2014

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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