING CHARGE. The historical results for the twelve months ended
December 31, 1995 include a restructuring charge of $9.8 million ($5.9
million net of tax benefit of $3.9 million). The restructuring charge
included severance costs totaling $1.8 million. The Company's consolidation
plan specified that 330 distribution, sales and corporate positions, 180 of
which related to pre-Merger Associated, were to be eliminated substantially
within one year following the Merger. The Company achieved its target, with
the related termination costs of approximately $1.8 million charged against
the reserve. The restructuring charge also included distribution center
closing costs totaling $6.7 million and stockkeeping unit reduction costs
totaling $1.3 million. The consolidation plan called for the closing of
eight redundant distribution centers, six of which related to pre-Merger
Associated, and the elimination of overlapping inventory items from the
Company's catalogs substantially within the one-year period following the
Merger. Estimated distribution center closing costs included (i) the net
occupancy costs of leased facilities after they are vacated until expiration
of leases and (ii) the losses on the sale of owned facilities and the
facilities' furniture, fixtures, and equipment. Estimated stockkeeping unit
reduction costs included losses on the sale of inventory items which have
been discontinued solely as a result of the Acquisition. As of December 31,
1997, five of the six redundant pre-Merger Associated distribution centers
had been closed with $5.5 million charged against the reserve and $2.0
million related to stockkeeping unit reduction costs had also been charged
against the reserve. As of December 31, 1997, the Company's consolidation
plan had been substantially completed. Seven of the eight redundant
distribution centers had been closed. The restructuring reserve balance at
December 31, 1997 of $0.3 million is adequate to cover the remaining
estimated expenditures related to integration and transition costs. See Note
5 to the Consolidated Financial Statements of the Company included elsewhere
herein.
CHANGE IN ACCOUNTING METHOD. Effective January 1, 1995, Associated changed its
method of accounting for the cost of inventory from the FIFO method to the LIFO
method. Associated made this change in contemplation of its acquisition of
United (accounted for as a reverse acquisition) so that its method would conform
to that of United. Associated believed that the LIFO method provided a better
matching of current costs and current revenues, and that earnings reported under
the LIFO method are more easily compared to that of other companies in the
wholesale industry where the LIFO method is common. In 1995, this change
resulted in the reduction of pre-tax income of the Company of approximately $8.8
million ($5.3 million net of tax benefit of $3.5 million). See Note 3
(Inventories) to the Consolidated Financial Statements of the Company included
elsewhere herein.
RECLASSIFICATION OF DELIVERY AND OCCUPANCY COSTS.
During the fourth quarter of 1996, the Company reclassified its delivery and
occupancy costs from operating expenses to cost of goods sold to conform the
Company's presentation to the presentation used by others in the business
products industry. See Note 3 (Reclassification) to the Consolidated Financial
Statements included elsewhere herein.
ACTUAL AND PRO FORMA RESULTS OF OPERATIONS
The following table of summary actual and pro forma (see Note 5 to the
Consolidated Financial Statements of the Company included elsewhere herein) is
intended for informational purposes only and is not necessarily indicative of
either financial position or results of operations in the future, or that would
have occurred had the events described in the second paragraph under "Overview"
occurred on January 1, 1995. The following information should be read in
conjunction with, and is qualified in its entirety by, the historical
Consolidated Financial Statements of the Company and its predecessors, including
the related notes thereto, included elsewhere herein.
Years Ended December 31,
-------------------------------------------------------
Pro Forma
1997 1996 1995
------------------ ------------------ ------------------
(dollars in thousands)
Net sales $2,558,135 100.0% $2,298,170 100.0% $2,201,860 100.0%
Gross profit 445,931 17.4 390,961 17.0 381,270 17.3
Operating expenses 311,002 12.2 277,957 12.1 299,861 13.6
Non-recurring charges 64,698 2.5 - - - - - - - -
Income from operations 70,231 2.7 113,004 4.9 81,409 3.7
HISTORICAL RESULTS OF OPERATIONS OF THE COMPANY/ASSOCIATED
COMPARISON OF ACTUAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET SALES. Net sales increased 11.8%, on equivalent workdays, to $2.6 billion
for 1997 compared with $2.3 billion for 1996. This increase represents strength
in all geographic regions. Also, the Company's janitorial and sanitation
products, office furniture and traditional office supplies experienced strong
growth throughout the year.
Net sales for 1997 include ten months of incremental sales related to the
October 1996 acquisition of Lagasse Bros., Inc. Excluding the Lagasse
acquisition, sales growth for 1997 was 8.8%.
GROSS MARGIN. Gross margin increased to 17.4% in 1997 from 17.0% in 1996. This
increase reflects higher vendor rebates obtained by meeting higher purchase
volume hurdles. In addition, the Company continued to see a shift in product
mix toward higher margin items. Lower margin computer hardware declined as a
percent of total sales.
OPERATING EXPENSES. Operating expenses as a percent of net sales, before
non-recurring charges, remained nearly flat at 12.2% in 1997 compared with
12.1% in 1996. Non-recurring charges recorded in the fourth quarter of 1997
were $59.4 million (non-cash) and $5.3 million (cash) related to the vesting
of stock options and the termination of certain management advisory service
agreements. During 1997, the Company accelerated certain discretionary
expenditures that represent investments in the future, specifically,
preparation for the Year 2000 computer system issues and investments related
to strategic planning. In addition, the Company continues to improve
warehouse and systems efficiencies to produce high levels of customer and
consumer satisfaction. Operating expenses as a percent of net sales,
including the aforementioned non-recurring charges, was 14.7% in 1997.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales,
before non-recurring charges, increased to 5.2% from 4.9% in 1996. Including
non-recurring charges, income from operations as a percent of net sales was 2.7%
in 1997.
INTEREST EXPENSE. Interest expense as a percent of net sales was 2.1% compared
with 2.5% in 1996. This reduction reflects the continued leveraging of fixed
interest costs against higher sales.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income
taxes and extraordinary item as a percent of net sales, excluding the impact
of non-recurring charges, increased to 3.1% from 2.4% in 1996. Including
non-recurring charges, income before income taxes and extraordinary item as a
percent of net sales was 0.6% in 1997.
NET INCOME. Net income in 1997 includes an extraordinary item, loss on the
early retirement of debt of $9.8 million ($5.9 million net of tax benefit of
$3.9 million) or .2% of net sales. Net income as a percent of net sales,
excluding the impact of non-recurring charges and early retirement of debt,
increased to 1.8% in 1997 from 1.4% in 1996. Including non-recurring charges
and extraordinary item, net income as a percent of net sales was 0.1% in 1997.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are recorded
throughout the year including inventory shrinkage, required LIFO reserve,
manufacturers' allowances, advertising costs and various expense items. During
the fourth quarter of 1997, the Company recorded a favorable net income
adjustment of approximately $2.9 million relating to the refinement of estimates
recorded in the prior three quarters.
In the fourth quarter of 1997, the Company recognized the following charges (i)
pre-tax non-recurring charges of $59.4 million (non-cash) and $5.3 million
(cash) related to the vesting of stock options and the termination of certain
management advisory service agreements (see Note 10 to the Consolidated
Financial Statements of the Company included elsewhere herein), and (ii) an
extraordinary loss of $9.8 million ($5.9 million net of tax benefit of $3.9
million) related to the early retirement of debt (see Note 6 to the Consolidated
Financial Statements of the Company included elsewhere herein).
COMPARISON OF ACTUAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased 31.2% to $2.3 billion for 1996 from $1.8 billion
for 1995. This increase was primarily the result of the Merger for a full
twelve months in 1996. Sales in 1995 include only nine months of United's
sales.
GROSS MARGIN. Gross margin declined to 17.0% in 1996 from 17.4% in 1995. This
decrease reflects a shift in our product mix, the continuing consolidation of
our dealer base and deflation across our product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent of net sales to
12.1% in 1996, compared with 14.1% in 1995. The results for 1995 include the
impact of a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million). The decline in the operating expense ratio before the
restructuring charge (12.1% in 1996 versus 13.5% in 1995) was primarily due to
the realization of merger synergies, cost containment, productivity improvements
and leveraging of fixed expenses.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.3% in 1995.
INTEREST EXPENSE. Interest expense as a percent of net sales was 2.5% in 1996,
compared with 2.6% in 1995. This reduction reflects the leveraging of fixed
interest costs against higher sales, partially offset by funding required to
acquire Lagasse Bros., Inc. (see Note 1 to the Consolidated Financial Statements
of the Company, included elsewhere herein).
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item as a percent of net sales increased to 2.4% in 1996 from
0.7% in 1995.
NET INCOME. Net income as a percent of net sales increased to 1.4% in 1996 from
0.3% in 1995 resulting from the aforementioned reasons. Net income in 1995
includes an extraordinary item, loss on the early retirement of debt related to
the Merger of $2.4 million ($1.4 million net of tax benefit of $1.0 million) or
0.1% of net sales.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are recorded
throughout the year including inventory shrinkage, required LIFO reserve,
manufacturers' allowances, advertising costs and various expense items. During
the fourth quarter of 1996, the Company recorded approximately $3.0 million of
additional net income relating to the refinement of estimates recorded in the
prior three quarters.
COMPARISON OF ACTUAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND PRO FORMA
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 4.4% to $2.3 billion for 1996 from $2.2 billion
for 1995. This increase is primarily the result of higher unit sales in all
product categories. In addition, our Micro United division continues to report
strong growth resulting from the underlying strength in the marketplace. The
Company's year-long focus on improving the consistency and reliability of its
service has led to increased sales and higher customer and consumer
satisfaction. The Company's core strengths, coupled with the strategic
initiatives already under way, position it to deliver continued growth in both
sales and earnings.
GROSS MARGIN. Gross margin declined to 17.0% in 1996 from 17.3% in 1995. This
decrease reflects a shift in our product mix, the continuing consolidation of
our dealer base and deflation across our product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent of net sales to
12.1% in 1996, compared with 13.6% in 1995. This decrease is primarily due to
the realization of merger synergies, cost containment, productivity improvements
and leveraging of fixed expenses. The Company's operating efficiency allows it
to join forces with its customers to produce high levels of customer and
consumer satisfaction. The Company's management believes there is further room
for improvement, primarily through warehouse and systems efficiencies.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.7% in 1995.
HISTORICAL RESULTS OF OPERATIONS OF UNITED
COMPARISON OF THE SEVEN MONTHS ENDED MARCH 30, 1995 AND 1994
NET SALES. Net sales were $980.6 million in the seven months ended March 30,
1995, a 12.5% increase from net sales of $871.6 million in the comparable period
in 1994. The primary reason for the increase is growth in unit volume.
GROSS PROFIT ON SALES. Gross profit as a percent of net sales was 16.9% for
the seven months ended March 30, 1995, compared with 17.7% in the comparable
period in 1994. This lower gross profit margin is primarily the result of a
shift in the sale of computer related products that have lower gross profit
margins and is consistent with the gross profit margins achieved in the latter
half of United's fiscal year ended August 31, 1994.
OPERATING EXPENSES. Operating expenses as a percent of net sales increased to
16.4% in the seven-month period ended March 30, 1995 from 14.8% in the
comparable period in 1994. The increase is primarily attributable to $27.8
million ($18.5 million net of tax benefit of $9.3 million) of non-recurring
Merger-related costs consisting of severance payments under employment
contracts; insurance benefits under employment contracts; legal, accounting and
other professional services fees; the repurchase of stock options; and fees for
letters of credit related to employment contracts and other costs. Operating
expenses as a percent of net sales prior to the Merger-related costs were 13.6%
for the seven-month period ended March 30, 1995. This decline from the
comparable period in 1994 is due to a reduction in payroll expense.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales was
0.5% in the seven-month period ended March 30, 1995, compared with 2.9% in the
comparable period in 1994. The decrease was attributable to the Merger-related
costs discussed under "Operating Expenses" above. Income from operations as a
percent of net sales was 3.3% in the seven-month period ended March 30, 1995,
excluding the Merger-related costs.
INTEREST EXPENSE. Interest expense was $7.6 million for the seven-month period
ended March 30, 1995, compared with $6.1 million for the same period in 1994.
The increase was due to higher interest expense from increased debt to meet
working capital and other capital expenditure needs and higher interest rates on
borrowings.
INCOME (LOSS) BEFORE INCOME TAXES. Income (loss) before income taxes as a
percent of net sales was a loss of 0.3% in the seven-month period ended March
30, 1995, compared to income of 2.3% in the comparable period of 1994. The
decrease in income before income taxes was attributable to the factors stated
above.
INCOME TAXES. The effective tax rate for the seven-month period ended
March 30, 1995 was (184.6%), compared with 41.5% for the seven-month period
ended March 31, 1994. The increase is primarily due to non-deductible
Merger-related costs and non-deductible amortization of goodwill.
NET INCOME (Loss). Net income (loss) was a loss of $7.2 million for the
seven-month period ended March 30, 1995, compared with income of $11.5
million for the same period in 1994. The loss was primarily due to $27.8
million ($18.5 million net of tax benefit of $9.3 million) of non-recurring
Merger-related costs discussed under "Operating Expenses" above. Net income
(loss) per share was a loss of $0.39 in the seven-month period ended March
30, 1995, compared with income of $0.62 for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
As of December 31, 1997, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $148.8 million of term
loan borrowings (the "Term Loan Facilities"), and up to $325.0 million of
revolving loan borrowings (the "Revolving Credit Facility"). In the fourth
quarter of 1997, the Company redeemed $50.0 million of Notes (as defined) with
net proceeds from the Equity Offering and as a result the Company recognized an
extraordinary loss on early retirement of debt of $9.8 million ($5.9 million net
of tax benefit of $3.9 million). Therefore, the Company has $100.0 million of
borrowings remaining under the 12 3/4% Senior Subordinated Notes due 2005 (the
"Notes").
The Term Loan Facilities consist of a $97.5 million Tranche A term loan facility
(the "Tranche A Facility") and a $51.3 million Tranche B term loan facility
(the "Tranche B Facility"). Quarterly payments under the Tranche A facility
range from $5.03 million at December 31, 1997 to $6.25 million at September 30,
2001. Quarterly payments under the Tranche B Facility range from $0.20 million
at December 31, 1997 to $5.00 million at September 30, 2003. On March 31, 1998,
principal payments of $15.8 million and $8.7 million are required to be paid
from Excess Cash Flow (as defined in the Credit Agreement) at December 31, 1997
for the Tranche A and Tranche B Facilities, respectively. During October 1997,
Tranche A and Tranche B Facilities were paid down by $10.3 million and $5.2
million, respectively, from net proceeds received from the Equity Offering in
October 1997.
The Revolving Credit Facility is limited to the lesser of $325.0 million or a
borrowing base equal to: 80% of Eligible Receivables (as defined in the Credit
Agreement); plus 50% of Eligible Inventory (as defined in the Credit Agreement)
(provided that no more than 60% or, during certain periods 65%, of the Borrowing
Base may be attributable to Eligible Inventory); plus the aggregate amount of
cover for Letter of Credit Liabilities (as defined in the Credit Agreement). In
addition, for each year, the Company must repay revolving loans so that for a
period of 30 consecutive days in each year the aggregate revolving loans do not
exceed $250.0 million. The Revolving Credit Facility matures on October 31,
2001.
The Term Loan Facilities and the Revolving Credit Facility are secured by first
priority pledges of the stock of USSC, all of the stock of the domestic direct
and indirect subsidiaries of USSC, certain of the stock of all of the foreign
direct and indirect subsidiaries of USSC and security interests in, and liens
upon, all accounts receivable, inventory, contract rights and other certain
personal and certain real property of USSC and its domestic subsidiaries.
The loans outstanding under the Term Loan Facilities and the Revolving Credit
Facility bear interest as determined within a set range with the rate based on
the ratio of total debt (excluding any undrawn amounts under any letters of
credit) to EBITDA (as defined in the Credit Agreement). The Tranche A Facility
and the Revolving Credit Facility bear interest at prime plus 0.25% to 1.25% or,
at the Company's option, the London Interbank Offering Rate ("LIBOR") plus 1.50%
to 2.50%. The Tranche B Facility bears interest at prime plus 1.25% to 1.75%
or, at the Company's option, LIBOR plus 2.50% to 3.00%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financings of this type.
As of December 31, 1997 the Company was in compliance with all covenants
contained in the Credit Agreement.
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate protection agreements, including collar
agreements, to reduce the impact of fluctuations in interest rates on a portion
of its variable rate debt. Such agreements generally require the Company to pay
to or entitle the Company to receive from the other party the amount, if any, by
which the Company's interest payments fluctuate beyond the rates specified in
the agreements. The Company is subject to the credit risk that the other party
may fail to perform under such agreements. The Company's allocated cost of such
agreements is amortized to interest expense over the term of the agreements, and
the unamortized cost is included in other assets. Payments received or made as
a result of the agreements, if any, are recorded as an addition or a reduction
to interest expense. At December 31, 1997, the Company had agreements which
collar $200.0 million of the Company's borrowings under the Credit Facilities at
LIBOR rates between 6.0% and 8.0%, which expire in April 1998. From April 1998
through October 1999, the Company has interest rate collar agreements on $200.0
million of borrowings at LIBOR rates between 5.2% and 8.0%. For the years ended
December 31, 1997 and 1996, the Company recorded $0.6 million and $0.9 million,
respectively, to interest expense resulting from LIBOR rate fluctuations below
the floor rate specified in the collar agreements.
Capital expenditures will be financed from internally generated funds and
available borrowings under the Credit Agreement. The Company expects gross
capital expenditures to be approximately $23.0 million to $26.0 million in 1998.
The Credit Agreement permits capital expenditures for the Company of up to $36.3
million for the year ended December 31, 1998, which includes (i) the annual
allowance of $15.0 million, (ii) $2.0 million of unused capital expenditures
from the year ended December 31, 1997, (iii) $8.2 million of unused Excess Cash
Flow (as defined in the Credit Agreement) from the year ended December 31, 1997
and (iv) $11.1 million of proceeds from the disposition of certain property,
plant and equipment from the years ended December 31, 1997, 1996 and 1995.
Management believes that the Company's cash on hand, anticipated funds generated
from operations and available borrowings under the Credit Agreement, will be
sufficient to meet the short-term (less than twelve months) and long-term
operating and capital needs of the Company as well as to service its debt in
accordance with its terms. There is, however, no assurance that this will be
accomplished.
The Company has announced that it has signed a definitive purchase agreement
with Abitibi-Consolidated Inc. to acquire the U.S. and Mexican operations of
its Office Products Division. In connection therewith, the Company is
negotiating significant changes to its Revolving Credit Facility and Term
Loan Facilities to accomplish this acquisition.
United is a holding company and, as a result, its primary source of funds is
cash generated from operating activities of its operating subsidiary, USSC, and
bank borrowings by USSC. The Credit Agreement and the indenture governing the
Notes contain restrictions on the ability of USSC to transfer cash to United.
The statements of cash flows for the Company for the periods indicated is
summarized below:
Years Ended December 31,
---------------------------------------
1997 1996 1995
--------- -------- ---------
(dollars in thousands)
Net cash provided by operating activities $ 41,768 $ 1,609 $ 26,329
Net cash used in investing activities (12,991) (49,871) (266,291)
Net cash (used in) provided by financing activities (27,029) 47,221 249,773
Net cash provided by operating activities for 1997 increased to $41.8 million
from $1.6 million in 1996. This change was due to slower inventory growth of
$23.0 million, higher net income (before non-recurring charge) and an increase
in accrued liabilities of $35.2 million partially offset by a $21.4 million
decline in deferred tax expense and a $38.0 million decline in accounts payable.
Net cash provided by operating activities for 1996 declined to $1.6 million from
$26.3 million in 1995. This reduction was due to an increased investment in
inventory and a decrease in accrued liabilities offset by higher net income and
an increase in accounts payable.
Net cash used in investing activities during 1997 was $13.0 million compared
with $49.9 million in 1996. The decrease was due to the acquisition of Lagasse
Bros., Inc. on October 31, 1996 offset by the collection of $11.1 million in
1996 from the successful sale of closed facilities and related equipment. The
decrease in net cash used in investing activities of $49.9 million in 1996 from
$266.3 million in 1995 was primarily the result of the Merger.
Net cash used in financing activities in 1997 was $27.0 million compared with
net cash provided of $47.2 million in 1996. The decrease was due to a $50.0
million partial redemption of the Company's Senior Subordinated Notes, a
reduction of indebtedness under the Term Loan Facilities of $15.5 million,
redemption of Series A and C Preferred Stock of $21.2 million and a $8.5 million
payment related to employee income tax withholding for stock option exercises
offset by proceeds of $72.2 million (before deducting expenses) related to the
issuance of 2.0 million shares of Common Stock (as defined) and additional
borrowings under the revolver of $49.0 million during 1997 compared with
additional borrowings of $22.0 million in 1996. Net cash provided by financing
activities in 1996 was $47.2 million compared with $249.8 million in 1995. The
decrease was due to the financing of the Merger in 1995 offset by additional
borrowings to finance the purchase of Lagasse Bros., Inc.
INFLATION/DEFLATION AND CHANGING PRICES
Inflation can have an impact on the Company's earnings. During inflationary
times, the Company generally seeks to increase prices to its customers creating
incremental gross profit resulting from the sale of inventory purchased at lower
prices. Alternatively, significant deflation may adversely affect the Company's
profitability.
YEAR 2000 MODIFICATIONS
The Company recognizes the potential business impacts related to the Year 2000
computer system issue. The issue is one where computer systems may recognize
the designation "00" as 1900 when it means 2000, resulting in system failure or
miscalculations. The Company began to address the Year 2000 issue in 1996, and
continues to implement measures to ensure its business operations are not
disrupted. The Company's plan requires that all modifications necessary to make
its computer systems year 2000 compliant must be completed during 1999. In
1997, the Company incurred approximately $1.4 million related to this issue and
expects to incur an additional $2.6 million to $3.3 million over the next two
years.
SEASONALITY
Although the Company's sales are generally relatively level throughout the year,
the Company's sales vary to the extent of seasonal differences in the buying
patterns of end-users who purchase office products. In particular, the Company's
sales are generally higher than average during January when many businesses
begin operating under new annual budgets.
The Company experiences seasonality in terms of its working capital needs, with
highest requirements in December through February reflecting a build up in
inventory prior to and during the peak sales period. The Company believes that
its current availability under the Revolving Credit Facility is sufficient to
satisfy such seasonal capital needs for the foreseeable future. See comments
regarding a pending acquisition in Liquidity and Capital Resources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Set forth on the following pages are the consolidated statements of income,
changes in stockholders' equity and cash flows of the Company for the years
ended December 31, 1997, 1996 and 1995, and the consolidated balance sheets of
the Company as of December 31, 1997 and 1996. Although United was the surviving
corporation in the Merger, the Acquisition was treated as a reverse acquisition
for accounting purposes, with Associated as the acquiring corporation.
Therefore, the statements of income and cash flows for the year ended December
31, 1995 reflect the results of Associated only for the three months ended March
30, 1995, and the results of the Company for the nine months ended December 31,
1995.
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF
DIRECTORS OF UNITED STATIONERS INC.
We have audited the accompanying consolidated balance sheets of United
Stationers Inc. and Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Stationers
Inc. and Subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ERNST & YOUNG LLP
Chicago, Illinois
January 27, 1998
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
NET SALES $2,558,135 $2,298,170 $1,751,462
COST OF GOODS SOLD 2,112,204 1,907,209 1,446,949
---------- ---------- ----------
Gross profit 445,931 390,961 304,513
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 311,002 277,957 237,197
Non-recurring charges 64,698 - - - -
Restructuring charge - - - - 9,759
---------- ---------- ----------
Total operating expenses 375,700 277,957 246,956
---------- ---------- ----------
Income from operations 70,231 113,004 57,557
INTEREST EXPENSE 53,511 57,456 46,186
---------- ---------- ----------
Income before income taxes
and extraordinary item 16,720 55,548 11,371
INCOME TAXES 8,532 23,555 5,128
---------- ---------- ----------
Income before extraordinary item 8,188 31,993 6,243
EXTRAORDINARY ITEM - LOSS ON EARLY RETIREMENT
OF DEBT, NET OF TAX BENEFIT OF $3,956 IN
1997 AND $967 IN 1995 (5,884) - - (1,449)
---------- ---------- ----------
NET INCOME 2,304 31,993 4,794
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 1,528 1,744 1,998
---------- ---------- ----------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 776 $ 30,249 $ 2,796
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE:
Income before extraordinary item $ 0.51 $ 2.48 $ 0.39
Extraordinary item (0.45) - - (0.13)
---------- ---------- ----------
Net income per common share $ 0.06 $ 2.48 $ 0.26
---------- ---------- ----------
---------- ---------- ----------
Average number of common shares (in thousands) 13,064 12,205 10,747
---------- ---------- ----------
---------- ---------- ----------
NET INCOME PER COMMON SHARE - ASSUMING DILUTION:
Income before extraordinary item $ 0.43 $ 2.03 $ 0.33
Extraordinary item (0.38) - - (0.11)
---------- ---------- ----------
Net income per common share $ 0.05 $ 2.03 $ 0.22
---------- ---------- ----------
---------- ---------- ----------
Average number of common shares (in thousands) 15,380 14,923 12,809
---------- ---------- ----------
---------- ---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
AS OF DECEMBER 31,
------------------------
1997 1996
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,367 $ 10,619
Accounts receivable, less allowance for doubtful
accounts of $7,071 in 1997 and $6,318 in 1996 311,920 291,401
Inventories 511,555 463,239
Other 14,845 25,221
---------- ----------
TOTAL CURRENT ASSETS 850,687 790,480
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 21,857 21,878
Buildings 101,322 100,031
Fixtures and equipment 113,037 102,092
Leasehold improvements 1,026 1,040
---------- ----------
Total property, plant and equipment 237,242 225,041
Less - accumulated depreciation and amortization 72,699 51,266
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 164,543 173,775
GOODWILL 111,852 115,449
OTHER 20,939 30,163
---------- ----------
TOTAL ASSETS $1,148,021 $1,109,867
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
AS OF DECEMBER 31,
-------------------------
1997 1996
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 44,267 $ 46,923
Accounts payable 236,475 238,124
Accrued expenses 107,935 93,789
Accrued income taxes 10,561 6,671
---------- ----------
TOTAL CURRENT LIABILITIES 399,238 385,507
DEFERRED INCOME TAXES 19,383 36,828
LONG-TERM DEBT 492,868 552,613
OTHER LONG-TERM LIABILITIES 13,224 15,502
REDEEMABLE PREFERRED STOCK
Preferred Stock Series A, $0.01 par value;
0 and 15,000, respectively, authorized;
0 and 5,000, respectively, issued and
outstanding; 0 and 3,086, respectively,
accrued - - 8,086
Preferred Stock Series C, $0.01 par value;
0 and 15,000, respectively, authorized;
0 and 11,699, respectively, issued and
outstanding - - 11,699
---------- ----------
TOTAL REDEEMABLE PREFERRED STOCK - - 19,785
REDEEMABLE WARRANTS - - 23,812
STOCKHOLDERS' EQUITY
Common Stock (voting), $0.10 par value;
40,000,000 authorized; 15,905,273 and
11,446,306, respectively, issued and
outstanding 1,591 1,145
Common Stock (nonvoting), $0.01 par value;
5,000,000 authorized; 0 and 758,994,
respectively, issued and outstanding - - 8
Capital in excess of par value 213,042 44,418
Retained earnings 8,675 30,249
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 223,308 75,820
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,148,021 $1,109,867
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Number of Number of
Redeemable Preferred Stock Common Common Common Common
--------------------------------- Redeemable Shares Stock Shares Stock
A B C Total Warrants (Voting) (Voting) (Nonvoting) (Nonvoting)
------ ------- ------- ------- ---------- ---------- --------- ----------- -----------
DECEMBER 31, 1994 $6,788 $ 6,560 $ 9,841 $23,189 $ 1,650 960,346 $ 10 - - $- -
Net income - - - - - - - - - - - - - - - - - -
Preferred stock dividends 649 332 763 1,744 - - - - - - - - - -
Repurchase of Series B
preferred stock - - (6,892) - - (6,892) - - - - - - - - - -
Cash dividends - - - - - - - - - - - - - - - - - -
Accretion of warrants to
fair market value - - - - - - - - 37,275 - - - - - - - -
Issuance of warrants from
option grant - - - - - - - - 2,900 - - - - - - - -
Nonvoting common stock
issued for services related to
financing the Acquisition issued
in exchange for common stock,
warrants and options - - - - - - - - (460) (109,159) (11) 139,474 1
Increase in value of stock
option grants - - - - - - - - - - - - - - - - - -
Common stock issued:
Acquisition - - - - - - - - - - 4,831,873 563 215,614 3
Exercise of warrants - - - - - - - - (1,673) 58,977 6 - - - -
100% stock dividend - - - - - - - - - - 5,683,463 575 403,906 4
Stock option exercises - - - - - - - - - - 20,806 2 - - - -
Other - - - - - - - - - - - - - - - - - -
------ ------- ------- ------- -------- ---------- ------ ------- ----
DECEMBER 31, 1995 7,437 - - 10,604 18,041 39,692 11,446,306 1,145 758,994 8
Net Income - - - - - - - - - - - - - - - - - -
Preferred stock dividends 649 - - 1,095 1,744 - - - - - - - - - -
Reduction of warrants
to fair market value - - - - - - - - (15,880) - - - - - - - -
Decrease in value of
stock option grants - - - - - - - - - - - - - - - - - -
Other - - - - - - - - - - - - - - - - - -
------ ------- ------- ------- -------- ---------- ------ ------- ----
DECEMBER 31, 1996 $8,086 $ - - $11,699 $19,785 $ 23,812 11,446,306 $1,145 758,994 $ 8
------ ------- ------- ------- -------- ---------- ------ ------- ----
------ ------- ------- ------- -------- ---------- ------ ------- ----
Total
Capital in Stock-
Excess Retained holders'
of Par Earnings Equity
---------- -------- --------
DECEMBER 31, 1994 $ 18,139 $ 6,626 $ 24,775
Net income - - 4,794 4,794
Preferred stock dividends - - (1,744) (1,744)
Repurchase of Series B
preferred stock - - - - - -
Cash dividends - - (254) (254)
Accretion of warrants to
fair market value (28,538) (8,737) (37,275)
Issuance of warrants from
option grant (2,900) - - (2,900)
Nonvoting common stock
issued for services related to
financing the Acquisition issued
in exchange for common stock,
warrants and options 2,749 - - 2,739
Increase in value of stock
option grants 2,407 - - 2,407
Common stock issued:
Acquisition 35,223 - - 35,789
Exercise of warrants 1,673 - - 1,679
100% stock dividend - - (579) - -
Stock option exercises 28 - - 30
Other 90 (106) (16)
-------- ------- --------
DECEMBER 31, 1995 28,871 - - 30,024
Net Income - - 31,993 31,993
Preferred stock dividends - - (1,744) (1,744)
Reduction of warrants
to fair market value 15,880 - - 15,880
Decrease in value of
stock option grants (339) - - (339)
Other 6 - - 6
-------- ------- --------
DECEMBER 31, 1996 $44,418 $30,249 $75,820
-------- ------- --------
-------- ------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Number of Number of
Redeemable Preferred Stock Common Common Common Common
----------------------------------- Redeemable Shares Stock Shares Stock
A B C Total Warrants (Voting) (Voting) (Nonvoting) (Nonvoting)
------- ------ -------- -------- --------- ---------- ------- --------- -----------
DECEMBER 31, 1996 $ 8,086 $ - - $ 11,699 $ 19,785 $ 23,812 11,446,306 $1,145 758,994 $ 8
Net income - - - - - - - - - - - - - - - - - -
Stock dividends issued 489 - - 898 1,387 - - - - - - - - - -
Redemption of Series A and
Series C preferred stock (8,575) - - (12,597) (21,172) - - - - - - - - - -
Accretion of lender warrants
to fair market value - - - - - - - - 23,254 - - - - - - - -
Increase in value of stock
option grants - - - - - - - - - - - - - - - - - -
Compensation associated
with stock options - - - - - - - - - - - - - - - - - -
Conversions of redeemable
warrants into common stock - - - - - - - - (47,066) 1,408,398 141 - - - -
Issuance of common stock,
net of offering expenses - - - - - - - - - - 2,000,000 200 - - - -
Stock options exercised - - - - - - - - - - 299,889 30 - - - -
Conversion of nonvoting common
stock into common stock - - - - - - - - - - 758,994 76 (758,994) (8)
Cancellation of common stock - - - - - - - - - - (8,314) (1) - - - -
Other - - - - - - - - - - - - - - - - - -
------- ------ -------- -------- -------- ---------- ------ -------- ----
DECEMBER 31, 1997 $ - - $ - - $ - - $ - - $ - - 15,905,273 $1,591 - - $- -
------- ------ -------- -------- -------- ---------- ------ -------- ----
------- ------ -------- -------- -------- ---------- ------ -------- ----
Total
Capital in Stock-
Excess Retained holders'
of Par Earnings Equity
---------- -------- --------
DECEMBER 31, 1996 $ 44,418 $ 30,249 $ 75,820
Net income - - 2,304 2,304
Stock dividends issued - - (1,528) (1,528)
Redemption of Series A and
Series C preferred stock - - - - - -
Accretion of lender warrants
to fair market value (915) (22,339) (23,254)
Increase in value of stock
option grants 380 - - 380
Compensation associated
with stock options 59,398 - - 59,398
Conversions of redeemable
warrants into common stock 47,074 - - 47,215
Issuance of common stock,
net of offering expenses 71,254 - - 71,454
Stock options exercised (8,270) - - (8,240)
Conversion of nonvoting common
stock into common stock (68) - - - -
Cancellation of common stock 1 - - - -
Other (230) (11) (241)
-------- -------- --------
DECEMBER 31, 1997 $213,042 $ 8,675 $223,308
-------- -------- --------
-------- -------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
--------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,304 $ 31,993 $ 4,794
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 21,963 22,766 19,708
Amortization 4,078 3,276 3,976
Amortization of capitalized financing costs 4,323 5,333 4,172
Extraordinary item - early retirement of debt 9,840 - - 2,416
Deferred income taxes (16,091) 5,299 (163)
Compensation expense on stock option grants 60,041 (339) 2,407
Other 51 1,584 301
Changes in operating assets and liabilities,
net of acquisitions in 1996 and 1995:
Increase in accounts receivable (20,519) (15,379) (32,330)
(Increase) decrease in inventory (48,316) (71,282) 31,656
Decrease in other assets 9,985 1,814 2,765
(Decrease) increase in accounts payable (1,649) 36,352 (5,104)
Increase (decrease) in accrued liabilities 18,036 (17,185) (3,474)
Decrease in other liabilities (2,278) (2,623) (4,795)
--------- -------- ---------
Net cash provided by operating activities 41,768 1,609 26,329
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions:
United Stationers Inc., net of cash
acquired of $14,500 - - - - (258,438)
Lagasse Bros., Inc. - - (51,896) - -
Capital expenditures (13,036) (8,190) (8,086)
Proceeds from disposition of property, plant & equipment 45 11,076 69
Other - - (861) 164
--------- -------- ---------
Net cash used in investing activities (12,991) (49,871) (266,291)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolver 49,000 22,000 (3,608)
Retirements and principal payments of debt (117,776) (30,861) (412,342)
Borrowings under financing agreements - - 57,933 686,854
Financing costs - - (1,851) (25,290)
Issuance of common stock 71,606 - - 12,006
Payment of employee withholding tax related to stock
option exercises (8,546) - - - -
Redemption of Series A and Series C Preferred Stock (21,172) - - - -
Redemption of Series B Preferred Stock - - - - (6,892)
Cash dividend (141) - - (254)
Other - - - - (701)
--------- -------- ---------
Net cash (used in) provided by financing activities (27,029) 47,221 249,773
--------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,748 (1,041) 9,811
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,619 11,660 1,849
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,367 $ 10,619 $ 11,660
--------- -------- ---------
--------- -------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES