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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