ITEM 1. BUSINESS
GENERAL
United Stationers Inc. ("United"), with 2000 net sales of $3.9 billion, is North America's largest distributor of business products and a provider of marketing and logistics services to resellers. United is the parent company of its direct wholly owned subsidiary, United Stationers Supply Co. ("USSC"). Except where the context clearly indicates otherwise, including references to the capital structure of United Stationers Inc., the term "Company" hereinafter used includes United Stationers Inc. together with its subsidiary.
On October 31, 1996, USSC acquired all of the capital stock of Lagasse Bros., Inc. ("Lagasse"), a wholesaler of janitorial and sanitary supplies. Lagasse operates as a subsidiary of USSC.
On April 3, 1998, USSC acquired all of the capital stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID Wholesale Inc., and AP Support Services Incorporated (the "Azerty Acquisition"), which together conducted substantially all of the United States and Mexican operations of the Office Products Division of Abitibi-Consolidated Inc. (collectively, the "Azerty Business"). The Azerty Business is primarily a specialty wholesaler of computer consumables, peripherals and accessories in the United States and Mexico.
On July 1, 2000, the Company acquired all of the capital stock of CallCenter Services, Inc. from Corporate Express, a Buhrmann Company. CallCenter Services is a customer relationship management outsourcing service company and operates as a division of USSC's wholly owned subsidiary, THE ORDER PEOPLE ("TOP").
On July 5, 2000, the Company completed the acquisition of the net assets relating to the wholesale business of Azerty Canada from MCSi, Inc. Azerty Canada is a specialty distributor of computer consumables, peripherals and accessories. United/Azerty Canada operates as a division of USSC.
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE to operate as a third-party logistics and fulfillment service provider for product categories beyond office products. THE ORDER PEOPLE offers a full set of services specifically designed to support a wide variety of third-party service needs.
On January 5, 2001, Lagasse purchased Peerless Paper Mills, Inc., a wholesale distributor of janitorial/sanitation, paper, and food service products. Peerless was immediately merged into Lagasse.
The Company sells its products through national distribution networks to more than 20,000 resellers, who in turn sell directly to end users. United is able to ship products within 24 hours of order placement because of its 39 United Stationers Supply Co. regional distribution centers, 28 Lagasse distribution centers that serve the janitorial and sanitation industry, six Azerty distribution centers that serve computer supply resellers, three distribution centers that serve the Canadian marketplace and a distribution center to service the clients of THE ORDER PEOPLE. In addition, THE ORDER PEOPLE has leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada.
PRODUCTS
The Company's product offerings, comprised of more than 40,000 stockkeeping units (SKUs), may be divided into five primary categories:
TRADITIONAL OFFICE PRODUCTS. The Company's core business continues to be traditional office products, which include both brand-name products and the Company's private brand products. Traditional office products include writing instruments, paper products, organizers, calendars and general office accessories.
COMPUTER CONSUMABLES. The Company offers computer supplies, and peripherals to value-added computer resellers and office products dealers.
OFFICE FURNITURE. The Company's sale of office furniture, such as leather chairs, wooden and steel desks and computer furniture, has enabled it to become the nation's largest office furniture wholesaler. The Company currently offers over 5,500 furniture items from more than 50 different manufacturers.
FACILITIES SUPPLIES. The major products in this category are janitorial and sanitation supplies, safety and security items, and shipping and mailing supplies. In October 1996 and January 2001, Lagasse and Peerless Paper were acquired, respectively, making the Company the largest pure wholesaler of janitorial and sanitation supplies in North America. The Company currently distributes these products to sanitary supply dealers through 28 distribution centers.
BUSINESS MACHINES AND AUDIO-VISUAL PRODUCTS. This product category includes business machines - from calculators to telephones - as well as audio-visual equipment and supplies.
CUSTOMERS
The Company sells to more than 20,000 resellers, including office products dealers, mega-dealers, office products superstores, computer products resellers, office furniture dealers, mass merchandisers, mail order companies, sanitary supply distributors and e-commerce merchants. Of its 20,000 customers, no single reseller accounted for more than 9% of the Company's net sales in 2000.
Independent commercial dealers and contract stationers are the most significant reseller channel for office products distribution and typically serve medium to large businesses, institutions and government agencies. Through industry consolidation, the number of such dealers has decreased, with the remaining dealers growing larger. As a result, net sales to individual commercial dealers and contract stationers have grown. Many dealers have joined marketing or buying groups in order to increase their purchasing leverage. The Company believes it is the leading wholesale source for most of these groups, providing not only merchandise but also special programs that enable these dealers to benefit from their combined marketing efforts.
While the Company maintains and builds its business with commercial dealers, contract stationers (including the contract stationer divisions of national office product superstores) and retail dealers, it also has relationships with most major office products superstore chains. In addition, the Company supplies inventory and other fulfillment services to the retail operations of certain superstores, including their direct-to-business delivery programs.
MARKETING AND CUSTOMER SUPPORT
The Company concentrates its marketing efforts on providing value-added services to resellers. The Company distributes products that are generally available at similar prices from multiple sources and most of its customers purchase their products from more than one source. As a result, the Company seeks to differentiate itself from its competitors through a broader product offering, a higher degree of product availability, a variety of high quality customer services and its overnight distribution capabilities. In addition to emphasizing its broad product line, extensive inventory, integrated systems and national distribution capabilities, the Company's marketing programs have relied upon two additional major components. First, the Company produces an extensive array of catalogs for commercial dealers, contract stationers and retail dealers that are usually custom imprinted with each reseller's name and sold to these resellers who, in turn, distribute the catalogs to their customers. Second, the Company provides its resellers with a variety of dealer support and marketing services, including electronic commerce options, promotional programs and pricing services. These services are designed to aid the reseller in differentiating itself from its competitors by addressing the needs of the end-user's procurement process.
Substantially all of the Company's 40,000 SKUs are sold through its comprehensive general line catalog, promotional pieces and specialty catalogs for the office products, computer supplies, office furniture, facilities management supplies and other specialty markets. The Company produces the following annual catalogs: General Line Catalog; Office Furniture Catalog featuring furniture and accessories; Universal(TM) Catalog promoting the Company's private-brand merchandise; Computer Products Catalog offering computer related supplies, accessories, hardware and peripheral products; Facility Supplies Catalog featuring food service, warehouse, mailroom supplies and products and supplies used for meetings and presentations; the Lagasse Catalog offering janitorial and sanitation supplies; the B2500 Catalog featuring a selection of everyday office supplies; the Catalog promoting commodity furniture and accessory products; the A/V2000 Catalog featuring audio-visual equipment and supplies; and the Signature Images Catalog with an assortment of imprinted, promotional, and ad specialty items. In addition, the Company produces the following quarterly promotional catalogs: Action 2000, featuring over 1,000 high-volume commodity items, Price Buster, featuring special promotional pricing and graphics on 1,000 items and CC1000, featuring computer supplies, peripherals, accessories and furniture. The Company also produces separate quarterly flyers covering general office supplies, office furniture, facility supplies and Universal(TM) products. Because commercial dealers, contract stationers and retail dealers typically distribute only one wholesaler's catalogs in order to streamline and concentrate order entry, the Company attempts to maximize the distribution of its catalogs by offering advertising credits to resellers, which can be used to offset the cost of the catalogs. Also, the Company's general line catalog is available in an electronic version.
The Company also offers resellers a variety of electronic order entry systems and business management and marketing programs. For instance, the Company maintains electronic data interchange and interactive order systems that link the Company to selected resellers and such resellers to the ultimate end user. In addition, the Company's electronic order entry systems allow the reseller to forward its customers' orders directly to the Company, resulting in the delivery of pre-sold products to the reseller or directly to the reseller's customer. The Company estimates that in 2000, it received approximately 90% of its orders electronically.
In addition to marketing its products and services through the use of its catalogs, the Company employs a sales force of approximately 220 field salespersons and a telemarketing and telesales staff of 380 people. The sales force is responsible for sales and service to resellers with which the Company has an existing relationship, as well as for establishing new relationships with additional resellers.
DISTRIBUTION
The Company's Supply Division has a network of 39 business products regional distribution centers located in 36 metropolitan areas in 25 states in the United States, most of which carry the Supply Division's full line of inventory. The Company also maintains 28 Lagasse distribution centers that carry a full line of janitorial and sanitation supplies, six Azerty distribution centers that carry computer consumables, peripherals and accessories, three distribution centers that serve the Canadian marketplace and a distribution center to service clients of THE ORDER PEOPLE. In addition, THE ORDER PEOPLE has leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada. The Company supplements its regional distribution centers with 21 local distribution points throughout the United States that serve as reshipment points for orders filled at the regional distribution centers. The Company utilizes more than 400 trucks, substantially all of which are contracted for by the Company, to enable direct delivery from the regional distribution centers and local distribution points to resellers.
The Company's distribution capabilities are aided by its proprietary computer-driven inventory locator system. If a reseller places an order for an item that is out of stock at the Company location which usually serves the particular reseller, the Company's system will automatically search for the item at alternative distribution centers. If the item is available at an alternative location, the system will automatically forward the order to that alternate location, which will then coordinate shipping with the primary facility and, for the majority of resellers, provide a single on-time delivery. The system effectively provides the Company with added inventory support that enables it to provide higher service levels to the reseller, to reduce back orders and to minimize time spent searching for merchandise substitutes, all of which contribute to the Company's high order fill rate and efficient levels of inventory.
Another service offered by the Company to resellers is its "wrap and label" program that offers resellers the option to receive individually packaged orders customized to meet the needs of specific end users. For example, when a reseller receives orders from several individual end users, the Company can group and wrap the items separately, identifying the specific end user so that the reseller need only deliver the package. The "wrap and label" program is attractive to resellers because it eliminates the need to break down case shipments and to repackage the orders before delivering them to the end user. The Company also ships orders directly to end users on behalf of its resellers.
PURCHASING AND MERCHANDISING
As the largest business products wholesaler in North America, the Company qualifies for substantial volume allowances and can realize significant economies of scale. The Company obtains products from over 500 manufacturers. The Company believes it is a significant customer for most of these manufacturers. In 2000, no supplier accounted for more than 18% of the Company's aggregate purchases. As a centralized function, the Company's merchandising department interviews and selects suppliers and products for inclusion in the catalogs. Selection is based upon end-user acceptance, demand for the product and the manufacturer's total service, price and product quality offering.
COMPETITION
The Company competes with office products manufacturers and with other national, regional and specialty wholesalers of office products, office furniture, computer supplies and related items, and facility management supplies. Competition between the Company and manufacturers is based primarily upon net pricing, minimum order quantity and speed of delivery. Although manufacturers may provide lower prices to resellers than the Company does, the Company's marketing and catalog programs, combined with speed of delivery and its ability to offer resellers a broad line of business products from multiple manufacturers on a "one-stop shop" basis and with lower minimum order quantities, are important factors in enabling the Company to compete effectively. Manufacturers typically sell their products through a variety of distribution channels, which includes wholesalers and resellers.
Competition between the Company and other wholesalers is based primarily on breadth of product lines, availability of products, speed of delivery to resellers, order fill rates, net pricing to resellers and the quality of its marketing and other services. The Company believes it is competitive in each of these areas. Most wholesale distributors of office products conduct operations regionally and locally, sometimes with limited product lines such as writing instruments or computer products. Only one other national wholesaler carries a general line of office products.
Increased competition in the office products industry, together with increased advertising, has heightened price awareness among end users. As a result, purchasers of commodity office products have become extremely price sensitive, and therefore, the Company has increased its efforts to market to resellers the continuing advantages of its competitive strengths (as compared to those of manufacturers and other wholesalers).
THE ORDER PEOPLE competes with other outsourcing alternatives for logistics and order fulfillment as well as providers of Customer Relationship Management (CRM) capabilities.
EMPLOYEES
As of December 31, 2000, the Company employed approximately 8,350 persons.
The Company considers its relations with employees to be good. Approximately 1,000 of the shipping, warehouse and maintenance employees at certain of the Detroit, Philadelphia, Baltimore, Los Angeles, Minneapolis and New York City facilities are covered by collective bargaining agreements. The agreements expire at various times during the next three years. The Company has not experienced any work stoppages during the past five years.
ITEM 2.
ITEM 2. PROPERTIES
The Company considers its properties to be suitable and adequate for their intended uses. The Company continually evaluates its properties to achieve peak efficiency to maximize customer satisfaction and economies of scale. Substantially all owned facilities are subject to liens under USSC's Senior Credit Facility. As of December 31, 2000, these properties consisted of the following:
EXECUTIVE OFFICES. The Company's office facility in Des Plaines, Illinois has approximately 161,000 square feet of office and storage space. In addition, the Company owns approximately 42,000 square feet of office space in Orchard Park, New York, and approximately 22,000 square feet of office space in Harahan, Louisiana (not including approximately 61,000 square feet of warehouse space) and leases approximately 50,000 square feet of office space located in Mt. Prospect, Illinois.
DISTRIBUTION CENTERS. The Company presently has more than twelve million square feet of warehouse space in 39 business products distribution centers, 28 janitorial and sanitation supply distribution centers, six information technology distribution centers, and three distribution centers that serve the Canadian marketplace. In addition, the Company operates two call centers dedicated to THE ORDER PEOPLE, one in Salisbury, Maryland with approximately 52,600 square feet of owned office space and the other in Wilkes-Barre, Pennsylvania with approximately 80,000 square feet of leased office space. THE ORDER PEOPLE also operates a distribution center with approximately 650,000 square feet of leased space in Memphis, Tennessee. In addition, THE ORDER PEOPLE has leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada. The following table sets forth information regarding the Company's principal leased and owned distribution centers (excluding THE ORDER PEOPLE facilities):
(1) A portion of such property is subleased to a third party.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders through the solicitation of proxies in the fourth quarter of 2000.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted through the Nasdaq National Market System under the symbol USTR. The following table shows the high and low closing sale prices per share for the Company's common stock as reported by Nasdaq.
On March 15, 2001, there were approximately 928 holders of record of common stock.
The Company's policy has been to reinvest earnings to fund future growth. Accordingly, the Company has not paid cash dividends and does not anticipate declaring cash dividends on its common stock in the foreseeable future. Furthermore, as a holding company, United's ability to pay cash dividends in the future depends upon the receipt of dividends or other payments from its operating subsidiary, USSC. The payment of these dividends is subject to certain restrictions imposed by the Company's debt agreements. See Note 7 to the Consolidated Financial Statements.
On October 23, 2000, the Company's Board of Directors authorized the repurchase of up to $50.0 million of its common stock. Under this authorization, the Company purchased 857,100 shares at a cost of approximately $22.4 million during 2000. During 1999, under a previous authorization, the Company purchased 3,250,000 shares of its common stock at a cost of approximately $49.6 million. Acquired shares are included in the issued shares of the Company, but are not included in average shares outstanding when calculating earnings per share data. During 2000 and 1999, the Company reissued 309,674 and 29,519 shares of treasury stock, respectively, to fulfill its obligations under its stock option plan.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 have been derived from the Consolidated Financial Statements of the Company, which have been audited by Ernst & Young LLP, independent auditors. All selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company.
(1) During the fourth quarter of 2000, the Company restated all prior periods to reclassify freight revenue from cost of goods sold and operating expense to net sales in compliance with FASB Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs". EITF No. 00-10, requires that shipping and handling fees billed to a customer in a sale transaction represent revenues earned for the goods provided and should be classified as revenue. See Note 1 to the Consolidated Financial Statements.
(2) In the second quarter of 1998, the Company recognized a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) related to the write off of the remaining payments and prepaid expense under a contract for computer services from a vendor. See Note 1 to the Consolidated Financial Statements.
(3) In the fourth quarter of 1997, the Company recognized a non-recurring non-cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9 million), and a non-recurring cash charge of $5.3 million ($3.2 million net of tax benefit of $2.1 million) related to the vesting of stock options and the termination of certain management advisory service agreements.
(4) Represents the loss on the sale of certain trade accounts receivable through an asset-backed securitization program and the loss on the sale of certain capital assets. See Note 5 to the Consolidated Financial Statements.
(5) EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and extraordinary item. EBITDA is presented because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company's ability to service and incur debt. EBITDA should not be considered in isolation from, or as a substitute for, net income, cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.
(6) EBITDA margin represents EBITDA as a percent of net sales.
(7) Excludes amortization related to deferred financing costs, which is a component of interest expense.
(8) Includes $11.1 million of proceeds from the sale of property, plant and equipment.
(9) In the second quarter of 2000, the Company recorded an extraordinary charge of $10.7 million ($6.5 million net of tax benefit of $4.2 million) related to the early retirement of debt. See Note 7 to the Consolidated Financial Statements.
(10) In the second quarter of 1998, the Company recognized a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) related to the write off of the remaining payments and prepaid expense under a contract for computer services from a vendor. In addition, during the second quarter of 1998 the Company recorded an extraordinary charge of $9.9 million ($5.9 million net of tax benefit of $4.0 million) related to the early retirement of debt. See Note 1 to the Consolidated Financial Statements.
(11) In the fourth quarter of 1997, the Company recognized a non-recurring non-cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9 million) and a non-recurring cash charge of $5.3 million ($3.2 million net of tax benefit of $2.1 million) related to the vesting of stock options and the termination of certain management advisory service agreements. In addition, during the fourth quarter of 1997 the Company recorded an extraordinary charge of $9.8 million ($5.9 million net of tax benefit of $3.9 million) related to early retirement of debt.
(12) Excludes $150.0 million in 2000 and $160.0 million in 1999 and 1998 of certain trade accounts receivable sold through an asset-backed securitization program. See Note 5 to the Consolidated Financial Statements.
(13) Total debt and capital leases include current maturities.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-K.
Information contained or incorporated by reference in this Form 10-K may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. All statements other than statements of historical fact included in this Form 10-K, including those regarding the Company's financial position, business strategy, projected costs and plans and objectives of management for future operations are forward-looking statements. The following matters and certain other factors noted throughout this Form 10-K constitute cautionary statements identifying important factors with respect to any such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. Such risks and uncertainties include, but are not limited to, the highly-competitive environment in which the Company operates, the market potential for third-party service providers, the Company's ability to adjust THE ORDER PEOPLE'S cost structure to the timing of revenue generation, the integration of acquisitions, changes in end-users' traditional demands for business products, the Company's reliance on certain key suppliers, the effects of fluctuations in manufacturers' pricing, potential service interruptions, customer credit risk, dependence on key personnel, and general economic conditions. A description of these factors, as well as other factors, which could affect the Company's business, is set forth in certain filings by the Company with the Securities and Exchange Commission. All forward-looking statements contained in this Form 10-K and/or any subsequent written or oral forward-looking statements attributable to the Company or persons acting on behalf of the Company, are expressly qualified in their entirety by such cautionary statements. The Company undertakes no obligation to release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
OVERVIEW
The Company is the largest general line business products wholesaler in the United States, with 2000 net sales of $3.9 billion. The Company sells its products through national distribution networks to more than 20,000
resellers, who in turn sell directly to end users. These products are distributed through a computer-based network of warehouse facilities and truck fleets radiating from 39 regional distribution centers, 28 Lagasse distribution centers, six Azerty distribution centers, three distribution centers that serve the Canadian marketplace and a distribution center to service clients of THE ORDER PEOPLE. In addition, THE ORDER PEOPLE has leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada.
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE ("TOP") to operate as its third-party fulfillment provider for product categories beyond office products. TOP offers a full set of services specifically designed to support a wide variety of third-party service needs. By combining the Company's state-of-the-art distribution network with a multi-channel customer relationship management (CRM) capability, clients have the ability to custom design their order fulfillment experience and then monitor and measure consumer satisfaction. The Company has extensive experience and ability to pick, pack, ship and track products with a wide range of physical attributes. TOP enables the Company to leverage these core competencies in a broader context for third-party logistics and fulfillment.
ACQUISITION OF CALLCENTER SERVICES, INC. On July 1, 2000, the Company acquired all of the capital stock of CallCenter Services, Inc. from Corporate Express, a Buhrmann Company. The purchase price was approximately $10.7 million, financed through the Company's Senior Credit Facility. CallCenter Services is a customer relationship management outsourcing service company. It has two inbound call centers, in Wilkes-Barre, Pennsylvania and Salisbury, Maryland, with a total of up to 1,000 seats. This acquisition will complement and significantly enhance the third-party fulfillment business of TOP. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess of cost over fair value of approximately $3.1 million was allocated to goodwill. The pro forma effects of the acquisition were not material.
ACQUISITION OF AZERTY CANADA. On July 5, 2000, the Company completed the acquisition of the net assets of Azerty Canada from MCSi, Inc. The purchase price was approximately $33.6 million (U.S. dollars) financed through the Company's Senior Credit Facility. Azerty Canada is a specialty wholesale distributor of computer consumables, peripherals and accessories. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess of cost over fair value of approximately $11.8 million was allocated to goodwill. The pro forma effects of the acquisition were not material.
ACQUISITION OF CONSUMER DEVELOPMENT GROUP. On November 1, 1999, the Company acquired all of the capital stock of Consumer Development Group Inc. ("CDG") for approximately $4.8 million, including an initial payment to the seller of approximately $2.4 million, financed through senior debt. The remaining purchase price of approximately $2.4 million will be paid ratably on each of the first three anniversaries of the acquisition. The CDG acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess of cost over fair value of approximately $4.8 million was allocated to goodwill. The financial information for the year ended December 31, 1999, included the results of CDG for November and December only. The pro forma effects of this acquisition were not material. A Certificate of Dissolution was filed with the State of Delaware to dissolve CDG as of December 31, 1999. CDG is a division of USSC.
COMMON STOCK REPURCHASE. On October 23, 2000, the Company's Board of Directors authorized the repurchase of up to $50.0 million of its common stock. Under this authorization, the Company purchased 857,100 shares of its common stock at a cost of approximately $22.4 million, during 2000. During 1999, under a previous authorization, the Company purchased 3,250,000 shares of its common stock at a cost of approximately $49.6 million. Acquired shares are included in the issued shares of the Company, but are not included in average shares outstanding when calculating earnings per share data. During 2000 and 1999, the Company reissued 309,674 and 29,519 shares of treasury stock, respectively, to fulfill its obligations under its stock option plan.
JUNE 1998 EQUITY OFFERING. In June 1998, United completed an offering of 4.0 million shares of common stock (the "June 1998 Equity Offering"), consisting of 3.0 million primary shares sold by United, and 1.0 million secondary shares sold by certain selling stockholders. The shares were priced at $27.00 per share, before underwriting discounts and commissions of $1.15 per share. The aggregate proceeds to United of approximately $77.6 million (before deducting expenses) were delivered to USSC and used to repay a portion of
indebtedness under the Tranche A Term Loan Facility, which caused a permanent reduction of the amount borrowable under this facility.
United did not receive any of the proceeds from the sale of the 1.0 million shares of common stock offered by the selling stockholders. It did, however, receive an aggregate of approximately $6.4 million paid by the selling stockholders upon exercise of employee stock options in connection with the June 1998 Equity Offering, which were delivered to USSC and applied to the repayment of indebtedness under the New Credit Facilities.
After closing the June 1998 Equity Offering, the underwriters exercised an overallotment option to purchase an additional 0.4 million shares from United. The net proceeds to United of approximately $10.3 million from the sale were delivered to USSC and used to repay an additional portion of the indebtedness outstanding under the Tranche A Term Loan Facility.
In the second quarter of 1998, the Company recognized the following charges: a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) to write off the remaining payments and related prepaid expense under a contract for computer services from a vendor (see Note 1 to the Consolidated Financial Statements), and an extraordinary loss of $9.9 million ($5.9 million net of tax benefit of $4.0 million) related to the early retirement of debt (collectively "1998 Charges"), see Note 1 to the Consolidated Financial Statements.
Net income attributable to common stockholders for the year ended December 31, 1998, before the 1998 Charges, was $72.2 million, up 59.0%, compared with $45.4 million, before the 1997 Charges (as defined). In 1998, diluted earnings per share before the 1998 Charges were $2.00 on 36.2 million weighted average shares outstanding, up 36.1%, compared with $1.47, before charges, on 30.8 million weighted average shares outstanding for the prior year.
ACQUISITION OF THE AZERTY BUSINESS. On April 3, 1998, the Company acquired all of the capital stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID Wholesale Inc., and AP Support Services Incorporated (collectively the "Azerty Business"). These businesses comprised substantially all of the United States and Mexican operations of the Office Products Division of Abitibi-Consolidated Inc. The aggregate purchase price paid by the Company for the Azerty Business was approximately $115.7 million (including fees and expenses). The acquisition was financed primarily through senior debt. The Azerty Business acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition, with the excess of cost over fair value of approximately $73.7 million allocated to goodwill. The financial information for the year ended December 31, 1998, included nine months of the Azerty Business. The pro forma effects of this acquisition were not material.
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
NET SALES. Net sales increased 14.6% to $3.9 billion for 2000, compared with $3.4 billion for 1999. This increase reflected growth in the Company's core business, incremental sales from acquisitions completed in 2000, and increases in freight revenue. The Company's sales growth within its core business was broad based, with strength in all geographic regions, across all product categories and customer channels. Specifically, the janitorial and sanitation products, computer consumables and office furniture categories experienced strong sales growth. Sales growth for the year ended December 31, 2000, excluding the acquisitions of Azerty Canada and CallCenter Services Inc., increased 12.2%.
GROSS MARGIN. Gross margin in 2000 reached $643.8 million, up 14.1% from last year and was 16.3% of net sales, compared with $564.2 million, or 16.4% of net sales, in 1999. The 0.1% rate decline is due to lower pricing margin partially offset by incremental vendor allowances earned as a result of higher sales volume.
OPERATING EXPENSES. Operating expenses for 2000 were up 15.5% to $441.3 million and were 11.2% of net sales, compared with $382.0 million, or 11.1% of net sales, in the prior year. The increase in the operating expense rate was attributable to investments in THE ORDER PEOPLE, the Company's third-party fulfillment business. Operating expenses for 2000 related to THE ORDER PEOPLE totaled $9.0 million resulting in a 0.2% increase in the operating expense ratio.
INCOME FROM OPERATIONS. Income from operations increased 11.1% to $202.5 million, or 5.1% of net sales, compared with $182.2 million, or 5.3% of net sales in 1999. Excluding the investments in THE ORDER PEOPLE, income from operations increased 15.5% to $210.5 million or 5.4% of net sales.
INTEREST EXPENSE. Interest expense for 2000 was $27.2 million, or 0.7% of net sales, compared with $29.2 million, or 0.8% of net sales, in 1999. This reduction reflects the Company's continued leveraging of interest costs against higher sales, and the interest expense savings related to the redemption of the 12.75% Notes (as defined) partially offset by slightly higher interest rates on variable rate debt.
OTHER EXPENSE. Other expense for 2000 reached $11.2 million, or 0.3% of net sales, compared with $9.4 million, or 0.3% of net sales in 1999. This expense primarily represents the costs associated with the sale of certain trade accounts receivable through the Receivables Securitization Program (as defined). These costs vary on a monthly basis and generally are related to certain short-term interest rates.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes and extraordinary item was $164.1 million, or 4.1% of net sales, compared with $143.6 million, or 4.2% of net sales in 1999.
INCOME TAXES. Income tax expense as a percent of net sales was 1.7% in 2000 and in 1999. The effective tax rate declined to 39.9% in 2000 from 41.9% in 1999. This was due to a change in the mix of pre-tax earnings between states and higher pre-tax earnings with relatively constant nondeductible expenses, such as goodwill.
NET INCOME. Net income for 2000 increased 10.6% to $92.2 million, or 2.3% of net sales, from $83.4 million, or 2.4% of net sales, in 1999. Net income for 2000, excluding the impact of the extraordinary item, increased 18.2% to $98.6 million, or 2.5% of net sales.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are recorded throughout the year, including inventory shrinkage and obsolescence, required LIFO reserve, manufacturers' allowances, advertising costs and various expense items. During the fourth quarter of 2000, the Company recorded a favorable net income adjustment of approximately $5.9 million related to the refinement of estimates recorded in the prior three quarters.
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
NET SALES. Net sales increased 11.1% to $3.4 billion for 1999, compared with $3.1 billion for 1998. The Company's sales growth was broad based, with strength in all geographic regions, across all product categories and customer channels. Specifically, the janitorial and sanitation products, computer consumables and office furniture categories experienced strong sales growth. The Company's sales with both national accounts and independent dealers are strengthening. Organic sales for the year ended December 31, 1999, increased 7.7%. This included pre-acquisition first quarter 1998 net sales of $99.7 million for the Azerty Business.
GROSS MARGIN. Gross margin in 1999 reached $564.2 million, up 6.2% from last year and was 16.4% of net sales, compared with $531.4 million, or 17.2% of net sales, in 1998. This rate decrease reflected the trend toward a lower margin product mix. The lower margin rate reflecting product mix partially was offset by incremental vendor allowances earned as a result of higher sales volume.
OPERATING EXPENSES. Operating expenses for 1999 totaled $382.0 million, up 5.5% from last year and were 11.1% of net sales, compared with $362.1 million, or 11.7% of net sales, in the prior year (excluding non-recurring charges). The decline in the operating expense rate was attributable to the continued leveraging of fixed costs. The non-recurring charge recorded in the second quarter of 1998 of $13.9 million ($8.3 million net of tax benefit of $5.6 million) was related to the write off of a contract for computer services from a vendor (see Note 1 to the Consolidated Financial Statements). Operating expenses, including this charge, totaled $375.9 million, or 12.1% of net sales, in 1998.
INCOME FROM OPERATIONS. Income from operations totaled $182.2 million, or 5.4% of net sales, compared with $169.3 million, or 5.5% of net sales in 1998, before non-recurring charges. Including the non-recurring charge, income from operations totaled $155.4 million, or 5.1% of net sales, in 1998.
INTEREST EXPENSE. Interest expense for 1999 was $29.2 million, or 0.9% of net sales, compared with $36.3 million, or 1.2% of net sales, in 1998. This reduction reflected the continued leveraging of interest costs against higher sales, and the repayment of indebtedness with the proceeds received from the June 1998 Equity Offering and the Receivables Securitization Program (as defined). These effects partially were offset by three months of incremental interest expense related to the acquisition of the Azerty Business in April
of 1998 for a purchase price of approximately $115.7 million, and the placement of $100.0 million of Senior Subordinated Notes at 8.375% in April 1998.
OTHER EXPENSE. Other expense for 1999 reached $9.4 million, or 0.3% of net sales, compared with $8.2 million, or 0.3% of net sales in 1998. This expense primarily represents the costs associated with the sale of certain trade accounts receivable through the Receivables Securitization Program (as defined). These costs vary on a monthly basis and generally are related to certain short-term interest rates.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Income before income taxes and extraordinary item was $143.6 million, or 4.2% of net sales, compared with $124.8 million, or 4.0% of net sales in 1998, before non-recurring charge. Including the non-recurring charge, income before income taxes and extraordinary item totaled $110.9 million, or 3.6% of net sales, in 1998.
NET INCOME. Net income for 1999 increased 15.5% to $83.4 million, or 2.5% of net sales, from $72.2 million, or 2.4% of net sales, in 1998, excluding the non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) and an extraordinary item - loss on the early retirement of debt of $9.9 million ($5.9 million net of tax benefit of $4.0 million) (see Note 1 to the Consolidated Financial Statements). Net income in 1998, excluding the impact of the non-recurring charge and the extraordinary item, totaled $58.0 million, or 1.9% of net sales.
FOURTH QUARTER RESULTS. Certain expense and cost of sale estimates are recorded throughout the year, including inventory shrinkage and obsolescence, required LIFO reserve, manufacturers' allowances, advertising costs and various expense items. During the fourth quarter of 1999, the Company recorded a favorable net income adjustment of approximately $4.0 million related to the refinement of estimates recorded in the prior three quarters.
LIQUIDITY AND CAPITAL RESOURCES
CREDIT AGREEMENT
On June 30, 2000, the Company entered into the Third Amended and Restated Revolving Credit and Term Loan Agreement (the "Credit Agreement"). The Credit Agreement, among other things, provides for an additional $150.0 million, five-year term loan facility (the "Tranche A-1 Facility").
As of December 31, 2000, the available credit under the Credit Agreement included $181.8 million of term loan borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving loan borrowings (the "Revolving Credit Facility"). In addition, the Company has $100.0 million of 8.375% Senior Subordinated Notes due 2008, and $29.8 million of industrial revenue bonds.
As of December 31, 2000, the Term Loan Facilities consisted of a $44.3 million Tranche A term loan facility (the "Tranche A Facility") and a $137.5 million Tranche A-1 Facility. Amounts outstanding under the Tranche A Facility are to be repaid in 13 quarterly installments ranging from $2.6 million at March 31, 2001, to $3.7 million at March 31, 2004. Amounts outstanding under the Tranche A-1 Facility are to be repaid in 18 quarterly installments ranging from $6.3 million at March 31, 2001, to $7.8 million at June 30, 2005.
The Revolving Credit Facility is limited to $250.0 million, less the aggregate amount of letter of credit liabilities under the facility, and contains a provision for swingline loans in an aggregate amount up to $25.0 million. The Revolving Credit Facility matures on March 31, 2004, and $98.0 million was outstanding at December 31, 2000.
The Term Loan Facilities and the Revolving Credit Facility are secured by first priority pledges of the stock of USSC, all of the stock of domestic direct and indirect subsidiaries of USSC, the stock of Lagasse and Azerty and certain of the foreign and direct and indirect subsidiaries of USSC (excluding USS Receivables Company, Ltd.) and security interests and liens upon all accounts receivable, inventory, contract rights and certain real property of USSC and its domestic subsidiaries other than accounts receivables sold in connection with the Receivables Securitization Program.
The loans outstanding under the Term Loan Facilities and the Revolving Credit Facility bear interest as determined within a pricing matrix. The interest rate is based on the ratio of total debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA"), excluding the EBITDA of TOP. The Tranche A Facility and Revolving Credit Facility bear interest at the prime rate plus 0% to 1.00%, or, at the Company's option, the London Interbank Offered Rate ("LIBOR") plus 1.25% to 2.25%. The Tranche A-1 Facility bears interest at the prime rate plus 0.25% to 1.25%, or, at the Company's option, LIBOR plus 1.50% to 2.50%.
The Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financing of this type. At December 31, 2000, the Company was in compliance with all covenants contained in the Credit Agreement.
The right of United to participate in any distribution of earnings or assets of USSC is subject to the prior claims of the creditors of USSC. In addition, the Credit Agreement contains certain restrictive covenants, including covenants that restrict or prohibit USSC's ability to pay cash dividends and make other distributions to United.
The Company is exposed to market risk for changes in interest rates. The Company may enter into interest rate protection agreements, including collar agreements, to reduce the impact of fluctuations in interest rates on a portion of its variable rate debt. These agreements generally require the Company to pay to or entitle the Company to receive from the other party the amount, if any, by which the Company's interest payments fluctuate beyond the rates specified in the agreements. The Company is subject to the credit risk that the other party may fail to perform under such agreements. The Company's cost for these agreements was amortized to interest expense over the term of the agreements, and the unamortized cost was included in other assets. Any payments received or made as a result of the agreements were recorded as an addition to or a reduction from interest expense. For the years ended December 31, 1999 and 1998, the Company recorded $0.2 million and $0.2 million, respectively, to interest expense resulting from LIBOR rate fluctuations below the floor rate specified in the collar agreements. The Company's interest rate collar agreements on $200.0 million of borrowings at LIBOR rates between 5.2% and 8.0% expired on October 29, 1999. As of December 31, 2000, the Company has not entered into any new interest rate collar agreements.
Management believes that the Company's cash on hand, anticipated funds generated from operations and borrowings available under the Credit Agreement will be sufficient to meet the short-term (fewer than 12 months) and long-term operating and capital needs of the Company, as well as to service its debt in accordance with its terms. There is, however, no assurance that this will be accomplished.
United is a holding company and, as a result, its primary source of funds is cash generated from operating activities of its operating subsidiary, USSC, and bank borrowings by USSC. The Credit Agreement and the indentures governing the Notes contain restrictions on the ability of USSC to transfer cash to United.
12.75% SENIOR SUBORDINATED NOTES
The 12.75% Senior Subordinated Notes ("12.75% Notes") were originally issued on May 3, 1995, pursuant to the 12.75% Notes Indenture. On May 2, 2000, the Company redeemed the remaining $100.0 million of its 12.75% Senior Subordinated Notes (the "12.75% Notes"). The 12.75% Notes were redeemed at the redemption price of 106.375% of the principal amount plus accrued interest. As a result, the Company recognized an extraordinary loss on the early retirement of debt of approximately $10.7 million ($6.5 million net of tax benefit of $4.2 million). This charge included the write-off of approximately $4.3 million ($2.6 million net of tax benefit of $1.7 million) of capitalized costs. The redemption was funded through the Company's Revolving Credit Facility.
8.375% SENIOR SUBORDINATED NOTES
The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April 15, 1998, pursuant to the 8.375% Notes Indenture. As of December 31, 2000, the aggregate outstanding principal amount of 8.375% Notes was $100.0 million. The 8.375% Notes are unsecured senior subordinated obligations of USSC, and payment of the 8.375% Notes is fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries that incur indebtedness (as defined in the 8.375% Notes Indenture) on a senior subordinated basis. The Notes are redeemable on April 15, 2003, in whole or in part, at a redemption price of 104.188% (percentage of principal amount). The 8.375% Notes mature on April 15, 2008, and bear interest at the rate of 8.375% per annum, payable semi-annually on April 15 and October 15 of each year.
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its credit facilities, the Company entered into a $163.0 million Receivables Securitization Program. Under this program, the Company sells its eligible accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable from the Azerty Business and Lagasse) to the Receivables Company, a wholly owned offshore, bankruptcy-remote special purpose limited liability company. This company in turn ultimately transfers the eligible accounts receivable to a third-party, multi-seller asset-backed commercial paper program, existing solely for the purpose of issuing commercial paper rated A-1/P-1 or higher. The sale of trade accounts receivable include not only those eligible accounts receivable that existed on the closing date of the Receivables Securitization Program, but also eligible accounts receivable created thereafter. The Company received approximately $160.0 million in proceeds from the initial sale of certain eligible accounts receivable on April 3, 1998. These proceeds were used to repay a portion of indebtedness under the Credit Agreement. Costs related to this facility vary on a monthly basis and generally are related to certain interest rates. These costs are included in the Consolidated Statements of Income, included elsewhere herein, under the caption Other Expense.
Affiliates of PNC Bank and The Chase Manhattan Bank act as funding agents. The funding agents, together with other commercial banks rated at least A-1/P-1, provide standby liquidity funding to support the purchase of the accounts receivable by the Receivables Company under 364-day liquidity facilities. The Receivables Company retains an interest in the eligible receivables transferred to the third party. As a result of the Receivables Securitization Program, the balance sheet assets of the Company as of December 31, 2000 and 1999 exclude $150.0 million and $160.0 million, respectively, of accounts receivable sold to the Receivables Company.
CASH FLOW INFORMATION
The statements of cash flows for the Company for the periods indicated are summarized below:
Net cash provided by operating activities for 2000 declined to $38.7 million from $53.6 million in 1999. This decline was due primarily to an increased investment in inventory of $20.9 million, a decline in accrued liabilities of $18.0 million and an increase in other assets of $12.1 million. These transactions were partially offset by a $15.2 million increase in income before extraordinary item, a $10.5 million decline in accounts receivable, an increase of $4.7 million in deferred taxes and an increase in accounts payable of $1.6 million. Net cash provided by operating activities for 1999 declined to $53.6 million from $290.9 million in 1998. This decrease was due primarily to the initial sale of $160.0 million of certain accounts receivable in 1998. Other factors contributing to the change were an increase in inventory of $40.0 million, an increase in accounts receivable (excluding the impact of the receivables sold) of $59.6 million, partially offset by higher net income and an increase in accounts payable of $23.5 million.
Net cash used in investing activities during 2000 was $83.5 million compared with $26.0 million in 1999. This increase was due to higher acquisition investments of $39.5 million and an increase in capital expenditures of $18.2 million. Net cash used in investing activities during 1999 was $26.0 million compared with $140.0 million in 1998. This decline was due to the activity during 1998 including the $115.7 million acquisition of Azerty, Inc. on April 3, 1998, and an increase in proceeds from the disposition of property, plant and equipment of $4.0 million in 1999, partially offset by the acquisition of Consumer Development Group, Inc. on November 1, 1999, for $4.7 million, and an increase in capital expenditures of $0.8 million in 1999.
Net cash provided by financing activities for 2000 increased to $45.7 million compared with cash used of $27.6 million in 1999. This increase was due to a $27.2 million decline in treasury stock acquisitions, a $29.0 million increase in net Term Loan borrowings and an incremental $16.0 million of borrowings under the Revolving Credit Facility. Net cash used in financing activities during 1999 was $27.6 million compared with $143.8 million in 1998. This decline was due to the activity during 1998 including the financing required to purchase Azerty Inc., and additional borrowings in 1999 under the revolver of $51.0 million, partially offset by $49.6 million in treasury stock purchases and lower proceeds from the issuance of Common Stock of $96.6 million.
SEASONALITY
The Company's sales generally are relatively steady throughout the year. However, sales vary to the extent of seasonal buying patterns of consumers of office products. In particular, the Company's sales usually are higher than average during January, when many businesses begin operating under new annual budgets.
The Company experiences seasonality in its working capital needs, with highest requirements in December through February, reflecting a build-up in inventory prior to and during the peak sales period. The Company believes that its current availability under the Revolving Credit Facility is sufficient to satisfy the seasonal working capital needs for the foreseeable future.
INFLATION/DEFLATION AND CHANGING PRICES
The Company maintains substantial inventories to accommodate the prompt service and delivery requirements of its customers. Accordingly, the Company purchases its products on a regular basis in an effort to maintain its inventory at levels that it believes are sufficient to satisfy the anticipated needs of its customers, based upon historical buying practices and market conditions. Although the Company historically has been able to pass through manufacturers' price increases to its customers on a timely basis, competitive conditions will influence how much of future price increases can be passed on to the Company's customers. Conversely, when manufacturers' prices decline, lower sales prices could result in lower margins as the Company sells existing inventory. As a result, changes in the prices paid by the Company for its products could have a material adverse effect on the Company's net sales, gross margins and net income.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of its planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates. Interest rate exposure is principally limited to the Company's outstanding long-term debt at December 31, 2000, of $409.9 million, and $150.0 million of receivables sold under the Receivables Securitization Program, whose discount rate varies with market interest rates ("Receivables Exposure"). Approximately 18%, of the outstanding debt and Receivables Exposure, is priced at interest rates that are fixed. The remaining debt and Receivables Exposure are priced at interest rates that re-price with the market. A 50 basis point movement in interest rates would result in an annualized increase or decrease of approximately $2.3 million in interest expense, loss on the sale of certain accounts receivable and cash flows. The Company may from time-to-time enter into interest rate swaps, options or collars. The Company does not use financial or commodity derivative instruments for trading purposes. Typically, the use of such derivative instruments is limited to interest rate swaps, options or collars on the Company's outstanding long-term debt. The Company's exposure related to such derivative instruments is, in the aggregate, not material to its financial position, results of operations and cash flows. As of December 31, 2000, the Company had no financial or commodity derivative instruments outstanding.
The Company's foreign currency exchange rate risk is limited principally to the Mexican Peso, Canadian Dollar, Italian Lira, as well as product purchases from Asian countries currently paid in U.S. dollars. Many of the products the Company sells in Mexico and Canada are purchased in U.S. dollars, while the sale is invoiced in the local currency. The Company's foreign currency exchange rate risk is not material to its financial position, results of operations and cash flows. The Company has not previously hedged these transactions, but it may enter into such transactions when it believes there is a financial advantage.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages include the Consolidated Statements of Income, Changes in Stockholders' Equity and Cash Flows of the Company for the years ended December 31, 2000, 1999 and 1998, and the Consolidated Balance Sheets of the Company as of December 31, 2000 and 1999.
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF UNITED STATIONERS INC.
We have audited the accompanying consolidated balance sheets of United Stationers Inc. and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Stationers Inc. and Subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States.
/s/ERNST & YOUNG LLP
Chicago, Illinois January 26, 2001
UNITED STATIONERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
United Stationers Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity (dollars in thousands, except share data)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
United Stationers Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity (dollars in thousands, except share data)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNITED STATIONERS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On March 30, 1995, Associated Holdings, Inc. ("Associated") purchased 92.5% of the then outstanding shares of the common stock, $0.10 par value ("Common Stock") of United Stationers Inc. ("United") for approximately $266.6 million in the aggregate pursuant to a tender offer (the "Offer"). Immediately afterward, Associated merged with and into United (the "Merger" and, collectively with the Offer, the "Acquisition"), and Associated Stationers, Inc. ("ASI"), a wholly owned subsidiary of Associated, merged with and into United Stationers Supply Co. ("USSC"), a wholly owned subsidiary of United. United and USSC continued as the respective surviving corporations. United, as the surviving corporation following the Merger, is referred to herein as the "Company." Although United was the surviving corporation in the Merger, the transaction was treated as a reverse acquisition for accounting purposes with Associated as the acquiring corporation.
The Company is the largest general line business products wholesaler in the United States, with 2000 net sales of $3.9 billion. The Company sells its products through national distribution networks to more than 20,000 resellers, who in turn sell directly to end users. These products are distributed through a computer-based network of warehouse facilities and truck fleets radiating from 39 regional distribution centers, 28 Lagasse distribution centers, six Azerty distribution centers, three distribution centers that serve the Canadian marketplace and a distribution center to service clients of THE ORDER PEOPLE.
On July 25, 2000, the Company announced that it established THE ORDER PEOPLE ("TOP") to operate as its third-party fulfillment provider for product categories beyond office products. TOP offers a full set of services specifically designed to support a wide variety of third-party service needs. By combining the Company's state-of-the-art distribution network with a multi-channel Customer Relationship Management (CRM) capability, clients have the ability to custom design their order fulfillment experience and then monitor and measure consumer satisfaction. The Company has extensive experience and the ability to pick, pack, ship and track products with a wide range of physical attributes. TOP enables the Company to leverage these core competencies in a broader context for third-party logistics and fulfillment.
In connection with TOP, the Company has opened a new 650,000 square foot state-of-the-art distribution and service center in Memphis, Tennessee. In addition, the Company has leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada.
ACQUISITION OF CALLCENTER SERVICES, INC.
On July 1, 2000, the Company acquired all of the capital stock of CallCenter Services, Inc. from Corporate Express, a Buhrmann Company. The purchase price was approximately $10.7 million financed through the Company's Senior Credit Facility. CallCenter Services is a customer relationship management outsourcing service company. It has two inbound call centers, in Wilkes-Barre, Pennsylvania and Salisbury, Maryland, with a total of up to 1,000 seats. This acquisition will complement and significantly enhance the third-party fulfillment business of TOP. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess of cost over fair value of approximately $3.1 million was allocated to goodwill. The pro forma effects of the acquisition were not material.
ACQUISITION OF AZERTY CANADA
On July 5, 2000, the Company completed the acquisition of the net assets of Azerty Canada from MCSi, Inc. The purchase price was approximately $33.6 million (U.S. dollars) financed through the Company's Senior Credit Facility. Azerty Canada is a specialty wholesale distributor of computer consumables, peripherals and accessories. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess of cost over fair value of approximately $11.8 million was allocated to goodwill. The pro forma effects of the acquisition were not material.
ACQUISITION OF CONSUMER DEVELOPMENT GROUP
On November 1, 1999, the Company acquired all of the capital stock of Consumer Development Group Inc. ("CDG") for approximately $4.8 million, including an initial payment to the seller of approximately $2.4 million, financed through senior debt. The remaining purchase price of approximately $2.4 million will be paid ratably on each of the first three anniversaries of the acquisition. The CDG acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess of cost over fair value of approximately $4.8 million was allocated to goodwill. The financial information for the year ended December 31, 1999, includes the results of CDG for November and December only. The pro forma effects of this acquisition were not material. CDG is a division of USSC.
COMMON STOCK REPURCHASE
On October 23, 2000, the Company's Board of Directors authorized the repurchase of up to $50.0 million of its Common Stock. Under this authorization, the Company purchased 857,100 shares at a cost of approximately $22.4 million, during 2000. During 1999, under a previous authorization, the Company purchased 3,250,000 shares of its Common Stock at a cost of approximately $49.6 million. Acquired shares are included in the issued shares of the Company, but are not included in average shares outstanding when calculating earnings per share data. During 2000 and 1999, the Company reissued 309,674 and 29,519 shares of treasury stock, respectively, to fulfill its obligations under its stock option plan.
JUNE 1998 EQUITY OFFERING
In June 1998, United completed an offering of 4.0 million shares of Common Stock (the "June 1998 Equity Offering"), consisting of 3.0 million primary shares sold by United, and 1.0 million secondary shares sold by certain selling stockholders. The shares were priced at $27.00 per share, before underwriting discounts and commissions of $1.15 per share. The aggregate proceeds to United of approximately $77.6 million (before deducting expenses) were delivered to USSC and used to repay a portion of indebtedness under the Tranche A Term Loan Facility, which caused a permanent reduction of the amount borrowable under this facility.
United did not receive any of the proceeds from the sale of the 1.0 million shares of Common Stock offered by the selling stockholders. It did, however, receive an aggregate of approximately $6.4 million paid by the selling stockholders upon exercise of employee stock options in connection with the June 1998 Equity Offering, which were delivered to USSC and applied to the repayment of indebtedness under the New Credit Facilities.
After closing the June 1998 Equity Offering, the underwriters exercised an overallotment option to purchase an additional 0.4 million shares from United. The net proceeds to United of approximately $10.3 million from the sale were delivered to USSC and used to repay an additional portion of the indebtedness outstanding under the Tranche A Term Loan Facility.
In the second quarter of 1998, the Company recognized the following charges: (i) a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) to write off the remaining payments and related prepaid expense under a contract for computer services from a vendor, and (ii) an extraordinary loss of $9.9 million ($5.9 million net of tax benefit of $4.0 million) related to the early retirement of debt (collectively "1998 Charges").
Net income attributable to common stockholders for the year ended December 31, 1998, before the 1998 Charges, was $72.2 million, up 59.0%, compared with $45.4 million, before the 1997 Charges (as defined). In 1998, diluted earnings per share before the 1998 Charges were $2.00 on 36.2 million weighted average shares outstanding, up 36.1%, compared with $1.47, before charges, on 30.8 million weighted average shares outstanding for the prior year.
ACQUISITION OF THE AZERTY BUSINESS
On April 3, 1998, the Company acquired all of the capital stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID Wholesale Inc., and AP Support Services Incorporated (collectively the "Azerty Business"). These businesses comprised substantially all of the United States and Mexican operations of the Office Products Division of Abitibi-Consolidated Inc. The aggregate purchase price paid by the Company for the Azerty Business was approximately $115.7 million (including fees and expenses). The acquisition was financed primarily through senior debt. The Azerty Business acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed based upon the estimated fair values at the date of acquisition with the excess of cost over fair value of approximately $73.7 million allocated to goodwill. The financial information for the year ended December 31, 1998, included nine months of the Azerty Business. The pro forma effects of this acquisition were not material.
2. OPERATIONS
The Company operates in a single reportable segment as a national wholesale distributor of business products. The Company offers approximately 40,000 items from more than 500 manufacturers. This includes a broad spectrum of office products, computer supplies, office furniture, business machines, audio-visual products and facilities management supplies. The Company primarily serves commercial and contract office products dealers. Its customers include more than 20,000 resellers -- such as office products dealers, mega-dealers, office furniture dealers, office products superstores and mass merchandisers, mail order companies, computer products resellers, sanitation supply distributors and e-commerce dealers. The Company has a distribution network of 39 regional distribution centers. In addition, the Company has 28 Lagasse distribution centers, specifically serving janitorial and sanitation supply distributors, six Azerty distribution centers that carry information technology supplies, three distribution centers that serve the Canadian marketplace and a distribution center to service clients of TOP. In addition, TOP has leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada. Through its integrated computer system, the Company provides a high level of customer service and overnight delivery.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when a service is rendered and when a product is shipped and title is transferred to the customer in the period the sale is reported.
CASH AND CASH EQUIVALENTS
Investments in low-risk instruments that may be liquidated within three months from the purchase date are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value.
INVENTORIES
Inventories constituting approximately 73% and 78% of total inventories at December 31, 2000 and 1999, respectively, have been valued under the last-in, first-out ("LIFO") method. The decline in the percentage of inventory on LIFO resulted from increased inventory levels at the Azerty Business and Lagasse, whose inventory is valued under the first-in, first-out ("FIFO") method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost or market. If the lower of FIFO cost or market method of inventory accounting had been used by the Company for all inventories, merchandise inventories would have been approximately $19.0 million and $8.3 million higher than reported at December 31, 2000 and 1999, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and amortization are determined by using the straight-line method over the estimated useful lives of the assets.
The estimated useful life assigned to fixtures and equipment is from two to 10 years; the estimated useful life assigned to buildings does not exceed 40 years; leasehold improvements are amortized over the lesser of their useful lives or the term of the applicable lease.
GOODWILL
Goodwill represents the excess of cost over the value of net assets of businesses acquired and is amortized on a straight-line basis over periods ranging between 10 and 40 years. The Company continually evaluates whether events or circumstances have occurred indicating that the remaining estimated useful life of goodwill may not be appropriate. If factors indicate that goodwill should be evaluated for possible impairment, the Company will use an estimate of undiscounted future operating income compared with the carrying value of goodwill to determine if a write-off is necessary. The cumulative amount of goodwill amortized at December 31, 2000 and 1999 is $22.2 million and $16.7 million, respectively. During 2000, the Company reversed approximately $9.2 million of goodwill related to certain purchase accounting reserves recorded in conjunction with the 1995 ASI/USI merger.
SOFTWARE CAPITALIZATION
The Company capitalizes internal use software development costs in accordance with the American Institute of Certified Public Accountants' Statement of Position ("SOP") No. 98-1 "Accounting for Costs of Computer Software Developed or Obtained for Internal Use." Amortization is recorded on a straight-line basis over the estimated useful life of the software, generally not to exceed seven years.
INCOME TAXES
Income taxes are accounted for using the liability method, under which deferred income taxes are recognized for the estimated tax consequences for temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Provision has not been made for deferred U.S. income taxes on the undistributed earnings of the Company's foreign subsidiaries because these earnings are intended to be permanently invested.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the local currency.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates.
RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the 2000 presentation. During the fourth quarter of 2000, the Company reclassified freight revenue from cost of goods sold and operating expense to net sales in compliance with FASB Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10, requires that shipping and handling fees billed to a customer in a sale transaction represent revenues earned for the goods provided and should be classified as revenue. The following table sets forth the impact of the reclassification for the years presented in the Consolidated Statements of Income:
1. Excludes non-recurring charges of $13.9 million ($8.3 million net of tax benefit of $5.6 million) related to the write-off of the remaining payments and prepaid expense under a contract for computer services from a vendor.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which replaces SFAS No. 125 with the same title. It revises the standards for securitizations and other transfers of financial assets and collateral and requires certain additional disclosures, but otherwise retains most of SFAS No. 125's provisions. The Company sells certain trade receivables to a third party, and this statement may require the Company to disclose more information about these transactions. The Company adopted the disclosure requirements of SFAS No. 140 in the fourth quarter of 2000. The accounting provisions of SFAS No. 140 are effective for transfers after March 31, 2001. The Company is evaluating the financial statement impact of SFAS No. 140.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes "special accounting" for the following three different types of hedges: hedges of changes in the fair value of assets, liabilities or firm commitments; hedges of the variable cash flows of forecasted transactions; and hedges of foreign currency exposures of net investments in foreign operations. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. Earlier application is permitted. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 138 amends certain terms and conditions of SFAS No. 133. The adoption of SFAS No. 133 and 138 did not have a material impact on the Company's consolidated financial statements.
4. SEGMENT INFORMATION
The Company adopted FASB SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," in 1998. SFAS No. 131 requires companies to report financial and descriptive information about their reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segment assets, as well as information about the revenues derived from the company's products and services, the countries in which the company earns revenues and holds assets, and major customers. This statement also requires companies that have a single reportable segment to disclose information about products and services, information about geographic areas, and information about major customers. This statement requires the use of the management approach to determine the information to be reported. The management approach is based on the way management organizes the enterprise to assess performance and make operating decisions regarding the allocation of resources. It is management's opinion that, at this time, the Company has several operating segments, however only one reportable segment.
The following discussion sets forth the required disclosure regarding single segment information:
The Company operates as a single reportable segment as the largest general line business products wholesaler in the United States with 2000 net sales of $3.9 billion - including operations outside the United States, which were immaterial. The Company sells its products through national distribution networks to more than 20,000 resellers, who in turn sell directly to end-users. These products are distributed through a computer-based network of warehouse facilities and truck fleets radiating from 39 regional distribution centers, 28 Lagasse distribution centers, six Azerty distribution centers, three distribution centers that serve the Canadian marketplace and a distribution center to service clients of TOP. In addition, TOP has leased distribution centers in Harrisburg, Pennsylvania, and in Reno, Nevada. The results of TOP are immaterial to the Consolidated Statements of Income.
The Company's product offerings, comprised of more than 40,000 stockkeeping units (SKUs), may be divided into five primary categories. (i) The Company's core business continues to be traditional office products, which includes both brand name products and the Company's private brand products. Traditional office products include writing instruments, paper products, organizers and calendars and various office accessories. (ii) The Company offers computer supplies, and peripherals to computer resellers and office products dealers. (iii) The Company's sale of office furniture, such as leather chairs, wooden and steel desks and computer furniture, has enabled it to become the nation's largest office furniture wholesaler. The Company currently offers nearly 5,000 furniture items from 50 different manufacturers. (iv) A fourth category is facility supplies, including janitorial and sanitation supplies, safety and security items, and shipping and mailing supplies. In October 1996, the Company acquired Lagasse, the largest pure wholesaler of janitorial and sanitation supplies in North America. The Company distributes these products through 28 Lagasse distribution centers to sanitary supply dealers. (v) The Company also distributes business machines and audio-visual equipment and supplies.
The Company's customers include office products dealers, mega-dealers, office furniture dealers, office products superstores and mass merchandisers, mail order companies, computer products resellers, sanitary supply distributors and e-commerce dealers. No single customer accounted for more than 9% of the Company's net sales in 2000. For the year ended December 31, 2000, U.S. Office Products Co. was the Company's largest customer, accounting for approximately 8% of net sales.
The following table sets forth net sales by product category (dollars in thousands):
5. OTHER EXPENSE
The following table sets forth the components of other expense (dollars in thousands):
RECEIVABLES SECURITIZATION PROGRAM
On April 3, 1998, in connection with the refinancing of its credit facilities, the Company entered into a $163.0 million Receivables Securitization Program. Under this program the Company sells, on a revolving basis, its eligible accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable from the Azerty Business and Lagasse) to the Receivables Company, a wholly owned offshore, bankruptcy-remote special purpose limited liability company. This company in turn ultimately transfers the eligible accounts receivable to a third-party, multi-seller asset-backed commercial paper program, existing solely for the purpose of issuing commercial paper rated A-1/P-1 or higher. The sale of trade accounts receivable includes not only those eligible receivables that existed on the closing date of the Receivables Securitization Program, but also eligible accounts receivable created thereafter. Affiliates of PNC Bank and Chase Manhattan Bank act as funding agents. The funding agents, together with other commercial banks rated at least A-1/P-1, provide standby liquidity funding to support the purchase of the accounts receivable by the Receivables Company under 364-day liquidity facilities.
The Receivables Securitization Program is accounted for as a sale in accordance with FASB Statement No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Accounts receivable sold under these arrangements are excluded from accounts receivable in the Consolidated Balance Sheet. As of December 31, 2000 and 1999, the Company had sold $150.0 million and $160.0 million, respectively, of accounts receivable through the Receivables Securitization Program. The interest rate on the certificates issued under the Receivable Securitization Program during 2000 ranged between 5.9% and 6.8% annually. The Company's retained interests in the receivables in the master trust as of December 31, 2000 and 1999, were approximately $98.2 million and $104.9 million, respectively. This retained interest, which is included in the accounts receivable balance reflected in the Consolidated Balance Sheets, is recorded at fair value. Due to a short average collection cycle for such accounts receivable of approximately thirty-five days and the Company's collection history, the fair value of the Company's retained interest approximates book value. Losses recognized on the sale of accounts receivable totaled approximately $11.1 million, $9.4 million and $7.5 million in 2000, 1999, and 1998, respectively. These costs vary on a monthly basis and generally are related to certain short-term interest rates. These costs are included in the Consolidated Statements of Income under the caption Other Expense. During 2000, as a result of the short average collection cycle referenced above, proceeds from the collection under this revolving agreement were $2.6 billion. The Company has retained the responsibility for servicing accounts receivable transferred to the master trust. No servicing asset or liability has been recorded because the fees the Company receives for servicing the receivables approximate the related costs. No accounts receivable sold to the master trust were written off during 2000 or 1999.
6. EARNINGS PER SHARE
Net income per common share is based on net income after preferred stock dividend requirements. Basic earnings per share is calculated on the weighted average number of common shares outstanding. Diluted earnings per share is calculated on the weighted average number of common and common equivalent shares outstanding during the period. Stock options and warrants are considered common equivalent shares.
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
1. The year ended December 31, 1998, reflects a write-off of the remaining term of a contract for computer services from a vendor. As a result, the Company recorded a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) to write off the remaining payments and related prepaid expense under this contract (see Note 1). In addition, during 1998 the Company recorded an extraordinary loss of $9.9 million ($5.9 million net of tax benefit of $4.0 million) related to the early retirement of debt (see Note 1).
7. LONG-TERM DEBT
Long-term debt consisted of the following amounts (dollars in thousands):
The prevailing prime interest rates at the end of 2000 and 1999 were 9.50% and 8.50%, respectively.
On June 30, 2000, the Company entered into the Third Amended and Restated Revolving Credit and Term Loan Agreement (the "Credit Agreement"). The Credit Agreement, among other things, provides for an additional $150.0 million, five-year term loan facility (the "Tranche A-1 Facility").
As of December 31, 2000, the available credit under the Credit Agreement included $181.8 million of term loan borrowings (the "Term Loan Facilities"), and up to $250.0 million of revolving loan borrowings (the "Revolving Credit Facility"). In addition, the Company has $100.0 million of 8.375% Senior Subordinated Notes due 2008, and $29.8 million of industrial development bonds.
As of December 31, 2000, the Term Loan Facilities consisted of a $44.3 million Tranche A term loan facility (the "Tranche A Facility") and a $137.5 million Tranche A-1 Facility. Amounts outstanding under the Tranche A Facility are to be repaid in 13 quarterly installments ranging from $2.6 million at March 31, 2001, to $3.7 million at March 31, 2004. Amounts outstanding under the Tranche A-1 Facility are to be repaid in 18 quarterly installments ranging from $6.3 million at March 31, 2001, to $7.8 million at June 30, 2005.
The Revolving Credit Facility is limited to $250.0 million, less the aggregate amount of letter of credit liabilities under the facility, and contains a provision for swingline loans in an aggregate amount up to $25.0 million. The Revolving Credit Facility matures on March 31, 2004, and $98.0 million was outstanding at December 31, 2000.
The Term Loan Facilities and the Revolving Credit Facility are secured by first priority pledges of the stock of USSC, all of the stock of domestic direct and indirect subsidiaries of USSC, the stock of Lagasse and Azerty and certain of the foreign and direct and indirect subsidiaries of USSC (excluding USS Receivables Company, Ltd.) and security interests and liens upon all accounts receivable, inventory, contract rights and certain real property of USSC and its domestic subsidiaries other than accounts receivables sold in connection with the Receivables Securitization Program.
The loans outstanding under the Term Loan Facilities and the Revolving Credit Facility bear interest as determined within a pricing matrix. The interest rate is based on the ratio of total debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA"), excluding the EBITDA of TOP. The Tranche A Facility and Revolving Credit Facility bear interest at the prime rate plus 0% to 1.00%, or, at the Company's option, the London Interbank Offered Rate ("LIBOR") plus 1.25% to 2.25%. The Tranche A-1 Facility bears interest at the prime rate plus 0.25% to 1.25%, or, at the Company's option, LIBOR plus 1.50% to 2.50%.
The Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financing of this type. At December 31, 2000, the Company was in compliance with all covenants contained in the Credit Agreement.
The right of United to participate in any distribution of earnings or assets of USSC is subject to the prior claims of the creditors of USSC. In addition, the Credit Agreement contains certain restrictive covenants, including covenants that restrict or prohibit USSC's ability to pay cash dividends and make other distributions to United.
The Company is exposed to market risk for changes in interest rates. The Company may enter into interest rate protection agreements, including collar agreements, to reduce the impact of fluctuations in interest rates on a portion of its variable rate debt. These agreements generally require the Company to pay to or entitle the Company to receive from the other party the amount, if any, by which the Company's interest payments fluctuate beyond the rates specified in the agreements. The Company is subject to the credit risk that the other party may fail to perform under such agreements. The Company's cost for these agreements was amortized to interest expense over the term of the agreements, and the unamortized cost was included in other assets. Any payments received or made as a result of the agreements were recorded as an addition to or a reduction from interest expense. For the years ended December 31, 1999 and 1998, the Company recorded $0.2 million and $0.2 million, respectively, to interest expense resulting from LIBOR rate fluctuations below the floor rate specified in the collar agreements. The Company's interest rate collar agreements on $200.0 million of borrowings at LIBOR rates between 5.2% and 8.0% expired on October 29, 1999. As of December 31, 2000, the Company has not entered into any new interest rate collar agreements.
Management believes that the Company's cash on hand, anticipated funds generated from operations and borrowings available under the Credit Agreement, will be sufficient to meet the short-term (fewer than 12 months) and long-term operating and capital needs of the Company, as well as to service its debt in accordance with its terms. There is, however, no assurance that this will be accomplished.
United is a holding company and, as a result, its primary source of funds is cash generated from operating activities of its operating subsidiary, USSC, and bank borrowings by USSC. The Credit Agreement and the indentures governing the Notes contain restrictions on the ability of USSC to transfer cash to United.
Debt maturities for the years subsequent to December 31, 2000, are as follows (dollars in thousands):
As of December 31, 2000 and 1999, the Company had available letters of credit of $53.0 million, of which $49.6 million and $48.8 million, respectively, were outstanding.
12.75% SENIOR SUBORDINATED NOTES
The 12.75% Senior Subordinated Notes ("12.75% Notes") were originally issued on May 3, 1995, under the 12.75% Notes Indenture. On May 2, 2000, the Company redeemed the remaining $100.0 million of its 12.75% Senior Subordinated Notes (the "12.75% Notes"). The 12.75% Notes were redeemed at the redemption price of 106.375% of the principal amount plus accrued interest. As a result, the Company recognized an extraordinary loss on the early retirement of debt of approximately $10.7 million ($6.5 million net of tax benefit of $4.2 million). This charge included the write-off of approximately $4.3 million ($2.6 million net of tax benefit of $1.7 million) of capitalized costs. The redemption was funded through the Company's Revolving Credit Facility.
8.375% SENIOR SUBORDINATED NOTES
The 8.375% Senior Subordinated Notes ("8.375% Notes") were issued on April 15, 1998, under the 8.375% Notes Indenture. As of December 31, 2000, the aggregate outstanding principal amount of 8.375% Notes was $100.0 million. The 8.375% Notes are unsecured senior subordinated obligations of USSC, and payment of the 8.375% Notes is fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries that incur indebtedness (as defined in the 8.375% Notes Indenture) on a senior subordinated basis. The 8.375% Notes mature on April 15, 2008, and bear interest at the rate of 8.375% per annum, payable semi-annually on April 15 and October 15 of each year.
The 8.375% Notes Indenture provides that, prior to April 15, 2001, USSC may redeem, at its option, up to 35% of the aggregate principal amount of the 8.375% Notes within 180 days following one or more Public Equity Offerings (as defined in the 8.375% Notes Indenture) with the net proceeds of such offerings at a redemption price equal to 108.375% of the principal amount thereof, together with accrued and unpaid interest and Additional Amounts (as defined in the 8.375% Notes Indenture), if any, to the date of redemption; provided that immediately after giving effect to each such redemption, at least 65% of the aggregate principal amount of the 8.375% Notes remain outstanding after giving effect to such redemption.
In addition, the 8.375% Notes are redeemable at the option of USSC at any time on or after April 15, 2003, in whole or in part, at the following redemption prices (expressed as percentages of principal amount):
After 2005 the Notes are payable at 100.0% of the principal amount, in each case together with accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control (which includes the acquisition by any person or group of more than 50% of the voting power of the outstanding Common Stock of either the Company or USSC, or certain significant changes in the composition of the Board of Directors of either the Company or USSC), USSC shall be obligated to offer to redeem all or a portion of each holder's 8.375% Notes at 101% of the principal amount, together with accrued and unpaid interest, if any, to the date of the redemption. This obligation, if it arose, could have a material adverse effect on the Company.
The 8.375% Notes Indenture governing the 8.375% Notes contains certain covenants, including limitations on the incurrence of indebtedness, the making of restricted payments, transactions with affiliates, the existence of liens, disposition of proceeds of asset sales, the making of guarantees by restricted subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of certain payment restrictions on restricted subsidiaries and certain mergers and sales of assets. In addition, the 8.375% Notes Indenture provides for the issuance of up to $100.0 million aggregate principal amount of additional 8.375% Notes having substantially identical terms and conditions to the 8.375% Notes, subject to compliance with the covenants contained in the 8.375% Notes Indenture, including compliance with the restrictions contained in the 8.375% Notes Indenture relating to incurrence of indebtedness.
8. LEASES
The Company has entered into non-cancelable long-term leases for certain property and equipment. Future minimum rental payments under operating leases in effect at December 31, 2000, having initial or remaining non-cancelable lease terms in excess of one year are as follows (dollars in thousands):
(1) Operating leases are net of immaterial sublease income.
Rental expense for all operating leases was approximately $31.0 million, $27.1 million, and $20.8 million in 2000, 1999, and 1998, respectively.
9. PENSION PLANS AND DEFINED CONTRIBUTION PLAN
PENSION PLANS
As of December 31, 2000, the Company has pension plans covering approximately 4,500 of its employees. Non-contributory plans covering non-union employees provide pension benefits that are based on years of credited service and a percentage of annual compensation. Non-contributory plans covering union members generally provide benefits of stated amounts based on years of service. The Company funds the plans in accordance with current tax laws.
The following table sets forth the plans' changes in Projected Benefit Obligation for the years ended December 31, 2000 and 1999 (dollars in thousands):
The plans' assets consist of corporate and government debt securities and equity securities. The following table sets forth the change in the plans' assets for the years ended December 31, 2000 and 1999 (dollars in thousands):
The following table sets forth the plans' funded status as of December 31, 2000 and 1999 (dollars in thousands):
Net periodic pension cost for 2000, 1999 and 1998 for pension and supplemental benefit plans includes the following components (dollars in thousands):
The assumptions used in accounting for the Company's defined benefit plans are set forth below:
DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan. Salaried employees and non-union hourly paid employees are eligible to participate after completing six consecutive months of employment. The plan permits employees to have contributions made as 401(k) salary deferrals on their behalf, or as voluntary after-tax contributions, and provides for Company contributions, or contributions matching employees' salary deferral contributions, at the discretion of the Board of Directors. Company contributions to match employees' contributions were approximately $3.1 million, $1.5 million and $1.4 million in 2000, 1999 and 1998, respectively. In addition, the Board of Directors approved a special contribution of approximately $1.0 million in 1998 to the United Stationers 401(k) Savings Plan on behalf of non-highly compensated employees who are eligible for participation in the plan.
10. POSTRETIREMENT BENEFITS
The Company maintains a postretirement plan. The plan is unfunded and provides health care benefits to substantially all retired non-union employees and their dependents. Eligibility requirements are based on the individual's age (minimum age of 55), years of service and hire date. The benefits are subject to retiree contributions, deductible, co-payment provision and other limitations. The following tables set forth the plan's change in Accrued Postretirement Benefit Obligation ("APBO"), plan assets and funded status for the years ended December 31, 2000 and 1999 (dollars in thousands):
The costs of postretirement health care benefits for the years ended December 31, 2000, 1999 and 1998 were as follows (dollars in thousands):
The assumptions used in accounting for the Company's postretirement plan for the three years presented are set forth below:
The postretirement plan states that the Company's medical cost increases for current and future retirees and their dependents are capped at 3%. Because annual medical cost increases are trending above 4% and the Company's portion of any increase is capped at 3%, a 1% increase or decrease in these costs will have no effect on the APBO, the service cost or the interest cost.
11. STOCK OPTION PLAN
The Management Equity Plan (the "Plan") is administered by the Human Resources Committee, or the Board of Directors or by such other committee, as determined by the Board of Directors of the Company. The Plan provides for the issuance of Common Stock, through the exercise of options, to members of the Board of Directors and to key employees of the Company, either as incentive stock options or as non-qualified stock options.
In May 2000, the Company's stockholders approved the 2000 Management Equity Plan, which provided for the issuance of up to 3.7 million shares of Common Stock through the exercise of options, to members of the Board of Directors and to key employees of the Company or its subsidiaries or other affiliates. During 2000, 1999 and 1998, options of approximately 1.0 million, 1.3 million and 1.0 million, respectively, were granted to management employees and directors, with option exercise prices equal to fair market value.
An optionee under the Plan must pay the full option price upon exercise of an option (i) in cash; (ii) with the consent of the Board of Directors, by delivering mature shares of Common Stock already owned by the optionee and having a fair market value at least equal to the exercise price; or (iii) in any combination of the above. The Company may require the optionee to satisfy federal tax withholding obligations with respect to the exercise of options by (i) additional withholding from the employee's salary, (ii) requiring the optionee to pay in cash, or (iii) reducing the number of shares of Common Stock to be issued to meet only the minimum statutory withholding requirement (except in the case of incentive stock options).
The following table summarizes the transactions of the Plan for the last three years:
The following table summarizes information concerning the Plan's outstanding options as of December 31, 2000:
The Company elected the supplemental disclosure requirements of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." Accordingly, the Company is required to disclose pro forma net income and earnings per share as if the fair value-based accounting method in SFAS No. 123 had been used to account for stock-based compensation cost.
Options granted under the Plan during 2000, 1999 and 1998 did not require compensation cost to be recognized in the income statement. However, they are subject to the supplemental disclosure requirements of SFAS No. 123. Net income and earnings per share, before charges (see 1 and 2 below), for 2000 and 1998 represent the Company's results, excluding one-time charges and the pro forma adjustments required by SFAS No. 123. Had compensation cost been determined on the basis of SFAS No. 123 for options granted during 2000, 1999 and 1998, net income and earnings per share would have been adjusted as follows (in thousands, except per share data):
1. In the second quarter of 2000, the Company recorded an extraordinary charge of $10.7 million ($6.5 million net of tax benefit of $4.2 million) related to the early retirement of debt (see Note 1).
2. The year ended December 31, 1998, reflected a write-off of the remaining term of a contract for computer services from a vendor. As a result, the Company recorded a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) to write off the remaining payments and related prepaid expense under this contract (see Note 1). In addition, during 1998 the Company recorded an extraordinary loss of $9.9 million ($5.9 million net of tax benefit of $4.0 million) related to the early retirement of debt (see Note 1).
The Company uses a binomial option pricing model to estimate the fair value of options at the date of grant. The weighted average assumptions used to value options and the weighted average fair value of options granted during 2000, 1999 and 1998 were as follows:
12. PREFERRED STOCK
The Company's authorized capital shares include 15,000,000 shares of preferred stock. The rights and preferences of preferred stock are established by the Company's Board of Directors upon issuance. At December 31, 2000, the Company had zero shares of preferred stock outstanding and all 15,000,000 shares are specified as undesignated preferred stock.
13. INCOME TAXES
The provision for income taxes consisted of the following (dollars in thousands):
The Company's effective income tax rates for the years ended December 31, 2000, 1999 and 1998 varied from the statutory federal income tax rate as set forth in the following table (dollars in thousands):
The deferred tax assets and liabilities resulted from timing differences in the recognition of certain income and expense items for financial and tax accounting purposes. The sources of these differences and the related tax effects were as follows (dollars in thousands):
In the Consolidated Balance Sheets, these deferred assets and liabilities were classified on a net basis as current and non-current, based on the classification of the related asset or liability or the expected reversal date of the temporary difference.
14. SUPPLEMENTAL CASH FLOW INFORMATION
In addition to the information provided in the Consolidated Statements of Cash Flows, the following are supplemental disclosures of cash flow information for the years ended December 31, 2000, 1999 and 1998 (dollars in thousands):
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments is as follows (dollars in thousands):
The fair value of the Notes are based on quoted market prices and quotes from counterparties, respectively.
16. QUARTERLY FINANCIAL DATA - UNAUDITED
(1) During the fourth quarter of 2000, the Company restated all prior periods to reclassify freight revenue from cost of goods sold and operating expense to net sales in compliance with FASB Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10, requires that shipping and handling fees billed to a customer in a sale transaction represent revenues earned for the goods provided and should be classified as revenue.
(2) As a result of changes in the number of common and common equivalent shares during the year, the sum of quarterly earnings per share will not equal earnings per share for the total year.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following table presents condensed consolidating financial information for the guarantors of the 8.375% Notes issued by USSC. Payment of the 8.375% Notes is fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries (as defined in the 8.375% Notes Indenture). The following condensed consolidating financial information has been prepared using the equity method of accounting in accordance with the requirements for presentation of this information.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME (DOLLARS IN THOUSANDS) (UNAUDITED)
Condensed Consolidating Balance Sheets (dollars in thousands) (unaudited)
Condensed Consolidating Statements of Cash Flows (dollars in thousands) (unaudited)
ITEM 9.
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.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information with respect to those individuals who are currently serving as members of the Board of Directors or as executive officers of the Company on MARCH 15, 2001:
Set forth below is a description of the backgrounds of the directors and executive officers of the Company. There is no family relationship between any directors or executive officers of the Company. Officers of the Company are elected by the Board of Directors and hold office until their respective successors are duly elected and qualified.
FREDERICK B. HEGI, JR. was elected to the Board of Directors of the Company in 1995 and served as Chairman, interim President and Chief Executive Officer until Randall Larrimore became President and Chief Executive Officer in May 1997. Mr. Hegi is founding partner of Wingate Partners, including the indirect general partner of each of Wingate Partners L.P. and Wingate Partners II, L.P. Since May 1982, Mr. Hegi has served as President of Valley View Capital Corporation, a private investment firm. Mr. Hegi also currently serves as Chairman of the Board of Loomis, Fargo & Co., the second largest armored car service company in the United States; Chairman of Tahoka First Bancorp, Inc., a bank holding company; and Chairman of Cedar Creek Bancshares, Inc., a bank holding company. Additionally, he is a director of Texas Capital Bancshares, Inc., a bank holding company, Lone Star Technologies, Inc., a diversified company engaged in the manufacture of tubular products, and Pro Parts Xpress, Inc., a wholesale distributor of automotive parts, and ENSR International, an international environmental service firm. Mr. Hegi is also Chairman, President and Chief Executive Officer of Kevco, Inc., a publicly held distributor of building products to the manufactured housing and recreational vehicle industries, which filed for protection under Chapter 11 of the United States Bankruptcy Code on February 5, 2001.
RANDALL W. LARRIMORE was elected to the Board of Directors of the Company and became President and Chief Executive Officer of the Company on May 23, 1997. Mr. Larrimore served as Interim Chief Financial Officer from March 6, 2000 to October 2, 2000. From February 1988 to May 1997, Mr. Larrimore had been President and Chief Executive Officer of MasterBrand Industries, Inc., a manufacturer of leading brands including Master Lock(R) padlocks and Moen(R) faucets, and a subsidiary of Fortune Brands (formerly American Brands). Prior to that time, Mr. Larrimore was President and Chief Executive Officer of Twentieth Century Companies, a manufacturer of plumbing repair parts and a division of Beatrice Foods. Prior thereto, he was Vice President of Marketing for Beatrice Home Specialties, the operating parent of Twentieth Century. Fortune Brands acquired Twentieth Century Companies and other Beatrice Divisions and subsidiaries in 1988. Before joining Beatrice in 1983, Mr. Larrimore was with Richardson-Vicks, McKinsey & Company
and then with PepsiCo International. Mr. Larrimore serves as a director of Olin Corporation, a diversified manufacturer of chemicals, metals, and sporting ammunition. He also serves as a director of Evanston Northwestern Healthcare and S.I.F.E., Students in Free Enterprise.
DANIEL J. GOOD was elected to the Board of Directors of the Company in 1995. Mr. Good is Chairman of Good Capital Co., Inc. ("Good Capital"), an investment firm in Lake Forest, Illinois. Until June 1995, Mr. Good was Vice Chairman of Golden Cat Corp., the largest producer of cat litter in the United States, and prior thereto he was Managing Director of Merchant Banking of Shearson Lehman Bros. and President of A.G. Becker Paribas, Inc. Mr. Good serves as a director of Tibersoft, Inc. and as Chairman of the Advisory Board of Brown Simpson Asset Management LLC.
ILENE S. GORDON was elected to the Board of Directors of the Company in January 2000. She currently serves as Senior Vice President of Pechiney Group and President of Pechiney Plastic Packaging, overseeing all aspects of Pechiney's worldwide flexible films and laminations, and plastic bottles activities, including manufacturing, sales and marketing operations. Prior to joining Pechiney in 1999, Ms. Gordon spent 17 years with Tenneco Inc., where she most recently headed the folding-carton business. She currently serves as a director of A.J. Gallagher & Co., an international company in the insurance brokerage and risk management business, and Evanston Northwestern Healthcare.
ROY W. HALEY was elected to the Board of Directors of the Company in March 1998. Mr. Haley currently serves as Chairman and Chief Executive Officer of WESCO International Inc. ("WESCO"). Prior to joining WESCO in 1994, he served as President and Chief Operating Officer of American General Corporation, one of the nation's largest consumer financial services organizations. Mr. Haley also serves as a director for Cambrex, Corp. and Development Dimensions, Inc.
MAX D. HOPPER was elected to the Board of Directors of the Company in August 1998. In 1995, he founded Max D. Hopper Associates, Inc., a consulting firm specializing in creating benefits from the strategic use of advanced information systems. He is the retired Chairman of the SABRE Technology Group and served as Senior Vice President for American Airlines, both units of AMR Corporation. Mr. Hopper currently serves as a director of Gartner Group, Inc., Metrocall, Inc., USDATA Corporation, Inc., Payless Cashways, Inc., Accrue Software, Inc. and Exodus Communications, Inc.
JAMES A. JOHNSON was elected to the Board of Directors of United upon consummation of the Merger. Prior to the Merger, he had been a director of Associated since 1992. Mr. Johnson is a general partner of various Wingate entities, including the indirect general partner of Wingate III. From 1980 until he joined Wingate Partners in 1990, Mr. Johnson served as a Principal of Booz-Allen & Hamilton, an international management consulting firm. Mr. Johnson currently serves as a director of Kevco, Inc., a distributor of building products to the manufactured housing industry and Pro Parts Xpress, a wholesale distributor of automotive parts.
BENSON P. SHAPIRO was elected to the Board of Directors of the Company in November 1997. Professor Shapiro has served on the faculty of Harvard University for 31 years and until July 1997 was THE MALCOLM P. MCNAIR PROFESSOR OF MARKETING at the Harvard Business School. He continues to teach a variety of Harvard's executive programs on a part-time basis and spends most of his time engaged in consulting, public speaking, and writing. He serves as a director of Indus River Networks, Inc. and Genuity, Inc.; and serves on several advisory boards for private companies.
ALEX D. ZOGHLIN was elected to the Board of Directors of the Company in November 2000. He currently serves as Chief Technology Officer of Orbitz, a consumer-oriented travel industry portal backed by many of the world's leading airlines, including American, United, Delta, Northwest and Continental. Before joining Orbitz in January 2000, Mr. Zoghlin founded then later sold Sportsgear.com, a business-to-business sporting goods enterprise. Prior to this, he was the Founder and Chief Executive Officer for Neoglyphics Media Corporation, a leading Web developer serving "Fortune 500" companies, selected government and non-profit organizations. In 1997, Mr. Zoghlin was honored as one of four winners of the KPMG Illinois High Tech Award for contributing to the advancement of high technology business in Illinois. He served four years of active duty in the United States Navy as a cryptography specialist. He currently serves on UNICEF's board.
TOM HELTON became Executive Vice President, Human Resources and Organization Development in January 2001. Mr. Helton joined United as Vice President of Human Resources in February 1998 and became Senior Vice President of Human Resources in October 2000. Prior to joining United, Mr. Helton spent 11 years, from 1986 to 1997, at Whirlpool Corporation where he held a variety of management and executive positions within the human resource function. Most recently, he was Vice President of Human Resources for Whirlpool Asia. From 1980 to 1986, Mr. Helton was with Kaiser Aluminum and Chemical working in personnel and labor relations.
EILEEN A. KAMERICK became Executive Vice President and Chief Financial Officer on October 2, 2000. Before joining United, Ms. Kamerick was Vice President, Finance, the Americas for BP Amoco plc, and Vice President and Chief Financial Officer for BP America following the Amoco/British Petroleum merger in January 1999. Prior to the merger, Ms. Kamerick was Vice President and Treasurer of Amoco Corporation.
STEVEN R. SCHWARZ became Executive Vice President of the Company in 1995 with primary responsibility for marketing and merchandising. In January 1999, Mr. Schwarz was also named to the position of President, United Supply Division which is the Company's core office supply business. In addition, Mr. Schwarz is currently responsible for Azerty, Azerty Canada and THE ORDER PEOPLE. Prior thereto, he was Senior Vice President, Marketing of United since June 1992 and had previously been Senior Vice President, General Manager, Micro United since 1990 and Vice President, General Manager, Micro United since September 1989. He had held a staff position in the same capacity since February 1987.
BRIAN S. COOPER became Senior Vice President and Treasurer of the Company in February 2001. Before joining United, Mr. Cooper was Treasurer of Burns International Services Corporation since 1997. Prior to this, he spent 12 years in U.S. and International finance assignments with Amoco Corporation. Mr. Cooper also held the position of Chief Financial Officer for Amoco's operations in Norway.
KATHLEEN S. DVORAK became Senior Vice President, Investor Relations and Financial Administration in October 2000. She became Vice President, Investor Relations in July 1997 and Assistant Secretary in November 1999. Ms. Dvorak began her career at United in 1982 and has held various positions with increasing responsibility within the investor relations function.
SUSAN MALONEY MEYER became Senior Vice President, General Counsel and Secretary of the Company in October 2000 and Vice President, General Counsel and Secretary of the Company in July 1998. Since 1991 Ms. Maloney Meyer had been at General Instrument Corporation, a broadband technology company, most recently serving as Vice President, Secretary and Deputy General Counsel. From 1986 through 1991, Ms. Maloney Meyer served as senior counsel for Beatrice Companies, Inc., a large conglomerate in a wide variety of businesses and as Vice President and General Counsel to the Durable Products Group. Prior to that, Ms. Maloney Meyer was a litigator at Kirkland and Ellis in Chicago and Shearman and Sterling in New York.
ERGIN USKUP became Senior Vice President, Management Information Systems and Chief Information Officer in October 2000. He became Vice President, Management Information Systems and Chief Information Officer of the Company upon consummation of the Merger. Prior thereto, he was Vice President, Management Information Systems and Chief Information Officer of United since February 1994, and since 1987 had been Vice President, Corporate Information Services for Baxter International Inc., a global manufacturer and distributor of health care products.
The Charter provides that the Board of Directors shall be divided into three classes, each class as nearly equal in number as possible, and each term consisting of three years. The directors currently in each class are as follows: Class I (having terms expiring in 2002)--Messrs. Good and Hopper, Class II (having terms expiring in 2003)--Messrs. Hegi and Larrimore and Ms. Gordon, and Class III (having terms expiring in 2001)--Messrs. Haley, Johnson, Shapiro and Zoghlin.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 9, 2001, to be filed within 120 days after the end of the Registrant's year.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 9, 2001, to be filed within 120 days after the end of the Registrant's year.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 9, 2001, to be filed within 120 days after the end of the Registrant's year.
ITEM 14.
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:
* Filed herewith.
** Compensatory Plan Arrangement
(1) Incorporated by reference to the USSC Form S-1 (No. 33-59811), as amended, initially filed with the Commission on June 12, 1995.
(2) Incorporated by reference to the Company's Schedule 14D-9 dated February 21, 1995.
(3) Incorporated by reference to other prior filings of the Company as indicated.
(4) Incorporated by reference to the Company's Form S-2 (No. 333-01089) as filed with the Commission on February 20, 1996.
(5) Incorporated by reference to the Company's Form S-2 (No. 333-34937) as filed with the Commission on October 3, 1997.
(6) Incorporated by reference to the Company's Form 10-K as filed with the Commission on March 29, 1999.
(7) Incorporated by reference to the Company's Form 10-K as filed with the Commission on March 12, 1998.
(8) Incorporated by reference to the Company's Definitive Schedule 14-A as filed with the Commission on March 31, 2000.
B) Reports on Form 8-K by the Registrant are as follows:
(1) The Company filed a report on Form 8-K on November 21, 2000, reporting under Item 5 the election of Alex D. Zoghlin to its board of directors.
(2) The Company filed a report on Form 8-K on December 13, 2000, reporting under Item 5 that its organic sales for the two months ended November 30, 2000 were slightly below its stated target of 6% to 9%. The Company's rate of sales growth has slowed when compared against strong growth in the prior year, the Company remains confident that it will achieve record sales and earnings for fiscal 2000. However, as a result of slowing top-line growth, earnings per share for fiscal 2000 will be in the range of $2.84 to $2.86. The Company's forecasted fiscal 2000 earnings per share growth of approximately 20% exceed the stated target of 15% growth.
(3) The Company filed a report on Form 8-K on December 20, 2000, reporting under Item 5 that United Stationers Supply Co. announced that its Lagasse Bros. subsidiary signed a definitive purchase agreement with Peerless Paper Mills, Inc. of Oaks, Pennsylvania.
(4) The Company filed a report on Form 8-K on January 30, 2001, reporting under Item 5 the financial results for the year and fourth quarter ended December 31, 2000.
(5) The Company filed a report on Form 8-K on March 5, 2001, reporting under Item 5 that its customer US Office Products Company ("USOP") and certain of its affiliates filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq., in the United States Bankruptcy Court for the District of Delaware.
(6) The Company filed a report on Form 8-K on March 19, 2001, reporting under Item 5 that based upon preliminary financial results for the two months ended February 28, 2001, the Company currently expects sales and earnings for the first quarter of 2001 to be below the Company's previously stated goals of 6 to 9% organic sales growth and 15% growth in earnings per share.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITED STATIONERS INC. UNITED STATIONERS SUPPLY CO.
BY: /s/ Eileen A. Kamerick ------------------------------------ Eileen A. Kamerick Executive Vice President and Chief Financial Officer
Dated: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: