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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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5% of
the then outstanding shares of the common stock, $0.10 par value ("Common
Stock") of United Stationers Inc. ("United") for approximately $266.6 million in
the aggregate pursuant to a tender offer (the "Offer"). Immediately thereafter,
Associated merged with and into United (the "Merger" and, collectively with the
Offer, the "Acquisition"), and Associated Stationers, Inc. ("ASI"), a wholly
owned subsidiary of Associated merged with and into United Stationers Supply Co.
("USSC"), a wholly owned subsidiary of United, with United and USSC continuing
as the respective surviving corporations. United, as the surviving corporation
following the Merger, is referred to herein as the " Company." As a result of
share conversions in the Merger, immediately after the Merger, (i) the former
holders of common stock and common stock equivalents of Associated owned shares
of Common Stock and warrants or options to purchase shares of Common Stock
constituting in the aggregate approximately 80% of the shares of Common Stock on
a fully diluted basis, and (ii) holders of pre-Merger United common stock owned
in the aggregate approximately 20% of the shares of Common Stock on a fully
diluted basis. 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 financial information for the year ended December 31, 1995 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. All common and common
equivalent shares have been adjusted to reflect the 100% stock dividend
effective November 9, 1995.
The Acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets purchased and the
liabilities assumed based upon the estimated fair values at the date of
acquisition with the excess of cost over fair value allocated to goodwill. The
purchase price allocation to property, plant and equipment is amortized over the
estimated useful lives ranging from 3 to 40 years. Goodwill is amortized over
40 years.
The total purchase price of United by Associated and its allocation to assets
and liabilities acquired was as follows (dollars in thousands):
Purchase price:
Price of United shares purchased by Associated $266,629
Fair value of United shares not acquired in the Offer 21,618
Transaction costs 6,309
---------
Total purchase price $294,556
---------
---------
Allocation of purchase price:
Current assets $542,993
Property, plant and equipment 151,012
Goodwill 74,503
Other assets 7,699
Liabilities assumed (481,651)
---------
Total purchase price $294,556
---------
---------
Immediately following the Merger, the number of outstanding shares of Common
Stock was 11,996,154 (or 13,947,440 on a fully diluted basis), of which (i) the
former holders of Class A Common Stock, $0.01 par value, and Class B Common
Stock, $0.01 par value, of Associated (collectively "Associated Common Stock")
and warrants or options to purchase Associated Common Stock in the aggregate
owned 9,206,666 shares constituting approximately 76.7% of the outstanding
shares of Common Stock and outstanding warrants or options for 1,951,286 shares
(collectively 80.0% on a fully diluted basis) and (ii) pre-Merger holders of
shares of Common Stock (other than Associated-owned and treasury shares) in the
aggregate owned 2,789,488 shares of Common Stock constituting approximately
23.3% of the outstanding shares (or 20.0% on a fully diluted basis). As used in
this paragraph, the term " Common Stock " includes shares of nonvoting common
stock, $0.01 par value, of the Company, all of which were converted into voting
Common Stock in the fourth quarter of 1997.
On October 31, 1996, the Company acquired all of the capital stock of Lagasse
Bros., Inc. ("Lagasse") for approximately $51.9 million. The acquisition was
financed primarily through senior debt . The Lagasse acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets purchased and the liabilities
assumed based upon the estimated fair values at the date of acquisition with the
excess of cost over fair value of approximately $39.0 million allocated to
goodwill. The financial information for the year ended December 31, 1996
includes the results of Lagasse for two months ended December 31, 1996. The
actual and pro forma effects of this acquisition are not material.
On October 9, 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 by $15.5 million the indebtedness under the Term Loan Facilities. 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.
As a result of the Equity Offering, the Company recognized the following charges
in the fourth quarter of 1997 (i) pre-tax 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 (see Note 10), 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), (collectively "Charges").
Net income attributable to common stockholders for the year ended December 31,
1997, before Charges, was $45.4 million, up 50.3%, compared with $30.2 million
in 1996. Diluted earnings per share, before Charges, for 1997 was $2.95 on 15.4
million weighted average shares outstanding, up 45.3%, compared with $2.03 on
14.9 million weighted average shares outstanding for the prior year.
2. OPERATIONS
The Company operates in a single segment as a national wholesale distributor of
business products. The Company offers approximately 30,000 items from more than
500 manufacturers. This includes a broad spectrum of office products, computer
supplies, office furniture and facilities management supplies. The Company
primarily serves commercial and contract office products dealers. Its customers
include more than 15,000 resellers -- such as office products dealers, buying
groups, office furniture dealers, super stores and mass merchandisers, mail
order houses, computer products resellers, sanitary supply distributors and
warehouse clubs. The Company has a distribution network of 41 Regional
Distribution Centers. Through its integrated computer system, the Company
provides a high level of customer service and overnight delivery. In addition,
the Company has 16 Lagasse Distribution Centers, specifically serving janitorial
and sanitary supply distributors.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when a product is shipped and title is transferred to the
customer in the period the sale is reported.
CASH AND CASH EQUIVALENTS
Investments in low-risk instruments that have original maturities of three
months or less are considered to be cash equivalents. Cash equivalents are
stated at cost which approximates market value.
INVENTORIES
Inventories constituting approximately 91% and 92% of total inventories at
December 31, 1997 and 1996, respectively, have been valued under the last-in,
first-out ("LIFO") method. Prior to 1995, all inventories were valued under the
first-in, first-out ("FIFO") 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 were more easily compared to that of
other companies in the wholesale industry where the LIFO method is common. This
change resulted in a charge to pre-tax income of the Company of approximately
$8.8 million ($5.3 million net of tax benefit of $3.5 million or $0.41 per
common and common equivalent share) for the year ended December 31, 1995.
Inventory valued under the FIFO and LIFO accounting methods are recorded at the
lower of cost or market. If the lower of FIFO cost or market method of
inventory accounting had been used by the Company for all inventories,
merchandise inventories would have been approximately $4.3 million and $4.8
million higher than reported at December 31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation and
amortization are determined by using the straight-line method over the estimated
useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to ten
years; the estimated useful life assigned to buildings does not exceed 40 years;
leasehold improvements are amortized over the lesser of their useful lives or
the term of the applicable lease.
GOODWILL
Goodwill represents the excess cost over the value of net assets of businesses
acquired and is amortized on a straight-line basis over 40 years. The Company
continually evaluates whether events or circumstances have occurred indicating
that the remaining estimated useful life of goodwill may not be appropriate.
When factors indicate that goodwill should be evaluated for possible impairment,
the Company will use an estimate of undiscounted future operating income
compared to the carrying value of goodwill to determine if a write-off is
necessary. The cumulative amount of goodwill amortized at December 31, 1997 and
1996 is $7.6 million and $4.0 million, respectively.
SOFTWARE CAPITALIZATION
The Company capitalizes major internal and external systems development costs
determined to have benefits for future periods. Amortization is recognized over
the periods in which the benefits are realized, generally not to exceed three
years.
INCOME TAXES
Income taxes are accounted for using the liability method under which deferred
income taxes are recognized for the estimated tax consequences for temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities. Provision has not been made for deferred U.S. income
taxes on the undistributed earnings of the Company's foreign subsidiaries
because these earnings are intended to be permanently invested.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the local
currency.
RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the 1997
basis of presentation.
During the fourth quarter of 1996, the Company reclassified certain 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. The following table sets forth the impact of the
reclassification for the years presented in the Consolidated Statements of
Income:
For the Years Ended December 31,
--------------------------------
1996 1995(1)
----------- -----------
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification 21.0% 21.8%
Gross margin as reported 17.0% 17.4%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to
reclassification 16.1% 17.9%(2)
Operating expense ratio as reported 12.1% 13.5%(2)
(1) 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.
(2) Excludes a restructuring charge of $9.8 million.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results could differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share ("EPS").
These new standards simplify the calculation of EPS presently contained in
Accounting Principles Board Opinion No. 15, "Earnings Per Share," and various
other pronouncements, and makes them comparable to international standards.
SFAS No. 128 replaces the presentation of primary and fully diluted EPS with
basic and diluted EPS. The Company currently has a complex capital structure;
as a result, the Company is required to (i) present both basic and diluted EPS
on the face of the consolidated statement of income and (ii) present a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS calculation. The earnings per
share amounts prior to 1997 have been restated as required to comply with SFAS
No. 128.
During 1996, the Company adopted the supplemental disclosure requirement of
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages but does not
require adoption of a fair value method of accounting for stock options. For
those entities which do not elect to adopt the fair value method, the new
standard requires supplemental disclosure regarding the pro forma effects of
that method. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value based method of accounting prescribed by
the Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees," and related Interpretations. Adoption of SFAS No.
123 will have no impact on the financial position or results of operations of
the Company.
During 1996, the Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that an impairment
loss be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed.
The effect of adoption was not material.
4. EARNINGS PER SHARE
Net income per common share is based on net income after preferred stock
dividend requirements. Basic earnings per share is calculated on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated on the weighted average number of common and common equivalent shares
outstanding during the period. Stock options and warrants are considered to be
common equivalent shares.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Years Ended December 31,
---------------------------------------------------------
1997
Before
1997 Charges(1) 1996 1995
---------- ------------- ---------- ---------
Numerator:
Income before extraordinary item $ 8,188 $ 46,892 $ 31,993 $ 6,243
Preferred stock dividends 1,528 1,528 1,744 1,998
---------- ----------- ---------- ---------
Numerator for basic and diluted earnings
per share - income available to common
stockholders before extraordinary item $ 6,660 $ 45,364 $ 30,249 $ 4,245
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Denominator:
Denominator for basic earnings per
share - weighted average shares 13,064 13,064 12,205 10,747
Effect of dilutive securities:
Employee stock options 1,258 1,258 1,315 601
Warrants 1,058 1,058 1,403 1,461
---------- ---------- ---------- ---------
Dilutive potential common shares 2,316 2,316 2,718 2,062
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 15,380 15,380 14,923 12,809
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Basic earnings per share $ 0.51 $ 3.47 $ 2.48 $ 0.39
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Diluted earnings per share $ 0.43 $ 2.95 $ 2.03 $ 0.33
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
(1) 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), 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).
5. BUSINESS COMBINATION AND RESTRUCTURING CHARGE
The following summarized unaudited pro forma operating data for the year
ended December 31, 1995 are presented giving effect to the Acquisition as if
it had been consummated at the beginning of the period and, therefore,
reflects the results of United and Associated on a consolidated basis. These
pro forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations that actually would
have resulted had the combination been in effect on the date indicated, or
which may result in the future. The pro forma results exclude one-time
non-recurring charges or credits directly attributable to the transaction
(dollars in thousands, except per share data):
Pro Forma Twelve Months
Ended December 31,
1995
-----------------------
Net sales $2,201,860
Income before income taxes 22,737
Net income 13,063
Net income per diluted common
and common equivalent share $0.80
The pro forma income statement adjustments consist of (i) increased depreciation
expense resulting from the write-up of certain fixed assets to fair value, (ii)
additional incremental goodwill amortization, (iii) additional incremental
interest expense due to debt issued, net of debt retired, and (iv) reduction in
preferred stock dividends due to the repurchase of the Series B preferred stock.
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 had 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 completed.
Seven of the eight redundant distribution centers had been closed.
The historical results for 1995 also included an extraordinary charge of
approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million) of
financing costs and original issue discount relating to the debt retired. In
addition, the historical results for 1995 included compensation expense relating
to an increase in the value of employee stock options of approximately $1.5
million ($0.9 million net of tax benefit of $0.6 million) as a result of the
Acquisition and Merger. The pro forma twelve months ended December 31, 1995 do
not include the extraordinary write-off.
6. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
1997 1996
--------- ----------
Revolver $256,000 $207,000
Term Loans
Tranche A, due in installments until September 30, 2001 97,524 144,374
Tranche B, due in installments until September 30, 2003 51,275 64,750
Senior Subordinated Notes 100,000 150,000
Mortgage at 9.4%, due in installments until 1999 1,957 2,071
Industrial development bonds, at market interest rates,
maturing at various dates through 2011 14,300 14,300
Industrial development bonds, at 66% to 78% of prime,
maturing at various dates through 2004 15,500 15,500
Other long-term debt 579 1,541
--------- ---------
537,135 599,536
Less - current maturities (44,267) (46,923)
--------- ---------
Total $492,868 $552,613
--------- ---------
--------- ---------
The prevailing prime interest rate at the end of 1997 and 1996 was 8.50% and
8.25%, respectively.
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 the 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 to earnings before interest, taxes, depreciation and
amortization ("EBITDA"). 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, 1996 and 1995, the Company recorded $0.6 million, $0.9
million and $0.1 million, respectively, to interest expense resulting from LIBOR
rate fluctuations below the floor rate specified in the collar agreements.
The right of United to participate in any distribution of earnings or assets of
USSC is subject to the prior claims of the creditors of USSC. In addition, the
Credit Agreement contains certain restrictive covenants, including covenants
that restrict or prohibit USSC's ability to pay dividends and make other
distributions to United.
Debt maturities for the years subsequent to December 31, 1997 are as follows
(dollars in thousands):
Year Amount
- ----------- ----------
1998 $ 44,267
1999 25,684
2000 26,722
2001 282,555
2002 31,304
Later years 126,603
---------
Total $537,135
---------
---------
At December 31, 1997 and 1996, the Company had available letters of credit of
$52.9 million and $55.3 million, respectively, of which $49.8 million and $52.8
million, respectively, were outstanding.
7. LEASES
The Company has entered into several non-cancelable long-term leases for certain
property and equipment. Future minimum rental payments under operating leases
in effect at December 31, 1997 having initial or remaining non-cancelable lease
terms in excess of one year are as follows (dollars in thousands):
Operating
Year Leases (1)
- --------- -----------
1998 $19,108
1999 15,675
2000 12,811
2001 10,467
2002 7,235
Later years 15,455
--------
Total minimum lease payments $80,751
--------
--------
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $20.5 million, $18.8
million and $14.2 million in 1997, 1996 and 1995, respectively.
8. PENSION PLANS AND DEFINED CONTRIBUTION PLAN
PENSION PLANS
In connection with the Merger and Acquisition, the Company assumed the pension
plans of United. Associated did not have a pension plan. Former Associated
employees entered the pension plans on July 1, 1996. As of this date, the
Company has pension plans covering substantially all of its employees.
Non-contributory plans covering non-union employees provide pension benefits
that are based on years of credited service and a percentage of annual
compensation. Non-contributory plans covering union members generally provide
benefits of stated amounts based on years of service. The Company funds the
plans in accordance with current tax laws.
The following table sets forth the plans' funded status at December 31, 1997 and
1996 (dollars in thousands):
1997 1996
--------- --------
Actuarial Present Value of Benefit Obligation
Vested benefits $22,611 $19,015
Non-vested benefits 2,092 1,431
------- -------
Accumulated benefit obligation 24,703 20,446
Effect of projected future compensation levels 4,070 3,110
------- -------
Projected benefit obligation 28,773 23,556
Plan assets at fair value 33,562 28,373
------- -------
Plan assets in excess of projected benefit obligation 4,789 4,817
Unrecognized prior service cost 888 720
Unrecognized net gain due to past
experience different from assumptions (6,020) (4,348)
------- -------
Prepaid pension (liability) asset recognized
in the Consolidated Balance Sheets $ (343) $ 1,189
------- -------
------- -------
The plans' assets consist of corporate and government debt securities and equity
securities. Net periodic pension cost for 1997, 1996 and 1995 for pension and
supplemental benefit plans includes the following components (dollars in
thousands):
1997 1996 1995
--------- --------- ---------
Service cost-benefit earned during the period $ 2,333 $ 1,884 $ 1,142
Interest cost on projected benefit obligation 1,833 1,652 1,157
Actual return on assets (5,496) (3,468) (2,711)
Net amortization and deferral 3,375 1,495 1,382
------- ------- -------
Net periodic pension cost $ 2,045 $ 1,563 $ 970
------- ------- -------
------- ------- -------
The assumptions used in accounting for the Company's defined benefit plans for
the three years presented are set forth below:
1997 1996 1995
--------- -------- --------
Assumed discount rate 7.25% 7.5% 7.25%
Rates of compensation increase 5.5% 5.5% 5.5%
Expected long-term rate of return on plan assets 7.5% 7.5% 7.5%
DEFINED CONTRIBUTION
The Company has a defined contribution plan in which all salaried employees and
certain hourly paid employees of the Company are eligible to participate
following completion of six consecutive months of employment. The plan permits
employees to have contributions made as 401(k) salary deferrals on their behalf,
or as voluntary after-tax contributions, and provides for Company contributions,
or contributions matching employees salary deferral contributions, at the
discretion of the Board of Directors. In addition, the Board of Directors
approved a special contribution in 1997 of approximately $1.0 million to the
United Stationers 401(k) Savings Plan on behalf of certain non-highly
compensated employees who are eligible for participation in the plan. Company
contributions for matching of employees contributions were approximately $1.0
million, $0.9 million and $0.6 million in 1997, 1996 and 1995, respectively.
9. POSTRETIREMENT BENEFITS
The Company maintains a postretirement plan. The plan is unfunded and provides
health care benefits to substantially all retired non-union employees and their
dependents. Eligibility requirements are based on the individual's age (minimum
age of 55), years of service and hire date. The benefits are subject to retiree
contributions, deductibles, co-payment provisions and other limitations.
Retirees pay one-half of the projected plan costs.
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheets as of December 31, 1997 and 1996 (dollars in
thousands):
1997 1996
--------- --------
Retirees $ 618 $ 877
Other fully eligible plan participants 632 632
Other active plan participants 1,795 1,588
------- ------
Total accumulated postretirement benefit obligation 3,045 3,097
Unrecognized net gain 415 1
------- ------
Accrued postretirement benefit obligation $3,460 $3,098
------- ------
------- ------
The cost of postretirement health care benefits for the years ended December 31,
1997, 1996 and 1995 were as follows (dollars in thousands):
1997 1996 1995
-------- -------- --------
Service cost $268 $239 $161
Interest on accumulated
benefit obligation 190 204 109
Unrecognized net gain (15) -- --
-------- -------- --------
Net postretirement benefit cost $443 $443 $270
-------- -------- --------
-------- -------- --------
The assumptions used in accounting for the Company's postretirement plan for the
three years presented are set forth below (dollars in thousands). Because the
Company's annual medical cost increases for current and future retirees and
their dependents are capped at 3% per year, which is the assumed health care
trend rate used in calculating the accumulated benefit obligation, an increase
in the medical trend rate above 3% has no effect on the accumulated
postretirement benefit obligation.
1997 1996 1995
------- ------- -------
Assumed average heath care cost trend rate 3.0% 3.0% 3.0%
Assumed discount rate 7.25% 7.5% 7.5%
10. STOCK OPTION PLAN
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 increases 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).
An optionee under the Plan must pay the full option price upon exercise of an
option (i) in cash, (ii) with the consent of the Board of Directors of the
Company, by delivering mature shares of Common Stock already owned by such
optionee (including shares to be received upon exercise of the option) and
having a fair market value at least equal to the exercise price or (iii) in
any combination of the foregoing. The Company may require the optionee to
satisfy federal tax withholding obligations with respect to the exercise of
options by (i) additional withholding from the employee's salary, (ii)
requiring the optionee to pay in cash or (iii) reducing the number of shares
of Common Stock to be issued (except in the case of incentive options).
The following table summarizes the transactions of the Plan for the last three
years:
Management Equity Plan Weighted Average Weighted Average Weighted Average
(excluding restricted stock) 1997 Exercise Prices 1996 Exercise Prices 1995 Exercise Prices
- ---------------------------- ---------- ------------------ ---------- ----------------- ----------- -----------------
Options outstanding at
beginning of the period 2,497,768 $11.61 2,030,996 $10.73 217,309 $ 1.45
Granted 269,000 22.87 650,772 7.95 1,854,649 11.65
Exercised (846,871) 15.41 -- -- (20,804) 1.45
Canceled (121,000) 14.76 (184,000) 7.64 (20,158) 1.45
--------- --------- ----------
Options outstanding at
end of the period 1,798,897 $13.77 2,497,768 $ 11.61 2,030,996 $10.73
--------- --------- ---------
--------- --------- ---------
The following table summarizes information concerning outstanding options of the
Plan at December 31, 1997:
Remaining
Exercise Number Contractual
Prices Outstanding Life (years)
--------- ----------- -------------
$ 1.45 378,183 4.09
5.12 116,250 4.74
16.88 1,037,464 4.74
20.25 2,000 4.74
21.63 250,000 9.00
44.25 15,000 9.87
---------
Total 1,798,897
---------
---------
All share and per share data have been restated to reflect the 100% stock
dividend effective November 9, 1995 and the conversion of Associated common
stock as a result of the Merger.
During 1996, the Company adopted the supplemental disclosure requirements of
SFAS No. 123. Accordingly, the Company is required to disclose pro forma net
income and earnings per share as if the fair value-based accounting method in
SFAS No. 123 had been used to account for stock-based compensation cost. The
Company's Merger Incentive Options granted under the Plan were considered "all
or nothing" awards because the options did not vest to the employee until the
occurrence of a Vesting Event. The fair value of "all or nothing" awards were
measured at the grant date; however, amortization of compensation expense began
when it was probable that the awards were vested. The October 1997 Equity
Offering constituted a Vesting Event; as a result, all Merger Incentive Options
vested and became exercisable by the optionees.
Options granted under the Plan during 1997 did not require compensation cost to
be recognized in the income statement; however, they are subject to the
supplemental disclosure requirements of SFAS No. 123. Net income and earnings
per share, before charges (see (1) and (2) below), for 1997 and 1995 represent
the Company's results excluding one-time charges and the pro forma adjustments
required by SFAS No. 123. Had compensation cost been determined on the basis of
SFAS No. 123 for options granted during 1997, 1996 and 1995, net income and
earnings per share would have been adjusted as follows (in thousands, except per
share data):
1997 1996 1995
--------- -------- --------
Net income attributable to common
stockholders
As reported $ 776 $30,249 $ 2,796
Before charges 45,364(1) 30,249 10,081(2)
Pro forma 18,396 30,249 2,796
Net income per common share - basic
As reported $ 0.06 $ 2.48 $ 0.26
Before charges 3.47(1) 2.48 0.94(2)
Pro forma 1.41 2.48 0.26
Weighted average shares outstanding 13,064 12,205 10,747
Net income per common share - diluted
As reported $ 0.05 $ 2.03 $ 0.22
Before Charges 2.95(1) 2.03 0.79(2)
Pro forma 1.20 2.03 0.22
Weighted average shares outstanding
and assumed conversions 15,380 14,923 12,809
(1) The year ended December 31, 1997 reflects 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. 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.
(2) During 1995, the Company recorded a restructuring charge of $9.8 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.
The Company uses a binomial option pricing model to estimate the fair value of
options at the date of grant. The weighted average assumptions used to value
options and the weighted average fair value of options granted during 1997, 1996
and 1995 were as follows:
1997 1996 1995
--------- -------- --------
Fair value of options granted $13.69 $17.67 $ 9.33
Exercise price $22.87 $ 8.59 $ 11.65
Expected stock price volatility 64.7% 80.7% 102.2%
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 6.4% 5.2% 5.9%
Expected life of options 5 years 2 years 3 years
11. REDEEMABLE PREFERRED STOCK
At December 31, 1996, the Company had 1,500,000 authorized shares of $0.01
par value preferred stock, of which 15,000 shares were designated as Series A
preferred stock, 15,000 shares were designated as Series C preferred stock,
and 1,470,000 shares remained undesignated. Series C preferred stock was
junior in relation to the Series A preferred stock. All preferred stock
issued at the date of inception was valued at the amount of cash paid or
assets received for the stock at $1,000 per share. On September 2, 1997, the
Company completed the redemption of all Series A and Series C preferred stock
issued and outstanding for $8.6 million and $12.7 million, respectively,
including accrued and unpaid dividends thereon. On July 28, 1995, the Company
repurchased all Series B preferred stock issued and outstanding for $7.0
million, including accrued and unpaid dividends thereon. Upon redemption,
each series of preferred stock resumed the status of undesignated preferred
stock. The Company does not have any preferred stock outstanding as of
December 31, 1997.
During the year ended December 31, 1996, 649 shares of Series A preferred stock
were accrued but not issued. As of December 31, 1996, 3,086 shares of Series A
preferred stock have been accrued as dividends but not issued. Also, noncash
dividends were declared and issued for Series C preferred stock in the amount of
1,095 shares during 1996.
12. REDEEMABLE WARRANTS
The Company had 1,227,438 warrants ("Lender Warrants") outstanding at December
31, 1996, which allowed holders thereof to buy shares of Common Stock at an
exercise price of $0.10 per share. During 1997, 1,227,438 warrants were
exercised into Common Stock resulting in proceeds of $122,744, which was used to
repay indebtedness under the Term Loan Facilities. Outstanding Lender Warrants
as of December 31, 1996 were valued at $19.50 per warrant. During 1996,
203,030 warrants were contributed back to the Company and terminated in
connection with anti-dilution agreements.
13. TRANSACTIONS WITH RELATED PARTIES
The Company had management advisory service agreements with three investor
groups. These investor groups provided certain advisory services to the Company
in connection with the Acquisition.
Pursuant to an agreement, Wingate Partners, L.P. ("Wingate Partners") had agreed
to provide certain oversight and monitoring services to the Company in exchange
for an annual fee of up to $725,000, payment (but not accrual) of which is
subject to restrictions under the Credit Agreement related to certain Company
performance criteria. At the Merger, the Company paid aggregate fees to Wingate
Partners of $2.3 million for services rendered in connection with the
Acquisition. Wingate Partners earned an aggregate of $513,540, $725,000 and
$603,000 with respect to each of the years ended 1997, 1996 and 1995,
respectively, for such oversight and monitoring services. Under the agreement,
the Company was obligated to reimburse Wingate Partners for its out-of-pocket
expenses and indemnify Wingate Partners and its affiliates from loss in
connection with these services.
Pursuant to an agreement, Cumberland Capital Corporation ("Cumberland") had
agreed to provide certain oversight and monitoring services to the Company in
exchange for (i) an annual fee of up to $137,500, payment (but not accrual) of
which is subject to restrictions under the Credit Agreement related to certain
Company performance criteria. At the Merger, the Company paid aggregate fees to
Cumberland of $100,000 for services rendered in connection with the Acquisition.
Pursuant to the agreement, Cumberland earned an aggregate of $97,400, $137,000
and $129,000 with respect to the years ended 1997, 1996 and 1995, respectively,
for such oversight and monitoring services. The Company was also obligated to
reimburse Cumberland for its out-of-pocket expenses and indemnify Cumberland and
its affiliates from loss in connection with these services.
Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") had an
agreement to provide certain oversight and monitoring services to the Company in
exchange for (i) an annual fee of up to $137,500, payment (but not accrual) of
which is subject to restrictions under the Credit Agreement related to certain
Company performance criteria. At the Merger, the Company paid aggregate fees to
Good Capital of $100,000 for services rendered in connection with the
Acquisition. Pursuant to the agreement, Good Capital earned an aggregate of
$97,400, $137,500 and $129,000 with respect to the years ended 1997, 1996 and
1995, respectively, for such oversight and monitoring services. The Company was
also obligated to reimburse Good Capital for its out-of-pocket expenses and
indemnify Good Capital and its affiliates from loss in connection with these
services.
In the fourth quarter of 1997, the Company terminated the management advisory
service agreements for one-time payments of approximately $2.4 million, $400,000
and $400,000 to Wingate Partners, Cumberland and Good Capital, respectively. As
indicated in Note 1, these one-time payments were included as non-recurring
charges on the Consolidated Statements of Income.
14. INCOME TAXES
The provision for (benefit from) income taxes consists of the following (dollars
in thousands):
Years Ended December 31,
--------------------------------------
1997 1996 1995
-------- ------- --------
Currently payable -
Federal $ 19,812 $14,724 $4,172
State 4,811 3,532 1,119
-------- ------- --------
Total currently payable 24,623 18,256 5,291
Deferred, net -
Federal (12,889) 4,614 (142)
State (3,202) 685 (21)
-------- ------- --------
Total deferred, net (16,091) 5,299 (163)
-------- ------- --------
Provision for income taxes $ 8,532 $23,555 $5,128
-------- ------- --------
-------- ------- --------
The Company's effective income tax rates for the years ended December 31, 1997,
1996 and 1995 varied from the statutory Federal income tax rate as set forth in
the following table (dollars in thousands):
Years Ended December 31,
--------------------------------------------------------
1997 1996 1995
--------------- ---------------- ----------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
------ ------- ------ ------- ------- -------
Tax provision based on the
federal statutory rate $5,852 35.0% $19,442 35.0% $3,980 35.0%
State and local income taxes -
net of federal income tax
benefit 1,053 6.3 3,000 5.4 705 6.2
Non-deductible and other 1,627 9.7 1,113 2.0 443 3.9
------ ------- ------ ------ ------- ------
Provision for income taxes $8,532 51.0% $23,555 42.4% $5,128 45.1%
------ ------- ------ ------ ------- ------
------ ------- ------ ------ ------- ------
The deferred tax assets and liabilities result from timing differences in the
recognition of certain income and expense items for financial and tax accounting
purposes. The sources of these differences and the related tax effects were as
follows (dollars in thousands):
December 31,
----------------------------------------------------
1997 1996
---------------------- ----------------------
Assets Liabilities Assets Liabilities
------- ----------- ------- -----------
Accrued expenses $18,280 $ -- $17,882 $ --
Allowance for doubtful accounts 8,632 -- 11,036 --
Inventory reserves and adjustments -- 16,852 - - 13,795
Depreciation and amortization -- 41,588 - - 43,798
Reserve for stock option compensation 16,792 - - - - --
Other 5,720 - - 6,915 --
------- ----------- ------- -----------
Total $49,424 $58,440 $35,833 $57,593
------- ----------- ------- -----------
------- ----------- ------- -----------
In the Consolidated Balance Sheets, these deferred assets and liabilities are
classified on a net basis as current and non-current based on the classification
of the related asset or liability or the expected reversal date of the temporary
difference.
15. SUPPLEMENTAL CASH FLOW INFORMATION
In addition to the information provided in the Consolidated Statements of Cash
Flows, the following are supplemental disclosures of cash flow information for
the years ended December 31, 1997, 1996 and 1995 (dollars in thousands):
1997 1996 1995
-------- -------- --------
Cash paid during the year for:
Interest $49,279 $52,871 $36,120
Income taxes 13,663 17,482 8,171
The following are supplemental disclosures of noncash investing and financing
activities for the years ended December 31, 1997, 1996 and 1995 (dollars in
thousands):
- On May 3, 1995, the Company issued stock valued at $2,406 in exchange
for services related to the issuance of the Notes.
- On March 30, 1995, the Company issued stock valued at $2,162 in
exchange for services related to financing the Acquisition.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is as follows
(dollars in thousands):
December 31, 1997 December 31, 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- --------
Cash and cash equivalents $ 12,367 $ 12,367 $ 10,619 $ 10,619
Current maturities of long-term
obligations and capital lease 44,267 44,267 46,923 46,923
Long-term debt and capital lease:
Notes 100,000 114,750 150,000 168,000
All other 392,868 392,868 403,079 403,079
Interest rate collar -- 387 -- 1,200
The fair value of the Notes and interest rate collar are based on quoted market
prices and quotes from counterparties, respectively.
17. SUBSEQUENT EVENT
The Company announced on February 10, 1998 that its subsidiary, USSC, signed a
definitive purchase agreement with Abitibi-Consolidated Inc. to acquire the U.S.
and Mexican operations of its Office Products Division, a specialty wholesale
division of computer consumables, peripherals and accessories. The purchase
price is anticipated to be approximately $110 million. The proposed
transaction involves three of the five business units of the Office Products
Division, including: Azerty (U.S. and Mexico); Positive ID (which distributes
bar-code scanning products); and AP Support Services (which provides outsourcing
services in telemarketing, direct response marketing, logistics and data
management services). The Company has filed for antitrust (Hart-Scott-Rodino)
clearance and expects to close the transaction in late March 1998 subject to
obtaining the necessary approvals and the completion of due diligence.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant had no disagreements on accounting and financial disclosure of
the type referred to in Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to those individuals who are
currently serving as members of the Board of Directors or as executive officers
of the Company on February 1, 1998:
Name Age Position
- --------------------------------------------------------------------------------
Frederick B Hegi, Jr.. . . 54 Chairman of the Board
Randall W. Larrimore . . . 50 Director, President and Chief Executive Officer
Michael D. Rowsey. . . . . 45 Director and Executive Vice President
Daniel J. Good . . . . . . 57 Director
James A. Johnson . . . . . 43 Director
Gary G. Miller . . . . . . 47 Director and Assistant Secretary
Benson P. Shapiro. . . . . 56 Director
Joel D. Spungin. . . . . . 60 Director
Daniel H. Bushell. . . . . 46 Executive Vice President, Chief Financial Officer and
Assistant Secretary
Steven R. Schwarz. . . . . 43 Executive Vice President
Kathleen S. Dvorak . . . . 41 Vice President, Investor Relations
Otis H. Halleen. . . . . . 63 Vice President, Secretary and General Counsel
Mark J. Hampton. . . . . . 44 Vice President, Marketing
Tom Helton . . . . . . . . 50 Vice President, Human Resources
James A. Pribel. . . . . . 44 Treasurer
Albert H. Shaw . . . . . . 48 Vice President, Operations
Ergin Uskup. . . . . . . . 60 Vice President, Management Information Systems
and Chief Information Officer
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There is no family relationship between any
directors or executive officers of the Company. Officers of the Company are
elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
FREDERICK B. HEGI, Jr. was elected to the Board of Directors upon consummation
of the Merger and served as Chairman, interim President and Chief Executive
Officer upon the resignation of Thomas W. Sturgess in November 1996 and until
Randall Larrimore became President and Chief Executive Officer in May 1997.
Prior to the Merger, he had been a director of Associated since 1992. Mr. Hegi
is a general partner of various Wingate entities, including the indirect general
partner of each of Wingate Partners and Wingate II. Since May 1982, Mr. Hegi has
served as President of Valley View Capital Corporation, a private investment
firm. Mr. Hegi also currently serves as Chairman of the Executive Committee of
the Board of Loomis, Fargo & Co., an armored car service company; Chairman of
Tahoka First Bancorp, Inc., a bank holding company; and Chairman of Cedar Creek
Bancshares, Inc., a bank holding company. Additionally, he is a director of Lone
Star Technologies, Inc., a diversified company thatmanufactures tubular
products; ITCO Tire Company, the largest independent wholesaler of replacement
tires in the U.S.; and Cattle Resources, Inc., a manufacturer of animal feeds
and operator of commercial cattle feedlots.
RANDALL W. LARRIMORE was elected to the Board of Directors and became President
and Chief Executive Officer of the Company on May 23, 1997. From February 1988
to May 1997, Mr. Larrimore had been President and Chief Executive Officer of
MasterBrand Industries, Inc., a manufacturer of leading brands including Master
Lock padlocks and Moen faucets, and a subsidiary of Fortune Brands (formerly
American Brands). Prior to that time, Mr. Larrimore was President and Chief
Executive Officer of Twentieth Century Companies, a manufacturer of plumbing
repair parts and a division of Beatrice Foods. Prior thereto he was Vice
President of Marketing for Beatrice Home Specialties, the operating parent of
Twentieth Century. Fortune Brands acquired Twentieth Century Companies and other
Beatrice divisions and subsidiaries in 1988. Before joining Beatrice in 1983,
Mr. Larrimore was with Richardson-Vicks, McKinsey & Company and then with
PepsiCo International. Mr. Larrimore serves as a director of Olin Corporation
and St. Francis Hospital.
MICHAEL D. ROWSEY was elected to the Board of Directors upon consummation of the
Merger and became Executive Vice President of the Company upon consummation of
the Merger with primary responsibility for field operations. Prior to the
Merger, Mr. Rowsey had been a director of Associated since 1992 and President
and Chief Operating Officer of Associated since January 1992. From 1979 to
January 1992, Mr. Rowsey served in various capacities with Boise Cascade Office
Products, most recently as the North Regional Manager.
DANIEL J. GOOD was elected to the Board of Directors upon consummation of the
Merger. Prior to the Merger, he had been a director of Associated since 1992.
Mr. Good is Chairman of Good Capital Co., Inc. ("Good Capital"), an investment
firm in Lake Forest, Illinois. Until June 1995, Mr. Good was Vice Chairman of
Golden Cat Corp., the largest producer of cat litter in the United States, and
prior thereto he was Managing Director of Merchant Banking for Shearson Lehman
Bros. and President of A.G. Becker Paribas,.Inc.
JAMES A. JOHNSON was elected to the Board of Directors upon consummation of the
Merger. Prior to the Merger, he had been a director of Associated since 1992.
Mr. Johnson is a general partner of various Wingate entities, including the
indirect general partner of Wingate II. From 1980 until he joined Wingate
Partners in 1990, Mr. Johnson served as a Principal of Booz-Allen & Hamilton, an
international management consulting firm. Mr. Johnson currently serves as a
director of Century Products Company, a manufacturer and distributor of car
seats and other juvenile products.
GARY G. MILLER was elected to the Board of Directors upon consummation of the
Merger. Mr. Miller served as Vice President and Secretary of the Company from
consummation of the Merger until June 27, 1995, and Assistant Secretary of the
Company from June 27, 1995 to May 8, 1996. Prior thereto, Mr. Miller had been a
director of Associated since 1992 and Vice President and Secretary of Associated
since January 1992. Mr. Miller also currently serves as President of Cumberland,
a private investment firm which is located in Fort Worth, Texas. In addition,
from 1977 to December 1993, Mr. Miller served as Executive Vice President, Chief
Financial Officer and a director of AFG Industries, Inc., and its parent
company, Clarity Holdings Corp. He is Chairman of the Board of both CFData
Corp., a nationwide provider of check collection and check verification
services, and Fore Star Golf, Inc., which was formed in 1993 to own and operate
golf course facilities.
BENSON P. SHAPIRO was elected to the Board of Directors in November 1997.
Professor Shapiro has served on the faculty of Harvard University for 27 years
and until July 1997 was THE MALCOLM P. MCNAIR PROFESSOR OF MARKETING at the
Harvard Business School. He continues to teach a variety of Harvard's executive
programs and spends much of his time on research, writing and consulting.
JOEL D. SPUNGIN has served as a member of the Board of Directors since 1972 and
prior to the consummation of the Merger was Chairman of the Board of Directors
and Chief Executive Officer of United since August 1988. From October 1989 until
April 1991, he was also President of United. Prior to that, since March 1987,
Mr. Spungin was Vice Chairman of the Board and Chief Executive Officer of
United. Previously, since August 1981, Mr. Spungin was President and Chief
Operating Officer of United. He also serves as a general partner of DMS
Enterprises, L.P., a management advisory and investment partnership, and as a
director of AAR Corp., an aviation and aerospace company, and Home Products
International, Inc., a manufacturer of home improvement products.
DANIEL H. BUSHELL became Executive Vice President and Chief Financial Officer of
the Company upon consummation of the Merger. Mr. Bushell has served as Assistant
Secretary of the Company since January 1996, and served as Secretary of the
Company from June 1995 through such date. Mr. Bushell also served as Assistant
Secretary of the Company from the consummation of the Merger until June 1995.
Prior thereto, Mr. Bushell had been Chief Administrative and Chief Financial
Officer of Associated and ASI since January 1992. From 1978 to January 1992,
Mr. Bushell served in various capacities with ACE Hardware Corporation, most
recently as Vice President of Finance.
STEVEN R. SCHWARZ became Executive Vice President of the Company upon
consummation of the Merger with primary responsibility for marketing and
merchandising. Prior thereto, he was Senior Vice President, Marketing of United
since June 1992 and had previously been Senior Vice President, General Manager,
Micro United since 1990 and Vice President, General Manager, Micro United since
September 1989. He had held a staff position in the same capacity since February
1987.
KATHLEEN S. DVORAK became Vice President, Investor Relations in July 1997.
Ms. Dvorak began her career at United in 1982 and has held various positions
with increasing responsibility within the investor relations function. Most
recently, she was Director of Investor Relations of the Company.
OTIS H. HALLEEN became Vice President, Secretary and General Counsel of the
Company as of January 30, 1996. Since November 1, 1995 he has served as Vice
President, Secretary and General Counsel at USSC. From 1986 through March 1995
he had been Vice President, Secretary and General Counsel of United.
MARK J. HAMPTON has served as Vice President of Marketing since September 1994.
Mr. Hampton began his United career in 1980 and held various positions in the
sales and marketing area. In 1991, Mr. Hampton left United to pursue an
opportunity to work in the dealer community and was the primary architect in
developing a successful national buying and marketing group. After rejoining the
Company in September 1992, he was made a Regional Vice President in charge of
the Midwest Region and then Vice President and General Manager of Micro United.
TOM HELTON became Vice President of Human Resources in February 1998. Prior to
joining United, Mr. Helton spent 11 years, from 1986 to 1997, at Whirlpool
Corporation where he held a variety of management and executive positions within
the human resource function. Most recently, he was Vice President of Human
Resources for Whirlpool Asia. From 1980 to 1986, Mr. Helton was with Kaiser
Aluminum and Chemical working in personnel and labor relations.
JAMES A. PRIBEL became Treasurer of the Company upon consummation of the Merger.
Prior thereto he was Treasurer of United since 1992. Mr. Pribel previously had
been Assistant Treasurer of USSC since 1984 and had served in various positions
since joining USSC in 1978.
ALBERT H. SHAW became Vice President, Operations of the Company shortly after
consummation of the Merger. Prior thereto, he was Vice President, Midwest Region
of USSC since March 1994. He had been a Vice President of USSC since 1992 and
prior to that had served in various management positions since joining USSC in
1974.
ERGIN USKUP became Vice President, Management Information Systems and Chief
Information Officer of the Company upon consummation of the Merger. Prior
thereto, he was Vice President, Management Information Systems and Chief
Information Officer of United since February 1994, and since 1987 had been Vice
President, Corporate Information Services for Baxter International Inc., a
global manufacturer and distributor of health care products.
The Charter provides that the Board of Directors shall be divided into three
classes, each class as nearly equal in number as possible, and each term
consisting of three years. The directors currently in each class are as follows:
Class I (having terms expiring in 1999)--Messrs. Good and Johnson; Class II
(having terms expiring in 2000)--Messrs. Hegi, Rowsey and Miller and Class III
(having terms expiring in 1998)--Messrs. Larrimore, Shapiro and Spungin.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 13, 1998, to be filed within 120 days
after the end of the Registrant's year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 13, 1998, to be filed within 120 days
after the end of the Registrant's year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 13, 1998, to be filed within 120 days
after the end of the Registrant's year.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) The following financial statements, schedules and exhibits are filed as
part of this report:
PAGE NO.
--------
(1) Financial Statements of the Company
Report of Independent Auditors............................... 20
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995........................... 21
Consolidated Balance Sheets as of December 31, 1997 and 1996. 22-23
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995....... 24-25
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995........................... 26
Notes to Consolidated Financial Statements................... 27-41
(2) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Restated Certificate of Incorporation, as amended(5).
4.2 Certificate of Ownership and Merger merging Associated into United(2).
4.3 Restated Bylaws(1).
10.1 Registration Rights Agreement, dated as of January 31, 1992,
between the Company and CMIHI (included in Exhibit 10.4, Annex 2).
10.2 Amendment No. 1 to Registration Rights Agreement, dated as of
March 30, 1995, among the Company, CMIHI and certain other holders
of Lender Warrants(1).
10.3 Amended and Restated Registration Rights Agreement, dated as of
March 30, 1995, among the Company, Wingate Partners, Cumberland,
Good Capital Co., Inc. and certain other Company stockholders(1).
10.4 Warrant Agreement, dated as of January 31, 1992, among the Company,
USSC and CMIHI(1).
10.5 Amendment No. 1 to Warrant Agreement, dated as of October 27, 1992,
among the Company, USSC, CMIHI and the other parties thereto(1).
10.6 Letter Agreement dated as of February 10, 1995, amending certain
provisions of the Warrant Agreement, among the Company, USSC, CMIHI
and the other parties thereto(4).
10.7 Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995,
among the Company, USSC, CMIHI and the other parties thereto(1).
10.8 Amendment No. 3 to Warrant Agreement, dated as of July 28, 1995,
among the Company, USSC, CMIHI and the other parties thereto(4).
10.9 Amendment No. 4 to Warrant Agreement, effective as of July 7, 1997,
among the Company, USSC, CMIH and the other parties thereto(5).
10.10 Warrant Agreement, dated as of January 31, 1992, between the
Company and Boise Cascade Corporation(1).
10.11 Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995,
between the Company and Boise Cascade Corporation(1).
10.12 Indenture, dated as of May 3, 1995, among USSC, the Company and The
Bank of New York(1).
10.13 First Supplemental Indenture, dated as of July 28, 1995, among
USSC, the Company, and The Bank of New York(1).
10.14 Investment Banking Fee and Management Agreements, dated as of
January 31, 1992, among the Company, USSC and each of Wingate
Partners, Cumberland and Good Capital Co., Inc(1).
10.15 Amendment No. 1 to Investment Banking Fee and Management
Agreements, dated as of March 30, 1995, among USSC, the Company and
each of Wingate Partners, Cumberland and Good Capital Co., Inc.(1).
10.16 Termination Agreements, dated as of October 31, 1997, terminating
the Investment Banking Fee and Management Agreements among the
Company, USSC and each of Wingate Partners, Cumberland and Good
Capital Co., Inc.*
10.17 Amendment No. 4 to Management Equity Plan, dated as of August 19,
1997(5).
10.18 United Stationers Inc. Management Equity Plan, as amended through
August 19, 1997(5).
10.19 Letter Agreements, dated as of January 31, 1992, between the Company
(as successor-in-interest to Associated) and each of Michael D.
Rowsey, Robert W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe,
Duane J. Ratay and Daniel H. Bushell regarding grants of stock
options(1).
10.20 Amendment to Stock Option Grants, dated as of March 30, 1995,
between the Company and each of Michael D. Rowsey, Robert W.
Eberspacher, Lawrence E. Miller, Daniel J. Schleppe, Duane J. Ratay
and Daniel H. Bushell(1).
10.21 Forms of Stock Option Agreements, dated October 2, 1995, granting
options to certain management employees(4).
10.22 Forms of Amendments to Stock Option Grants, dated September 29,
1995, between the Company and each of Michael D. Rowsey, Robert W.
Eberspacher, Lawrence E. Miller, Daniel J. Schleppe and Daniel H.
Bushell(4).
10.23 Stock Option Agreements, dated as of January 1, 1996, between the
Company and Thomas W. Sturgess, granting options(4).
10.24 Executive Stock Purchase Agreements, dated as of January 31, 1992,
among the Company, Wingate Partners, ASI Partners, L.P. and each of
Michael D. Rowsey, Robert W. Eberspacher, Lawrence E. Miller and
Daniel J. Schleppe(1).
10.25 First Amendments to Executive Stock Purchase Agreements, dated as
of March 30, 1995, among the Company, Wingate Partners, ASI Partners,
L.P. and each of Michael D. Rowsey, Robert W. Eberspacher,
Lawrence E. Miller and Daniel J. Schleppe(1).
10.26 Management Incentive Plan for 1996(4).
10.27 Management Incentive Plan for 1997 (Exhibit 10.39 to the Company's
Report on Form 10-K dated March 26, 1997)(3).
10.28 1997 Special Bonus Plan (Exhibit 10.40 to the Company's Report on
Form 10-K dated March 26, 1997)(3).
10.29 United Stationers 401(k) Savings Plan, restated as of March 1, 1996
(Exhibit 10.45.1 to the Company's Report on Form 10-K dated
March 26, 1997)(3).
10.30 United Stationers Supply Co. Pension Plan as amended (See the
Company's Reports on Form 10-K for the fiscal years ended August 31,
1985, 1986, 1987, and 1989)(3).
10.31 Amendment to Pension Plan adopted February 10, 1995(2).
10.32 One Time Merger Integration Bonus Plan(4).
10.33 Amended and Restated Employment and Consulting Agreement dated
April 15, 1993 among the Company, USSC and Joel D. Spungin (Exhibit
10(b) to the Company's Report on Form 10-K dated November 22,
1993)(3).
10.34 Amendment dated February 13, 1995 to the Amended and Restated
Employment and Consulting Agreement among the Company, USSC and
Joel D. Spungin(2).
10.35 Severance Agreement between the Company, USSC and James A. Pribel
dated February 13, 1995(2).
10.36 Letter Agreement dated February 13, 1995 between the Company and
Ergin Uskup(2).
10.37 Employment Agreements dated October 1, 1995 between USSC and each of
Daniel H. Bushell, Michael D. Rowsey, Steven R. Schwarz, Robert H.
Cornell, Ted S. Rzeszuto, and Al Shaw(4).
10.38 Employment Agreement dated November 1, 1995 between USSC and Otis
H. Halleen(4).
10.39 Employment Agreement dated as of January 1, 1996 between the
Company, USSC and Thomas W. Sturgess(4).
10.40 Deferred Compensation Plan. (Exhibit 10(f) to the Company's Annual
Report on Form 10-K dated October 6, 1994)(3).
10.41 Letter Agreement dated November 29, 1995 granting shares of
restricted stock to Joel D. Spungin(4).
10.42 Lease Agreement dated as of March 4, 1988 between Crow-Alameda
Limited Partnership and Stationers Distributing Company, Inc., as
amended(1).
10.43 Industrial Real Estate Lease, dated as of May 17, 1993, among
Majestic Realty Co. and Patrician Associates, Inc., as
landlord, and United Stationers Supply Co., as tenant(1).
10.44 Standard Industrial Lease, dated as of March 15, 1991, between
Shelly B. and Barbara Detrik and Lynn Edwards Corp.(1).
10.45 Lease Agreement, dated as of January 12, 1993, as amended, among
Stationers Antelope Joint Venture, AVP Trust, Adon V. Panattoni and
Yolanda M. Panattoni, as landlord, and United Stationers Supply
Co., as tenant(1).
10.46 Lease dated as of February 1, 1993, between CMD Florida Four
Limited Partnership and United Stationers Supply Co., as amended(1).
10.47 Standard Industrial Lease, dated March 2, 1992, between Carol Point
Builders I and Associated Stationers, Inc.(1).
10.48 First Amendment to Industrial Lease dated January 23, 1997 between
ERI-CP, Inc. (successor to Carol Point Builders I) and United
Stationers Supply Co. (successor to Associated Stationers, Inc.)(5).
10.49 Lease, dated March 22, 1973, between National Boulevard Bank of
Chicago, a trustee under Trust Agreement dated March 15, 1973 and
known as Trust No. 4722, and USSC, as amended(1).
10.50 Lease Agreement, dated July 20, 1993, between OTR, acting as the
duly authorized nominee of the Board of the State Teachers
Retirement System of Ohio, and United Stationers Supply Co., as
amended(1).
10.51 Lease Agreement, dated as of December 20, 1988, between Corporate
Property Associates 8, L.P., and Stationers Distributing Company,
Inc., as amended(1).
10.52 Industrial Lease, dated as of February 22, 1988, between Northtown
Devco and Stationers Distributing Company, as amended(1).
10.53 Lease, dated as of April 17, 1989, between Isaac Heller and USSC,
as amended(1).
10.54 Lease Agreement, dated as of May 10, 1984, between Westbelt
Business Park Joint Venture and Boise Cascade Corporation, as
amended(1).
10.55 Fourth Amendment to Lease between Keystone-Ohio Property Holding
Corp. (as successor to Westbelt Business Park) and USSC (as
successor to Associated Stationers, Inc.) dated December 3, 1996(5).
10.56 Lease effective March 1, 1997 between Davis Partnership and USSCO*.
10.57 Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.58 Lease Agreement, dated as of March 31, 1978, among Gillich O.
Traughber and J. T. Cruin, Joint Venturers, and Boise Cascade
Corporation, as amended(1).
10.59 Lease Agreement, dated November 7, 1988, between Dalware II
Associates and Stationers Distributing Company, Inc., as amended(1).
10.60 Lease Agreement, dated November 7, 1988, between Central East
Dallas Development Limited Partnership and Stationers Distributing
Company, Inc., as amended(1).
10.61 Lease Agreement, dated as of March 17, 1989, between Special Asset
Management Company of Texas, Inc., and Stationers Distributing
Company, Inc., as amended(1).
10.62 Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1)
10.63 Industrial Lease, dated as of June 12, 1989, between Stationers
Distributing Company, Inc. and Dual Asset Fund V, as amended(1).
10.64 Lease Agreement, dated as of July, 1994, between Bettilyon Mortgage
Loan Company and USSC(1).
10.65 Agreement of Lease, dated as of January 5, 1994 between the Estate
of James Campbell, deceased, and USSC(1).
10.66 Amendment No. 2 to Agreement of Lease dated February 1, 1997
between the Estate of James Campbell, deceased, and USSC.*
10.67 Lease Agreement dated January 5, 1996, between Robinson Properties,
L.P. and USSC(4).
10.68 Agreement for Data Processing Services, dated January 31, 1992,
between USSC (as successor-in-interest to ASI) and Affiliated
Computer Services, Inc.(1)
10.69 Amended and Restated First Amendment to Agreement for Data
Processing Services, dated as of August 29, 1995, between USSC and
Affiliated Computer Services, Inc.(1).
10.70 Stock Purchase Agreement between United Stationers Supply Co.
and Lagasse Bros., Inc. ("Lagasse") and Kevin C. Lagasse, Cynthia
Lagasse, David C. Lagasse, Linette Lagasse Abadie, Clinton G. Lagasse,
Raymond J. Lagasse and Rickey Lagasse, being all of the shareholders
of Lagasse (Exhibit 99.1 to Registrant's Report on Form 8-K filed
November 5, 1996)(3)
10.71 Amended and Restated Credit Agreement dated October 31, 1996
(amending and restating the Credit Agreement dated as of March 30,
1995)(Exhibit 99.2 to Registrant's Report on Form 8-K filed
November 5, 1996)(3).
10.72 USI Employee Benefits Trust Agreement dated March 21, 1995 between
the Company and American National Bank and Trust Company of Chicago
as Trustee(2).
10.73 Certificate of Insurance covering directors' and officers'
liability insurance effective March 30, 1996 through April 1, 1997.*
10.74 Certificate of Insurance covering directors' and officers'
liability insurance effective April 1, 1997 through April 1,
1998(5).
10.75 Amendment to Medical Plan Document for the Company(2).
10.76 The Company Severance Plan, adopted February 10, 1995(2).
10.77 Securities Purchase Agreement, dated as of July 28, 1995, among the
Company, Boise Cascade, Wingate Partners, Wingate II, Wingate
Affiliates, Wingate Affiliates II, ASI Partners III, L.P., the Julie
Good Mora Grantor Trust and the Laura Good Stathos Grantor Trust(2).
10.78 Amendment dated February 23, 1996 to Option Agreements between the
Company and Thomas W. Sturgess (Exhibit 10.110 to the Company's
Report on Form 10-K dated March 28, 1996)(3).
10.79 Amendment No. 3 to United Stationers Inc. Management Equity Plan,
dated as of September 27, 1995 (Exhibit 10.111 to the Company's
Report on Form 10-K dated March 28, 1996)(3).
10.80 Amendment No. 2 dated March 5, 1996 to Stock Option Agreements
between the Company and Thomas W. Sturgess (Exhibit 10.112 to the
Company's Report on Form 10-K dated March 28, 1996)(3).
10.81 Amendment to Employment Agreement dated March 5, 1996 between the
Company, USSC and Thomas W. Sturgess (Exhibit 10.113 to the Company's
Form 10-K dated March 28, 1996)(3).
10.82 Employment Agreement dated as of May 23, 1997 between the Company,
USSC and Randall W. Larrimore(5).
10.83 Employment Agreements dated as of June 1, 1997 between USSC and
each of Daniel H. Bushell, Michael D. Rowsey and Steven R.
Schwarz(5).
10.84 Lease dated as of October 20, 1997 between Ozburn-Hessey Storage
Co. and USSC.*
10.85 United Stationers Inc. Non-employee Directors' Deferred Stock
Compensation Plan.*
21 Subsidiaries of the issuer.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.*
27.1 Financial Data Schedule for the Company (EDGAR filing only)*.
27.2 Financial Data Schedule for USSC (EDGAR filing only)*.
- ----------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to the Company's Form S-1 (No. 33-59811),
as amended, initially filed with the Commission on June 12, 1995.
(2) Incorporated by reference to the Company's Schedule 14D-9 dated
February 21, 1995.
(3) Incorporated by reference to other prior filings of the Company as
indicated.
(4) Incorporated by reference to the Company's Form S-2 (No. 333-01089)
as filed with the Commission on February 20, 1996.
(5) Incorporated by reference to the Company's Form S-2 (No. 333-34937)
as filed with the Commission on October 3, 1997.
(B) Reports on Form 8-K were filed by the Registrant on November 14, 1997.
For the purpose of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into registrant's Registration Statement on Form
S-8 No. 33337665 (filed October 10, 1997).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jursidiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED STATIONERS INC.
BY: /s/Daniel H. Bushell
--------------------------------
Daniel H. Bushell
Executive Vice President,
Chief Financial Officer and
Assistant Secretary
(principal accounting officer)
Dated:
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/Frederick B. Hegi, Jr. Chairman of the Board of Directors March 6, 1998
---------------------------
Frederick B. Hegi, Jr.
/s/Randall W. Larrimore President and Chief Executive Officer March 6, 1998
--------------------------- and a Director
Randall W. Larrimore
/s/Michael D. Rowsey Executive Vice President March 6, 1998
--------------------------- and a Director
Michael D. Rowsey
/s/Daniel J. Good Director March 6, 1998
---------------------------
Daniel J. Good
/s/James A. Johnson Director March 6, 1998
---------------------------
James A. Johnson
/s/Gary G. Miller Director March 6, 1998
---------------------------
Gary G. Miller
/s/Benson P. Shapiro Director March 6, 1998
---------------------------
Benson P. Shapiro
/s/Joel D. Spungin Director March 6, 1998
---------------------------
Joel D. Spungin