United Stationers Inc. Announces Third Quarter 2005 Results and New Share Repurchase Program

    DES PLAINES, Ill., Oct. 27 /PRNewswire-FirstCall/ -- United Stationers
 Inc. (Nasdaq:   USTR) today reported net sales of $1.2 billion and diluted
 earnings per share of $0.77 for the third quarter ended September 30, 2005.
 The company also announced that its board of directors authorized a new
 $75 million share repurchase program.
 
     Third Quarter Results
     Sales in the third quarter of 2005 rose 13.4% to $1.2 billion versus the
 same period last year.  All product categories contributed to the gain, with
 janitorial and sanitation supplies and office products posting the largest
 increases.  Net income for the latest quarter was $26.1 million, compared with
 $26.3 million in the same period last year.  Diluted earnings per share for
 the third quarter of 2005 were $0.77, compared with $0.78 in the prior-year
 quarter.  The third quarter of 2005 was unfavorably affected by $3.1 million
 in costs associated with Hurricane Katrina, $2.7 million of expenses for
 Project Vision, $1.0 million related to higher fuel costs, and $1.2 million of
 incremental non-recurring expenses associated with the opening of the
 company's new Cranbury, New Jersey distribution center.
     The acquisition of Sweet Paper contributed approximately 7% to sales
 growth over last year's third quarter.  "We are extremely pleased with the
 progress we are making in combining the Sweet Paper and Lagasse businesses,"
 said Richard W. Gochnauer, president and chief executive officer.  "As we had
 hoped, Sweet Paper is proving to be invaluable to our strategy for building
 superior nationwide distribution for foodservice consumables."
     Gross margin as a percent of sales for the latest three months was 14.3%,
 compared with 14.9% in the prior-year quarter.  The company's success in
 improved working capital efficiency has reduced inventory purchases, resulting
 in a lower level of volume allowances and purchase discounts recorded in the
 third quarter of this year.  The decrease in margin also reflects the
 competitive pricing programs implemented late last year, lower levels of buy-
 side inflation and higher fuel costs.
     Operating expenses as a percentage of sales were 10.5%, unchanged from
 last year's third quarter.  Operating expenses for the latest period were
 $122.0 million, compared with $108.2 million in the same quarter last year.
 In addition, operating expenses included approximately $7.0 million related to
 the Sweet Paper business.
     Income from operations was $44.9 million, or 3.8% of sales, compared with
 last year's $44.6 million, or 4.4% of sales.
 
     Nine-Month Results
     Net sales for the nine months ended September 30, 2005, reached
 $3.3 billion, up 10.8% compared with $3.0 billion in the same period last
 year.  Year-to-date net income totaled $74.0 million, compared with
 $70.7 million at this time last year.  Diluted earnings per share for the
 nine-month period ending September 30, 2005 were $2.18, compared with $2.08 in
 the prior-year period.
     Income from operations for the nine-month period ended September 30, 2005
 was $125.9 million, or 3.8% of sales.  This compares to the $119.7 million, or
 4.0% of sales, achieved in the same period last year.
 
     Strong Cash Flow and Debt Reduction
     Net cash provided by operating activities for the nine months ended
 September 30, 2005 and 2004 totaled $188.3 million and $42.9 million,
 respectively.  Excluding the effects of receivables sold, net cash provided by
 operating activities was $131.8 million in 2005, compared with $86.4 million
 in 2004.  The 2005 cash flow benefited from higher earnings and reductions in
 working capital.  A reconciliation of cash provided by operating activities,
 excluding the effects of receivables sold, to the most comparable GAAP measure
 is presented at the end of this release.
     "During the last 12 months, we spent $48.4 million to repurchase our
 common stock, approximately $125 million to fund the Sweet Paper acquisition,
 and incurred higher amounts for capital spending," stated Gochnauer.  "As a
 result of our strong cash flow, however, we increased total debt and
 securitization financing by only $63 million.  This meant our debt-to-total
 capitalization (including the securitization financing) was 19.3% at the end
 of September, compared with 14.5% at this time last year."  A reconciliation
 of these items to the most comparable GAAP measures is presented at the end of
 this release.
 
     Credit Agreement Amended; Board Increases Share Repurchase Authorization
     As previously announced, the company amended and restated its $275 million
 revolving credit agreement on October 12, 2005.  The amended agreement extends
 the facility's maturity to October 12, 2010.  Among other things, it also
 reduces the interest rate margins and commitment fees, removes the fixed-
 charge financial covenant, increases the permitted size of the securitization
 financing by $50 million, and reduces certain constraints on acquisitions.
 Including its $225 million securitization, the company's total committed
 financing exceeds $500 million.
     In addition, United Stationers' board of directors approved a new share
 repurchase program in October 2005, authorizing the company to buy $75 million
 in common stock.  Outstanding authorizations now total more than $100 million.
 Under these programs, purchases may begin or be suspended at any time without
 notice.  At September 30, 2005, United Stationers had 32.5 million shares
 outstanding.
     The company repurchased approximately 1.0 million shares for $48.4 million
 during the third quarter of 2005.
 
     Hurricane Katrina
     The company operates four buildings in New Orleans: two that serve as the
 Lagasse headquarters, call center and local warehouse operation; and two
 United Stationers Supply Company warehouses.  As a result of Hurricane
 Katrina, the company incurred approximately $3.1 million in incremental costs,
 which were reflected in both gross margin and operating expense.  Inventory
 reserves were increased by approximately $0.4 million and bad debt reserves
 for accounts receivable grew by $1.7 million.  In addition, the company
 recorded $1.0 million in incremental travel, salaries and other operating
 costs.  "Subject to deductibles, we are insured for certain losses and
 business interruption, although the timing and amount of recoveries are not
 quantifiable at this time," said Gochnauer.
 
     Project Vision
     Project Vision, the company's major information technology initiative, was
 started in August of this year.  Its goal is to enhance competitive advantages
 for the company and its customers, improve the capabilities of United's
 systems, increase the company's flexibility to serve its customers, and reduce
 its operational costs.  During the third quarter, the company recorded
 $2.7 million in operating expense and $4.9 million in capitalized systems
 costs.  This is on track with the previously announced planned investment of
 approximately $22 million ($8 million in 2005 and $14 million in 2006) in
 operating expense and $37 million ($13 million in 2005 and $24 million in
 2006) in capitalized systems costs over the next two years.
 
     Outlook
     "Organic sales growth for October is trending up approximately 4% over the
 prior-year period, after adjusting for inventory investment purchases by
 customers in the first two weeks of the fourth quarter of 2004.  We are
 continuing to build organizational talent that will support our initiatives
 and provide a long-term competitive advantage.  Our team is focused on
 delivering our plans for Project Vision, developing our global sourcing supply
 chain, and combining the Lagasse and Sweet Paper businesses.  We expect these
 initiatives will better position us to achieve our long-term financial goals
 of meeting or exceeding industry sales growth rates and increasing earnings
 per share by 12% to 15% per year," Gochnauer concluded.
 
     Conference Call
     United Stationers will hold a conference call followed by a question and
 answer session on Friday, October 28, 2005, at 10:00 a.m. CT, to discuss third
 quarter results.  To participate, callers within the U.S. and Canada should
 dial (800) 659-2037 and international callers should dial (617) 614-2713
 approximately 10 minutes before the presentation.  The passcode is "61180008."
 To listen to the Webcast via the Internet, participants should visit the
 Investor Information section of the company's Web site at
 http://www.unitedstationers.com several minutes before the event is broadcast
 and follow the instructions provided to ensure that the necessary audio
 application is downloaded and installed.  This program is provided at no
 charge to the user.  In addition, interested parties can access an archived
 version of the call, also located on the Investor Information section of
 United Stationers' Web site, about two hours after the call ends and for at
 least the following two weeks.  This news release, along with other
 information relating to the call, will be available on the Investor
 Information section of the Web site.
 
     Forward-Looking Statements
     This news release contains forward-looking statements, including
 references to goals, plans, strategies, objectives, projected costs or
 savings, anticipated future performance, results or events and other
 statements that are not strictly historical in nature.  These statements are
 based on management's current expectations, forecasts and assumptions.  This
 means they involve a number of risks and uncertainties that could cause actual
 results to differ materially from those expressed or implied here.  These
 risks and uncertainties include, but are not limited to the following:
 United's ability to effectively manage its operations and to implement general
 cost-reduction and margin-enhancement initiatives; United's ability to
 successfully procure and implement new information technology (IT) packages
 and systems, integrating them with and/or migrating from existing IT systems
 and platforms without business disruption or other unanticipated difficulties
 or costs; United's ability to effectively integrate past and future
 acquisitions into its management, operations, financial and technology
 systems; United's timely and efficient implementation of improved internal
 controls in response to conditions previously or subsequently identified at
 its Canadian division or elsewhere, in order to maintain an effective internal
 control environment in compliance with the Sarbanes-Oxley Act of 2002; the
 conduct and scope of the SEC's informal inquiry relating to United's Canadian
 division or any formal investigation that may arise from this, and the
 ultimate resolution of any inquiry or investigation; the outcome of, and any
 costs associated with the defense of legal proceedings pending against the
 company; United's reliance on key suppliers and the impact of variability in
 their pricing, allowance programs and other terms, conditions and policies,
 such as those relating to geographic or product sourcing limitations, price
 protection terms and return rights; variability in supplier allowances and
 promotional incentives payable to the company, based on inventory purchase
 volumes, attainment of supplier-established growth hurdles, and supplier
 participation in the company's annual and quarterly catalogs and other
 marketing programs, and the impact of these supplier allowances and
 promotional incentives on the company's gross margins; United's reliance on
 key customers, and the business, credit and other risks inherent in continuing
 or increased customer concentration; continuing or increasing competitive
 activity and pricing pressures within existing or expanded product categories;
 increases in customers' purchases directly from product manufacturers;
 United's ability to anticipate and respond to changes in end-user demand and
 to effectively manage levels of any excess or obsolete inventory; the impact
 of variability in customer demand on United's product offerings and sales mix
 and, in turn, on customer rebates payable, and supplier allowances earned, by
 the company and on United's gross margin; reliance on key management
 personnel, both in day-to-day operations and in execution of new business
 initiatives; uncertainties related to any new regulations applicable to the
 company, including any new rulemaking by the SEC; the effects of hurricanes
 and other natural disasters, acts of terrorism or war; and prevailing economic
 conditions and changes affecting the business products industry and the
 general economy.
 
     Company Overview
     United Stationers Inc. is North America's largest broad line wholesale
 distributor of business products, with sales for the trailing 12 months of
 approximately $4.3 billion.  Its integrated computer-based distribution
 systems make more than 40,000 items available to approximately 20,000
 resellers.  United is able to ship products within 24 hours of order placement
 because of its 35 United Stationers Supply Co. distribution centers, 32
 LagasseSweet distribution centers that serve the janitorial, sanitation, and
 foodservice consumables industries, two Azerty distribution centers in Mexico
 that serve computer supply resellers, and two distribution centers that serve
 the Canadian marketplace.  Its focus on fulfillment excellence has given the
 company an average order fill rate of better than 97%, a 99.5% order accuracy
 rate, and a 99% on-time delivery rate.  For more information, visit
 http://www.unitedstationers.com .
 
     The company's common stock trades on the NASDAQ Stock Market(R) under the
 symbol USTR.
 
 
 
                    United Stationers Inc. and Subsidiaries
                  Condensed Consolidated Statements of Income
                       (in thousands, except share data)
 
                         For the Three Months Ended   For the Nine Months Ended
                                 September 30,            September 30,
                               2005         2004        2005         2004
 
     Net sales             $1,166,360   $1,028,833   $3,305,703   $2,983,377
     Cost of goods sold       999,444      876,039    2,830,906    2,540,255
     Gross profit             166,916      152,794      474,797      443,122
 
     Operating expenses:
       Warehousing,
        marketing and
        administrative
        expenses              122,600      108,163      349,495      323,416
       Restructuring and
        other charges
        (reversal)               (566)         --          (566)          --
 
     Total operating
      expenses                122,034      108,163      348,929      323,416
 
     Income from operations    44,882       44,631      125,868      119,706
 
     Interest expense, net        584          696        1,841        1,951
 
     Other expense, net         2,047        1,006        4,617        2,395
 
     Income before income
      taxes                    42,251       42,929      119,410      115,360
 
     Income tax expense        16,135       16,614       45,424       44,637
 
     Net income               $26,116      $26,315      $73,986      $70,723
 
 
     Net income per common
      share - diluted           $0.77        $0.78        $2.18        $2.08
     Weighted average number
      of common shares
      - diluted                33,923       33,666       33,878       34,053
 
 
 
                    United Stationers Inc. and Subsidiaries
                     Condensed Consolidated Balance Sheets
                   (dollars in thousands, except share data)
 
                                               September 30,           As of
                                           2005           2004    Dec. 31, 2004
     ASSETS
       Current assets:
         Cash and cash equivalents       $15,556         $14,220       $15,719
         Accounts receivable, net*       234,209         177,941       178,644
         Retained interest in
          receivables sold, net          198,030         264,801       227,807
         Inventories                     581,710         555,408       608,549
         Other current assets             28,399          21,866        18,623
           Total current assets        1,057,904       1,034,236     1,049,342
 
       Property, plant and equipment,
        net                              152,357         148,736       151,848
       Intangible assets, net             30,485           2,119         1,901
       Goodwill, net                     246,757         182,836       184,222
       Other                              36,300          18,594        19,927
           Total assets               $1,523,803      $1,386,521    $1,407,240
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
       Current liabilities:
         Accounts payable               $439,728        $396,274      $402,794
         Accrued liabilities             164,545         136,415       140,558
         Deferred credits                 70,507          63,250        47,518
           Total current liabilities     674,780         595,939       590,870
 
       Deferred income taxes              28,787          21,543        20,311
       Long-term debt                      8,800          14,300        18,000
       Other long-term liabilities        42,728          44,571        46,856
           Total liabilities             755,095         676,353       676,037
 
       Stockholders' equity:
         Common stock, $0.10 par value;
          authorized - 100,000,000
          shares, issued - 37,217,814
          shares in 2005 and 2004          3,722           3,722         3,722
         Additional paid-in capital      343,125         333,578       337,192
         Treasury stock, at cost
          - 4,766,913 shares and
          4,171,575 shares at
          September 30, 2005 and 2004,
          respectively and 4,076,432
          shares at December 31, 2004   (163,168)       (120,742)     (119,435)
         Retained earnings               594,594         501,360       520,608
         Accumulated other
          comprehensive loss              (9,565)         (7,750)      (10,884)
       Total stockholders' equity        768,708         710,168       731,203
           Total liabilities and
            stockholders' equity      $1,523,803      $1,386,521    $1,407,240
 
     *The September 30, 2005 and 2004 and December 31, 2004 accounts receivable
      balances do not include $175.0 million, $106.5 million and
      $118.5 million, respectively, of accounts receivable sold through a
      securitization program.
 
 
 
                    United Stationers Inc. and Subsidiaries
                     Consolidated Statements of Cash Flows
                                 (in thousands)
 
                                                      For the Nine Months Ended
                                                              September 30,
                                                          2005           2004
 
     Cash Flows From Operating Activities:
       Net income                                       $73,986        $70,723
       Adjustments to reconcile net income to net
        cash provided by operating activities:
       Depreciation and amortization                     23,444         20,478
       Loss (gain) on the disposition of plant,
        property and equipment                              280            (53)
       Deferred income taxes                                713            (81)
       Amortization of capitalized financing costs          477            489
       Write down of assets held for sale                    --            300
       Changes in operating assets and liabilities,
        excluding the effects of acquisitions:
        (Increase) decrease in accounts receivable, net (18,714)        17,502
        Decrease (increase) in retained interest in
         receivables sold, net                           29,778       (111,079)
        Decrease (increase) in inventory                 62,718        (15,319)
        (Increase) decrease in other assets             (26,527)         1,286
        Increase in accounts payable                      8,716         38,291
        Increase in accrued liabilities                  14,543          2,080
        Increase in deferred credits                     22,989         18,383
        Decrease in other liabilities                    (4,128)           (81)
          Net cash provided by operating activities     188,275         42,919
 
     Cash Flows From Investing Activities:
       Acquisitions                                    (125,206)            --
       Capital expenditures                             (20,179)       (10,658)
       Proceeds from the disposition of property,
        plant and equipment                                  22          9,969
         Net cash used in investing activities         (145,363)          (689)
 
     Cash Flows From Financing Activities:
       Retirements of debt                                   --            (24)
       Net borrowings under revolver                     (9,200)        (3,000)
       Issuance of treasury stock                        16,806          6,500
       Acquisition of treasury stock, at cost           (48,377)       (40,908)
       Payment of employee withholding tax related
        to stock option exercises                        (2,408)          (963)
         Net cash used in financing activities          (43,179)       (38,395)
 
       Effect of exchange rate changes on cash and
        cash equivalents                                    104             78
       Net change in cash and cash equivalents             (163)         3,913
       Cash and cash equivalents, beginning of period    15,719         10,307
       Cash and cash equivalents, end of period         $15,556        $14,220
 
 
 
                    United Stationers Inc. and Subsidiaries
                 Reconciliation of Non-GAAP Financial Measures
 
                          Debt to Total Capitalization
                             (dollars in thousands)
 
                                            September 30,
                                       2005            2004         Change
 
     Long-term debt                   $8,800         $14,300       $(5,500)
     Accounts receivable sold        175,000         106,500        68,500
       Total debt and securitization
        (adjusted debt)              183,800         120,800        63,000
     Stockholders' equity            768,708         710,168        58,540
       Total capitalization         $952,508        $830,968      $121,540
 
     Adjusted debt to total
      capitalization                   19.3%           14.5%          4.8%
 
     Note: Adjusted debt to total capitalization is provided as an additional
     liquidity measure. Generally Accepted Accounting Principles require that
     accounts receivable sold under the company's receivables securitization
     program be reflected as a reduction in accounts receivable and not
     reported as debt.  Internally, the company considers accounts receivables
     sold to be a financing mechanism. The company believes it is helpful to
     provide readers of its financial statements with a measure that adds
     accounts receivable sold to debt, and calculates debt-to-total
     capitalization on that basis.
 
 
 
                               Adjusted Cash Flow
                                 (in thousands)
 
                                                     For the Nine Months Ended
                                                            September 30,
                                                         2005          2004
 
     Cash Flows From Operating Activities:
       Net cash provided by operating activities       $188,275      $42,919
       Excluding the change in accounts receivable
        sold                                            (56,500)      43,500
       Net cash provided by operating activities
        excluding the effects of receivables sold      $131,775      $86,419
 
 
     Cash Flows From Financing Activities:
       Net cash used in financing activities           $(43,179)    $(38,395)
       Including the change in accounts receivable
        sold                                             56,500      (43,500)
       Net cash provided by (used in) financing
        activities including the effects of receivables
        sold                                            $13,321     $(81,895)
 
     Note: Net cash provided by operating activities, excluding the effects of
     receivables sold, is presented as an additional liquidity measure.
     Generally Accepted Accounting Principles require that the cash flow
     effects of changes in the amount of accounts receivable sold under the
     company's receivables securitization program be reflected within operating
     cash flows. Internally, the company considers accounts receivable sold to
     be a financing mechanism and not a source of cash flow related to
     operations.  The company believes it is helpful to provide readers of its
     financial statements with operating cash flows adjusted for the effects of
     changes in accounts receivable sold.
 
 
 
                    United Stationers Inc. and Subsidiaries
                 Reconciliation of Non-GAAP Financial Measures
 
                              Net Capital Spending
                                 (in thousands)
 
                              For the Three Months For the Nine Months Forecast
                                      Ended               Ended         Year
                                   September 30,       September 30,   Ending
                                  2005      2004       2005     2004     2005
 
     Net cash used in
      investing activities       $7,111    $4,358    $145,363    $689     N/A
     Acquisitions                    --        --    (125,206)     --     N/A
     Net cash used in investing
      activities before the
      impact of acquisitions     $7,111    $4,358     $20,157    $689     N/A
 
     Capital expenditures        $7,111    $4,360     $20,179 $10,658     N/A
 
     Proceeds from the
      disposition of property,
      plant and equipment            --        (2)        (22) (9,969)    N/A
 
     Net cash used in investing
      activities before the
      impact of acquisitions      7,111     4,358      20,157     689     N/A
     Capitalized software         6,076       561      14,509   2,184     N/A
 
     Net capital spending       $13,187    $4,919     $34,666  $2,873 $47,000
 
     Note: Net capital spending is provided as an additional measure of
     investing activities.  The company's accounting policy is to include
     capitalized software in "Other Assets." Generally Accepted Accounting
     Principles require that "Other Assets" be included on the cash flow
     statements under the caption "Net Cash Provided by Operating Activities."
     Internally, the company measures cash used in investing activities
     including capitalized software.  The company believes that it is helpful
     to provide readers of its financial statements with this same information.
 
 

SOURCE United Stationers Inc.

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