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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of Earliest Event Reported): April 3, 1998
UNITED STATIONERS INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation)
0-10653 36-3141189
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(Commission File Number) (I.R.S. Employer Identification No.)
UNITED STATIONERS SUPPLY CO.
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(Exact Name of Registrant as Specified in its Charter)
ILLINOIS
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(State or Other Jurisdiction of Incorporation)
33-59811 36-2431718
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(Commission File Number) (I.R.S. Employer Identification No.)
2200 EAST GOLF ROAD
DES PLAINES, ILLINOIS 60016-1267
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(Address of Principal Executive Offices) (Zip Code)
(847) 699-5000
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 3, 1998, United Stationers Supply Co. (the "Company"), the
operating subsidiary of United Stationers Inc. ("United"), completed the
acquisition (the "Azerty Acquisition") of all of the capital stock of Azerty
Incorporated ("Azerty"), Azerty de Mexico, S.A. de C.V. ("Azerty Mexico"),
Positive ID Wholesale Inc. ("Positive ID"), and AP Support Services
Incorporated ("AP Support Services"), which conducted substantially all of
the United States and Mexican operations of the Office Products Division of
Abitibi-Consolidated Inc. (collectively, the "Azerty Business"). The
aggregate purchase price paid by the Company for the Azerty Acquisition was
approximately $110.0 million (including fees and expenses), subject to
adjustment based upon the net tangible assets of the Azerty Business as of
the closing of the acquisition. For the fiscal year ended December 31, 1997,
the Azerty Business had combined net sales and earnings before interest,
income taxes, depreciation and amortization ("EBITDA") of $355.4 million and
$12.6 million, respectively.
The aggregate purchase price for the Azerty Acquisition was determined
as a result of an arm's length negotiation between the Company and
Abitibi-Consolidated Inc.
The Azerty Business acquired by the Company owns assets that constitute
plant, equipment and other physical property used in the operation of its
wholesale distribution business, and such assets will continue to be utilized
for such purposes.
AZERTY
Azerty was founded in 1983 and is a leading wholesale distributor of
computer consumables, peripherals and accessories in the United States.
Azerty serves over 12,000 major customers in the United States which consist
primarily of information product dealers and value-added resellers. Azerty
distributes a broad range of products consisting of printers, printer
supplies, magnetic and optical data storage media, workstation accessories,
fax machines and basic office products essentials. Azerty provides a high
level of customer service, including high order fill rates, late order
cut-off times and guaranteed next-day delivery via UPS for products under 100
pounds.
Azerty sells through marketing employees who utilize advanced data
management and telesales capabilities that enable highly customized and
segmented marketing, whereby customers' calls are automatically routed to
sales representatives familiar with their accounts. In addition, Azerty runs
catalog marketing programs, collecting co-op allowances from vendors to
produce product catalogs for their customers. Azerty also has established a
new world wide web site on the Internet which allows on-line inventory
availability, pricing and UPS order tracking, as well as vendor and product
information, applications for new accounts and general company information.
2
Headquartered in Orchard Park, New York, Azerty currently operates
through three distribution facilities (with an additional facility in Miami,
Florida expected to open in Spring 1998) that stock over 7,200 stockkeeping
units ("SKUs"). Azerty's primary competitors are Daisytek International,
Ingram Micro, Tech Data and Merisel. For the fiscal year ended December 31,
1997, Azerty accounted for approximately 88% and 98% of the net sales and
EBITDA, respectively, of the combined Azerty Business.
AZERTY MEXICO
Azerty Mexico was founded in 1995 to distribute computer consumables,
peripherals and accessories under the Azerty name in Mexico. Azerty Mexico
operates through a single distribution facility located in Mexico City,
Mexico.
POSITIVE ID
Positive ID is a wholesale distributor of bar code scanning products.
Founded in 1996, Positive ID has attempted to capitalize on an emerging
opportunity for wholesale distribution of products using the bar code
scanning technology that has been created by the increasing use of such
technology by small and medium-sized companies, as well as new applications
in the medical and insurance industries. Positive ID offers approximately
2,000 SKUs primarily to information products dealers and value-added
resellers and distributes products consisting of scanners, printers,
consumables, data collection terminals and software through its distribution
facility located in Tonawanda, New York.
AP SUPPORT SERVICES
Formed in 1996, AP Support Services is a third-party provider that
offers telemarketing, direct response marketing, logistics and data
management services to companies that are outsourcing such non-core
activities. AP Support Services offers a unique combination of sophisticated
telemarketing support and the ability to physically handle product. The
strategy of AP Support Services is to differentiate itself as a third-party
provider by offering vendors a broad range of services from marketing through
product delivery and invoicing. AP Support Services is located in Buffalo,
New York.
NEW CREDIT FACILITIES
On April 3, 1998, the Company entered into an amended and restated
credit agreement (the "New Credit Agreement"), governing its senior secured
credit facilities (the "New Credit Facilities") concurrently with the closing
of the Azerty Acquisition in order to fund the purchase price of the Azerty
Acquisition, refinance borrowings under the Company's existing senior secured
credit facilities (the "Existing Credit Facilities"), and pay related fees
and expenses in connection therewith. The following is a summary of the
principal terms of the New Credit Agreement which summary does not purport to
be
3
complete and is subject, and is qualified in its entirety by reference to,
all the provisions of the New Credit Agreement, as it may be further amended
from time to time.
The New Credit Facilities under the New Credit Agreement consist of
$150.0 million of borrowings pursuant to a tranche A term loan (the "Tranche
A Term Loan Facility") and commitments of up to $250.0 million of revolving
loan borrowings pursuant to a revolving credit facility (the "Revolving
Credit Facility") (including a sublimit of $90.0 million under the Revolving
Credit Facility for letters of credit). A portion of the Revolving Credit
Facility is allocated for swingline loans. The New Credit Facilities also
included initial borrowings of $100.0 million under a tranche B term loan
facility (the "Tranche B Term Loan Facility"). All outstanding borrowings
under the Tranche B Loan Facility were repaid by the Company on April 15,
1998 with the net proceeds from the offering of the Company's 8-3/8% Senior
Subordinated Notes due 2008 (described below), and proceeds from the sale of
certain accounts receivable.
The loans under the Tranche A Term Loan Facility and the Revolving
Credit Facility generally bear interest as determined within a set range with
the rate based on the ratio of total debt (which excludes the face amount of
any undrawn letters of credit) of United and its subsidiaries to EBITDA (as
defined in the New Credit Agreement). The Tranche A Term Loan Facility and
the Revolving Credit Facility bear interest, at the option of the Company and
based upon financial performance, at the base rate (i.e., the higher of the
prime rate or federal funds plus 0.50%) plus 0% to 0.75% or LIBOR plus 1.00%
to 2.00%. The Tranche B Term Loan Facility bore interest, at the option of
the Company, at the base rate plus 0.75% or LIBOR plus 2.00%.
As of April 17, 1998, the outstanding principal balance of the Tranche A
Term Loan Facility consisted of $150.0 million and matures on or about March
31, 2004, and no amount of the Tranche B Term Loan Facility remained
outstanding, which had been scheduled to mature on or about December 31,
2004. The term loans under the Tranche A Term Loan Facility are repayable in
consecutive quarterly installments commencing on or about June 30, 1998, the
first four of which are each in the amount of $2.5 million, the next four of
which are each in the amount of $3.75 million, the next four of which are
each in the amount of $6.25 million, the next four of which are each in the
amount of $7.5 million and the last eight of which are each in the amount of
$8.75 million. The term loans under the Tranche B Term Loan Facility were
scheduled to be repaid in consecutive quarterly installments commencing on or
about June 30, 1998, the first twenty of which were to be each in the amount
of $0.25 million and the last seven of which were to be each in the amount of
approximately $13.6 million. On April 15, 1998, the Company used the
net proceeds of the Notes Offering (hereinafter defined) to repay a
substantial portion of the indebtedness outstanding under the Tranche B Term
Loan Facility, with the remainder of the Tranche B Term Loan Facility repaid
with proceeds from the sale of certain accounts receivables.
Loans under the Tranche A Term Loan Facility and the Revolving Credit
Facility may be prepaid at any time, and are subject to certain mandatory
prepayments out of (i) net
4
proceeds received from the issuance of equity by United or any of its
subsidiaries subject to certain exceptions provided in the New Credit
Agreement, (ii) net proceeds from certain asset sales in excess of $15.0
million, (iii) 50% of the Company's Excess Cash Flow (as defined in the New
Credit Agreement) for any fiscal year (commencing with the fiscal year ending
December 31, 1998), but only if the Debt to Cash Flow Ratio (as defined in
the New Credit Agreement) as of the last day of the fiscal year is greater
than 3.75 to 1, (iv) net proceeds received from casualty events subject to
certain exceptions provided within the New Credit Agreement and (v) net
proceeds received from certain debt issuances. Optional prepayment under the
Tranche A Term Loan Facility will be applied to loans outstanding under the
Tranche A Term Loan Facility. Mandatory prepayments will be applied, first,
to loans outstanding under the Tranche A Term Loan Facility and, next, to the
permanent reduction of commitments (and the payment of loans outstanding)
under the Revolving Credit Facility.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
guaranteed, on a joint and several basis, by United and all of the direct and
indirect domestic subsidiaries of the Company.
The Tranche A Term Loan Facility and the Revolving Credit Facility are
secured by perfected first priority pledges of the stock of the Company, all
of the stock of the domestic direct and indirect subsidiaries of the Company
and certain of the stock of all of the foreign direct and indirect
subsidiaries (other than the Receivables Company (as hereinafter defined)) of
the Company and security interests in, and liens upon, certain accounts
receivable, inventory, contract rights and other personal and certain real
property of the Company and its domestic subsidiaries. The New Credit
Agreement provides for the complete release, upon request by the Company, of
the liens upon achievement of an investment grade rating from Standard &
Poor's or Moody's for the unsecured long-term debt of United or the Company
for any quarter, and a partial release in the event the Leverage Ratio (as
defined in the New Credit Agreement) is less than or equal to 3 to 1. The
Majority Lenders (as defined in the New Credit Agreement) may request that
the security interests be regranted if the Leverage Ratio for any subsequent
quarter exceeds 3 to 1. In addition, the New Credit Agreement permits the
release of the Senior Lenders' lien in connection with the sale of specified
receivables under the Receivables Securitization Program (as hereinafter
defined).
The New Credit Agreement contains certain restrictive covenants that,
among other things, limit the ability of United, the Company and its
subsidiaries to dispose of assets, incur indebtedness or liens, pay dividends
or make other payments in respect of capital stock or subordinated
indebtedness, make investments or other acquisitions, engage in mergers or
consolidations, engage in transactions with affiliates, and engage in any
business other than specified businesses. In addition, the New Credit
Agreement requires the Company to comply with certain financial ratios and
tests, including ratios of total debt to EBITDA, cash flow to fixed charges,
and EBITDA to interest expense, and a minimum net worth test.
5
Defaults under the New Credit Agreement include, among other things, (i)
failure to pay principal when due; (ii) failure to pay interest within three
business days after the due date; (iii) default in the performance of certain
covenants and other obligations which, in some cases, continues for ten days;
(iv) default by United, the Company or any of its subsidiaries in respect of
any of its indebtedness above specified levels; (v) certain bankruptcy
events; (vi) certain judgments against United, the Company or any of its
subsidiaries; (vii) the occurrence of a change of control (as defined in the
New Credit Agreement); and (viii) the existence of certain environmental
claims or liabilities.
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its Existing
Credit Facilities, the Company entered into the $163.0 million 364-day
receivables securitization program (the "Receivables Securitization
Program"), pursuant to which the Company sells its U.S. dollar receivables
(the "Eligible Receivables") (except for certain excluded receivables, which
initially include all receivables from the Azerty Business and Lagasse Bros.,
Inc.) to a wholly-owned offshore, bankruptcy remote special purpose limited
liability company (the "Receivables Company"), which in turn ultimately
transfers the Eligible Receivables to a third-party, multi-seller
asset-backed commercial paper program existing solely for the purpose of
issuing commercial paper rated A-1/P-1 or higher. The sale of trade
receivables includes not only those Eligible Receivables that were existing
on the closing date of the Receivables Securitization Program, but also
Eligible Receivables created thereafter. The Chase Manhattan Bank acts as
funding agent and, together with other commercial banks rated at least
A-1/P-1, provides standby liquidity funding to support the purchase of the
receivables by the Receivables Company. The proceeds from the Receivables
Securitization Program were used to reduce borrowings under the Company's
Revolving Credit Facility. The Receivables Company retains an interest in
the Eligible Receivables transferred to the third party. The Receivables
Securitization Program carries an effective interest rate of LIBOR plus
0.37%. As a result of the Receivables Securitization Program, balance sheet
assets of the Company as of December 31, 1997 of approximately $120.0
million, consisting of accounts receivable, have been sold to the Receivables
Company and do not secure the Company's obligations under the New Credit
Facilities.
THE NOTES OFFERING
On April 15, 1998, the Company consummated the sale (the "Notes
Offering") of $100,000,000 of its 8-3/8% Senior Subordinated Notes due 2008
(the "Notes") in a transaction not subject to the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"). The Notes
were immediately resold by the initial purchasers thereof in reliance on Rule
144A under the Securities Act.
The Notes are unsecured and are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in the indenture (the
"Indenture") governing the
6
Notes) of the Company, which includes indebtedness under the New Credit
Facilities. The Notes rank PARI PASSU in right of payment with the Company's
12-3/4% Senior Subordinated Notes due 2005 (the "12 3/4% Notes") and all
other existing and future senior subordinated Indebtedness (as defined in the
Indenture) of the Company, and rank senior in right of payment to all
Subordinated Indebtedness (as defined in the Indenture) of the Company.
The Notes bear interest at the rate of 8.375% per annum and mature on
April 15, 2008. The Notes are generally not callable by the Company prior to
five years following the issue date, subject to certain exceptions. The
Notes are fully and unconditionally guaranteed on a senior subordinated basis
by United and all of the Company's existing and future domestic Restricted
Subsidiaries (as defined in the Indenture) that incur Indebtedness (the
"Guarantors"). In connection with the Notes Offering, the Company and the
Guarantors entered into an exchange and registration rights agreement with
the initial purchasers thereof, providing for certain rights with respect to
exchange or registration of the Notes under the Securities Act.
The proceeds from the sale of the Notes were used to (i) repay a
substantial portion of indebtedness outstanding under the Tranche B Term Loan
Facility, and (ii) pay fees and expenses related to the Notes Offering.
ITEM 5. OTHER EVENTS
In connection with the Notes Offering, the Company prepared a final
offering memorandum that contained certain unaudited pro forma and "adjusted"
pro forma financial information for United and its consolidated subsidiaries
as of and for the fiscal year ended December 31, 1997. These unaudited pro
forma and "adjusted" pro forma financial statements are set forth below.
7
UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Consolidated Pro Forma Financial Statements are
based on the historical financial statements of United. The pro forma balance
sheet is presented giving effect to (i) the refinancing of the Company's
Existing Credit Facility pursuant to the New Credit Facilities and the
Receivables Securitization Program (the "Senior Credit Facilities
Refinancing"), (ii) the Azerty Acquisition, and (iii) the Notes Offering, all
as more fully described in the notes to Unaudited Consolidated Pro Forma
Financial Statements below, as if all such transactions were effected on
December 31, 1997. The pro forma income statement gives effect to (i) the
Senior Credit Facilities Refinancing, (ii) the Azerty Acquisition, and (iii)
the Notes Offering, all as more fully described in the notes to Unaudited
Consolidated Pro Forma Financial Statements below, as if all such
transactions were effected as of the beginning of the period presented. The
adjusted pro forma income statement reflecting the 1997 Financing
Transactions is presented giving effect to (i) United's offering of 2.0
million primary shares of its common stock, $0.10 par value ("Common Stock"),
and a 2.4 million share secondary offering of Common Stock by certain selling
stockholders (collectively, the "October Equity Offering"), (ii) the
redemption of all of United's outstanding shares of Series A Preferred Stock,
$0.01 par value ("Series A Preferred Stock"), and Series C Preferred Stock,
$0.01 par value ("Series C Preferred Stock" and, collectively with the Series
A Preferred Stock, the "Preferred Stock"), for approximately $21.3 million,
which was effected in September 1997, (the "Preferred Stock Redemption"),
(iii) the termination of certain management advisory service agreeements
effected in October 1997 (the "Management Agreements Termination" and,
collectively with the October Equity Offering and the Preferred Stock
Redemption, the "1997 Financing Transactions"), (iv) the Senior Credit
Facilities Refinancing, (v) the Azerty Acquisition, and (vi) the Notes
Offering, as if all such transactions occurred at the beginning of the period
presented.
The pro forma income statement excludes the extraordinary non-recurring
charge of approximately $10.1 million ($6.1 million net of tax benefit of
$4.0 million) related to the write-off of unamortized financing fees in
conjunction with the Senior Credit Facilities Refinancing. For pro forma
balance sheet purposes, this extraordinary non-recurring charge has been
reflected as a reduction of retained earnings.
In addition to the above described extraordinary non-recurring charge of
$10.1 million, the Unaudited Consolidated Adjusted Pro Forma Income Statement
also excludes the following: (i) an extraordinary non-recurring charge of
$9.8 million ($5.9 million net of tax benefit of $3.9 million) on early
retirement of debt, (ii) a non-recurring non-cash charge of $59.4 million
($35.5 million net of tax benefit of $23.9 million) related to the vesting of
the Merger Incentive Options, and (iii) a non-recurring cash charge of $5.3
million ($3.2 million net of tax benefit of $2.1 million) related to the
Management Agreements Termination, all of which are related to the 1997
Financing Transactions. These additional non-recurring charges are reflected
in the historical balance sheet as of December 31, 1997.
The Unaudited Consolidated Pro Forma Financial Statements are intended
for informational purposes only and are not necessarily indicative of the
future financial position or future results of operations of United after the
Senior Credit Facilities Refinancing, the Azerty Acquisition and the Notes
Offering, or of the financial position or results of operations of United
that would have actually occurred had the 1997 Financing Transactions, the
Senior Credit Facilities Refinancing, the Azerty Acquisition, or the Notes
Offering occurred at the beginning of the period presented. The Unaudited
Consolidated Pro Forma Financial Statements and the accompanying notes should
be read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements of United, together with the related notes
thereto, included elsewhere herein. The financial information contained in
this Form 8-K relating to the Azerty Business has been derived from financial
statements prepared in accordance with Canadian generally accepted accounting
principles.
8
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
SENIOR CREDIT
FACILITIES AZERTY
REFINANCING ACQUISITION OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- ------------- ------------ ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........... $ 12,367 $ -- $ -- $ -- $ 12,367
Accounts receivable................. 311,920 (120,300)(a) 42,806(e) -- 234,426
Inventories......................... 511,555 -- 33,639(e) -- 545,194
Other............................... 14,845 -- 550(e) -- 15,395
------------- ------------- ------------ ------------- -------------
Total current assets.............. 850,687 (120,300) 76,995 -- 807,382
Net property, plant and equipment..... 164,543 -- 5,392(e) -- 169,935
Goodwill.............................. 111,852 -- 69,342(e) -- 181,194
Other................................. 20,939 (7,661)(b) 43(e) 2,550 (f) 15,871
------------- ------------- ------------ ------------- -------------
Total assets...................... $ 1,148,021 $ (127,961) $ 151,772 $ 2,550 $ 1,174,382
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt... $ 44,267 $ (33,600)(c) $ 99(e) $ -- $ 10,766
Accounts payable.................... 236,475 -- 37,844(e) -- 274,319
Accrued expenses.................... 107,935 -- 3,542(e) -- 111,477
Accrued income taxes................ 10,561 (4,166)(d) -- (80)(f) 6,315
------------- ------------- ------------ ------------- -------------
Total current liabilities......... 399,238 (37,766) 41,485 (80) 402,877
Deferred income taxes................. 19,383 -- -- -- 19,383
Long-term obligations:
Long-term debt...................... 492,868 (84,000)(c) 110,287(e) 2,750 (f) 521,905
Other long-term liabilities......... 13,224 -- -- -- 13,224
Stockholders' equity:
Common stock (voting)............... 1,591 -- -- -- 1,591
Capital in excess of par value...... 213,042 -- -- -- 213,042
Retained earnings................... 8,675 (6,195)(d) -- (120)(f) 2,360
------------- ------------- ------------ ------------- -------------
Total stockholders' equity........ 223,308 (6,195) -- (120) 216,993
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
Total liabilities and
stockholders' equity............ $ 1,148,021 $ (127,961) $ 151,772 $ 2,550 $ 1,174,382
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
9
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SENIOR CREDIT
FACILITIES AZERTY
REFINANCING ACQUISITION OFFERING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ------------- ------------ ------------- -----------
INCOME STATEMENT DATA:
Net sales................................ $2,558,135 $ -- $ 355,423(j) $ -- $2,913,558
Cost of goods sold....................... 2,112,204 -- 323,160(j) -- 2,435,364
---------- ------------- ------------ ------------- -----------
Gross profit............................. 445,931 -- 32,263 -- 478,194
Operating expenses:
Warehousing, marketing and
administrative expenses.............. 311,002 -- 22,599(k) 333,601
Non-recurring charges.................. 64,698 -- -- -- 64,698
---------- ------------- ------------ ------------- -----------
Total operating expenses................. 375,700 -- 22,599 -- 398,299
---------- ------------- ------------ ------------- -----------
Income from operations................... 70,231 -- 9,664 -- 79,895
Interest expense......................... 53,511 (13,637)(g) 8,424(l) 1,205 (m) 49,503
Other expense............................ -- 7,401 (h) -- -- 7,401
---------- ------------- ------------ ------------- -----------
Income before income taxes and
extraordinary item..................... 16,720 6,236 1,240 (1,205) 22,991
Income taxes............................. 8,532 2,507 (i) 1,196(i) (484)(i) 11,751
---------- ------------- ------------ ------------- -----------
Income before extraordinary item......... 8,188 3,729 44 (721) 11,240
Extraordinary item--loss on early
retirement of debt, net of tax benefit
of $3,958.............................. (5,884) -- -- -- (5,884)
---------- ------------- ------------ ------------- -----------
Net income............................... 2,304 3,729 44 (721) 5,356
Preferred stock dividends issued and
accrued................................ 1,528 -- -- -- 1,528
---------- ------------- ------------ ------------- -----------
Net income attributable to common
stockholders........................... $ 776 $ 3,729 $ 44 $ (721) $ 3,828
---------- ------------- ------------ ------------- -----------
---------- ------------- ------------ ------------- -----------
Net income per common share--basic:
Income before extraordinary item....... $ 0.51 $ 0.74
Extraordinary item..................... (0.45) (0.45)
---------- -----------
Net income............................. $ 0.06 $ 0.29
---------- -----------
---------- -----------
Weighted average shares (in
thousands)........................... 13,064 13,064
---------- -----------
---------- -----------
Net income per common share--assuming
dilution:
Income before extraordinary item....... $ 0.43 $ 0.63
Extraordinary item..................... (0.38) (0.38)
---------- -----------
Net income............................. $ 0.05 $ 0.25
---------- -----------
---------- -----------
Weighted average shares and assumed
conversions (in thousands)........... 15,380 15,380
---------- -----------
---------- -----------
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
10
UNITED STATIONERS INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED ADJUSTED PRO FORMA INCOME STATEMENT
(ADJUSTED FOR 1997 FINANCING TRANSACTIONS)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ADJUSTED
1997 SENIOR CREDIT PRO FORMA
FINANCING FACILITIES AZERTY FOR 1997
TRANSACTIONS REFINANCING ACQUISITION OFFERING FINANCING
HISTORICAL ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS TRANSACTIONS
---------- -------------- -------------- ------------- --------------- -------------
INCOME STATEMENT DATA:
Net sales........................ $2,558,135 $ -- $ -- $ 355,423(j) $ -- $ 2,913,558
Cost of goods sold............... 2,112,204 -- -- 323,160(j) -- 2,435,364
---------- -------------- -------------- ------------- ------ -------------
Gross profit..................... 445,931 -- -- 32,263 -- 478,194
Operating expense:
Warehousing, marketing and
administrative expenses........ 311,002 (708)(n) -- 22,599(k) -- 332,893
Non-recurring charges............ 64,698 (64,698)(n) -- -- -- --
---------- -------------- -------------- ------------- ------ -------------
Total operating expenses......... 375,700 (65,406) -- 22,599 -- 332,893
---------- -------------- -------------- ------------- ------ -------------
Income from operations........... 70,231 65,406 -- 9,664 -- 145,301
Interest expenses................ 53,511 (5,096)(o) (13,637)(g) 8,424(l) 1,205 (m) 44,407
Other expense.................... -- -- 7,401 (h) -- -- 7,401
---------- -------------- -------------- ------------- ------ -------------
Income before income taxes and
extraordinary item............. 16,720 70,502 6,236 1,240 (1,205) 93,493
Income taxes..................... 8,532 28,342 (i) 2,507 (i) 1,196(i) (484)(i) 40,093
---------- -------------- -------------- ------------- ------ -------------
Income before extraordinary
item........................... 8,188 42,160 3,729 44 (721) 53,400
Extraordinary item--loss on early
retirement of debt, net of tax
benefit of $3,956.............. (5,884) 5,884 (p) -- -- -- --
---------- -------------- -------------- ------------- ------ -------------
Net income....................... 2,304 48,044 3,729 44 (721) 53,400
Preferred stock dividends issued
and accrued.................... 1,528 (1,528)(q) -- -- -- --
---------- -------------- -------------- ------------- ------ -------------
Net income attributable to common
stockholders................... $ 776 $ 49,572 $ 3,729 $ 44 $ (721) $ 53,400
---------- -------------- -------------- ------------- ------ -------------
---------- -------------- -------------- ------------- ------ -------------
Net income per common share--
basic:
Income before extraordinary
item......................... $ 0.51 $ 3.55
Extraordinary item............. (0.45) --
---------- ------------
Net income..................... $ 0.06 $ 3.55
---------- ------------
---------- ------------
Weighted average shares (in
thousands)................... 13,064 15,046
---------- ------------
---------- ------------
Net income per common share--
assuming dilution:
Income before extraordinary
item......................... $ 0.43 $ 3.14
Extraordinary item............. (0.38) --
---------- ------------
Net income..................... $ 0.05 $ 3.14
---------- ------------
---------- ------------
Weighted average shares and
assumed conversions (in
thousands)................... 15,380 17,019
---------- ------------
---------- ------------
See accompanying Notes to Unaudited Consolidated Pro Forma Financial Statements.
11
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The pro forma financial statements have been prepared giving effect to the
following:
(1) The New Credit Facilities and Receivables Securitization Program
replaced all preexisting debt under the Existing Credit Agreement
(which, as of December 31, 1997, consisted of $148.8 million of term
loan facilities and $256.0 million in a revolving credit facility).
Accordingly, $10.1 million of unamortized financing fees as of December
31, 1997 related to the credit agreement governing the Existing Credit
Facilities ($6.1 million net of tax benefit of $4.0 million) were
expensed as an extraordinary charge due to the early retirement of such
debt. As this extraordinary charge will be non-recurring it is not
considered for pro forma income statement purposes. Receivables sold
under the Receivables Securitization Program will total approximately
$120 million and will be used to reduce borrowings under the New Credit
Facilities. The anticipated annual costs related to the sale of certain
accounts receivable is estimated to be $7.4 million and is shown in
other expense.
(2) The Tranche B Term Loan Facility ($100.0 million) and a portion of the
Revolving Credit Facility under the New Credit Facilities
($10.0 million) were used to purchase the Azerty Business and pay
approximately $1.0 million in acquisition fees and expenses.
(3) The total purchase price for the Azerty Business (including fees and
expenses) was approximately $110.0 million and has been preliminarily
allocated as follows:
Current assets.......................................... $ 76,995
Property, plant and equipment........................... 5,392
Goodwill................................................ 69,342
Other assets............................................ 43
Liabilities assumed..................................... (41,772)
---------
Total purchase price................................ $ 110,000
---------
---------
(4) The operating results for the year ended December 31, 1997 for the
Azerty Business have been included as follows:
Net sales............................................... $ 355,423
Cost of goods sold...................................... 323,160
---------
Gross Profit........................................ 32,263
Warehousing, marketing and administrative expenses(a)... 22,599
---------
Earnings before interest and taxes...................... $ 9,664
---------
---------
--------------
(a) Includes $1.7 million of goodwill amortization based on $69.3
million of goodwill as computed above amortized over 40 years.
(5) Pro forma interest expense has been calculated based upon pro forma debt
levels and the applicable interest rates. The Existing Credit
Facilities' term loan facilities and revolving credit facility were
assumed to bear interest at their respective historical weighted
average annual rates of 7.91% and 7.97%, respectively. The Revolving
Credit Facility, the Tranche A Term Loan Facility and the Tranche B
Term Loan Facility under the New Credit Facilities were assumed to
12
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
bear interest at rates of 7.45%, 7.15% and 7.65%, respectively, based
on historical LIBOR/prime rates and current spread terms. The Notes
were assumed to bear interest at 8.375%. A 0.125% variation in effective
interest rates used for pro forma purposes has a $0.5 million impact on
pro forma interest expense.
(6) Income taxes have been provided for all adjustments at an assumed rate
of 40.2%. Goodwill resulting from the Azerty Acquisition will not be tax
deductible and as such is not tax affected.
The adjusted pro forma income statement reflecting the 1997 Financing
Transactions has been prepared giving effect to all the assumptions made in the
pro forma income statement and the following:
(1) The October Equity Offering and the resulting proceeds thereof were
contributed to the Company and used to redeem $50.0 million of the
Company's 12 3/4% Notes, pay the redemption premium of $6.4 million
thereon, and pay down $15.5 million of indebtedness under the Existing
Credit Facilities. The resulting extraordinary loss of $9.8 million
($5.9 million net of tax benefit of $3.9 million) on early retirement
of debt was eliminated for pro forma purposes.
(2) The October Equity Offering also resulted in the recognition of a
pre-tax non-recurring non-cash charge of $59.4 million ($35.5 million
net of tax benefit of $23.9 million) and a non-recurring cash charge
of $5.3 million ($3.2 million net of tax benefit of $2.1 million)
related to the vesting of the Merger Incentive Options and the
Management Agreements Termination, respectively. These non-recurring
charges have been eliminated for pro forma purposes. Approximately
$0.7 million in management advisory service agreement fees were paid
prior to the Management Agreements Termination. Accordingly, these
fees which were charged to 1997 operating expenses have been eliminated
for pro forma purposes.
(3) On September 2, 1997, United completed the redemption of all outstanding
shares of its Series A and Series C Preferred Stock for an aggregate
redemption price of approximately $21.3 million. Accordingly, the $1.5
million of Preferred Stock dividends issued and accrued for the year
ended December 31, 1997 has been eliminated for pro forma purposes.
Pro forma adjustments have been made to the pro forma balance sheet and
income statement to reflect the following effects of the Senior Credit
Facilities Refinancing, the Azerty Acquisition, and the Notes Offering:
(a) Reflects the sale of accounts receivable related to the Receivables
Securitization Program.
(b) Write-off of capitalized financing costs associated with the
retirement of the Existing Credit Facilities' revolving credit
facility, tranche A and tranche B term loans......................... $ (10,061)
Capitalized financing costs related to the New Credit Facilities..... 2,400
---------
$ 7,661
---------
---------
13
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(c) Reflects retirement of debt under the Existing Credit Facilities and the
issuance of new debt under the New Credit Facilities:
Retirement of existing tranche A term loan......................... $ (34,200)
Retirement of existing tranche B term loan......................... (9,400)
Tranche A Term Loan Facility....................................... 10,000
---------
Adjustment to current maturities of long-term debt(1).......... $ (33,600)
---------
---------
Retirement of existing tranche A term loan......................... $ (63,346)
Retirement of existing tranche B term loan......................... (41,842)
Retirement of existing revolving credit facility................... (256,000)
Tranche A Term Loan Facility....................................... 140,000
Revolving Credit Facility.......................................... 137,188
---------
Adjustment to long-term debt(1)................................ $ (84,000)
---------
---------
--------------
(1) Totals $117.6 million and combined with the $2.4 million of financing costs
related to the New Credit Facilities (see Note b) reflects the use of proceeds
from the Receivables Securitization Program.
(d) Adjustment to current income tax liability for the tax effect and to
retained earnings for the net effect of the write-off of the
capitalized financing costs and the initial costs related to the sale
of certain accounts receivable.
(e) Reflects the use of $100.0 million of the Tranche B Term Loan Facility
and $10.0 million of the Revolving Credit Facility under the New Credit
Facilities to purchase the Azerty Business. The Company has also
assumed $0.3 million of debt from the Azerty Business. The assets and
liabilities of the Azerty Business (including fees and expenses) are
preliminarily allocated as follows:
Current assets.................................................. $ 76,995
Property, plant and equipment................................... 5,392
Goodwill........................................................ 69,342
Other assets.................................................... 43
Liabilities assumed............................................. (41,772)
---------
Purchase price.............................................. $ 110,000
---------
---------
(f) Assumes net proceeds of $97.25 million from the issuance of the Notes
($100.0 million net of approximately $2.75 million in financing costs)
plus an additional $2.75 million in borrowings under the Revolving
Credit Facility, will be used to pay down the indebtedness outstanding
under the Tranche B Term Loan Facility, and as a result $0.2 million
($0.12 million net of tax benefit of $0.08 million) in financing fees
associated with the Tranche B Term Loan Facility will be expensed as
an extraordinary loss due to the early retirement of debt (which loss
is excluded for pro forma income statement purposes as it is
non-recurring).
14
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(g) The pro forma adjustments to interest expense related to the Senior
Credit Facilities Refinancing consist of the following:
YEAR ENDED
DECEMBER 31, 1997
----------------------
Elimination of interest related to Existing Credit Facilities:
Revolving credit facility...................................................... $ (12,540)
Tranche A term loan............................................................ (9,412)
Tranche B term loan............................................................ (4,794)
Elimination of amortization of deferred financing costs on retired debt........ (3,027)
--------
Decrease in interest expense..................................................... (29,773)
--------
Interest on new indebtedness (New Credit Facilities):
Revolving Credit Facility...................................................... 5,368
Tranche A Term Loan Facility................................................... 10,368
Amortization of deferred financing costs on the New Credit Facilities(1)....... 400
--------
Increase in interest expense................................................... 16,136
--------
Net decrease in interest expense................................................. $ (13,637)
--------
--------
------------------
(1) Debt issuance costs are amortized over the life of the related new
debt, 6 years.
(h) Reflects the costs related to the sale of certain accounts receivable
under the Receivables Securitization Program.
(i) Income taxes provided at a 40.2% effective rate.
(j) Reflects the historical net sales and gross profit for the year ended
December 31, 1997 for the Azerty Business.
(k) Reflects the historical operating expenses for the year ended December
31, 1997 for the Azerty Business and $1.7 million of goodwill
amortization related to the Azerty Acquisition.
(l) The pro forma adjustments to interest expense related to the Azerty
Acquisition consist of the following:
YEAR ENDED
DECEMBER 31, 1997
----------------------
Interest on new indebtedness (New Credit Facilities):
Tranche B Term Loan Facility......................................... $ 7,650
Revolving Credit Facility............................................ 774
-------
Increase in interest expense....................................... $ 8,424
-------
-------
15
UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(m) The pro forma adjustments to interest expense related to the Offering
consist of the following:
YEAR ENDED
DECEMBER 31, 1997
----------------------
Elimination of interest related to New Credit Facilities:
Tranche B Term Loan Facility........................................ $ (7,650)
-------
Interest on new indebtedness (New Credit Facilities and the Notes):
Revolving Credit Facility........................................... 205
Notes .............................................................. 8,375
Amortization of deferred financing costs on Notes(1)................ 275
-------
Increase in interest expense........................................ 8,855
-------
Net increase in interest expense.................................. $ 1,205
-------
-------
- --------------
(1) Debt issuance costs are amortized over the life of the related
new debt, 10 years.
Additional pro forma adjustments have been made to the adjusted pro forma
income statement reflecting the 1997 Financing Transactions to give effect to
the following:
(n) In the fourth quarter of 1997, United recognized a non-recurring
non-cash charge of $59.4 million ($35.5 million net of tax benefit of
$23.9 million) and a non-recurring cash charge of $5.3 million ($3.2
million net of tax benefit of $2.1 million) related to the vesting of
the Merger Incentive Options and the Management Agreements Termination,
respectively. In addition, approximately $0.7 million in management
advisory service fees were paid in 1997 prior to the Management
Agreements Termination. These charges and expenses are excluded for pro
forma purposes.
(o) The pro forma adjustments to interest expense related to the 1997
Financing Transactions consist of the following:
YEAR ENDED
DECEMBER 31, 1997
----------------------
Addition (Elimination) of interest related to:
Existing Credit Facilities..................................... $ 701
12 3/4% Notes.................................................. (5,467)
Elimination of amortization of deferred financing costs on
retired debt................................................. (330)
-------
Decrease in interest expense..................................... $ (5,096)
-------
-------
(p) In the fourth quarter of 1997, United recorded an extraordinary loss of
$9.8 million ($5.9 million net of tax benefit of $3.9 million) related
to early retirement of debt. This non-recurring charge is excluded for
pro forma purposes.
(q) On September 2, 1997, United completed the redemption of all outstanding
shares of its Series A and Series C Preferred Stock for an aggregate
redemption price of approximately $21.3 million. Accordingly, no
Preferred Stock dividends would be paid or accrued on a pro forma basis.
16
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits.
2.1 Stock Purchase Agreement, dated as of February 10, 1998, among the
United Stationers Supply Co., United Stationers Inc.,
Abitibi-Consolidated Inc., Abitibi-Consolidated Sales Corporation,
Azerty Incorporated, Azerty de Mexico, S.A. de C.V., AP Support Services
Incorporated, and Positive ID Wholesale Inc.*
4.1 Indenture, dated as of April 15, 1998, among United Stationers Supply Co.,
as issuer, United Stationers Inc., Lagasse Bros., Inc., Azerty
Incorporated, Positive ID Wholesale Inc., and AP Support Services
Incorporated, as guarantors, and The Bank of New York, as trustee.*
4.2 Purchase Agreement, dated as of April 9, 1998, among United Stationers
Supply Co., as issuer, United Stationers Inc., Lagasse Bros., Inc., Azerty
Incorporated, Positive ID Wholesale Inc., and AP Support Services
Incorporated, as guarantors, and Chase Securities Inc. and Bear, Stearns &
Co. Inc., as initial purchasers.*
4.3 Exchange and Registration Rights Agreement, dated as of April 15, 1998,
among United Stationers Supply Co., United Stationers Inc., Lagasse Bros.,
Inc., Azerty Incorporated, Positive ID Wholesale Inc., AP Support Services
Incorporated, Chase Securities Inc. and Bear, Stearns & Co. Inc.*
4.4 Second Supplemental Indenture, dated as of April 3, 1998, among United
Stationers Supply Co., Lagasse Bros., Inc., Azerty Incorporated, Positive
ID Wholesale Inc., AP Support Services Incorporated, and The Bank of
New York, as trustee.*
10.1 Second Amended and Restated Credit Agreement, dated as of April 3, 1998,
among United Stationers Inc., United Stationers Supply Co., the lenders
parties thereto, Chase Securities Inc., as arranger, and The Chase
Manhattan Bank, as agent.*
10.2 Second Amended and Restated Security Agreement, dated as of April 3, 1998,
between United Stationers Supply Co. and The Chase Manhattan Bank, as
administrative agent.*
10.3 Subsidiary Guarantee and Security Agreement, dated as of April 3, 1998,
among Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale
Inc., AP Support Services Incorporated, and The Chase Manhattan Bank, as
administrative agent.*
10.4 Pooling Agreement, dated as of April 3, 1998, among USS Receivables
Company, Ltd., United Stationers Supply Co., as servicer, and The Chase
Manhattan Bank, as trustee.*
17
10.5 Series 1998-1 Supplement, dated as of April 3, 1998, to Pooling Agreement
dated as of April 3, 1998, among USS Receivables Company, Ltd., United
Stationers Supply Co., as servicer, The Chase Manhattan Bank, as funding
agent, APA bank and trustee, and Park Avenue Receivables Corporation, as
initial purchaser.*
10.6 Receivables Sale Agreement, dated as of April 3, 1998, among United
Stationers Supply Co., as seller, USS Receivables Company, Ltd., and
United Stationers Supply Co., as servicer.*
10.7 Servicing Agreement, dated as of April 3, 1998, among USS Receivables
Company, Ltd., United Stationers Supply Co., as servicer, and The Chase
Manhattan Bank, as trustee.*
_____________________
* Filed herewith.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED STATIONERS INC.
Date: April 20, 1998 By: /s/ DANIEL H. BUSHELL
-----------------------------------------
Daniel H. Bushell
Executive Vice President and Chief
Financial Officer
UNITED STATIONERS SUPPLY CO.
Date: April 20, 1998 By: /s/ Daniel H. Bushell
-----------------------------------------
Daniel H. Bushell
Executive Vice President and Chief
Financial Officer
19
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------- ------------
2.1 Stock Purchase Agreement, dated as of February 10,
1998, among the United Stationers Supply Co., United
Stationers Inc., Abitibi-Consolidated Inc., Abitibi-Consolidated
Sales Corporation, Azerty Incorporated, Azerty de Mexico,
S.A. de C.V., AP Support Services Incorporated, and Positive
ID Wholesale Inc.
4.1 Indenture, dated as of April 15, 1998, among United
Stationers Supply Co., as issuer, United Stationers Inc.,
Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale
Inc., and AP Support Services Incorporated, as guarantors, and
The Bank of New York, as trustee.
4.2 Purchase Agreement, dated as of April 9, 1998, among
United Stationers Supply Co., as issuer, United Stationers Inc.,
Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale
Inc., and AP Support Services Incorporated, as guarantors, and
Chase Securities Inc. and Bear, Stearns & Co. Inc., as initial
purchasers.
4.3 Exchange and Registration Rights Agreement, dated as
of April 15, 1998, among United Stationers Supply Co., United
Stationers Inc., Lagasse Bros., Inc., Azerty Incorporated,
Positive ID Wholesale Inc., AP Support Services Incorporated,
Chase Securities Inc. and Bear, Stearns & Co. Inc.
4.4 Second Supplemental Indenture, dated as of April 3,
1998, among United Stationers Supply Co., Lagasse Bros., Inc.,
Azerty Incorporated, Positive ID Wholesale Inc., AP Support
Services Incorporated, and The Bank of New York, as trustee.
10.1 Second Amended and Restated Credit Agreement, dated as
of April 3, 1998, among United Stationers Inc., United
Stationers Supply Co., the lenders parties thereto, Chase
Securities Inc., as arranger, and The Chase Manhattan Bank, as
agent.
10.2 Second Amended and Restated Security Agreement, dated
as of April 3, 1998, between United Stationers Supply Co. and
The Chase Manhattan Bank, as administrative agent.
20
10.3 Subsidiary Guarantee and Security Agreement, dated as
of April 3, 1998, among Lagasse Bros., Inc., Azerty
Incorporated, Positive ID Wholesale Inc., AP Support Services
Incorporated, and The Chase Manhattan Bank, as administrative
agent.
10.4 Pooling Agreement, dated as of April 3, 1998, among
USS Receivables Company, Ltd., United Stationers Supply Co., as
servicer, and The Chase Manhattan Bank, as trustee.
10.5 Series 1998-1 Supplement, dated as of April 3, 1998,
to Pooling Agreement dated as of April 3, 1998, among USS
Receivables Company, Ltd., United Stationers Supply Co., as
servicer, The Chase Manhattan Bank, as funding agent, APA bank
and trustee, and Park Avenue Receivables Corporation, as initial
purchaser.
10.6 Receivables Sale Agreement, dated as of April 3, 1998,
among United Stationers Supply Co., as seller, USS Receivables
Company, Ltd., and United Stationers Supply Co., as servicer.
10.7 Servicing Agreement, dated as of April 3, 1998, among
USS Receivables Company, Ltd., United Stationers Supply Co., as
servicer, and The Chase Manhattan Bank, as trustee.
21