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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 fiscal year ended December 31, 1996
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period
from __________ to ____________
Commission file numbers: United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811
UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
(Exact name of Registrant as specified in its charter)
UNITED STATIONERS INC.: DELAWARE UNITED STATIONERS INC.: 36-3141189
UNITED STATIONERS SUPPLY CO.: ILLINOIS UNITED STATIONERS SUPPLY CO.: 36-2431718
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
(847) 699-5000
(Address, Including Zip Code and Telephone Number, Including Area Code,
of Registrants' Principal Executive Offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
NONE N/A
------------------- ---------------------
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 VOTING STOCK (WHICH CONSISTS SOLELY OF SHARES OF
COMMON STOCK) HELD BY NON-AFFILIATES OF UNITED STATIONERS INC. AS OF MARCH 11,
1997, BASED ON THE LAST SALE PRICE OF THE COMMON STOCK AS QUOTED BY THE NASDAQ
NATIONAL MARKET SYSTEM ON SUCH DATE: $61,807,011. UNITED STATIONERS SUPPLY CO.
HAS NO SHARES OF VOTING STOCK OUTSTANDING HELD BY NON-AFFILIATES.
ON MARCH 11, 1997, UNITED STATIONERS INC. HAD OUTSTANDING 11,446,306 SHARES OF
COMMON STOCK, PAR VALUE $0.10 PER SHARE, AND 758,994 SHARES OF NONVOTING COMMON
STOCK, $0.01 PAR VALUE PER SHARE. ON MARCH 11, 1997, 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 1997 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. AND SUBSIDIARIES
UNITED STATIONERS SUPPLY CO.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
CONTENTS AND CROSS REFERENCE SHEET
FURNISHED PURSUANT TO GENERAL INSTRUCTION G(4) OF FORM 10-K
FORM 10-K FORM 10-K FORM 10-K
PART NO. ITEM NO. DESCRIPTION PAGE NO.
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I Explanatory Note 1
1 Business 1
General 1
Products 1-2
Customers 2
Marketing and Customer Support 3
Distribution 4
Purchasing and Merchandising 4
Competition 4-5
Employees 5
2 Properties 5
3 Legal Proceedings 6
4 Submission of Matters to a Vote of Security
Holders 6
II 5 Market for Registrant's Common Equity
and Related Stockholder Matters 6
Quarterly Stock Price Data 7
6 Selected Consolidated Financial Data 7-10
7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-18
8 Financial Statements and Supplementary Data 18-54
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 55
III 10 Directors and Executive Officers of the
Registrant 55-57
11 Executive Compensation 58
12 Security Ownership of Certain Beneficial
Owners and Management 58
13 Certain Relationships and Related Transactions 58
IV 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 58-64
Signatures 65
PART I
EXPLANATORY NOTE
THIS INTEGRATED FORM 10-K IS FILED PURSUANT TO THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED, FOR EACH OF UNITED STATIONERS INC., A DELAWARE CORPORATION,
AND ITS WHOLLY OWNED SUBSIDIARY, UNITED STATIONERS SUPPLY CO., AN ILLINOIS
CORPORATION (COLLECTIVELY, THE "COMPANY"). UNITED STATIONERS INC. IS A HOLDING
COMPANY WITH NO OPERATIONS SEPARATE FROM ITS OPERATING SUBSIDIARY, UNITED
STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES. NO SEPARATE FINANCIAL INFORMATION
FOR UNITED STATIONERS SUPPLY CO. AND ITS SUBSIDIARIES HAS BEEN PROVIDED HEREIN
BECAUSE MANAGEMENT FOR THE COMPANY BELIEVES SUCH INFORMATION WOULD NOT BE
MEANINGFUL BECAUSE (i) UNITED STATIONERS SUPPLY CO. IS THE ONLY DIRECT
SUBSIDIARY OF UNITED STATIONERS INC., WHICH HAS NO OPERATIONS OTHER THAN THOSE
OF UNITED STATIONERS SUPPLY CO. AND (ii) ALL ASSETS AND LIABILITIES OF UNITED
STATIONERS INC. ARE RECORDED ON THE BOOKS OF UNITED STATIONERS SUPPLY CO. THERE
IS NO MATERIAL DIFFERENCE BETWEEN UNITED STATIONERS INC. AND UNITED STATIONERS
SUPPLY CO. FOR THE DISCLOSURES REQUIRED BY THE INSTRUCTIONS TO FORM 10-K AND
THEREFORE, UNLESS OTHERWISE INDICATED, THE RESPONSES SET FORTH HEREIN APPLY TO
EACH OF UNITED STATIONERS INC. AND UNITED STATIONERS SUPPLY CO.
ITEM 1. BUSINESS
GENERAL
On March 30, 1995, Associated Holdings, Inc., ("Associated"), was merged with
and into United Stationers Inc., ("United"), with United surviving (the
"Merger"). Immediately thereafter, Associated Stationers, Inc. ("ASI"), the
wholly owned subsidiary of Associated, was merged with and into United
Stationers Supply Co. ("USSC"), the wholly owned subsidiary of United, with USSC
surviving. Although United was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation.
The terms "Associated" and "United" will be used to refer to either the
respective pre-Merger corporations or specific aspects of the post-Merger
Company's business. United is the parent company of its direct wholly owned
subsidiary, USSC. Except where the context clearly indicates otherwise,
including references to the capital structure of United Stationers Inc., the
term "Company" hereinafter used includes United Stationers Inc. together with
its subsidiary
On October 31, 1996, USSC acquired all of the capital stock of Lagasse Bros.,
Inc. ("Lagasse"), an $80 million wholesaler of janitorial and sanitary supplies.
Lagasse operates as a subsidiary of USSC.
The Company is the largest general line business products wholesaler in the
United States with 1996 net sales of $2.3 billion. The Company sells its
products through a single national distribution network to more than 15,000
resellers, who in turn sell directly to end users. These products are
distributed through a computer-based network of warehouse facilities and truck
fleets radiating from 41 distribution centers and 14 Lagasse distribution
centers.
PRODUCTS
The Company markets the broadest product line in the industry, including
traditional office products, computer supplies, office furniture, and facilities
and maintenance supplies. As part of the Company's business strategy to acquire
incremental sales and increase market share through complementary product
offerings, the Company began to focus on specialty product segments in 1991 and
has expanded steadily upon this concept since then. The Company's product
offerings, comprised of more than 30,000 items, may be divided into four primary
categories:
1
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 and calendars and various office
accessories. Traditional office products constituted the majority of the
Company's 1996 net sales.
COMPUTERS AND RELATED SUPPLIES. The Company sells brand name computer
supplies, peripherals and hardware to computer resellers and office products
dealers. Such office technology constituted approximately 25% of the Company's
1996 net sales.
OFFICE FURNITURE. The Company's sale of office furniture including leather
chairs, wooden and steel desks and computer furniture has enabled it to become
the nation's largest office furniture wholesaler, with the Company currently
offering nearly 3,000 furniture items from 70 different manufacturers. Office
furniture constituted approximately 14% of the Company's 1996 net sales. The
Company's "Pro-Image" program enables resellers with no previous expertise to
provide high-end furniture and office design services to end-users. The Company
offers national delivery and product "set-up" capabilities to resellers.
OTHER PRODUCTS. The Company's newest product categories encompass the
facilities management supplies market, which includes janitorial and sanitation
supplies, specialty mailroom and warehouse items, kitchen and cafeteria items,
first aid products and ergonomic products designed to enhance worker
productivity, comfort and safety. Additionally, the Company offers its
"Signature Image" program, which provides resellers with access into the
advertising specialties market (such as imprinted and logo items).
CUSTOMERS
The Company sells exclusively to resellers of business products. Its 15,000
customers include commercial, contract and retail office products dealers;
members of affiliated groups; members of buying cooperatives; mega-dealers
linked through common ownership; contract and retail office furniture dealers,
office products superstores; mass merchandisers; computer products resellers;
mail order companies; and sanitary supply distributors. No single reseller
accounted for more than 6% of the Company's net sales in 1996.
Commercial dealers and contract stationers are the most significant reseller
channel for office products distribution and typically serve large businesses,
institutions and government agencies. Through industry consolidation, the number
of such dealers has decreased, with the remaining dealers getting larger. Net
sales to these commercial dealers and contract stationers as a group are growing
rapidly.
The number of retail dealers has been declining for some time as the result of
individual retail dealers' inability to compete successfully with the growing
number of superstores and, more recently, as a result of dealerships being
acquired and brought under an umbrella of common ownership. However, many retail
office products dealers have adapted to this highly competitive environment.
Many retail dealers, commercial dealers and contract stationers have joined
forces in marketing or buying groups in order to increase purchasing leverage.
The Company believes it is the leading wholesale source for many of these
groups, providing not only merchandise but also special programs that enable
these dealers to take advantage of their combined strengths.
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 has also initiated
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.
2
MARKETING AND CUSTOMER SUPPORT
Substantially all of the Company's 30,000 products are sold through its
comprehensive office products catalogs and flyers. These materials include
general line catalogs, promotional pieces and specialty catalogs for the office
products, office furniture, facilities management supplies and other specialty
markets. The Company produces numerous catalogs for placement with dealers' end-
user customers, including the following annual catalogs: General Line Catalog;
Office Furniture Catalog featuring furniture and accessories; Universal Catalog
promoting the Company's private-brand merchandise; Computer Products Catalog
offering hardware, supplies, accessories and furniture; Facilities and
Maintenance Supplies Catalog featuring janitorial, maintenance, food service,
warehouse and mailroom supplies and a Lagasse catalog offering janitorial and
sanitary supplies. In addition, the Company produces the following quarterly
promotional catalogs: Action 2000 and Office Saver, each featuring over 1,000
high-volume commodity items, and Computer Concepts, featuring computer supplies,
peripherals, accessories and furniture. The Company also produces separate 8-
page quarterly flyers covering general office supplies, office furniture 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 catalogs. The Company also offers an
electronic catalog available on CD-Rom and through the Company's web site. This
catalog features 24,000 business products.
In addition to marketing its products and services through the use of its
catalogs, the Company employs a sales force of approximately 160 salespersons.
The sales force is responsible for sales and service to resellers with which the
Company has an existing relationship, as well as for establishing new
relationships with additional resellers. The Company supplements the efforts of
its sales force through telemarketing.
The Company concentrates its marketing efforts on providing value-added services
to resellers. The Company distributes products that are generally available at
similar prices from multiple sources, and most of its customers purchase their
products from more than one source. As a result, the Company seeks to
differentiate itself from its competitors through a broader product offering, a
higher degree of product availability, a variety of high quality customer
services and prompt distribution capabilities. In addition to emphasizing its
broad product line, extensive inventory, computer integration and national
distribution capabilities, the Company's marketing programs have relied upon two
additional major components. First, the Company produces an extensive array of
catalogs for commercial dealers, contract stationers and retail dealers that are
usually custom imprinted with each reseller's name and sold to these resellers
who, in turn, distribute the catalogs to their customers. Second, the Company
provides its resellers with a variety of dealer support and marketing services,
including business management systems, promotional programs and pricing
services. These services are designed to aid resellers in differentiating
themselves from their competitors by addressing the steps in the end-user's
procurement process.
To assist its resellers with pricing, the Company offers matrix pricing
software. Traditionally, many resellers have priced products on a discount from
the manufacturer's suggested retail price, but recently pricing has shifted
toward a net pricing approach, whereby resellers sell certain products at
significant discounts, assuming that it can recapture the discounts through the
sale of other higher margin products. The Company's matrix pricing program
provides resellers with a resource to assist them in identifying the optimum
pricing mix between high and low margin items and, as a result, enables
resellers to more efficiently manage their gross margins.
The Company offers to its resellers a variety of electronic order entry systems
and business management and marketing programs which enhance the resellers'
ability to manage their businesses profitably. For instance, the Company
maintains EDI systems that link the Company to selected resellers, and
interactive order systems that link the Company to selected resellers and such
resellers to the ultimate end-user. In addition, the Company's electronic order
entry systems allow the reseller to seamlessly forward its customers' orders to
the Company, resulting in the delivery of pre-sold products to the reseller or
directly to its customers. The Company estimates that in 1996, approximately 90%
of its orders were received electronically.
3
DISTRIBUTION
The Company has a network of 41 regional distribution centers located in 36
metropolitan areas in 25 states, most of which carry the Company's full line of
inventory. In addition, the Company serves sanitary supply distributors through
14 Lagasse distribution centers. The Company supplements its regional
distribution centers with 24 local distribution points throughout the United
States that serve as reshipment points for orders filled at the regional
distribution centers. The Company utilizes more than 350 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 augmented by its proprietary,
computer-driven 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, which enables it to provide higher
service levels to the reseller, to reduce back orders and to minimize time spent
searching for merchandise substitutes, all of which contribute to the Company's
high order fill rate and efficient levels of inventory balances.
Another service offered by the Company to resellers is its "wrap and label"
program, which allows resellers the option to receive orders in accordance with
the specifications of particular end-users. For example, when a reseller
receives orders from a number of separate end-users, the Company groups and
wraps the items individually by end-user so that the reseller need only deliver
the package. The "wrap and label" program is attractive to resellers because it
eliminates the need to break down case shipments and to repackage the orders
before delivering them to the end-user.
PURCHASING AND MERCHANDISING
As the largest national business products wholesaler in the United States, the
Company has substantial purchasing power and can realize significant economies
of scale. The Company obtains products from over 500 manufacturers. For many of
its manufacturers, the Company believes that it is a significant customer. In
1996, no supplier accounted for more than 11% of the Company's aggregate
purchases. As a centralized corporate function, the Company's merchandising
department interviews and selects suppliers and products for inclusion in the
catalogs. Selection is based upon end-user acceptance and demand for the product
and the manufacturer's total service, price and product quality offering.
COMPETITION
The Company competes with business products manufacturers and with other
national, regional and specialty wholesalers of office products, office
furniture, computer supplies and facility management supplies. Competition
between the Company and manufacturers is based primarily upon net pricing,
minimum order quantity and product availability. Although manufacturers may
provide lower prices to resellers than the Company does, the Company's marketing
and catalog programs, combined with speed of delivery and its ability to offer
resellers a broad line of business products from multiple manufacturers on a
"one-stop shop" basis and with lower minimum order quantities, are important
factors in enabling the Company to compete effectively. See "Marketing and
Customer Support" and "Distribution." Manufacturers typically sell their
products through a variety of distribution channels, including wholesalers and
resellers.
4
Competition between the Company and other wholesalers is based primarily on net
pricing to resellers, breadth of product lines, availability of products, speed
of delivery to resellers, order fill rates and the quality of its marketing and
other services. The Company believes it is competitive in each of these areas.
Most wholesale distributors of business 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 full line of
office products.
Consolidation has occurred in recent years at all levels of the business
products industry. Consolidation of commercial dealers and contract stationers
has resulted in an increased ability of those resellers to buy goods directly
from manufacturers. In addition, over the last decade, office products
superstores (which largely buy directly from manufacturers) have entered
virtually every major metropolitan market.
Increased competition in the business products industry, together with increased
advertising, has heightened price awareness among end-users. As a result,
purchasers of commodity type office products have become extremely price
sensitive, and therefore the Company has increased its efforts to market to
resellers the continuing advantages of its competitive strengths (as compared to
those of manufacturers and other wholesalers), such as marketing and catalog
programs, speed of delivery, and the ability to offer resellers a "one-stop
shop" for a broad line of business products from multiple manufacturers with
lower minimum order quantities. In addition, such heightened price awareness has
led to margin pressure on commodity office products. In the event that such
trend continues, the Company's profit margins could be adversely affected.
EMPLOYEES
At December 31, 1996, the Company employed approximately 4,900 persons.
The Company considers its relationship with its employees to be good.
Approximately 900 of the shipping, warehouse and maintenance employees at
certain of the Chicago, Detroit, Philadelphia, Baltimore, Los Angeles,
Minneapolis and New York City facilities are covered by collective bargaining
agreements. The agreements expire at various times during the next three years.
ITEM 2. PROPERTIES
The Company considers its properties to be suitable and adequate for their
intended uses. These properties consist of the following:
EXECUTIVE OFFICES. The Company's office facility in Des Plaines, Illinois has
approximately 135,800 square feet of office and storage space. In September
1993, approximately 47,000 square feet of office space located in Mt. Prospect,
Illinois was leased by the Company. This lease expires in September of 1999
with an option to renew for two five-year terms.
USSC REGIONAL DISTRIBUTION CENTERS. The Company presently operates 41
distribution centers in 25 states. These centers represent, in total,
approximately 7.1 million square feet, of which approximately 4.3 million is
owned and the balance is leased.
LOCAL DISTRIBUTION POINTS. The Company also operates 24 local distribution
points. Two are leased by the Company; the other local distribution points are
operated through cross-docking arrangements with third party distribution
companies.
LAGASSE DISTRIBUTION CENTERS. Lagasse operates 14 leased distribution centers,
specifically serving janitorial and sanitary supply distributors. These centers
represent, in total, approximately 400,000 square feet. Its New Orleans
distribution center also includes 22,000 square feet of executive office space.
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 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)(UNAUDITED)
THE COMPANY/ASSOCIATED
Income Income (Loss)
(Loss) Per Share
Before Net Before Net Income
Net Gross Extraordi- Income Extraordinary (Loss)
Sales Profit (1) nary Item (Loss) Item (2)(5) Per Share (2)(5)
------------ ---------- ---------- ------ ------------- ----------------
Year Ended
DECEMBER 31, 1996
First Quarter $ 586,881 $102,526 $ 8,209 $ 8,209 $0.51 $0.51
Second Quarter 535,690 87,212 5,273 5,273 0.32 0.32
Third Quarter 576,254 98,207 8,781 8,781 0.56 0.56
Fourth Quarter 599,345 103,016 9,730 9,730 0.63 0.63
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Totals $2,298,170 $390,961 $31,993 $31,993 2.03 2.03
---------- -------- ------ ------
---------- -------- ------ ------
Year Ended
DECEMBER 31, 1995
First Quarter (3) $ 134,997 $ 24,978 ($4,233)(4) ($5,682) ($0.72) ($0.94)
Second Quarter 529,429 90,563 1,524 1,524 0.07 0.07
Third Quarter 537,624 93,818 4,173 4,173 0.27 0.27
Fourth Quarter 549,412 95,154 4,779 4,779 0.29 0.29
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Totals $1,751,462 $304,513 $6,243 $4,794 0.33 0.22
---------- -------- ------ ------
---------- -------- ------ ------
(1) Gross profit is net of delivery and occupancy costs. See Note 3
(Reclassification) to the Consolidated Financial Statements of the Company
included elsewhere herein.
(2) Historical earnings per share amounts have been restated to reflect the
share conversion resulting from the Merger and the 100% stock dividend
effective November 9, 1995. Earnings per share are net of preferred stock
dividends.
(3) Reflects the results of Associated only.
(4) The extraordinary item reflects the write-off of financing costs and
original issue discount relating to the retired debt which was being
amortized over the life of the original debt.
(5) As a result of changes in the number of common and common equivalent shares
during the year, the sum of four quarters' earnings per share will not
equal earnings per share for the total year.
6
QUARTERLY STOCK PRICE DATA
The common stock is quoted through the NASDAQ National Market System under
the symbol "USTR." The following table sets forth on a per share basis,
for the periods indicated, the high and low closing sale prices per share
for the common Stock as reported by the NASDAQ National Market System. All
stock price information has been restated to reflect the 100% stock dividend
effective November 9, 1995.
High Low
1995
First Quarter * *
Second Quarter $9 5/16 $ 8 9/16
Third Quarter $15 1/2 $ 8 11/16
Fourth Quarter $27 3/4 $13 3/4
1996
First Quarter $30 1/4 $21 1/2
Second Quarter $24 1/2 $19 1/2
Third Quarter $24 1/2 $17 1/2
Fourth Quarter $23 $19 1/2
* Due to the significant changes in the Company's capital structure
resulting from the Merger, stock price information for the period prior
to the Merger has not been included as it is not comparable to the
stock price information since the Merger.
On February 28, 1997, there were approximately 1,020 holders of record of common
stock.
The Company does not currently intend to pay any cash dividends on the common
stock. Furthermore, as a holding company, the ability of United to pay
dividends in the future is dependent upon the receipt of dividends or other
payments from its operating subsidiary, USSC. The payment of dividends by
USSC is subject to certain restrictions imposed by the Company's debt
agreements. See Note 5 to the Consolidated Financial Statements of the
Company included elsewhere herein.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below and on the following pages is selected historical consolidated
financial data for the Company and its predecessors. Although United was the
surviving corporation in the Merger, the Acquisition was treated as a reverse
acquisition for accounting purposes, with Associated as the acquiring
corporation. Therefore, the income statement and operating and other data for
the year ended December 31, 1995 reflect the financial information of Associated
only for the three months ended March 30, 1995, and the results of the Company
for the nine months ended December 31, 1995. The balance sheet data at
December 31, 1996 and 1995 reflects the consolidated balances of the Company,
including various Merger-related adjustments. Income statement data for all
periods presented reflects a reclassification of delivery and occupancy costs
to cost of goods sold from operating expenses.
THE COMPANY/ASSOCIATED
The selected consolidated financial data of Associated's predecessor (the
wholesale division of Boise Cascade Office Products Corporation "BCOP") set
forth below for the one-month period ended January 31, 1992 (when Associated
purchased the wholesale division of BCOP (the "Associated Transaction")) are
derived from the unaudited financial statements of Associated's predecessor for
such period. Associated accounted for the Associated Transaction using the
purchase method of accounting. There are material operational and accounting
differences between Associated's predecessor and Associated resulting from the
Associated Transaction. Accordingly, the historical financial data of
Associated's predecessor may not be comparable in all material respects with
data of Associated.
7
The selected consolidated financial data of Associated set forth below for the
period from January 31, 1992 to December 31, 1992 and for the years ended
December 31, 1993 and 1994 has been derived from the Consolidated Financial
Statements of Associated which have been audited by Arthur Andersen LLP,
independent public accountants. The selected consolidated financial data of the
Company for the years ended December 31, 1996 and 1995 (which for Income
Statement and Operating and Other Data includes Associated only for the three
months ended March 30, 1995 and the results of the Company for the nine months
ended December 31, 1995) has been derived from the Consolidated Financial
Statements of the Company which have been audited by Ernst & Young LLP,
independent auditors. All selected consolidated financial data set forth below
should be read in conjunction with, and is qualified in its entirety by,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Historical Results of Operations of the Company/Associated,"
"Liquidity and Capital Resources of the Company/Associated" and the Consolidated
Financial Statements of the Company included elsewhere in this Form 10-K.
PREDECES-
THE COMPANY SOR(1)(2)
----------------------------------------------------------------------- ----------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED JAN 31 TO JAN. 1 TO
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, JAN. 31,
1996 1995 1994 1993 1992 1992 (3)
---------- ---------- ---------- ---------- --------- ---------
(dollars in thousands, except per share data)
Income Statement Data:
Net sales. . . . . . . . . . . . . $2,298,170 $1,751,462 $470,185 $455,731 $359,779 $39,016
Cost of goods sold . . . . . . . . 1,907,209 1,446,949 382,299 375,226 295,668 31,612
---------- ---------- -------- -------- -------- -------
Gross profit. . . . . . . . . . 390,961 304,513 87,886 80,505 64,111 7,404
Operating expenses . . . . . . . . 277,957 246,956 (4) 69,765 69,527 53,758 5,985
---------- ---------- -------- -------- -------- -------
Income from operations. . . . . 113,004 57,557 18,121 10,978 10,353 $ 1,419
-------
-------
Interest expense, net. . . . . . . 57,456 46,186 7,725 7,235 5,626
---------- ---------- -------- -------- --------
Income before income taxes
and extraordinary item . . . 55,548 11,371 10,396 3,743 4,727
Income taxes . . . . . . . . . . . 23,555 5,128 3,993 781 1,777
---------- ---------- -------- -------- --------
Income before extraordinary
item . . . . . . . . . . . . 31,993 6,243 $ 6,403 2,962 2,950
Extraordinary item - loss on
early retirement of debt, net
of tax benefit of $967 . . . - - (1,449) - - - - - -
---------- ---------- -------- -------- --------
Net income . . . . . . . . . . . . $ 31,993 $ 4,794 $ 6,403 $ 2,962 $ 2,950
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Net income attributable to
common stockholders . . . . . . $ 30,249 $ 2,796 $ 4,210 $ 915 $ 1,501
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Net income per common and
common equivalent share
Income before
extraordinary item. . . . $2.03 $0.33 $0.51 $0.11 $0.19
Extraordinary item . . . . . - - (0.11) - - - - - -
----- ----- ----- ----- ----
Net income . . . . . . . . . $2.03 $0.22 $0.51 $0.11 $0.19
----- ----- ----- ----- ----
----- ----- ----- ----- ----
Cash dividends declared per
common share. . . . . . . . . . - - - - - - - - - -
Operating and Other Data:
EBITDA (5) . . . . . . . . . . . . $ 139,046 $ 81,241 $ 23,505 $ 16,481 $ 14,875 $ 1,661
EBITDA margin (6). . . . . . . . . 6.1% 4.6% (7) 5.0% 3.6% 4.1% 4.3%
Depreciation and
amortization (8). . . . . . . . $ 26,042 $ 23,684 $ 5,384 $ 5,503 $ 4,522 $ 242
Capital expenditures . . . . . . . (2,886)(9) 8,017 554 3,273 4,289 (36)
8
THE COMPANY
----------------------------------------------------------------------
AT DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands)
BALANCE SHEET DATA:
Working capital. . . . . . . . . . . . . . . . . . $ 404,973 $ 355,465 $ 56,454 $ 57,302 $ 46,396
Total assets . . . . . . . . . . . . . . . . . . . 1,109,867 1,001,383 192,479 190,979 179,069
Total debt and capital leases (10) . . . . . . . . 600,002 551,990 64,623 86,350 78,297
Redeemable preferred stock . . . . . . . . . . . . 19,785 18,041 23,189 20,996 18,949
Redeemable warrants. . . . . . . . . . . . . . . . 23,812 39,692 1,650 1,435 1,435
Total stockholders' equity . . . . . . . . . . . . 75,820 30,024 24,775 11,422 10,466
(1) The capital structure and accounting basis of the assets and liabilities
of Associated's predecessor differ from those of Associated (i.e. the
Company). Accordingly, certain financial information for the period before
January 31, 1992 is not comparable to that for periods after
January 31, 1992 and therefore is not presented in this table.
(2) Associated's predecessor operated as a segment of a company which did not
allocate income tax or interest expense to the predecessor. Accordingly,
actual operating results for Associated's predecessor reflect only income
from operations before interest expense and income taxes.
(3) Derived from the unaudited financial statements of Associated's predecessor
for the one month ended January 31, 1992.
(4) Includes a restructuring charge of $9.8 million.
(5) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and extraordinary item and is presented because it is commonly
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance and to determine a company's ability to
service and incur debt. EBITDA should not be considered in isolation from
or as a substitute for net income, cash flows from operating activities or
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
profitability or liquidity.
(6) EBITDA margin represents EBITDA as a percent of net sales.
(7) EBITDA margin would have been 5.2% if adjusted to exclude the restructuring
charge.
(8) Excludes amortization of deferred financing costs.
(9) Includes $11.1 million of proceeds from the sale of property, plant and
equipment.
(10) Total debt and capital leases include current maturities.
UNITED
The selected consolidated financial data of United (a predecessor of the
Company) set forth below for the seven months ended March 30, 1995 (at which
time United and Associated merged to create the Company) has been derived from
the Consolidated Financial Statements of United which have been audited by Ernst
& Young LLP, independent auditors. The selected financial data at and for the
seven-month period ended March 31, 1994 is unaudited and in the opinion of
management reflects all adjustments considered necessary for a fair presentation
of such data. The selected consolidated financial data of United for each of the
three fiscal years ended August 31, 1994, 1993 and 1992 have been derived from
the Consolidated Financial Statements of United which have been audited by
Arthur Andersen LLP, independent public accountants. All selected consolidated
financial data set forth
9
below should be read in conjunction with, and is qualified in its entirety by,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Historical Results of Operations of United" and "Historical
Liquidity and Capital Resources of United" and the Consolidated Financial
Statements of United, together with the related notes thereto, included
elsewhere herein.
SEVEN MONTHS ENDED YEAR ENDED AUGUST 31,
------------------------ ----------------------------------------
MARCH 30, MARCH 31,
--------- ---------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
INCOME STATEMENT DATA:
Net sales. . . . . . . . . . . . . . . . . . . . . $ 980,575 $ 871,585 $1,473,024 $1,470,115 $1,094,275
Cost of sales. . . . . . . . . . . . . . . . . . . 814,780 717,546 1,220,245 1,197,664 887,418
--------- --------- ---------- ---------- ----------
Gross profit on sales. . . . . . . . . . . . . . . 165,795 154,039 252,779 272,451 206,857
Operating expenses . . . . . . . . . . . . . . . . 133,098 128,594 216,485 226,337 180,455
Merger-related costs . . . . . . . . . . . . . . . 27,780(1) - - - - - - - -
--------- --------- ---------- ---------- ----------
Income from operations . . . . . . . . . . . . . . 4,917 25,445 36,294 46,114 26,402
Interest expense, net. . . . . . . . . . . . . . . 7,500 5,837 10,461 9,550 6,503
Other income, net. . . . . . . . . . . . . . . . . 41 117 225 355 364
--------- --------- ---------- ---------- ----------
Income (loss) before income taxes. . . . . . . . . (2,542) 19,725 26,058 36,919 20,263
Income taxes.. . . . . . . . . . . . . . . . . . . 4,692 8,185 10,309 15,559 8,899
--------- --------- ---------- ---------- ----------
Net income (loss). . . . . . . . . . . . . . . . . $ (7,234) $ 11,540 $ 15,749 $ 21,360 $ 11,364
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Net income (loss) per common share . . . . . . . . $ (0.39) $ 0.62 $ 0.85 $ 1.15 $ 0.71
Cash dividends declared per share. . . . . . . . . 0.30 0.30 0.40 0.40 0.40
OPERATING AND OTHER DATA:
EBITDA(2). . . . . . . . . . . . . . . . . . . . . 17,553 37,665 57,755 67,712 46,645
EBITDA margin(3) . . . . . . . . . . . . . . . . . 1.8% 4.3% 3.9% 4.6% 4.3%
Depreciation and amortization. . . . . . . . . . . $ 12,595 $ 12,103 $ 21,236 $ 21,243 $ 19,879
Net capital expenditures . . . . . . . . . . . . . 7,764 4,287 10,499 29,958 8,291
BALANCE SHEET DATA (AT PERIOD END):
Working capital. . . . . . . . . . . . . . . . . . 257,600 297,099 239,827 216,074 214,611
Total assets . . . . . . . . . . . . . . . . . . . 711,839 608,728 618,550 634,786 601,465
Total debt and capital leases(4) . . . . . . . . . 233,406 227,626 155,803 150,251 150,728
Stockholders' investment.. . . . . . . . . . . . . 233,125 243,636 246,010 237,697 223,387
(1) In connection with the Merger, United incurred approximately $27.8 million
of Merger-related costs, consisting of severance payments under employment
contracts ($9.6 million); insurance benefits under employment contracts
($7.4 million); legal, accounting and other professional services fees
($5.2 million); retirement of stock options ($3.0 million); and fees for
letters of credit related to employment contracts and other costs ($2.6
million).
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(3) EBITDA margin represents EBITDA as a percentage of net sales.
(4) Total debt and capital leases include current maturities.
10
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 thereto appearing elsewhere in this Form
10-K.
Certain information presented in this Form 10-K includes forward-looking
statements regarding the Company's future results of operations. The Company is
confident that its expectations are based on reasonable assumptions given its
knowledge of its operations and business. However, there can be no assurance
that the Company's actual results will not differ materially from its
expectations. The matters referred to in forward-looking statements may be
affected by the risks and uncertainties involved in the Company's business
including, among others, competition with business products manufacturers and
other wholesalers, consolidation of the business products industry, the ability
to maintain gross profit margins, the ability to achieve future cost savings,
changing end-user demands, changes in manufacturer pricing, service
interruptions and availability of liquidity and capital resources.
OVERVIEW
On March 30, 1995, Associated merged with and into United. Although the Company
was the surviving corporation in the Merger, the transaction was treated as a
reverse acquisition for accounting purposes, with Associated as the acquiring
corporation. Therefore, the results of operations for the year ended December
31, 1995 reflects the financial information of Associated only for the three
months ended March 30, 1995 and the results of the Company for the nine months
ended December 31, 1995. As a result of the Merger, the results of operations of
the Company for the year ended December 31, 1995 are not comparable to those of
previous and subsequent periods.
To facilitate a meaningful comparison, the following supplemental discussion and
analysis is based on certain components of the combined historical results of
operations without any pro forma adjustments for Associated and United for the
year ended December 31, 1994 and on the pro forma results of operations for the
Company for the year ended December 31, 1995. The pro forma and combined
historical results of operations do not purport to be indicative of the results
that would have been obtained had such transactions been completed for the
periods presented or that may be obtained in the future.
GENERAL INFORMATION
GROSS PROFIT MARGINS. In recent years, a number of factors have adversely
affected gross profit margins in the office products industry, including those
of the Company. These factors reflect the increasingly competitive nature of the
industry. Competitive pressures have increased due in part to the growth of
large resellers such as national office products superstores that have
heightened price awareness at the end-user level. The increasing price
sensitivity of end-users has contributed to the decline in industrywide gross
profit margins. These pressures are expected to continue in the future.
The Company's gross profit margins vary across product categories, so that
material changes in its product mix can impact the Company's overall margin. For
example, the gross profit margin on the Company's sales of commodity products,
such as copier paper and laser printer toner--product categories that have grown
over the past few years--tend to be lower than the gross profit margins on most
other product categories. While the recent increase in sales of these types of
products have adversely affected the Company's overall gross profit margin, they
have contributed to higher operating income. The Company expects such sales to
increase as a percentage of revenues in the future.
11
RESTRUCTURING CHARGE. The historical results for the twelve months ended
December 31, 1995 include a restructuring charge of $9.8 million ($5.9 million
net of tax benefit of $3.9 million). The restructuring charge included severance
costs totaling $1.8 million. The Company's consolidation plan specified that
330 distribution, sales and corporate positions, 180 of which related to pre-
Merger Associated, were to be eliminated substantially within one year following
the Merger. The Company has achieved its target, with the related termination
costs of approximately $1.8 million charged against the reserve. The
restructuring charge also included distribution center closing costs totaling
$6.7 million and stockkeeping unit reduction costs totaling $1.3 million. The
consolidation plan called for the closing of eight redundant distribution
centers, six of which related to pre-Merger Associated, and the
elimination of overlapping inventory items from the Company's catalogs
substantially within the one-year period following the Merger. Estimated
distribution center closing costs included (i) the net occupancy costs of leased
facilities after they are vacated until expiration of leases and (ii) the losses
on the sale of owned facilities and the facilities' furniture, fixtures, and
equipment. Estimated stockkeeping unit reduction costs included losses on the
sale of inventory items which have been discontinued solely as a result of the
Acquisition. As of December 31, 1996, five of the six redundant pre-Merger
Associated distribution centers have been closed with $5.5 million charged
against the reserve and $2.0 million related to stockkeeping unit reduction
costs have also been charged against the reserve. As of December 31, 1996, the
Company's consolidation plan has been substantially completed. Seven of the
eight redundant distribution centers have been closed. The restructuring
reserve balance at December 31, 1996 of $0.5 million is expected to be adequate
to cover the remaining estimated expenditures related to integration and
transition costs. See Note 4 to the Consolidated Financial Statements of the
Company included elsewhere herein.
EMPLOYEE STOCK OPTIONS. In September 1995, the Board of Directors approved an
amendment to the Company's employee stock option plan (the "Plan") that allows
for the issuance of employee stock options to key management employees of the
Company exercisable for up to approximately 2.2 million additional shares of
Common Stock. The Plan was designed to build increased employee commitment
through participation in the growth and performance of the Company.
Subsequently, employee stock options exercisable for an aggregate of
approximately 2.2 million shares of Common Stock were granted to key management
employees. Some of the employee stock options were granted at an exercise price
below the then fair market value of the Common Stock. The exercise price of
certain options increases by $0.625 on a quarterly basis effective April 1,
1996.
The employee stock options granted under the Plan do not vest to the employee
until the occurrence of an event (a "Vesting Event") that causes the present
non-public equity investors to have received at least a full return of their
investment (at cost) in cash, fully tradable marketable securities or the
equivalent. A Vesting Event will cause the Company to recognize compensation
expense based upon the difference between the fair market value of the Common
Stock and the exercise prices of the employee stock options. Based upon a
stock price of $19.50 and options outstanding as of December 31, 1996, the
Company would recognize a nonrecurring noncash charge of $18.4 million in
compensation expense ($10.6 million net of tax benefit of $7.8 million), if a
Vesting Event were to occur. Each $1.00 change in the fair market value of
Common Stock could result in a maximum adjustment to such compensation
expense of approximately $2.5 million ($1.4 million net of tax effect of $1.1
million).
CHANGE IN ACCOUNTING METHOD. Effective January 1, 1995, Associated changed its
method of accounting for the cost of inventory from the FIFO method to the LIFO
method. Associated made this change in contemplation of its acquisition of
United (accounted for as a reverse acquisition) so that its method would conform
to that of United. Associated believed that the LIFO method provides a better
matching of current costs and current revenues, and that earnings reported under
the LIFO method are more easily compared to that of other companies in the
wholesale industry where the LIFO method is common. In 1995, this change
resulted in the reduction of pre-tax income of the Company of approximately
$8.8 million ($5.3 million net of tax benefit of $3.5 million). See Note 3
(Inventories) to the Consolidated Financial Statements of the Company included
elsewhere herein.
RECLASSIFICATION OF DELIVERY AND OCCUPANCY COSTS.
During the fourth quarter of 1996, the Company reclassified its delivery and
occupancy costs from operating expenses to cost of goods sold to conform the
Company's presentation to others in the business products industry. See Note 3
(Reclassification) to the Consolidated Financial Statements included elsewhere
herein.
12
ACTUAL, PRO FORMA AND COMBINED RESULTS OF OPERATIONS
The following table of summary actual, pro forma (see Note 4 to the Consolidated
Financial Statements of the Company included elsewhere herein) and combined
historical financial data is intended for informational purposes only and is not
necessarily indicative of either financial position or results of operations in
the future, or that would have occurred had the events described in the first
paragraph under "Overview" occurred on January 1, 1995. The following
information should be read in conjunction with, and is qualified in its entirety
by, the historical Consolidated Financial Statements of the Company and its
predecessors, including the related notes thereto, included elsewhere herein.
The following table also presents unaudited summary combined historical
financial data for Associated and United for the year ended December 31, 1994.
This data has not been prepared in accordance with generally accepted accounting
principles, which do not allow for the combination of financial data for
entities that are not under common ownership. Nevertheless, management believes
that this combined historical financial data, when read in conjunction with the
separate historical financial statements of Associated and United prepared in
accordance with generally accepted accounting principles and included elsewhere
herein, may be helpful in understanding the past operations of the companies
that were combined in the Merger. This combined historical financial data for
1994 represents a combination of the historical financial data for Associated
and United for the periods indicated without any pro forma adjustments, and is
supplemental to the historical financial data of Associated and United included
elsewhere herein.
ACTUAL PRO FORMA COMBINED
--------------------- --------------------- ---------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
(dollars in thousands)
Net sales $2,298,170 100.0% $2,201,860 100.0% $1,990,363 100.0%
Gross profit 390,961 17.0 381,270 17.3 344,542 17.3
Operating expenses 277,957 12.1 299,861 13.6 285,500 14.3
Income from operations 113,004 4.9 81,409 3.7 59,042 3.0
COMPARISON OF ACTUAL RESULTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND PRO
FORMA RESULTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales increased 4.4% to $2,298.2 million for 1996 from $2,201.9
million for 1995. This increase is primarily the result of higher unit sales in
all product categories. In addition, our Micro United division continues to
report strong growth resulting from the underlying strength in the marketplace.
The Company's year-long focus on improving the consistency and reliability of
its service has led to increased sales and higher customer and consumer
satisfaction. The Company's core strengths, coupled with the strategic
initiatives already under way, position it to deliver continued growth in both
sales and earnings.
GROSS MARGIN. Gross margin declined to 17.0% in 1996 from 17.3% in 1995. This
decrease reflects a shift in our product mix, the continuing consolidation of
our dealer base and deflation across our product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent of net sales
to 12.1% in 1996, compared with 13.6% in 1995. This decrease is primarily
due to the realization of merger synergies, cost containment, productivity
improvements and leveraging of fixed expenses. The Company's operating
efficiency allows it to join forces with its customers to produce high levels
of customer and consumer satisfaction. The Company's management believes
there is further room for improvement, primarily through warehouse and
systems efficiencies.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.7% in 1995.
13
COMPARISON OF PRO FORMA RESULTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND
COMBINED RESULTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales were $2,201.9 million for 1995, a 10.6% increase over net
sales of $1,990.4 million in 1994. The increase in net sales was primarily the
result of changes in unit volume rather than changes in prices. Sales grew in
all geographic regions. In addition, the sales growth was attributable to an
increase in the sale of computer-related products through the Company's Micro
United division.
GROSS MARGIN. Gross profit as a percent of net sales was 17.3% in 1995 and
1994. The gross profit margin in 1995 reflects a shift in product mix and a
larger LIFO charge due to Associated's change in its method of accounting for
inventory from the FIFO method to the LIFO method. Also, gross profit was
adversely affected in 1995 by higher sales of computer-related products and
commodity items which typically carry lower gross profit margins, offset by
lower freight and occupancy costs.
OPERATING EXPENSES. Operating expenses as a percent of net sales decreased to
13.6% in 1995 from 14.3% in 1994. The decrease in operating expenses as a
percent of net sales was primarily due to increased operating efficiencies,
improved productivity and increased economies of scale as a result of a higher
sales base.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales was
3.7% in 1995 compared with 3.0% in 1994.
HISTORICAL RESULTS OF OPERATIONS
COMPARISON OF HISTORICAL FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased 31.2% to $2,298.2 million for 1996 from $1,751.5
million for 1995. This increase was primarily the result of the Merger for a
full twelve months in 1996. Sales in 1995 include only nine months of United's
sales.
GROSS MARGIN. Gross margin declined to 17.0% in 1996 from 17.4% in 1995. This
decrease reflects a shift in our product mix, the continuing consolidation of
our dealer base and deflation across our product mix.
OPERATING EXPENSES. Operating expenses decreased as a percent of net sales
to 12.1% in 1996, compared with 14.1% in 1995. The results for 1995 include the
impact of a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million). The decline in the operating expense ratio before the
restructuring charge (12.1% in 1996 versus 13.5% in 1995) was primarily due to
the realization of merger synergies, cost containment, productivity improvements
and leveraging of fixed expenses.
INCOME FROM OPERATIONS. Income from operations as a percent of net sales
increased to 4.9% in 1996 from 3.3% in 1995.
INTEREST EXPENSE. Interest expense as a percent of net sales was 2.5% in
1996, compared with 2.6% in 1995. This reduction reflects the leveraging of
fixed interest costs against higher sales, partially offset by funding required
to acquire Lagasse Bros., Inc. (see Note 1 to the Consolidated Financial
Statements of the Company included elsewhere herein).
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item as a percent of net sales increased to 2.4% in 1996 from
0.7% in 1995.
NET INCOME. Net income as a percent of net sales increased to 1.4% in 1996 from
0.3% in 1995 resulting from the aforementioned reasons. Net income in 1995
includes an extraordinary item, loss on the early retirement of debt related to
the Merger of $2.4 million ($1.4 million net of tax benefit of $1.0 million) or
0.1% of net sales.
14
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are recorded
throughout the year including inventory shrinkage, required LIFO reserve,
manufacturers' allowances, advertising costs and various expense items. During
the fourth quarter of 1996, the Company recorded approximately $3.0 million of
additional net income relating to the refinement of estimates recorded in the
prior three quarters.
COMPARISON OF HISTORICAL FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SALES. Net sales were $1,751.5 million for 1995 compared with $470.2
million in 1994. The increase is primarily the result of the Merger. Sales in
1995 include nine months of United's sales.
GROSS MARGIN. Gross profit as a percent of net sales decreased to 17.4% in
1995 from 18.7% in 1994. The lower gross profit margin reflects a shift in
product mix, the Acquisition and the change in the method of accounting for
inventory from the FIFO method to the LIFO method. See Note 3 (Inventories)
to the Consolidated Financial Statements of the Company included elsewhere
herein.
OPERATING EXPENSES. Operating expenses as a percent of net sales decreased
to 14.1% in 1995 from 14.8% in 1994. The actual results for 1995 include the
impact of a restructuring charge of $9.8 million ($5.9 million net of tax
benefit of $3.9 million) in the first quarter of 1995. Operating expenses
before the restructuring charge were 13.5% in 1995. The decrease in operating
expenses as a percent of net sales before the restructuring charge was
primarily due to increased operating efficiencies and improved productivity,
partially offset by Merger-related compensation expense relating to an
increase in the value of employee stock options of approximately $1.5 million
($0.9 million net of tax benefit of $0.6 million).
INCOME FROM OPERATIONS. Income from operations as a percent of net sales was
3.3% in 1995 (after the restructuring charge) compared with 3.9% in 1994. Before
such restructuring charge, income from operations in 1995 was 3.9%.
INTEREST EXPENSE. Interest expense as a percent of net sales was 2.6% in 1995
compared to 1.7% in 1994. The increase reflects additional debt needed to
consummate the Merger and higher interest rates in 1995.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes
and extraordinary item as a percent of net sales was 0.7% in 1995 compared with
2.2% in 1994.
INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item was $6.2
million in 1995 compared with $6.4 million in 1994. An extraordinary item, the
loss on early retirement of debt related to the Merger of $2.4 million ($1.4
million net of tax benefit of $1.0 million), was recognized in the first quarter
of 1995.
NET INCOME. Net income was $4.8 million in 1995 compared with $6.4 million in
1994. Excluding the extraordinary item, net income would have been $6.2 million.
FOURTH QUARTER RESULTS. Certain interim expense and inventory estimates are
recorded throughout the year relating to shrinkage, inflation and product mix.
The results of the year-end close and physical inventory reflected a favorable
adjustment with respect to such estimates, resulting in approximately $0.9
million of additional net income, which is reflected in the fourth quarter of
1995.
HISTORICAL RESULTS OF OPERATIONS OF UNITED
COMPARISON OF THE SEVEN MONTHS ENDED MARCH 30, 1995 AND 1994
NET SALES. Net sales were $980.6 million in the seven months ended March 30,
1995, a 12.5% increase from net sales of $871.6 million in the comparable period
in 1994. The primary reason for the increase is growth in unit volume.
15
GROSS PROFIT ON SALES. Gross profit as a percent of net sales was 16.9% for the
seven months ended March 30, 1995, compared with 17.7% in the comparable period
in 1994. This lower gross profit margin is primarily the result of a shift in
the sale of computer related products that have lower gross profit margins and
is consistent with the gross profit margins achieved in the latter half of
United's fiscal year ended August 31, 1994.
OPERATING EXPENSES. Operating expenses as a percent of net sales increased to
16.4% in the seven-month period ended March 30, 1995 from 14.8% in the
comparable period in 1994. The increase is primarily attributable to $27.8
million ($18.5 million net of tax benefit of $9.3 million) of non-recurring
Merger-related costs consisting of severance payments under employment
contracts; insurance benefits under employment contracts; legal, accounting and
other professional services fees; the repurchase of stock options; and fees for
letters of credit related to employment contracts and other costs. Operating
expenses as a percent of net sales prior to the Merger-related costs were 13.6%
for the seven-month period ended March 30, 1995. This decline from the
comparable period in 1994 is due to a reduction in payroll expense.
INCOME FROM OPERATIONS Income from operations as a percent of net sales was
0.5% in the seven-month period ended March 30, 1995, compared with 2.9% in the
comparable period in 1994. The decrease was attributable to the Merger-related
costs discussed under "Operating Expenses" above. Income from operations as a
percent of net sales was 3.3% in the seven-month period ended March 30, 1995,
excluding the Merger-related costs.
INTEREST EXPENSE. Interest expense was $7.6 million for the seven-month period
ended March 30, 1995, compared with $6.1 million for the same period in 1994.
The increase was due to higher interest expense from increased debt to meet
working capital and other capital expenditure needs and higher interest rates on
borrowings.
INCOME (LOSS) BEFORE INCOME TAXES. Income (loss) before income taxes as a
percent of net sales was a loss of 0.3% in the seven-month period ended March
30, 1995, compared to income of 2.3% in the comparable period of 1994. The
decrease in income before income taxes was attributable to the factors stated
above.
INCOME TAXES. The effective tax rate for the seven-month period ended March 30,
1995 was (184.6%), compared with 41.5% for the seven-month period ended March
31, 1994. The increase is primarily due to non-deductible Merger-related costs
and non-deductible amortization of goodwill.
NET INCOME (LOSS). Net income (loss) was a loss of $7.2 million for the seven-
month period ended March 30, 1995, compared with income of $11.5 million for the
same period in 1994. The loss was primarily due to $27.8 million ($18.5 million
net of tax benefit of $9.3 million) of non-recurring Merger-related costs
discussed under "Operating Expenses" above. Net income (loss) per share was a
loss of $0.39 in the seven-month period ended March 30, 1995, compared with
income of $0.62 for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY/ASSOCIATED
As of December 31, 1996, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $209.1 million of term
loan borrowings (the "Term Loan Facilities"), and up to $325.0 million of
revolving loan borrowings (the "Revolving Credit Facility"). This agreement was
amended to provide funding for the acquisition of Lagasse Bros., Inc., to extend
the maturities, to adjust the pricing and to revise certain covenants. In
addition, the Company has $150.0 million of 12-3/4% Senior Subordinated Notes
due 2005.
The Term Loan Facilities consist of a $144.4 million Tranche A term loan
facility (the "Tranche A Facility") and a $64.7 million Tranche B term loan
facility (the "Tranche B Facility). Quarterly payments under the Tranche A
facility range from $5.63 million at December 31, 1996 to $8.30 million at
September 30, 2001. Quarterly payments under the Tranche B Facility range from
$0.25 million at December 31, 1996 to $6.64 million at September 30, 2003. On
March 31, 1997, principal payments of $15.9 million and $7.4 million are
required to be paid from Excess Cash Flow (as defined) at December 31, 1996 for
the Tranche A and Tranche B Facilities, respectively.
16
The Revolving Credit Facility is limited to the lesser of $325.0 million or a
borrowing base equal to: 80% of Eligible Receivables (as defined); plus 50% of
Eligible Inventory (as defined) (provided that no more than 60% or, during
certain periods 65%, of the Borrowing Base may be attributable to Eligible
Inventory); plus the aggregate amount of cover for Letter of Credit Liabilities
(as defined). In addition, for each fiscal year, the Company must repay
revolving loans so that for a period of 30 consecutive days in each fiscal year
the aggregate revolving loans do not exceed $250.0 million. The Revolving
Credit Facility matures on October 31, 2001.
The Term Loan Facilities and the Revolving Credit Facility are secured by first
priority pledges of the stock of USSC, all of the stock of the domestic direct
and indirect subsidiaries of USSC, certain of the stock of all of the foreign
direct and indirect subsidiaries of USSC and security interests in, and liens
upon, all accounts receivable, inventory, contract rights and other certain
personal and certain real property of USSC and its domestic subsidiaries.
The loans outstanding under the Term Loan Facilities and the Revolving Credit
Facility bear interest as determined within a set range with the rate based on
the ratio of total debt (excluding any undrawn amounts under any letters of
credit) to EBITDA. The Tranche A Facility and the Revolving Credit Facility
bear interest at prime plus 0.25% to 1.25% or, at the Company's option, LIBOR
plus 1.50% to 2.50%. The Tranche B Facility bears interest at prime plus 1.25%
to 1.75% or, at the Company's option, LIBOR plus 2.50% to 3.00%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financings of this type.
As of December 31, 1996 the Company was in compliance with all covenants
contained in the Credit Agreement.
The Credit Agreement permits capital expenditures for the Company of up to $15.0
million for its fiscal year ending December 31, 1997, plus $6.2 million of
unused capital expenditures, approximately $7.8 million of unused Excess Cash
Flow (as defined), and $11.1 million of proceeds from the disposition of certain
property, plant and equipment from the Company's fiscal year ended December 31,
1996. Capital expenditures will be financed from internally generated funds and
available borrowings under the Credit Agreement. The Company expects gross
capital expenditures to be approximately $14.0 million to $18.0 million in 1997.
Management believes that the Company's cash on hand, anticipated funds generated
from operations and available borrowings under the Credit Agreement, will be
sufficient to meet the short-term (less than twelve months) and long-term
operating and capital needs of the Company as well as to service its debt in
accordance with its terms. There is, however, no assurance that this will be
accomplished.
United is a holding company and, as a result, its primary source of funds is
cash generated from operating activities of its operating subsidiary, USSC, and
bank borrowings by USSC. The Credit Agreement and the indenture governing the
Notes contain restrictions on the ability of USSC to transfer cash to United.
The statements of cash flows for the Company for the periods indicated is
summarized below:
THE COMPANY
-------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
(dollars in thousands)
Net cash provided by operating activities $ 1,609 $ 26,329 $ 14,088
Net cash used in investing activities (49,871) (266,291) (554)
Net cash provided by (used in) financing activities 47,221 249,773 (12,676)
Net cash provided by operating activities for 1996 declined to $1.6 million from
$26.3 in 1995. This reduction was due to an increased investment in inventory
and a decrease in accrued liabilities offset by higher net income and an
increase in accounts payable. The increase in net cash provided by operating
activities of $26.3 million in 1995 from $14.1 million in 1994 was primarily the
result of the Merger.
17
Net cash used in investing activities during 1996 was $49.9 million compared
with $266.3 million in 1995. The decrease is due to the Merger in 1995 offset
by the acquisition of Lagasse Bros., Inc. on October 31, 1996. Also, the
Company collected $11.1 million in 1996 from the successful sale of closed
facilities and related equipment. The increase in net cash used in investing
activities of $266.3 million in 1995 from $0.6 million in 1994 was primarily the
result of the Merger.
Net cash provided by financing activities in 1996 was $47.2 million compared
with $249.8 million in 1995. The decrease was due to the financing of the
Merger in 1995 offset by additional borrowings to finance the purchase of
Lagasse Bros., Inc. The increase in net cash provided by financing
activities of $249.8 million in 1995 from net cash used of $12.7 million in
1994 was also primarily the result of the Merger.
INFLATION/DEFLATION AND CHANGING PRICES
Inflation can have an impact on the Company's earnings. During inflationary
times, the Company generally seeks to increase prices to its customers creating
incremental gross profit resulting from the sale of inventory purchased at lower
prices. Alternatively, significant deflation may adversely affect the Company's
profitability.
SEASONALITY
Although the Company's sales are generally relatively level throughout the year,
the Company's sales vary to the extent of seasonal differences in the buying
patterns of end-users who purchase office products. In particular, the Company's
sales are generally higher than average during the months of January through
March when many businesses begin operating under new annual budgets.
The Company experiences seasonality in terms of its working capital needs, with
highest requirements in December through February reflecting a build up in
inventory prior to and during the peak sales period. The Company believes that
its current availability under the Revolving Credit Facility is sufficient to
satisfy such seasonal capital needs for the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Set forth on the following pages are the financial statements of (i) the Company
for the years ended December 31, 1996, 1995 and 1994 and (ii) pre-Merger United
for the seven months ended March 30, 1995, March 31, 1994 and the twelve months
ended August 31, 1994, 1993 and 1992. Although United was the surviving
corporation in the Merger, the Acquisition was treated as a reverse acquisition
for accounting purposes, with Associated as the acquiring corporation.
Therefore, the statements of income and cash flows for the year ended December
31, 1995 reflect the results of Associated only for the three months ended March
30, 1995, and the results of the Company for the nine months ended December 31,
1995. The financial statements of the Company for the year ended December 31,
1994 reflect the financial position, results of operations and cash flows of
Associated only. The financial statements of pre-Merger United are included
because United is considered a significant predecessor for accounting purposes.
18
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, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years then ended. Our audits also included the
financial statement schedules for 1996 and 1995 listed in the index at Item
14(A). These financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Stationers
Inc. and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the years then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules for 1996 and 1995, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 3 to the consolidated financial statements, in 1995, the
Company changed its method of valuing inventory from the first-in, first-out
(FIFO) method to the last-in, first-out (LIFO) method.
/s/ERNST & YOUNG LLP
Chicago, Illinois
January 28, 1997
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
ASSOCIATED HOLDINGS, INC.
We have audited the accompanying consolidated balance sheets of ASSOCIATED
HOLDINGS, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31,
1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year then ended. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Associated
Holdings, Inc. and subsidiary as of December 31, 1994, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements for 1994
and, in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
Chicago, Illinois
January 23, 1995
20
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share data)
YEAR ENDED
DECEMBER 31,
---------------------------------------------------
1996 1995 1994
---- ---- ----
NET SALES $ 2,298,170 $ 1,751,462 $ 470,185
COST OF GOODS SOLD 1,907,209 1,446,949 382,299
----------- ----------- ----------
Gross profit 390,961 304,513 87,886
OPERATING EXPENSES:
Warehousing, marketing and
administrative expenses 277,957 237,197 69,765
Restructuring charge - - 9,759 - -
----------- ----------- ----------
Total operating expenses 277,957 246,956 69,765
----------- ----------- ----------
Income from operations 113,004 57,557 18,121
INTEREST EXPENSE 57,456 46,186 7,725
----------- ----------- ----------
Income before income taxes
and extraordinary item 55,548 11,371 10,396
INCOME TAXES 23,555 5,128 3,993
----------- ----------- ----------
Income before extraordinary item 31,993 6,243 6,403
EXTRAORDINARY ITEM - LOSS ON EARLY RETIREMENT
OF DEBT, NET OF TAX BENEFIT OF $967 - - (1,449) - -
----------- ----------- ----------
NET INCOME 31,993 4,794 6,403
PREFERRED STOCK DIVIDENDS ISSUED
AND ACCRUED 1,744 1,998 2,193
----------- ----------- ----------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 30,249 $ 2,796 $ 4,210
----------- ----------- ----------
----------- ----------- ----------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE:
Income before extraordinary item $ 2.03 $ 0.33 $ 0.51
Extraordinary item - - (0.11) - -
Net income $ 2.03 $ 0.22 $ 0.51
----------- ----------- ----------
----------- ----------- ----------
AVERAGE NUMBER OF COMMON SHARES 14,923,477 12,913,229 8,308,780
----------- ----------- ----------
----------- ----------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
DECEMBER 31,
------------------------------
1996 1995
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,619 $ 11,660
Accounts receivable, less allowance for doubtful
accounts of $6,318 in 1996 and $7,315 in 1995 291,401 265,827
Inventories 463,239 381,618
Other 25,221 30,903
---------- ----------
TOTAL CURRENT ASSETS 790,480 690,008
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 21,878 24,856
Buildings 97,029 105,136
Fixtures and equipment 102,092 96,467
Leasehold improvements 1,040 1,634
Assets under capital lease 3,002 3,002
---------- ----------
Total property, plant and equipment 225,041 231,095
Less - accumulated depreciation and amortization 51,266 31,114
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 173,775 199,981
GOODWILL 115,449 77,786
OTHER 30,163 33,608
---------- ----------
TOTAL ASSETS $1,109,867 $1,001,383
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
DECEMBER 31,
------------------------------
1996 1995
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital lease $ 46,923 $ 23,886
Accounts payable 238,124 194,567
Accrued expenses 93,789 107,622
Accrued income taxes 6,671 8,468
---------- ----------
TOTAL CURRENT LIABILITIES 385,507 334,543
DEFERRED INCOME TAXES 36,828 34,380
LONG-TERM DEBT 552,613 526,198
OTHER LONG-TERM LIABILITIES 15,502 18,505
REDEEMABLE PREFERRED STOCK
Preferred Stock Series A, $0.01 par value; 15,000 authorized;
5,000 issued and outstanding; 3,086 and
2,437, respectively, accrued 8,086 7,437
Preferred Stock Series C, $0.01 par value; 15,000 authorized;
11,699 and 10,604, respectively, issued and outstanding 11,699 10,604
---------- ----------
TOTAL REDEEMABLE PREFERRED STOCK 19,785 18,041
REDEEMABLE WARRANTS 23,812 39,692
STOCKHOLDERS' EQUITY
Common Stock (voting), $0.10 par value;
40,000,000 authorized; 11,446,306
issued and outstanding 1,145 1,145
Common Stock (nonvoting), $0.01 par value;
5,000,000 authorized; 758,994
issued and outstanding 8 8
Capital in excess of par value 44,418 28,871
Retained earnings 30,249 - -
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 75,820 30,024
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,109,867 $1,001,383
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Number of
Redeemable Preferred Stock Common
-------------------------------------------------- Redeemable Shares
A B C Total Warrants (Voting)
----- ----- ----- ----- -------- --------
DECEMBER 31, 1993 $6,138 $ 5,943 $ 8,915 $20,996 $ 1,435 896,258
Net income - - - - - - - - - - - -
Preferred stock dividends 650 617 926 2,193 - - - -
Other - - - - - - - - - - - -
Issuance of common shares - - - - - - - - - - 58,653
Common shares accrued - - - - - - - - - - 5,435
Warrants accrued - - - - - - - - 215 - -
------ ------- ------- ------- ------- ----------
DECEMBER 31, 1994 6,788 6,560 9,841 23,189 1,650 960,346
Net income - - - - - - - - - - - -
Preferred stock dividends 649 332 763 1,744 - - - -
Repurchase of Series B
preferred stock - - (6,892) - - (6,892) - - - -
Cash dividends - - - - - - - - - - - -
Accretion of warrants to
fair market value - - - - - - - - 37,275 - -
Issuance of warrants from
option grant - - - - - - - - 2,900 - -
Nonvoting common stock
issued for services related to
financing the Acquisition issued
in exchange for common stock,
warrants and options - - - - - - - - (460) (109,159)
Increase in value of stock
option grants - - - - - - - - - - - -
Common stock issued:
Acquisition - - - - - - - - - - 4,831,873
Exercise of warrants - - - - - - - - (1,673) 58,977
100% stock dividend - - - - - - - - - - 5,683,463
Stock option exercises - - - - - - - - - - 20,806
Other - - - - - - - - - - - -
------ ------- ------- ------- ------- ----------
DECEMBER 31, 1995 $7,437 $ - - $10,604 $18,041 $39,692 11,446,306
------ ------- ------- ------- ------- ----------
------ ------- ------- ------- ------- ----------
Number of Total
Common Common Common Capital in Stock-
Stock Shares Stock Excess Retained holders'
(Voting) (Nonvoting) (Nonvoting) of par Earnings Equity
-------- ----------- ----------- ------ -------- ------
DECEMBER 31, 1993 $ 9 - - $ - - $ 8,997 $ 2,416 $11,422
Net income - - - - - - - - 6,403 6,403
Preferred stock dividends - - - - - - - - (2,193) (2,193)
Other - - - - - - 51 - - 51
Issuance of common shares 1 - - - - 8,999 - - 9,000
Common shares accrued - - - - - - 63 - - 63
Warrants accrued - - - - - - 29 - - 29
------ ------- ----- -------- ------- -------
DECEMBER 31, 1994 10 - - - - 18,139 6,626 24,775
Net income - - - - - - - - 4,794 4,794
Preferred stock dividends
issued or accrued - - - - - - (1,744) (1,744)
Repurchase of Series B
preferred stock - - - - - - - - - - - -
Cash dividends - - - - - - - - (254) (254)
Accretion of warrants to
fair market value - - - - - - (28,538) (8,737) (37,275)
Issuance of warrants from
option grant - - - - - - (2,900) - - (2,900)
Nonvoting common stock
issued for services related to
financing the Acquisition issued
in exchange for common stock,
warrants and options (11) 139,474 1 2,749 - - 2,739
Increase in value of stock
option grants - - - - - - 2,407 - - 2,407
Common stock issued:
Acquisition 563 215,614 3 35,223 - - 35,789
Exercise of warrants 6 - - - - 1,673 - - 1,679
100% stock dividend 575 403,906 4 - - (579) - -
Stock option exercises 2 - - - - 28 - - 30
Other - - - - - - 90 (106) (16)
------ ------- ----- -------- ------- -------
DECEMBER 31, 1995 $1,145 758,994 $ 8 $ 28,871 $ - - $30,024
------ ------- ----- -------- ------- -------
------ ------- ----- -------- ------- -------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Number of
Redeemable Preferred Stock Common
-------------------------------------------------- Redeemable Shares
A B C Total Warrants (Voting)
----- ----- ----- ----- -------- --------
DECEMBER 31, 1995 $7,437 $ - - $10,604 $18,041 $39,692 11,446,306
Net Income - - - - - - - - - - - -
Preferred stock dividends
issued or accrued 649 - - 1,095 1,744 - - - -
Reduction of warrants
to fair market value - - - - - - - - (15,880) - -
Decrease in value of
stock option grants - - - - - - - - - - - -
Other - - - - - - - - - - - -
------ ------ ------- ------- ------- ----------
DECEMBER 31, 1996 $8,086 $ - - $11,699 $19,785 $23,812 11,446,306
------ ------ ------- ------- ------- ----------
------ ------ ------- ------- ------- ----------
Number of Total
Common Common Common Capital in Stock-
Stock Shares Stock Excess Retained holders'
(Voting) (Nonvoting) (Nonvoting) of par Earnings Equity
-------- ----------- ----------- ------ -------- ------
DECEMBER 31, 1995 $1,145 758,994 $ 8 $28,871 $ - - $30,024
Net Income - - - - - - - - 31,993 31,993
Preferred stock dividends
issued or accrued - - - - - - - - (1,744) (1,744)
Reduction of warrants
to fair market value - - - - 15,880 - - 15,880
Decrease in value of
stock option grants - - - - - - (339) - - (339)
Other - - - - - - 6 - - 6
------ ------- ---- ------- ------- -------
DECEMBER 31, 1996 $1,145 758,994 $ 8 $44,418 $30,249 $75,820
------ ------- ---- ------- ------- -------
------ ------- ---- ------- ------- -------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
UNITED STATIONERS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
YEAR ENDED
DECEMBER 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,993 $ 4,794 $ 6,403
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 22,766 19,708 4,869
Amortization 8,609 10,564 1,487
Deferred income taxes 5,299 (163) - -
Compensation expense on stock option grants (339) 2,407 - -
Other 1,584 301 307
Changes in operating assets and liabilities,
net of acquisitions:
Increase in accounts receivable (15,379) (32,330) (128)
(Increase) decrease in inventory (71,282) 31,656 (5,579)
Decrease (increase) in other assets 1,814 2,765 (598)
Increase (decrease) in accounts payable 36,352 (5,104) 3,806
(Decease) increase in accrued liabilities (17,185) (3,474) 2,260
(Decrease) increase in other liabilities (2,623) (4,795) 1,261
--------- --------- --------
Net cash provided by operating activities 1,609 26,329 14,088
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions:
United Stationers Inc., net of cash
acquired of $14,500 - - (258,438) - -
Lagasse Bros., Inc. (51,896) - - - -
Capital expenditures (8,190) (8,086) (625)
Proceeds from disposition of property, plant & equipment 11,076 69 71
Other (861) 164 - -
--------- --------- --------
Net cash used in investing activities (49,871) (266,291) (554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolver 22,000 (3,608) (7,900)
Retirements and principal payments of debt (30,861) (412,342) (4,827)
Borrowings under financing agreements 57,933 686,854 - -
Financing costs (1,851) (25,290) - -
Issuance of common stock - - 12,006 - -
Retirement of Series B Preferred Stock - - (6,892) - -
Cash dividend - - (254) - -
Other - - (701) 51
--------- --------- --------
Net cash provided by (used in) financing activities 47,221 249,773 (12,676)
--------- --------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,041) 9,811 858
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,660 1,849 991
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,619 $ 11,660 $ 1,849
--------- --------- --------
--------- --------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND PURCHASE ACCOUNTING
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5% of
the then outstanding shares of the common stock, $0.10 par value ("Common
Stock") of United Stationers Inc. ("United") for approximately $266.6 million in
the aggregate pursuant to a tender offer (the "Offer"). Immediately thereafter,
Associated merged with and into United (the "Merger" and, collectively with the
Offer, the "Acquisition"), and Associated Stationers, Inc. ("ASI"), a wholly
owned subsidiary of Associated merged with and into United Stationers Supply Co.
("USSC"), a wholly owned subsidiary of United, with United and USSC continuing
as the respective surviving corporations. United, as the surviving corporation
following the Merger, is referred to herein as the "Company." As a result of
share conversions in the Merger, immediately after the Merger, (i) the former
holders of common stock and common stock equivalents of Associated owned shares
of Common Stock and warrants or options to purchase shares of Common Stock
constituting in the aggregate approximately 80% of the shares of Common Stock on
a fully diluted basis, and (ii) holders of pre-Merger United common stock owned
in the aggregate approximately 20% of the shares of Common Stock on a fully
diluted basis. Although United was the surviving corporation in the Merger, the
transaction was treated as a reverse acquisition for accounting purposes with
Associated as the acquiring corporation.
The financial information for the year ended December 31, 1995 includes
Associated only for the three months ended March 30, 1995 and the results of the
Company for the nine months ended December 31, 1995. Financial information
prior to 1995 reflects that of Associated only. All common and common
equivalent shares have been adjusted to reflect the 100% stock dividend
effective November 9, 1995.
The Acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon the estimated fair values at the date of
acquisition with the excess of cost over fair value allocated to goodwill. The
purchase price allocation to property, plant and equipment is amortized over the
estimated useful lives ranging from 3 to 40 years. Goodwill is amortized over
40 years.
The total purchase price of United by Associated and its allocation to assets
and liabilities acquired are as follows (dollars in thousands):
Purchase price:
Price of United shares purchased by Associated $ 266,629
Fair value of United shares not acquired in the Offer 21,618
Transaction costs 6,309
---------
Total purchase price $ 294,556
---------
---------
Allocation of purchase price:
Current assets $ 542,993
Property, plant and equipment 151,012
Goodwill 74,503
Other assets 7,699
Liabilities assumed (481,651)
---------
Total purchase price $ 294,556
---------
---------
27
Immediately following the Merger, the number of outstanding shares of Common
Stock was 11,996,154 (or 13,947,440 on a fully diluted basis), of which (i) the
former holders of Class A Common Stock, $0.01 par value, and Class B Common
Stock, $0.01 par value, of Associated (collectively "Associated Common Stock")
and warrants or options to purchase Associated Common Stock in the aggregate
owned 9,206,666 shares constituting approximately 76.7% of the outstanding
shares of Common Stock and outstanding warrants or options for 1,951,286 shares
(collectively 80.0% on a fully diluted basis) and
(ii) pre-Merger holders of shares of Common Stock (other than Associated-owned
and treasury shares) in the aggregate owned 2,789,488 shares of Common Stock
constituting approximately 23.3% of the outstanding shares (or 20.0% on a fully
diluted basis). As used in this paragraph, the term "Common Stock" includes
shares of Nonvoting Common Stock, $0.01 par value, of the Company, which are
immediately convertible into Voting Common Stock.
On October 31, 1996, the Company acquired all of the capital stock of Lagasse
Bros., Inc. ("Lagasse") for approximately $51.9 million. The acquisition was
financed primarily through senior debt . The Lagasse acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets purchased and the liabilities
assumed based upon the estimated fair values at the date of acquisition with
the excess of cost over fair value of approximately $39.0 million allocated to
goodwill. The financial information for the year ended December 31, 1996
includes the results of Lagasse for two months ended December 31, 1996. The
actual and pro forma effects of this acquisition are not material.
2. OPERATIONS
The Company is a national wholesale distributor of business products. The
Company offers approximately 30,000 items from more than 500 manufacturers.
This includes a broad spectrum of office products, computer supplies, office
furniture and facilities management supplies. The Company primarily serves
commercial and contract office products dealers. Its customers include more
than 15,000 resellers -- such as computer products resellers, office furniture
dealers, mass merchandisers, sanitary supply distributors, warehouse clubs, mail
order houses and office products superstores. The Company has a distribution
network of 41 Regional Distribution Centers. Through its integrated computer
system, the Company provides a high level of customer service and overnight
delivery. In addition, the Company has 14 Lagasse Distribution Centers,
specifically serving janitorial and sanitary supply distributors.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when a product is shipped and title is transferred to the
customer in the period the sale is reported.
CASH AND CASH EQUIVALENTS
Investments in low-risk instruments that have original maturities of three
months or less are considered to be cash equivalents. Cash equivalents are
stated at cost which approximates market value.
28
INVENTORIES
Inventories constituting approximately 94% of total inventories at December 31,
1996 and 1995 have been valued under the last-in, first-out (LIFO) method.
Prior to 1995, all inventories were valued under the first-in, first-out (FIFO)
method. Effective January 1, 1995, Associated changed its method of accounting
for the cost of inventory from the FIFO method to the LIFO method. Associated
made this change in contemplation of its acquisition of United (accounted for as
a reverse acquisition) so that its method would conform to that of United.
Associated believed that the LIFO method provided a better matching of current
costs and current revenues and that earnings reported under the LIFO method were
more easily compared to that of other companies in the wholesale industry where
the LIFO method is common. This change resulted in a charge to pre-tax income
of the Company of approximately $8.8 million ($5.3 million net of tax benefit of
$3.5 million) or $0.37 per common and common equivalent share for the year ended
December 31, 1995. The cumulative effect of this accounting change for years
prior to 1995 is not determinable, nor are the pro forma effects of retroactive
application of the LIFO method to prior years. Inventory valued under the FIFO
and LIFO accounting methods are recorded at the lower of cost or market. If the
lower of FIFO cost or market method of inventory accounting had been used by the
Company for all inventories, merchandise inventories would have been
approximately $4.8 million and $8.8 million higher than reported at December 31,
1996 and 1995, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation and
amortization are determined by using the straight-line method over the estimated
useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to ten
years; the estimated useful life assigned to buildings does not exceed 40 years;
leasehold improvements and assets under capital leases are amortized over the
lesser of their useful lives or the term of the applicable lease.
GOODWILL
Goodwill represents the excess cost over the value of net assets of businesses
acquired and is amortized on a straight-line basis over 40 years. The Company
continually evaluates whether events or circumstances have occurred indicating
that the remaining estimated useful life of goodwill may not be appropriate.
When factors indicate that goodwill should be evaluated for possible impairment,
the Company will use an estimate of undiscounted future operating income
compared to the carrying value of goodwill to determine if a write-off is
necessary. The cumulative amount of goodwill amortized at December 31, 1996 and
1995 is $4,047,000 and $1,953,000, respectively.
SOFTWARE CAPITALIZATION
The Company capitalizes major internal and external systems development costs
determined to have benefits for future periods. Amortization is recognized over
the periods in which the benefits are realized, generally not to exceed three
years.
INCOME TAXES
Income taxes are accounted for using the liability method under which deferred
income taxes are recognized for the estimated tax consequences for temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities. Provision has not been made for deferred U.S. income
taxes on the undistributed earnings of the Company's foreign subsidiaries since
these earnings are intended to be permanently invested.
29
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is based on net income after
preferred stock dividend requirements. Primary and fully diluted earnings per
share are based on the weighted average number of common and common equivalent
shares outstanding during the period. Stock options and warrants are considered
to be common equivalent shares.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the local
currency.
RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the 1996
basis of presentation. During the fourth quarter of 1996, the Company
reclassified certain delivery and occupancy costs from operating expenses to
cost of goods sold to conform the Company's presentation to others in the
business products industry. The following table sets forth the impact of the
reclassification for the years presented in the Consolidated Statements of
Income:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1995 (1) 1994 (2)
---- ------- -------
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification 21.0% 21.8% 24.0%
Gross margin as reported 17.0% 17.4% 18.7%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to reclassification 16.1% 17.9% (3) 20.1%
Operating expense ratio as reported 12.1% 13.5% (3) 14.8%
(1) Includes Associated only for the three months ended March 30, 1995 and the
results of the Company for the nine months ended December 31, 1995.
(2) Reflects the results of Associated only.
(3) Excludes a restructuring charge of $9.8 million.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results could differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
During 1996, the Company adopted the supplemental disclosure requirement of
Financial Accounting Standards Board Statement No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages but does
not require adoption of a fair value method of accounting for stock options.
For those entities which do not elect to adopt the fair value method, the new
standard requires supplemental disclosure regarding the pro forma effects of
that method. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25 (APB No. 25). "Accounting for
Stocks Issued to Employees," and related Interpretations. Adoption of SFAS
No. 123 will have no impact on the financial position or results of
operations of the Company.
30
During 1996, the Company adopted Financial Accounting Standards Board Statement
No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that an impairment
loss be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed.
The effect of adoption was not material.
4. BUSINESS COMBINATION AND RESTRUCTURING CHARGE
The following summarized unaudited pro forma operating data for the years ended
December 31, 1995 and 1994 is presented giving effect to the Acquisition as if
it had been consummated at the beginning of the respective periods and,
therefore, reflects the results of United and Associated on a consolidated
basis. These pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations that actually
would have resulted had the combination been in effect on the dates indicated,
or which may result in the future. The pro forma results exclude one-time
nonrecurring charges or credits directly attributable to the transaction
(dollars in thousands, except share data):
PRO FORMA TWELVE MONTHS
-------------------------
ENDED DECEMBER 31,
-------------------------
1995 1994
---------- ----------
Net sales $2,201,860 $1,990,363
Income before income taxes 22,737 4,237
Net income 13,063 2,581
Net income per primary and
fully diluted common and
common equivalent share $0.80 $0.07
The pro forma income statement adjustments consist of (i) increased depreciation
expense resulting from the write-up of certain fixed assets to fair value, (ii)
additional incremental goodwill amortization, (iii) additional incremental
interest expense due to debt issued, net of debt retired, and (iv) reduction in
preferred stock dividends due to the repurchase of the Series B preferred stock.
The historical results for the twelve months ended December 31, 1995 included
a restructuring charge of $9.8 million ($5.9 million net of tax benefit of
$3.9 million). The restructuring charge included severance costs totaling
$1.8 million. The Company's consolidation plan specified that 330
distribution, sales and corporate positions, 180 of which related to
pre-Merger Associated, were to be eliminated substantially within one year
following the Merger. The Company has achieved its target, with the related
termination costs of approximately $1.8 million charged against the reserve.
The restructuring charge also included distribution center closing costs
totaling $6.7 million and stockkeeping unit reduction costs totaling $1.3
million. The consolidation plan called for the closing of eight redundant
distribution centers, six of which related to pre-Merger Associated, and the
elimination of overlapping inventory items from the Company's catalogs
substantially within the one-year period following the Merger. Estimated
distribution center closing costs included (i) the net occupancy costs of
leased facilities after they are vacated until expiration of leases and (ii)
the losses on the sale of owned facilities and the facilities' furniture,
fixtures, and equipment. Estimated stockkeeping unit reduction costs
included losses on the sale of inventory items which have been discontinued
solely as a result of the Acquisition. As of December 31, 1996, five of the
six redundant pre-Merger Associated distribution centers have been closed
with $5.5 million charged against the reserve and $2.0 million related to
stockkeeping unit reduction costs have also been charged against the reserve.
As of December 31, 1996, the Company's consolidation plan has been
substantially completed. Seven of the eight redundant distribution centers
have been closed. The restructuring reserve balance at December 31, 1996 of
$0.5 million is expected to be adequate to cover the remaining estimated
expenditures related to integration and transition costs.
31
The historical results for 1995 also included an extraordinary charge of
approximately $2.4 million ($1.4 million net of tax benefit of $1.0 million) of
financing costs and original issue discount relating to the debt retired. In
addition, the historical results for 1995 included compensation expense relating
to an increase in the value of employee stock options of approximately $1.5
million ($0.9 million net of tax benefit of $0.6 million) as a result of the
Acquisition and Merger. The pro forma twelve months ended December 31, 1995 do
not include the extraordinary write-off.
5. LONG-TERM DEBT
Long-term debt consists of the following amounts (dollars in thousands):
1996 1995
---- ----
Revolver $207,000 $185,000
Term Loans
Tranche A, due in installments until September 30, 2001 144,374 - -
Tranche B, due in installments until September 30, 2003 64,750 - -
Tranche A, due in installments until March 31, 2000 - - 110,053
Tranche B, due in installments until March 31, 2002 - - 71,837
Senior Subordinated Notes 150,000 150,000
Mortgage at 9.4%, due in installments until 1999 2,071 2,174
Industrial development bonds, at market interest rates,
maturing at various dates through 2011 14,300 14,300
Industrial development bonds, at 66% to 79% of prime,
maturing at various dates through 2004 15,500 15,500
Other long-term debt 175 313
-------- --------
598,170 549,177
Less - current maturities (45,557) (22,979)
-------- --------
$552,613 $526,198
-------- --------
-------- --------
The prevailing prime interest rate at the end of 1996 and 1995 was 8.25% and
8.5%, respectively.
As of December 31, 1996, the credit facilities under the Amended and Restated
Credit Agreement (the "Credit Agreement") consisted of $209.1 million of term
loan borrowings (the "Term Loan Facilities"), and up to $325.0 million of
revolving loan borrowings (the "Revolving Credit Facility"). This agreement was
amended to provide funding for the acquisition of Lagasse Bros., Inc., to extend
the maturities, adjust the pricing and to revise certain covenants. In
addition, the Company has $150.0 million of 12-3/4% Senior Subordinated Notes
due 2005 (the "Notes").
The Term Loan Facilities consist of a $144.4 million Tranche A term loan
facility (the "Tranche A Facility") and a $64.7 million Tranche B term loan
facility (the "Tranche B Facility). Quarterly payments under the Tranche A
facility range from $5.63 million at December 31, 1996 to $8.30 million at
September 30, 2001. Quarterly payments under the Tranche B Facility range
from $0.25 million at December 31, 1996 to $6.64 million at September 30,
2003. On March 31, 1997, principal payments of $15.9 million and $7.4
million are required to be paid from Excess Cash Flow (as defined in the
Credit Agreement) at December 31, 1996 for the Tranche A and Tranche B
Facilities, respectively.
The Revolving Credit Facility is limited to the lesser of $325.0 million or a
borrowing base equal to: 80% of Eligible Receivables (as defined in the
Credit Agreement); plus 50% of Eligible Inventory (as defined in the Credit
Agreement) (provided that no more than 60% or, during certain periods 65%, of
the Borrowing Base may be attributable to Eligible Inventory); plus the
aggregate amount of cover for Letter of Credit Liabilities (as defined in the
Credit Agreement). In addition, for each fiscal year, the Company must repay
revolving loans so that for a period of 30 consecutive days in each fiscal
year the aggregate revolving loans do not exceed $250.0 million. The
Revolving Credit Facility matures on October 31, 2001.
32
The Term Loan Facilities and the Revolving Credit Facility are secured by first
priority pledges of the stock of USSC, all of the stock of the domestic direct
and indirect subsidiaries of USSC, certain of the stock of all of the foreign
direct and indirect subsidiaries of USSC and security interests in, and liens
upon, all accounts receivable, inventory, contract rights and other certain
personal and certain real property of USSC and its domestic subsidiaries.
The loans outstanding under the Term Loan Facilities and the Revolving Credit
Facility bear interest as determined within a set range with the rate based
on the ratio of total debt to earnings before interest, taxes, depreciation
and amortization ("EBITDA"). The Tranche A Facility and the Revolving Credit
Facility bear interest, at prime plus 0.25% to 1.25% or, at the Company's
option, LIBOR plus 1.50% to 2.50%. The Tranche B Facility bears interest at
prime plus 1.25% to 1.75% or, at the Company's option, LIBOR plus 2.50% to
3.00%.
The Credit Agreement contains representations and warranties, affirmative and
negative covenants and events of default customary for financings of this
type. As of December 31, 1996, the Company was in compliance with all
covenants contained in the Credit Agreement.
The Company is exposed to market risk for changes in interest rates. The
Company may enter into interest rate protection agreements, including collar
agreements, to reduce the impact of fluctuations in interest rates on a portion
of its variable rate debt. Such agreements generally require the Company to pay
to or entitle the Company to receive from the other party the amount, if any, by
which the Company's interest payments fluctuate beyond the rates specified in
the agreements. The Company is subject to the credit risk that the other party
may fail to perform under such agreements. The Company's allocated cost of such
agreements is amortized to interest expense over the term of the agreements, and
the unamortized cost is included in other assets. Payments received or made as
a result of the agreements, if any, are recorded as an addition or a reduction
to interest expense. At December 31, 1996, the Company had agreements which
collar $200.0 million of the Company's borrowings under the Credit Facilities at
interest rates between 8.0% and 6.0%, which expire in April 1998. For the years
ended December 31, 1996 and 1995, the Company recorded $0.9 million and $0.1
million, respectively, to interest expense resulting from interest rate
fluctuations beyond the rates specified in the collar agreements.
The right of United to participate in any distribution of earnings or
assets of USSC is subject to the prior claims of the creditors of USSC. In
addition, the Credit Agreement contains certain restrictive covenants, including
covenants that restrict or prohibit USSC's ability to pay dividends and make
other distributions to United.
Debt maturities for the years subsequent to December 31, 1996 are as follows
(dollars in thousands):
Year Amount
- ---- ------
1997 $45,557
1998 26,609
1999 32,724
2000 34,717
2001 242,996
Later Years 215,567
- --------------------------------------------------
$598,170
- --------------------------------------------------
- --------------------------------------------------
At December 31, 1996 and 1995, the Company had available letters of credit of
$55.3 million and $56.0 million, respectively, of which $52.8 million and $56.0
million, respectively, were outstanding.
33
6. LEASES
The Company has entered into several non-cancelable long-term leases for
property and equipment. Future minimum lease payments for non-cancelable leases
in effect at December 31, 1996 having initial remaining terms of more than one
year are as follows (dollars in thousands):
Capital Operating
Year Lease Leases (1)
- ---- ----- ---------
1997 $1,479 $18,191
1998 487 15,452
1999 - - 13,000
2000 - - 10,285
2001 - - 8,185
Later years - - 21,660
- ------------------------------------------------------------ -------
Total minimum lease payments 1,966 $86,773
-------
-------
Less amount representing interest 134
- ------------------------------------------------------------
Present value of net minimum
lease payments (including current
portion of $1,366) $1,832
- ------------------------------------------------------------
- ------------------------------------------------------------
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $18.8 million, $14.2
million and $3.0 million in 1996, 1995 and 1994, respectively.
7. PENSION PLANS AND DEFINED CONTRIBUTION PLAN
PENSION PLANS
In connection with the Merger and Acquisition, the Company assumed the pension
plans of United. Associated did not have a pension plan. Former Associated
employees entered the pension plans on July 1, 1996. As of this date, the
Company has pension plans covering substantially all of its employees. Non-
contributory plans covering non-union employees provide pension benefits that
are based on years of credited service and a percentage of annual compensation.
Non-contributory plans covering union members generally provide benefits of
stated amounts based on years of service. The Company funds the plans in
accordance with current tax laws.
The following table sets forth the plans' funded status at December 31, 1996 and
1995 (dollars in thousands):
1996 1995
- ------------------------------------------------------------------------------
Actuarial Present Value of Benefit Obligation
Vested benefits $19,015 $ 18,776
Non-vested benefits 1,431 1,996
- ------------------------------------------------------------------------------
Accumulated benefit obligation 20,446 20,772
Effect of projected future compensation levels 3,110 2,861
- ------------------------------------------------------------------------------
Projected benefit obligation 23,556 23,633
Plan assets at fair value 28,373 26,713
- ------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 4,817 3,080
Unrecognized prior service cost 720 - -
Unrecognized net gain due to past
experience different from assumptions (4,348) (507)
- ------------------------------------------------------------------------------
Prepaid pension asset recognized
in the Consolidated Balance Sheets $1,189 $ 2,573
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
34
The plans' assets consist of corporate and government debt securities and equity
securities. Net periodic pension cost for 1996 and 1995 for pension and
supplemental benefit plans includes the following components (dollars in
thousands):
1996 1995
- ------------------------------------------------------------------------------
Service cost-benefit earned during the period $1,884 $ 1,142
Interest cost on projected benefit obligation 1,652 1,157
Actual return on assets (3,468) (2,711)
Net amortization and deferral 1,495 1,382
- ------------------------------------------------------------------------------
Net periodic pension cost $1,563 $ 970
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The assumptions used in accounting for the Company's defined benefit plans for
the two years presented are set forth below:
1996 1995
- ------------------------------------------------------------------------------
Assumed discount rate 7.5% 7.25%
Rates of compensation increase 0.0%-5.5% 0.0%-5.5%
Expected long-term rate of return on plan assets 7.5% 7.5%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
DEFINED CONTRIBUTION
The Company has a defined contribution plan in which all salaried employees and
certain hourly paid employees of the Company are eligible to participate
following completion of six consecutive months of employment. The plan permits
employees to have contributions made as 401(k) salary deferrals on their behalf,
or as voluntary after-tax contributions, and provides for Company contributions,
or contributions matching employee salary deferral contributions, at the
discretion of the Board of Directors. The Company has no present intention to
make Company contributions other than matching contributions. Company
contributions for matching of employee contributions were approximately $0.9
million, $0.6 million and $0.3 million in 1996, 1995 and 1994, respectively.
8. POSTRETIREMENT BENEFITS
In connection with the Merger, the Company assumed the postretirement plan of
United on March 30, 1995. Associated did not have a postretirement plan. The
plan is unfunded and provides health care benefits to substantially all retired
non-union employees and their dependents. Eligibility requirements are based on
the individual's age (minimum age of 55), years of service and hire date. The
benefits are subject to retiree contributions, deductibles, co-payment
provisions and other limitations. Retirees pay one-half of the projected plan
costs.
The following table sets forth the amounts recognized in the Company's
Consolidated Balance Sheets as of December 31, 1996 and 1995 (dollars in
thousands):
1996 1995
- ------------------------------------------------------------------------------
Retirees $ (877) $ (762)
Other fully eligible plan participants (632) (697)
Other active plan participants (1,588) (1,362)
- ------------------------------------------------------------------------------
Total APBO (3,097) (2,821)
Unrecognized net (gain)/loss (1) 76
- ------------------------------------------------------------------------------
Accrued postretirement
benefit obligation $(3,098) $(2,745)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The cost of postretirement health care benefits for the year ended December 31,
1996 and 1995 were as follows (dollars in thousands):
1996 1995
- ------------------------------------------------------------------------------
Service cost $239 $161
Interest on accumulated
benefit obligation 204 109
- ------------------------------------------------------------------------------
Net postretirement benefit cost $443 $270
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
35
The assumptions used in accounting for the Company's postretirement plan for the
two years presented are set forth below (dollars in thousands):
1996 1995
- ------------------------------------------------------------------------------
Assumed average heath care cost trend rate 3.0% 3.0%
Assumed discount rate 7.5% 7.5%
Impact of 1% increase in health care costs on:
Accumulated benefit obligation $450 $396
Annual service and interest cost $ 79 $ 46
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
9. STOCK OPTION PLAN
The Management Equity Plan (the "Plan"), as amended, is administered by the
Board of Directors, although the Plan provides that the Board of Directors of
the Company may designate an option committee to administer the Plan.
In September 1995, the Company's Board of Directors approved an amendment to the
Plan which provided for the issuance of options to key management employees of
the Company exercisable for up to 2.2 million additional shares of its Common
Stock. Subsequently, approximately 2.2 million options were granted during 1995
and 1996 to management employees. Some of the options were granted at an option
price below market value and the option price of certain options increases by
$0.625 on a quarterly basis effective April 1, 1996.
The stock options granted under the Plan do not vest to the employee until
the occurrence of an event (a "Vesting Event") that causes the present
non-public equity investors to have received at least a full return of their
investment (at cost) in cash, fully tradable marketable securities or the
equivalent. A Vesting Event will cause the Company to recognize compensation
expense based upon the difference between the fair market value of the Common
Stock and the exercise prices of the stock options. If a Vesting Event were
to occur, based upon a stock price of $19.50, the Company would recognize a
nonrecurring noncash charge of $18.4 million in compensation expense ($10.6
million net of tax benefit of $7.8 million). Each $1.00 change in the fair
market value of Common Stock price could result in a maximum adjustment to
such compensation expense of approximately $2.5 million ($1.4 million net of
tax effect of $1.1 million).
An optionee under the Plan must pay the full option price upon exercise of an
option (i) in cash, (ii) with the consent of the Board of Directors of the
Company, by delivering shares of Common Stock already owned by such optionee
(including shares to be received upon exercise of the option) and having a fair
market value at least equal to the exercise price or (iii) in any combination of
the foregoing. The Company may require the optionee to satisfy federal tax
withholding obligations with respect to the exercise of options by (i)
additional withholding from the employee's salary, (ii) requiring the optionee
pay in cash or (iii) reducing the number of shares of Common Stock to be issued
(except in the case of incentive options).
The following table summarizes the transactions of the Plan for the last three
years:
Management Equity Plan Weighted Average Weighted Average Weighted Average
(excluding restricted stock) 1996 Exercise Prices 1995 Exercise Prices 1994 Exercise Prices
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at
beginning of the period 2,030,996 $10.73 217,309 $ 1.45 367,160 $1.45
- -----------------------------------------------------------------------------------------------------------------------------------
Granted 650,772 $ 7.95 1,854,649 $11.65 28,694 $1.45
- -----------------------------------------------------------------------------------------------------------------------------------
Exercised - - - - (20,804) $ 1.45 - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Canceled (184,000) $ 7.64 (20,158) $ 1.45 (178,545) $1.45
- -----------------------------------------------------------------------------------------------------------------------------------
Options outstanding at
end of the period 2,497,768 $11.61 2,030,996 $10.73 217,309 $1.45
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
36
The following table summarizes information concerning outstanding options of the
Plan at December 31, 1996:
Remaining
Exercise Number Contractual
Prices Outstanding Life (years)
- -------------------------------------------------
$ 1 45 385,120 5.09
- -------------------------------------------------
$ 5.12 207,148 5.74
- -------------------------------------------------
$14.38 1,905,500 5.74
- -------------------------------------------------
2,497,768
- -------------------------------------------------
- -------------------------------------------------
All share and per share data have been restated to reflect the 100% stock
dividend effective November 9, 1995 and the conversion of Associated common
stock as a result of the Merger.
During 1996, the Company adopted the supplemental disclosure requirements of
SFAS No. 123. Accordingly, the Company is required to disclose pro forma net
income and earnings per share as if the fair value-based accounting method in
SFAS No. 123 had been used to account for stock-based compensation cost. The
Company's stock options granted under the Plan are considered "all or nothing"
awards since the options do not vest to the employee until the occurrence of a
Vesting Event. The fair value of "all or nothing" awards are measured at the
grant date; however, amortization of compensation expense only begins when it is
probable that the awards will vest and be earned. Presently, the Company
believes that it is less than likely that a Vesting Event will occur.
Therefore, there is no compensation expense for pro forma purposes and pro forma
net income and earnings per share are the same as that recorded on the face of
the income statement.
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 1996 and
1995 were as follows:
1996 1995
- ------------------------------------------------------------------------------
Fair value of options granted $17.67 $ 9.33
Exercise price $ 8.59 $11.65
Expected stock price volatility 80.7% 102.2%
Expected dividend yield 0.0% 0.0%
Risk-free interest rate 5.2% 5.9%
Expected life of options 2 years 3 years
10. REDEEMABLE PREFERRED STOCK
At December 31, 1996 and 1995, the Company had 1,500,000 authorized shares of
$0.01 par value preferred stock, of which 15,000 shares were designated as
Series A preferred stock, 15,000 shares were designated as Series B preferred
stock, 15,000 shares were designated as Series C preferred stock, and
1,455,000 shares remained undesignated. Series B and C preferred stock are
junior in relation to the Series A preferred stock. All preferred stock
issued at the date of inception was valued at the amount of cash paid or
assets received for the stock at $1,000 per share. On July 28, 1995, the
Company repurchased all 6,892 shares of Series B preferred stock issued and
outstanding for $7.0 million, including accrued and unpaid dividends thereon.
All outstanding shares of preferred stock are senior in preference to the
Common Stock of United.
Series A preferred stock must be redeemed by the Company on or before July
31, 2006. Dividends are cumulative at a rate of 10% per annum, payable
quarterly. In the event that the Company does not pay dividends in cash, the
dividend rate increases to 13% per annum and is payable in stock. During
each of the years ended December 31, 1996, 1995, and 1994, 649 shares of
Series A preferred stock were accrued but not issued. As of December 31,
1996 and 1995, 3,086 and 2,437 shares, respectively, of Series A preferred
stock have been accrued as dividends but not issued.
37
Series C preferred stock is redeemable in four consecutive quarterly
installments commencing on April 30, 2001. Dividends are cumulative at a rate
of 9% per annum, payable quarterly. In the event that the Company does not pay
dividends in cash, the dividend rate increases to 10% per annum and is payable
in stock. During the year ended December 31, 1996, noncash dividends were
declared and issued for Series C preferred stock in the amount of 1,095 shares.
During the year ended December 31, 1995, noncash dividends were declared and
issued for both Series B and C preferred stock in the amount of 332 and 763
shares, respectively. In addition, during 1995 a cash dividend of approximately
$254,000 was paid to Series C preferred stockholders in connection with the
repurchase of Series B preferred stock. During the year ended December 31,
1994, non-cash dividends were declared and issued for both Series B and C
preferred stock in the amount of 617 and 926 shares, respectively.
All series of preferred stock may be redeemed at the option of the Company at
any time. All series of preferred stock have a redemption and liquidation value
of $1,000 per share plus the aggregate of accrued and unpaid dividends on such
shares to date. Required redemption of preferred stock for the five years
following the year ended December 31, 1996 is $14.0 million in 2001 for the
Series C preferred stock.
11. REDEEMABLE WARRANTS
The Company had 1,227,438 and 1,430,468 warrants ("Lender Warrants") outstanding
as of December 31, 1996 and 1995, respectively, which allow holders thereof to
buy shares of Common Stock at an exercise price of $0.10 per share. Outstanding
Lender Warrants as of December 31, 1996 and 1995 were valued at $19.50 and
$27.75 per warrant, respectively. During 1996, 203,030 warrants were
contributed back to the Company and terminated in connection with anti-dilution
agreements. The exercise period for Lender Warrants expires January 31, 2002.
During 1995, 117,954 warrants were exercised, 284,484 warrants were issued or
accrued resulting from anti-dilution agreements and 47,153 were contributed back
to the Company and terminated in connection with fees paid by the Company
relating to the issuance of the Notes.
The Lender Warrants contain certain put rights which allow the holders thereof
to put the warrants to the Company. The purchase price payable upon the
exercise of the put rights is the greater of the then fair market value or
equity value of the warrants, as defined, less the applicable exercise price of
the warrants. Payment of the Lender Warrants can only occur after repayment of
all debt outstanding under the Credit Agreement or with the consent of the
lenders and/or agent under the Credit Agreement.
12. TRANSACTIONS WITH RELATED PARTIES
The Company has management advisory service agreements with three investor
groups. These investor groups provide certain advisory services to the Company
in connection with the Acquisition as defined below.
Pursuant to an agreement, Wingate Partners, L.P. ("Wingate Partners") had agreed
to provide certain oversight and monitoring services to the Company in exchange
for an annual fee of up to $725,000, payment (but not accrual) of which is
subject to restrictions under the Credit Agreement related to certain Company
performance criteria. At the Merger, the Company paid aggregate fees to Wingate
Partners of $2.3 million for services rendered in connection with the
Acquisition. Wingate Partners earned an aggregate of $725,000, $603,000 and
$350,000 with respect to each of the fiscal years ended 1996, 1995 and 1994,
respectively, for such oversight and monitoring services. Under the agreement,
the Company is obligated to reimburse Wingate Partners for its out-of-pocket
expenses and indemnify Wingate Partners and its affiliates from loss in
connection with these services. The agreement expires on January 31, 2002,
provided that the agreement continues in effect on a year-to-year basis
thereafter unless terminated in writing by one of the parties at least 180 days
before the expiration of the primary term or any subsequent yearly term.
38
Pursuant to an agreement, Cumberland Capital Corporation ("Cumberland") has
agreed to provide certain oversight and monitoring services to the Company in
exchange for (i) an annual fee of up to $137,500, payment (but not accrual) of
which is subject to restrictions under the Credit Agreement related to certain
Company performance criteria and (ii) previously issued shares of Associated
Common Stock that converted in the Merger into 154,126 shares. Subject to
certain exceptions, the issuance of such shares is subject to rescission if the
agreement is terminated before January 31, 2002. At the Merger, the Company
paid aggregate fees to Cumberland of $100,000 for services rendered in
connection with the Acquisition. Pursuant to the agreement, Cumberland earned
an aggregate of $137,500, $129,000 and $75,000 with respect to the fiscal years
ended 1996, 1995 and 1994, respectively, for such oversight and monitoring
services. The Company is also obligated to reimburse Cumberland for its out-of-
pocket expenses and indemnify Cumberland and its affiliates from loss in
connection with these services. The agreement expires on January 31, 2002,
provided that the agreement continues in effect on a year-to-year basis
thereafter unless terminated in writing by one of the parties at least 180 days
before the expiration of the primary term or any subsequent yearly term.
Pursuant to an agreement, Good Capital Co., Inc. ("Good Capital") has an
agreement to provide certain oversight and monitoring services to the Company in
exchange for (i) an annual fee of up to $137,500, payment (but not accrual) of
which is subject to restrictions under the Credit Agreement related to certain
Company performance criteria and (ii) previously issued shares of Associated
Common Stock that converted in the Merger into 154,126 shares. Subject to
certain exceptions, the issuance of such shares is subject to rescission if the
agreement is terminated before January 31, 2002. At the Merger, the Company
paid aggregate fees to Good Capital of $100,000 for services rendered in
connection with the Acquisition. Pursuant to the agreement, Good Capital earned
an aggregate of $137,500, $129,000 and $75,000 in each of the fiscal years ended
1996, 1995 and 1994, respectively, for such oversight and monitoring services.
The Company is also obligated to reimburse Good Capital for its out-of-pocket
expenses and indemnify Good Capital and its affiliates from loss in connection
with these services. The agreement expires on January 31, 2002, provided that
the agreement continues in effect thereafter on a year-to-year basis unless
terminated in writing by one of the parties at least 180 days before the
expiration of the primary term or any subsequent yearly term.
13. INCOME TAXES
The provision for (benefit from) income taxes consists of the following (dollars
in thousands):
Year Ended December 31,
---------------------------
1996 1995 1994
------- ------ ------
Currently payable -
Federal $14,724 $4,172 $3,090
State 3,532 1,119 903
------- ------ ------
Total currently payable 18,256 5,291 3,993
Deferred, net -
Federal 4,614 (142) (24)
State 685 (21) 24
------- ------ ------
Total deferred, net 5,299 (163) - -
------- ------ ------
Provision for income taxes $23,555 $5,128 $3,993
------- ------ ------
------- ------ ------
39
The Company's effective income tax rates for the years ended December 31, 1996,
1995 and 1994 varied from the statutory Federal income tax rate as set forth in
the following table (dollars in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ---------------------
% of % of % of
Pre-tax Pre-tax Pre-tax
Amount Income Amount Income Amount Income
------ ------ ------- ------ ------ ------
Tax provision based on the
federal statutory rate $19,442 35.0% $3,980 35.0% $3,535 34.0%
State and local income taxes -
net of federal income tax
benefit 3,000 5.4 705 6.2 607 5.8
Non-deductible and other 1,113 2.0 443 3.9 (149) (1.4)
------- ---- ------ ---- ------ ----
Provision for income taxes $23,555 42.4% $5,128 45.1% $3,993 38.4%
------- ---- ------ ---- ------ ----
------- ---- ------ ---- ------ ----
The deferred tax assets and liabilities result from timing differences in the
recognition of certain income and expense items for financial and tax accounting
purposes. The sources of these differences and the related tax effects were as
follows (dollars in thousands):
DECEMBER 31,
-------------------------------------------------------------------
1996 1995
--------------------------- ---------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Accrued expenses $17,882 $ - - $20,351 $ - -
Allowance for doubtful accounts 11,036 - - 10,645 - -
Inventory reserves and adjustments - - 13,795 - - 14,756
Depreciation and amortization - - 43,798 - - 42,300
Reserve for restructuring charges
and other 6,915 - - 13,970 331
------- ------- ------- -------
Total $35,833 $57,593 $44,966 $57,387
------- ------- ------- -------
------- ------- ------- -------
In the Consolidated Balance Sheets, these deferred assets and liabilities are
classified on a net basis as current and non-current based on the classification
of the related asset or liability or the expected reversal date of the temporary
difference.
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, 1996, 1995 and 1994 (dollars in thousands):
1996 1995 1994
---- ---- ----
Cash paid during the year for:
Interest $52,871 $36,120 $6,588
Income taxes 17,482 8,171 2,118
40
The following are supplemental disclosures of noncash investing and financing
activities for the years ended December 31, 1996, 1995 and 1994 (dollars in
thousands):
- On May 3, 1995, the Company issued stock valued at $2,406 in exchange
for services related to the issuance of the Notes.
- On March 30, 1995, the Company issued stock valued at $2,162 in
exchange for services related to financing the Acquisition.
- In 1994, the Company issued $9,000 of common stock to retire a $9,000
deferred obligation related to a transition services agreement.
- In 1994, the Company accrued $244 for warrants which had an exercise
price less than the fair market value of the common stock.
- In 1994, the Company accrued $63 for common stock shares to be issued
at less than fair market value.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments are as follows
(dollars in thousands):
December 31, 1996 December 31, 1995
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Cash and cash equivalents $10,619 $10,619 $11,660 $11,660
Current maturities of long-term
obligations and capital lease 46,923 46,923 23,886 23,886
Long-term debt and capital lease:
Notes 150,000 168,000 150,000 163,875
All other 403,079 403,079 376,198 376,198
Interest rate collar - - 1,200 - - 3,900
The fair value of the Notes and interest rate collar are based on quoted market
prices and quotes from counterparties, respectively.
41
UNITED STATIONERS INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
Balance At Additions Balance
Beginning Charged to At End
of Period Expenses Other (3) Deductions of Period
---------- ---------- -------- ---------- ---------
Reserve for Doubtful Accounts:
Year Ended:
December 31, 1996 $7,315 $7,791 $ - - $8,788 (A) $6,318
December 31, 1995 (1) 3,496 5,169 4,776 6,126 (A) 7,315
December 31, 1994 (2) 3,544 1,528 1,576 (A) 3,496
Sales Returns:
Year Ended:
December 31, 1996 $8,973 $49,183 $ - - $49,993 (B) $8,163
December 31, 1995 (1) 540 60,598 12,051 64,216 (B) 8,973
December 31, 1994 (2) 514 42,792 42,766 (B) 540
(1) Reflects the results of Associated only for the three months ended March
30, 1995 and the Company for the nine months ended December 31, 1995.
(2) Reflects the results of Associated only.
(3) Reflects the liability assumed as a result of the Merger.
(A) Accounts determined to be uncollectible and charged against reserves, net
of collections on accounts previously written off.
(B) Credit memos issued for sales returns.
42
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF
DIRECTORS OF UNITED STATIONERS INC.
We have audited the accompanying consolidated statements of operations, changes
in stockholders' investment and cash flows of United Stationers Inc. and
Subsidiary for the seven months ended March 30, 1995. Our audit also included
the financial statement schedule as of March 30, 1995 and for the seven months
then ended listed in the index at Item 14(A). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
United Stationers Inc. and Subisidiary for the seven months ended March 30, 1995
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ERNST & YOUNG LLP
Chicago, Illinois
June 27, 1995
43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF
DIRECTORS OF UNITED STATIONERS INC.
We have audited the accompanying consolidated statement of operations,
changes in stockholders' investment and cash flows of UNITED STATIONERS INC.
(a Delaware Corporation) AND SUBSIDIARIES for the year ended August 31, 1994.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of United Stationers Inc. and Subsidiaries for the
year ended August 31, 1994, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements for 1994
and, in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/Arthur Andersen LLP
Chicago, Illinois,
October 6, 1994.
44
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
For the
SEVEN MONTHS ENDED Year Ended
------------------------------ ----------
(UNAUDITED)
MARCH 30, March 31, August 31,
1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------------------
NET SALES $980,575 $871,585 $1,473,024
COST OF SALES 814,780 717,546 1,220,245
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit on sales 165,795 154,039 252,779
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Warehousing, marketing and
administrative expenses 133,098 128,594 216,485
Merger-related costs 27,780 - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 160,878 128,594 216,485
- -----------------------------------------------------------------------------------------------------------------------------
Income from operations 4,917 25,445 36,294
- -----------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (7,640) (6,095) (10,722)
Interest income 140 258 261
Other, net 41 117 225
- -----------------------------------------------------------------------------------------------------------------------------
Total other income (expense) (7,459) (5,720) (10,236)
- -----------------------------------------------------------------------------------------------------------------------------
Income (Loss) before income taxes (2,542) 19,725 26,058
INCOME TAXES 4,692 8,185 10,309
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(7,234) $11,540 $15,749
- -----------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,593,614 18,585,451 18,587,282
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $(0.39) $0.62 $0.85
- -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
45
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Number of Capital in Total
Common Common Excess of Retained Treasury Stockholders'
Shares Stock Par Value Earnings Stock Investment
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 1993 18,586,627 $1,859 $91,687 $144,292 $(141) $237,697
Net Income - - - - - - 15,749 - - 15,749
Issuance of common shares 5,427 - - 42 - - - - 42
Cash dividends - $0.40 per
share on common stock - - - - - - (7,593) - - (7,593)
Disposition of treasury stock - - - - - - - - 115 115
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 1994 18,592,054 $1,859 $91,729 $152,448 $ (26) $246,010
Net Loss - - - - - - (7,234) - - (7,234)
Issuance of common shares 18,875 2 183 - - - - 185
Cash dividends - $0.30 per share
on common stock - - - - - - (5,719) - - (5,719)
Acquisition of treasury stock - - - - - - - - (117) (117)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 30, 1995 18,610,929 $1,861 $91,912 $139,495 $(143) $233,125
- -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
46
UNITED STATIONERS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
For the
Seven Months Ended Year Ended
------------------------------ ----------
(Unaudited)
March 30, March 31, August 31,
FOR THE PERIOD ENDED 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ (7,234) $ 11,540 $ 15,749
Loss on sale of fixed assets 200 494 579
Depreciation and amortization 12,595 12,103 21,236
(Decrease)/increase in deferred taxes (3,933) 1,298 2,943
Increase/(decrease) in accounts payable 24,429 (64,918) (28,581)
Increase/(decrease) in accrued liabilities 17,260 (14,407) (7,522)
(Increase)/decrease in accounts receivable (1,107) 8,062 831
(Increase)/decrease in inventories (80,947) (7,818) 3,966
(Increase)/decrease in prepaid expenses (7,475) (752) 914
Increase in other assets (1,341) (1,359) (2,007)
- -----------------------------------------------------------------------------------------------------------------------------
Total Adjustments (40,319) (67,297) (7,641)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (47,553) (55,757) 8,108
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (7,799) (4,487) (10,719)
Proceeds from disposition of property, plant & equipment 35 200 220
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,764) (4,287) (10,499)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in short-term debt 5,660 33 (2,855)
Payments on long-term obligations (4,541) (1,269) (1,533)
Additions to long-term obligations 67,444 69,348 13,246
Issuance of common shares 185 25 42
Payment of dividends (5,719) (5,738) (7,593)
(Acquisition)/disposition of treasury stock (117) 115 115
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,912 62,514 1,422
- -----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 7,595 2,470 (969)
Cash and Cash Equivalents at the beginning of the year 6,920 7,889 7,889
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 14,515 $ 10,359 $ 6,920
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 6,851 $ 5,943 $ 10,199
Income taxes 9,257 6,054 6,229
- -----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
47
UNITED STATIONERS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUBSEQUENT EVENT
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 "Tender Offer"). Immediately
thereafter, Associated merged with and into United (the "Merger" and,
collectively with the Tender Offer, the "Acquisition"), and Associated
Stationers, Inc., a wholly-owned subsidiary of Associated ("ASI") merged with
and into United Stationers Supply Co., a wholly-owned subsidiary of United
("USSC"), with United and USSC continuing as the respective surviving
corporations. United, as the surviving corporation following the Merger, is
referred to herein as the "Company." As a result of share conversions in the
Merger, immediately after the Merger, (i) the former holders of common stock and
common stock equivalents of Associated owned shares of Common Stock and warrants
or options to purchase shares of Common Stock constituting in the aggregate
approximately 80% of the shares of Common Stock on a fully diluted basis, and
(ii) holders of pre-Merger United common stock owned in the aggregate
approximately 20% of the shares of Common Stock on a fully diluted basis.
Although United was the surviving corporation in the Merger, the transaction was
treated as a reverse acquisition for accounting purposes with Associated as the
acquiring corporation.
Immediately following the Merger, the number of outstanding Shares was 5,998,177
(or 6,973,720 on a fully diluted basis), of which (i) the former holders of
Class A Common Stock, $0.01 par value, and Class B Common Stock, $0.01 par
value, of Associated ("Associated Common Stock") and warrants or options to
purchase Associated Common Stock in the aggregate owned 4,603,373 Shares
constituting approximately 76.8% of the outstanding Shares and outstanding
warrants or options for 975,603 Shares (collectively 80.0% on a fully diluted
basis) and (ii) pre-Merger holders of Shares (other than Associated-owned Shares
and treasury Shares) in the aggregate owned 1,394,744 Shares constituting
approximately 23.2% of the outstanding Shares (or 20.0% on a fully diluted
basis). As used in this paragraph, the term "Shares" includes shares of
Nonvoting Common Stock, $0.01 par value, of the Company, which are immediately
convertible into Shares for no additional consideration.
To finance the Offer, refinance existing debt of ASI, the Company and USSC,
repurchase stock options and pay related fees and expenses, Associated, ASI,
USSC and the Company entered into (i) new credit facilities ("New Credit
Facilities") with a group of banks and financial institutions providing for term
loan borrowings of $200.0 million and revolving loan borrowings of up to $300.0
million and (ii) a senior subordinated bridge loan facility in the aggregate
principal amount of $130.0 million (the "Subordinated Bridge Facility"). In
addition, simultaneously with the consummation of the Offer, Associated obtained
$12.0 million from the sale of additional shares of Associated Common Stock,
which proceeds were used to finance the purchase of a portion of the Shares
pursuant to the Offer.
On May 3, 1995, USSC completed the issuance of $150.0 million of 12 3/4% Senior
Subordinated Notes (the "Notes") due 2005. The net proceeds of the Notes (after
discount and fees of approximately $5.5 million) were used to pay certain
expenses, to repay the $130.0 million Subordinated Bridge Facility (together
with $1.6 million in accrued and unpaid interest thereon), to repay a portion of
the Tranche A and Tranche B term loans (totaling approximately $6.5 million) and
provide working capital. The Company expects to repurchase the Series B
Preferred Stock, together with accrued and unpaid dividends thereon
(approximately $7.0 million).
The New Credit Facilities contain certain financial covenants covering the
Company and its subsidiaries on a consolidated basis, including, without
limitation, covenants relating to tangible net worth, capitalization, fixed
charge coverage, capital expenditures and payment of dividends by the Company.
48
Effective for 1995, the Company changed its fiscal year from a year end of
August 31 to December 31. The financial statements included herein represent
the final financial statements of the Company through the date of the
consummation of the Merger. Future financial statements of the Company will
reflect Associated and its acquisition of the Company, and will be on the basis
of a December 31 fiscal year end.
As part of the Merger, the Company incurred approximately $27.8 million of
merger-related costs. The amount consisted of severance payments under
employment contracts ($9.6 million); insurance benefits under employment
contracts($7.4 million); legal, accounting and other professional services fees
($5.2 million); retirement of stock options ($3.0 million); and fees for letters
of credit related to employment contracts and other costs ($2.6 million).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United Stationers
Inc. and its wholly owned subsidiaries ("the Company"). Investments in 20% to
50% owned companies are accounted for by the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior-year amounts have been reclassified to conform with current-year
presentations.
REVENUE RECOGNITION
Sales and provisions for estimated sales returns and allowances are recorded at
the time of shipment.
CASH AND CASH EQUIVALENTS
Investments in low-risk instruments which have an original maturity of three
months or less are considered to be cash equivalents. Cash equivalents are
stated at cost which approximates market value. The Company's cash equivalent
policy conforms to the requirements of Financial Accounting Standard No. 95.
INVENTORIES
Inventories constituting approximately 82% of total inventories at March 30,
1995, August 31, 1994 and August 31, 1993 have been valued under the last-in,
first-out (LIFO) method with the remainder of the inventory valued under the
first-in, first-out (FIFO) method. Inventory valued under the FIFO and LIFO
accounting methods are recorded at the lower of cost or market.
In 1994, liquidations of certain LIFO inventories had the effect of increasing
net earnings by $830,000 or $0.04 per share.
DEPRECIATION AND AMORTIZATION
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 and assets under capital leases are amortized over the
lesser of their useful lives or the term of the applicable lease.
Goodwill reflecting the excess of cost over the value of net assets of
businesses acquired is being amortized on a straight-line basis over 40 years.
49
SOFTWARE CAPITALIZATION
The Company capitalizes major internal and external systems development costs
determined to have benefits for future periods. Amortization expense is
recognized over the periods in which the benefits are realized, generally not to
exceed three years. Amortization expense was $1,795,000 and$2,376,000 in 1995
and 1994, respectively.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's foreign operations are translated at
current exchange rates. Revenues and expenses are translated at average
exchange rates for the year in accordance with Statement of Financial Accounting
Standard No. 52. The amounts for all years presented were immaterial.
EARNINGS PER SHARE
Earnings per share and the effect on earnings per share of potentially dilutive
stock options are computed by the treasury stock method. This computation takes
into account the weighted average number of shares outstanding during each year,
outstanding stock options and their exercise prices, and the market price of the
stock throughout the year. The exercise of outstanding stock options would not
result in a material dilution of earnings per share.
RECLASSIFICATION
The Consolidated Statements of Operations reflect a reclassification of certain
delivery and occupany costs from operating expense to cost of goods sold to
conform the Company's presentation to the presentation used by others in the
busienss products industry. The following table sets forth the impact of the
reclassification for the years presented in the Consolidated Statements of
Operations:
Seven Months Ended For the Year Ended
----------------------- ------------------
March 30, March 31, August 31,
1995 1994 1994
---- ---- ----
Gross Margin as a Percent of Net Sales:
Gross margin prior to reclassification 21.1% 22.5% 21.9%
Gross margin as reported herein 16.9% 17.7% 17.2%
Operating Expenses as a Percent of Net Sales:
Operating expense ratio prior to
reclassification 20.6% (1) 19.6% 19.4%
Operating expense ratio as reported herein 16.4% (1) 14.8% 14.7%
(1) Includes $27.8 million nonrecurring Merger-related costs.
3. PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has pension plans in effect for substantially all 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 Company also has a non-contributory, non-qualified plan ("Supplemental
Benefit Plan") in effect for certain executives. The Company has not funded
this plan.
50
Net periodic pension cost for 1995 and 1994 for pension and supplemental
benefits plans includes the following components (in thousands of dollars):
- ---------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------
Service cost - benefits earned during the period $1,084 $1,863
Interest cost on projected benefits obligation 909 1,436
Actual return on assets (780) 263
Net Amortization and Deferral 494 (1,807)
- ----------------------------------------------------------------------------
Net periodic pension cost $1,707 $1,755
- ---------------------------------------------------------------------------
The projected benefit obligations for 1995 and 1994 were determined using an
assumed discount rate of 7.5%. The assumed rate of compensation increase ranged
from 0% to 5.5%, andthe expected long-term rate of return on assets used in
determining net periodic pension cost was 7.5%.
The Company provides an unfunded health care plan to substantially all retired
non-union employees and their dependents. Eligibility requirements are based on
the individual's age (minimum age of 55), years of service and hire date. The
benefits are subject to retiree contributions, deductibles, co-payment
provisions and other limitations.
During the first quarter of 1994, the Company adopted Statement of Financial
Accounting Standard No. 106 (SFAS 106), "Employer's Accounting for
Postretirement Benefits Other Than Pensions." SFAS 106 requires companies to
accrue the expected cost of postretirement health care and life insurance
benefits throughout the employee's active service period. Previously,
postretirement health care costs were recognized as claims were paid. The
Company elected to amortize the unfunded Accumulated Postretirement Benefit
Obligation (APBO) over 20 years.
The assumed health care average cost trend rate used in measuring the APBO at
March 30, 1995 was 11.0% in 1995 and 3% in 1996 and beyond. Beginning in 1996,
retirees will pay the difference between actual plan costs and the portion of
cost paid by the Company which is limited to a cost trend rate of 3%. The
assumed discount rate was 7.75%. A 1% increase in the care cost trend rate
would increase the APBO as of March 30, 1995 by approximately $339,000 and the
sum of the 1995 annual service cost and interest cost by approximately $35,000.
The cost of postretirement health care benefits for the seven months ended March
30, 1995 and the year ended August 31, 1994 are as follows (in thousands of
dollars):
1995 1994
- ---------------------------------------------------------------------------
Service cost $ 109 $ 246
Interest on accumulated benefits obligation 106 146
Amortization of transition obligation 58 100
- ---------------------------------------------------------------------------
Net postretirement benefit cost $ 273 $ 492
- ---------------------------------------------------------------------------
The Company has a qualified Profit Sharing Plan in which all salaried employees
and certain hourly paid employees of the Company are eligible to participate
upon completion of six consecutive months of employment. The Profit Sharing
Plan provides for annual contributions by the Company in an amount determined by
the Board of Directors. The Plan also permits employees to have contributions
made as 401(k) salary deferrals on their behalf and to make after-tax voluntary
contributions. The Plan provides that the Company may match employee
contributions as 401(k) salary deferrals. Company contributions to the Plan for
both profit sharing and matching of employee contributions were approximately
$0.8 million in 1995 and $0.5 million in 1994.
51
4. STOCK INCENTIVE PLANS
As a result of the change in control of the Company, the Company paid out
approximately $3.0 million to option holders representing the difference between
the tender offer price of the stock ($15.50 per share) and the option exercise
price. The amount was included in merger-related costs in 1995.
Under the Directors' Stock Option Plan, the Company granted options for 7,500
shares at a price of $13.75 per share in 1995 and 7,500 shares at a price of
$15.25 per share in 1994. The Directors' Option Plan provides for the granting
of options covering up to 100,000 shares of the Company's common stock, subject
to anti-dilution adjustments. Options are exercisable at any time after they
are granted, but for not more than ten years after the option's grant. As of
the period ended 1995 and 1994, 0 and 41,000 options were outstanding,
respectively.
During fiscal 1995, options for a total of 100,000 shares at $10.50 were granted
to certain officers. The grant was approved at the 1995 Annual Meeting held in
January. Under the Company's 1981 Stock Incentive Award Plan, options
outstanding had an exercisable life of either five, six or ten years from the
date of grant. The Company granted certain officers 15,000 and 16,700 shares of
restricted stock in 1992 and 1991, respectively. There have been no restricted
stock grants since 1992. The grants of restricted shares resulted in deferred
compensation expense of $699,000 of which $16,000, $39,000, $132,000 and
$185,000 was recognized in 1995, 1994, 1993 and 1992, respectively. The
unrecognized portion of deferred compensation was $0, $16,000 and $55,000 as of
March 30, 1995, August 31, 1994 and August 31, 1993, respectively. Under the
terms of the grant, the stock does not vest to the employee until completion of
three years of employment after the date of grant. The 1981 Stock Incentive
Award Plan was terminated by the Company's Board of Directors on March 30, 1995.
In 1989, the Board of Directors terminated the 1985 Non-qualified Stock Option
Plan so that no further stock options would be issued under this plan. The
termination of the plan did not affect the options previously granted and
outstanding. No option could have been exercised more than ten years after its
grant.
The following table summarizes the transactions of the 1981 and 1985 Option
Plans for 1995 and 1994:
1981 Stock Incentive Award Plan Option Price Option Price
(excluding restricted stock) 1995 Range 1994 Range
- --------------------------------------------------------------------------------------------------------------
Options outstanding at
beginning of the period 1,135,060 $8.64-$19.39 891,350 $8.64-$19.39
Granted 100,000 $10.50 401,050 $10.00-$16.25
Exercised (22,860) $8.64-$9.29 (3,520) $ 8.64-$13.75
Canceled(1) (1,212,200) $8.64-$19.39 (153,820) $ 8.64-$19.39
----------- ---------
Options outstanding at end
of the period - - 1,135,060
- --------------------------------------------------------------------------------------------------------------
1985 Non-qualified Stock Option Price Option Price
Option Plan 1995 Range 1994 Range
- --------------------------------------------------------------------------------------------------------------
Options outstanding at
beginning of the period 109,500 $14.78-$18.09 109,500 $14.78-$18.09
Granted - - - - - - - -
Exercised - - - - - - - -
Canceled(1) (109,500) $14.78-$18.09 - - - -
--------- ------------
Options outstanding at end
of the period - - 109,500
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
1 As a result in change in control of the Company, the Company paid out to
option holders the difference between the tender offer price of the stock
($15.50 per share) and the option exercise price. The total amount was
included in merger-related costs in 1995.
52
5. LEASES
The Company has entered into several non-cancelable long-term leases on property
and equipment. Rental expense for all operating leases was approximately
$7,731,000 and $13,549,000 in 1995 and 1994, respectively.
6. INCOME TAXES
The Company provides for income taxes at statutory rates based on income
reported for financial statement purposes. A summary of income tax expense is
shown below (in thousands of dollars):
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Taxes currently payable
Federal $14,122 $7,059
Other tax credits - - (5)
State 2,584 1,591
Prepaid and deferred taxes (12,014) 1,664
- -------------------------------------------------------------------------------
$ 4,692 $10,309
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The table below records the differences between the statutory income tax rate
and the Company's effective income tax rate:
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Statutory Federal income tax 35.0% 35.0%
State income taxes, net of the Federal
income tax benefit (4.9) 4.8
Losses from foreign subsidiaries - - 1.9
Liquidation of a foreign subsidiary - - (3.9)
Non-deductible goodwill amortization (9.0) 1.5
Non-deductible merger-related expenses (208.3) - -
Other, net 2.6 .3
- -------------------------------------------------------------------------------
Effective income tax rate (184.6)% 39.6%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
53
UNITED STATIONERS INC. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
--------- -------- ---------- ---------
Reserve for Doubtful Accounts:
Period ended:
March 30, 1995* $ 4,010 $ 2,510 $1,745 (A) $ 4,775
August 31, 1994 3,964 5,750 5,704 (A) 4,010
Sales Returns, Rebates and
Allowances Period ended:
March 30, 1995* $31,293 $43,523 $48,371 (B) $26,445
August 31, 1994 25,552 67,970 62,229 (B) 31,293
* Reflects the transition period of September 1, 1994 through March 30, 1995
(A) Accounts determined to be uncollectible and charged against reserves, net
of collections on accounts previously written off.
(B) Credit memos issued for sales returns, rebates and allowances.
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Registrant had no disagreements on accounting and financial disclosure of
the type referred to in Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to those individuals who are
currently serving as members of the Board of Directors or as executive officers
of the Company on February 1, 1997:
Name Age Position
- --------------------------------------------------------------------------------
Frederick B Hegi, Jr.. . . 53 Director, Chairman of the Board, President
and Chief Executive Officer
Michael D. Rowsey. . . . . 44 Director and Executive Vice President
Daniel H. Bushell. . . . . 45 Executive Vice President, Chief Financial
Officer and Assistant Secretary
Steven R. Schwarz. . . . . 43 Executive Vice President
Robert H. Cornell. . . . . 57 Vice President, Human Resources
Otis H. Halleen. . . . . . 62 Vice President, Secretary and General Counsel
James A. Pribel. . . . . . 43 Treasurer
Albert Shaw. . . . . . . . 47 Vice President, Operations
Ergin Uskup. . . . . . . . 59 Vice President, Management Information
Systems and Chief Information Officer
Gary G. Miller . . . . . . 46 Director and Assistant Secretary
Thomas W. Sturgess . . . . 46 Director
James T. Callier, Jr.. . . 61 Director
Daniel J. Good . . . . . . 56 Director
Jeffrey K. Hewson. . . . . 53 Director
James A. Johnson . . . . . 42 Director
Joel D. Spungin. . . . . . 59 Director
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. assumed the position of Chairman of the Board,
President and Chief Executive Officer on an interim basis on November 18,
1996 as a result of the resignation of Thomas W. Sturgess. Mr. Hegi was
elected to the Board of Directors upon consummation of the Merger. Prior to
the Merger, he had been a director of Associated since 1992. Mr. Hegi is a
general partner of various Wingate entities, including the indirect general
partner of each of Wingate Partners and Wingate II. Since May 1982, Mr. Hegi
has served as President of Valley View Capital Corporation, a private
investment firm. Mr. Hegi also serves as Chairman of the Executive Committee
of the Board of LoomisFargo & Co., a provider of armored car and related
services ("Loomis"). Mr. Hegi also serves as Chairman of ITCO Holding
Company, Inc., the parent corporation of ITCO Tire Company, a tire
distributor, Tahoka First Bancorp, Inc., a bank holding company, and Cedar
Creek Bancshares, Inc., a bank holding company, Lone Star Technologies, Inc.,
a diversified company engaged in the manufacturing of steel pipe, Cattle
Resources, Inc., a manufacturer of animal feeds and operator of commercial
cattle feedlots.
55
MICHAEL D. ROWSEY was elected to the Board of Directors upon consummation of the
Merger and became Executive Vice President of the Company upon consummation of
the Merger with primary responsibility for field operations. Prior to the
Merger, Mr. Rowsey had been a director of Associated since 1992 and President
and Chief Operating Officer of Associated since January 1992. From 1979 to
January 1992, Mr. Rowsey served in various capacities with Boise Cascade Office
Products Corp., most recently as the North Regional Manager.
DANIEL H. BUSHELL became Executive Vice President and Chief Financial Officer of
the Company upon consummation of the Merger. Mr. Bushell has served as Assistant
Secretary of the Company since January 1996, and served as Secretary of the
Company from June 1995 through such date. Mr. Bushell also served as Assistant
Secretary of the Company from the consummation of the Merger until June 1995.
Prior thereto, Mr. Bushell had been Chief Administrative and Chief Financial
Officer of Associated and ASI since January 1992. From 1978 to January 1992, Mr.
Bushell served in various capacities with ACE Hardware Corporation, most
recently as Vice President of Finance.
STEVEN R. SCHWARZ became Executive Vice President of the Company upon
consummation of the Merger with primary responsibility for marketing and
merchandising. Prior thereto, he was Senior Vice President, Marketing of United
since June 1992 and had previously been Senior Vice President, General Manager,
Micro United since 1990 and Vice President, General Manager, Micro United since
September 1989. He had held a staff position in the same capacity since February
1987.
ROBERT H. CORNELL became Vice President, Human Resources of the Company upon
consummation of the Merger. Prior thereto, he was Vice President, Human
Resources of United since February 1988, and since 1987 had been Vice President,
Human Resources for USG Interiors Inc., a subsidiary of USG Corporation.
OTIS H. HALLEEN became Vice President, Secretary and General Counsel of the
Company as of January 30, 1996. Since November 1, 1995 he has served as Vice
President, Secretary and General Counsel at USSC. From 1986 through March 1995
he had been Vice President, Secretary and General Counsel of United.
JAMES A. PRIBEL became Treasurer of the Company upon consummation of the Merger.
Prior thereto, he was Treasurer of United since 1992. Prior thereto he had been
Assistant Treasurer of USSC since 1984 and had served in various positions since
joining USSC in 1978.
ALBERT SHAW became Vice President, Operations of the Company shortly after
consummation of the Merger. Prior thereto, he was Vice President, Midwest Region
of USSC since March 1994. He had been a Vice President of USSC since 1992 and
prior to that had served in various management positions since joining USSC in
1974.
ERGIN USKUP became Vice President, Management Information Systems and Chief
Information Officer of the Company upon consummation of the Merger. Prior
thereto, he was Vice President, Management Information Systems and Chief
Information Officer of United since February 1994, and since 1987 had been Vice
President, Corporate Information Services for Baxter International Inc., a
global manufacturer and distributor of health care products.
GARY G. MILLER was elected to the Board of Directors upon consummation of the
Merger and became Assistant Secretary of the Company on June 27, 1995. Mr.
Miller served as Vice President and Secretary of the Company from consummation
of the Merger until June 27, 1995. Prior thereto, Mr. Miller had been a director
of Associated since 1992 and Vice President and Secretary of Associated since
January 1992. Mr. Miller also currently serves as President of Cumberland
Capital, a private investment firm which is located in Fort Worth, Texas. In
addition, from 1977 to December 1993, Mr. Miller served as Executive Vice
President, Chief Financial Officer and a director of AFG Industries, Inc., and
its parent company, Clarity Holdings Corp. He is Chairman of the Board of both
CFData Corp., a nationwide provider of check collection and check verification
services, and Fore Star Golf, Inc., which was formed in 1993 to own and operate
golf course facilities.
56
THOMAS W. STURGESS became President and Chief Executive Officer of the Company
on May 31, 1995 and Chairman of the Board of the Company upon consummation of
the Merger. On November 18, 1996, Mr. Sturgess resigned as Chairman of the
Board, President and Chief Executive Officer of the Company. Prior to the
Merger, Mr. Sturgess served as Chairman of the Board and Chief Executive Officer
of Associated since January 1992 and had been Chairman of the Board and Chief
Executive Officer of ASI since December 1994. Since 1987, Mr. Sturgess has
served as a general partner of various Wingate entities, including the indirect
general partner of each of Wingate Partners and a special limited partner of
Wingate II. Mr. Sturgess has not actively participated in the management of
Wingate Partners or the Wingate entities since December 31, 1995.
JAMES T. CALLIER, JR. was elected to the Board of Directors upon consummation
of the Merger. Prior to the Merger, he had been a director of Associated
since 1992. Mr. Callier is a general partner of Wingate Partners, and has
served as President of Callier Consulting, Inc., an operating management
firm, since 1985. Mr. Callier currently serves as Chairman of the Board of
Century Products, a manufacturer of baby seats and other juvenile products
("Century Products"), as a director of Redman Building Products, Inc., a
manufacturer of aluminum and vinyl windows, as a Director of Loomis, and as
an advisory director of Wingate II.
DANIEL J. GOOD was elected to the Board of Directors upon consummation of the
Merger. Prior to the Merger, he had been a director of Associated since 1992.
Mr. Good is Chairman of Good Capital Co., Inc., an investment firm in Lake
Forest, Illinois. Until June 1995, Mr. Good was Vice Chairman of Golden Cat
Corp., the largest producer of cat litter in the United States, and prior
thereto he was Managing Director of Merchant Banking for Shearson Lehman Bros.,
President of A.G. Becker Paribas, Inc.
JEFFREY K. HEWSON was elected to the Board of Directors in 1991. Mr. Hewson
served as President and Chief Executive Officer of the Company from consummation
of the Merger until May 31, 1995. Prior thereto, he was President and Chief
Operating Officer of United since April 1991. He had been Executive Vice
President of United since March 1990. Prior to that, he had been President of
ACCO International's U.S. Division since 1989 and President of its Canadian
Division since 1987. ACCO International is a manufacturer of traditional office
products and a subsidiary of American Brands, Inc., which is a global consumer
products holding company. Mr. Hewson currently serves as President and Chief
Executive Officer of Beckley Cardy Group, a distributor of supplies, furniture
and equipment to the educational market.
JAMES A. JOHNSON was elected to the Board of Directors upon consummation of
the Merger. Prior to the Merger, he had been a director of Associated since
1992. Mr. Johnson is a general partner of various Wingate entities, including
the indirect general partner of Wingate II. From 1980 until he joined Wingate
Partners in 1990, Mr. Johnson served as a Principal of Booz-Allen & Hamilton,
an international management consulting firm. Mr. Johnson currently serves as
a director of Century Products, and Chairman of the Board of Directors of
Redman Building Products.
JOEL D. SPUNGIN has served as a member of the Board of Directors since 1972 and
prior to the consummation of the Merger was Chairman of the Board of Directors
and Chief Executive Officer of United since August 1988. From October 1989 until
April 1991, he was also President of United. Prior to that, since March 1987,
Mr. Spungin was Vice Chairman of the Board and Chief Executive Officer of
United. Previously, since August 1981, Mr. Spungin was President and Chief
Operating Officer of United. He also serves as a general partner of DMS
Enterprises, L.P., a management advisory and investment partnership, and as a
director of AAR Corp., an aviation and aerospace company, and Home Products
International, Inc., a manufacturer of home improvement products.
Messrs. Sturgess, Rowsey, Miller, Callier, Good, Hegi and Johnson were elected
to the Board of Directors pursuant to a voting trust.
The Charter provides that the Board of Directors shall be divided into three
classes, each class as nearly equal in number as possible, and each term
consisting of three years. The directors currently in each class are as follows:
Class I (having terms expiring in 1999)--Messrs. Good, Johnson and Hewson; Class
II (having terms expiring in 1997)--Messrs. Hegi, Rowsey, Miller and Sturgess
(who will not be standing for re-election) and Class III (having terms expiring
in 1998)--Messrs. Callier and Spungin.
57
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 14, 1997, to be filed within 120 days
after the end of the Registrant's fiscal 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 14, 1997, to be filed within 120 days
after the end of the Registrant's fiscal 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 14, 1997, to be filed within 120 days
after the end of the Registrant's fiscal year.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) The following financial statements, schedules and exhibits are filed as
part of this report:
PAGE NO.
--------
(1) Financial Statements of the Company
Report of Independent Auditors 19
Report of Independent Public Accountants 20
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 21
Consolidated Balance Sheets as of December 31, 1996 and 1995 22-23
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 24-25
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 26
Notes to Consolidated Financial Statements 27-41
Financial Statement Schedule
II. Valuation and Qualifying Accounts. . . . . . . . . . . 42
All other financial statements and schedules not listed have been
omitted because they are not applicable, not required or because
the required information is included in the consolidated
financial statements or notes thereto.
(2) Financial Statements of United
Report of Independent Auditors . . . . . . . . . . . . . . 43
Report of Independent Public Accountants . . . . . . . . . 44
Consolidated Statements of Operations for the seven
months ended March 30, 1995 and March 31, 1994
(unaudited), and for the year ended August 31, 1994 . . . 45
Consolidated Statements of Changes in Stockholders'
Investment for the seven months ended March 30, 1995,
and for the year ended August 31, 1994. . . . . . . . . . 46
Consolidated Statements of Cash Flows for the for the
seven months ended March 30, 1995 and March 31, 1994
(unaudited), and for the year ended August 31, 1994 . . . 47
58
Notes to Consolidated Financial Statements . . . . . . . . 48-53
Financial Statement Schedule . . . . . . . . . . . . . . .
II. Valuation and Qualifying Accounts . . . . . . . . . . 54
All other financial statements and schedules not
listed have been omitted because they are not
applicable, not required or because the required
information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1 Charter (Exhibit 3(a) to the Company's Annual Report on Form 10-K
dated November 19, 1987)(3).
4.2 Certificate of Ownership and Merger merging Associated into
United(2).
4.3 Restated Bylaws(1).
9.1 Voting Trust Agreement, dated as of January 31, 1992, among the
Company, the stockholders party thereto and Messrs. Sturgess,
Hegi, Miller, Good and Johnson, as voting trustees(1).
9.2 First Amendment to Voting Trust Agreement, dated as of March 30,
1995, among the Company, the stockholders party thereto and
Messrs. Sturgess, Hegi, Miller, Good and Johnson, as voting
trustees(1).
10.1 Credit Agreement, dated as of March 30, 1995, among USSC, the
Company, certain Lenders named therein and Chase Bank, as Agent
and Lender (Exhibit 4.A.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995)(3).
10.2 Waiver and Amendment No. 1, dated as of April 13, 1995, among
USSC, the Company, each of the lenders party thereto and Chase
Bank(1).
10.3 Waiver and Amendment No. 2, dated as of December 21, 1995, among
the Company, United, each of the lenders party thereto and Chase
Bank(4).
10.4 Assumption Agreement, dated as of March 30, 1995, among USSC, the
Company and Chase Bank, as agent (included in Exhibit 10.1,
Exhibit F).
10.5 Form of Revolving Credit Note, issuable under the Credit
Agreement (included in Exhibit 10.1, Exhibit A-I).
10.6 Form of Tranche A Term Loan Note, issuable under the Credit
Agreement (included in Exhibit 10.1, Exhibit A-2).
10.7 Form of Tranche B Term Loan Note, issuable under the Credit
Agreement (included in Exhibit 10.1, Exhibit A-3).
10.8 Security Agreement, dated as of March 30, 1995, between USSC and
Chase Bank, as agent (included in Exhibit 10.1, Exhibit C).
10.9 Form of Indenture of Mortgage, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of March 30, 1995, by USSC
in favor of Chase Bank (included in Exhibit 10.1, Exhibit E).
10.10 Registration Rights Agreement, dated as of April 26, 1995, among
the Company, USSC and the Initial Purchaser(1).
10.11 Purchase Agreement, dated April 26, 1995, among the Company,
USSC, and the Initial Purchaser(1).
10.12 Registration Rights Agreement, dated as of January 31, 1992,
between the Company and CMIHI (included in Exhibit 10.15, Annex
2).
10.13 Amendment No. 1 to Registration Rights Agreement, dated as of
March 30, 1995, among the Company, CMIHI and certain other
holders of Lender Warrants(1).
10.14 Amended and Restated Registration Rights Agreement, dated as of
March 30, 1995, among the Company, Wingate Partners, Cumberland,
Good Capital Co., Inc. and certain other Company stockholders(1).
10.15 Warrant Agreement, dated as of January 31, 1992, among the
Company, USSC and CMIHI(1).
59
10.16 Amendment No. 1 to Warrant Agreement, dated as of October 27,
1992, among the Company, USSC, CMIHI and the other parties
thereto(1).
10.17 Letter Agreement dated as of February 10, 1995, amending certain
provisions of the Warrant Agreement, among the Company, USSC,
CMIHI and the other parties thereto(4).
10.18 Amendment No. 2 to Warrant Agreement, dated as of March 30, 1995,
among the Company, USSC, CMIHI and the other parties thereto(1).
10.19 Amendment No. 3 to Warrant Agreement, dated as of July 28, 1995,
among the Company, USSC, CMIHI and the other parties thereto(4).
10.20 Exhibit intentionally omitted.
10.21 Warrant Agreement, dated as of January 31, 1992, between the
Company and Boise Cascade Corporation(1).
10.22 Amendment No. 1 to Warrant Agreement, dated as of March 30, 1995,
between the Company and Boise Cascade Corporation(1).
10.23 Indenture, dated as of May 3, 1995, among USSC, the Company and
The Bank of New York(1).
10.24 First Supplemental Indenture, dated as of July 28, 1995, among
USSC, the Company, and the Bank of New York(1).
10.25 Investment Banking Fee and Management Agreements, dated as of
January 31, 1992, among the Company, USSC and each of Wingate
Partners, Cumberland and Good Capital Co., Inc.(1).
10.26 Amendment No. 1 to Investment Banking Fee and Management
Agreements, dated as of March 30, 1995, among USSC, the Company
and each of Wingate Partners, Cumberland and Good Capital Co.,
Inc.(1).
10.27 1992 Management Stock Option Plan, dated as of January 31,
1992(1).
10.28 Amendment No. 1 to 1992 Management Stock Option Plan, dated as of
March 30, 1995(1).
10.29 Amendment No. 2 to 1992 Management Stock Option Plan, dated as of
September 27, 1995(4).
10.30 Letter agreements, dated January 31, 1992, between the Company
(as successor-in-interest to Associated) and each of Michael D.
Rowsey, Robert W. Eberspacher, Lawrence E. Miller, Daniel J.
Schleppe, Duane J. Ratay and Daniel H. Bushell regarding grants
of stock options(1).
10.31 Amendment to Stock Option Grants, dated as of March 30, 1995,
between the Company and each of Michael D. Rowsey, Robert W.
Eberspacher, Lawrence E. Miller, Daniel J. Schleppe, Duane J.
Ratay and Daniel H. Bushell(1).
10.32 Forms of Stock Option Agreements, dated October 2, 1995, granting
options to certain management employees, subject to stockholder
approval of Amendment No. 2 to Stock Option Plan(4).
10.33 Forms of Amendments to Stock Option Grants, dated September 29,
1995, between the Company and each of Michael D. Rowsey, Robert
W. Eberspacher, Lawrence E. Miller, Daniel J. Schleppe and Daniel
H. Bushell(4).
10.34 Stock Option Agreements, dated as of January 1, 1996, between the
Company and Thomas W. Sturgess, granting options subject to
stockholder approval of Amendment No. 2 to Stock Option Plan(4).
10.35 Executive Stock Purchase Agreements, dated as of January 31,
1992, among the Company, Wingate Partners, ASI Partners, L.P. and
each of Michael D. Rowsey, Robert W. Eberspacher, Lawrence E.
Miller and Daniel J. Schleppe(1).
10.36 First Amendments to Executive Stock Purchase Agreements, dated as
of March 30, 1995, among the Company, Wingate Partners, ASI
Partners, L.P. and each of Michael D. Rowsey, Robert W.
Eberspacher, Lawrence E. Miller and Daniel J. Schleppe(1).
10.37 Management Incentive Plan for period 4/1/95 through 12/31.95(4).
10.38 Management Incentive Plan for 1996(4).
10.39 Management Incentive Plan for 1997 *
60
10.40 1997 Special Bonus Plan *
10.41 Intentionally Omitted
10.42 Intentionally Omitted
10.43 Intentionally Omitted
10.44 Intentionally Omitted
10.45 Profit Sharing PluSavings Plan (Exhibit 10(a)(i)(F)(2)(f) to the
Company's Report on Form 10-K dated November 20, 1989(3).
10.45.1 United Stationers 401(k) Savings Plan, restated as of March 1,
1996*
10.46 United Stationers Supply Co. Pension Plan as amended (See the
Company's Reports on Form 10-K for the fiscal years ended August
31, 1985, 1986, 1987 and 1989(3).
10.47 Amendment to Pension Plan adopted February 10, 1995(2).
10.48 One Time Merger Integration Bonus Plan(4).
10.49 Employment Agreements, dated as of January 31, 1992, among the
Company, USSC and each of Michael D. Rowsey, Robert W.
Eberspacher, Lawrence E. Miller, Daniel J. Shleppe, Duane J.
Ratay and Daniel H. Bushell(1).
10.50 Amended and Restated Employment and Consulting Agreement dated
April 15, 1993 among the Company, USSC and Joel D. Spungin
(Exhibit 10(b) to the Company's Report on Form 10-K dated
November 22, 1993(3).
10.51 Amendment dated February 13, 1995 to the Amended and Restated
Employment and Consulting Agreement among the Company, USSC and
Joel D. Spungin(2).
10.52 Intentionally Omitted
10.53 Intentionally Omitted
10.54 Intentionally Omitted
10.55 Intentionally Omitted
10.56 Intentionally Omitted
10.57 Intentionally Omitted
10.58 Employment and Consulting Agreement dated March 1, 1990 between
the Company, USSC and Jeffrey K. Hewson (Exhibit 10(1) to the
Company's Report on Form 10-K dated November 20, 1990)(3).
10.59 Amendment dated April 10, 1991 of Employment and Consulting
Agreement between the Company, USSC and Jeffrey K. Hewson
(Exhibit 10(1)(I) to the Company's Report on Form 10-K dated
November 25, 1991)(3).
10.60 Amendment dated September 1, 1994 of Hewson Employment and
Consulting Agreement (Exhibit 10(e)(ii) to the Company's Report
on Form 10-K dated November 23, 1994)(3).
10.61 Amendment to Employment and Consulting Agreement dated February
13, 1995 between the Company, USSC and Jeffrey K. Hewson(2).
10.62 Amendment dated May 25, 1995 to Employment and Consulting
Agreement between the Company, USSC and Jeffrey K. Hewson(4).
10.63 Severance Agreement between the Company, USSC and James A. Pribel
dated February 13, 1995(2).
10.64 Letter Agreement dated February 13, 1995 between the Company and
Ergin Uskup(2).
10.65 Amendment dated August 30, 1995 to Employment and Consulting
Agreement between the Company, USSC and Steven R. Schwarz(4).
10.66 Amendment dated August 30, 1995 to Employment and Consulting
Agreement between the Company, USSC and Ted S. Rzeszuto(4).
10.67 Employment Agreements dated October 1, 1995 between USSC and each
of Daniel H. Bushell, Michael D. Rowsey, Steven R. Schwarz,
Robert H. Cornell, Ted S. Rzeszuto, and Al Shaw(4).
10.68 Employment Agreement dated November 1, 1995 between USSC and Otis
H. Halleen(4).
10.69 Employment Agreement dated as of January 1, 1996 between the
Company, USSC and Thomas W. Sturgess(4).
61
10.70 Deferred Compensation Plan. (Exhibit 10(f) to the Company's
Annual Report on Form 10-K dated October 6, 1994)(3).
10.71 Consulting Agreement dated October 1,1995 between the Company and
Jeffrey K. Hewson(4).
10.72 Letter Agreement dated November 29, 1995 granting shares of
restricted stock to Joel D. Spungin(4).
10.73 Option Agreement dated November 29, 1995 between the Company and
Jeffrey K. Hewson(4).
10.74 Lease Agreement dated as of March 4, 1988 between Crow-Alameda
Limited Partnership and Stationers Distributing Company, Inc., as
amended(1).
10.75 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).
10.76 Standard Industrial Lease, dated as of March 15, 1991, between
Shelley B. and Barbara Detrik and Lynn Edwards Corp.(1).
10.77 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).
10.78 Lease dated as of February 1, 1993, between CMD Florida Four
Limited Partnership and United Stationers Supply Co., as
amended(1).
10.79 Standard Industrial Lease, dated March 2, 1992, between Carol
Point Builders I and Associated Stationers, Inc.(1).
10.79.1 First Amendment to Industrial Lease dated January 23, 1997
between ERI-CA, Inc. as successor to Carol Poaint Builders I and
USSC as successor to Associated Stationers, Inc.*
10.80 Lease, dated March 22, 1973, between National Boulevard Bank of
Chicago, a trustee under Trust Agreement dated March 15, 1973 and
known as Trust No. 4722, and United Supply Co., as amended(1).
10.81 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).
10.82 Lease Agreement, dated as of December 20, 1988, between Corporate
Property Associates 8, L.P., and Stationers Distributing Company,
Inc., as amended(1).
10.83 Industrial Lease, dated as of February 22, 1988, between
Northtown Devco and Stationers Distributing Company, as
amended(1).
10.84 Lease, dated as of April 17, 1989, between Isaac Heller and
United Stationers Supply Co., as amended(1).
10.85 Lease Agreement, dated as of May 10, 1984, between Westbelt
Business Park Joint Venture and Boise Cascade Corporation, as
amended(1).
10.86 Lease, dated as of January 19, 1981, between Propco, Inc. and
Crown Zellerbach Corporation, as amended(1).
10.87 Lease Agreement, dated as of August 17, 1981, between Gulf United
Corporation and Crown Zellerbach Corporation, as amended(1).
10.88 Lease Agreement, dated as of March 31, 1978, among Gillich O.
Traughber and J. T. Cruin, Joint Venturers, and Boise Cascade
Corporation, as amended(1).
10.89 Lease Agreement, dated November 7, 1988, between Dalware II
Associates and Stationers Distributing Company, Inc., as
amended(1).
10.90 Lease Agreement, dated November 7, 1988, between Central East
Dallas Development Limited Partnership and Stationers
Distributing Company, Inc., as amended(1).
10.91 Lease Agreement, dated as of March 17, 1989, between Special
Asset Management Company of Texas, Inc., and Stationers
Distributing Company, Inc., as amended(1).
10.92 Sublease, dated January 9, 1992, between Shadrall Associates and
Stationers Distributing Company, Inc.(1).
10.93 Industrial Lease, dated as of June 12, 1989, between Stationers
Distributing Company, Inc. and Dual Asset Fund V, as amended(1).
62
10.94 Lease Agreement, dated as of July, 1994, between Bettilyon
Mortgage Loan Company and United Stationers Supply Co.(1).
10.95 Agreement of Lease, dated as of January 5, 1994, between the
Estate of James Campbell, deceased, and United Stationers Supply
Co.(1).
10.96 Lease Agreement dated January 5, 1996 between Robinson
Properties, L.P. and USSC(4).
10.97 Real Estate Agreement dated January 9, 1996 between USSC as
seller and Seid Street, Ltd. as purchaser (4).
10.98 Real Estate Agreement dated October 19, 1995 between USSC as
seller and Boise Cascade Office Products Corporation as
purchaser(4).
10.99 Agreement for Data Processing Services, dated January 31, 1992,
between USSC (as successor-in-interest to ASI) and Affiliated
Computer Services, Inc.(1).
10.99.1 Stock Purchase Agreement between United Stationers Supply Co.
("Purchaser") and Lagasse Bros., Inc. ("Company") and Kevin C.
Lagasse, Cynthia Lagasse, David C. Lagasse, Linette Lagasse
Abadie, Clinton G. Lagasse, Raymond J. Lagasse and Rickey Lagasse
being all of the shareholders of the Company (the
"Shareholders")(Exhibit 99.1 to Registrant's Report on Form 8-K
filed November 5, 1996)(3)
10.99.2 Amended and Restated Credit Agreement dated October 31, 1996
(amending and restating the Credit Agreement dated as of March
30, 1995)(Exhibit 99.2 to Registrant's Report on Form 8-K filed
November 5, 1996)(3)
10.100 Amended and Restated First Amendment to Agreement for Data
Processing Services, dated as of August 29, 1995, between USSC
and Affiliated Computer Services, Inc.(1).
10.101 Intentionally omitted
10.102 Intentionally omitted
10.103 US Employee Benefits Trust Agreement dated March 21, 1995 between
the Company and American National Bank and Trust Company of
Chicago as Trustee(2).
10.104 USI Bonus Benefits Trust Agreement dated March 21, 1995 between
the Company and American National Bank and Trust Company of
Chicago as Trustee(2).
10.105 Certificate of Insurance covering directors' and officers'
liability insurance effective November 1, 1994 through
November 1, 1995 (Exhibit 10.57 to the Company's Report on Form
10-K dated June 27, 1995)(3).
10.106 Certificate of Insurance covering directors' and officers'
liability insurance effective March 30, 1995 through March 30,
1996 (Exhibit 10.81 to the Company's Form S-3 (No. 33-62739), as
amended)(3).
10.107 Amendment to Medical Plan Document for the Company(2).
10.108 The Company Severance Plan, adopted February 10, 1995(2).
10.109 Securities Purchase Agreement, dated as of July 28, 1995, among
the Company, Boise Cascade, Wingate Partners, Wingate II, Wingate
Affiliates, Wingate Affiliates II, ASI Partners III, L.P., the
Julie Good Mora Grantor Trust and the Laura Good Stathos Grantor
Trust(2).
10.110 Amendment dated February 23, 1996 to Option Agreements between
the Company and Thomas W. Sturgess (Exhibit 10.110 to the
Company's report on Form 10-K dated March 28, 1996).
10.111 Amendment No. 3 to United Stationers Inc. Management Equity Plan,
dated as of September 27, 1995 (Exhibit 10.111 to the Company's
report on Form 10-K dated March 28, 1996).
10.112 Amendment No. 2 dated March 5, 1996 to Stock Option Agreements
between the Company and Thomas W. Sturgess (Exhibit 10.112 to the
Company's report on Form 10-K dated March 28, 1996).
10.113 Amendment to Employment Agreement dated March 5, 1996 between the
Company, USSC and Thomas W. Sturgess (Exhibit 10.113 to the
Company's report on Form 10-K dated March 28, 1996).
63
10.114 Agreement dated November 18, 1996 between Thomas W. Sturgess, the
Company and USSC.*
10.115 Lease Agreement commencing March 1, 1997 between Amber Jack
Limited Partnership and USSC.*
10.116 Lease Agreement dated September 20, 1996 between Davis
Partnership and USSC.*
21 Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.*
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants.*
23.3 Consent of Arthur Andersen LLP, Independent Public Accountants.*
24.1 Powers of Attorney of directors and executive officers of the
Registrant. (Included on Page II-8 of Registration Statement on
Form S-2)(4).
27.1 Financial Data Schedule for the Company (EDGAR filing only).*
27.2 Financial Data Schedule for USSC (EDGAR filing only).*
* Filed herewith.
(1) Incorporated by reference to the Company's Form S-1 (No. 33-
59811), as amended, initially filed with the Commission on June
12, 1995.
(2) Incorporated by reference to the Company's Schedule 14D-9 dated
February 21, 1995.
(3) Incorporated by reference to other prior filings of the Company
as indicated.
(4) Incorporated by reference to the Company's Form S-2 (No. 333-
01089) as filed with the Commission on February 20, 1996.
B) Reports on Form 8-K were filed by the Registrant on October 21, 1996,
November 5, 1996, and November 19, 1996
For the purpose of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statement on Form S-8 No. 3332453
(filed December 6, 1989).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED STATIONERS INC.
BY: /s/Daniel H. Bushell
----------------------------
Daniel H. Bushell
Executive Vice President,
Chief Financial Officer and
Assistant Secretary
(principal accounting officer)
Dated:
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/Frederick B. Hegi, Jr. Chairman of the Board of Directors,
- ----------------------------- President and Chief Executive Officer
Frederick B. Hegi, Jr.
/s/Michael D. Rowsey Executive Vice President
- ------------------------- and a Director
Michael D. Rowsey
/s/JAMES T. CALLIER, JR. Director
- -------------------------
James T. Callier, Jr.
/s/Daniel J. Good Director
- -------------------------
Daniel J. Good
/s/Jeffrey K. Hewson Director
- -------------------------
Jeffrey K. Hewson
/s/James A. Johnson Director
- -------------------------
James A. Johnson
/s/Gary G. Miller Director
- -------------------------
Gary G. Miller
/S/JOEL D. SPUNGIN Director
- -------------------------
Joel D. Spungin
/s/Thomas W. Sturgess Director
- -------------------------
Thomas W. Sturgess
65