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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