UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended JuneSeptember 30, 2014

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number: 0-10653

 

UNITED STATIONERS INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

Delaware

36-3141189

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

One Parkway North Boulevard

Suite 100

Deerfield, Illinois 60015-2559

(847) 627-7000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

Indicate by check mark whether 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

On July 18,October 17, 2014, the registrant had outstanding 38,963,47438,899,710 shares of common stock, par value $0.10 per share.

 

 

 


UNITED STATIONERS INC.

FORM 10-Q

For the Quarterly Period Ended JuneSeptember 30, 2014

TABLE OF CONTENTS

 

Page No.

Page No.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of JuneSeptember 30, 2014 and December 31, 2013

3

Condensed Consolidated Statements of Income for the Three Months and SixNine Months Ended JuneSeptember 30, 2014 and 2013

4

Condensed Consolidated Statements of Comprehensive Income for the Three Months and SixNine Months Ended JuneSeptember 30, 2014 and 2013

5

Condensed Consolidated Statements of Cash Flows for the SixNine Months Ended JuneSeptember 30, 2014 and 2013

6

Notes to Condensed Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

18

Item 3. Quantitative and Qualitative Disclosures About Market Risk

21

25

Item 4. Controls and Procedures

22

25

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

22

26

Item 1A. Risk Factors

22

26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

22

26

Item 6. Exhibits

23

27

SIGNATURES

24

28

2


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ITEM 1.

FINANCIAL STATEMENTS

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

(Unaudited)

 

 

(Audited)

 

  (Unaudited) (Audited) 

As of  September 30,

 

 

As of December 31,

 

  As of June 30,
2014
 As of December 31,
2013
 

2014

 

 

2013

 

ASSETS

   

 

 

 

 

 

 

 

Current assets:

   

 

 

 

 

 

 

 

Cash and cash equivalents

  $31,495   $22,326  

$

24,838

 

 

$

22,326

 

Accounts receivable, less allowance for doubtful accounts of $19,037 in 2014 and $20,608 in 2013

   662,772   643,379  

Accounts receivable, less allowance for doubtful accounts of $20,168 in 2014 and $20,608 in 2013

 

749,415

 

 

 

643,379

 

Inventories

   804,395   830,295  

 

796,325

 

 

 

830,295

 

Other current assets

   31,436   29,255  

 

20,599

 

 

 

29,255

 

  

 

  

 

 

Total current assets

   1,530,098    1,525,255  

 

1,591,177

 

 

 

1,525,255

 

Property, plant and equipment, net

   135,529    143,050  

 

133,076

 

 

 

143,050

 

Goodwill

   382,950    356,811  

 

381,687

 

 

 

356,811

 

Intangible assets, net

   75,210    65,502  

 

72,499

 

 

 

65,502

 

Other long-term assets

   26,059    25,576  

 

24,372

 

 

 

25,576

 

  

 

  

 

 

Total assets

  $2,149,846   $2,116,194  

$

2,202,811

 

 

$

2,116,194

 

  

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

 

 

 

 

 

 

 

Current liabilities:

   

 

 

 

 

 

 

 

Accounts payable

  $486,621   $476,113  

$

515,350

 

 

$

476,113

 

Accrued liabilities

   187,414    191,531  

 

189,224

 

 

 

191,531

 

Current maturities of long-term debt

   1,098    373  

 

894

 

 

 

373

 

  

 

  

 

 

Total current liabilities

   675,133    668,017  

 

705,468

 

 

 

668,017

 

Deferred income taxes

   27,539    29,552  

 

28,265

 

 

 

29,552

 

Long-term debt

   542,410    533,324  

 

545,009

 

 

 

533,324

 

Other long-term liabilities

   63,082    59,787  

 

60,500

 

 

 

59,787

 

  

 

  

 

 

Total liabilities

   1,308,164    1,290,680  

 

1,339,242

 

 

 

1,290,680

 

Stockholders’ equity:

   

 

 

 

 

 

 

 

Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2014 and 2013

   7,444    7,444  

 

7,444

 

 

 

7,444

 

Additional paid-in capital

   412,839    411,954  

 

410,303

 

 

 

411,954

 

Treasury stock, at cost – 35,413,470 shares in 2014 and 34,714,083 shares in 2013

   (1,027,575  (998,234

Treasury stock, at cost – 35,562,874 shares in 2014 and 34,714,083 shares in 2013

 

(1,035,570

)

 

 

(998,234

)

Retained earnings

   1,488,469    1,444,238  

 

1,521,230

 

 

 

1,444,238

 

Accumulated other comprehensive loss

   (39,495  (39,888

 

(39,838

)

 

 

(39,888

)

  

 

  

 

 

Total stockholders’ equity

   841,682    825,514  

 

863,569

 

 

 

825,514

 

  

 

  

 

 

Total liabilities and stockholders’ equity

  $2,149,846   $2,116,194  

$

2,202,811

 

 

$

2,116,194

 

  

 

  

 

 

See notes to condensed consolidated financial statements.

3


UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

 

  For the Three Months Ended   For the Six Months Ended 

For the Three Months Ended

 

 

For the Nine Months Ended

 

  June 30,   June 30, 

September 30,

 

 

September 30,

 

  2014   2013   2014   2013 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net sales

  $1,320,037    $1,274,494    $2,574,176    $2,524,979  

$

1,419,947

 

 

$

1,336,676

 

 

$

3,994,123

 

 

$

3,861,655

 

Cost of goods sold

   1,120,577     1,072,558     2,187,633     2,134,518  

 

1,208,919

 

 

 

1,133,015

 

 

 

3,396,552

 

 

 

3,267,533

 

  

 

   

 

   

 

   

 

 

Gross profit

   199,460     201,936     386,543     390,461  

 

211,028

 

 

 

203,661

 

 

 

597,571

 

 

 

594,122

 

Operating expenses:

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehousing, marketing and administrative expenses

   142,186     143,009     291,035     306,293  

 

146,560

 

 

 

136,265

 

 

 

437,595

 

 

 

442,558

 

  

 

   

 

   

 

   

 

 

Operating income

   57,274     58,927     95,508     84,168  

 

64,468

 

 

 

67,396

 

 

 

159,976

 

 

 

151,564

 

Interest expense, net

   3,833     2,856     7,207     5,969  

 

3,992

 

 

 

2,734

 

 

 

11,199

 

 

 

8,703

 

  

 

   

 

   

 

   

 

 

Income before income taxes

   53,441     56,071     88,301     78,199  

 

60,476

 

 

 

64,662

 

 

 

148,777

 

 

 

142,861

 

Income tax expense

   20,110     21,401     33,113     29,655  

 

22,307

 

 

 

24,161

 

 

 

55,420

 

 

 

53,816

 

  

 

   

 

   

 

   

 

 

Net income

  $33,331    $34,670    $55,188    $48,544  

$

38,169

 

 

$

40,501

 

 

$

93,357

 

 

$

89,045

 

  

 

   

 

   

 

   

 

 

Net income per share - basic:

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

  $0.86    $0.87    $1.41    $1.22  

$

0.99

 

 

$

1.03

 

 

$

2.41

 

 

$

2.24

 

  

 

   

 

   

 

   

 

 

Average number of common shares outstanding - basic

   38,816     39,762     39,004     39,867  

 

38,450

 

 

 

39,468

 

 

 

38,817

 

 

 

39,732

 

Net income per share - diluted:

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - diluted

  $0.85    $0.86    $1.40    $1.20  

$

0.98

 

 

$

1.01

 

 

$

2.38

 

 

$

2.21

 

  

 

   

 

   

 

   

 

 

Average number of common shares outstanding - diluted

   39,226     40,328     39,435     40,475  

 

38,884

 

 

 

40,031

 

 

 

39,244

 

 

 

40,331

 

Dividends declared per share

  $0.14    $0.14    $0.28    $0.28  

$

0.14

 

 

$

0.14

 

 

$

0.42

 

 

$

0.42

 

  

 

   

 

   

 

   

 

 

See notes to condensed consolidated financial statements.

4


UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

 

   For the Three Months Ended  For the Six Months Ended 
   June 30,  June 30, 
   2014  2013  2014  2013 

Net income

  $33,331   $34,670   $55,188   $48,544  

Other comprehensive income, net of tax

     

Unrealized translation adjustment

   562    (1,384  17    (639

Minimum pension liability adjustments

   580    967    1,161    1,987  

Unrealized interest rate swap adjustments

   (626  3,158    (785  3,302  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total other comprehensive income, net of tax

   516    2,741    393    4,650  
  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income

  $33,847   $37,411   $55,581   $53,194  
  

 

 

  

 

 

  

 

 

  

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Net income

$

38,169

 

 

$

40,501

 

 

$

93,357

 

 

$

89,045

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Unrealized translation adjustment

 

(1,395

)

 

 

(111

)

 

 

(1,378

)

 

 

(751

)

       Minimum pension liability adjustments

 

606

 

 

 

994

 

 

 

1,767

 

 

 

2,982

 

       Unrealized interest rate swap adjustments

 

446

 

 

 

(1,152

)

 

 

(339

)

 

 

2,150

 

Total other comprehensive income, net of tax

 

(343

)

 

 

(269

)

 

 

50

 

 

 

4,381

 

Comprehensive income

$

37,826

 

 

$

40,232

 

 

$

93,407

 

 

$

93,426

 

See notes to condensed consolidated financial statements.

5


UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

 

  For the Six Months Ended 

For the Nine Months Ended

 

  June 30, 

September 30,

 

  2014 2013 

2014

 

 

2013

 

Cash Flows From Operating Activities:

   

 

 

 

 

 

 

 

Net income

  $55,188   $48,544  

$

93,357

 

 

$

89,045

 

Adjustments to reconcile net income to net cash provided by operating activities:

   

 

 

 

 

 

 

 

Depreciation and amortization

   19,430   19,381  

 

29,699

 

 

 

29,236

 

Share-based compensation

   4,294   5,538  

 

5,935

 

 

 

7,526

 

Loss (gain) on the disposition of property, plant and equipment

   96   (219

 

97

 

 

 

(108

)

Amortization of capitalized financing costs

   460   446  

 

657

 

 

 

687

 

Excess tax benefits related to share-based compensation

   (638 (1,545

 

(1,166

)

 

 

(3,223

)

Deferred income taxes

   (5,317 (7,195

 

(7,618

)

 

 

(8,214

)

Changes in operating assets and liabilities:

   

Changes in operating assets and liabilities (net of acquisitions):

 

 

 

 

 

 

 

Increase in accounts receivable, net

   (17,650 (4,036

 

(104,540

)

 

 

(36,855

)

Decrease in inventory

   39,290   31,604  

 

46,591

 

 

 

40,936

 

(Increase) decrease in other assets

   (2,765 997  

Decrease in other assets

 

10,000

 

 

 

1,612

 

Increase (decrease) in accounts payable

   21,961   (36,236

 

24,663

 

 

 

(24,677

)

(Decrease) increase in checks in-transit

   (28,545 16,094  

Decrease in accrued liabilities

   (1,106 (20,757

Decrease in checks in-transit

 

(2,679

)

 

 

(835

)

Increase (decrease) in accrued liabilities

 

3,438

 

 

 

(7,569

)

Decrease in other liabilities

   (5,809 (7,366

 

(4,768

)

 

 

(8,120

)

  

 

  

 

 

Net cash provided by operating activities

   78,889    45,250  

 

93,666

 

 

 

79,441

 

Cash Flows From Investing Activities:

   

 

 

 

 

 

 

 

Capital expenditures

   (10,335  (17,044

 

(15,431

)

 

 

(22,822

)

Proceeds from the disposition of property, plant and equipment

   869    3,522  

 

872

 

 

 

3,522

 

Acquisition, net of cash acquired

   (26,161  —    

 

(26,725

)

 

 

-

 

Net cash used in investing activities

 

(41,284

)

 

 

(19,300

)

  

 

  

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

   (35,627  (13,522

Cash Flows From Financing Activities:

   

 

 

 

 

 

 

 

Net repayments under revolving credit facility

   (14,489  (55,891

 

(12,094

)

 

 

(66,891

)

Borrowings under Receivables Securitization Program

   9,300    50,000  

 

9,300

 

 

 

50,000

 

Repayment of debt

   (135,000  —    

 

(135,000

)

 

 

-

 

Proceeds from the issuance of debt

   150,000    —    

 

150,000

 

 

 

-

 

Net (disbursements) proceeds from share-based compensation arrangements

   (1,788  14,366  

 

(3,142

)

 

 

18,143

 

Acquisition of treasury stock, at cost

   (31,152  (39,810

 

(43,037

)

 

 

(46,984

)

Payment of cash dividends

   (10,991  (11,220

 

(16,407

)

 

 

(16,764

)

Excess tax benefits related to share-based compensation

   638    1,545  

 

1,166

 

 

 

3,223

 

Payment of debt issuance costs

   (615  (410

 

(623

)

 

 

(1,680

)

  

 

  

 

 

Net cash used in financing activities

   (34,097  (41,420

 

(49,837

)

 

 

(60,953

)

Effect of exchange rate changes on cash and cash equivalents

   4    (110

 

(33

)

 

 

36

 

  

 

  

 

 

Net change in cash and cash equivalents

   9,169    (9,802

 

2,512

 

 

 

(776

)

Cash and cash equivalents, beginning of period

   22,326    30,919  

 

22,326

 

 

 

30,919

 

  

 

  

 

 

Cash and cash equivalents, end of period

  $31,495   $21,117  

$

24,838

 

 

$

30,143

 

  

 

  

 

 

Other Cash Flow Information:

   

 

 

 

 

 

 

 

Income tax payments, net

  $25,236   $36,882  

$

55,867

 

 

$

60,342

 

Interest paid

   4,621    7,115  

 

9,838

 

 

 

9,806

 

See notes to condensed consolidated financial statements.

6


UNITED STATIONERS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying Condensed Consolidated Financial Statements represent United Stationers Inc. (“USI”) with its wholly owned subsidiary United Stationers Supply Co. (“USSC”), and USSC’s subsidiaries (collectively, “United” or the “Company”). The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of USI and its subsidiaries. All intercompany transactions and balances have been eliminated. The Company operates in a single reportable segment as a leading distributor of business essentials.

The accompanying Condensed Consolidated Financial Statements are unaudited, except for the Condensed Consolidated Balance Sheet as of December 31, 2013, which was derived from the December 31, 2013 audited financial statements. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for further information.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of United at JuneSeptember 30, 2014 and the results of operations and cash flows for the sixnine months ended JuneSeptember 30, 2014 and 2013. The results of operations for the three months and sixnine months ended JuneSeptember 30, 2014 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year.

Inventory

Approximately 75%74% and 76% of total inventory as of JuneSeptember 30, 2014 and December 31, 2013, respectively has been valued under the last-in, first-out (“LIFO”) accounting method. The remaining inventory is valued under the first-in, first-out (“FIFO”) accounting method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost or market. If the Company had valued its entire inventory under the lower of FIFO cost or market, inventory would have been $114.0$117.3 million and $112.4 million higher than reported as of JuneSeptember 30, 2014 and December 31, 2013, respectively.

The six-monthnine-month change in the LIFO reserve as of JuneSeptember 30, 2014 resulted in a $1.6$4.9 million increase in cost of goods sold which included a LIFO liquidation relating to decrements in the Company’s office products and furniture pools. These decrements resulted in liquidation of LIFO inventory quantities carried at lower costs in prior years as compared with the cost of current year purchases. This liquidation resulted in LIFO income of $3.4 million, which was more than offset by LIFO expense of $5.0$8.3 million related to current inflation for an overall net increase in cost of sales of $1.6 million as referenced above.inflation.

New Accounting Pronouncements

 In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. The standard requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition, and compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. This ASU is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. This new standard will not have an effect on the Company’s consolidated financial statements as it is in alignment with the Company’s current accounting policies for equity based compensation.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue From Contracts With Customers, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

7


In July 2013, the FASB issued Accounting Standards Update No. 2013-11,Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists(ASU 2013-11). This ASU requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or use of an operating loss carry forward, a similar tax loss, or a tax credit carry forward. This ASU was effective for the Company beginning in the first quarter of 2014. There was no impact on the Company’s financial condition or results of operations due to the adoption of this standard.

Acquisition of CPO Commerce, Inc.

On May 30, 2014, USSC completed the acquisition of CPO Commerce, Inc. (“CPO”), a leading e-retaileronline retailer of brand name power tools and equipment. The acquisition of CPO will significantly expand the Company’s digital resources and capabilities to support customers and supplier partners. The Company financed the 100% stock acquisition with borrowings under the Company’s available committed bank facilities.

The purchase price was $38.9$37.4 million, including $0.5 million reserved as a payable upon completion of a three month indemnification period. The purchase price also included $6.7$5.1 million related to the estimated fair value of contingent consideration which is based upon the achievement of certain sales targets during a three-year period, immediately following the acquisition date. The final payments related to the contingent consideration are determined by actual achievement in the earn-out periods and range from zero to $10.0 million. After the finalization of the contingent consideration, any changes to the estimated fair value will be recorded in “warehousing, marketing and administrative expenses” in the period in which a change occurs.

The Company has developed a preliminary estimate of the fair value of assets acquired and liabilities assumed for purposes of allocating the purchase price, but thisprice. This estimate is subject to change as the valuation activities are completed. The fair value of the assets and liabilities acquired were estimated using various valuation methods including estimated selling price, a market approach, and discounted cash flows using both an income and cost approach.

At JuneSeptember 30, 2014, the preliminary allocation of the purchase price is as follows (amounts in thousands):

 

Purchase price, net of cash acquired

   $33,361  

 

 

 

 

$

31,825

 

Inventories

  $(13,302 

$

(13,051

)

 

 

 

 

Accounts receivable

   (2,551 

 

(2,658

)

 

 

 

 

Other current assets

   (307 

 

(307

)

 

 

 

 

Property, plant and equipment, net

   (488 

 

(488

)

 

 

 

 

Intangible assets

   (13,300 

 

(12,800

)

 

 

 

 

  

 

  

Total assets acquired

    (29,948

 

 

 

 

 

(29,304

)

Accounts payable

   17,124   

 

17,124

 

 

 

 

 

Accrued liabilities

   2,113   

 

2,130

 

 

 

 

 

Other long-term liabilities

   51   

 

51

 

 

 

 

 

Deferred income taxes

   3,547   

 

3,233

 

 

 

 

 

  

 

  

Total liabilities assumed

    22,835  

 

 

 

 

 

22,538

 

   

 

 

Goodwill

   $26,248  

 

 

 

 

$

25,059

 

   

 

 

The purchased identifiable intangible assets are as follows (amounts in thousands):

 

  Total   Estimated Life 

Total

 

 

Estimated Life

Customer relationships

  $5,500     2 years  

$

5,200

 

 

3 years

Trademark

   7,800     15 years  

 

7,600

 

 

15 years

  

 

   

Total

  $13,300    

$

12,800

 

 

 

  

 

   

Any changes to the preliminary estimates of the fair value of assets acquired and liabilities assumed, some of which may be material, will be allocated to residual goodwill.

The impact of CPO on the Company’s second-quarterthird-quarter 2014 net financial sales after its acquisition on May 30, 2014 was immaterial. Had the CPO acquisition been completed as of the beginning of 2013, the Company’s unaudited pro forma net sales and net income for the three-month and six-monthnine-month periods ending JuneSeptember 30, 2014 and 2013 would not have been materially impacted.

8


Agreement to Purchase MEDCO

On September 11, 2014, USSC signed an agreement to acquire Liberty Bell Equipment Corp., a United States wholesaler of automotive aftermarket tools and supplies, and its affiliates (collectively, “MEDCO”) including G2S Equipment de Fabrication et d'Entretien ULC, a Canadian wholesaler.  The all cash purchase price is $130.0 million, subject to closing adjustments, with up to an additional $10 million to be paid over three years based on performance.  The acquisition is expected to be completed in the fourth quarter of 2014 and is subject to customary closing conditions.  This acquisition will be funded through a combination of cash on hand and cash available under our revolving credit facility. 

2. Share-Based Compensation

As of JuneSeptember 30, 2014, the Company has two active equity compensation plans. Under the Amended and Restated 2004 Long-Term Incentive Plan, award vehicles include, but are not limited to, stock options, restricted stock awards, restricted stock units (“RSUs”), and performance-based awards. Associates and non-employee directors of the Company are eligible to become participants in the plan. The Nonemployee Directors’ Deferred Stock Compensation Plan allows non-employee directors to elect to defer receipt of all or a portion of their retainer and meeting fees.

The Company granted 62,594229,477 shares of restricted stock, 147,725176,717 RSUs, and 5,538 stock options during the first sixnine months of 2014. During the first sixnine months of 2013, the Company granted 41,379181,916 shares of restricted stock, 152,513166,348 RSUs, and 575,426585,189 stock options.

3. Severance and Restructuring Charges

During the first quarter of 2013, the Company recorded a $14.4 million pre-tax charge related to a workforce reduction and facility closures. The pre-tax charge is comprised of certain OKI facility closure expenses of $1.2 million and severance and workforce reduction-related expenses of $13.2 million which were included in operating expenses. Cash outflows for these actions occurred primarily during 2013 and have continued into 2014. Cash outlays associated with these charges in the sixnine months ended JuneSeptember 30, 2014 were $3.0$3.6 million. During 2013, the Company reversed a portion of these charges totaling $1.4 million. Additionally, the Company reversed a portion of these charges totaling $0.3 million in the first quarter of 2014. As of JuneSeptember 30, 2014 and December 31, 2013, the Company had accrued liabilities for these actions of $1.1$0.5 million and $4.4 million, respectively.


9


4. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are noted in the following table (in thousands):

 

Goodwill, balance as of December 31, 2013

  $356,811  

$

356,811

 

Acquisition of CPO

   26,248  

 

25,059

 

Currency translation adjustment

   (109

 

(183

)

  

 

 

Goodwill, balance as of June 30, 2014

  $382,950  
  

 

 

Goodwill, balance as of September 30, 2014

$

381,687

 

The following table summarizes the intangible assets of the Company by major class of intangible assets and the cost, accumulated amortization, net carrying amount, and weighted average life, if applicable (in thousands):

 

   June 30, 2014   December 31, 2013 
   Gross
Carrying
Amount
   Accumulated
Amortization
  Net
Carrying
Amount
   Weighted
Average
Useful
Life
(years)
   Gross
Carrying
Amount
   Accumulated
Amortization
  Net
Carrying
Amount
   Weighted
Average
Useful
Life
(years)
 

Intangible assets subject to amortization

              

Customer relationships and other intangibles

  $89,948    $(39,351 $50,597     17    $84,470    $(36,232 $48,238     17  

Non-compete agreements

   4,687     (2,014  2,673     4     4,700     (1,952  2,748     4  

Trademarks

   10,649     (1,009  9,640     14     2,890     (674  2,216     5  
  

 

 

   

 

 

  

 

 

     

 

 

   

 

 

  

 

 

   

Total

  $105,284    $(42,374 $62,910      $92,060    $(38,858 $53,202    

Intangible assets not subject to amortization

              

Trademarks

   12,300     —      12,300     n/a     12,300     —      12,300     n/a  
  

 

 

   

 

 

  

 

 

     

 

 

   

 

 

  

 

 

   

Total

  $117,584    $(42,374 $75,210      $104,360    $(38,858 $65,502    
  

 

 

   

 

 

  

 

 

     

 

 

   

 

 

  

 

 

   

 

September 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Gross

 

 

 

 

 

 

Net

 

 

Useful

 

Gross

 

 

 

 

 

 

Net

 

 

Useful

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Life

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Life

 

Amount

 

 

Amortization

 

 

Amount

 

 

(years)

 

Amount

 

 

Amortization

 

 

Amount

 

 

(years)

Intangible assets subject to amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships and other intangibles

$

89,632

 

 

$

(41,145

)

 

$

48,487

 

 

17

 

$

84,470

 

 

$

(36,232

)

 

$

48,238

 

 

17

Non-compete agreements

 

4,679

 

 

 

(2,108

)

 

 

2,571

 

 

4

 

 

4,700

 

 

 

(1,952

)

 

 

2,748

 

 

4

Trademarks

 

10,433

 

 

 

(1,292

)

 

 

9,141

 

 

14

 

 

2,890

 

 

 

(674

)

 

 

2,216

 

 

5

Total

$

104,744

 

 

$

(44,545

)

 

$

60,199

 

 

 

 

$

92,060

 

 

$

(38,858

)

 

$

53,202

 

 

 

Intangible assets not subject to amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

12,300

 

 

 

-

 

 

 

12,300

 

 

n/a

 

 

12,300

 

 

-

 

 

 

12,300

 

 

n/a

Total

$

117,044

 

 

$

(44,545

)

 

$

72,499

 

 

 

 

$

104,360

 

 

$

(38,858

)

 

$

65,502

 

 

 

Based upon the preliminary purchase price allocation for the acquisition of CPO, the Company has recorded $5.5$5.2 million of customer relationships to be amortized over a period of two3 years and a $7.8$7.6 million trademark to be amortized over a period of 15 years. See Note 1 “Basis of Presentation” for further discussion of the acquisition.


10


5. Accumulated Other Comprehensive Income (Loss)

The change in Accumulated Other Comprehensive Income (Loss) (“AOCI”) by component, net of tax, for the period ended JuneSeptember 30, 2014 is as follows:follows (amounts in thousands):

 

 

Foreign Currency Translation

 

 

Cash Flow Hedges

 

 

Defined Benefit Pension Plans

 

 

Total

 

(amounts in thousands)

  Foreign Currency
Translation
 Cash Flow
Hedges
 Defined Benefit
Pension Plans
 Total 

AOCI, balance as of December 31, 2013

  $(6,661 $871   $(34,098 $(39,888

 

$

(6,661

)

 

$

871

 

 

$

(34,098

)

 

$

(39,888

)

Other comprehensive (loss) income before reclassifications

   17   (808  —     (791

 

 

(1,378

)

 

 

(573

)

 

 

 

 

(1,951

)

Amounts reclassified from AOCI

   —     23   1,161   1,184  

 

 

 

 

234

 

 

 

1,767

 

 

 

2,001

 

  

 

  

 

  

 

  

 

 

Net other comprehensive (loss) income

   17    (785  1,161    393  

 

 

(1,378

)

 

 

(339

)

 

 

1,767

 

 

 

50

 

  

 

  

 

  

 

  

 

 

AOCI, balance as of June 30, 2014

  $(6,644 $86   $(32,937 $(39,495
  

 

  

 

  

 

  

 

 

AOCI, balance as of September 30, 2014

 

$

(8,039

)

 

$

532

 

 

$

(32,331

)

 

$

(39,838

)

The following table details the amounts reclassified out of AOCI into the income statement during the three-month and six-monthnine-month periods ending JuneSeptember 30, 2014 respectively:respectively (in thousands):

 

 

Amount Reclassified From AOCI

 

 

 

 

For the Three

 

 

For the Nine

 

 

 

 

Months Ended

 

 

Months Ended

 

 

 

 

September 30,

 

 

September 30,

 

 

Affected Line Item In The Statement

Details About AOCI Components

  Amount Reclassified From AOCI 

Affected Line Item In The Statement
Where Net Income Is Presented

 

2014

 

 

2014

 

 

Where Net Income is Presented

For the Three
Months Ended
June 30,
2014
 For the Six
Months Ended
June 30,
2014
 

Gain on interest rate swap cash flow hedges, before tax

  $37   $37   Interest expense, net

 

$

339

 

 

$

376

 

 

Interest expense, net

   (14 (14 Tax provision
  

 

  

 

  
  $23   $23   Net of tax

 

 

(128

)

 

 

(142

)

 

Tax provision

  

 

  

 

  

 

$

211

 

 

$

234

 

 

Net of tax

Amortization of defined benefit pension plan items:

    

 

 

 

 

 

 

 

 

 

 

Prior service cost and unrecognized loss

  $950   $1,900   Warehousing, marketing and administrative expenses

 

$

992

 

 

$

2,892

 

 

Warehousing, marketing and administrative expenses

   (370  (739 Tax provision

 

 

(386

)

 

 

(1,125

)

 

Tax provision

  

 

  

 

  

 

 

606

 

 

 

1,767

 

 

Net of tax

   580    1,161   Net of tax
  

 

  

 

  

Total reclassifications for the period

  $603   $1,184   Net of tax

 

$

817

 

 

$

2,001

 

 

Net of tax

  

 

  

 

  

11


6. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options, restricted stock, restricted stock units and deferred stock units are considered dilutive securities. For the three-month and six-month periods ending JuneSeptember 30, 2014 and 2013, 0.5 million and 0.6 million shares of such securities, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. For the nine-month periods ending September 30, 2014 and 2013, 0.5 million and 0.7 million shares of such securities, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

 

  For the Three Months Ended   For the Six Months Ended 

For the Three Months Ended

 

 

For the Nine Months Ended

 

  June 30,   June 30, 

September 30,

 

 

September 30,

 

  2014   2013   2014   2013 

2014

 

 

2013

 

 

2014

 

 

2013

 

Numerator:

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

  $33,331    $34,670    $55,188    $48,544  

$

38,169

 

 

$

40,501

 

 

$

93,357

 

 

$

89,045

 

Denominator:

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share - weighted average shares

   38,816     39,762     39,004     39,867  

Denominator for basic earnings per share -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

weighted average shares

 

38,450

 

 

 

39,468

 

 

 

38,817

 

 

 

39,732

 

Effect of dilutive securities:

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock options and restricted units

   410     566     431     608  

 

434

 

 

 

563

 

 

 

427

 

 

 

599

 

  

 

   

 

   

 

   

 

 

Denominator for diluted earnings per share - Adjusted weighted average shares and the effect of dilutive securities

   39,226     40,328     39,435     40,475  
  

 

   

 

   

 

   

 

 

Denominator for diluted earnings per share -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares and the effect of dilutive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

38,884

 

 

 

40,031

 

 

 

39,244

 

 

 

40,331

 

Net income per share:

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic

  $0.86    $0.87    $1.41    $1.22  

$

0.99

 

 

$

1.03

 

 

$

2.41

 

 

$

2.24

 

Net income per share - diluted

  $0.85    $0.86    $1.40    $1.20  

$

0.98

 

 

$

1.01

 

 

$

2.38

 

 

$

2.21

 

Common Stock Repurchases

As of December 31, 2013, the Company had Board authorization to repurchase $93.0 million of USI common stock. During the three-month periods ended JuneSeptember 30, 2014 and 2013, the Company repurchased 459,922283,283 and 978,194166,570 shares of USI’s common stock at an aggregate cost of $17.9$11.4 million and $33.2$6.5 million, respectively. During the six-monthnine-month periods ended JuneSeptember 30, 2014 and 2013, the Company repurchased 791,2911,074,574 and 1,186,4681,353,020 shares of USI’s common stock at an aggregate cost of $31.7$43.0 million and $41.0$47.5 million, respectively. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its common stock at any time without notice. Acquired shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data. During the first sixnine months of 2014 and 2013, the Company reissued 91,904225,783 and 697,3261,014,554 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

12


7. Debt

USI is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its direct operating subsidiary, USSC, and from borrowings by USSC. The 2013 Credit Agreement, the 2013 Note Purchase Agreement, the 2007 Note Purchase Agreement, and the Receivables Securitization Program (each as defined in Note 9 of the Company’s Form 10-K for the year ended December 31, 2013) contain restrictions on the use of cash transferred from USSC to USI.

Debt consisted of the following amounts (in millions):

 

As of

 

 

As of

 

September 30, 2014

 

 

December 31, 2013

 

  As of
June 30, 2014
   As of
December 31, 2013
 

 

 

 

 

 

 

 

2013 Credit Agreement

  $192.4    $206.8  

$

195.0

 

 

$

206.8

 

2013 Note Purchase Agreement

   150.0     —    

 

150.0

 

 

 

-

 

2007 Note Purchase Agreement

   —       135.0  

 

-

 

 

 

135.0

 

Receivables Securitization Program

   200.0     190.7  

 

200.0

 

 

 

190.7

 

Mortgage & Capital Lease

   1.1     1.2  

 

0.9

 

 

 

1.2

 

  

 

   

 

 

Total

  $543.5    $533.7  

$

545.9

 

 

$

533.7

 

  

 

   

 

 

As of JuneSeptember 30, 2014, 72.3%72.4% of the Company’s outstanding debt, excluding capital leases, is priced at variable interest rates based primarily on the applicable bank prime rate or London InterBank Offered Rate (“LIBOR”).

Pursuant to the 2013 Note Purchase Agreement, on January 15, 2014 USSC issued an aggregate of $150 million of senior secured notes due January 15, 2021 (the “2014 Notes”). USSC used the proceeds from the sale of the 2014 Notes to repay the Series 2007-A Notes issued under the 2007 Note Purchase Agreement and to reduce the borrowings under the 2013 Credit Agreement. The parties to the 2007 Note Purchase Agreement have satisfied their obligations under that agreement. The Company will not issue any new debt under the 2007 Note Purchase Agreement.

The Company had outstanding letters of credit of $11.1 million under the 2013 Credit Agreement as of JuneSeptember 30, 2014 and December 31, 2013.

Borrowings under the 2013 Credit Agreement bear interest at LIBOR for specified interest periods or at the Alternate Base Rate (as defined in the 2013 Credit Agreement), plus, in each case, a margin determined based on the Company’s permitted debt to EBITDA ratio calculated as provided in Section 6.20 of the 2013 Credit Agreement (the “Leverage Ratio”). Depending on the Company’s Leverage Ratio, the margin on LIBOR-based loans ranges from 1.00% to 2.00% and on Alternate Base Rate loans ranges from 0.00%0% to 1.00%. As of JuneSeptember 30, 2014, the applicable margin for LIBOR-based loans was 1.375%1.25% and for Alternate Base Rate loans was 0.375%0.25%. USSC is required to pay the lenders a fee on the unutilized portion of the commitments under the 2013 Credit Agreement at a rate per annum between 0.15% and 0.35%, depending on the Company’s Leverage Ratio.

As of JuneSeptember 30, 2014 and December 31, 2013, $373.0$427.6 million and $355.4 million, respectively, of receivables had been sold to the Investors (as defined in Note 9 of the Company’s Form 10-K for the year ended December 31, 2013). As of JuneSeptember 30, 2014, United Stationers Receivables, LLC (“USR”) had $200.0 million outstanding under the Receivables Securitization Program. As of December 31, 2013, USR had $190.7 million outstanding under the Receivables Securitization Program.

For additional information about the 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program, see Note 9 of the Company’s Form 10-K for the year ended December 31, 2013.

13


8. Pension and Post-Retirement Benefit Plans

The Company maintains pension plans covering union and certain non-union employees. For more information on the Company’s retirement plans, see Note 11 to the Company’s Consolidated Financial Statements in the Form 10-K for the year ended December 31, 2013. A summary of net periodic pension cost related to the Company’s pension plans for the three and sixnine months ended JuneSeptember 30, 2014 and 2013 is as follows (dollars in thousands):

 

  Pension Benefits 

Pension Benefits

 

  For the Three Months Ended June 30, For the Six Months Ended June 30, 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

  2014 2013 2014 2013 

2014

 

 

2013

 

 

2014

 

 

2013

 

Service cost - benefit earned during the period

  $327   $303   $655   $607  

$

147

 

 

$

304

 

 

$

802

 

 

$

911

 

Interest cost on projected benefit obligation

   2,242   2,098   4,485   4,195  

 

2,235

 

 

 

2,097

 

 

 

6,720

 

 

 

6,292

 

Expected return on plan assets

   (2,557 (2,841 (5,115 (5,683

 

(2,599

)

 

 

(2,842

)

 

 

(7,714

)

 

 

(8,525

)

Amortization of prior service cost

   45   47   90   95  

 

47

 

 

 

48

 

 

 

137

 

 

 

143

 

Amortization of actuarial loss

   905   1,577   1,810   3,154  

 

945

 

 

 

1,577

 

 

 

2,755

 

 

 

4,731

 

  

 

  

 

  

 

  

 

 

Net periodic pension cost

  $962   $1,184   $1,925   $2,368  

$

775

 

 

$

1,184

 

 

$

2,700

 

 

$

3,552

 

  

 

  

 

  

 

  

 

 

The Company made cash contributions of $2.0 million and $13.0 million to its pension plans during each of the first sixnine months ended JuneSeptember 30, 2014 and 2013, respectively. Additional fundings,contributions, if any, for 2014 have not yet been determined. As of JuneSeptember 30, 2014 and December 31, 2013, respectively, the Company had accrued $18.8$18.6 million and $20.8 million of pension liability within “Other Long-Term Liabilities” on the Condensed Consolidated Balance Sheets.

Defined Contribution Plan

The Company has defined contribution plans covering certain salaried associates and non-union hourly paid associates (the “Plan”). The Plan permits associates to defer a portion of their pre-tax and after-tax salary as contributions to the Plan. The Plan also provides for Company-funded discretionary contributions as well as matching associates’ salary deferral contributions, at the discretion of the Board of Directors. The Company recorded expense of $1.3$1.4 million and $2.7$4.2 million for the Company match of employee contributions to the Plan for the three and sixnine months ended JuneSeptember 30, 2014. During the same periods last year, the Company recorded expense of $1.5$1.3 million and $2.9$4.2 million to match employee contributions.

14


9. Derivative Financial Instruments

Interest rate movements create a degree of risk to the Company’s operations by affecting the amount of interest payments. Interest rate swap agreements are used to manage the Company’s exposure to interest rate changes. The Company designates its floating-to-fixed interest rate swaps as cash flow hedges of the variability of future cash flows at the inception of the swap contract to support hedge accounting.

USSC has entered into various separate swap transactions to mitigate USSC’s floating rate risk on the noted aggregate notional amount of LIBOR-based interest rate risk noted in the table below. These swap transactions occurred as follows:

·

On November 6, 2007, USSC entered into an interest rate swap transaction (the “November 2007 Swap Transaction”) with U.S. Bank National Association as the counterparty. This swap transaction matured on January 15, 2013.

·

On July 18, 2012, USSC entered into a two-year forward, three-year interest rate swap transaction (the “July 2012 Swap Transaction”) with U.S. Bank National Association as the counterparty. The swap transaction became effective July 18, 2014 and has a maturity date of July 18, 2017.

·

On November 6, 2007, USSC entered into an interest rate swap transaction (the “November 2007 Swap Transaction”) with U.S. Bank National Association as the counterparty. This swap transaction matured on January 15, 2013.

On July 18, 2012, USSC entered into a two-year forward, three-year interest rate swap transaction (the “July 2012 Swap Transaction”) with U.S. Bank National Association as the counterparty. The swap transaction has an effective date of July 18, 2014 and a maturity date of July 18, 2017.

On June 11, 2013, USSC entered into a seven-month forward, seven-year interest rate swap transaction (the “June 2013 Swap Transaction”) with J.P. Morgan Chase Bank as the counterparty. The swap transaction had an effective date of January 15, 2014 and a maturity date of January 15, 2021. This swap was terminated in October 2013.

As of JuneSeptember 30, 2014, approximately 27.7%27.5% ($150150.0 million) of the Company’s current outstanding debt had its interest payments designated as hedged forecasted transactions.

The Company’s outstanding swap transaction is accounted for as a cash flow hedge and is recorded at fair value on the Condensed Consolidated Balance Sheet as of JuneSeptember 30, 2014 and December 31, 2013, at the following amounts (in thousands):

 

As of June 30, 2014

  Notional
Amount
   

Receive

  Pay  Maturity Date   Fair Value Net
Liability (1)
 

July 2012 Swap Transaction

  $150,000    Floating 1-month LIBOR   1.054  July 18, 2017    $612  

As of December 31, 2013

  Notional
Amount
   

Receive

  Pay  Maturity Date   Fair Value Net
Asset (1)
 

July 2012 Swap Transaction

  $150,000    Floating 1-month LIBOR   1.054  July 18, 2017    $599  

 

Notional

 

 

 

 

 

 

 

 

 

 

Fair Value Net

 

As of September 30, 2014

Amount

 

 

Receive

 

Pay

 

 

Maturity Date

 

Asset (1)

 

July 2012 Swap Transaction

$

150,000

 

 

Floating 1-month LIBOR

 

 

1.05%

 

 

July 18, 2017

 

$

              138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional

 

 

 

 

 

 

 

 

 

 

Fair Value Net

 

As of December 31, 2013

Amount

 

 

Receive

 

Pay

 

 

Maturity Date

 

Asset (1)

 

July 2012 Swap Transaction

$

150,000

 

 

Floating 1-month LIBOR

 

 

1.05%

 

 

July 18, 2017

 

$

              599

 

(1)

This interest rate derivative qualifies for hedge accounting, and is in a net liabilityasset position at JuneSeptember 30, 2014 and a net asset position at December 31, 2013. Therefore, the fair value of the interest rate derivative is included in the Company’s Condensed Consolidated Balance Sheets as a component of “Other long-term liabilities” or “Other long-term assets,” with an offsetting component in “Stockholders’ Equity” as part of “Accumulated Other Comprehensive Loss”.

Under the terms of the July 2012 Swap Transaction, USSC will be required to make monthly fixed rate payments to the counterparty calculated based on the notional amounts noted in the table above at a fixed rate also noted in the table above, while the counterparty will be obligated to make monthly floating rate payments to USSC based on the one-month LIBOR on the same referenced notional amount.

The hedged transactions described above qualify as cash flow hedges in accordance with accounting guidance on derivative instruments. This guidance requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The Company does not offset fair value amounts recognized for interest rate swaps executed with the same counterparty.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings.

In connection with the pricing of the 2013 Note Purchase Agreement the Company terminated the June 2013 Swap Transaction. The gain of $0.9 million realized by the Company on the termination has been recorded as a component of Other Comprehensive Income on the Company’s consolidated balance sheet as of December 31, 2013 and will be reclassified into earnings over the term of the 2014 Notes. During the six-monthnine-month period ending JuneSeptember 30, 2014, the Company recognized $0.1 million into earnings from AOCI.

15


This swap reduces the exposure to variability in interest rates between the date the Company entered into the hedge and the date the Company priced the 2014 Notes.

The July 2012 Swap Transaction effectively converts a portion of the Company’s future floating-rate debt to a fixed-rate basis. This swap transaction reduces the impact of interest rate changes on future interest expense. By using such derivative financial instruments, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty to the interest rate swap (as noted above) will fail to perform under the terms of the agreement. The Company attempts to minimize the credit risk in these agreements by only entering into transactions with counterparties the Company determines are creditworthy. The market risk is the adverse effect on the value of a derivative financial instrument that results from a change in interest rates.

The Company’s agreement with its derivative counterparty provides that if an event of default occurs on any Company debt of $25 million or more, the counterparty can terminate the swap agreement. If an event of default had occurred and the counterparty had exercised early termination right under the outstanding swap transaction as of JuneSeptember 30, 2014, the Company would have been required to pay the aggregate fair value net asset of $0.6$0.1 million plus accrued interest to the counterparty.

The swap transaction that was in effect as of JuneSeptember 30, 2014 and the swap transaction that was in effect as of JuneSeptember 30, 2013 contained no ineffectiveness; therefore, all gains or losses on those derivative instruments were reported as a component of other comprehensive income (“OCI”) and reclassified into earnings as “interest expense” in the same period or periods during which they affected earnings.

The following table depicts the effect of these derivative instruments on the statements of income and comprehensive income for the three and sixnine month periods ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013.2013 (in thousands).

 

  Amount of Gain (Loss)
Recognized in
OCI on Derivative
(Effective Portion)
 

Location of Gain (Loss)

Reclassified from
Accumulated OCI into
Income (Effective
Portion)

  Amount of Gain (Loss)
Reclassified
from Accumulated OCI into Income
(Effective Portion)
 

Amount of Gain (Loss)

Recognized in

OCI on Derivative

(Effective Portion)

 

 

 

 

Amount of Gain (Loss)

Reclassified

from Accumulated OCI into Income

(Effective Portion)

 

  For the Three
Months Ended
June 30,
2014
 For the Six
Months Ended
June 30,
2014
   For the Three
Months Ended
June 30,
2014
   For the Six
Months Ended
June 30,
2014
 

For the Three

Months Ended

September 30,

2014

 

 

For the Nine

Months Ended

September 30,

2014

 

 

Location of Gain (Loss)

Reclassified from

Accumulated OCI into

Income (Effective

Portion)

 

For the Three

Months Ended

September 30,

2014

 

 

For the Nine

Months Ended

September 30,

2014

 

July 2012 Swap Transaction

   (574 (748 Interest expense, net   —       —    

$

748

 

 

$

(1

)

 

   Interest expense, net

 

$

281

 

 

$

281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Amount of Gain (Loss)
Recognized in
OCI on Derivative
(Effective Portion)
 

Location of Gain (Loss)

Reclassified from
Accumulated OCI into
Income (Effective
Portion)

  Amount of Gain (Loss)
Reclassified
from Accumulated OCI into Income
(Effective Portion)
 

Amount of Gain (Loss)

Recognized in

OCI on Derivative

(Effective Portion)

 

 

 

 

Amount of Gain (Loss)

Reclassified

from Accumulated OCI into Income

(Effective Portion)

 

  For the Three
Months Ended
June 30,
2013
 For the Six
Months Ended
June 30,
2013
   For the Three
Months Ended
June 30,
2013
   For the Six
Months Ended
June 30,
2013
 

For the Three

Months Ended

September 30,

2013

 

 

For the Nine

Months Ended

September 30,

2013

 

 

Location of Gain (Loss)

Reclassified from

Accumulated OCI into

Income (Effective

Portion)

 

For the Three

Months Ended

September 30,

2013

 

 

For the Nine

Months Ended

September 30,

2013

 

November 2007 Swap Transaction

  $—     $(77 Interest expense, net  $—      $(228

$

-

 

 

$

(77

)

 

   Interest expense, net

 

$

-

 

 

$

(228

)

July 2012 Swap Transaction

   1,459   1,452   Interest expense, net   —       —    

 

(574

)

 

 

878

 

 

   Interest expense, net

 

 

-

 

 

 

-

 

June 2013 Swap Transaction

   1,699   1,699   Interest expense, net   —       —    

 

(578

)

 

 

1,121

 

 

Interest expense, net

 

 

-

 

 

 

-

 

16


10. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including interest rate swap derivatives, based on the mark-to-market position of the Company’s positions and other observable interest rates (see Note 9 “Derivative Financial Instruments”, for more information on these interest rate swaps).

Accounting guidance on fair value establishes a hierarchy for those instruments measured at fair value which distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

·

Level 1—Quoted market prices in active markets for identical assets or liabilities;

·

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable; and

·

Level 3—Unobservable inputs developed using estimates and assumptions developed by the Company which reflect those that a market participant would use.

Determining which level to apply to an asset or liability requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The following table summarizes the financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets as of JuneSeptember 30, 2014 and December 31, 2013 (in thousands):

 

Fair Value Measurements as of September 30, 2014

 

  Fair Value Measurements as of June 30, 2014 

 

 

 

 

Quoted Market

Prices in Active

Markets for

Identical Assets  or

Liabilities

 

 

Significant Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

      Quoted Market
Prices in Active
Markets for
Identical Assets or
Liabilities
   Significant Other
Observable
Inputs
   Significant
Unobservable
Inputs
 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

  Total   Level 1   Level 2   Level 3 

Liabilities

        

Interest rate swap liability

  $612    $—     $612    $—   
  

 

   

 

   

 

   

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap asset

$

138

 

 

$

-

 

 

$

138

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fair Value Measurements as of December 31, 2013 

Fair Value Measurements as of December 31, 2013

 

      Quoted Market
Prices in Active
Markets for
Identical Assets or
Liabilities
   Significant Other
Observable
Inputs
   Significant
Unobservable
Inputs
 

 

 

 

 

Quoted Market

Prices in Active

Markets for

Identical Assets  or

Liabilities

 

 

Significant Other

Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

  Total   Level 1   Level 2   Level 3 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap asset

  $599    $—     $599    $—   

$

599

 

 

$

-

 

 

$

599

 

 

$

-

 

  

 

   

 

   

 

   

 

 

The carrying amount of accounts receivable at JuneSeptember 30, 2014, including $373.0$427.6 million of receivables sold under the Receivables Securitization Program, approximates fair value because of the short-term nature of this item.

Accounting guidance on fair value measurements requires separate disclosure of assets and liabilities measured at fair value on a recurring basis, as noted above, from those measured at fair value on a nonrecurring basis. As of JuneSeptember 30, 2014, no assets or liabilities are measured at fair value on a nonrecurring basis.

11. Other Assets and Liabilities

The Company had receivables related to supplier allowances totaling $80.4$95.4 million and $103.2 million included in “Accounts receivable” in the Condensed Consolidated Balance Sheets as of JuneSeptember 30, 2014 and December 31, 2013, respectively.

Accrued customer rebates of $45.4$57.4 million and $52.6 million as of JuneSeptember 30, 2014 and December 31, 2013, respectively, were included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

 

17


ITEMITEM  2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements often contain words such as “expects,” “anticipates,” “estimates,” “intends,” “plans,” “believes,” “seeks,” “will,” “is likely,” “scheduled,” “positioned to,” “continue,” “forecast,” “predicting,” “projection,” “potential” or similar expressions. Forward-looking statements include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management’s current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, without limitation, those set forth in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2013.

Readers should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it.

Company Background

United is a leading wholesale distributorsupplier of business productsessentials, with 2013 net sales of approximately $5.1 billion. United stocks over 140,000 items from over 1,600 manufacturers. These items include a broad spectrum of manufacturer-branded and private brand technology products, traditional office products, office furniture, janitorial and breakroom supplies, and industrial supplies. United

sells its products through a network of 65 distribution centers to its approximately 25,000 reseller customers, who in turn sell directly to end-consumers. The Company’s customers include independent office products dealers; contract stationers; office products superstores; computer products resellers; office furniture dealers; mass merchandisers; mail order companies; sanitary supply, paper and foodservice distributors; drug and grocery store chains; healthcare distributors; e-commerce merchants; oil field, welding supply and industrial/MRO distributors; and other independent distributors. Additionally, newly acquired CPO Commerce, LLC (“CPO”) is an e-retailer of brand name power tools and equipment who sells directly to end consumers.

Overview of Strategy, Key Trends and Recent Results

·

Our strategy is comprised of three key initiatives: 1) strengthen our core business, including driving efficiency and cost improvements, 2) win the shift to online, and 3) diversify our offering of higher margin and higher growth channels and categories, such as janitorial and breakroom and industrial products.

·

We are repositioning United to become the premier supplier of digitally sourced business essentials by combining our office products and janitorial operating platforms. We believe this effort will help us become the most effective source for our customers’ business essentials through our nationwide distribution network and logistics capabilities, order efficiency with enhanced ecommerce capabilities, broad product portfolio, superior product category knowledge and commercial expertise. We have piloted this project with several customers during 2014.  In 2015, we expect to begin implementing this platform in individual facilities.

·

Online product procurement by end-consumers continues to gain a larger share of the markets our reseller customers serve. We continue to invest in digital and online capabilities to help leading online resellers accelerate their growth in the categories we offer. Our business model allows these resellers to quickly enter new categories and scale their offerings.

·

During the third quarter we entered into an agreement to acquire Liberty Bell Equipment Corp, a United States wholesaler of automotive aftermarket tools and supplies, and its affiliates (collectively, “MEDCO”) including G2S Equipment de Fabrication et d'Entretien ULC, a Canadian wholesaler.  The all cash purchase price is $130.0 million, subject to closing adjustments, with up to an additional $10.0 million to be paid over three years based on achievement of certain performance conditions.  MEDCO annual sales are approximately $240.0 million.  MEDCO advances a key pillar of our strategy, diversification into higher growth and margin channels and categories.  We expect the acquisition to be completed in the fourth quarter of 2014 and is subject to customary closing conditions.  This acquisition will be funded through a combination of cash on hand and cash available under our revolving credit facility.  The transaction is expected to be neutral to earnings in 2014 and accretive within the first year.

·

In the second quarter we acquired CPO, a leading e-retailer of brand name power tools and equipment, for a total cash purchase price of $42.3 million which assumes the full $10.0 million of contingent consideration will be paid by the end of the earn-out period.  This transaction significantly expands United’s digital resources and capabilities to support resellers as they transition to an increasingly online environment.  CPO’s expertise will strengthen United’s ability to deliver such features as improved product content, real-time access to inventory and pricing, and digital marketing and merchandising.  CPO also provides an enhanced digital platform to our manufacturing partners.  We expect this acquisition to positively impact gross margin as a percent of sales (15 bps to 20 bps) and increase operating expenses as a percent of sales (25 bps to 30 bps), and have a slightly dilutive impact on earnings per share during the first year of ownership.

18


We are repositioning United to become the premier supplier of digitally sourced business essentials by combining our office products and janitorial operating platforms. We believe this effort will help us become the most effective source for our customers’ business essentials through our nationwide distribution network and logistics capabilities, order efficiency with enhanced ebusiness capabilities, broad product portfolio, and superior product category knowledge and commercial expertise. We have piloted this project with several customers and are receiving good feedback.

·

As previously detailed in the first quarter, we were named the second-call office products supplier to support Office Depot’s office products business as well as the primary supplier for Office Depot’s janitorial and breakroom business. These actions resulted in the loss of some of our office products business but added new janitorial and breakroom business to United. We estimate that these changes will negatively impact net sales in a range of $20.0 million to $30.0 million and EPS in a range of $0.05 to $0.08 this year, and net sales by $75.0 million to $90.0 million and a decrease in EPS in a range of $0.14 to $0.22 in 2015, absent any offsetting actions. We are well positioned to mitigate this impact with our robust pipeline and strong service proposition as we pursue sustainable new business to drive growth and profitability.

Online product procurement by end-consumers continues to gain a larger share of the markets our reseller customers serve. We continue to invest in digital and online capabilities and work with leading online resellers to help accelerate their growth in the categories we offer. Our business model allows these resellers to quickly enter new categories and scale their offerings.

·

Diluted earnings per share for the third quarter of 2014 were $0.98, compared with $1.01 in the prior-year period.

During the quarter we acquired CPO, a leading e-retailer of brand name power tools and equipment, for a total cash purchase price of $42.2 million which assumes the full $10.0 million of contingent consideration will be paid by the end of the earn-out period. This transaction significantly expands United’s digital resources and capabilities to support resellers as they transition to an increasingly online environment. CPO’s expertise will strengthen United’s ability to deliver such features as improved product content, real-time access to inventory and pricing, and digital marketing and merchandising. CPO also provides an enhanced digital platform to our manufacturing partners. We expect this acquisition to positively impact gross margin as a percent of sales (15 bps to 20 bps) and increase operating expenses as a percent of sales (25 bps to 30 bps), and have a slightly dilutive impact on earnings per share during 2014.

·

Third quarter sales were $1.42 billion, up 6.2% over the prior-year quarter. The sales increase was driven by growth in our janitorial and breakroom category and industrial supplies, including CPO, of 12.1% and 24.4%, respectively, quarter over quarter.

As previously detailed in the first quarter, we were named the second-call office products supplier to support Office Depot’s office products business as well as the primary supplier for Office Depot’s janitorial and breakroom business. These actions will result in the loss of some of our office products business but will bring new janitorial and breakroom business to United. We estimate that these changes will negatively impact net sales in a range of $20.0 million to $30.0 million and EPS in a range of $0.05 to $0.08 in the second half of this year, and net sales by $75.0 million to $90.0 million and a decrease in EPS in a range of $0.14 to $0.22 in 2015, absent any offsetting actions. We are well positioned to mitigate this impact with our robust pipeline and strong service proposition as we pursue sustainable new business to drive growth and profitability.

·

The gross margin rate in the third quarter of 2014 of 14.9% was down from the prior-year quarter gross margin rate of 15.2%. This decline reflects higher freight and inventory-related costs from inflation partially offset by favorable product margins.

Diluted earnings per share for the second quarter of 2014 were $0.85, compared with $0.86 in the prior-year period.

·

Operating expenses in the third quarter of 2014 were $146.6 million or 10.3% of sales, compared with $136.3 million or 10.2% of sales in the prior-year quarter. Operating expenses were higher due primarily to the addition of CPO and an increase in bad debt expense.

Second quarter sales were $1.32 billion, up 3.6% over the prior-year quarter. The sales increase was driven by growth in our janitorial and breakroom category and industrial supplies of 7.5% and 10.8%, respectively, quarter over quarter.

·

Operating income for the quarter ended September 30, 2014 was $64.5 million or 4.5% of sales, versus $67.4 million or 5.0% of sales in the third quarter of 2013.

The gross margin rate in the second quarter of 2014 of 15.1% was down from the prior-year quarter gross margin rate of 15.8%. This decline reflects the impact of opportunistic technology sales, investments in our industrial business, and higher freight costs.

Operating expenses in the second quarter of 2014 were $142.2 million or 10.8% of sales, compared with $143.0 million or 11.2% of sales in the prior-year quarter. Operating expenses were down due primarily to lower operating costs across the organization, lower variable management incentive compensation, and an improvement in bad debt expense. We expect operating expenses to be higher in the second half of 2014 than in the prior year due to the impact of the loss of Office Depot sales, the CPO acquisition and favorable items in the prior year.

Operating income for the quarter ended June 30, 2014 was $57.3 million or 4.3% of sales, versus $58.9 million or 4.6% of sales in the second quarter of 2013.

For a further discussion of selected trends, events or uncertainties the Company believes may have a significant impact on its future performance, readers should refer to “Key Trends and Recent Results” under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2013.

Critical Accounting Policies, Judgments and Estimates

During the first sixnine months of 2014, there were no significant changes to the Company’s critical accounting policies, judgments or estimates from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

19


Adjusted Operating Income, Net Income and Earnings Per Share

The following table presents Adjusted Operating Expenses, Operating Income, Net Income, and Diluted Earnings Per Share for the six-monthnine-month periods ended JuneSeptember 30, 2014 and 2013 (in thousands, except per share data) excluding the effects of $14.4 million pre-tax charge related to workforce reductions and facility closures in the first quarter of 2013. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income. Management believes that excluding these items is an appropriate comparison of its ongoing operating results to last year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.

 

  For the Six Months Ended June 30, 

For the Nine Months Ended September 30,

 

  2014 2013 

2014

 

 

2013

 

    % to   % to 

 

 

 

 

% to

 

 

 

 

 

 

% to

 

  Amount Net Sales Amount Net Sales 

Amount

 

 

Net Sales

 

 

Amount

 

 

Net Sales

 

Net Sales

  $2,574,176   100.00 $2,524,979   100.00

$

3,994,123

 

 

 

100.0

%

 

$

3,861,655

 

 

 

100.0

%

  

 

  

 

  

 

  

 

 

Gross profit

  $386,543    15.02 $390,461    15.46

$

597,571

 

 

 

15.0

%

 

$

594,122

 

 

 

15.4

%

Operating expenses

  $291,035    11.31 $306,293    12.13

$

437,595

 

 

 

11.0

%

 

$

442,558

 

 

 

11.5

%

Workforce reduction and facility closure charge

   —      —      (14,432  (0.57)% 

 

-

 

 

 

0.0

%

 

 

(14,432

)

 

 

(0.4

%)

  

 

  

 

  

 

  

 

 

Adjusted operating expenses

  $291,035    11.31 $291,861    11.56

$

437,595

 

 

 

11.0

%

 

$

428,126

 

 

 

11.1

%

  

 

  

 

  

 

  

 

 

Operating income

  $95,508    3.71 $84,168    3.33

$

159,976

 

 

 

4.0

%

 

$

151,564

 

 

 

3.9

%

Operating expense item noted above

   —      —      14,432    0.57

 

-

 

 

 

0.0

%

 

 

14,432

 

 

 

0.4

%

  

 

  

 

  

 

  

 

 

Adjusted operating income

  $95,508    3.71 $98,600    3.90

$

159,976

 

 

 

4.0

%

 

$

165,996

 

 

 

4.3

%

  

 

  

 

  

 

  

 

 

Net income

  $55,188    $48,544   

$

93,357

 

 

 

 

 

 

$

89,045

 

 

 

 

 

Operating expense item noted above, net of tax

   —       8,948   

 

-

 

 

 

 

 

 

 

8,948

 

 

 

 

 

  

 

   

 

  

Adjusted net income

  $55,188    $57,492   

$

93,357

 

 

 

 

 

 

$

97,993

 

 

 

 

 

  

 

   

 

  

Diluted earnings per share

  $1.40    $1.20   

$

2.38

 

 

 

 

 

 

$

2.21

 

 

 

 

 

Per share operating expense item noted above

   —       0.22   

 

-

 

 

 

 

 

 

 

0.22

 

 

 

 

 

  

 

   

 

  

Adjusted diluted earnings per share

  $1.40    $1.42   

$

2.38

 

 

 

 

 

 

$

2.43

 

 

 

 

 

  

 

   

 

  

Adjusted diluted earnings per share - change over the prior year period

   (1.4)%    

 

(2.1

%)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares - diluted

   39,435     40,475   

 

39,244

 

 

 

 

 

 

 

40,331

 

 

 

 

 

20


Results of Operations—Three Months Ended JuneSeptember 30, 2014 Compared with the Three Months Ended JuneSeptember 30, 2013

Net Sales.Net sales for the secondthird quarter of 2014 were $1.32$1.42 billion. The following table summarizes net sales by product category for the three-month periods ended JuneSeptember 30, 2014 and 2013 (in thousands):

 

   Three Months Ended June 30, 
   2014   2013 (1) 

Technology products

  $367,293    $374,252  

Janitorial and breakroom supplies

   357,882     332,878  

Traditional office products (including cut-sheet paper)

   330,743     323,923  

Industrial supplies

   146,571     132,275  

Three Months Ended September 30,

 

  Three Months Ended June 30, 

2014

 

 

2013 (1)

 

  2014   2013 (1) 

Technology products

$

381,210

 

 

$

381,580

 

Janitorial and breakroom supplies

 

386,060

 

 

 

344,459

 

Traditional office products (including cut-sheet paper)

 

360,353

 

 

 

355,222

 

Industrial supplies

 

163,514

 

 

 

131,462

 

Office furniture

   78,410     76,729  

 

84,512

 

 

 

85,098

 

Freight revenue

   29,638     25,365  

 

33,302

 

 

 

29,222

 

Services, Advertising and Other

   9,500     9,072  

 

10,996

 

 

 

9,633

 

  

 

   

 

 

Total net sales

  $1,320,037    $1,274,494  

$

1,419,947

 

 

$

1,336,676

 

  

 

   

 

 

 

(1)

Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes between several product categories due to several specific products being reclassified to different categories. These changes did not impact the Condensed Consolidated Statements of Income.

Sales in the technology products category (primarily ink and toner) decreased inwere flat to the second quarter of 2014 by 1.9% versus the secondthird quarter of 2013. This category which continues to represent the largest percentage of the Company’s consolidated net sales, accounted for 27.8%26.8% of net sales for the secondthird quarter of 2014. Sales declines in this category mainly resulted from a new distribution policy by our largest product line manufacturer that limits wholesalers to resell products onlyour sales to certain authorized resellers. This negative impact was partially offset by large purchases bysales to certain large customers during the quarter and the addition of new business to replace volume lost from the new distribution policy.business.

Sales in the janitorial and breakroom supplies product category increased 7.5%12.1% in the secondthird quarter of 2014 compared to the secondthird quarter of 2013. This category accounted for 27.1%27.2% of the Company’s secondthird quarter 2014 consolidated net sales. Sales growth in this category was driven by enhanced product line launches which increased breakroom sales through our traditional channels.channels as well as 2.4% of incremental sales from being named the primary supplier for Office Depot’s janitorial and breakroom business.

Sales of traditional office products grewincreased in the secondthird quarter of 2014 by 2.1%1.4% versus the secondthird quarter of 2013. Traditional office supplies represented 25.1%25.4% of the Company’s consolidated net sales for the secondthird quarter of 2014. Within this category, we saw continued double-digit growth in e-tailers, a rebound in government spending, and growth with certain larger customers thatcustomers. These were partially offset by lower sales of cut-sheet paper and the continued effects of workplace digitization which is lowering overall consumption.

Industrial supplies sales in the secondthird quarter of 2014 increased by 10.8%24.4% compared to the same prior-year period. Sales of industrial supplies accounted for 11.1%11.5% of the Company’s net sales for the secondthird quarter of 2014. Solid2014 and reflected solid sales momentum in the general industrial channel double digitand double-digit growth in the safety and e-commerce channels and achannels.  We also saw moderate sales increasegrowth in the oilfield-pipeline channel were partially offset by the continued decline in theand welding channel.channels. The acquisition of CPO contributed $8.2$21.9 million in incremental sales which benefited the quarterly growth rate. Without CPO, industrial sales increased 7.7% over the prior-year quarter.  

Office furniture sales in the secondthird quarter of 2014 increased 2.2%decreased 0.7% compared to the secondthird quarter of 2013. Office furniture accounted for 5.9%6.0% of the Company’s secondthird quarter of 2014 consolidated net sales. Second quarter sales improvedDeclines in this category drivenare due to lower sales in national accounts offset by strong direct order sales and increased sales to new channele-commerce customers.

The remainder of the Company’s secondthird quarter 2014 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate.Gross profit (gross margin dollars) for the secondthird quarter of 2014 was $199.5$211.0 million, compared to $201.9$203.7 million in the secondthird quarter of 2013. The gross margin rate of 15.1%14.9% was down 7037 basis points (bps) from the prior-year quarter gross margin rate of 15.8%15.2%. This decline was due primarily from lower product margin (45higher freight costs (55 bps) which included opportunistic lower margin sales in the technology category and targeted investments in our industrial business,higher inventory related costs (15 bps).  This decline was partially offset by favorable product margins (30 bps), which was driven by increased supplier allowances, and higher inflation.lower advertising expenses. CPO had a favorable impact (15 bps) on the gross margin rate in the quarter.  Gross margin was also unfavorably affected by higher freight costs (15 bps)is expected to be volatile as we diversify and a higher LIFO charge (10 bps).invest in the business.

Operating Expenses. Operating expenses for the latestthird quarter were $142.2$146.6 million or 10.8%10.3% of sales, compared with $143.0$136.3 million or 11.2%10.2% of sales in the same period last year. Operating expenses were unfavorably impacted by the addition of CPO (25 bps) and increased bad debt expense (10 bps). Current quarter operating expenses were also impacted by savings from decreased variable management incentive compensation (25 bps), bad debt expense (10 bps),favorable capitalization

21


of purchase, storage, and professional services (10handling costs (20 bps). The Company incurred approximately $1.0$0.5 million in incremental expenses in the quarter relatedin addition to the internal resources deployed to the initiative to combine the Company’s office product and janitorial platforms.

Interest Expense, net.Interest expense, net for the secondthird quarter of 2014 was $3.8$4.0 million compared to $2.9$2.7 million in the secondthird quarter of 2013. This was driven primarily by higher debt outstanding as well as the issuance of seven-year notes in January 2014, which replaced floating rate debt with long term, fixed rate debt.  Interest expense is expected to be higher in 2014 than in the prior year.

Income Taxes.Income tax expense was $20.1$22.3 million for the secondthird quarter of 2014, compared with $21.4$24.2 million for the same period in 2013. The Company’s effective tax rate was 37.6%36.9% for the current-year quarter and 38.2%37.4% for the same period in 2013.

The current quarter tax rate was favorably impacted by net favorable permanent differences, a favorable federal return to provision adjustment, and a decrease in state reserves.

Net Income.Net income for the secondthird quarter of 2014 totaled $33.3$38.2 million or $0.85$0.98 per diluted share, compared with net income of $34.7$40.5 million or $0.86$1.01 per diluted share for the same three-month period in 2013.

Results of Operations—SixNine Months Ended JuneSeptember 30, 2014 Compared with the SixNine Months Ended JuneSeptember 30, 2013

Net Sales.Net sales for the first sixnine months of 2014 were $2.57$3.99 billion. The following table summarizes net sales by product category for the six-monthnine-month periods ended JuneSeptember 30, 2014 and 2013 (in thousands):

 

  Six Months Ended June 30, 

Nine Months Ended September 30,

 

  2014 (1)   2013 (1) 

2014 (1)

 

 

2013 (1)

 

Technology products

  $720,748    $738,740  

$

1,102,085

 

 

$

1,120,372

 

Janitorial and breakroom supplies

   690,607     658,219  

 

1,076,679

 

 

 

1,002,715

 

Traditional office products (including cut-sheet paper)

   655,960     644,060  

 

1,016,260

 

 

 

999,356

 

Industrial supplies

   278,067     262,001  

 

441,580

 

 

 

393,463

 

Office furniture

   153,164     154,425  

 

237,591

 

 

 

239,359

 

Freight revenue

   58,818     50,674  

 

92,120

 

 

 

79,896

 

Services, Advertising and Other

   16,812     16,860  

 

27,808

 

 

 

26,494

 

  

 

   

 

 

Total net sales

  $2,574,176    $2,524,979  

$

3,994,123

 

 

$

3,861,655

 

  

 

   

 

 

 

(1)

Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes between several product categories due to several specific products being reclassified to different categories. These changes did not impact the Condensed Consolidated Statements of Income.

Sales in the technology products category (primarily ink and toner) decreased in the first sixnine months of 2014 by 2.4%1.6% versus the first sixnine months of 2013. This category, which continues to represent the largest percentage of the Company’s consolidated net sales on a year to date basis, accounted for 28.0%27.6% of net sales for the first sixnine months of 2014. Sales declines in this category were partially due to a new distribution policy by our largest product line manufacturer that allows wholesalers to resell products onlylimits our sales to certain authorized resellers. This negative impact was offset by adding new business to replace volume lost in the transition. Favorable timing ofwith certain opportunistic customer sales and new business additions also contributed to the increase in sales for this category.large customers.

Sales in the janitorial and breakroom supplies product category increased 4.9%7.4% in the first halfnine months of 2014 compared to the first halfnine months of 2013. This category accounted for 26.8%27.0% of the Company’s first halfnine months of 2014 consolidated net sales. Sales growth in this category was driven by gains in breakroom as we launched an enhanced product line.line as well as incremental sales from now being the primary supplier for Office Depot’s janitorial and breakroom business.

Sales of traditional office products grewincreased in the first sixnine months of 2014 by 1.8%1.7% versus the first sixnine months of 2013. Traditional office supplies represented 25.5%25.4% of the Company’s consolidated net sales for the first sixnine months of 2014. Within this category, higher sales of cut-sheet paper, continued double-digit growth in sales to e-tailers, and a rebound in government spending were partially offset by the continued effects of workplace digitization which is lowering overall consumption.

Industrial supplies sales in the first halfnine months of 2014 increased by 6.1%12.2% compared to the same prior-year period. Sales of industrial supplies accounted for 10.8%11.1% of the Company’s net sales for the first sixnine months of 2014. Increases in the general industrial, oilfield-pipeline and safety channels were partially offset by the continued decline in welding. The acquisition of CPO contributed $8.2$30.1 million in incremental sales which benefited the growth rate. Excluding sales from CPO, industrial supplies sales increased 4.6% over the same period last year.

22


Office furniture sales in the first sixnine months of 2014 were down 0.8%decreased 0.7% compared to the first sixnine months of 2013. Office furniture accounted for 6.0%5.9% of the Company’s first sixnine months of 2014 consolidated net sales. Sales in this category were down slightly due to reducedlower sales toin independent channel dealers and national accounts offset by growth with e-tailer customers.

The remainder of the Company’s first halfnine months of 2014 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate.Gross profit (gross margin dollars) for the first sixnine months of 2014 was $386.5$597.6 million, compared to $390.5$594.1 million in the first sixnine months of 2013. The gross margin rate of 15.0% was down 5040 basis points (bps) from the prior-year period gross margin rate of 15.5%15.4%. This decline was due primarily to lower product margin (35(15 bps) which included targeted investments in our industrial business and a shifting product and customer mix compared to the prior-year period, offset by favorable supplier allowances and higher inflation.allowances. Gross margin was also unfavorably affected by higher freight costs (10(20 bps) and higher inventory-related itemsadjustments driven by inflation (5 bps).

Operating Expenses. Operating expenses for the first halfnine months of 2014 were $291.0$437.6 million or 11.3%11.0% of sales, compared with $306.3$442.6 million or 12.1%11.5% of sales in the same period last year. Excluding the $14.4 million network optimization and cost reduction charge in the first halfnine months of 2013, adjusted operating expenses were $291.9$428.1 million or 11.6%11.1% of sales in 2013. Current period operating expenses were affected by lower employee-related expenses (20(15 bps) and a decline in bad debt expense (10 bps), offset by a reversal of previously capitalized purchase, storage and handling costs (5 bps).investments in the business. The Company incurred approximately $2.0$2.5 million in the first halfnine months of 2014 related to the initiative to combine the Company’s office product and janitorial platforms.

Interest Expense, net.Interest expense, net for the first sixnine months of 2014 was $7.2$11.2 million compared to $6.0$8.7 million in the first sixnine months of 2013. This was driven primarily by higher borrowings in the period as well as the issuance of seven-year notes in January 2014 which replaced floating rate debt with long-term, fixed rate debt.

Income Taxes.Income tax expense was $33.1$55.4 million for the first sixnine months of 2014, compared with $29.7$53.8 million for the same period in 2013. The Company’s effective tax rate was 37.5%37.3% for the current-year period and 37.9%37.7% for the same period in 2013.

Net Income.Net income for the first sixnine months of 2014 totaled $55.2$93.4 million or $1.40$2.38 per diluted share, compared with net income of $48.5$89.0 million or $1.20$2.21 per diluted share for the same six-monthnine-month period in 2013. Adjusted for the impact of the network optimization and cost reduction charge in the first halfnine months of 2013, net income was $57.5$98.0 million or $1.42$2.43 per diluted share in the prior-year period.

Cash Flows

The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flows.

Operating Activities

Net cash provided by operating activities for the sixnine months ended JuneSeptember 30, 2014 totaled $78.9$93.7 million, compared with $45.3$79.4 million in the same six-monthnine-month period of 2013. The current six-monthnine-month period cash flow was positively affected by a reduction in inventory levels from December 31, 2013 and increased net income,a favorable change in accounts payable, partially offset by slightly higher accounts receivables. Additionally in the first quarter of 2013, the Company paid a cash contribution to its pension plans totaling $13.0 million. The cash contribution to the pension plan in the first quarter of 2014 was $2.0 million.

Investing Activities

Net cash used in investing activities for the first sixnine months of 2014 was $35.6$41.3 million, compared to net cash used in investing activities of $13.5with $19.3 million for the sixnine months ended JuneSeptember 30, 2013. This included the $26.2$26.7 million acquisition, net of cash acquired, of CPO in May 2014. For the full year 2014, the Company expects capital spending to be approximately $25.0$20.0 million to $30.0$25.0 million.

Financing Activities

Net cash used in financing activities for the sixnine months ended JuneSeptember 30, 2014 totaled $34.1$49.8 million, compared with $41.4$61.0 million in the prior-year period. Net cash used in financing activities during the first sixnine months of 2014 was impacted by $9.8$12.2 million in net borrowings under debt arrangements offset by $31.2$43.0 million in share repurchases and $11.0$16.4 million in payments of cash dividends.

23


Liquidity and Capital Resources

United’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. The Company believesWe believe that itsour cash from operations and collections of receivables, coupled with itsour sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements. These requirements include payments of interest and dividends, scheduled debt repayments, capital expenditures, working capital needs, restructuring activities, the funding of pension plans, and funding for additional share repurchases and acquisitions, if any. Due to our credit profile over the years, external funds have been available at an acceptable cost. We believe that current credit arrangements are sound and that the strength of our balance sheet affords us the financial flexibility to respond to both internal growth opportunities and those available through acquisitions.

Financing available from debt and the sale of accounts receivable as of JuneSeptember 30, 2014, is summarized below (in millions):

Availability

 

Maximum financing available under:

    

 

 

 

 

 

 

 

2013 Credit Agreement

  $700.0    

$

700.0

 

 

 

 

 

2013 Note Purchase Agreement

   150.0    

 

150.0

 

 

 

 

 

Receivables Securitization Program(1)

   200.0    

 

200.0

 

 

 

 

 

  

 

   

Maximum financing available

    $1,050.0  

 

 

 

 

$

1,050.0

 

Amounts utilized:

    

 

 

 

 

 

 

 

2013 Credit Agreement

   192.4    

 

195.0

 

 

 

 

 

2013 Note Purchase Agreement

   150.0    

 

150.0

 

 

 

 

 

Receivables Securitization Program(1)

   200.0    

 

200.0

 

 

 

 

 

Outstanding letters of credit

   11.1    

 

11.1

 

 

 

 

 

  

 

   

Total financing utilized

     553.5  

 

 

 

 

 

556.1

 

    

 

 

Available financing, before restrictions

     496.5  

 

 

 

 

 

493.9

 

Restrictive covenant limitation

     77.8  

 

 

 

 

 

78.0

 

    

 

 

Available financing as of June 30, 2014

    $418.7  
    

 

 

Available financing as of September 30, 2014

 

 

 

 

$

415.9

 

 

(1)

The Receivables Securitization Program provides for maximum funding available of the lesser of $200.0 million or the total amount of eligible receivables less excess concentrations and applicable reserves.

The Company’s outstanding debt consisted of the following amounts (in millions):

 

   As of  As of 
   June 30,
2014
  December 31,
2013
 

2013 Credit Agreement

  $192.4   $206.8  

2013 Note Purchase Agreement

   150.0    —    

2007 Note Purchase Agreement(2)

   —      135.0  

Receivables Securitization Program

   200.0    190.7  

Mortgage & Capital Lease

   1.1    1.2  
  

 

 

  

 

 

 

Debt

   543.5    533.7  

Stockholders’ equity

   841.7    825.5  
  

 

 

  

 

 

 

Total capitalization

  $1,385.2   $1,359.2  
  

 

 

  

 

 

 

Debt-to-total capitalization ratio

   39.2  39.3
  

 

 

  

 

 

 

 

As of

 

 

As of

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

2013 Credit Agreement

$

195.0

 

 

$

206.8

 

2013 Note Purchase Agreement

 

150.0

 

 

 

-

 

2007 Note Purchase Agreement (2)

 

-

 

 

 

135.0

 

Receivables Securitization Program

 

200.0

 

 

 

190.7

 

Mortgage & Capital Lease

 

0.9

 

 

 

1.2

 

Debt

 

545.9

 

 

 

533.7

 

Stockholders’ equity

 

863.6

 

 

 

825.5

 

Total capitalization

$

1,409.5

 

 

$

1,359.2

 

 

 

 

 

 

 

 

 

Debt-to-total capitalization ratio

 

38.7

%

 

 

39.3

%

(2)

The parties to the 2007 Note Purchase Agreement have satisfied their obligations under that agreement. The Company will not issue any new debt under the 2007 Note Purchase Agreement.

The Company believesWe believe that itsour operating cash flow and financing capacity, as described, provide adequate liquidity for operating the business for the foreseeable future. Refer to Note 7, “Debt”, for further descriptions of the provisions of the Company’sour financing facilities as well as Note 9 “Debt” in the Company’sour Annual Report on Form 10-K for the year-ended December 31, 2013.

24


Contractual Obligations

During the six-monthnine-month period ended JuneSeptember 30, 2014, contractual obligations increased $13.7$18.0 million from those disclosed in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2013, primarily driven by a new software license and maintenance agreement and renewed building leases.

 

ITEMITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates. There were no material changes to the Company’s exposures to market risk during the first sixnine months of 2014 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act is made known to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended JuneSeptember 30, 2014, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25


PART II — OTHER INFORMATION

 

ITEMITEM 1.

LEGAL PROCEEDINGS.

The Company is involved in legal proceedings arising in the ordinary course of or incidental to its business. The Company has established reserves, which are not material, for potential losses that are probable and reasonably estimable that may result from those proceedings. In many cases, however, it is difficult to determine whether a loss is probable or even possible or to estimate the amount or range of potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated. The Company believes that pending legal proceedings will be resolved with no material adverse effect upon its financial condition or results of operations.

ITEM 1A. RISK FACTORS.

ITEM 1A.

RISK FACTORS.

For information regarding risk factors, see “Risk Factors” in Item 1A of Part I of the Company’s Form 10-K for the year ended December 31, 2013. There have been no material changes to the risk factors described in such Form 10-K.

 

ITEM

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

(a)

Not applicable.

(b)

(b)

Not applicable.

(c)

(c)

Common Stock Purchases.

During the six-month periods ended June 30, 2014 and 2013, the Company repurchased 791,291 and 1,186,468 shares of USI’s common stock at an aggregate cost of $31.7 million and $41.0 million, respectively. The Company repurchased 0.9 million shares for $35.9 million year-to-date through July 18, 2014. As of that date, the Company had approximately $57.2

During the nine-month periods ended September 30, 2014 and 2013, the Company repurchased 1,074,574 and 1,353,020 shares of USI’s common stock at an aggregate cost of $43.0 million and $47.5 million, respectively. The Company repurchased 1,074,574 million shares for $43.0 million year-to-date through October 17, 2014. As of that date, the Company had approximately $50.0 million remaining of existing share repurchase authorization from the Board of Directors.

2014 Fiscal Month

 

Total Number

of Shares

Purchased

 

 

Average Price

Paid per Share

 

 

Total Number of

Shares Purchased as

Part of a Publicly

Announced Program

 

 

Approximate Dollar

Value of Shares that

May Yet Be

Purchased Under

the Program

 

July 1, 2014 to July 31, 2014

 

 

176,499

 

 

$

40.08

 

 

 

176,499

 

 

$

54,301,155

 

August 1, 2014 to August 31, 2014

 

 

106,784

 

 

 

40.28

 

 

 

106,784

 

 

 

50,000,029

 

September 1, 2014 to September 30, 2014

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,000,029

 

          Total Third Quarter

 

 

283,283

 

 

$

-

 

 

 

283,283

 

 

$

50,000,029

 

 

2014 Fiscal Month

  Total Number
of Shares
Purchased
   Average Price
Paid
per Share
   Total Number of
Shares Purchased as
Part of a Publicly
Announced Program
   Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Program
 

April 1, 2014 to April 30, 2014

   111,276    $38.55     111,276    $75,000,026  

May 1, 2014 to May 31, 2014

   243,881     38.43     243,881     65,627,535  

June 1, 2014 to June 30, 2014

   104,765     40.59     104,765     61,375,464  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Second Quarter

   459,922    $38.95     459,922    $61,375,464  
  

 

 

   

 

 

   

 

 

   

 

 

 

26


ITEM

ITEM 6.

EXHIBITS

(a)

Exhibits

This Quarterly Report on Form 10-Q includes as exhibits certain documents that the Company has previously filed with the SEC. Such previously filed documents are incorporated herein by reference from the respective filings indicated in parentheses at the end of the exhibit descriptions (all made under the Company’s file number of 0-10653). Each of the management contracts and compensatory plans or arrangements included below as an exhibit is identified as such by a double asterisk at the end of the related exhibit description.

 

Exhibit

No.

Description

3.1

3.1

Third Restated Certificate of Incorporation of the Company, dated as of March 19, 2002 (Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, filed on April 1, 2002)

3.2

Amended and Restated Bylaws of the Company, dated as of July 16, 2009 (Exhibit 3.1 to the Company’s21, 2014 (Company’s current report on Form 10-Q for the quarter ended September 30, 2009,8-K, filed on November 5, 2009)July 24, 2014)

4.1

Master Note Purchase Agreement, dated as of October 15, 2007, among United Stationers Inc. (“USI”), United Stationers Supply Co. (“USSC”), and the note Purchasers identified therein (Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended June 30, 2010, filed on August 6, 2010)

4.2

Parent Guaranty, dated as of October 15, 2007, by USI in favor of holders of the promissory notes identified therein (Exhibit 4.4 to the Company’s Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007)

4.3

Subsidiary Guaranty, dated as of October 15, 2007, by Lagasse, Inc., United Stationers Technology Services LLC (“USTS”) and United Stationers Financial Services LLC (“USFS”) in favor of the holders of the promissory notes identified therein (Exhibit 4.5 to the Company’s Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007)

10.1*

Third Amendment to Amended and Restated Transfer and Administration Agreement, dated as of July 25, 2014, by United Stationers Receivables, LLC, USSC, USFS, PNC Bank, National Association and Planthe Bank of MergerTokyo-Mitsubishi UFJ, Ltd., New York Branch.

10.2*

Equity Purchase Agreement, dated as of September 10, 2014, by USSC, Richard Bell, Lauren R. Bell, Alison R. Bell Keim, Andrew Keim, Chant Tobi, Donald R. Bernhardt, The Bell Family Trust for Lauren Bell, The Bell Family Trust for Alison (Bell) Keim, 6772731 Canada Inc., and among USSC, SW Acquisition Corp. (“Merger Sub”), CPO Commerce, Inc. (“CPO”), certain security holders of CPO (“Principal Holders”) and Capstar Capital, LLC, as representative of the holders of CPO securities (“Representative”) dated May 28, 2014.Logistics Resource Group, L.P. In accordance with Item 601(b)(2) of Regulation S-K, the schedules and exhibit to the Agreement and Plan of Merger are not being filed. The Agreement and Plan of Merger contains a list briefly identifying the contents of all omitted schedules and exhibits and the Company hereby agrees to furnish supplementally a copy of any omitted schedule and exhibits to the Securities and Exchange Commission upon request.

22

31.1*

Published Report regarding matters submitted to vote of security holders (Company‘s current report on Form 8-K, filed on May 23, 2014)
31.1*

Certification of Chief Executive Officer, dated as of July 24,October 23, 2014, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Chief Financial Officer, dated as of July 24,October 23, 2014, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of Chief Executive Officer and Chief Financial Officer, dated as of July 24,October 23, 2014, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*

The following financial information from United Stationers Inc.’s Quarterly Report on Form 10-Q for the period ended JuneSeptember 30, 2014, filed with the SEC on July 24,October 23, 2014, formatted in Extensible Business Reporting Language (XBRL):

(i) the Condensed Consolidated Statement of Income for the three- and six-monthnine-month periods ended JuneSeptember 30, 2014 and 2013, (ii) the Condensed Consolidated Balance Sheet at JuneSeptember 30, 2014 and December 31, 2013, (iii) the Condensed Consolidated Statement of Cash Flows for the six-monthnine-month period ended JuneSeptember 30, 2014 and 2013, and (iv) Notes to Condensed Consolidated Financial Statements.

*

*

-

Filed herewith

**

-

Represents a management contract or compensatory plan or arrangement

27


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

UNITED STATIONERS INC.

(Registrant)

Date: July 24,October 23, 2014

/s/ Todd A. Shelton

Todd A. Shelton

Senior Vice President and Chief Financial Officer

 

24

28