United Stationers Inc. Reports First Quarter 2006 Results and Signs Definitive Sale Agreement for Its Canadian Division

    DES PLAINES, Ill., May 4 /PRNewswire-FirstCall/ -- United Stationers
 Inc. (Nasdaq:   USTR) today reported first quarter 2006 net sales of $1.1
 billion, up 12.6% from $1.0 billion in the same period last year. Diluted
 earnings per share in accordance with GAAP were $0.56 for the three months
 ended March 31, 2006, compared with $0.80 in the prior-year quarter.
 Excluding charges related to the company's Canadian Division and the
 software write-off (discussed below), diluted earnings per share for the
 first quarter of 2006 were $0.78.
     On March 31, 2006, the company made the following two decisions: not to
 proceed with the upgrade of its internal financial and order management
 software, and to sell its Canadian Division. As a result, the company
 recorded a pre-tax charge of $6.7 million, or $0.13 per diluted share, to
 write off capitalized software development costs and a pre-tax loss on
 discontinued operations of $4.5 million or $0.09 per diluted share. These
 2006 charges negatively impacted results by $0.22 per diluted share.
     "While we faced many challenges during the quarter, we are pleased with
 our progress in many key areas of our business," said Richard W. Gochnauer,
 president and chief executive officer. "In addition to making difficult
 decisions concerning Canada and the software write-off, we completed the
 systems integration of Sweet Paper, expanded our private brand offering and
 continued to build-out our national distribution capability for foodservice
 consumables. These actions should position us to achieve our long-term
 goals."
     First Quarter Results - Continuing Operations
     Sales for the first quarter of 2006 rose $129 million, or 12.6%, versus
 the same quarter last year. Sales grew in all product categories, with
 continued strong performance in janitorial and sanitation supplies. In
 addition, cut-sheet paper and technology products were strong contributors
 to the growth in the quarter. The acquisition of Sweet Paper on May 31,
 2005, accounted for approximately half of the total sales growth.
     Gross margin dollars were $175.3 million, an increase of $18.8 million,
 compared with $156.5 million in last year's first quarter. Gross margin as
 a percentage of sales for the first quarter of 2006 was flat with the
 prior-year quarter at 15.3%. In the second quarter of 2005, the company
 refined its method of estimating interim-period supplier allowances. As a
 result, supplier allowances were lower in the first quarter of 2006 when
 compared with the same quarter last year. In addition, a change in the
 company's product content syndication program will alter the company's
 timing on recognizing related revenues and costs, and will result in a
 significant one-time positive impact on earnings during 2006. During the
 first quarter of 2006, gross margin was favorably affected by an
 incremental $2.8 million related to the change in product content
 syndication. The company expects that the one-time impact of this change
 will increase significantly during the upcoming quarters of this year.
     Operating expenses for the first quarter of 2006 were $137.3 million,
 or 12.0% of sales, compared with $109.1 million, or 10.7% of sales, in the
 same period last year. The 2006 figure included incremental expenses
 related to Sweet Paper. Excluding the software write-off, operating
 expenses were $130.6 million, or 11.4% of sales. In addition, the company
 recorded stock option expense of $2.1 million, costs of $2.0 million
 related to closing its Pennsauken, New Jersey distribution center, and a
 $3.5 million reversal of a restructuring accrual. During the first quarter
 of 2005, the company recorded a $3.7 million reversal of a reserve related
 to retirement benefits for certain former officers.
     Income from continuing operations for the first quarter of 2006 was
 $20.9 million, compared with $28.3 million in the first quarter of 2005.
 Diluted earnings per share from continuing operations for the first quarter
 of 2006 were $0.65, compared with $0.84 in the prior-year quarter.
     Cash Flow and Debt Reduction
     Net cash provided by operating activities totaled $36.6 million for the
 first quarter of 2006, versus $7.6 million in the first quarter of 2005.
 Adjusting to exclude the effects of receivables sold under the company's
 securitization program, net cash provided by operating activities for the
 most recent quarter totaled $46.6 million, compared with $56.6 million in
 the first quarter of 2005. Net capital expenditures in the first quarter of
 2006 were $7.4 million, which compares with $7.3 million in the year-ago
 quarter. The company expects net capital expenditures, after the impact of
 capital asset sale proceeds, to be in the range of $35 million to $40
 million for 2006.
     Outstanding debt plus securitization financing totaled $222.3 million
 at the quarter's end, up approximately $134 million during the past 12
 months. Major items increasing debt levels include the acquisition of Sweet
 Paper, share repurchases, net capital expenditures and working capital for
 growth, including the company's expansion of its foodservice consumables
 distribution network. These effects were partially offset by earnings and
 proceeds from the exercise of employee stock options. A reconciliation of
 these items to the most comparable GAAP measures is presented at the end of
 this release.
     During the quarter, the company repurchased approximately a half
 million shares of its common stock for $24.6 million. Approximately $52
 million remains under the authorization for its share repurchase program.
     Canadian Division - Discontinued Operations
     In accordance with GAAP, the company's financial statements reflect the
 reclassification of the Canadian Division's results into discontinued
 operations. The $4.5 million pre-tax loss on discontinued operations
 includes a $0.9 million operating loss for the first quarter.
     On May 4, 2006, a definitive agreement was executed with Synnex Canada
 Limited for the sale of certain assets of the company's Canadian Division.
 Terms of the agreement provide for the buyer to assume certain of the
 division's liabilities and to offer employment to some of the division's
 employees. The transaction is anticipated to close during the second
 quarter of 2006. As a result, a charge in the range of $5 million to $6
 million is expected to be recorded in the second or third quarter for the
 costs of exiting this business.
     Outlook
     "This year we have taken several steps to improve our sales and
 earnings performance in the near- and long-term. First, we expect to
 complete the sale of the Canadian business during the second quarter.
 Second, we are focusing on our Reseller Technology Solution (RTS) which
 helps increase the competitiveness of the independent dealer channel. As a
 result, we have an aggressive implementation schedule for RTS. These
 actions, combined with our ongoing War on Waste initiatives, should help us
 achieve our long-term financial goals which include revenue increases of 6%
 to 9%, and annual EPS growth of 12% to 15%. Sales to-date for the second
 quarter adjusted for the timing of 'Good Friday' are up approximately 9%,
 including the incremental impact of Sweet Paper," Gochnauer concluded.
     Conference Call
     United Stationers will hold a conference call followed by a question
 and answer session on Friday, May 5, at 10:00 a.m. CT, to discuss first
 quarter results. To participate, callers within the U.S. and Canada should
 dial (866) 356-4281 and international callers should dial (617) 597-5395
 approximately 10 minutes before the presentation. The passcode is
 "32422892." 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 reliance on key customers, and the business, credit and other
 risks inherent in continuing or increased customer concentration; United's
 reliance on independent dealers for a significant percentage of its net
 sales and therefore the importance of the continued independence, viability
 and success of these dealers; continuing or increasing competitive activity
 and pricing pressures within existing or expanded product categories,
 including competition from product manufacturers who sell directly to
 United's customers; prevailing economic conditions and changes affecting
 the business products industry and the general economy; United's reliance
 on key suppliers; the impact of variability in supplier pricing, allowance
 programs, promotional incentives and other terms, conditions and policies;
 the impact of variability in customer and end-user demand on United's
 product offerings and sales mix and, in turn, on customer rebates payable
 and supplier allowances earned by United; United's ability to maintain its
 existing information technology systems and to successfully procure and
 implement new systems without business disruption or other unanticipated
 difficulties or costs; United's ability to effectively identify, consummate
 and integrate acquisitions; United's reliance on key management personnel,
 both in day-to-day operations and in execution of new business initiatives;
 the effects of hurricanes, acts of terrorism and other natural or man-made
 disruptions; and the conduct and scope of the SEC's informal inquiry
 relating to United's Canadian Division or any formal investigation that may
 arise from it, and the ultimate resolution of any inquiry or investigation.
     Shareholders, potential investors and other readers are urged to
 consider these risks and uncertainties in evaluating forward-looking
 statements and are cautioned not to place undue reliance on such
 forward-looking statements. For additional information about risks and
 uncertainties that could materially affect United's results, please see the
 company's Securities and Exchange Commission filings. We do not undertake
 to update any forward-looking statement, and investors are advised to
 consult any further disclosure by us on this matter in our filings with the
 Securities and Exchange Commission and in other written statements we make
 from time to time. It is not possible to anticipate or foresee all risks
 and uncertainties, and investors should not consider any list of risks and
 uncertainties to be an exhaustive or complete list.
     Company Overview
     United Stationers Inc. is North America's largest broad line wholesale
 distributor of business products, with annual sales of $4.3 billion. The
 company's network of 66 distribution centers allows it to offer nearly
 50,000 items to its approximately 20,000 reseller customers. This network,
 combined with United's depth and breadth of inventory in technology
 products, traditional business products, office furniture, janitorial and
 sanitation products, and foodservice consumables, enables the company to
 ship products on an overnight basis to more than 90% of the U.S. and major
 cities in Canada and Mexico. United's focus on fulfillment excellence has
 given it an average line 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 per share data)
 
                                                  For the Three Months Ended
                                                             March 31,
                                                       2006           2005
 
 
     Net sales                                     $1,148,230     $1,019,457
     Cost of goods sold                               972,953        862,975
     Gross profit                                     175,277        156,482
 
     Operating expenses:
       Warehousing, marketing and administrative
        expenses                                      140,870        109,124
       Restructuring charge reversal                   (3,522)            --
 
       Total operating expenses                       137,348        109,124
 
     Operating income                                  37,929         47,358
 
     Interest expense, net                              1,403            708
 
     Other expense, net                                 2,840          1,087
 
     Income from continuing operations before
      income taxes                                     33,686         45,563
 
     Income tax expense                                12,820         17,252
 
     Income from continuing operations                 20,866         28,311
 
     Loss from discontinued operations, net of tax     (2,826)        (1,319)
 
     Net income                                       $18,040        $26,992
 
     Net income per common share - diluted:
       Net income per share - continuing operations     $0.65          $0.84
       Loss per common share - discontinued operations  (0.09)         (0.04)
       Net income per share                             $0.56         $ 0.80
     Weighted average number of common shares
      outstanding - diluted                            32,316         33,807
 
 
 
                    United Stationers Inc. and Subsidiaries
                     Condensed Consolidated Balance Sheets
                   (dollars in thousands, except share data)
 
                                           As of March 31,            As of
                                        2006            2005      Dec. 31, 2005
 
     ASSETS
     Current assets:
       Cash and cash equivalents       $14,058        $ 17,947       $17,415
       Accounts receivable, net        189,279         112,353       224,552
       Retained interest in
        receivables sold, net*         162,828         308,585       116,538
       Inventories                     623,473         563,657       657,034
       Other current assets             22,220          20,366        28,791
       Current assets of discontinued
        operations                      34,467          53,994        41,537
         Total current assets        1,046,325       1,076,902     1,085,867
 
     Property, plant and equipment,
      net                              178,707         165,532       183,618
     Intangible assets, net             29,267           1,901        29,879
     Goodwill, net                     226,029         170,193       227,638
     Other                              22,445           6,410        15,199
         Total assets               $1,502,773      $1,420,938    $1,542,201
 
     LIABILITIES AND STOCKHOLDERS'
      EQUITY
     Current liabilities:
       Accounts payable               $441,634        $389,029      $441,390
       Accrued liabilities             158,556         143,985       163,314
       Deferred credits                 32,162          29,699        51,738
       Current liabilities of
        discontinued operations          8,661          10,251         8,420
         Total current liabilities     641,013         572,964       664,862
 
     Deferred income taxes              27,882          20,963        29,609
     Long-term debt                      7,300          18,600        21,000
     Other long-term liabilities        55,495          42,949        58,218
         Total liabilities             731,690         655,476       773,689
 
     Stockholders' equity:
       Common stock, $0.10 par value;
        authorized - 100,000,000 shares,
        issued - 37,217,814 shares
        in 2006 and 2005                 3,722           3,722         3,722
       Additional paid-in capital      347,850         337,537       344,628
       Treasury stock, at cost
        - 5,658,293 shares and
        4,030,113 shares at March 31,
        2006 and 2005, respectively and
        5,340,443 shares at December
        31, 2005                      (212,914)       (118,595)     (194,334)
       Retained earnings               636,149         547,600       618,109
       Accumulated other comprehensive
        loss                            (3,724)         (4,802)       (3,613)
     Total stockholders' equity        771,083         765,462       768,512
            Total liabilities and
             stockholders' equity   $1,502,773      $1,420,938    $1,542,201
     *The March 31, 2006 and 2005 and December 31, 2005 accounts receivable
 balances do not include $215.0 million, $69.5 million and $225.0 million,
 respectively, of accounts receivable sold through a securitization program.
                    United Stationers Inc. and Subsidiaries
                     Consolidated Statements of Cash Flows
                                 (in thousands)
 
                                                     For the Three Months Ended
                                                               March 31,
                                                          2006          2005
 
     Cash Flows From Operating Activities:
       Net income                                       $18,040       $ 26,992
       Adjustments to reconcile net income to net
        cash provided by operating activities:
       Depreciation and amortization                      8,711          7,059
       Share-based compensation                           2,096             --
       Write-off of capitalized software development
        costs                                             6,501             --
       Impairment charge associated with discontinued
        operations                                        3,601             --
       Gain on the disposition of plant, property
        and equipment                                      (152)            (2)
       Amortization of capitalized financing costs          196            159
       Excess tax benefits related to share-based
        compensation                                     (1,048)            --
       Changes in operating assets and liabilities,
        excluding the effects of acquisitions:
         Decrease in accounts receivable, net            34,499         49,328
         Increase in retained interest in receivables
          sold, net                                     (46,290)       (80,778)
         Decrease in inventory                           37,434         29,740
         Decrease (increase) in other assets              4,712         (2,468)
         Increase (decrease) in accounts payable          2,381         (5,525)
         (Decrease) increase in accrued liabilities     (10,013)         4,167
         Decrease in deferred credits                   (19,575)       (17,819)
         (Decrease) increase in deferred taxes           (1,727)           652
         Decrease in other liabilities                   (2,725)        (3,906)
           Net cash provided by operating activities     36,641          7,599
 
     Cash Flows From Investing Activities:
       Capital expenditures                              (7,669)        (7,266)
       Proceeds from the disposition of property,
        plant and equipment                                 296             --
           Net cash used in provided by investing
            activities                                   (7,373)        (7,266)
 
     Cash Flows From Financing Activities:
       Net borrowings under revolver                    (13,700)           600
       Issuance of treasury stock                         5,481          1,531
       Acquisition of treasury stock, at cost           (24,554)            --
       Excess tax benefits related to stock options       1,048             --
       Payment of employee withholding tax related
        to stock option exercises                          (896)          (266)
           Net cash (used in) provided by financing
            activities                                  (32,621)         1,865
 
     Effect of exchange rate changes on cash and
      cash equivalents                                       (4)            30
     Net change in cash and cash equivalents             (3,357)         2,228
     Cash and cash equivalents, beginning of period      17,415         15,719
     Cash and cash equivalents, end of period          $ 14,058       $ 17,947
 
 
                    United Stationers Inc. and Subsidiaries
                 Reconciliation of Non-GAAP Financial Measures
 
                          Debt to Total Capitalization
                             (dollars in thousands)
 
                                             March 31,
                                       2006            2005        Change
 
     Long-term debt                  $ 7,300         $18,600      $(11,300)
     Accounts receivable sold        215,000          69,500       145,500
       Total debt and securitization
        (adjusted debt)              222,300          88,100       134,200
     Stockholders' equity            771,083         765,462         5,621
       Total capitalization         $993,383        $853,562      $139,821
 
     Adjusted debt to total
      capitalization                   22.4%           10.3%         12.1%
 
     Note: Adjusted debt to total capitalization is provided as an additional
     liquidity measure. Generally Accepted Accounting Principles (GAAP) 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 Three Months Ended
                                                                March 31,
                                                          2006           2005
 
     Cash Flows From Operating Activities:
       Net cash provided by operating activities        $36,641         $7,599
       Excluding the change in accounts receivable sold  10,000         49,000
       Net cash provided by operating activities
        excluding the effects of receivables sold       $46,641        $56,599
 
     Cash Flows From Financing Activities:
       Net cash (used in) provided by financing
        activities                                     $(32,621)        $1,865
       Including the change in accounts receivable
        sold                                            (10,000)       (49,000)
       Net cash used in financing activities including
        the effects of receivables sold                $(42,621)      $(47,135)
 
     Note: Adjusted cash provided by operating activities is presented as an
     additional liquidity measure.  GAAP requires 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.
 
 

SOURCE United Stationers Inc.

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