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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the year ended December 31, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the
transition period from __________ to ____________
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of Registrant as specified in its charter)
UNITED STATIONERS INC.: DELAWARE UNITED STATIONERS INC.: 36-3141189
UNITED STATIONERS SUPPLY CO.: ILLINOIS UNITED STATIONERS SUPPLY CO.: 36-2431718
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
(847) 699-5000
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrants' Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF
THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF
THE ACT:
United Stationers Inc.: Common Stock $0.10 par value
(Title of Class)
INDICATE BY CHECK MARK WHETHER EACH REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
UNITED STATIONERS INC.: YES ( X ) NO ( )
UNITED STATIONERS SUPPLY CO.: YES ( X ) NO ( )
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENT
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( X )
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES OF UNITED
STATIONERS INC. AS OF MARCH 15, 2001, WAS $736,062,187, BASED ON THE LAST SALE
PRICE OF THE COMMON STOCK AS QUOTED BY THE NASDAQ NATIONAL MARKET SYSTEM ON SUCH
DATE. UNITED STATIONERS SUPPLY CO. HAS NO SHARES OF COMMON STOCK OUTSTANDING
HELD BY NON-AFFILIATES.
ON MARCH 15, 2001, UNITED STATIONERS INC. HAD OUTSTANDING 33,306,149 SHARES OF
COMMON STOCK, PAR VALUE $0.10 PER SHARE. ON MARCH 15, 2001, UNITED STATIONERS
SUPPLY CO. HAD 880,000 SHARES OF COMMON STOCK, $1.00 PAR VALUE PER SHARE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE:
PART OF FORM 10-K
Part III Portions of United Stationers Inc.'s definitive Proxy
Statement relating to the 2001 Annual Meeting of Stockholders of
United Stationers Inc., to be filed within 120 days of the fiscal
year end of United Stationers Inc.
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UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
PAGE NO.
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Explanatory Note 1
Business 1
General 1
Products 2
Customers 2
Marketing and Customer Support 2-3
Distribution 3
Purchasing and Merchandising 4
Competition 4
Employees 4
Properties 4-5
Legal Proceedings 6
Submission of Matters to a Vote of Security Holders 6
Market for Registrant's Common Equity
and Related Stockholder Matters 6
Selected Consolidated Financial Data 7-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-16
Quantitative and Qualitative Disclosure About Market Risk 16-17
Financial Statements and Supplementary Data 17-44
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 45
Directors and Executive Officers of the Registrant 45-47
Executive Compensation 47
Security Ownership of Certain Beneficial
Owners and Management 47
Certain Relationships and Related Transactions 47
Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 48-51
Signatures 52
PART I
EXPLANATORY NOTE
THIS INTEGRATED FORM 10-K IS FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, FOR EACH OF UNITED STATIONERS INC., A DELAWARE CORPORATION,
AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO., AN ILLINOIS
CORPORATION (COLLECTIVELY, THE "COMPANY"). UNITED STATIONERS INC. IS A
HOLDING COMPANY WITH NO OPERATIONS SEPARATE FROM ITS OPERATING SUBSIDIARY,
UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES. NO SEPARATE FINANCIAL
INFORMATION FOR UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES HAS BEEN
PROVIDED HEREIN BECAUSE MANAGEMENT FOR THE COMPANY BELIEVES SUCH INFORMATION
WOULD NOT BE MEANINGFUL BECAUSE (i) UNITED STATIONERS SUPPLY CO. IS THE ONLY
DIRECT SUBSIDIARY OF UNITED STATIONERS INC., WHICH HAS NO OPERATIONS OTHER
THAN THOSE OF UNITED STATIONERS SUPPLY CO. AND (ii) ALL ASSETS AND
LIABILITIES OF UNITED STATIONERS INC. ARE RECORDED ON THE BOOKS OF UNITED
STATIONERS SUPPLY CO. THERE IS NO MATERIAL DIFFERENCE BETWEEN UNITED
STATIONERS INC. AND UNITED STATIONERS SUPPLY CO. FOR THE DISCLOSURES REQUIRED
BY THE INSTRUCTIONS TO FORM 10-K AND THEREFORE, UNLESS OTHERWISE INDICATED,
THE RESPONSES SET FORTH HEREIN APPLY TO EACH OF UNITED STATIONERS INC. AND
UNITED STATIONERS SUPPLY CO.
ITEM 1. BUSINESS
GENERAL
United Stationers Inc. ("United"), with 2000 net sales of $3.9 billion, is
North America's largest distributor of business products and a provider of
marketing and logistics services to resellers. United is the parent company
of its direct wholly owned subsidiary, United Stationers Supply Co. ("USSC").
Except where the context clearly indicates otherwise, including references to
the capital structure of United Stationers Inc., the term "Company"
hereinafter used includes United Stationers Inc. together with its subsidiary.
On October 31, 1996, USSC acquired all of the capital stock of Lagasse Bros.,
Inc. ("Lagasse"), a wholesaler of janitorial and sanitary supplies. Lagasse
operates as a subsidiary of USSC.
On April 3, 1998, USSC acquired all of the capital stock of Azerty
Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID Wholesale Inc., and
AP Support Services Incorporated (the "Azerty Acquisition"), which together
conducted substantially all of the United States and Mexican operations of
the Office Products Division of Abitibi-Consolidated Inc. (collectively, the
"Azerty Business"). The Azerty Business is primarily a specialty wholesaler
of computer consumables, peripherals and accessories in the United States and
Mexico.
On July 1, 2000, the Company acquired all of the capital stock of CallCenter
Services, Inc. from Corporate Express, a Buhrmann Company. CallCenter
Services is a customer relationship management outsourcing service company
and operates as a division of USSC's wholly owned subsidiary, THE ORDER
PEOPLE ("TOP").
On July 5, 2000, the Company completed the acquisition of the net assets
relating to the wholesale business of Azerty Canada from MCSi, Inc. Azerty
Canada is a specialty distributor of computer consumables, peripherals and
accessories. United/Azerty Canada operates as a division of USSC.
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE
to operate as a third-party logistics and fulfillment service provider for
product categories beyond office products. THE ORDER PEOPLE offers a full set
of services specifically designed to support a wide variety of third-party
service needs.
On January 5, 2001, Lagasse purchased Peerless Paper Mills, Inc., a wholesale
distributor of janitorial/sanitation, paper, and food service products.
Peerless was immediately merged into Lagasse.
The Company sells its products through national distribution networks to more
than 20,000 resellers, who in turn sell directly to end users. United is able
to ship products within 24 hours of order placement because of its 39 United
Stationers Supply Co. regional distribution centers, 28 Lagasse distribution
centers that serve the janitorial and sanitation industry, six Azerty
distribution centers that serve computer supply resellers, three distribution
centers that serve the Canadian marketplace and a distribution center to
service the clients of THE ORDER PEOPLE. In addition, THE ORDER PEOPLE has
leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada.
1
PRODUCTS
The Company's product offerings, comprised of more than 40,000 stockkeeping
units (SKUs), may be divided into five primary categories:
TRADITIONAL OFFICE PRODUCTS. The Company's core business continues to be
traditional office products, which include both brand-name products and the
Company's private brand products. Traditional office products include writing
instruments, paper products, organizers, calendars and general office
accessories.
COMPUTER CONSUMABLES. The Company offers computer supplies, and peripherals
to value-added computer resellers and office products dealers.
OFFICE FURNITURE. The Company's sale of office furniture, such as leather
chairs, wooden and steel desks and computer furniture, has enabled it to
become the nation's largest office furniture wholesaler. The Company
currently offers over 5,500 furniture items from more than 50 different
manufacturers.
FACILITIES SUPPLIES. The major products in this category are janitorial and
sanitation supplies, safety and security items, and shipping and mailing
supplies. In October 1996 and January 2001, Lagasse and Peerless Paper were
acquired, respectively, making the Company the largest pure wholesaler of
janitorial and sanitation supplies in North America. The Company currently
distributes these products to sanitary supply dealers through 28 distribution
centers.
BUSINESS MACHINES AND AUDIO-VISUAL PRODUCTS. This product category includes
business machines - from calculators to telephones - as well as audio-visual
equipment and supplies.
CUSTOMERS
The Company sells to more than 20,000 resellers, including office products
dealers, mega-dealers, office products superstores, computer products
resellers, office furniture dealers, mass merchandisers, mail order
companies, sanitary supply distributors and e-commerce merchants. Of its
20,000 customers, no single reseller accounted for more than 9% of the
Company's net sales in 2000.
Independent commercial dealers and contract stationers are the most
significant reseller channel for office products distribution and typically
serve medium to large businesses, institutions and government agencies.
Through industry consolidation, the number of such dealers has decreased,
with the remaining dealers growing larger. As a result, net sales to
individual commercial dealers and contract stationers have grown. Many
dealers have joined marketing or buying groups in order to increase their
purchasing leverage. The Company believes it is the leading wholesale source
for most of these groups, providing not only merchandise but also special
programs that enable these dealers to benefit from their combined marketing
efforts.
While the Company maintains and builds its business with commercial dealers,
contract stationers (including the contract stationer divisions of national
office product superstores) and retail dealers, it also has relationships
with most major office products superstore chains. In addition, the Company
supplies inventory and other fulfillment services to the retail operations of
certain superstores, including their direct-to-business delivery programs.
MARKETING AND CUSTOMER SUPPORT
The Company concentrates its marketing efforts on providing value-added
services to resellers. The Company distributes products that are generally
available at similar prices from multiple sources and most of its customers
purchase their products from more than one source. As a result, the Company
seeks to differentiate itself from its competitors through a broader product
offering, a higher degree of product availability, a variety of high quality
customer services and its overnight distribution capabilities. In addition to
emphasizing its broad product line, extensive inventory, integrated systems
and national distribution capabilities, the Company's marketing programs have
relied upon two additional major components. First, the Company produces an
extensive array of catalogs for commercial dealers, contract stationers and
retail dealers that are usually custom imprinted with each reseller's name
and sold to these resellers who, in turn, distribute the catalogs to their
customers. Second, the Company provides its resellers with a variety of
dealer support and marketing services, including electronic commerce options,
promotional programs and pricing services. These services are designed to aid
the reseller in differentiating itself from its competitors by addressing the
needs of the end-user's procurement process.
2
Substantially all of the Company's 40,000 SKUs are sold through its
comprehensive general line catalog, promotional pieces and specialty catalogs
for the office products, computer supplies, office furniture, facilities
management supplies and other specialty markets. The Company produces the
following annual catalogs: General Line Catalog; Office Furniture Catalog
featuring furniture and accessories; Universal(TM) Catalog promoting the
Company's private-brand merchandise; Computer Products Catalog offering
computer related supplies, accessories, hardware and peripheral products;
Facility Supplies Catalog featuring food service, warehouse, mailroom
supplies and products and supplies used for meetings and presentations; the
Lagasse Catalog offering janitorial and sanitation supplies; the B2500
Catalog featuring a selection of everyday office supplies; the F1000 Catalog
promoting commodity furniture and accessory products; the A/V2000 Catalog
featuring audio-visual equipment and supplies; and the Signature Images
Catalog with an assortment of imprinted, promotional, and ad specialty items.
In addition, the Company produces the following quarterly promotional
catalogs: Action 2000, featuring over 1,000 high-volume commodity items,
Price Buster, featuring special promotional pricing and graphics on 1,000
items and CC1000, featuring computer supplies, peripherals, accessories and
furniture. The Company also produces separate quarterly flyers covering
general office supplies, office furniture, facility supplies and
Universal(TM) products. Because commercial dealers, contract stationers and
retail dealers typically distribute only one wholesaler's catalogs in order
to streamline and concentrate order entry, the Company attempts to maximize
the distribution of its catalogs by offering advertising credits to
resellers, which can be used to offset the cost of the catalogs. Also, the
Company's general line catalog is available in an electronic version.
The Company also offers resellers a variety of electronic order entry systems
and business management and marketing programs. For instance, the Company
maintains electronic data interchange and interactive order systems that link
the Company to selected resellers and such resellers to the ultimate end
user. In addition, the Company's electronic order entry systems allow the
reseller to forward its customers' orders directly to the Company, resulting
in the delivery of pre-sold products to the reseller or directly to the
reseller's customer. The Company estimates that in 2000, it received
approximately 90% of its orders electronically.
In addition to marketing its products and services through the use of its
catalogs, the Company employs a sales force of approximately 220 field
salespersons and a telemarketing and telesales staff of 380 people. The sales
force is responsible for sales and service to resellers with which the
Company has an existing relationship, as well as for establishing new
relationships with additional resellers.
DISTRIBUTION
The Company's Supply Division has a network of 39 business products regional
distribution centers located in 36 metropolitan areas in 25 states in the
United States, most of which carry the Supply Division's full line of
inventory. The Company also maintains 28 Lagasse distribution centers that
carry a full line of janitorial and sanitation supplies, six Azerty
distribution centers that carry computer consumables, peripherals and
accessories, three distribution centers that serve the Canadian marketplace
and a distribution center to service clients of THE ORDER PEOPLE. In
addition, THE ORDER PEOPLE has leased distribution centers in Harrisburg,
Pennsylvania, and in Reno, Nevada. The Company supplements its regional
distribution centers with 21 local distribution points throughout the United
States that serve as reshipment points for orders filled at the regional
distribution centers. The Company utilizes more than 400 trucks,
substantially all of which are contracted for by the Company, to enable
direct delivery from the regional distribution centers and local distribution
points to resellers.
The Company's distribution capabilities are aided by its proprietary
computer-driven inventory locator system. If a reseller places an order for
an item that is out of stock at the Company location which usually serves the
particular reseller, the Company's system will automatically search for the
item at alternative distribution centers. If the item is available at an
alternative location, the system will automatically forward the order to that
alternate location, which will then coordinate shipping with the primary
facility and, for the majority of resellers, provide a single on-time
delivery. The system effectively provides the Company with added inventory
support that enables it to provide higher service levels to the reseller, to
reduce back orders and to minimize time spent searching for merchandise
substitutes, all of which contribute to the Company's high order fill rate
and efficient levels of inventory.
Another service offered by the Company to resellers is its "wrap and label"
program that offers resellers the option to receive individually packaged
orders customized to meet the needs of specific end users. For example, when
a reseller receives orders from several individual end users, the Company can
group and wrap the items separately, identifying the specific end user so
that the reseller need only deliver the package. The "wrap and label" program
is attractive to resellers because it eliminates the need to break down case
shipments and to repackage the orders before delivering them to the end user.
The Company also ships orders directly to end users on behalf of its
resellers.
3
PURCHASING AND MERCHANDISING
As the largest business products wholesaler in North America, the Company
qualifies for substantial volume allowances and can realize significant
economies of scale. The Company obtains products from over 500 manufacturers.
The Company believes it is a significant customer for most of these
manufacturers. In 2000, no supplier accounted for more than 18% of the
Company's aggregate purchases. As a centralized function, the Company's
merchandising department interviews and selects suppliers and products for
inclusion in the catalogs. Selection is based upon end-user acceptance,
demand for the product and the manufacturer's total service, price and
product quality offering.
COMPETITION
The Company competes with office products manufacturers and with other
national, regional and specialty wholesalers of office products, office
furniture, computer supplies and related items, and facility management
supplies. Competition between the Company and manufacturers is based
primarily upon net pricing, minimum order quantity and speed of delivery.
Although manufacturers may provide lower prices to resellers than the Company
does, the Company's marketing and catalog programs, combined with speed of
delivery and its ability to offer resellers a broad line of business products
from multiple manufacturers on a "one-stop shop" basis and with lower minimum
order quantities, are important factors in enabling the Company to compete
effectively. Manufacturers typically sell their products through a variety of
distribution channels, which includes wholesalers and resellers.
Competition between the Company and other wholesalers is based primarily on
breadth of product lines, availability of products, speed of delivery to
resellers, order fill rates, net pricing to resellers and the quality of its
marketing and other services. The Company believes it is competitive in each
of these areas. Most wholesale distributors of office products conduct
operations regionally and locally, sometimes with limited product lines such
as writing instruments or computer products. Only one other national
wholesaler carries a general line of office products.
Increased competition in the office products industry, together with
increased advertising, has heightened price awareness among end users. As a
result, purchasers of commodity office products have become extremely price
sensitive, and therefore, the Company has increased its efforts to market to
resellers the continuing advantages of its competitive strengths (as compared
to those of manufacturers and other wholesalers).
THE ORDER PEOPLE competes with other outsourcing alternatives for logistics
and order fulfillment as well as providers of Customer Relationship
Management (CRM) capabilities.
EMPLOYEES
As of December 31, 2000, the Company employed approximately 8,350 persons.
The Company considers its relations with employees to be good. Approximately
1,000 of the shipping, warehouse and maintenance employees at certain of the
Detroit, Philadelphia, Baltimore, Los Angeles, Minneapolis and New York City
facilities are covered by collective bargaining agreements. The agreements
expire at various times during the next three years. The Company has not
experienced any work stoppages during the past five years.
ITEM 2. PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. The Company continually evaluates its properties to achieve
peak efficiency to maximize customer satisfaction and economies of scale.
Substantially all owned facilities are subject to liens under USSC's Senior
Credit Facility. As of December 31, 2000, these properties consisted of the
following:
EXECUTIVE OFFICES. The Company's office facility in Des Plaines, Illinois has
approximately 161,000 square feet of office and storage space. In addition,
the Company owns approximately 42,000 square feet of office space in Orchard
Park, New York, and approximately 22,000 square feet of office space in
Harahan, Louisiana (not including approximately 61,000 square feet of
warehouse space) and leases approximately 50,000 square feet of office space
located in Mt. Prospect, Illinois.
4
DISTRIBUTION CENTERS. The Company presently has more than twelve million square
feet of warehouse space in 39 business products distribution centers, 28
janitorial and sanitation supply distribution centers, six information
technology distribution centers, and three distribution centers that serve the
Canadian marketplace. In addition, the Company operates two call centers
dedicated to THE ORDER PEOPLE, one in Salisbury, Maryland with approximately
52,600 square feet of owned office space and the other in Wilkes-Barre,
Pennsylvania with approximately 80,000 square feet of leased office space. THE
ORDER PEOPLE also operates a distribution center with approximately 650,000
square feet of leased space in Memphis, Tennessee. In addition, THE ORDER PEOPLE
has leased distribution centers in Harrisburg, Pennsylvania, and in Reno,
Nevada. The following table sets forth information regarding the Company's
principal leased and owned distribution centers (excluding THE ORDER PEOPLE
facilities):
Square Feet
-------------------------------
State/Country City Metropolitan Area Served Owned Leased
- -------------------- ---------------------------------- -------------------------------- ------------ --------------
Arizona Tempe Phoenix - - 203,756
California City of Industry / Santa Fe
Springs Los Angeles 344,487 165,000
Hayward / North Highlands /
Pico Rivera Los Angeles 85,378 285,250
Sacramento / Union City / Sacramento / San Francisco
Visalia / Oakland - - 384,344
Canada Toronto Toronto - - 33,900
Vancouver Vancouver - - 10,000
Colorado Denver / Aurora Denver 104,244 444,014
Connecticut North Branford Albany - - 6,000
Florida Miami / Dania / Ft. Lauderdale Miami - - 210,983
Jacksonville Jacksonville 150,000 - -
Tampa Tampa 128,000 87,539
Georgia Atlanta / Norcross Atlanta 372,000 85,600
Illinois Carol Stream / Wood Dale Chicago - - 602,488
Greenville St. Louis 210,000 - -
Indiana Fort Wayne Fort Wayne - - 75,000
Indianapolis Indianapolis 128,000 53,449
Louisiana Harahan (1) New Orleans - - 194,176
Lafayette New Orleans - - 6,000
Maryland Elkridge / Hanover / Harmans Baltimore / Washington, D.C. 323,980 359,056
Massachusetts Harverhill (1) / Sharon / Woburn Boston 309,000 115,680
Mexico Monterrey Monterrey - - 1,300
Michigan Livonia / Van Buren Detroit 229,700 52,924
Minnesota Eagan / Brooklyn Park Minneapolis / St. Paul 337,948 - -
Missouri Kansas City Kansas City - - 176,206
St. Louis St. Louis - - 43,200
New Jersey Edison New York 257,579 289,646
Pennsauken Philadelphia 231,000 25,316
New York Coxsackie / Amherst Albany 256,500 18,790
Orchard Park / Tanawanda New York 12,040 10,000
North Carolina Charlotte Charlotte 104,000 444,483
Ohio Cincinnati Cincinnati 108,778 - -
Columbus Columbus - - 229,200
Fairfield / Twinsburg / Valley
View Cleveland 206,136 245,966
Oklahoma Tulsa Tulsa 52,600 22,500
Oregon Portland Portland - - 106,458
Pennsylvania Pittsburgh / Chambersburg /
Warrendale Pittsburgh / Baltimore - - 197,242
Tennessee Memphis Memphis - - 78,286
Nashville Nashville - - 191,250
Texas Dallas Dallas / Fort Worth - - 870,364
Houston Houston - - 290,000
Lubbock Lubbock - - 58,725
San Antonio San Antonio - - 94,848
Utah Salt Lake City Salt Lake City - - 113,302
Washington Tukwila / Kent Seattle - - 203,983
Wisconsin Milwaukee Milwaukee 67,300 29,680
(1) A portion of such property is subleased to a third party.
5
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary course of
its business. The Company is not involved in any legal proceeding that it
believes will result, individually or in the aggregate, in a material adverse
effect upon its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders through the
solicitation of proxies in the fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted through the Nasdaq National Market System
under the symbol USTR. The following table shows the high and low closing sale
prices per share for the Company's common stock as reported by Nasdaq.
HIGH LOW
-------- ----------
2000
First Quarter $ 37.25 $ 25.31
Second Quarter 37.81 28.31
Third Quarter 32.75 26.88
Fourth Quarter 30.63 21.50
1999
First Quarter 26.00 13.00
Second Quarter 22.00 13.56
Third Quarter 26.31 20.25
Fourth Quarter 28.56 20.88
On March 15, 2001, there were approximately 928 holders of record of common
stock.
The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has not paid cash dividends and does not anticipate
declaring cash dividends on its common stock in the foreseeable future.
Furthermore, as a holding company, United's ability to pay cash dividends in
the future depends upon the receipt of dividends or other payments from its
operating subsidiary, USSC. The payment of these dividends is subject to
certain restrictions imposed by the Company's debt agreements. See Note 7 to
the Consolidated Financial Statements.
On October 23, 2000, the Company's Board of Directors authorized the
repurchase of up to $50.0 million of its common stock. Under this
authorization, the Company purchased 857,100 shares at a cost of
approximately $22.4 million during 2000. During 1999, under a previous
authorization, the Company purchased 3,250,000 shares of its common stock at
a cost of approximately $49.6 million. Acquired shares are included in the
issued shares of the Company, but are not included in average shares
outstanding when calculating earnings per share data. During 2000 and 1999,
the Company reissued 309,674 and 29,519 shares of treasury stock,
respectively, to fulfill its obligations under its stock option plan.
6
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996 have been derived from the
Consolidated Financial Statements of the Company, which have been audited by
Ernst & Young LLP, independent auditors. All selected consolidated financial
data set forth below should be read in conjunction with, and is qualified in
its entirety by Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements of the
Company.
Years Ended December 31,
--------------------------------------------------------------------------------------------
2000 1999(1) 1998(1) 1997(1) 1996(1)
-------------- ------------- ------------- ------------- ------------
(dollars in thousands, except per share data)
INCOME STATEMENT DATA:
Net sales $ 3,944,862 $ 3,442,696 $ 3,097,595 $ 2,585,826 $ 2,318,882
Cost of goods sold 3,301,018 2,878,539 2,566,158 2,137,551 1,925,505
----------- ----------- ----------- ----------- -----------
Gross profit 643,844 564,157 531,437 448,275 393,377
Operating expenses:
Warehousing, marketing
and administrative
expenses 441,298 381,963 362,074 313,346 280,373
Non-recurring charges - - - - 13,852(2) 64,698(3) - -
----------- ----------- ----------- ----------- -----------
Total operating expenses 441,298 381,963 375,926 378,044 280,373
----------- ----------- ----------- ----------- -----------
Income from operations 202,546 182,194 155,511 70,231 113,004
Interest expense, net 27,229 29,195 36,301 53,511 57,456
Other expense 11,201(4) 9,432(4) 8,221(4) - - - -
----------- ----------- ----------- ----------- -----------
Income before income
taxes and extraordinary
item 164,116 143,567 110,989 16,720 55,548
Income taxes 65,473 60,158 47,064 8,532 23,555
----------- ----------- ----------- ----------- -----------
Income before
extraordinary item 98,643 83,409 63,925 8,188 31,993
Extraordinary item - loss on early
retirement of debt, net of tax benefit
of $4,248 in 2000, $3,970 in 1998, and
$3,956 in 1997 (6,476) - - (5,907) (5,884) - -
----------- ----------- ----------- ----------- -----------
Net income $ 92,167 $ 83,409 $ 58,018 $ 2,304 $ 31,993
=========== =========== =========== =========== ===========
Net income attributable to
common stockholders $ 92,167 $ 83,409 $ 58,018 $ 776 $ 30,249
=========== =========== =========== =========== ===========
Net income per common
share - assuming dilution
Income before extraordinary
item $ 2.84 $ 2.37 $ 1.76 $ 0.22 $ 1.01
Extraordinary item (0.19) - - (0.16) (0.19) - -
----------- ----------- ----------- ----------- -----------
Net income $ 2.65 $ 2.37 $ 1.60 $ 0.03 $ 1.01
=========== =========== =========== =========== ===========
Cash dividends declared per
common share $ - - $ - - $ - - $ - - $ - -
OPERATING AND OTHER DATA:
EBITDA (5) 233,651 211,642 182,449 96,272 139,046
EBITDA margin (6) 5.9% 6.1% 5.9% 3.7% 6.0%
Depreciation and
amortization (7) $ 31,105 $ 29,448 $ 26,938 $ 26,041 $ 26,042
Capital expenditures, net 39,301 21,331 24,616 12,991 (2,886)(8)
7
Years Ended December 31,
------------------------------------------------------------------------------------------------
2000(9) 1999 1998(10) 1997(11) 1996
----------- -------------- ------------- -------------- -----------
(dollars in thousands, except per share data)
OPERATING RESULTS BEFORE CHARGES:
Income from operations $ 202,546 $ 182,194 $ 169,363 $ 134,929 $ 113,004
Net income attributable to
common stockholders 98,643 83,409 72,212 45,364 30,249
Net income per common
share - assuming dilution 2.84 2.37 2.00 1.47 1.01
EBITDA 233,651 211,642 196,301 160,970 139,046
EBITDA margin 5.9% 6.1% 6.3% 6.2% 6.0%
As of December 31,
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------- ----------------- ------------------ ------------------ ----------------
(dollars in thousands)
BALANCE SHEET DATA
Working capital $ 495,456(12) $ 415,548(12) $ 357,024(12) $ 451,449 $ 404,973
Total assets 1,447,027(12) 1,279,903(12) 1,166,991(12) 1,148,021 1,109,867
Total debt and capital
leases(13) 409,867 336,927 315,384 537,135 600,002
Redeemable preferred stock -- -- -- -- 19,785
Redeemable warrants -- -- -- -- 23,812
Total stockholders' equity 478,439 406,009 370,563 223,308 75,820
(1) During the fourth quarter of 2000, the Company restated all prior
periods to reclassify freight revenue from cost of goods sold and
operating expense to net sales in compliance with FASB Emerging Issues
Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs". EITF No. 00-10, requires that shipping and
handling fees billed to a customer in a sale transaction represent
revenues earned for the goods provided and should be classified as
revenue. See Note 1 to the Consolidated Financial Statements.
(2) In the second quarter of 1998, the Company recognized a non-recurring
charge of $13.9 million ($8.3 million net of tax benefit of $5.6
million) related to the write off of the remaining payments and prepaid
expense under a contract for computer services from a vendor. See Note
1 to the Consolidated Financial Statements.
(3) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million), and a non-recurring cash charge of $5.3 million ($3.2
million net of tax benefit of $2.1 million) related to the vesting of
stock options and the termination of certain management advisory
service agreements.
(4) Represents the loss on the sale of certain trade accounts receivable
through an asset-backed securitization program and the loss on the sale
of certain capital assets. See Note 5 to the Consolidated Financial
Statements.
(5) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization, and extraordinary item. EBITDA is presented because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service and incur debt. EBITDA should not be
considered in isolation from, or as a substitute for, net income, cash
flows from operating activities or other consolidated income or cash
flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
(6) EBITDA margin represents EBITDA as a percent of net sales.
8
(7) Excludes amortization related to deferred financing costs, which is a
component of interest expense.
(8) Includes $11.1 million of proceeds from the sale of property, plant and
equipment.
(9) In the second quarter of 2000, the Company recorded an extraordinary
charge of $10.7 million ($6.5 million net of tax benefit of $4.2
million) related to the early retirement of debt. See Note 7 to the
Consolidated Financial Statements.
(10) In the second quarter of 1998, the Company recognized a non-recurring
charge of $13.9 million ($8.3 million net of tax benefit of $5.6
million) related to the write off of the remaining payments and prepaid
expense under a contract for computer services from a vendor. In
addition, during the second quarter of 1998 the Company recorded an
extraordinary charge of $9.9 million ($5.9 million net of tax benefit
of $4.0 million) related to the early retirement of debt. See Note 1 to
the Consolidated Financial Statements.
(11) In the fourth quarter of 1997, the Company recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a non-recurring cash charge of $5.3 million ($3.2
million net of tax benefit of $2.1 million) related to the vesting of
stock options and the termination of certain management advisory
service agreements. In addition, during the fourth quarter of 1997 the
Company recorded an extraordinary charge of $9.8 million ($5.9 million
net of tax benefit of $3.9 million) related to early retirement of
debt.
(12) Excludes $150.0 million in 2000 and $160.0 million in 1999 and 1998 of
certain trade accounts receivable sold through an asset-backed
securitization program. See Note 5 to the Consolidated Financial
Statements.
(13) Total debt and capital leases include current maturities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes appearing elsewhere in this Form 10-K.
Information contained or incorporated by reference in this Form 10-K may
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, which can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "anticipate," "believe," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. All statements
other than statements of historical fact included in this Form 10-K,
including those regarding the Company's financial position, business
strategy, projected costs and plans and objectives of management for future
operations are forward-looking statements. The following matters and certain
other factors noted throughout this Form 10-K constitute cautionary
statements identifying important factors with respect to any such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those in such
forward-looking statements. Such risks and uncertainties include, but are not
limited to, the highly-competitive environment in which the Company operates,
the market potential for third-party service providers, the Company's ability
to adjust THE ORDER PEOPLE'S cost structure to the timing of revenue
generation, the integration of acquisitions, changes in end-users'
traditional demands for business products, the Company's reliance on certain
key suppliers, the effects of fluctuations in manufacturers' pricing,
potential service interruptions, customer credit risk, dependence on key
personnel, and general economic conditions. A description of these factors,
as well as other factors, which could affect the Company's business, is set
forth in certain filings by the Company with the Securities and Exchange
Commission. All forward-looking statements contained in this Form 10-K and/or
any subsequent written or oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company, are expressly qualified
in their entirety by such cautionary statements. The Company undertakes no
obligation to release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
OVERVIEW
The Company is the largest general line business products wholesaler in the
United States, with 2000 net sales of $3.9 billion. The Company sells its
products through national distribution networks to more than 20,000
9
resellers, who in turn sell directly to end users. These products are
distributed through a computer-based network of warehouse facilities and
truck fleets radiating from 39 regional distribution centers, 28 Lagasse
distribution centers, six Azerty distribution centers, three distribution
centers that serve the Canadian marketplace and a distribution center to
service clients of THE ORDER PEOPLE. In addition, THE ORDER PEOPLE has leased
distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada.
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE
("TOP") to operate as its third-party fulfillment provider for product
categories beyond office products. TOP offers a full set of services
specifically designed to support a wide variety of third-party service needs.
By combining the Company's state-of-the-art distribution network with a
multi-channel customer relationship management (CRM) capability, clients have
the ability to custom design their order fulfillment experience and then
monitor and measure consumer satisfaction. The Company has extensive
experience and ability to pick, pack, ship and track products with a wide
range of physical attributes. TOP enables the Company to leverage these core
competencies in a broader context for third-party logistics and fulfillment.
ACQUISITION OF CALLCENTER SERVICES, INC. On July 1, 2000, the Company
acquired all of the capital stock of CallCenter Services, Inc. from Corporate
Express, a Buhrmann Company. The purchase price was approximately $10.7
million, financed through the Company's Senior Credit Facility. CallCenter
Services is a customer relationship management outsourcing service company.
It has two inbound call centers, in Wilkes-Barre, Pennsylvania and Salisbury,
Maryland, with a total of up to 1,000 seats. This acquisition will complement
and significantly enhance the third-party fulfillment business of TOP. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets purchased and the
liabilities assumed, based upon the estimated fair values at the date of
acquisition. The excess of cost over fair value of approximately $3.1 million
was allocated to goodwill. The pro forma effects of the acquisition were not
material.
ACQUISITION OF AZERTY CANADA. On July 5, 2000, the Company completed the
acquisition of the net assets of Azerty Canada from MCSi, Inc. The purchase
price was approximately $33.6 million (U.S. dollars) financed through the
Company's Senior Credit Facility. Azerty Canada is a specialty wholesale
distributor of computer consumables, peripherals and accessories. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets purchased and the
liabilities assumed, based upon the estimated fair values at the date of
acquisition. The excess of cost over fair value of approximately $11.8
million was allocated to goodwill. The pro forma effects of the acquisition
were not material.
ACQUISITION OF CONSUMER DEVELOPMENT GROUP. On November 1, 1999, the Company
acquired all of the capital stock of Consumer Development Group Inc. ("CDG")
for approximately $4.8 million, including an initial payment to the seller of
approximately $2.4 million, financed through senior debt. The remaining
purchase price of approximately $2.4 million will be paid ratably on each of
the first three anniversaries of the acquisition. The CDG acquisition was
accounted for using the purchase method of accounting and, accordingly, the
purchase price was allocated to the assets purchased and the liabilities
assumed, based upon the estimated fair values at the date of acquisition. The
excess of cost over fair value of approximately $4.8 million was allocated to
goodwill. The financial information for the year ended December 31, 1999,
included the results of CDG for November and December only. The pro forma
effects of this acquisition were not material. A Certificate of Dissolution
was filed with the State of Delaware to dissolve CDG as of December 31, 1999.
CDG is a division of USSC.
COMMON STOCK REPURCHASE. On October 23, 2000, the Company's Board of
Directors authorized the repurchase of up to $50.0 million of its common
stock. Under this authorization, the Company purchased 857,100 shares of its
common stock at a cost of approximately $22.4 million, during 2000. During
1999, under a previous authorization, the Company purchased 3,250,000 shares
of its common stock at a cost of approximately $49.6 million. Acquired shares
are included in the issued shares of the Company, but are not included in
average shares outstanding when calculating earnings per share data. During
2000 and 1999, the Company reissued 309,674 and 29,519 shares of treasury
stock, respectively, to fulfill its obligations under its stock option plan.
JUNE 1998 EQUITY OFFERING. In June 1998, United completed an offering of 4.0
million shares of common stock (the "June 1998 Equity Offering"), consisting
of 3.0 million primary shares sold by United, and 1.0 million secondary
shares sold by certain selling stockholders. The shares were priced at $27.00
per share, before underwriting discounts and commissions of $1.15 per share.
The aggregate proceeds to United of approximately $77.6 million (before
deducting expenses) were delivered to USSC and used to repay a portion of
10
indebtedness under the Tranche A Term Loan Facility, which caused a permanent
reduction of the amount borrowable under this facility.
United did not receive any of the proceeds from the sale of the 1.0 million
shares of common stock offered by the selling stockholders. It did, however,
receive an aggregate of approximately $6.4 million paid by the selling
stockholders upon exercise of employee stock options in connection with the
June 1998 Equity Offering, which were delivered to USSC and applied to the
repayment of indebtedness under the New Credit Facilities.
After closing the June 1998 Equity Offering, the underwriters exercised an
overallotment option to purchase an additional 0.4 million shares from
United. The net proceeds to United of approximately $10.3 million from the
sale were delivered to USSC and used to repay an additional portion of the
indebtedness outstanding under the Tranche A Term Loan Facility.
In the second quarter of 1998, the Company recognized the following charges:
a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of
$5.6 million) to write off the remaining payments and related prepaid expense
under a contract for computer services from a vendor (see Note 1 to the
Consolidated Financial Statements), and an extraordinary loss of $9.9 million
($5.9 million net of tax benefit of $4.0 million) related to the early
retirement of debt (collectively "1998 Charges"), see Note 1 to the
Consolidated Financial Statements.
Net income attributable to common stockholders for the year ended December
31, 1998, before the 1998 Charges, was $72.2 million, up 59.0%, compared with
$45.4 million, before the 1997 Charges (as defined). In 1998, diluted
earnings per share before the 1998 Charges were $2.00 on 36.2 million
weighted average shares outstanding, up 36.1%, compared with $1.47, before
charges, on 30.8 million weighted average shares outstanding for the prior
year.
ACQUISITION OF THE AZERTY BUSINESS. On April 3, 1998, the Company acquired
all of the capital stock of Azerty Incorporated, Azerty de Mexico, S.A. de
C.V., Positive ID Wholesale Inc., and AP Support Services Incorporated
(collectively the "Azerty Business"). These businesses comprised
substantially all of the United States and Mexican operations of the Office
Products Division of Abitibi-Consolidated Inc. The aggregate purchase price
paid by the Company for the Azerty Business was approximately $115.7 million
(including fees and expenses). The acquisition was financed primarily through
senior debt. The Azerty Business acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price was
allocated to the assets purchased and the liabilities assumed based upon the
estimated fair values at the date of acquisition, with the excess of cost
over fair value of approximately $73.7 million allocated to goodwill. The
financial information for the year ended December 31, 1998, included nine
months of the Azerty Business. The pro forma effects of this acquisition were
not material.
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
NET SALES. Net sales increased 14.6% to $3.9 billion for 2000, compared with
$3.4 billion for 1999. This increase reflected growth in the Company's core
business, incremental sales from acquisitions completed in 2000, and
increases in freight revenue. The Company's sales growth within its core
business was broad based, with strength in all geographic regions, across all
product categories and customer channels. Specifically, the janitorial and
sanitation products, computer consumables and office furniture categories
experienced strong sales growth. Sales growth for the year ended December 31,
2000, excluding the acquisitions of Azerty Canada and CallCenter Services
Inc., increased 12.2%.
GROSS MARGIN. Gross margin in 2000 reached $643.8 million, up 14.1% from last
year and was 16.3% of net sales, compared with $564.2 million, or 16.4% of
net sales, in 1999. The 0.1% rate decline is due to lower pricing margin
partially offset by incremental vendor allowances earned as a result of
higher sales volume.
OPERATING EXPENSES. Operating expenses for 2000 were up 15.5% to $441.3
million and were 11.2% of net sales, compared with $382.0 million, or 11.1%
of net sales, in the prior year. The increase in the operating expense rate
was attributable to investments in THE ORDER PEOPLE, the Company's
third-party fulfillment business. Operating expenses for 2000 related to THE
ORDER PEOPLE totaled $9.0 million resulting in a 0.2% increase in the
operating expense ratio.
INCOME FROM OPERATIONS. Income from operations increased 11.1% to $202.5
million, or 5.1% of net sales, compared with $182.2 million, or 5.3% of net
sales in 1999. Excluding the investments in THE ORDER PEOPLE, income from
operations increased 15.5% to $210.5 million or 5.4% of net sales.
11
INTEREST EXPENSE. Interest expense for 2000 was $27.2 million, or 0.7% of net
sales, compared with $29.2 million, or 0.8% of net sales, in 1999. This
reduction reflects the Company's continued leveraging of interest costs
against higher sales, and the interest expense savings related to the
redemption of the 12.75% Notes (as defined) partially offset by slightly
higher interest rates on variable rate debt.
OTHER EXPENSE. Other expense for 2000 reached $11.2 million, or 0.3% of net
sales, compared with $9.4 million, or 0.3% of net sales in 1999. This expense
primarily represents the costs associated with the sale of certain trade
accounts receivable through the Receivables Securitization Program (as
defined). These costs vary on a monthly basis and generally are related to
certain short-term interest rates.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item was $164.1 million, or 4.1% of net sales, compared
with $143.6 million, or 4.2% of net sales in 1999.
INCOME TAXES. Income tax expense as a percent of net sales was 1.7% in 2000
and in 1999. The effective tax rate declined to 39.9% in 2000 from 41.9% in
1999. This was due to a change in the mix of pre-tax earnings between states
and higher pre-tax earnings with relatively constant nondeductible expenses,
such as goodwill.
NET INCOME. Net income for 2000 increased 10.6% to $92.2 million, or 2.3% of
net sales, from $83.4 million, or 2.4% of net sales, in 1999. Net income for
2000, excluding the impact of the extraordinary item, increased 18.2% to
$98.6 million, or 2.5% of net sales.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are
recorded throughout the year, including inventory shrinkage and obsolescence,
required LIFO reserve, manufacturers' allowances, advertising costs and
various expense items. During the fourth quarter of 2000, the Company
recorded a favorable net income adjustment of approximately $5.9 million
related to the refinement of estimates recorded in the prior three quarters.
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES. Net sales increased 11.1% to $3.4 billion for 1999, compared with
$3.1 billion for 1998. The Company's sales growth was broad based, with
strength in all geographic regions, across all product categories and
customer channels. Specifically, the janitorial and sanitation products,
computer consumables and office furniture categories experienced strong sales
growth. The Company's sales with both national accounts and independent
dealers are strengthening. Organic sales for the year ended December 31,
1999, increased 7.7%. This included pre-acquisition first quarter 1998 net
sales of $99.7 million for the Azerty Business.
GROSS MARGIN. Gross margin in 1999 reached $564.2 million, up 6.2% from last
year and was 16.4% of net sales, compared with $531.4 million, or 17.2% of
net sales, in 1998. This rate decrease reflected the trend toward a lower
margin product mix. The lower margin rate reflecting product mix partially
was offset by incremental vendor allowances earned as a result of higher
sales volume.
OPERATING EXPENSES. Operating expenses for 1999 totaled $382.0 million, up
5.5% from last year and were 11.1% of net sales, compared with $362.1
million, or 11.7% of net sales, in the prior year (excluding non-recurring
charges). The decline in the operating expense rate was attributable to the
continued leveraging of fixed costs. The non-recurring charge recorded in the
second quarter of 1998 of $13.9 million ($8.3 million net of tax benefit of
$5.6 million) was related to the write off of a contract for computer
services from a vendor (see Note 1 to the Consolidated Financial Statements).
Operating expenses, including this charge, totaled $375.9 million, or 12.1%
of net sales, in 1998.
INCOME FROM OPERATIONS. Income from operations totaled $182.2 million, or
5.4% of net sales, compared with $169.3 million, or 5.5% of net sales in
1998, before non-recurring charges. Including the non-recurring charge,
income from operations totaled $155.4 million, or 5.1% of net sales, in 1998.
INTEREST EXPENSE. Interest expense for 1999 was $29.2 million, or 0.9% of net
sales, compared with $36.3 million, or 1.2% of net sales, in 1998. This
reduction reflected the continued leveraging of interest costs against higher
sales, and the repayment of indebtedness with the proceeds received from the
June 1998 Equity Offering and the Receivables Securitization Program (as
defined). These effects partially were offset by three months of incremental
interest expense related to the acquisition of the Azerty Business in April
12
of 1998 for a purchase price of approximately $115.7 million, and the placement
of $100.0 million of Senior Subordinated Notes at 8.375% in April 1998.
OTHER EXPENSE. Other expense for 1999 reached $9.4 million, or 0.3% of net
sales, compared with $8.2 million, or 0.3% of net sales in 1998. This expense
primarily represents the costs associated with the sale of certain trade
accounts receivable through the Receivables Securitization Program (as
defined). These costs vary on a monthly basis and generally are related to
certain short-term interest rates.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item was $143.6 million, or 4.2% of net sales, compared
with $124.8 million, or 4.0% of net sales in 1998, before non-recurring
charge. Including the non-recurring charge, income before income taxes and
extraordinary item totaled $110.9 million, or 3.6% of net sales, in 1998.
NET INCOME. Net income for 1999 increased 15.5% to $83.4 million, or 2.5% of
net sales, from $72.2 million, or 2.4% of net sales, in 1998, excluding the
non-recurring charge of $13.9 million ($8.3 million net of tax benefit of
$5.6 million) and an extraordinary item - loss on the early retirement of
debt of $9.9 million ($5.9 million net of tax benefit of $4.0 million) (see
Note 1 to the Consolidated Financial Statements). Net income in 1998,
excluding the impact of the non-recurring charge and the extraordinary item,
totaled $58.0 million, or 1.9% of net sales.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are
recorded throughout the year, including inventory shrinkage and obsolescence,
required LIFO reserve, manufacturers' allowances, advertising costs and
various expense items. During the fourth quarter of 1999, the Company
recorded a favorable net income adjustment of approximately $4.0 million
related to the refinement of estimates recorded in the prior three quarters.
LIQUIDITY AND CAPITAL RESOURCES
CREDIT AGREEMENT
On June 30, 2000, the Company entered into the Third Amended and Restated
Revolving Credit and Term Loan Agreement (the "Credit Agreement"). The Credit
Agreement, among other things, provides for an additional $150.0 million,
five-year term loan facility (the "Tranche A-1 Facility").
As of December 31, 2000, the available credit under the Credit Agreement
included $181.8 million of term loan borrowings (the "Term Loan Facilities"),
and up to $250.0 million of revolving loan borrowings (the "Revolving Credit
Facility"). In addition, the Company has $100.0 million of 8.375% Senior
Subordinated Notes due 2008, and $29.8 million of industrial revenue bonds.
As of December 31, 2000, the Term Loan Facilities consisted of a $44.3
million Tranche A term loan facility (the "Tranche A Facility") and a $137.5
million Tranche A-1 Facility. Amounts outstanding under the Tranche A
Facility are to be repaid in 13 quarterly installments ranging from $2.6
million at March 31, 2001, to $3.7 million at March 31, 2004. Amounts
outstanding under the Tranche A-1 Facility are to be repaid in 18 quarterly
installments ranging from $6.3 million at March 31, 2001, to $7.8 million at
June 30, 2005.
The Revolving Credit Facility is limited to $250.0 million, less the
aggregate amount of letter of credit liabilities under the facility, and
contains a provision for swingline loans in an aggregate amount up to $25.0
million. The Revolving Credit Facility matures on March 31, 2004, and $98.0
million was outstanding at December 31, 2000.
The Term Loan Facilities and the Revolving Credit Facility are secured by
first priority pledges of the stock of USSC, all of the stock of domestic
direct and indirect subsidiaries of USSC, the stock of Lagasse and Azerty and
certain of the foreign and direct and indirect subsidiaries of USSC
(excluding USS Receivables Company, Ltd.) and security interests and liens
upon all accounts receivable, inventory, contract rights and certain real
property of USSC and its domestic subsidiaries other than accounts
receivables sold in connection with the Receivables Securitization Program.
The loans outstanding under the Term Loan Facilities and the Revolving Credit
Facility bear interest as determined within a pricing matrix. The interest
rate is based on the ratio of total debt to earnings before interest, taxes,
depreciation, and amortization ("EBITDA"), excluding the EBITDA of TOP. The
Tranche A Facility and Revolving Credit Facility bear interest at the prime
rate plus 0% to 1.00%, or, at the Company's option, the London Interbank
Offered Rate ("LIBOR") plus 1.25% to 2.25%. The Tranche A-1 Facility bears
interest at the prime rate plus 0.25% to 1.25%, or, at the Company's option,
LIBOR plus 1.50% to 2.50%.
13
The Credit Agreement contains representations and warranties, affirmative and
negative covenants, and events of default customary for financing of this
type. At December 31, 2000, the Company was in compliance with all covenants
contained in the Credit Agreement.
The right of United to participate in any distribution of earnings or assets
of USSC is subject to the prior claims of the creditors of USSC. In addition,
the Credit Agreement contains certain restrictive covenants, including
covenants that restrict or prohibit USSC's ability to pay cash dividends and
make other distributions to United.
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate protection agreements, including collar
agreements, to reduce the impact of fluctuations in interest rates on a
portion of its variable rate debt. These agreements generally require the
Company to pay to or entitle the Company to receive from the other party the
amount, if any, by which the Company's interest payments fluctuate beyond the
rates specified in the agreements. The Company is subject to the credit risk
that the other party may fail to perform under such agreements. The Company's
cost for these agreements was amortized to interest expense over the term of
the agreements, and the unamortized cost was included in other assets. Any
payments received or made as a result of the agreements were recorded as an
addition to or a reduction from interest expense. For the years ended
December 31, 1999 and 1998, the Company recorded $0.2 million and $0.2
million, respectively, to interest expense resulting from LIBOR rate
fluctuations below the floor rate specified in the collar agreements. The
Company's interest rate collar agreements on $200.0 million of borrowings at
LIBOR rates between 5.2% and 8.0% expired on October 29, 1999. As of December
31, 2000, the Company has not entered into any new interest rate collar
agreements.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and borrowings available under the Credit Agreement
will be sufficient to meet the short-term (fewer than 12 months) and
long-term operating and capital needs of the Company, as well as to service
its debt in accordance with its terms. There is, however, no assurance that
this will be accomplished.
United is a holding company and, as a result, its primary source of funds is
cash generated from operating activities of its operating subsidiary, USSC,
and bank borrowings by USSC. The Credit Agreement and the indentures
governing the Notes contain restrictions on the ability of USSC to transfer
cash to United.
12.75% SENIOR SUBORDINATED NOTES
The 12.75% Senior Subordinated Notes ("12.75% Notes") were originally issued
on May 3, 1995, pursuant to the 12.75% Notes Indenture. On May 2, 2000, the
Company redeemed the remaining $100.0 million of its 12.75% Senior
Subordinated Notes (the "12.75% Notes"). The 12.75% Notes were redeemed at
the redemption price of 106.375% of the principal amount plus accrued
interest. As a result, the Company recognized an extraordinary loss on the
early retirement of debt of approximately $10.7 million ($6.5 million net of
tax benefit of $4.2 million). This charge included the write-off of
approximately $4.3 million ($2.6 million net of tax benefit of $1.7 million)
of capitalized costs. The redemption was funded through the Company's
Revolving Credit Facility.
8.375% SENIOR SUBORDINATED NOTES
The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April
15, 1998, pursuant to the 8.375% Notes Indenture. As of December 31, 2000,
the aggregate outstanding principal amount of 8.375% Notes was $100.0
million. The 8.375% Notes are unsecured senior subordinated obligations of
USSC, and payment of the 8.375% Notes is fully and unconditionally guaranteed
by the Company and USSC's domestic "restricted" subsidiaries that incur
indebtedness (as defined in the 8.375% Notes Indenture) on a senior
subordinated basis. The Notes are redeemable on April 15, 2003, in whole or
in part, at a redemption price of 104.188% (percentage of principal amount).
The 8.375% Notes mature on April 15, 2008, and bear interest at the rate of
8.375% per annum, payable semi-annually on April 15 and October 15 of each
year.
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its credit
facilities, the Company entered into a $163.0 million Receivables
Securitization Program. Under this program, the Company sells its eligible
accounts receivable (except for certain excluded accounts receivable, which
initially includes all accounts receivable from the Azerty Business and
Lagasse) to the Receivables Company, a wholly owned offshore,
bankruptcy-remote special purpose limited liability company. This company in
turn ultimately transfers the eligible accounts receivable to a third-party,
multi-seller asset-backed commercial paper program, existing solely for the
purpose of issuing commercial paper rated A-1/P-1 or higher. The sale of
trade accounts receivable include not only those eligible accounts receivable
that existed on the closing date of the Receivables Securitization Program,
but also eligible accounts receivable created thereafter. The Company
received approximately $160.0 million in proceeds from the initial sale of
certain eligible accounts receivable on April 3, 1998. These proceeds were
used to repay a portion of indebtedness under the Credit Agreement. Costs
related to this facility vary on a monthly basis and generally are related to
certain interest rates. These costs are included in the Consolidated
Statements of Income, included elsewhere herein, under the caption Other
Expense.
14
Affiliates of PNC Bank and The Chase Manhattan Bank act as funding agents.
The funding agents, together with other commercial banks rated at least
A-1/P-1, provide standby liquidity funding to support the purchase of the
accounts receivable by the Receivables Company under 364-day liquidity
facilities. The Receivables Company retains an interest in the eligible
receivables transferred to the third party. As a result of the Receivables
Securitization Program, the balance sheet assets of the Company as of
December 31, 2000 and 1999 exclude $150.0 million and $160.0 million,
respectively, of accounts receivable sold to the Receivables Company.
CASH FLOW INFORMATION
The statements of cash flows for the Company for the periods indicated are
summarized below:
Years Ended December 31,
-------------------------------------------------------
2000 1999 1998
---------------- --------------- ---------------
(dollars in thousands)
Net cash provided by operating activities $ 38,670 $53,581 $ 290,866
Net cash used in investing activities (83,534) (26,011) (140,356)
Net cash provided by (used in) financing activities 45,655 (27,615) (143,839)
Net cash provided by operating activities for 2000 declined to $38.7 million
from $53.6 million in 1999. This decline was due primarily to an increased
investment in inventory of $20.9 million, a decline in accrued liabilities of
$18.0 million and an increase in other assets of $12.1 million. These
transactions were partially offset by a $15.2 million increase in income
before extraordinary item, a $10.5 million decline in accounts receivable, an
increase of $4.7 million in deferred taxes and an increase in accounts
payable of $1.6 million. Net cash provided by operating activities for 1999
declined to $53.6 million from $290.9 million in 1998. This decrease was due
primarily to the initial sale of $160.0 million of certain accounts
receivable in 1998. Other factors contributing to the change were an increase
in inventory of $40.0 million, an increase in accounts receivable (excluding
the impact of the receivables sold) of $59.6 million, partially offset by
higher net income and an increase in accounts payable of $23.5 million.
Net cash used in investing activities during 2000 was $83.5 million compared
with $26.0 million in 1999. This increase was due to higher acquisition
investments of $39.5 million and an increase in capital expenditures of $18.2
million. Net cash used in investing activities during 1999 was $26.0 million
compared with $140.0 million in 1998. This decline was due to the activity
during 1998 including the $115.7 million acquisition of Azerty, Inc. on April
3, 1998, and an increase in proceeds from the disposition of property, plant
and equipment of $4.0 million in 1999, partially offset by the acquisition of
Consumer Development Group, Inc. on November 1, 1999, for $4.7 million, and
an increase in capital expenditures of $0.8 million in 1999.
Net cash provided by financing activities for 2000 increased to $45.7 million
compared with cash used of $27.6 million in 1999. This increase was due to a
$27.2 million decline in treasury stock acquisitions, a $29.0 million
increase in net Term Loan borrowings and an incremental $16.0 million of
borrowings under the Revolving Credit Facility. Net cash used in financing
activities during 1999 was $27.6 million compared with $143.8 million in
1998. This decline was due to the activity during 1998 including the
financing required to purchase Azerty Inc., and additional borrowings in 1999
under the revolver of $51.0 million, partially offset by $49.6 million in
treasury stock purchases and lower proceeds from the issuance of Common Stock
of $96.6 million.
15
SEASONALITY
The Company's sales generally are relatively steady throughout the year.
However, sales vary to the extent of seasonal buying patterns of consumers of
office products. In particular, the Company's sales usually are higher than
average during January, when many businesses begin operating under new annual
budgets.
The Company experiences seasonality in its working capital needs, with
highest requirements in December through February, reflecting a build-up in
inventory prior to and during the peak sales period. The Company believes
that its current availability under the Revolving Credit Facility is
sufficient to satisfy the seasonal working capital needs for the foreseeable
future.
INFLATION/DEFLATION AND CHANGING PRICES
The Company maintains substantial inventories to accommodate the prompt
service and delivery requirements of its customers. Accordingly, the Company
purchases its products on a regular basis in an effort to maintain its
inventory at levels that it believes are sufficient to satisfy the
anticipated needs of its customers, based upon historical buying practices
and market conditions. Although the Company historically has been able to
pass through manufacturers' price increases to its customers on a timely
basis, competitive conditions will influence how much of future price
increases can be passed on to the Company's customers. Conversely, when
manufacturers' prices decline, lower sales prices could result in lower
margins as the Company sells existing inventory. As a result, changes in the
prices paid by the Company for its products could have a material adverse
effect on the Company's net sales, gross margins and net income.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of its planning and implementation
efforts, the Company experienced no significant disruptions in mission
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to market risk associated principally with changes in
interest rates and foreign currency exchange rates. Interest rate exposure is
principally limited to the Company's outstanding long-term debt at December
31, 2000, of $409.9 million, and $150.0 million of receivables sold under the
Receivables Securitization Program, whose discount rate varies with market
interest rates ("Receivables Exposure"). Approximately 18%, of the
outstanding debt and Receivables Exposure, is priced at interest rates that
are fixed. The remaining debt and Receivables Exposure are priced at interest
rates that re-price with the market. A 50 basis point movement in interest
rates would result in an annualized increase or decrease of approximately
$2.3 million in interest expense, loss on the sale of certain accounts
receivable and cash flows. The Company may from time-to-time enter into
interest rate swaps, options or collars. The Company does not use financial
or commodity derivative instruments for trading purposes. Typically, the use
of such derivative instruments is limited to interest rate swaps, options or
collars on the Company's outstanding long-term debt. The Company's exposure
related to such derivative instruments is, in the aggregate, not material to
its financial position, results of operations and cash flows. As of December
31, 2000, the Company had no financial or commodity derivative instruments
outstanding.
16
The Company's foreign currency exchange rate risk is limited principally to
the Mexican Peso, Canadian Dollar, Italian Lira, as well as product purchases
from Asian countries currently paid in U.S. dollars. Many of the products the
Company sells in Mexico and Canada are purchased in U.S. dollars, while the
sale is invoiced in the local currency. The Company's foreign currency
exchange rate risk is not material to its financial position, results of
operations and cash flows. The Company has not previously hedged these
transactions, but it may enter into such transactions when it believes there
is a financial advantage.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages include the Consolidated Statements of Income, Changes in
Stockholders' Equity and Cash Flows of the Company for the years ended
December 31, 2000, 1999 and 1998, and the Consolidated Balance Sheets of the
Company as of December 31, 2000 and 1999.
17
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF
DIRECTORS OF UNITED STATIONERS INC.
We have audited the accompanying consolidated balance sheets of United
Stationers Inc. and Subsidiaries as of December 31, 2000 and 1999 and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United
Stationers Inc. and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States.
/s/ERNST & YOUNG LLP
Chicago, Illinois
January 26, 2001
18
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Years Ended December 31,
------------------------------------------------------
2000 1999 1998
------------- -------------- --------------
Net sales $ 3,944,862 $ 3,442,696 $ 3,097,595
Cost of goods sold 3,301,018 2,878,539 2,566,158
------------- -------------- --------------
Gross profit 643,844 564,157 531,437
Operating expenses:
Warehousing, marketing and administrative expenses 441,298 381,963 362,074
Non-recurring charges -- -- 13,852
------------- -------------- --------------
Total operating expenses 441,298 381,963 375,926
------------- -------------- --------------
Income from operations 202,546 182,194 155,511
Interest expense 27,229 29,195 36,301
Other expense 11,201 9,432 8,221
------------- -------------- --------------
Income before income taxes and extraordinary item 164,116 143,567 110,989
Income taxes 65,473 60,158 47,064
------------- -------------- --------------
Income before extraordinary item 98,643 83,409 63,925
Extraordinary item - loss on early retirement of debt, net
of tax benefit of $4,248 in 2000 and $3,970 in 1998 (6,476) -- (5,907)
------------- -------------- --------------
Net income $ 92,167 $ 83,409 $ 58,018
============= ============== ==============
Net income (loss) per common share:
Income before extraordinary item $ 2.89 $ 2.40 $ 1.84
Extraordinary item (0.19) -- (0.17)
------------- -------------- --------------
Net income per common share $ 2.70 $ 2.40 $ 1.67
============= ============== ==============
Average number of common shares (in thousands) 34,101 34,708 34,680
============= ============== ==============
Net income (loss) per common share - assuming dilution:
Income before extraordinary item $ 2.84 $ 2.37 $ 1.76
Extraordinary item (0.19) -- (0.16)
------------- -------------- --------------
Net income per common share $ 2.65 $ 2.37 $ 1.60
============= ============== ==============
Average number of common shares (in thousands) 34,775 35,208 36,171
============= ============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
As of December 31,
---------------------------------
2000 1999
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 19,784 $ 18,993
Accounts receivable, less allowance for doubtful accounts
of $14,376 in 2000 and $12,561 in 1999 329,934 263,432
Inventories 688,926 607,682
Other 15,843 24,424
-------------- -------------
Total current assets 1,054,487 914,531
Property, plant and equipment, at cost:
Land 19,898 19,982
Buildings 93,471 94,113
Fixtures and equipment 213,257 170,477
Leasehold improvements 2,906 1,823
-------------- -------------
Total property, plant and equipment 329,532 286,395
Less - accumulated depreciation and amortization 139,745 118,851
-------------- -------------
Net property, plant and equipment 189,787 167,544
Goodwill 181,923 181,456
Other 20,830 16,372
-------------- -------------
Total assets $ 1,447,027 $ 1,279,903
============== =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
As of December 31,
---------------------------------
2000 1999
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 392,789 $ 346,558
Accrued expenses 121,420 126,571
Accrued income taxes
4,549 16,287
Current maturities of long-term debt 40,273 9,567
------------- -------------
Total current liabilities 559,031 498,983
Deferred income taxes 22,703 28,926
Long-term liabilities 369,594 327,360
Other long-term liabilities 17,260 18,625
------------- -------------
Total liabilities 968,588 873,894
Stockholders' equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued -
37,213,207 shares in 2000 and 1999 3,721 3,721
Capital in excess of par value 302,837 304,288
Treasury stock, at cost - 3,767,907 shares in 2000
and 3,220,481 shares in 1999 (66,832) (49,145)
Retained earnings 240,429 148,262
Accumulated translation adjustment (1,716) (1,117)
------------- -------------
Total stockholders' equity 478,439 406,009
------------- -------------
Total liabilities and stockholders' equity $ 1,447,027 $ 1,279,903
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
United Stationers Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands, except share data)
NUMBER NUMBER CAPITAL TOTAL
OF OF TREASURY IN OTHER STOCK-
COMMON COMMON TREASURY STOCK EXCESS COMPREHEN- RETAINED HOLDERS'
THREE YEARS ENDED DECEMBER 31, 2000 SHARES STOCK SHARES AT COST OF PAR SIVE INCOME EARNINGS EQUITY
- ----------------------------------- ----------- -------- ---------- --------- --------- ----------- --------- ---------
As of December 31, 1997 15,905,273 $ 1,591 - - $ - - $ 213,260 $ (218) $ 8,675 $ 223,308
Net income - - - - - - - - - - - - 58,018 58,018
Unrealized translation
adjustment - - - - - - - - - - (1,093) - - (1,093)
-------- --------- ---------
Comprehensive income - - - - - - - - - - (1,093) 58,018 56,925
Stock options exercised 904,409 90 - - - - 3,095 - - - - 3,185
Issuance of common stock,
net of offering expenses 1,700,000 170 - - - - 86,979 - - - - 87,149
100% stock dividend 18,402,491 1,840 - - - - - - - - (1,840) - -
Other - - - - - - - - (4) - - - - (4)
----------- -------- ---------- --------- --------- -------- --------- ---------
As of December 31, 1998 36,912,173 3,691 - - - - 303,330 (1,311) 64,853 370,563
Net income - - - - - - - - - - - - 83,409 83,409
Unrealized translation
adjustment - - - - - - - - - - 194 - - 194
-------- --------- ---------
Comprehensive income - - - - - - - - - - 194 83,409 83,603
Acquisition of treasury stock - - - - (3,250,000) (49,600) - - - - - - (49,600)
Stock options exercised 299,254 30 29,519 455 666 - - - - 1,151
Other 1,780 - - - - - - 292 - - - - 292
----------- -------- ---------- --------- --------- -------- --------- ---------
As of December 31, 1999 37,213,207 $ 3,721 (3,220,481) $ (49,145) $ 304,288 $ (1,117) $ 148,262 $ 406,009
=========== ======== ========== ========= ========= ======== ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
United Stationers Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(dollars in thousands, except share data)
NUMBER NUMBER CAPITAL TOTAL
OF OF TREASURY IN OTHER STOCK-
COMMON COMMON TREASURY STOCK EXCESS COMPREHEN- RETAINED HOLDERS'
THREE YEARS ENDED DECEMBER 31, 2000 SHARES STOCK SHARES AT COST OF PAR SIVE INCOME EARNINGS EQUITY
- ----------------------------------- ----------- -------- ----------- ---------- ---------- ----------- ---------- ---------
As of December 31, 1999 37,213,207 $ 3,721 (3,220,481) $ (49,145) $ 304,288 $ (1,117) $ 148,262 $ 406,009
Net income - - - - - - - - - - - - 92,167 92,167
Unrealized translation adjustment - - - - - - - - - - (599) - - (599)
--------- ---------- ---------
Comprehensive income - - - - - - - - - - (599) 92,167 91,568
Acquisition of treasury stock - - - - (857,100) (22,437) - - - - - - (22,437)
Stock options exercised - - - - 309,674 4,750 (1,451) - - - - 3,299
----------- -------- ----------- ---------- ---------- --------- ---------- ---------
As of December 31, 2000 37,213,207 $ 3,721 (3,767,907) $ (66,832) $ 302,837 $ (1,716) $ 240,429 $ 478,439
=========== ======== =========== ========== ========== ========= ========== =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years Ended December 31,
------------------------------------------------------
2000 1999 1998
------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 92,167 $ 83,409 $ 58,018
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 22,835 22,817 22,406
Amortization 8,270 6,631 4,532
Amortization of capitalized financing costs 1,748 1,828 2,062
Extraordinary item - early retirement of debt 10,724 - - 9,877
Deferred income taxes 5,320 662 4,380
Other (546) 236 2,044
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable (49,506) (59,965) 159,593
Increase in inventory (73,663) (52,742) (12,777)
Increase in other assets (14,943) (2,831) (8,246)
Increase in accounts payable 46,231 44,606 21,090
(Decrease) increase in accrued liabilities (6,894) 11,120 20,543
(Decrease) increase in other liabilities (3,073) (2,190) 7,344
------------- -------------- --------------
Net cash provided by operating activities 38,670 53,581 290,866
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions:
CallCenter Services (10,671) - - - -
Azerty Canada (33,562) - - - -
Azerty, Inc. - - - - (115,740)
Consumer Development Group, Inc. - - (4,680) - -
Capital expenditures (43,638) (25,461) (24,709)
Proceeds from the disposition of property, plant & equipment 4,337 4,130 93
------------- -------------- --------------
Net cash used in investing activities (83,534) (26,011) (140,356)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolver 45,000 29,000 (22,000)
Retirements and principal payments of debt (128,509) (7,604) (549,852)
Borrowings under financing agreements 150,000 145 350,000
Financing costs - - 250 (4,526)
Issuance of common stock - - 2,523 99,442
Issuance of treasury stock 4,247 323 - -
Acquisition of treasury stock, at cost (22,437) (49,600) - -
Payment of employee withholding tax related to stock
option exercises (2,646) (2,652) (16,903)
------------- -------------- --------------
Net cash provided by (used in) financing activities 45,655 (27,615) (143,839)
------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 791 (45) 6,671
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,993 19,038 12,367
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 19,784 $ 18,993 $ 19,038
============= ============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5%
of the then outstanding shares of the common stock, $0.10 par value ("Common
Stock") of United Stationers Inc. ("United") for approximately $266.6 million
in the aggregate pursuant to a tender offer (the "Offer"). Immediately
afterward, Associated merged with and into United (the "Merger" and,
collectively with the Offer, the "Acquisition"), and Associated Stationers,
Inc. ("ASI"), a wholly owned subsidiary of Associated, merged with and into
United Stationers Supply Co. ("USSC"), a wholly owned subsidiary of United.
United and USSC continued as the respective surviving corporations. United,
as the surviving corporation following the Merger, is referred to herein as
the "Company." Although United was the surviving corporation in the Merger,
the transaction was treated as a reverse acquisition for accounting purposes
with Associated as the acquiring corporation.
The Company is the largest general line business products wholesaler in the
United States, with 2000 net sales of $3.9 billion. The Company sells its
products through national distribution networks to more than 20,000
resellers, who in turn sell directly to end users. These products are
distributed through a computer-based network of warehouse facilities and
truck fleets radiating from 39 regional distribution centers, 28 Lagasse
distribution centers, six Azerty distribution centers, three distribution
centers that serve the Canadian marketplace and a distribution center to
service clients of THE ORDER PEOPLE.
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE
("TOP") to operate as its third-party fulfillment provider for product
categories beyond office products. TOP offers a full set of services
specifically designed to support a wide variety of third-party service needs.
By combining the Company's state-of-the-art distribution network with a
multi-channel Customer Relationship Management (CRM) capability, clients have
the ability to custom design their order fulfillment experience and then
monitor and measure consumer satisfaction. The Company has extensive
experience and the ability to pick, pack, ship and track products with a wide
range of physical attributes. TOP enables the Company to leverage these core
competencies in a broader context for third-party logistics and fulfillment.
In connection with TOP, the Company has opened a new 650,000 square foot
state-of-the-art distribution and service center in Memphis, Tennessee. In
addition, the Company has leased distribution centers in Harrisburg,
Pennsylvania, and in Reno, Nevada.
ACQUISITION OF CALLCENTER SERVICES, INC.
On July 1, 2000, the Company acquired all of the capital stock of CallCenter
Services, Inc. from Corporate Express, a Buhrmann Company. The purchase price
was approximately $10.7 million financed through the Company's Senior Credit
Facility. CallCenter Services is a customer relationship management
outsourcing service company. It has two inbound call centers, in
Wilkes-Barre, Pennsylvania and Salisbury, Maryland, with a total of up to
1,000 seats. This acquisition will complement and significantly enhance the
third-party fulfillment business of TOP. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the purchase price
was allocated to the assets purchased and the liabilities assumed, based upon
the estimated fair values at the date of acquisition. The excess of cost over
fair value of approximately $3.1 million was allocated to goodwill. The pro
forma effects of the acquisition were not material.
ACQUISITION OF AZERTY CANADA
On July 5, 2000, the Company completed the acquisition of the net assets of
Azerty Canada from MCSi, Inc. The purchase price was approximately $33.6
million (U.S. dollars) financed through the Company's Senior Credit Facility.
Azerty Canada is a specialty wholesale distributor of computer consumables,
peripherals and accessories. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price was
allocated to the assets purchased and the liabilities assumed, based upon the
estimated fair values at the date of acquisition. The excess of cost over
fair value of approximately $11.8 million was allocated to goodwill. The pro
forma effects of the acquisition were not material.
25
ACQUISITION OF CONSUMER DEVELOPMENT GROUP
On November 1, 1999, the Company acquired all of the capital stock of
Consumer Development Group Inc. ("CDG") for approximately $4.8 million,
including an initial payment to the seller of approximately $2.4 million,
financed through senior debt. The remaining purchase price of approximately
$2.4 million will be paid ratably on each of the first three anniversaries of
the acquisition. The CDG acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to
the assets purchased and the liabilities assumed, based upon the estimated
fair values at the date of acquisition. The excess of cost over fair value of
approximately $4.8 million was allocated to goodwill. The financial
information for the year ended December 31, 1999, includes the results of CDG
for November and December only. The pro forma effects of this acquisition
were not material. CDG is a division of USSC.
COMMON STOCK REPURCHASE
On October 23, 2000, the Company's Board of Directors authorized the
repurchase of up to $50.0 million of its Common Stock. Under this
authorization, the Company purchased 857,100 shares at a cost of
approximately $22.4 million, during 2000. During 1999, under a previous
authorization, the Company purchased 3,250,000 shares of its Common Stock at
a cost of approximately $49.6 million. Acquired shares are included in the
issued shares of the Company, but are not included in average shares
outstanding when calculating earnings per share data. During 2000 and 1999,
the Company reissued 309,674 and 29,519 shares of treasury stock,
respectively, to fulfill its obligations under its stock option plan.
JUNE 1998 EQUITY OFFERING
In June 1998, United completed an offering of 4.0 million shares of Common
Stock (the "June 1998 Equity Offering"), consisting of 3.0 million primary
shares sold by United, and 1.0 million secondary shares sold by certain
selling stockholders. The shares were priced at $27.00 per share, before
underwriting discounts and commissions of $1.15 per share. The aggregate
proceeds to United of approximately $77.6 million (before deducting expenses)
were delivered to USSC and used to repay a portion of indebtedness under the
Tranche A Term Loan Facility, which caused a permanent reduction of the
amount borrowable under this facility.
United did not receive any of the proceeds from the sale of the 1.0 million
shares of Common Stock offered by the selling stockholders. It did, however,
receive an aggregate of approximately $6.4 million paid by the selling
stockholders upon exercise of employee stock options in connection with the
June 1998 Equity Offering, which were delivered to USSC and applied to the
repayment of indebtedness under the New Credit Facilities.
After closing the June 1998 Equity Offering, the underwriters exercised an
overallotment option to purchase an additional 0.4 million shares from
United. The net proceeds to United of approximately $10.3 million from the
sale were delivered to USSC and used to repay an additional portion of the
indebtedness outstanding under the Tranche A Term Loan Facility.
In the second quarter of 1998, the Company recognized the following charges:
(i) a non-recurring charge of $13.9 million ($8.3 million net of tax benefit
of $5.6 million) to write off the remaining payments and related prepaid
expense under a contract for computer services from a vendor, and (ii) an
extraordinary loss of $9.9 million ($5.9 million net of tax benefit of $4.0
million) related to the early retirement of debt (collectively "1998
Charges").
Net income attributable to common stockholders for the year ended December
31, 1998, before the 1998 Charges, was $72.2 million, up 59.0%, compared with
$45.4 million, before the 1997 Charges (as defined). In 1998, diluted
earnings per share before the 1998 Charges were $2.00 on 36.2 million
weighted average shares outstanding, up 36.1%, compared with $1.47, before
charges, on 30.8 million weighted average shares outstanding for the prior
year.
ACQUISITION OF THE AZERTY BUSINESS
On April 3, 1998, the Company acquired all of the capital stock of Azerty
Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID Wholesale Inc., and
AP Support Services Incorporated (collectively the "Azerty Business"). These
businesses comprised substantially all of the United States and Mexican
operations of the Office Products Division of Abitibi-Consolidated Inc. The
aggregate purchase price paid by the Company for the Azerty Business was
approximately $115.7 million (including fees and expenses). The acquisition
was financed primarily through senior debt. The Azerty Business acquisition
was accounted for using the purchase method of accounting and, accordingly,
the purchase price was allocated to the assets purchased and the liabilities
assumed based upon the estimated fair values at the date of acquisition with
the excess of cost over fair value of approximately $73.7 million allocated
to goodwill. The financial information for the year ended December 31, 1998,
included nine months of the Azerty Business. The pro forma effects of this
acquisition were not material.
26
2. OPERATIONS
The Company operates in a single reportable segment as a national wholesale
distributor of business products. The Company offers approximately 40,000
items from more than 500 manufacturers. This includes a broad spectrum of
office products, computer supplies, office furniture, business machines,
audio-visual products and facilities management supplies. The Company
primarily serves commercial and contract office products dealers. Its
customers include more than 20,000 resellers -- such as office products
dealers, mega-dealers, office furniture dealers, office products superstores
and mass merchandisers, mail order companies, computer products resellers,
sanitation supply distributors and e-commerce dealers. The Company has a
distribution network of 39 regional distribution centers. In addition, the
Company has 28 Lagasse distribution centers, specifically serving janitorial
and sanitation supply distributors, six Azerty distribution centers that
carry information technology supplies, three distribution centers that serve
the Canadian marketplace and a distribution center to service clients of TOP.
In addition, TOP has leased distribution centers in Harrisburg, Pennsylvania,
and in Reno, Nevada. Through its integrated computer system, the Company
provides a high level of customer service and overnight delivery.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when a service is rendered and when a product is
shipped and title is transferred to the customer in the period the sale is
reported.
CASH AND CASH EQUIVALENTS
Investments in low-risk instruments that may be liquidated within three
months from the purchase date are considered cash equivalents. Cash
equivalents are stated at cost, which approximates market value.
INVENTORIES
Inventories constituting approximately 73% and 78% of total inventories at
December 31, 2000 and 1999, respectively, have been valued under the last-in,
first-out ("LIFO") method. The decline in the percentage of inventory on LIFO
resulted from increased inventory levels at the Azerty Business and Lagasse,
whose inventory is valued under the first-in, first-out ("FIFO") method.
Inventory valued under the FIFO and LIFO accounting methods is recorded at
the lower of cost or market. If the lower of FIFO cost or market method of
inventory accounting had been used by the Company for all inventories,
merchandise inventories would have been approximately $19.0 million and $8.3
million higher than reported at December 31, 2000 and 1999, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are determined by using the straight-line method over the
estimated useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to
10 years; the estimated useful life assigned to buildings does not exceed 40
years; leasehold improvements are amortized over the lesser of their useful
lives or the term of the applicable lease.
GOODWILL
Goodwill represents the excess of cost over the value of net assets of
businesses acquired and is amortized on a straight-line basis over periods
ranging between 10 and 40 years. The Company continually evaluates whether
events or circumstances have occurred indicating that the remaining estimated
useful life of goodwill may not be appropriate. If factors indicate that
goodwill should be evaluated for possible impairment, the Company will use an
estimate of undiscounted future operating income compared with the carrying
value of goodwill to determine if a write-off is necessary. The cumulative
amount of goodwill amortized at December 31, 2000 and 1999 is $22.2 million
and $16.7 million, respectively. During 2000, the Company reversed
approximately $9.2 million of goodwill related to certain purchase accounting
reserves recorded in conjunction with the 1995 ASI/USI merger.
27
SOFTWARE CAPITALIZATION
The Company capitalizes internal use software development costs in accordance
with the American Institute of Certified Public Accountants' Statement of
Position ("SOP") No. 98-1 "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use." Amortization is recorded on a
straight-line basis over the estimated useful life of the software, generally
not to exceed seven years.
INCOME TAXES
Income taxes are accounted for using the liability method, under which
deferred income taxes are recognized for the estimated tax consequences for
temporary differences between the financial statement carrying amounts and
the tax basis of assets and liabilities. Provision has not been made for
deferred U.S. income taxes on the undistributed earnings of the Company's
foreign subsidiaries because these earnings are intended to be permanently
invested.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the local
currency.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
Consolidated Financial Statements and accompanying notes. Actual results
could differ from these estimates.
RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the
2000 presentation. During the fourth quarter of 2000, the Company
reclassified freight revenue from cost of goods sold and operating expense to
net sales in compliance with FASB Emerging Issues Task Force ("EITF") Issue
No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF No.
00-10, requires that shipping and handling fees billed to a customer in a
sale transaction represent revenues earned for the goods provided and should
be classified as revenue. The following table sets forth the impact of the
reclassification for the years presented in the Consolidated Statements of
Income:
% to % to
For the Years Ended December 31, 1999 Net Sales 1998 Net Sales
- ------------------------------------------------- --------------- ------------- ---------------- ---------------
Before Freight Revenue Reclassification:
Net sales $3,393,045 100.0% $3,059,166 100.0%
========== ==========
Gross margin $ 562,077 16.6% $ 529,238 17.3%
Operating expenses 379,883 11.2% 359,875(1) 11.8%
---------- ----------
Income from operations $ 182,194 5.4% $ 169,363(1) 5.5%
========== ==========
After Freight Revenue Reclassification:
Net sales $3,442,696 100.0% $3,097,595 100.0%
========== ==========
Gross margin $ 564,157 16.4% $ 531,437 17.2%
Operating expenses 381,963 11.1% 362,074(1) 11.7%
---------- ----------
Income from operations $ 182,194 5.3% $ 169,363(1) 5.5%
========== ==========
1. Excludes non-recurring charges of $13.9 million ($8.3 million net of tax
benefit of $5.6 million) related to the write-off of the remaining payments
and prepaid expense under a contract for computer services from a vendor.
28
NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which replaces SFAS No. 125 with the same title. It revises the
standards for securitizations and other transfers of financial assets and
collateral and requires certain additional disclosures, but otherwise retains
most of SFAS No. 125's provisions. The Company sells certain trade
receivables to a third party, and this statement may require the Company to
disclose more information about these transactions. The Company adopted the
disclosure requirements of SFAS No. 140 in the fourth quarter of 2000. The
accounting provisions of SFAS No. 140 are effective for transfers after March
31, 2001. The Company is evaluating the financial statement impact of SFAS
No. 140.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to
be recorded on the balance sheet at fair value and establishes "special
accounting" for the following three different types of hedges: hedges of
changes in the fair value of assets, liabilities or firm commitments; hedges
of the variable cash flows of forecasted transactions; and hedges of foreign
currency exposures of net investments in foreign operations. In July 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 defers the effective date of SFAS No. 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. Earlier application
is permitted. In June 2000, the FASB issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 138
amends certain terms and conditions of SFAS No. 133. The adoption of SFAS No.
133 and 138 did not have a material impact on the Company's consolidated
financial statements.
4. SEGMENT INFORMATION
The Company adopted FASB SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," in 1998. SFAS No. 131 requires companies
to report financial and descriptive information about their reportable
operating segments, including segment profit or loss, certain specific
revenue and expense items, and segment assets, as well as information about
the revenues derived from the company's products and services, the countries
in which the company earns revenues and holds assets, and major customers.
This statement also requires companies that have a single reportable segment
to disclose information about products and services, information about
geographic areas, and information about major customers. This statement
requires the use of the management approach to determine the information to
be reported. The management approach is based on the way management organizes
the enterprise to assess performance and make operating decisions regarding
the allocation of resources. It is management's opinion that, at this time,
the Company has several operating segments, however only one reportable
segment.
The following discussion sets forth the required disclosure regarding single
segment information:
The Company operates as a single reportable segment as the largest general
line business products wholesaler in the United States with 2000 net sales of
$3.9 billion - including operations outside the United States, which were
immaterial. The Company sells its products through national distribution
networks to more than 20,000 resellers, who in turn sell directly to
end-users. These products are distributed through a computer-based network of
warehouse facilities and truck fleets radiating from 39 regional distribution
centers, 28 Lagasse distribution centers, six Azerty distribution centers,
three distribution centers that serve the Canadian marketplace and a
distribution center to service clients of TOP. In addition, TOP has leased
distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada. The
results of TOP are immaterial to the Consolidated Statements of Income.
The Company's product offerings, comprised of more than 40,000 stockkeeping
units (SKUs), may be divided into five primary categories. (i) The Company's
core business continues to be traditional office products, which includes
both brand name products and the Company's private brand products.
Traditional office products include writing instruments, paper products,
organizers and calendars and various office accessories. (ii) The Company
offers computer supplies, and peripherals to computer resellers and office
products dealers. (iii) The Company's sale of office furniture, such as
leather chairs, wooden and steel desks and computer furniture, has enabled it
to become the nation's largest office furniture wholesaler. The Company
currently offers nearly 5,000 furniture items from 50 different
manufacturers. (iv) A fourth category is facility supplies, including
janitorial and sanitation supplies, safety and security items, and shipping
and mailing supplies. In October 1996, the Company acquired Lagasse, the
largest pure wholesaler of janitorial and sanitation supplies in North
America. The Company distributes these products through 28 Lagasse
distribution centers to sanitary supply dealers. (v) The Company also
distributes business machines and audio-visual equipment and supplies.
The Company's customers include office products dealers, mega-dealers, office
furniture dealers, office products superstores and mass merchandisers, mail
order companies, computer products resellers, sanitary supply distributors
and e-commerce dealers. No single customer accounted for more than 9% of the
Company's net sales in 2000. For the year ended December 31, 2000, U.S. Office
Products Co. was the Company's largest customer, accounting for approximately
8% of net sales.
29
The following table sets forth net sales by product category (dollars in
thousands):
Years Ended December 31,
------------------------------------------------
2000 1999 1998
------------- --------------- ------------
Traditional office products $ 1,356 $ 1,204 $ 1,183
Computer consumables 1,288 1,136 878
Office furniture 513 435 425
Facilities supplies 310 240 202
Business machines and audio-visual
products 385 344 334
Freight revenue 64 50 39
Other 29 34 37
---------- ---------- ----------
Total net sales $ 3,945 $ 3,443 $ 3,098
========== ========== ==========
5. OTHER EXPENSE
The following table sets forth the components of other expense (dollars in
thousands):
Years Ended December 31,
------------------------------------------
2000 1999 1998
----------- ----------- -----------
Loss on the sale of accounts receivable, net of
servicing revenue $11,133 $ 9,393 $ 7,477
Other 68 39 744
------- -------- -------
Total $11,201 $ 9,432 $ 8,221
======= ======== =======
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its credit
facilities, the Company entered into a $163.0 million Receivables
Securitization Program. Under this program the Company sells, on a revolving
basis, its eligible accounts receivable (except for certain excluded accounts
receivable, which initially includes all accounts receivable from the Azerty
Business and Lagasse) to the Receivables Company, a wholly owned offshore,
bankruptcy-remote special purpose limited liability company. This company in
turn ultimately transfers the eligible accounts receivable to a third-party,
multi-seller asset-backed commercial paper program, existing solely for the
purpose of issuing commercial paper rated A-1/P-1 or higher. The sale of
trade accounts receivable includes not only those eligible receivables that
existed on the closing date of the Receivables Securitization Program, but
also eligible accounts receivable created thereafter. Affiliates of PNC Bank
and Chase Manhattan Bank act as funding agents. The funding agents, together
with other commercial banks rated at least A-1/P-1, provide standby liquidity
funding to support the purchase of the accounts receivable by the Receivables
Company under 364-day liquidity facilities.
The Receivables Securitization Program is accounted for as a sale in
accordance with FASB Statement No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Accounts
receivable sold under these arrangements are excluded from accounts
receivable in the Consolidated Balance Sheet. As of December 31, 2000 and
1999, the Company had sold $150.0 million and $160.0 million, respectively,
of accounts receivable through the Receivables Securitization Program. The
interest rate on the certificates issued under the Receivable Securitization
Program during 2000 ranged between 5.9% and 6.8% annually. The Company's
retained interests in the receivables in the master trust as of December 31,
2000 and 1999, were approximately $98.2 million and $104.9 million,
respectively. This retained interest, which is included in the accounts
receivable balance reflected in the Consolidated Balance Sheets, is recorded
at fair value. Due to a short average collection cycle for such accounts
receivable of approximately thirty-five days and the Company's collection
history, the fair value of the Company's retained interest approximates book
value. Losses recognized on the sale of accounts receivable totaled
approximately $11.1 million, $9.4 million and $7.5 million in 2000, 1999, and
1998, respectively. These costs vary on a monthly basis and generally are
related to certain short-term interest rates. These costs are included in the
Consolidated Statements of Income under the caption Other Expense. During
2000, as a result of the short average collection cycle referenced above,
proceeds from the collection under this revolving agreement were $2.6
billion. The Company has retained the responsibility for servicing accounts
receivable transferred to the master trust. No servicing asset or liability
has been recorded because the fees the Company receives for servicing the
receivables approximate the related costs. No accounts receivable sold to the
master trust were written off during 2000 or 1999.
30
6. EARNINGS PER SHARE
Net income per common share is based on net income after preferred stock
dividend requirements. Basic earnings per share is calculated on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated on the weighted average number of common and common equivalent
shares outstanding during the period. Stock options and warrants are
considered common equivalent shares.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Years Ended December 31,
----------------------------------------------------------------
1998 Before
2000 1999 1998 Charges(1)
------------- ------------ -------------- -------------
Numerator:
Income before extraordinary item $ 98,643 $ 83,409 $ 63,925 $ 72,212
Extraordinary item (6,476) -- (5,907) --
------------- ------------ -------------- -------------
Net income $ 92,167 $ 83,409 $ 58,018 $ 72,212
============= ============ ============== =============
Denominator:
Denominator for basic earnings per
share - weighted average shares 34,101 34,708 34,680 34,680
Effect of dilutive securities:
Employee stock options 674 500 1,491 1,491
------------- ------------ -------------- -------------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 34,775 35,208 36,171 36,171
============= ============ ============== =============
Earnings (loss) per common share:
Basic
Income before extraordinary item $ 2.89 $ 2.40 $ 1.84 $ 2.08
Extraordinary item (0.19) -- (0.17) --
------------- ------------ -------------- -------------
Net income per share $ 2.70 $ 2.40 $ 1.67 $ 2.08
============= ============ ============== =============
Diluted
Income before extraordinary item $ 2.84 $ 2.37 $ 1.76 $ 2.00
Extraordinary item (0.19) -- (0.16) --
------------- ------------ -------------- -------------
Net income per share $ 2.65 $ 2.37 $ 1.60 $ 2.00
============= ============ ============== =============
1. The year ended December 31, 1998, reflects a write-off of the remaining
term of a contract for computer services from a vendor. As a result, the
Company recorded a non-recurring charge of $13.9 million ($8.3 million net
of tax benefit of $5.6 million) to write off the remaining payments and
related prepaid expense under this contract (see Note 1). In addition,
during 1998 the Company recorded an extraordinary loss of $9.9 million
($5.9 million net of tax benefit of $4.0 million) related to the early
retirement of debt (see Note 1).
31
7. LONG-TERM DEBT
Long-term debt consisted of the following amounts (dollars in thousands):
As of December 31,
-----------------------------
2000 1999
------------ -------------
Revolver $ 98,000 $ 53,000
Tranche A term loan, due in installments until March 31, 2004 44,325 53,711
Tranche A1 term loan due in installments until June 30, 2005 137,500 --
8.375% Senior Subordinated Notes, due April 15, 2008 100,000 100,000
12.75% Senior Subordinated Notes, due May 1, 2005 -- 100,000
Industrial development bonds, at market interest rates,
Maturing at various dates through 2011 14,300 14,300
Industrial development bonds, at 66% to 78% of prime,
Maturing at various dates through 2004 15,500 15,500
Other long-term debt 242 416
--------- ---------
Subtotal 409,867 336,927
Less - current maturities (40,273) (9,567)
--------- ---------
Total $ 369,594 $ 327,360
========= =========
The prevailing prime interest rates at the end of 2000 and 1999 were 9.50% and
8.50%, respectively.
On June 30, 2000, the Company entered into the Third Amended and Restated
Revolving Credit and Term Loan Agreement (the "Credit Agreement"). The Credit
Agreement, among other things, provides for an additional $150.0 million,
five-year term loan facility (the "Tranche A-1 Facility").
As of December 31, 2000, the available credit under the Credit Agreement
included $181.8 million of term loan borrowings (the "Term Loan Facilities"),
and up to $250.0 million of revolving loan borrowings (the "Revolving Credit
Facility"). In addition, the Company has $100.0 million of 8.375% Senior
Subordinated Notes due 2008, and $29.8 million of industrial development
bonds.
As of December 31, 2000, the Term Loan Facilities consisted of a $44.3
million Tranche A term loan facility (the "Tranche A Facility") and a $137.5
million Tranche A-1 Facility. Amounts outstanding under the Tranche A
Facility are to be repaid in 13 quarterly installments ranging from $2.6
million at March 31, 2001, to $3.7 million at March 31, 2004. Amounts
outstanding under the Tranche A-1 Facility are to be repaid in 18 quarterly
installments ranging from $6.3 million at March 31, 2001, to $7.8 million at
June 30, 2005.
The Revolving Credit Facility is limited to $250.0 million, less the
aggregate amount of letter of credit liabilities under the facility, and
contains a provision for swingline loans in an aggregate amount up to $25.0
million. The Revolving Credit Facility matures on March 31, 2004, and $98.0
million was outstanding at December 31, 2000.
The Term Loan Facilities and the Revolving Credit Facility are secured by
first priority pledges of the stock of USSC, all of the stock of domestic
direct and indirect subsidiaries of USSC, the stock of Lagasse and Azerty and
certain of the foreign and direct and indirect subsidiaries of USSC
(excluding USS Receivables Company, Ltd.) and security interests and liens
upon all accounts receivable, inventory, contract rights and certain real
property of USSC and its domestic subsidiaries other than accounts
receivables sold in connection with the Receivables Securitization Program.
The loans outstanding under the Term Loan Facilities and the Revolving Credit
Facility bear interest as determined within a pricing matrix. The interest
rate is based on the ratio of total debt to earnings before interest, taxes,
depreciation, and amortization ("EBITDA"), excluding the EBITDA of TOP. The
Tranche A Facility and Revolving Credit Facility bear interest at the prime
rate plus 0% to 1.00%, or, at the Company's option, the London Interbank
Offered Rate ("LIBOR") plus 1.25% to 2.25%. The Tranche A-1 Facility bears
interest at the prime rate plus 0.25% to 1.25%, or, at the Company's option,
LIBOR plus 1.50% to 2.50%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants, and events of default customary for financing of this
type. At December 31, 2000, the Company was in compliance with all covenants
contained in the Credit Agreement.
The right of United to participate in any distribution of earnings or assets
of USSC is subject to the prior claims of the creditors of USSC. In addition,
the Credit Agreement contains certain restrictive covenants, including
covenants that restrict or prohibit USSC's ability to pay cash dividends and
make other distributions to United.
32
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate protection agreements, including collar
agreements, to reduce the impact of fluctuations in interest rates on a
portion of its variable rate debt. These agreements generally require the
Company to pay to or entitle the Company to receive from the other party the
amount, if any, by which the Company's interest payments fluctuate beyond the
rates specified in the agreements. The Company is subject to the credit risk
that the other party may fail to perform under such agreements. The Company's
cost for these agreements was amortized to interest expense over the term of
the agreements, and the unamortized cost was included in other assets. Any
payments received or made as a result of the agreements were recorded as an
addition to or a reduction from interest expense. For the years ended
December 31, 1999 and 1998, the Company recorded $0.2 million and $0.2
million, respectively, to interest expense resulting from LIBOR rate
fluctuations below the floor rate specified in the collar agreements. The
Company's interest rate collar agreements on $200.0 million of borrowings at
LIBOR rates between 5.2% and 8.0% expired on October 29, 1999. As of December
31, 2000, the Company has not entered into any new interest rate collar
agreements.
Management believes that the Company's cash on hand, anticipated funds
generated from operations and borrowings available under the Credit
Agreement, will be sufficient to meet the short-term (fewer than 12 months)
and long-term operating and capital needs of the Company, as well as to
service its debt in accordance with its terms. There is, however, no
assurance that this will be accomplished.
United is a holding company and, as a result, its primary source of funds is
cash generated from operating activities of its operating subsidiary, USSC,
and bank borrowings by USSC. The Credit Agreement and the indentures
governing the Notes contain restrictions on the ability of USSC to transfer
cash to United.
Debt maturities for the years subsequent to December 31, 2000, are as follows
(dollars in thousands):
Year Amount
- ---- ------
2001 $ 40,273
2002 55,159
2003 52,651
2004 41,300
2005 15,684
Later years 204,800
----------
Total $ 409,867
==========
As of December 31, 2000 and 1999, the Company had available letters of credit
of $53.0 million, of which $49.6 million and $48.8 million, respectively,
were outstanding.
12.75% SENIOR SUBORDINATED NOTES
The 12.75% Senior Subordinated Notes ("12.75% Notes") were originally issued
on May 3, 1995, under the 12.75% Notes Indenture. On May 2, 2000, the Company
redeemed the remaining $100.0 million of its 12.75% Senior Subordinated Notes
(the "12.75% Notes"). The 12.75% Notes were redeemed at the redemption price
of 106.375% of the principal amount plus accrued interest. As a result, the
Company recognized an extraordinary loss on the early retirement of debt of
approximately $10.7 million ($6.5 million net of tax benefit of $4.2
million). This charge included the write-off of approximately $4.3 million
($2.6 million net of tax benefit of $1.7 million) of capitalized costs. The
redemption was funded through the Company's Revolving Credit Facility.
8.375% SENIOR SUBORDINATED NOTES
The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April
15, 1998, under the 8.375% Notes Indenture. As of December 31, 2000, the
aggregate outstanding principal amount of 8.375% Notes was $100.0 million.
The 8.375% Notes are unsecured senior subordinated obligations of USSC, and
payment of the 8.375% Notes is fully and unconditionally guaranteed by the
Company and USSC's domestic "restricted" subsidiaries that incur indebtedness
(as defined in the 8.375% Notes Indenture) on a senior subordinated basis.
The 8.375% Notes mature on April 15, 2008, and bear interest at the rate of
8.375% per annum, payable semi-annually on April 15 and October 15 of each
year.
The 8.375% Notes Indenture provides that, prior to April 15, 2001, USSC may
redeem, at its option, up to 35% of the aggregate principal amount of the
8.375% Notes within 180 days following one or more Public Equity Offerings
(as defined in the 8.375% Notes Indenture) with the net proceeds of such
offerings at a redemption price equal to 108.375% of the principal amount
thereof, together with accrued and unpaid interest and Additional Amounts (as
defined in the 8.375% Notes Indenture), if any, to the date of redemption;
provided that immediately after giving effect to each such redemption, at
least 65% of the aggregate principal amount of the 8.375% Notes remain
outstanding after giving effect to such redemption.
33
In addition, the 8.375% Notes are redeemable at the option of USSC at any
time on or after April 15, 2003, in whole or in part, at the following
redemption prices (expressed as percentages of principal amount):
Redemption
Year Beginning April 15, Price
------------------------ -----------------
2003 ..................................................................... 104.188%
2004 ..................................................................... 102.792%
2005 ..................................................................... 101.396%
After 2005 the Notes are payable at 100.0% of the principal amount, in each
case together with accrued and unpaid interest, if any, to the redemption
date.
Upon the occurrence of a change of control (which includes the acquisition by
any person or group of more than 50% of the voting power of the outstanding
Common Stock of either the Company or USSC, or certain significant changes in
the composition of the Board of Directors of either the Company or USSC),
USSC shall be obligated to offer to redeem all or a portion of each holder's
8.375% Notes at 101% of the principal amount, together with accrued and
unpaid interest, if any, to the date of the redemption. This obligation, if
it arose, could have a material adverse effect on the Company.
The 8.375% Notes Indenture governing the 8.375% Notes contains certain
covenants, including limitations on the incurrence of indebtedness, the
making of restricted payments, transactions with affiliates, the existence of
liens, disposition of proceeds of asset sales, the making of guarantees by
restricted subsidiaries, transfer and issuances of stock of subsidiaries, the
imposition of certain payment restrictions on restricted subsidiaries and
certain mergers and sales of assets. In addition, the 8.375% Notes Indenture
provides for the issuance of up to $100.0 million aggregate principal amount
of additional 8.375% Notes having substantially identical terms and
conditions to the 8.375% Notes, subject to compliance with the covenants
contained in the 8.375% Notes Indenture, including compliance with the
restrictions contained in the 8.375% Notes Indenture relating to incurrence
of indebtedness.
8. LEASES
The Company has entered into non-cancelable long-term leases for certain
property and equipment. Future minimum rental payments under operating leases
in effect at December 31, 2000, having initial or remaining non-cancelable
lease terms in excess of one year are as follows (dollars in thousands):
Operating
Year Leases (1)
- ------- ------------
2001 $ 38,806
2002 32,593
2003 26,423
2004 23,786
2005 19,779
Later years 63,123
---------
Total minimum lease payments $ 204,510
=========
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $31.0 million, $27.1
million, and $20.8 million in 2000, 1999, and 1998, respectively.
34
9. PENSION PLANS AND DEFINED CONTRIBUTION PLAN
PENSION PLANS
As of December 31, 2000, the Company has pension plans covering approximately
4,500 of its employees. Non-contributory plans covering non-union employees
provide pension benefits that are based on years of credited service and a
percentage of annual compensation. Non-contributory plans covering union
members generally provide benefits of stated amounts based on years of
service. The Company funds the plans in accordance with current tax laws.
The following table sets forth the plans' changes in Projected Benefit
Obligation for the years ended December 31, 2000 and 1999 (dollars in
thousands):
2000 1999
----------- -----------
Benefit obligation at beginning of year $35,647 $37,122
Service cost 3,171 3,231
Interest cost 2,997 2,598
Amendments 267 430
Actuarial loss (gain) 3,447 (6,754)
Benefits paid (1,110) (980)
------- -------
Benefit obligation at end of year $44,419 $35,647
======= =======
The plans' assets consist of corporate and government debt securities and
equity securities. The following table sets forth the change in the plans'
assets for the years ended December 31, 2000 and 1999 (dollars in thousands):
2000 1999
--------- ---------
Fair value of assets at beginning of year $47,891 $40,974
Actual return on plan assets 8,015 7,634
Company contributions 2,051 263
Benefits paid (1,110) (980)
------- -------
Fair value of plan assets at end of year $56,847 $47,891
======= =======
The following table sets forth the plans' funded status as of December 31,
2000 and 1999 (dollars in thousands):
2000 1999
--------- ---------
Funded status of the plan $ 12,428 $ 12,244
Unrecognized prior service cost 1,429 1,273
Unrecognized net actuarial gain (15,113) (15,282)
--------- ---------
Pension liability recognized
in the Consolidated Balance Sheets $ (1,256) $ (1,765)
========= =========
Net periodic pension cost for 2000, 1999 and 1998 for pension and
supplemental benefit plans includes the following components (dollars in
thousands):
2000 1999 1998
--------- --------- -----------
Service cost - benefit earned during the period $ 3,171 $ 3,231 $ 2,734
Interest cost on projected benefit obligation 2,997 2,598 2,113
Expected return on plan assets (4,114) (3,485) (2,648)
Amortization of prior service cost 111 99 99
Plan curtailment loss -- 193 --
Amortization of actuarial loss (623) (13) (243)
--------- --------- -----------
Net periodic pension cost $ 1,542 $ 2,623 $ 2,055
========= ========= ===========
The assumptions used in accounting for the Company's defined benefit plans
are set forth below:
2000 1999 1998
--------- --------- -----------
Assumed discount rate 7.75% 7.75% 6.75%
Rates of compensation increase 5.50% 5.50% 5.50%
Expected long-term rate of return on plan assets 8.50% 8.50% 7.50%
35
DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan. Salaried employees and non-union
hourly paid employees are eligible to participate after completing six
consecutive months of employment. The plan permits employees to have
contributions made as 401(k) salary deferrals on their behalf, or as
voluntary after-tax contributions, and provides for Company contributions, or
contributions matching employees' salary deferral contributions, at the
discretion of the Board of Directors. Company contributions to match
employees' contributions were approximately $3.1 million, $1.5 million and
$1.4 million in 2000, 1999 and 1998, respectively. In addition, the Board of
Directors approved a special contribution of approximately $1.0 million in
1998 to the United Stationers 401(k) Savings Plan on behalf of non-highly
compensated employees who are eligible for participation in the plan.
10. POSTRETIREMENT BENEFITS
The Company maintains a postretirement plan. The plan is unfunded and
provides health care benefits to substantially all retired non-union
employees and their dependents. Eligibility requirements are based on the
individual's age (minimum age of 55), years of service and hire date. The
benefits are subject to retiree contributions, deductible, co-payment
provision and other limitations. The following tables set forth the plan's
change in Accrued Postretirement Benefit Obligation ("APBO"), plan assets
and funded status for the years ended December 31, 2000 and 1999 (dollars
in thousands):
2000 1999
----------- -----------
Benefit obligation at beginning of year $ 3,606 $ 3,748
Service cost 574 498
Interest cost 335 229
Plan participants' contributions 111 106
Actuarial loss (gain) 613 (770)
Benefits paid (459) (205)
----------- -----------
Benefit obligation at end of year $ 4,780 $ 3,606
=========== ===========
Fair value of assets at beginning of year $ -- $ --
Company contributions 348 99
Plan participants' contributions 111 106
Benefits paid (459) (205)
----------- -----------
Fair value of plan assets at end of year $ -- $ --
=========== ===========
Funded status of the plan $ (4,780) $ (3,606)
Unrecognized net actuarial gain (65) (789)
----------- -----------
Accrued postretirement benefit obligation
in the Consolidated Balance Sheets $ (4,845) $ (4,395)
=========== ===========
The costs of postretirement health care benefits for the years ended December
31, 2000, 1999 and 1998 were as follows (dollars in thousands):
2000 1999 1998
--------------- ------------- --------------
Service cost $ 574 $ 498 $ 479
Interest cost 335 229 209
Amortization of actuarial loss -- (7) (15)
-------------- ------------- -------------
Net periodic postretirement benefit cost $ 909 $ 720 $ 673
============== ============= ============
36
The assumptions used in accounting for the Company's postretirement plan for
the three years presented are set forth below:
2000 1999 1998
--------------- ------------- --------------
Assumed average health care cost trend 3.0% 3.0% 3.0%
Assumed discount rate 7.75% 7.75% 6.75%
The postretirement plan states that the Company's medical cost increases for
current and future retirees and their dependents are capped at 3%. Because
annual medical cost increases are trending above 4% and the Company's portion
of any increase is capped at 3%, a 1% increase or decrease in these costs
will have no effect on the APBO, the service cost or the interest cost.
11. STOCK OPTION PLAN
The Management Equity Plan (the "Plan") is administered by the Human
Resources Committee, or the Board of Directors or by such other committee, as
determined by the Board of Directors of the Company. The Plan provides for
the issuance of Common Stock, through the exercise of options, to members of
the Board of Directors and to key employees of the Company, either as
incentive stock options or as non-qualified stock options.
In May 2000, the Company's stockholders approved the 2000 Management Equity
Plan, which provided for the issuance of up to 3.7 million shares of Common
Stock through the exercise of options, to members of the Board of Directors
and to key employees of the Company or its subsidiaries or other affiliates.
During 2000, 1999 and 1998, options of approximately 1.0 million, 1.3 million
and 1.0 million, respectively, were granted to management employees and
directors, with option exercise prices equal to fair market value.
An optionee under the Plan must pay the full option price upon exercise of an
option (i) in cash; (ii) with the consent of the Board of Directors, by
delivering mature shares of Common Stock already owned by the optionee and
having a fair market value at least equal to the exercise price; or (iii) in
any combination of the above. The Company may require the optionee to satisfy
federal tax withholding obligations with respect to the exercise of options
by (i) additional withholding from the employee's salary, (ii) requiring the
optionee to pay in cash, or (iii) reducing the number of shares of Common
Stock to be issued to meet only the minimum statutory withholding requirement
(except in the case of incentive stock options).
The following table summarizes the transactions of the Plan for the last
three years:
Weighted Weighted Weighted
Average Average Average
Management Equity Plan Exercise Exercise Exercise
(excluding restricted stock) 2000 Prices 1999 Prices 1998 Prices
- -------------------------------- ------------- ------------- ------------- ------------ ---------------- ------------
Options outstanding at
beginning of the year 2,968,875 $ 19.60 2,212,578 $ 15.28 3,597,794 $ 6.89
Granted 984,100 28.85 1,293,025 22.89 965,150 24.13
Exercised (396,480) 10.82 (434,978) 6.52 (2,303,666) 5.73
Canceled (125,940) 23.40 (101,750) 23.41 (46,700) 22.89
---------- ------- ---------- ------- ------------- -------
Options outstanding at
end of the year 3,430,555 $ 23.13 2,968,875 $ 19.60 2,212,578 $ 15.28
========== ======= ========== ======= =========== =======
Number of options
exercisable 834,225 $ 19.04 707,160 $ 12.98 862,128 $ 7.64
========== ======= ========== ======= ============ =======
37
The following table summarizes information concerning the Plan's outstanding
options as of December 31, 2000:
Remaining
Exercise Number Contractual Number
Prices Outstanding Life (Years) Exercisable
--------------- ---------------- --------------- --------------
10.81 500,000 6.5 300,000
22.00 410,705 8.6 79,285
22.13 30,000 7.0 18,000
23.38 619,750 7.2 240,340
23.38 755,000 8.2 141,000
24.13 62,000 7.2 24,800
25.00 5,000 10.0 --
25.50 40,000 10.0 --
26.25 30,000 10.0 --
27.06 5,000 7.3 2,000
28.56 30,000 10.0 --
29.13 871,100 10.0 --
30.56 6,000 7.5 2,400
31.63 30,000 7.3 12,000
33.06 30,000 7.7 12,000
33.56 6,000 7.7 2,400
--------- -------
Total 3,430,555 834,225
========= =======
The Company elected the supplemental disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." Accordingly, the Company is required to disclose
pro forma net income and earnings per share as if the fair value-based
accounting method in SFAS No. 123 had been used to account for stock-based
compensation cost.
Options granted under the Plan during 2000, 1999 and 1998 did not require
compensation cost to be recognized in the income statement. However, they are
subject to the supplemental disclosure requirements of SFAS No. 123. Net
income and earnings per share, before charges (see 1 and 2 below), for 2000
and 1998 represent the Company's results, excluding one-time charges and the
pro forma adjustments required by SFAS No. 123. Had compensation cost been
determined on the basis of SFAS No. 123 for options granted during 2000, 1999
and 1998, net income and earnings per share would have been adjusted as
follows (in thousands, except per share data):
2000 1999 1998
-------------- --------------- -----------------
Net Income Attributable to Common Stockholders:
As reported $ 92,167 $ 83,409 $ 58,018
Before charges 98,643(1) 83,409 72,212(2)
Pro forma 87,951 79,821 55,758
Net Income per Common Share - Basic:
As reported $ 2.70 $ 2.40 $ 1.67
Before charges 2.89(1) 2.40 2.08(2)
Pro forma 2.58 2.30 1.61
Average number of common shares (in thousands) 34,101 34,708 34,680
Net Income per Common Share - Diluted:
As reported $ 2.65 $ 2.37 $ 1.60
Before charges 2.84(1) 2.37 2.00(2)
Pro forma 2.53 2.27 1.54
Average number of common shares (in thousands) 34,775 35,208 36,171
1. In the second quarter of 2000, the Company recorded an extraordinary charge
of $10.7 million ($6.5 million net of tax benefit of $4.2 million) related
to the early retirement of debt (see Note 1).
38
2. The year ended December 31, 1998, reflected a write-off of the remaining
term of a contract for computer services from a vendor. As a result, the
Company recorded a non-recurring charge of $13.9 million ($8.3 million net
of tax benefit of $5.6 million) to write off the remaining payments and
related prepaid expense under this contract (see Note 1). In addition,
during 1998 the Company recorded an extraordinary loss of $9.9 million
($5.9 million net of tax benefit of $4.0 million) related to the early
retirement of debt (see Note 1).
The Company uses a binomial option pricing model to estimate the fair value of
options at the date of grant. The weighted average assumptions used to value
options and the weighted average fair value of options granted during 2000, 1999
and 1998 were as follows:
2000 1999 1998
------------- -------------- --------------
Fair value of options granted $ 13.84 $ 13.20 $ 14.58
Exercise price 28.85 22.89 24.13
Expected stock price volatility 52.8% 55.5% 59.0%
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 6.1% 5.1% 5.5%
Expected life of options 4 years 6 years 6 years
12. PREFERRED STOCK
The Company's authorized capital shares include 15,000,000 shares of
preferred stock. The rights and preferences of preferred stock are
established by the Company's Board of Directors upon issuance. At December
31, 2000, the Company had zero shares of preferred stock outstanding and all
15,000,000 shares are specified as undesignated preferred stock.
13. INCOME TAXES
The provision for income taxes consisted of the following (dollars in
thousands):
Years Ended December 31,
-------------------------------------------------
2000 1999 1998
------------- ------------- ---------------
Currently Payable -
Federal $ 49,329 $ 47,774 $ 34,281
State 10,824 11,722 8,403
---------- --------- ----------
Total currently payable 60,153 59,496 42,684
Deferred, net -
Federal 4,491 530 3,508
State 829 132 872
----------- ----------- ----------
Total deferred, net 5,320 662 4,380
----------- ----------- ----------
Provision for income taxes $ 65,473 $ 60,158 $ 47,064
=========== =========== ==========
The Company's effective income tax rates for the years ended December 31, 2000,
1999 and 1998 varied from the statutory federal income tax rate as set forth in
the following table (dollars in thousands):
Years Ended December 31,
----------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- -------------------------------- -----------------------------
% of Pre-tax % of Pre-tax % of Pre-tax
Amount Income Amount Income Amount Income
------------ --------------- ------------- -------------- ------------ ------------
Tax provision based on the
federal statutory rate $ 57,441 35.0% $ 50,248 35.0% $ 38,846 35.0%
State and local income
taxes - net of federal
income tax benefit 7,713 4.7 7,710 5.4 5,993 5.4
Non-deductible and other 319 0.2 2,200 1.5 2,225 2.0
--------- ------------- ---------- ----------- --------- --------
Provision for income taxes $ 65,473 39.9% $ 60,158 41.9% $ 47,064 42.4%
========= ============= ========== =========== ========= ========
39
The deferred tax assets and liabilities resulted from timing differences in
the recognition of certain income and expense items for financial and tax
accounting purposes. The sources of these differences and the related tax
effects were as follows (dollars in thousands):
As of December 31,
--------------------------------------------------------------------------
2000 1999
---------------------------------- ------------------------------------
Assets Liabilities Assets Liabilities
------------- ---------------- ---------------- ----------------
Accrued expenses $ 13,926 $ -- $ 24,384 $ --
Allowance for doubtful accounts 6,251 -- 6,354 --
Inventory reserves and adjustments -- 13,411 -- 18,089
Depreciation and amortization -- 28,604 -- 37,557
Reserve for stock option compensation 447 -- 1,688 --
Other 5,858 -- 6,412 --
----------- ----------- ----------- ---------
Total $ 26,482 $ 42,015 $ 38,838 $ 55,646
=========== =========== =========== =========
In the Consolidated Balance Sheets, these deferred assets and liabilities
were classified on a net basis as current and non-current, based on the
classification of the related asset or liability or the expected reversal
date of the temporary difference.
14. SUPPLEMENTAL CASH FLOW INFORMATION
In addition to the information provided in the Consolidated Statements of Cash
Flows, the following are supplemental disclosures of cash flow information for
the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
2000 1998 1998
------------- ------------- ---------------
Cash Paid During the Year for:
Interest $ 28,555 $ 27,449 $ 35,464
Discount on the sale of accounts receivable 10,632 8,919 7,128
Income taxes 62,691 54,520 26,439
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is as follows
(dollars in thousands):
As of December 31, 2000 As of December 31, 1999
--------------------------------------- ----------------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------------- -------------- --------------------- ---------------
Cash and cash equivalents $ 19,784 $ 19,784 $ 18,993 $ 18,993
Current maturities of long-term
Debt 40,273 40,273 9,567 9,567
Long-term debt:
12.75% Subordinated Notes -- -- 100,000 107,640
8.375% Subordinated Notes 100,000 92,950 100,000 92,220
All other 269,594 269,594 127,360 127,360
The fair value of the Notes are based on quoted market prices and quotes from
counterparties, respectively.
40
16. QUARTERLY FINANCIAL DATA - UNAUDITED
Income Income Per
Before Share Before Net
(dollars in thousands, Extraordinary Net Extraordinary Income Per
except share data) Net Sales(1) Gross Profit(1) Item Income Item(2) Share(2)
-------------- --------------- ---------------- ------------ --------------- ------------
YEAR ENDED DECEMBER 31, 2000
First Quarter $ 994,883 $ 158,130 $ 23,924 $ 23,924 $ 0.69 $ 0.69
Second Quarter 944,023 148,795 22,768 16,292 0.65 0.47
Third Quarter 1,015,441 164,516 26,427 26,427 0.76 0.76
Fourth Quarter 990,515 172,403 25,524 25,524 0.74 0.74
------------ ----------- ------------ ----------
Total $ 3,944,862 $ 643,844 $ 98,643 $ 92,167 2.84 2.65
============ =========== ============ ==========
YEAR ENDED DECEMBER 31, 1999
First Quarter $ 835,485 $ 134,145 $ 18,688 $ 18,688 $ 0.50 $ 0.50
Second Quarter 811,723 128,567 17,317 17,317 0.50 0.50
Third Quarter 889,996 144,208 22,293 22,293 0.65 0.65
Fourth Quarter 905,492 157,237 25,111 25,111 0.73 0.73
------------ ----------- ------------ ----------
Total $ 3,442,696 $ 564,157 $ 83,409 $ 83,409 2.37 2.37
============ =========== ============ ==========
(1) During the fourth quarter of 2000, the Company restated all prior
periods to reclassify freight revenue from cost of goods sold and
operating expense to net sales in compliance with FASB Emerging Issues
Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and
Handling Fees and Costs." EITF No. 00-10, requires that shipping and
handling fees billed to a customer in a sale transaction represent
revenues earned for the goods provided and should be classified as
revenue.
(2) As a result of changes in the number of common and common equivalent
shares during the year, the sum of quarterly earnings per share will
not equal earnings per share for the total year.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following table presents condensed consolidating financial information for
the guarantors of the 8.375% Notes issued by USSC. Payment of the 8.375% Notes
is fully and unconditionally guaranteed by the Company and USSC's domestic
"restricted" subsidiaries (as defined in the 8.375% Notes Indenture). The
following condensed consolidating financial information has been prepared using
the equity method of accounting in accordance with the requirements for
presentation of this information.
41
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
United
United Stationers
Stationers Inc. Supply Co. Subsidiary Subsidiary
(Parent) (Issuer) Guarantors Non-Guarantors Eliminations Consolidated
----------- ----------- ----------- -------------- ----------- -----------
FOR THE YEAR ENDED DECEMBER 31, 2000:
Net sales $ -- $ 2,965,590 $ 982,904 $ 33,305 $ (36,937) $ 3,944,862
Cost of goods sold -- 2,417,632 885,179 -- (1,793) 3,301,018
----------- ----------- ----------- -------------- ----------- -----------
Gross profit -- 547,958 97,725 33,305 (35,144) 643,844
Warehouse, marketing and
administrative expenses -- 381,623 59,212 3,495 (3,032) 441,298
Other expense -- 32,180 -- -- (20,979) 11,201
Interest (income) expense (8,793) 24,575 4,220 18,360 (11,133) 27,229
----------- ----------- ----------- -------------- ----------- -----------
Income before income taxes
and extraordinary item 8,793 109,580 34,293 11,450 -- 164,116
Income taxes 3,103 43,655 14,196 4,519 -- 65,473
Equity from subsidiaries 86,477 6,931 -- -- (93,408) --
----------- ----------- ----------- -------------- ----------- -----------
Income before extraordinary item 92,167 72,856 20,097 6,931 (93,408) 98,643
Extraordinary item - loss on early
retirement of debt, net of tax -- (6,476) -- -- -- (6,476)
----------- ----------- ----------- -------------- ----------- -----------
Net income $ 92,167 $ 66,380 $ 20,097 $ 6,931 $ (93,408) $ 92,167
=========== =========== =========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1999:
Net sales -- $ 2,624,564 $ 819,448 $ 31,570 $ (32,886) $ 3,442,696
Cost of goods sold -- 2,138,757 739,782 -- -- 2,878,539
----------- ----------- ----------- -------------- ----------- -----------
Gross profit -- 485,807 79,666 31,570 (32,886) 564,157
Warehouse, marketing and
administrative expenses -- 330,162 51,045 3,444 (2,688) 381,963
Other expense -- 30,237 -- -- (20,805) 9,432
Interest (income) expense (6,978) 25,364 4,894 15,308 (9,393) 29,195
----------- ----------- ----------- -------------- ----------- -----------
Income before income taxes 6,978 100,044 23,727 12,818 -- 143,567
Income taxes 2,491 42,127 10,293 5,247 -- 60,158
Equity from subsidiaries 78,922 7,571 -- -- (86,493) --
----------- ----------- ----------- -------------- ----------- -----------
Net income $ 83,409 $ 65,488 $ 13,434 $ 7,571 $ (86,493) $ 83,409
=========== =========== =========== =========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1998:
Net sales -- $ 2,669,015 $ 429,444 $ 26,870 $ (27,734) $ 3,097,595
Cost of goods sold -- 2,184,470 381,688 -- -- 2,566,158
----------- ----------- ----------- -------------- ----------- -----------
Gross profit -- 484,545 47,756 26,870 (27,734) 531,437
Warehouse, marketing and
administrative expenses -- 344,738 30,502 2,776 (2,090) 375,926
Other expense -- 26,388 -- -- (18,167) 8,221
Interest (income) expense (6,365) 37,393 217 12,533 (7,477) 36,301
----------- ----------- ----------- -------------- ----------- -----------
Income before income taxes
and extraordinary item 6,365 76,026 17,037 11,561 -- 110,989
Income taxes 2,279 32,306 7,748 4,731 -- 47,064
Equity from subsidiaries 53,932 6,830 -- -- (60,762) --
----------- ----------- ----------- -------------- ----------- -----------
Income before extraordinary item 58,018 50,550 9,289 6,830 (60,762) 63,925
Extraordinary item - loss on early
retirement of debt, net of tax -- (5,907) -- -- -- (5,907)
----------- ----------- ----------- -------------- ----------- -----------
Net income $ 58,018 $ 44,643 $ 9,289 $ 6,830 $ (60,762) $ 58,018
=========== =========== =========== =========== =========== ===========
42
Condensed Consolidating Balance Sheets
(dollars in thousands)
(unaudited)
United
United Stationers
Stationers Inc. Supply Co. Subsidiary Subsidiary
(Parent) (Issuer) Guarantors Non-Guarantors Eliminations Consolidated
-------- ----------- ----------- -------------- ------------ -----------
AS OF DECEMBER 31, 2000:
Assets
Cash and cash equivalents $ 424 $ 13,202 $ 4,201 $ 1,957 $ -- $ 19,784
Accounts receivable, net -- 139,905 124,451 241,572 (175,994) 329,934
Inventories -- 524,120 164,806 -- -- 688,926
Other current assets -- 10,599 5,239 5 -- 15,843
Property, plant and equipment, net -- 179,370 10,412 5 -- 189,787
Goodwill, net -- 77,914 104,009 -- -- 181,923
Intercompany notes receivable 102,317 112,555 -- -- (214,872) --
Investment in subsidiaries 525,011 197,198 -- -- (722,209) --
Other noncurrent assets 2 21,157 -- -- (329) 20,830
-------- ----------- ----------- ----------- ----------- -----------
Total assets $627,754 $ 1,276,020 $ 413,118 $ 243,539 $(1,113,404) $ 1,447,027
======== =========== =========== =========== =========== ===========
Liabilities and Stockholders' Equity
Accounts payable $ -- $ 273,697 $ 119,092 -- -- $ 392,789
Accrued liabilities 3,102 95,001 27,563 5,575 (5,272) 125,969
Current maturities of long-term debt -- 40,193 80 -- -- 40,273
Deferred income taxes -- 22,301 402 -- -- 22,703
Long-term obligations -- 393,178 (6,324) 150,000 (150,000) 386,854
Intercompany notes payable -- 102,317 47,098 65,457 (214,872) --
Stockholders' equity 624,652 349,333 225,207 22,507 (743,260) 478,439
-------- ----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $627,754 $ 1,276,020 $ 413,118 $ 243,539 $(1,113,404) $ 1,447,027
======== =========== =========== =========== =========== ===========
AS OF DECEMBER 31, 1999:
Assets
Cash and cash equivalents $ 424 $ 13,889 $ 2,506 $ 2,174 -- $ 18,993
Accounts receivable, net -- 94,855 111,184 237,235 (179,842) 263,432
Inventories -- 478,049 129,633 -- -- 607,682
Other current assets -- 20,328 4,090 6 -- 24,424
Property, plant and equipment, net -- 157,220 10,300 24 -- 167,544
Goodwill, net -- 74,618 106,838 -- -- 181,456
Intercompany notes receivable 93,524 128,051 -- -- (221,575) --
Investment in subsidiaries 447,834 168,491 -- -- (616,325) --
Other noncurrent assets 2 16,698 -- -- (328) 16,372
-------- ----------- ----------- ----------- ----------- -----------
Total assets $541,784 $ 1,152,199 $ 364,551 $ 239,439 $(1,018,070) $ 1,279,903
======== =========== =========== =========== =========== ===========
Liabilities and Stockholders' Equity
Accounts payable $ -- $ 269,493 $ 77,065 -- -- $ 346,558
Accrued liabilities 2,491 117,521 22,432 6,191 (5,777) 142,858
Current maturities of long-term debt -- 9,386 181 -- -- 9,567
Deferred income taxes -- 28,655 271 -- -- 28,926
Long-term obligations -- 349,660 (3,675) 160,000 (160,000) 345,985
Intercompany notes payable -- 93,524 70,801 57,250 (221,575) --
Stockholders' equity 539,293 283,960 197,476 15,998 (630,718) 406,009
-------- ----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $541,784 $ 1,152,199 $ 364,551 $ 239,439 $(1,018,070) $ 1,279,903
======== =========== =========== =========== =========== ===========
43
Condensed Consolidating Statements of Cash Flows
(dollars in thousands)
(unaudited)
United
United Stationers
Stationers Inc. Supply Co. Subsidiary Subsidiary
(Parent) (Issuer) Guarantors Non-Guarantors Eliminations Consolidated
--------- ---------- ---------- -------------- ----------- ------------
FOR THE YEAR ENDED DECEMBER 31, 2000:
Net cash flows (used in) provided by
operating activities $ (4,247) $ 30,087 $ 27,957 $ 1,576 $ (16,703) $ 38,670
Cash flows from investing activities:
Acquisitions -- (44,233) -- -- -- (44,233)
Capital expenditures -- (41,079) (2,559) -- -- (43,638)
Investment in subsidiaries 22,437 -- -- -- (22,437) --
Proceeds from the disposition of property,
plant and equipment -- 4,337 -- -- -- 4,337
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities 22,437 (80,975) (2,559) -- (22,437) (83,534)
Cash flows from financing activities:
Net borrowings under revolver -- 45,000 -- -- -- 45,000
Retirements and principal payments of debt -- (128,509) -- (10,000) 10,000 (128,509)
Borrowings under financing agreements -- 150,000 -- -- -- 150,000
Issuance of treasury stock 4,247 -- -- -- -- 4,247
Acquisition of treasury stock, at cost (22,437) -- -- -- -- (22,437)
Intercompany dividend -- (22,437) -- -- 22,437 --
Intercompany notes payable -- 8,793 (23,703) 8,207 6,703 --
Payment of employee withholding tax related -- -- -- --
to stock option exercises -- (2,646) -- -- -- (2,646)
--------- --------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities (18,190) 50,201 (23,703) (1,793) 39,140 45,655
Net change in cash and cash equivalents -- (687) 1,695 (217) -- 791
Cash and cash equivalents, beginning of year 424 13,889 2,506 2,174 -- 18,993
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents, end of year $ 424 $ 13,202 $ 4,201 $ 1,957 $ -- $ 19,784
========= ========= ========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 1999:
Net cash flows (used in) provided by
operating activities $ (2,848) $ 54,589 $ (46,712) $ 11,597 $ 36,955 $ 53,581
Cash flows from investing activities:
Acquisitions -- (4,680) -- -- -- (4,680)
Capital expenditures -- (21,910) (3,551) -- -- (25,461)
Investment in subsidiaries 49,600 -- -- -- (49,600) --
Proceeds from the disposition of property,
plant and equipment -- 4,130 -- -- -- 4,130
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities 49,600 (22,460) (3,551) -- (49,600) (26,011)
Cash flows from financing activities:
Net borrowings under revolver -- 29,000 -- -- -- 29,000
Retirements and principal payments of debt -- (7,604) -- -- -- (7,604)
Borrowings under financing agreements -- 145 -- -- -- 145
Financing costs -- 250 -- -- -- 250
Issuance of common stock 2,523 -- -- -- -- 2,523
Issuance of treasury stock 323 -- -- -- -- 323
Acquisition of treasury stock, at cost (49,600) -- -- -- -- (49,600)
Intercompany dividend -- (49,600) -- -- 49,600 --
Intercompany notes payable -- (234) 47,618 (10,429) (36,955) --
Payment of employee withholding tax related
to related to stock option exercises -- (2,652) -- -- -- (2,652)
--------- --------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities (46,754) (30,695) 47,618 (10,429) 12,645 (27,615)
Net change in cash and cash equivalents (2) 1,434 (2,645) 1,168 -- (45)
Cash and cash equivalents, beginning of year 426 12,455 5,151 1,006 -- 19,038
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents, end of year $ 424 $ 13,889 $ 2,506 $ 2,174 $ -- $ 18,993
========= ========= ========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 1998:
Net cash flows (used in) provided by
operating activities $ (99,516) $ 281,969 $ (14,281) $(227,610) $ 350,304 $ 290,866
Cash flows from investing activities:
Acquisitions -- (115,740) -- -- -- (115,740)
Capital expenditures -- (20,950) (3,759) -- -- (24,709)
Proceeds from the disposition of property,
plant and equipment -- 93 -- -- -- 93
--------- --------- --------- --------- --------- ---------
Net cash used in investing activities -- (136,597) (3,759) -- -- (140,356)
Cash flows from financing activities:
Net repayments under revolver -- (22,000) -- -- -- (22,000)
Retirements and principal payments of debt -- (549,852) -- -- -- (549,852)
Borrowings under financing agreements -- 350,000 -- 160,000 (160,000) 350,000
Financing costs -- (4,526) -- -- -- (4,526)
Issuance of common stock 99,442 27,622 -- -- (27,622) 99,442
Intercompany notes payable -- 71,820 23,183 67,679 (162,682) --
Payment of employee withholding tax
related to stock option exercises -- (16,903) -- -- -- (16,903)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities 99,442 (143,839) 23,183 227,679 (350,304) (143,839)
Net change in cash and cash equivalents (74) 1,533 5,143 69 -- 6,671
Cash and cash equivalents, beginning of year 500 10,922 8 937 -- 12,367
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents, end of year $ 426 $ 12,455 $ 5,151 $ 1,006 $ -- $ 19,038
========= ========= ========= ========= ========= =========
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant had no disagreements on accounting and financial disclosure of
the type referred to in Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to those individuals who
are currently serving as members of the Board of Directors or as executive
officers of the Company on MARCH 15, 2001:
NAME AGE POSITION
-------------------------------------------------------------------------------
Frederick B. Hegi, Jr........... 57 Chairman of the Board of Directors
Randall W. Larrimore............ 53 Director, President and Chief Executive Officer
Daniel J. Good.................. 60 Director
Ilene S. Gordon................. 47 Director
Roy W. Haley.................... 54 Director
Max D. Hopper................... 66 Director
James A. Johnson................ 47 Director
Benson P. Shapiro............... 59 Director
Alex D. Zoghlin................. 31 Director
Tom Helton...................... 53 Executive Vice President, Human Resources and Organization Development
Eileen A. Kamerick.............. 42 Executive Vice President and Chief Financial Officer
Steven R. Schwarz............... 47 Executive Vice President and President, United Supply Division
Brian S. Cooper................. 44 Senior Vice President and Treasurer
Kathleen S. Dvorak.............. 44 Senior Vice President, Investor Relations and Financial Administration
and Assistant Secretary
Susan Maloney Meyer............. 57 Senior Vice President, General Counsel and Secretary
Ergin Uskup..................... 63 Senior Vice President, Management Information Systems
and Chief Information Officer
Set forth below is a description of the backgrounds of the directors and
executive officers of the Company. There is no family relationship between
any directors or executive officers of the Company. Officers of the Company
are elected by the Board of Directors and hold office until their respective
successors are duly elected and qualified.
FREDERICK B. HEGI, JR. was elected to the Board of Directors of the Company
in 1995 and served as Chairman, interim President and Chief Executive Officer
until Randall Larrimore became President and Chief Executive Officer in May
1997. Mr. Hegi is founding partner of Wingate Partners, including the
indirect general partner of each of Wingate Partners L.P. and Wingate
Partners II, L.P. Since May 1982, Mr. Hegi has served as President of Valley
View Capital Corporation, a private investment firm. Mr. Hegi also currently
serves as Chairman of the Board of Loomis, Fargo & Co., the second largest
armored car service company in the United States; Chairman of Tahoka First
Bancorp, Inc., a bank holding company; and Chairman of Cedar Creek
Bancshares, Inc., a bank holding company. Additionally, he is a director of
Texas Capital Bancshares, Inc., a bank holding company, Lone Star
Technologies, Inc., a diversified company engaged in the manufacture of
tubular products, and Pro Parts Xpress, Inc., a wholesale distributor of
automotive parts, and ENSR International, an international environmental
service firm. Mr. Hegi is also Chairman, President and Chief Executive
Officer of Kevco, Inc., a publicly held distributor of building products to
the manufactured housing and recreational vehicle industries, which filed for
protection under Chapter 11 of the United States Bankruptcy Code on
February 5, 2001.
RANDALL W. LARRIMORE was elected to the Board of Directors of the Company and
became President and Chief Executive Officer of the Company on May 23, 1997.
Mr. Larrimore served as Interim Chief Financial Officer from March 6, 2000 to
October 2, 2000. From February 1988 to May 1997, Mr. Larrimore had been
President and Chief Executive Officer of MasterBrand Industries, Inc., a
manufacturer of leading brands including Master Lock(R) padlocks and Moen(R)
faucets, and a subsidiary of Fortune Brands (formerly American Brands). Prior
to that time, Mr. Larrimore was President and Chief Executive Officer of
Twentieth Century Companies, a manufacturer of plumbing repair parts and a
division of Beatrice Foods. Prior thereto, he was Vice President of Marketing
for Beatrice Home Specialties, the operating parent of Twentieth Century.
Fortune Brands acquired Twentieth Century Companies and other Beatrice
Divisions and subsidiaries in 1988. Before joining Beatrice in 1983, Mr.
Larrimore was with Richardson-Vicks, McKinsey & Company
45
and then with PepsiCo International. Mr. Larrimore serves as a director of
Olin Corporation, a diversified manufacturer of chemicals, metals, and
sporting ammunition. He also serves as a director of Evanston Northwestern
Healthcare and S.I.F.E., Students in Free Enterprise.
DANIEL J. GOOD was elected to the Board of Directors of the Company in 1995.
Mr. Good is Chairman of Good Capital Co., Inc. ("Good Capital"), an
investment firm in Lake Forest, Illinois. Until June 1995, Mr. Good was Vice
Chairman of Golden Cat Corp., the largest producer of cat litter in the
United States, and prior thereto he was Managing Director of Merchant Banking
of Shearson Lehman Bros. and President of A.G. Becker Paribas, Inc. Mr. Good
serves as a director of Tibersoft, Inc. and as Chairman of the Advisory Board
of Brown Simpson Asset Management LLC.
ILENE S. GORDON was elected to the Board of Directors of the Company in
January 2000. She currently serves as Senior Vice President of Pechiney Group
and President of Pechiney Plastic Packaging, overseeing all aspects of
Pechiney's worldwide flexible films and laminations, and plastic bottles
activities, including manufacturing, sales and marketing operations. Prior to
joining Pechiney in 1999, Ms. Gordon spent 17 years with Tenneco Inc., where
she most recently headed the folding-carton business. She currently serves as
a director of A.J. Gallagher & Co., an international company in the insurance
brokerage and risk management business, and Evanston Northwestern Healthcare.
ROY W. HALEY was elected to the Board of Directors of the Company in March
1998. Mr. Haley currently serves as Chairman and Chief Executive Officer of
WESCO International Inc. ("WESCO"). Prior to joining WESCO in 1994, he served
as President and Chief Operating Officer of American General Corporation, one
of the nation's largest consumer financial services organizations. Mr. Haley
also serves as a director for Cambrex, Corp. and Development Dimensions, Inc.
MAX D. HOPPER was elected to the Board of Directors of the Company in August
1998. In 1995, he founded Max D. Hopper Associates, Inc., a consulting firm
specializing in creating benefits from the strategic use of advanced
information systems. He is the retired Chairman of the SABRE Technology Group
and served as Senior Vice President for American Airlines, both units of AMR
Corporation. Mr. Hopper currently serves as a director of Gartner Group,
Inc., Metrocall, Inc., USDATA Corporation, Inc., Payless Cashways, Inc.,
Accrue Software, Inc. and Exodus Communications, Inc.
JAMES A. JOHNSON was elected to the Board of Directors of United upon
consummation of the Merger. Prior to the Merger, he had been a director of
Associated since 1992. Mr. Johnson is a general partner of various Wingate
entities, including the indirect general partner of Wingate III. From 1980
until he joined Wingate Partners in 1990, Mr. Johnson served as a Principal
of Booz-Allen & Hamilton, an international management consulting firm. Mr.
Johnson currently serves as a director of Kevco, Inc., a distributor of
building products to the manufactured housing industry and Pro Parts Xpress,
a wholesale distributor of automotive parts.
BENSON P. SHAPIRO was elected to the Board of Directors of the Company in
November 1997. Professor Shapiro has served on the faculty of Harvard
University for 31 years and until July 1997 was THE MALCOLM P. MCNAIR
PROFESSOR OF MARKETING at the Harvard Business School. He continues to teach
a variety of Harvard's executive programs on a part-time basis and spends
most of his time engaged in consulting, public speaking, and writing. He
serves as a director of Indus River Networks, Inc. and Genuity, Inc.; and
serves on several advisory boards for private companies.
ALEX D. ZOGHLIN was elected to the Board of Directors of the Company in
November 2000. He currently serves as Chief Technology Officer of Orbitz, a
consumer-oriented travel industry portal backed by many of the world's
leading airlines, including American, United, Delta, Northwest and
Continental. Before joining Orbitz in January 2000, Mr. Zoghlin founded then
later sold Sportsgear.com, a business-to-business sporting goods enterprise.
Prior to this, he was the Founder and Chief Executive Officer for Neoglyphics
Media Corporation, a leading Web developer serving "Fortune 500" companies,
selected government and non-profit organizations. In 1997, Mr. Zoghlin was
honored as one of four winners of the KPMG Illinois High Tech Award for
contributing to the advancement of high technology business in Illinois. He
served four years of active duty in the United States Navy as a cryptography
specialist. He currently serves on UNICEF's board.
TOM HELTON became Executive Vice President, Human Resources and Organization
Development in January 2001. Mr. Helton joined United as Vice President of
Human Resources in February 1998 and became Senior Vice President of Human
Resources in October 2000. Prior to joining United, Mr. Helton spent 11
years, from 1986 to 1997, at Whirlpool Corporation where he held a variety of
management and executive positions within the human resource function. Most
recently, he was Vice President of Human Resources for Whirlpool Asia. From
1980 to 1986, Mr. Helton was with Kaiser Aluminum and Chemical working in
personnel and labor relations.
46
EILEEN A. KAMERICK became Executive Vice President and Chief Financial
Officer on October 2, 2000. Before joining United, Ms. Kamerick was Vice
President, Finance, the Americas for BP Amoco plc, and Vice President and
Chief Financial Officer for BP America following the Amoco/British Petroleum
merger in January 1999. Prior to the merger, Ms. Kamerick was Vice President
and Treasurer of Amoco Corporation.
STEVEN R. SCHWARZ became Executive Vice President of the Company in 1995 with
primary responsibility for marketing and merchandising. In January 1999, Mr.
Schwarz was also named to the position of President, United Supply Division
which is the Company's core office supply business. In addition, Mr. Schwarz
is currently responsible for Azerty, Azerty Canada and THE ORDER PEOPLE.
Prior thereto, he was Senior Vice President, Marketing of United since June
1992 and had previously been Senior Vice President, General Manager, Micro
United since 1990 and Vice President, General Manager, Micro United since
September 1989. He had held a staff position in the same capacity since
February 1987.
BRIAN S. COOPER became Senior Vice President and Treasurer of the Company in
February 2001. Before joining United, Mr. Cooper was Treasurer of Burns
International Services Corporation since 1997. Prior to this, he spent 12
years in U.S. and International finance assignments with Amoco Corporation.
Mr. Cooper also held the position of Chief Financial Officer for Amoco's
operations in Norway.
KATHLEEN S. DVORAK became Senior Vice President, Investor Relations and
Financial Administration in October 2000. She became Vice President, Investor
Relations in July 1997 and Assistant Secretary in November 1999. Ms. Dvorak
began her career at United in 1982 and has held various positions with
increasing responsibility within the investor relations function.
SUSAN MALONEY MEYER became Senior Vice President, General Counsel and Secretary
of the Company in October 2000 and Vice President, General Counsel and Secretary
of the Company in July 1998. Since 1991 Ms. Maloney Meyer had been at General
Instrument Corporation, a broadband technology company, most recently serving as
Vice President, Secretary and Deputy General Counsel. From 1986 through 1991,
Ms. Maloney Meyer served as senior counsel for Beatrice Companies, Inc., a large
conglomerate in a wide variety of businesses and as Vice President and General
Counsel to the Durable Products Group. Prior to that, Ms. Maloney Meyer was a
litigator at Kirkland and Ellis in Chicago and Shearman and Sterling in New
York.
ERGIN USKUP became Senior Vice President, Management Information Systems and
Chief Information Officer in October 2000. He became Vice President, Management
Information Systems and Chief Information Officer of the Company upon
consummation of the Merger. Prior thereto, he was Vice President, Management
Information Systems and Chief Information Officer of United since February 1994,
and since 1987 had been Vice President, Corporate Information Services for
Baxter International Inc., a global manufacturer and distributor of health care
products.
The Charter provides that the Board of Directors shall be divided into three
classes, each class as nearly equal in number as possible, and each term
consisting of three years. The directors currently in each class are as follows:
Class I (having terms expiring in 2002)--Messrs. Good and Hopper, Class II
(having terms expiring in 2003)--Messrs. Hegi and Larrimore and Ms. Gordon, and
Class III (having terms expiring in 2001)--Messrs. Haley, Johnson, Shapiro and
Zoghlin.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 9, 2001, to be filed within 120 days
after the end of the Registrant's year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 9, 2001, to be filed within 120 days
after the end of the Registrant's year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference, pursuant to General Instruction G(3) to Form
10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on May 9, 2001, to be filed within 120 days
after the end of the Registrant's year.
47
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) The following financial statements, schedules and exhibits are filed as part
of this report:
PAGE NO.
--------
(1) Financial Statements of the Company
Report of Independent Auditors ................................................. 18
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998............................................... . 19
Consolidated Balance Sheets as of December 31, 2000 and 1999........................ 20-21
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998............................. 22-23
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998............................................... 24
Notes to Consolidated Financial Statements.......................................... 25-44
(2) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Certificate of Ownership and Merger merging Associated Stationers, Inc.
into the Company(2).
2.2 Stock Purchase Agreement among USSC and Lagasse Bros., Inc. and the
shareholders of Lagasse Bros., Inc. (Exhibit 99.1 to the Company's
Report on Form 8-K filed November 5, 1996)(3).
2.3 Stock Purchase Agreement, dated as of February 10, 1998, among the
Company, United, Abitibi-Consolidated Inc., Abitibi-Consolidated Sales
Corporation, Azerty Incorporated, Azerty de Mexico, S.A. de C.V., AP
Support Services Incorporated and Positive I.D. Wholesale Inc. (Exhibit
2.1 to the Company's Report on Form 8-K filed April 20, 1998)(3).
2.4 Stock Purchase Agreement, dated as of July 1, 2000, among USSC and
Corporate Express, Inc. and Corporate Express CallCenter Services,
Inc.*
2.5 Asset Purchase Agreement, dated as of June 14, 2000, among USSC and
Axidata(1998) Inc. and Miami Computer Supply Corporation.*
2.6 Stock Purchase Agreement, dated as of December 19, 2000, among Lagasse
Bros., Inc. and The Peerless Paper Mills, Inc. and the shareholders of
The Peerless Paper Mills, Inc.*
3.1 Second Restated Certificate of Incorporation dated as of November 5,
1998.(Exhibit 3.1 to the Company's Annual Report on Form 10-K filed
March 29, 1999)(3)
3.2 Amended and Restated Bylaws dated as of March 24, 1999. (Exhibit 3.2 to
the Company's Annual Report on Form 10-K filed March 29, 1999)(3)
3.3 Restated Articles of Incorporation of USSC(6).
3.4 Restated Bylaws of USSC(1).
4.1 Indenture, dated as of April 15, 1998, among the Company, USSC as
issuer, Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale
Inc., AP Support Services Incorporated, as guarantors, and The Bank of
New York, as trustee (Exhibit 4.1 to the Company's Report on Form 8-K
filed April 20, 1998)(3).
4.2 Indenture, dated as of May 3, 1995, among the Company, as guarantor,
USSC, as issuer, and The Bank of New York, as trustee(1).
4.3 First Supplemental Indenture, dated as of July 28, 1995, among the
Company, USSC and The Bank of New York(1).
4.4 Second Supplemental Indenture, dated as of April 3, 1998, among the
Company, Lagasse Bros., Inc., Azerty Incorporated, Positive ID
Wholesale Inc., AP Support Services Incorporated, and The Bank of New
York, as trustee (Exhibit 4.4 to the Company's Report on Form 8-K filed
April 20, 1998)(3).
4.5 Second Amended and Restated Credit Agreement, dated April 3, 1998,
among United, the Company, the lenders parties thereto, Chase
Securities Inc., as arranger, and the Chase Manhattan Bank, as agent
(Exhibit 10.1 to the Company's Report on Form 8-K filed April 20,
1998)(3).
48
4.6 Second Amended and Restated Security Agreement, dated as of April 3,
1998, between the Company and the Chase Manhattan Bank, as
administrative agent (Exhibit 10.2 to the Company's Report on Form 8-K
filed April 20, 1998)(3).
4.7 Subsidiary Guarantee and Security Agreement, dated as of April 3, 1998,
among Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale
Inc., AP Support Services Incorporated and the Chase Manhattan Bank, as
administrative agent (Exhibit 10.3 to the Company's Report on Form 8-K
filed April 20, 1998)(3).
4.8 Pooling Agreement, dated as of April 3, 1998, among USS Receivables
Company, Ltd., the Company, as servicer, and The Chase Manhattan Bank,
as trustee (Exhibit 10.4 to the Company's Report on Form 8-K filed
April 20, 1998)(3).
4.9 Receivables Sale Agreement, dated as of April 3, 1998, among the
Company, as seller, USS Receivables Company, Ltd., and the Company, as
servicer (Exhibit 10.6 to the Company's Report on Form 8-K filed April
20, 1998)(3).
4.10 Servicing Agreement, dated as of April 3, 1998, among USS Receivables
Company, Ltd., the Company, as servicer, and the Chase Manhattan Bank,
as trustee (Exhibit 10.7 to the Company's Report on Form 8-K filed
April 20, 1998(3).
4.11 Amendment No. 1 to Second Amended and Restated Credit Agreement dated
as of December 30, 1998. (Exhibit 4.5 to the Company's Annual Report on
Form 10-K filed March 29, 1999)(3)
4.12 Amendment No. 2 to Second Amended and Restated Credit Agreement dated
as of March 17, 1999. (Exhibit 4.6 to the Company's Annual Report on
Form 10-K filed March 29, 1999)(3).
4.13 Amendment No. 3 to Second Amended and Restated Credit Agreement dated
as of March 9, 2000.*
4.14 Third Amended and Restated Credit Agreement dated as of June 29, 2000,
among USSC, the Company, the lenders parties thereto, and The Chase
Manhattan Bank, as administrative agent. (Exhibit 10.99 to the
Company's Form 10-Q filed August 11, 2000)(3).
4.15 Third Amended and Restated Security Agreement, dated June 29, 2000,
between USSC and The Chase Manhattan Bank, as administrative agent.
(Exhibit 10.990 to the Company's Form 10-Q filed August 11, 2000)(3).
4.16 Amended and Restated Subsidiary Guarantee and Security Agreement, dated
June 29, 2000, between each of the Subsidiaries of USSC and the Chase
Manhattan Bank, as administrative agent. (Exhibit 10.991 to the
Company's Form 10-Q filed August 11, 2000)(3).
4.17 Second Amended and Restated Pledge Agreement, dated June 29, 2000,
between the Company and the Chase Manhattan Bank, as administrative
agent. (Exhibit 10.992 to the Company's Form 10-Q filed August 11,
2000)(3).
10.1 Management Incentive Plan for 1997 (Exhibit 10.39 to Company's Report
on Form 10-K dated March 26, 1997)(3)(**).
10.2 1997 Special Bonus Plan (Exhibit 10.40 to the Company's Report on Form
10-K dated March 26, 1997)(3)(**).
10.3 Lease Agreement, dated as of March 4, 1988, between Crow-Alameda
Limited Partnership and Stationers Distributing Company, Inc., as
amended(1).
10.4 Industrial Real Estate Lease, dated as of May 17, 1993, among Majestic
Realty Co. and Patrician Associates, Inc., as Landlord, and United
Stationers Supply Co., as Tenant(1).
10.5 Standard Industrial Lease, dated as of March 15, 1991, between Shelley
B. & Barbara Detrik and Lynn Edwards Corp.(1).
10.6 Lease Agreement, dated as of January 12, 1993, as amended, among
Stationers Antelope Joint Venture, AVP Trust, Adon V. Panattoni and
Yolanda M. Panattoni, as landlord, and United Stationers Supply Co., as
tenant(1).
10.7 Lease, dated as of February 1, 1993, between CMD Florida Four Limited
Partnership and United Stationers Supply Co., as amended(1).
10.8 Standard Industrial Lease, dated March 2, 1992, between Carol Point
Builders I and Associated Stationers, Inc.(1).
10.9 First Amendment to Industrial Lease dated January 23, 1997 between
ERI-CP, Inc. (successor to Carol Point Builders I) and United
Stationers Supply Co. (successor to Associated Stationers, Inc.)(5).
10.10 Lease Agreement, dated July 20, 1993, between OTR, acting as the duly
authorized nominee of the Board of the State Teachers Retirement System
of Ohio, and United Stationers Supply Co., as amended(1).
10.11 Lease Agreement, dated as of December 20, 1988, between Corporate
Property Associates 8, L.P., and Stationers Distributing Company, Inc.,
as amended(1).
10.12 Industrial Lease, dated as of February 22, 1988, between Northtown
Devco and Stationers Distributing Company, as amended(1).
10.13 Lease, dated as of April 17,1989, between Isaac Heller and USSC, as
amended(1).
10.14 Lease Agreement, dated as of May 10, 1984, between Westbelt Business
Park Joint Venture and Boise Cascade Corporation, as amended(1).
10.15 Fourth Amendment to Lease between Keystone-Ohio Property Holding Corp.
(as successor to Westbelt Business Park) and USSC (as successor to
Associated Stationers, Inc.) dated December 3, 1996(5).
10.16 Lease effective March 1, 1997 between Davis Partnership and USSC (6).
49
10.17 Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.18 Lease Agreement, dated November 7, 1988, between Central East Dallas
Development Limited Partnership and Stationers Distributing Company,
Inc., as amended(1).
10.19 Lease Agreement, dated as of March 17, 1989, between Special Asset
Management Company of Texas, Inc., and Stationers Distributing Company,
Inc., as amended(1).
10.20 Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1).
10.21 Agreement of Lease, dated as of January 5, 1994, between the Estate of
James Campbell, deceased, and USSC(1).
10.22 Amendment No. 2 to Agreement of Lease dated February 1, 1997 between
the Estate of James Campbell, deceased, and USSC (7).
10.23 Lease Agreement dated January 5, 1996, between Robinson Properties,
L.P. and USSC (4).
10.24 Employment Agreement dated as of May 23, 1997 between the Company, USSC
and Randall W. Larrimore (5)(**).
10.25 Employment Agreements dated as of June 1, 1997 between the Company and
each of Daniel H. Bushell, Michael D. Rowsey and Steven R.
Schwarz(5)(**).
10.26 Employment Agreement dated as of July 31, 2000 between the Company and
Eileen Kamerick.* **
10.27 Lease dated as of October 20, 1997 between Ozburn-Hessey Storage Co.
and USSC(7).
10.28 United Stationers Inc. Non-employee Directors' Deferred Stock
Compensation Plan(7)(**).
10.29 Amendments to Stock Option Grants, dated as of June 1, 1997, between
the Company and each of Daniel H. Bushell, Michael D. Rowsey and Steven
R. Schwarz(5)(**).
10.30 Certificate of Insurance covering directors' and officers' liability
insurance effective April 1, 1998 through April 1, 2000(6).
10.31 Lease Agreement, dated as of October 12, 1998, between Corum Carol
Stream Associates, LLC and USSC. (Exhibit 10.94 to the Company's Annual
Report on Form 10-K filed March 29, 1999)(3).
10.32 Management Incentive Plan for 1998. (Exhibit 10.95 to the Company's
Annual Report on Form 10-K filed March 29, 1999)(3)(**).
10.33 Restated Management Equity Plan as of November 5, 1998. (Exhibit 10.96
to the Company's Annual Report on Form 10-K filed March 29, 1999)(3)
(**).
10.34 Severance Agreement between the Company, USSC and Michael Rowsey and
Cynthia Rowsey, dated as of January 1, 1998. (Exhibit 10.97 to the
Company's Annual Report on Form 10-K filed March 29, 1999)(3)(**).
10.35 Lease Agreement dated May 29,1998, between VRS/TA/S Houston, L.P., a
Texas limited partnership and USSC.(Exhibit 10.35 to the Company's
Annual Report on Form 10-K filed March 7, 2000)(3).
10.36 Lease Agreement dated July 30,1999, between Valley View Business
Center, Ltd., a Texas limited partnership and USSC.(Exhibit 10.36 to
the Company's Annual Report on Form 10-K filed March 7, 2000)(3).
10.37 Certificate of Insurance covering directors' and officers' liability
insurance effective April 1, 1999 through April 1, 2001..(Exhibit 10.37
to the Company's Annual Report on Form 10-K filed March 7, 2000)(3).
10.38 Resignation Agreement between the Company, USSC and Daniel H. Bushell,
dated as of March 4, 2000. (Exhibit 10.38 to the Company's Annual
Report on Form 10-K filed March 7, 2000)(3).
10.39 Lease Agreement dated April 19, 2000, between Corporate Estates, Inc.,
a California corporation, and Mitchell Investments, LLC, a Tennessee
limited liability company and USSC.*
10.40 Lease Agreement dated July 27, 2000, between DP Operating Partnership,
L.P., a Delaware limited partnership and USSC.*
10.41 Lease Agreement dated September 11, 2000, between DP Operating
Partnership, L.P., a Delaware limited partnership and USSC.*
10.42 Lease Agreement dated March 15, 2000, between Troy Hill I LLC, a
Delaware limited liability company and USSC.*
10.43 Lease Agreement dated August 30, 2000, between D/S Withers Cove, Ltd.,
a Texas limited partnership and USSC.*
10.44 Management Incentive Plan for 2000(8)(**).
10.45 2000 Management Equity Plan(8)(**).
10.46 Certificate of Insurance covering directors' and officers' liability
insurance effective April 1, 2001 through April 1, 2003.*
10.47 First Amendment to the Company 2000 Management Incentive Plan for
2000.* **
10.48 USSC Deferred Compensation Plan.* **
21 Subsidiaries of the issuer.*
23.1 Consent of Ernst & Young LLP, independent auditors.*
50
* Filed herewith.
** Compensatory Plan Arrangement
(1) Incorporated by reference to the USSC Form S-1 (No. 33-59811), as
amended, initially filed with the Commission on June 12, 1995.
(2) Incorporated by reference to the Company's Schedule 14D-9 dated
February 21, 1995.
(3) Incorporated by reference to other prior filings of the Company as
indicated.
(4) Incorporated by reference to the Company's Form S-2 (No. 333-01089) as
filed with the Commission on February 20, 1996.
(5) Incorporated by reference to the Company's Form S-2 (No. 333-34937) as
filed with the Commission on October 3, 1997.
(6) Incorporated by reference to the Company's Form 10-K as filed with the
Commission on March 29, 1999.
(7) Incorporated by reference to the Company's Form 10-K as filed with the
Commission on March 12, 1998.
(8) Incorporated by reference to the Company's Definitive Schedule 14-A as
filed with the Commission on March 31, 2000.
B) Reports on Form 8-K by the Registrant are as follows:
(1) The Company filed a report on Form 8-K on November 21, 2000,
reporting under Item 5 the election of Alex D. Zoghlin to its
board of directors.
(2) The Company filed a report on Form 8-K on December 13, 2000,
reporting under Item 5 that its organic sales for the two months
ended November 30, 2000 were slightly below its stated target of
6% to 9%. The Company's rate of sales growth has slowed when
compared against strong growth in the prior year, the Company
remains confident that it will achieve record sales and earnings
for fiscal 2000. However, as a result of slowing top-line growth,
earnings per share for fiscal 2000 will be in the range of $2.84
to $2.86. The Company's forecasted fiscal 2000 earnings per share
growth of approximately 20% exceed the stated target of 15%
growth.
(3) The Company filed a report on Form 8-K on December 20, 2000,
reporting under Item 5 that United Stationers Supply Co.
announced that its Lagasse Bros. subsidiary signed a definitive
purchase agreement with Peerless Paper Mills, Inc. of Oaks,
Pennsylvania.
(4) The Company filed a report on Form 8-K on January 30, 2001,
reporting under Item 5 the financial results for the year and
fourth quarter ended December 31, 2000.
(5) The Company filed a report on Form 8-K on March 5, 2001,
reporting under Item 5 that its customer US Office Products
Company ("USOP") and certain of its affiliates filed voluntary
petitions for relief under chapter 11 of the Bankruptcy Code, 11
U.S.C. ss.ss. 101 et seq., in the United States Bankruptcy Court
for the District of Delaware.
(6) The Company filed a report on Form 8-K on March 19, 2001,
reporting under Item 5 that based upon preliminary financial
results for the two months ended February 28, 2001, the Company
currently expects sales and earnings for the first quarter of
2001 to be below the Company's previously stated goals of 6 to 9%
organic sales growth and 15% growth in earnings per share.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
BY: /s/ Eileen A. Kamerick
------------------------------------
Eileen A. Kamerick
Executive Vice President and Chief
Financial Officer
Dated: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Frederick B. Hegi, Jr. Chairman of the Board of Directors March 28, 2001
- ----------------------------------------
Frederick B. Hegi, Jr.
/s/ Randall W. Larrimore President, Chief Executive Officer March 28, 2001
- ---------------------------------------- and a Director
Randall W. Larrimore
/s/ Daniel J. Good Director March 28, 2001
- ----------------------------------------
Daniel J. Good
/s/ Ilene S. Gordon Director March 28, 2001
- ----------------------------------------
Ilene S. Gordon
/s/ Roy W. Haley Director March 28, 2001
- ----------------------------------------
Roy W. Haley
/s/ Max D. Hopper Director March 28, 2001
- ----------------------------------------
Max D. Hopper
/s/ James A. Johnson Director March 28, 2001
- ----------------------------------------
James A. Johnson
/s/ Benson P. Shapiro Director March 28, 2001
- ----------------------------------------
Benson P. Shapiro
/s/ Alex D. Zoghlin Director March 28, 2001
- ----------------------------------------
Alex D. Zoghlin
52