DES PLAINES, Ill., Feb. 16 /PRNewswire-FirstCall/ -- United Stationers Inc. (Nasdaq: USTR) reported net sales for the year ended December 31, 2005, of $4.4 billion, up 10.5% from $4.0 billion in the prior year. Net income for 2005 was $97.5 million, an increase of 8.4% from $90.0 million in 2004. Diluted earnings per share for 2005 were $2.90, up 9.4% versus $2.65 in 2004. Important Progress Made During 2005 "2005 was another year of solid growth, significant financial and operational achievements, and strong cash flow for United Stationers," said Richard W. Gochnauer, president and chief executive officer. "For the third consecutive year, our associates exceeded the $20 million annual savings goal for our War on Waste (WOW), which resulted from productivity improvements and continued cost reductions. WOW helped to offset our pricing margin pressure as well as other cost increases. The integration of the Sweet Paper acquisition with Lagasse is progressing well and is accelerating our market development initiatives, allowing us to get closer to our goal of providing national distribution for foodservice consumables. We also made investments to significantly strengthen our global sourcing capabilities and to expand our private-brand product lines, which offer higher margins for both our reseller customers and United. "Our Project Vision technology initiatives also are taking United -- and its resellers -- to the next level of competitiveness. One example is United's November introduction of the SAP Hosted Solution for Business Products Resellers. Independent dealers have reacted very positively to this program for integrating their back-office and marketing capabilities. We believe these and other actions set the stage for continued improvements in the coming years," added Gochnauer. 2005 Record Results Net sales for the year ended December 31, 2005, were up $417 million, or 10.5%, compared with the prior year. This increase reflects continued strong growth in the furniture and janitorial/sanitation supplies categories. The acquisition of Sweet Paper, which closed on May 31, 2005, added approximately 4% to the overall sales growth. Gross margin as a percent of sales for 2005 was 14.6%, representing a slight improvement over the prior year. Operating expenses in 2005 totaled $479 million, or 10.8% of sales, compared with $433 million, or 10.8% of sales, in 2004. Operating income was $166 million, or 3.8% of sales, compared with $149 million, or 3.7% in 2004. Record results for 2005 were achieved while incurring $3.5 million in costs resulting from Hurricane Katrina, expensing $6.6 million for Project Vision, and settling a preference avoidance lawsuit for approximately $2.0 million. In addition, the company's Canadian operation posted a $5.8 million operating loss in 2005. Operating results for 2004 were negatively affected by approximately $12.3 million related to the company's Canadian operation. Cash Flow, Debt Trends and Share Repurchases Net cash provided by operating activities for the years ended December 31, 2005 and 2004, totaled $218 million and $47 million, respectively. Net cash provided by operating activities, excluding the effects of receivables sold, totaled $112 million in 2005, compared with $79 million in 2004. A reconciliation of these items to the most comparable Generally Accepted Accounting Principles (GAAP) measures is presented at the end of this news release. Total debt and securitization financing increased during 2005 by approximately $110 million, to $246 million. This increase reflected funding for the acquisition of Sweet Paper, share repurchases, and capital spending, including investments in Project Vision. Debt levels were held down by continued strong cash flow resulting from solid earnings, improved working capital efficiency and proceeds from the exercise of employee stock options. Debt-to-total capitalization (adjusted to include the securitization financing) was 24.2% at December 31, 2005, compared with 15.6% in the prior year. These numbers are reconciled to the most comparable GAAP measures at the end of this release. Share repurchases in 2005 totaled $85 million or 1.8 million shares. As of December 31, 2005, $76.5 million remained under the share repurchase authorization from the company's board of directors. Fourth-Quarter Results Net sales for the 2005 fourth quarter were $1.1 billion, compared with sales of $1.0 billion in 2004, an increase of 9.4%. The acquisition of Sweet Paper contributed approximately 6% of the sales growth. Gross margin for the quarter was 15.4% versus 13.8% a year ago. Gross margin was positively affected by higher supplier allowances as the company reached year-end purchase-volume hurdles. Operating expenses for the latest three months were $130 million, or 11.8% of sales, compared with $110 million, or 10.9% of sales, in the same period last year. The increase in operating expenses included Project Vision, Sweet Paper and an adjustment to the accrual for management bonuses. The operating margin for the latest three months was 3.6%, compared with 2.9% in the same quarter of 2004. Results for the fourth quarter of 2005 and 2004 were adversely affected by losses incurred in the company's Canadian operation. Net income in the fourth quarter was $24 million, versus $19 million in the comparable 2004 quarter. Diluted earnings per share for the fourth quarter of 2005 were $0.72, compared with $0.57 in the prior-year quarter. Favorable 2006 Outlook "We are looking forward to achieving strong financial performance in 2006. Sales to date are up approximately 10% over the same period last year. Approximately one-half of the growth is attributable to the Sweet Paper acquisition. Our long-term goals continue to be to achieve sales growth in the range of 6% to 9% and annual earnings per share increases of 12% to 15% over the prior year," stated Gochnauer. "We would like to note three specific items that will affect our results this year. First, we expect stock option expensing will reduce earnings per share by approximately $0.16 to $0.18 in 2006. This is roughly the same magnitude as we will report in our 2005 10-K footnote. Second, a proposed change in our product content syndication program may change the timing of the recognition of related revenues and costs resulting in a significant one-time positive impact on earnings during 2006. However, until we finalize our programs, we cannot quantify the earnings impact. Finally, as we previously announced, 2006 will be a year of substantial investment in IT systems and infrastructure, so we expect net capital spending will be approximately $48 million. We have adjusted the pace of our projects and as a result anticipate 2006 expenses related to Project Vision to be in the range of $9 million to $12 million," he added. "We believe that our continued focus on margin initiatives, combined with the success of our WOW program, will enable us to continue to improve our operating performance this year. We look forward to delivering great service to our customers, continuing our growth and creating more value for our shareholders," Gochnauer concluded. Conference Call United Stationers will hold a conference call followed by a question and answer session on Friday, February 17, at 10:00 a.m. CT, to discuss 2005 results. To participate, callers within the U.S. and Canada should dial (866) 202-4367 and international callers should dial (617) 213-8845 approximately 10 minutes before the presentation. The passcode is "51947685." To listen to the webcast, 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 they have the necessary audio application 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 packages and systems without business disruption or other unanticipated difficulties or costs; United's ability to effectively integrate past and future acquisitions; 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 or threatened against the company; United's reliance on key suppliers and the impact of variability in their pricing, allowance programs, promotional incentives and other terms, conditions and policies; 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; 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 the company and on United's inventory levels and gross margin; United's reliance on key management personnel, both in day-to-day operations and in execution of new business initiatives; changes in laws and regulations applicable to the company; the effects of hurricanes and other natural disasters, acts of terrorism or war; and prevailing economic conditions and changes affecting the business products industry and the general economy. 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 $4.4 billion. The company's network of 68 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 order fill rate of better than 97%, a 99.5% order accuracy rate, and a 99% on-time delivery rate. For more information, visit http://www.unitedstationers.com . The company's common stock trades on The NASDAQ Stock Market(R) under the symbol USTR. United Stationers Inc. and Subsidiaries Condensed Consolidated Statements of Income (in thousands, except per share data) For the Three Months Ended For the Years Ended December 31, December 31, 2005 2004 2005 2004 Net sales $1,102,843 $1,007,813 $4,408,546 $3,991,190 Cost of goods sold 932,324 868,719 3,763,230 3,408,974 Gross profit 170,519 139,094 645,316 582,216 Operating expenses: Warehousing, marketing and administrative expenses 131,242 109,611 480,737 433,027 Restructuring and other charges (reversal) (765) - - (1,331) - - Total operating expenses 130,477 109,611 479,406 433,027 Income from operations 40,042 29,483 165,910 149,189 Interest expense, net 945 950 2,786 2,901 Other expense, net 2,418 1,093 7,035 3,488 Income before income taxes 36,679 27,440 156,089 142,800 Income tax expense 13,164 8,192 58,588 52,829 Net income $23,515 $19,248 $ 97,501 $89,971 Net income per common share -diluted $0.72 $0.57 $2.90 $2.65 Weighted average number of common shares - diluted 32,825 33,808 33,612 33,985 United Stationers Inc. and Subsidiaries Condensed Consolidated Balance Sheets (dollars in thousands, except share data) December 31, 2005 2004 ASSETS Current assets: Cash and cash equivalents $17,415 $15,719 Accounts receivable, net 237,176 184,512 Retained interest in receivables sold, net* 116,538 227,807 Inventories 669,787 608,549 Other current assets 29,030 18,623 Total current assets 1,069,946 1,055,210 Property, plant and equipment, net 158,601 151,848 Intangible assets, net 29,879 1,901 Goodwill, net 242,173 184,222 Other 41,602 19,927 Total assets $1,542,201 $1,413,108 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $447,142 $402,794 Accrued liabilities 165,982 140,558 Deferred credits 51,738 47,518 Total current liabilities 664,862 590,870 Deferred income taxes 29,609 20,311 Long-term debt 21,000 18,000 Other long-term liabilities 58,218 46,856 Total liabilities 773,689 676,037 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 Additional paid-in capital 344,628 337,192 Treasury stock, at cost - 5,288,691 shares in 2005 and 4,076,432 shares in 2004 (194,334) (119,435) Retained earnings 618,109 520,608 Accumulated other comprehensive loss (3,613) (5,016) Total stockholders' equity 768,512 737,071 Total liabilities and stockholders' equity $1,542,201 $1,413,108 *The December 31, 2005 and 2004 accounts receivable balances do not include $225.0 million and $118.5 million, respectively, of accounts receivable sold through a securitization program. United Stationers Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) For the Years Ended December 31, 2005 2004 Cash Flows From Operating Activities: Net income $97,501 $89,971 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,079 27,164 Amortization of capitalized financing costs 670 648 Loss on the disposition of plant, property and equipment 264 114 Write down of assets held for sale - - 300 Deferred income taxes (1,425) (181) Changes in operating assets and liabilities, excluding the effects of acquisitions: (Increase) decrease in accounts receivable, net (15,725) 16,927 Decrease (increase) in retained interest in receivables sold, net 111,269 (74,085) Increase in inventory (25,792) (68,201) Increase in other assets (25,052) (3,745) Increase in accounts payable 13,588 44,743 Increase in accrued liabilities 15,414 8,532 Increase in deferred credits 4,220 2,651 Increase in other liabilities 11,362 2,204 Net cash provided by operating activities 218,373 47,042 Cash Flows From Investing Activities: Acquisitions, net of cash acquired (123,530) - - Capital expenditures (31,313) (19,722) Proceeds from the disposition of property, plant and equipment 56 10,003 Net cash used in investing activities (154,787) (9,719) Cash Flows From Financing Activities: Retirements and principal payments of debt - - (24) Net borrowings under revolver 3,000 700 Issuance of treasury stock 22,961 9,635 Acquisition of treasury stock, at cost (84,540) (40,908) Payment of employee withholding tax related to stock option exercises (3,368) (1,435) Net cash used in financing activities (61,947) (32,032) Effect of exchange rate changes on cash and cash equivalents 57 121 Net change in cash and cash equivalents 1,696 5,412 Cash and cash equivalents, beginning of period 15,719 10,307 Cash and cash equivalents, end of period $17,415 $15,719 United Stationers Inc. and Subsidiaries Reconciliation of Non-GAAP Financial Measures Debt to Total Capitalization (dollars in thousands) December 31, 2005 2004 Change Long-term debt $21,000 $18,000 $3,000 Accounts receivable sold 225,000 118,500 106,500 Total debt and securitization (adjusted debt) 246,000 136,500 109,500 Stockholders' equity 768,512 737,071 31,441 Total capitalization $1,014,512 $873,571 $140,941 Adjusted debt to total capitalization 24.2% 15.6% 8.6% 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. Management 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. Net Capital Spending (in thousands) For the Three For the Twelve Months Ended Months Ended Forecast December 31, December 31, Year Ending 2005 2004 2005 2004 2006 Net cash used in investing activities $9,424 $9,031 $154,787 $9,719 $N/A Acquisitions 1,676 - - (123,530) - - N/A Net cash used in investing activities before the impact of acquisitions $11,100 $9,031 $31,257 $9,719 $N/A Capital expenditures $11,134 $9,064 $31,313 $19,722 $N/A Proceeds from the disposition of property, plant and equipment (34) (33) (56) (10,003) N/A Net cash used in investing activities before the impact of acquisitions 11,100 9,031 31,257 9,719 N/A Capitalized software 2,452 1,475 16,961 3,659 N/A Net capital spending $13,552 $10,506 $48,218 $13,378 $48,000 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. Management believes that it is helpful to provide readers of its financial statements with this same information. United Stationers Inc. and Subsidiaries Reconciliation of Non-GAAP Financial Measures - continued Adjusted Cash Flow (in thousands) For the Years Ended December 31, 2005 2004 Cash Flows From Operating Activities: Net cash provided by operating activities $218,373 $47,042 Excluding the change in accounts receivable sold (106,500) 31,500 Net cash provided by operating activities excluding the effects of receivables sold $111,873 $78,542 Cash Flows From Financing Activities: Net cash used in financing activities $(61,947) $(32,032) Including the change in accounts receivable sold 106,500 (31,500) Net cash provided by (used in) financing activities including the effects of receivables sold $44,553 $(63,532) Note: Adjusted cash provided by operating activities 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. Management 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.
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