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United Stationers Inc. Reports 2005 Second Quarter and First Half Results
DES PLAINES, Ill., Aug. 8 /PRNewswire-FirstCall/ -- United Stationers Inc.
(Nasdaq: USTR) reported net sales for the second quarter ended June 30, 2005
of $1.1 billion, versus $967 million for the second quarter of 2004. Net
income for the second quarter of 2005 was $20.9 million, compared with $21.0
million in the same period last year. Diluted earnings per share for the
second quarter of 2005 were $0.62, unchanged from the prior-year quarter. The
second quarter of 2005 was impacted by the settlement of two preference
avoidance lawsuits, timing of the recognition of supplier allowances and an
operating loss at the company's Canadian division.
Second Quarter Results
Sales in the second quarter of 2005 rose $112 million, representing an
11.6% increase over the prior-year quarter. All product categories
contributed to the gain, with janitorial and sanitation supplies posting the
largest increase. In addition, the acquisition of Sweet Paper contributed
approximately 2.5% to sales growth over last year's second quarter.
Gross margin as a percent of sales for the second quarter was 14.0%,
compared with 14.8% in the prior-year quarter. During the second quarter of
2005, gross margin was negatively affected by the company's competitive
pricing programs introduced in the second half of 2004, a shift in product
mix, and a lower level of supplier allowances recorded in the quarter,
compared with the same quarter last year. During the second quarter of 2005,
the company refined its method of estimating interim period supplier
allowances. The refinement included improving the processes used to collect
data to be more finite in forecasting the period in which the allowances were
earned. As a result, volume driven supplier allowances were down when
compared with the second quarter of 2004. This was partially offset by
favorable inventory-related adjustments during the second quarter of 2005,
compared with the same period last year.
Operating expenses for the second quarter of 2005 were $115.2 million,
compared with $107.0 million in the same quarter last year. This increase
primarily is related to consulting costs to develop the company's global and
strategic sourcing initiatives and an increase in employee-related costs to
support a higher level of sales.
Operating expenses in the second quarter of 2005 also included a charge of
$2.3 million for the settlement of two preference avoidance lawsuits filed on
behalf of US Office Products (USOP). United had supplied products to USOP
before it filed for protection under Chapter 11 of the bankruptcy code in
2001, and continued to do so after being named as a critical vendor to USOP.
Even though United was named a critical vendor, USOP sought to recover a
combined $66.3 million in payments made to United during the "preference
period."
Despite these expense increases, operating expenses as a percentage of
sales declined to 10.7%, compared with 11.1% last year.
The operating margin for the three months ended June 30, 2005 was 3.3%,
which includes the charge of $2.3 million related to the USOP settlement and a
$1.2 million pre-tax operating loss related to the company's Canadian
division. This compares to a 3.7% operating margin achieved in the second
quarter of 2004. "We are committed to the Canadian marketplace and our new
management team is focused on improving the financial performance of this
division," said Richard W. Gochnauer, president and chief executive officer.
"While we are improving working capital efficiency and reducing sales as we
enhance the quality of our customer base, we face near-term challenges with
our level of supplier allowances."
First Half Results
Net sales for the first half of 2005 were $2.1 billion, up 9.5% compared
with net sales of $2.0 billion in the same period last year. Net income for
the first half of 2005 was $47.9 million, or $1.41 per diluted share, compared
with $44.4 million, or $1.30 per diluted share, in the comparable prior-year
period.
Cash Flow and Debt Reduction
The company's net cash provided by operating activities totaled $135.5
million for the six months ended June 30, 2005, versus $12.2 million in the
prior-year period. Excluding the effects of accounts receivables sold, net
cash provided by operating activities for the six months ended June 30, 2005
was $39.0 million, compared with $38.2 million in the prior-year period. A
reconciliation of these items to the most comparable measures under generally
accepted accounting principles (GAAP) is presented at the end of this release.
Outstanding debt totaled $20.3 million at June 30, 2005, down $9.7 million
from June 30, 2004. Outstanding debt plus securitization financing totaled
$235.3 million at the quarter's end, an increase of $81.3 million during the
past 12 months. The increase was primarily the result of a rise in accounts
receivable sold through the company's securitization program to fund the
acquisition of Sweet Paper and the company's capital spending, offset by
operating cash flow. A reconciliation of these items to the most comparable
GAAP measures is presented at the end of this release.
Project Vision Key to Flexibility and Innovation
United Stationers has begun a major information technology initiative
called Project Vision. The goals of this initiative include enhancing
competitive advantages for the company and its customers, improving the
capabilities of United's systems, increasing flexibility to serve its
customers, and reducing its operational costs. The investment in Project
Vision is estimated at approximately $22 million ($8 million in 2005 and $14
million in 2006) in operating expense and $37 million ($23 million in 2005 and
$14 million in 2006) in capitalized system costs over the next two years.
This investment is expected to have a payback of approximately five years.
"We believe this investment in technology will strengthen our ability to
drive growth and improve business results," stated Gochnauer. "Our new system
should allow us to better serve our customers, be less complex for our
associates to use, require less maintenance, and provide the flexibility and
scalability we need."
"Project Vision will enhance several key capabilities within our sales and
customer care areas, as well as support functions such as finance and content
management," Gochnauer explained. "The new system's benefits include a
quote-to-cash financial system and more timely and meaningful financial
tracking for us. In addition, it is expected to provide better financial
controls and compliance, and help us to better manage the cross-selling of
different product categories. We believe this investment in technology will
lead to higher revenues through better quality of information about sales,
products and promotions for us, our dealers and suppliers. It will also
support our War on Waste efforts by removing costs and increasing
productivity."
"We are working with SAP America, Inc., which has extensive experience in
the wholesale distribution model," added Gochnauer. "We also are working with
Accenture to assist with the change management process. Our leadership team
and associates at every level are committed to help ensure that the new
technology will be successfully introduced and implemented over the next two
years."
Corporate Headquarters Relocation Offers Best Solution
As previously announced, the company has selected One Parkway North in
Deerfield, Ill., as the new location of its corporate headquarters. The
company signed an 11-year lease for approximately 205,000 square feet of space
in this facility, which is located approximately nine miles north of its
current Des Plaines, Ill. corporate headquarters. The move is expected to be
completed by June 30, 2006.
"We now operate from three separate buildings located in Des Plaines and
Mt. Prospect, Ill. Our company's growth is outpacing the current space. The
Deerfield facility gives us the flexibility to develop a scalable
infrastructure to accommodate expansion. From a cultural standpoint, United
stresses a cross-functional team approach, and it's much easier to support
people who are working together when they share the same location. All of
these factors make the relocation a very welcome and exciting move. We
anticipate selling our current Des Plaines, Ill. headquarters building in the
near future," Gochnauer said.
Sweet Paper Acquisition
On May 31, 2005, the company's Lagasse, Inc. subsidiary completed the
purchase of the stock of Sweet Paper Corp. and substantially all of the assets
of Sweet Paper Group, a privately-held wholesale distributor of
janitorial/sanitation, paper, and foodservice products, in a cash transaction.
The Sweet Paper companies generated combined annual sales of approximately
$250 million in their latest fiscal year and are headquartered in Hialeah, Fl.
The acquisition of Sweet Paper did not have a significant impact on the
company's consolidated operating results for the second quarter of 2005.
Outlook
"Our second quarter sales growth reflects one month's revenues from Sweet
Paper as well as continuing benefits from our sales initiatives and a stronger
economy," said Gochnauer. "Organic sales for the third quarter to-date are up
approximately 6% over the 5% growth rate achieved in the third quarter of last
year. Higher sales help us to leverage our fixed costs, and our War on Waste
initiatives are on track to remove costs."
"Our long-term financial goals continue to be organic revenue growth that
matches or exceeds the industry's, and annual earnings per share increases of
12% to 15%. However, our investment spending in Project Vision will make it
more challenging to achieve our earnings per share goal in the near term. We
believe that our investments are focused on delivering long-term
profitability, growth and shareholder value," Gochnauer concluded.
Conference Call
United Stationers will hold a conference call followed by a question and
answer session on Tuesday, August 9, at 10:00 a.m. CT, to discuss second
quarter results. To participate, callers within the U.S. and Canada should
dial (800) 561-2601 and international callers should dial (617) 614-3518
approximately 10 minutes before the presentation. The passcode is "98172718."
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; 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 $4.2 billion. Its integrated computer-based distribution
systems make more than 40,000 items available to approximately 15,000
resellers. United is able to ship products within 24 hours of order placement
because of its 35 United Stationers Supply Co. distribution centers, 34
Lagasse distribution centers that serve the janitorial, sanitation, and
foodservice disposables 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.
-table follows-
United Stationers Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except per share data)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Net sales $1,078,400 $966,678 $2,139,343 $1,954,544
Cost of goods sold 927,504 823,933 1,831,462 1,664,216
Gross profit 150,896 142,745 307,881 290,328
Operating expenses:
Warehousing, marketing
and administrative
expenses 115,185 107,008 226,895 215,253
Income from operations 35,711 35,737 80,986 75,075
Interest expense, net 538 626 1,257 1,255
Other expense, net 1,483 924 2,570 1,389
Income before
income taxes 33,690 34,187 77,159 72,431
Income tax expense 12,812 13,158 29,289 28,023
Net income $20,878 $21,029 $47,870 $44,408
Net income per common
share - diluted $0.62 $0.62 $1.41 $1.30
Weighted average
number of common
shares - diluted 33,883 34,049 33,869 34,250
- tables continue -
United Stationers Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands, except share data)
June 30, As of
2005 2004 Dec. 31, 2004
ASSETS
Current assets:
Cash and cash equivalents $18,146 $12,800 $15,719
Accounts receivable, net* 193,623 149,266 178,644
Retained interest in
receivables sold, net 147,820 222,218 227,807
Inventories 579,408 516,579 608,549
Other current assets 25,174 24,676 18,623
Total current assets 964,171 925,539 1,049,342
Property, plant and
equipment, net 155,338 150,369 151,848
Intangible assets, net 31,097 2,338 1,901
Goodwill, net 246,051 182,107 184,222
Other 26,179 18,609 19,927
Total assets $1,422,836 $1,278,962 $1,407,240
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $369,578 $361,145 $402,794
Accrued liabilities 142,888 120,646 140,558
Deferred credits 31,129 11,488 47,518
Total current
liabilities 543,595 493,279 590,870
Deferred income taxes 28,472 20,997 20,311
Long-term debt 20,300 30,000 18,000
Other long-term liabilities 48,216 44,586 46,856
Total liabilities 640,583 588,862 676,037
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 338,638 330,468 337,192
Treasury stock, at cost -
3,970,129 shares and
3,995,324 shares at June 30,
2005 and 2004, respectively
and 4,076,432 shares at
December 31, 2004 (117,988) (109,185) (119,435)
Retained earnings 568,478 475,045 520,608
Accumulated other
comprehensive loss (10,597) (9,950) (10,884)
Total stockholders' equity 782,253 690,100 731,203
Total liabilities and
stockholders' equity $1,422,836 $1,278,962 $1,407,240
*The June 30, 2005 and 2004 and December 31, 2004 accounts receivable
balances do not include $215.0 million, $124.0 million and $118.5 million,
respectively, of accounts receivable sold through a securitization
program.
-tables continue-
United Stationers Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the Six Months Ended
June 30,
2005 2004
Cash Flows From Operating Activities:
Net income $47,870 $44,408
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,984 13,813
Loss (gain) on the disposition of plant,
property and equipment 207 (245)
Amortization of capitalized financing costs 317 330
Write down of assets held for sale - - 300
Deferred income taxes (6,697) (627)
Changes in operating assets and liabilities,
excluding the effects of acquisitions:
Decrease in accounts receivable, net 21,708 45,663
Decrease (increase) in retained interest
in receivables sold, net 79,987 (68,496)
Decrease in inventory 64,559 22,601
Increase in other assets (9,561) (767)
(Decrease) increase in accounts payable (61,662) 3,335
Decrease in accrued liabilities (1,218) (14,649)
Decrease in deferred credits (16,389) (33,379)
Increase (decrease) in other liabilities 1,360 (66)
Net cash provided by operating activities 135,465 12,221
Cash Flows From Investing Activities:
Acquisitions (125,206) - -
Capital expenditures (13,068) (6,298)
Proceeds from the disposition of property,
plant and equipment 22 9,967
Net cash (used in) provided by
investing activities (138,252) 3,669
Cash Flows From Financing Activities:
Retirements of debt - - (24)
Net borrowings under revolver 2,300 12,700
Issuance of treasury stock 3,168 1,162
Acquisition of treasury stock, at cost - - (26,868)
Payment of employee withholding tax
related to stock option exercises (274) (174)
Net cash provided by (used in)
financing activities 5,194 (13,204)
Effect of exchange rate changes on cash and
cash equivalents 20 (193)
Net change in cash and cash equivalents 2,427 2,493
Cash and cash equivalents, beginning of period 15,719 10,307
Cash and cash equivalents, end of period $18,146 $12,800
-tables continue-
United Stationers Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Debt to Total Capitalization
(dollars in thousands)
June 30,
2005 2004 Change
Long-term debt $20,300 $30,000 $(9,700)
Accounts receivable sold 215,000 124,000 91,000
Total debt and
securitization
(adjusted debt) 235,300 154,000 81,300
Stockholders' equity 782,253 690,100 92,153
Total capitalization $1,017,553 $844,100 $173,453
Adjusted debt to total
capitalization 23.1% 18.2% 4.9%
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 Six Months Ended
June 30,
2005 2004
Cash Flows From Operating Activities:
Net cash provided by operating activities $135,465 $12,221
Excluding the change in accounts
receivable sold (96,500) 26,000
Net cash provided by operating activities
excluding the effects of receivables sold $38,965 $38,221
Cash Flows From Financing Activities:
Net cash provided by (used in) financing
activities $5,194 $(13,204)
Including the change in accounts
receivable sold 96,500 (26,000)
Net cash provided by (used in) financing
activities including the effects of
receivables sold $101,694 $(39,204)
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.
-tables continue-
United Stationers Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Net Capital Spending
(in thousands)
For the Three Months Ended For the Six Months Ended Forecast
June 30, June 30, Year Ending
2005 2004 2005 2004 2005
Net cash used
in (provided
by) investing
activities $134,224 $(1,325) $138,252 $(3,669) N/A
Acquisitions (125,206) - - (125,206) - - N/A
Net cash used
in (provided
by) investing
activities
before the
impact of
acquisitions $9,018 $(1,325) $13,046 $(3,669) N/A
Capital
expenditures $9,040 $3,940 $13,068 $6,298 N/A
Proceeds from
the disposition
of property,
plant and
equipment (22) (5,265) (22) (9,967) N/A
Net cash used in
(provided by)
investing
activities before
the impact of
acquisitions 9,018 (1,325) 13,046 (3,669) N/A
Capitalized
software 5,195 937 8,433 1,623 N/A
Net capital
spending $14,213 $(388) $21,479 $(2,046) $52,000
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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