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  • 1. United Stationers Inc. 2001 WAS A YEAR OF CHALLENGES, CHANGE AND D E T E R M I N AT I O N Annual Report 2001
  • 2. You’ll Note the Changes I n the middle of a changing marketplace, United Stationers is changing, too. But we continue to focus on what has made us the largest wholesale distributor of business products in North America: • The industry’s broadest product line—more than 40,000 items, including traditional office products, computer consumables, office furniture, business machines and presentation products, and janitorial and sanitation supplies from 500 manufacturers; • Same-day pick, pack and ship capabilities; • An integrated network of 65 distribution centers; • A wide range of value-added services; and • Relationships with 20,000 reseller customers, including office products dealers, mega-dealers, contract stationers, office products superstores, computer products resellers, mass merchandisers, mail order companies, sanitary supply distributors, and e-commerce merchants. In 2001, we also embarked on a plan to improve United’s cost and organizational structure to provide a sustainable competitive advantage: • We dramatically cut costs; • We generated operating cash flow of approximately $200 million; • We developed a new organizational structure that brings decision-making closer to our customers; • We strengthened company leadership; and • We are consolidating our computer consumables and traditional business products platforms to better serve customers and promote synergies and cost savings. Table of Contents Lower Sales, Earnings Pressure in 2001 2 Strengthening Our Balance Sheet 3 Stock Repurchase Plan Activity 3 Restructuring as a Springboard 4 Improving the Efficiency of Our Distribution Network 6 Restructuring The Order People for Growth 6 Building on Our Strengths 8 Recognition of Our Strengths 11 Returning to Record Results 12 Management’s Discussion and Analysis 13 Selected Consolidated Financial Data 22 Quarterly Financial and Stock Price Data 24 Report of Management / Report of Independent Auditors 25 Consolidated Financial Statements 26 Notes to Consolidated Financial Statements 32 Directors/Officers Stockholder Information Inside Back Cover
  • 3. Financial Highlights United Stationers Inc. and Subsidiaries (dollars in thousands, except per share data) Income Statement Data for the Years Ended Dec. 31, 2001 Dec. 31, 2000 $ 3,925,936 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,944,862 122,055 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,546 93,641 Income before income taxes and extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,116 56,978 Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,167 1.68 Net income per share—assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.65 Operating Results Before Restructuring1 and Extraordinary 2 Charges $ 169,658 1 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 202,546 85,9211 Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,6432 2.531 Net income per share — assuming dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.842 Balance Sheet Data at Year End $ 412,7663 Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 495,4563 1,339,5873 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447,0273 271,705 271,705 Long-term debt (including current maturities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,867 409,867 538,681 538,681 Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,439 478,439 NET SALES NET INCOME PER SHARE OPERATING INCOME (Dollars in Millions) (Dollars in Billions) (Dollars per Share) $2.84 2 $203 $3.9 $3.9 $2.53 1 $2.37 $3.4 $182 $3.1 $2.00 2, 4 $170 1 4 $169 $2.6 $1.47 2, 4 $135 4 97 98 99 00 01 99 97 98 00 01 97 98 99 00 01 In the face of a challenging economic Operating income in 2001 was negatively affect- While net income per share fell below our environment, we were able to hold sales ed by an operating loss at The Order People. expectations, cost control measures prevented steady in 2001, achieving a 12.9% four-year a further decline, and the savings from our compound annual growth rate. restructuring should help boost earnings in 2002. 1 Excluding a pre-tax restructuring charge of $47.6 million. (See Note 3 to the Consolidated Financial Statements.) 2 Excluding the extraordinary charge. (See Note 7 to the Consolidated Financial Statements and Notes 10 and 11 to the Selected Consolidated Financial Data.) 3 Excluding trade accounts receivable sold under a receivable securitization program. (See Note 5 to the Consolidated Financial Statements.) 4 Excluding non-recurring charges. (See Notes 10 and 11 to the Selected Consolidated Financial Data.) 1 United Stationers Annual Report
  • 4. A Sharper Focus To Our Stockholders 2001 was one of the toughest periods in United Stationers’ Lower Sales, Earnings Pressure in 2001 80-year history. First, we faced a number of negative macro- economic factors. The U.S. entered an economic downturn The factors mentioned earlier, plus the sale of our non-core in March 2001, which was made worse by the terrorist attacks Positive ID bar code scanning business and a portion of TOP’s on September 11th. This led to an unemployment rate of CallCenter Services, reduced annual sales by approximately 5.8% by year end—the highest level since 1994 — and a $30 million. However, the determination and efforts of our 7% increase in the number of companies that went out of associates allowed United to nearly offset this sales shortfall. business compared with 2000. So revenues of $3.9 billion were essentially flat with the prior year. On a product category basis, the hardest hit areas were Second, with the benefit of hindsight, we now recognize traditional office products (down 7%) and furniture (down that United built an infrastructure to support a business that 6%). Sales of computer consumables rose 5%. In addition, did not materialize as expected. We also had not foreseen the sales of janitorial and sanitation products were strong, grow- collapse in e-commerce that would lengthen the selling cycles ing 31% during the year. This increase was the result of for The Order People (TOP)— our third-party non-office acquiring Peerless Paper in January 2001 and an organic products fulfillment business. This meant we had staffed up and growth rate in the high single digits. developed an infrastructure that was out of balance with our ability to ramp up revenues. In addition, U.S. Office Products We also saw mixed performance on a business channel (USOP) was acquired in May 2001 by Buhrmann N.V., the basis. Our larger customers who serve “Fortune 500” firms parent company of Corporate Express, Inc. As a result, USOP were negatively affected as these companies laid off employ- was integrated into Corporate Express’ business model, which ees and pulled back on spending. However, our independent is based on buying a higher percentage of products directly dealer customers— who contribute the majority of our sales— from manufacturers. This resulted in a loss of more than $100 managed to avoid the steep decline in business experienced million of sales volume in 2001. by other types of resellers. The combination of these internal and external issues put 2001 Revenues by Product Line an end to four straight years of record performance. However, United’s business model is sound and its financial condition remains strong. Just as important, the challenges we faced also gave us the determination to change United into a more Traditional Computer competitive company with an even greater focus on customer Office Products Consumables 32% service, distribution excellence, employee advancement and 35% return on invested capital. Business Machines & Office Presentation Furniture Janitorial Products 13% & Sanitation 9% Supplies 11% Both traditional office products and computer consumables continue to account for about a third of our business. 2 United Stationers Annual Report
  • 5. TOTAL DEBT 1 TO EBITDA (Dollars in Millions) 3.3 x 2 2.4 x 2 2.4 x Flat sales put pressure in 2000. In 2002, we expect capital expenditures will reach 2.3 x about $35 million, which includes $17 million in restructuring- on our gross margin, which 1.9 x 3 related costs. ended the year at 15.8% compared with 16.3% for As the sales rate slowed, we focused on the prudent use of 2000. Operating expenses our working capital. Incentives for our management team and as a percent of sales grew to sales force now include specific EPS and working capital goals, 12.7% (including the restruc- because we believe what you measure and reward gets managed. turing charge) in 2001 versus With this focus, we improved the balance sheet by reducing 11.2% in 2000. This led to inventory levels by $107 million, lowered accounts receivable by operating income of $122.1 $44 million (which includes $125 million and $150 million of 97 98 99 00 01 million or 3.1% of sales in receivables sold under the asset-backed securitization in 2001 2001, compared with $202.5 The combination of high levels of cash and 2000, respectively), and decreased accounts payable by $56 million or 5.1% in 2001. flow and lower debt reduced this ratio to million. This allowed us to reduce core elements of working the lowest level since 1995. Excluding the restructuring capital by $95 million, compared with an increase of $92 million charge, operating expenses 1 Total debt includes the accounts receivable sold in 2000. under the asset-backed securitization. (See Note in 2001 were 11.5% of 5 to the Consolidated Financial Statements.) In addition, we elected to sell only $125 million of receivables sales, which led to operating 2 Excluding non-recurring charges. (See Notes 10 and 11 to the Selected under our asset-backed securitization— a fairly standard, third- income of $169.7 million, Consolidated Financial Data.) party program used to provide funding at very low interest rates. or 4.3% of sales (including a 3 Excluding restructuring charge. (See Note 3 This was $25 million lower than in 2000. As a result, we reduced to the Consolidated Financial Statements.) $21.7 million loss before our debt (including the asset-backed securitization) during the interest and taxes in The Order People). year by $163.2 million, which improved our debt to total book In the third quarter, we recorded a $47.6 million pre-tax capitalization to 42.4% from 53.9% a year ago. Earnings before restructuring charge, which included a $31.7 million cash charge interest, taxes, depreciation and amortization (EBITDA) com- and a $15.9 million non-cash charge. In addition, we incurred bined with lower debt improved our total debt to EBITDA ratio about $2.2 million of implementation costs related to the restruc- to 1.9x (including the $125.0 million of sold receivables), its turing in 2001. During 2002, we expect to record an additional lowest level in the last five years. $4.5 million of restructuring-related implementation costs. As a result, we reported net income of $57.0 million, or $1.68 Stock Repurchase per share in 2001, compared with $92.2 million, or $2.65 per Plan Activity share in 2000. Excluding the restructuring charge, net income Strong free cash flow allowed us to continue repurchasing United was $85.9 million, or $2.53 per share, compared with 2000’s stock. During 2001, we bought 467,500 shares, at an average $98.6 million, or $2.84 per share, which excludes the $6.5 mil- price of $26.50, under an existing $50 million authorization. We lion extraordinary charge related to the early retirement of debt still have $15 million of the original authorization for purchases. taken in that year. Strengthening Our Balance Sheet We kept capital expenditures under control during the year. Spending totaled $28.6 million compared with $39.3 million 3 United Stationers Annual Report
  • 6. Organizing Our Operations Restructuring Creating a New as a Springboard Organizational Structure As we reduced our headcount, we also reorganized United to We expect our restructuring to produce cost savings of $25 do a better job of capitalizing on opportunities. Our specific million in 2002. Beginning in 2003— the first full year after goals for the reorganization— in addition to cost savings— it is completed— the restructuring should save approximately included driving decision-making closer to customers, speed- $40 million and significantly improve our return on invested ing implementation of best practices, improving overall capital. However, we view the restructuring as more than a effectiveness, encouraging new ideas, and strengthening our way to cut costs. It’s part of a fundamental change at United: leadership team. removing barriers to serving our customers, while increasing efficiencies in our operations. As the President and CEO, I am charged with ensuring that United has a long-term growth strategy and the resources to meet its goals. The following Senior Vice Presidents report Cutting Costs directly to me: Chief Financial Officer, Chief Information United had a compound annual revenue growth rate of 12.9% Officer, General Counsel, and the head of Human Resources. between 1997 and 2001. We obviously needed to increase our In addition, we have created a new position— Chief Operating staff and build an infrastructure to accommodate this expan- Officer— which we hope to fill within the next few months. sion. As growth slowed in 2001, however, we had excess This person also will report to me and will supervise United’s capacity and overhead. day-to-day operations. A number of people will report directly to the COO: the heads of Sales and Customer This meant we had to rationalize our facilities and reduce Support Services, Field Sales and Operations, Marketing our staff to be in-line with lower revenue expectations. We and Field Support Services, Merchandising, Inventory significantly trimmed our headcount through a voluntary Management and Strategic Facilities Support, and the separation program, and then through a layoff. Both programs President of Lagasse. I believe this structure will give us were implemented at every level of the company. a more efficient chain of command and a more Selling part of our call center business and effective distribution of authority and responsibility. restructuring our operations led to an I also am very excited about the caliber of people we additional reduction. By early summer have filling each position. In addition to Ergin Uskup, 2002, we will have lowered our who has held the CIO position for eight years, employee base 20% from August we welcomed the following to United’s senior 2001. While we sincerely regret leadership ranks: the impact on the associates who were affected, this was a necessary action to strengthen our position for the future. Managing Our Working Capital Playing lead roles in the company’s drive for working capital efficiency, Senior Vice Presidents Jim Fahey (left) and Ron Berg are directing merchandising and inventory management efforts. 4 United Stationers Annual Report
  • 7. Champions of Change The goals for restructuring our organization include driving decision-making closer to customers, improving overall effectiveness, reducing costs, encour- aging new ideas, and accelerating implementation of best practices. These executives will take a leading role in this process (from left to right): Joe Templet, Senior VP of Field Sales and Operations; Kathy Dvorak, Senior VP and CFO; Mark Hampton, Senior VP of Marketing and Field Support Services; and Jeff Howard, Senior VP of Sales and Customer Support Services. • John Sloan, our new Senior VP of Human Resources joined us in January 2002 from Sears, Roebuck and Co., where he served as the Executive VP of Human Resources. John led all aspects of this function, including compensa- tion, benefits, labor relations, recruitment, and training and development. He also established a nationally recognized diversity program. We implemented another important organizational change within our Supply Division. Instead of having four independent regions— each with its own infrastructure— we now have seven zones: West, Northwest, Southwest, Midwest, Great Lakes, East, and Southeast. The leaders of these zones focus exclusively on selling and operations. Our goal is to give the people who work directly with customers more responsibility and authority to get things done quickly and correctly, so we can provide better service. To operate more efficiently and to support zone efforts, we • Kathy Dvorak was promoted to Senior VP and CFO. formed the Shared Services Group. Many of the people in this Her 20 years of experience with various aspects of United’s group came from former region support staffs. They now are help- financial management and investor relations made her the ing local teams to cross geographic and organizational boundaries ideal candidate for this position. and implement best practices throughout the company. • Deidra Gold, our new Senior VP and General Counsel, has a strong background in mergers and acquisitions, financing transactions, compensation and benefits, and corporate law. State-of-the-Art Facilities Before joining United, Deidra was an officer of Ameritech Corporation and then eLoyalty Corporation, where she was Our new 300,000 square foot Denver distribu- involved in financing, strategic planning and M&A activi- tion center opened in May 2001. Designed for ties and provided legal guidance to management and the optimum efficiency, this facility can warehouse board of directors. almost $20 million in inventory and ship over 20,000 order lines per night. Automated conveyor systems use bar code intelligence to guide orders through the warehouse in the most efficient manner— from picking zones to packing stations— and then on to the appropriate shipping lanes where they can be loaded onto trucks for delivery. 5 United Stationers Annual Report
  • 8. Integrating Our Operations Improving the Efficiency Capitalizing of Our Distribution Network on Opportunities We saw other opportunities to expand in several areas last None of our competitors can match United’s ability to get its year. This included replacing old warehouses with two new broad product offering into the hands of end-consumers in 300,000 square foot distribution centers in Denver and every major metropolitan area in North America within Charlotte, and expanding a furniture annex to 214,000 square 12 hours of order placement. We are committed to maintain- feet in Los Angeles. In addition, we broke ground on a new ing this ability. 600,000 square foot state-of-the-art distribution center in Atlanta that will replace an older facility there. Integrating Systems We also are looking at ways to modernize and reduce the and Processes number of distribution centers without affecting our enviable We are reviewing our entire operation, looking for ways to customer service record. For example, plans are underway effectively consolidate our business platforms. One opportunity to strengthen the Sacramento operations by consolidating we identified is to have a single operating platform for com- two facilities into a single distribution center with a new puter consumables and traditional office products. To achieve furniture annex. Two existing centers in Memphis are being this, we are putting the Supply Division and Azerty on the consolidated. In addition, we closed our Cincinnati facility in same system during the second quarter of 2002. November and are successfully serving those customers from our Indianapolis and Columbus distribution centers. Our goal This integration has major benefits to our customers and is to continue leveraging the distribution network to better United. Our office products customers no longer will have to serve our customers and generate more profit as we grow. go through a separate Azerty operation to order a full line of computer consumables. They now will have the ability to receive computer consumables and office products in a single Restructuring box. We will benefit from incorporating Azerty’s product The Order People for Growth offering into our Supply Division facilities, and by closing A year ago, I wrote about the opportunities we saw for growth four dedicated computer consumables distribution centers and at The Order People (TOP). This year we restructured the consolidating some administrative and support staff functions. operation. What happened? We are confident that this will produce efficiencies and economies of scale for both United and its customers. TOP was formed during the period of explosive growth in e-commerce. Internal projections, reviewed and supported We also completed the integration of Peerless Paper by third-party professionals, convinced us that we could into Lagasse last November. This wholesale distributor of build on our pick, pack, ship and track core competencies janitorial and sanitation, paper, and food service products, to become a significant player in third-party fulfillment. was acquired in January 2001. By the first quarter of 2002, we had a fully integrated product offering from the combined operations— increasing Lagasse’s number of stockkeeping units (SKUs) from 6,000 to 7,000. 6 United Stationers Annual Report
  • 9. State-of-the-Art Distribution Systems More than 40 miles of conveyors keep product moving in our state-of-the-art distribution centers. This equipment facilitates the high volume throughput required to pick, pack and ship over 525,000 order lines per night, so our customers can make their business products deliveries the next day. A sophisticated warehouse management system integrates our inventory and logistics capabilities, so we can track each carton and its contents as they move through our distribution center and onto the truck for delivery. We focused on both traditional and dot.com businesses, with The Power of an Integrated Network the latter providing a quick ramp-up. The idea was to invest United’s customers can make next-day deliveries to over 90% of the U.S. quickly and fully in our business model to develop a sustain- population and in major metropolitan areas of Canada and Mexico. They can able competitive advantage. do this because our integrated network of distribution centers allows us to However, with a longer-than-expected selling cycle send shipments to customers within 12 hours of receiving the order. Our and the collapse of the dot.com universe, TOP had sizable Supply Division has 37 regional distribution facilities with a mix of traditional expenses and investments and little revenue. office products, computer consumables, business machines and presentation products, furniture, and janitorial and sanitation products. This includes a Rather than wait for the tide to turn, we took a number mega-center that also supports the Azerty, Lagasse and The Order People of steps to trim the cost structure in 2001. businesses. These facilities also can provide fulfillment services for non-office • The Reno and Harrisburg facilities were closed. product items. We have 24 dedicated janitorial and sanitation distribution centers, two distribution centers that provide computer consumables and • Part of CallCenter Services was sold. traditional office automation products in Canada, and two more facilities in • Staffing and expenses were dramatically reduced. Mexico that offer computer consumables. • The Memphis distribution center, originally devoted to TOP customers, now also is being used to help us better serve Supply Division, Lagasse and Azerty customers. • Instead of being freestanding, TOP now is a priority initiative within the Supply Division. This means we are keeping a dedicated staff for sales, marketing and client integration, while leveraging Supply Division resources for all other areas. As a result of these actions, we expect that TOP should begin making a contribution to earnings in the second half of 2002. 7 United Stationers Annual Report
  • 10. Finding Solutions Over the longer term, we still believe in the concept Frequent Contact with Potential Customers Our manu- of offering order fulfillment to third parties. It addresses a facturers’ products are featured in an unmatched array of supply chain need: companies in non-office products areas print and online catalogs. During 2001, United distributed want to outsource their product procurement and fulfillment. 30 million catalogs and promotional flyers. This includes our We believe that providing a source for these activities — a General Line Catalog, the biggest and most widely distributed core competency of United— offers an opportunity for office products catalog in North America. Our electronic significant growth. catalog database also was syndicated to more than 2,000 reseller Web sites by year end. To further improve the sales process, in 2001 we developed biggestbook.com™. Building on This Web site offers more details on manufacturers’ products Our Strengths than is feasible in print and online catalogs. As a result, end-consumers can get quick answers to their questions and The restructuring will make us a more focused organization ensure they are buying the right products to meet their needs. and allow us to build on the competitive advantages that made United strong in the first place. This will improve our Deeper Product Line Exposure By stocking more than position as a critical link in the supply chain for manufacturers 40,000 products, United can feature items that most resellers and resellers. do not keep in stock. This allows end-consumers to see more of a manufacturer’s product line— and also helps manufactur- ers more cost-effectively launch new products and create A Critical Link demand for them. for Manufacturers Easy, Efficient Ordering Process In an effort to improve We give our 500 manufacturers an edge in the marketplace quality while saving time and costs, we send more than 90% that they could not cost-effectively achieve on their own. of our orders electronically to manufacturers. This eliminates Reach a Wider Audience Our distribution network helps the redundant data entry (associated with traditional paper vendors reach more than 20,000 customers: office products purchase orders), ensures high quality data, timely turnaround dealers, mega-dealers, contract stationers, office products of orders, and administrative cost savings. In addition, superstores, computer products resellers, mass merchandisers, because United handles fulfillment for so many resellers, it mail order companies, sanitary supply distributors, and generates large orders that can be efficiently handled by the e-commerce merchants. In addition, our infrastructure manufacturers. Then United breaks down orders into “one- allows us to deliver vendors’ products to resellers in every eaches” that resellers and end-consumers want. As a result, major North American market within 12 hours of order manufacturers do not have to pick, pack and ship small placement— meeting resellers’ demands for quick delivery. volume orders, which saves them from the costs of building elaborate distribution systems. 8 United Stationers Annual Report
  • 11. Handle Backroom Operations Resellers want to increase the efficiency of their assets while reducing investments in Find All the Details in biggestbook.com inventory, warehouses and delivery vehicles. They turn to The biggestbook.com Web site and CD-ROM are extensions of the General Line United for a number of reasons: Catalog, providing more detailed information on the 27,000 products in the • Our substantial investment in a broad range of inventory traditional print catalog. Both also provide easy access to aid customer searches. gives resellers access to the products their end-consumers For example, the “Resource” section includes interactive tools to help select the want— even items that would not be cost-effective for right products, such as chairs and desks, and a cost containment calculator that resellers to carry. shows customers the benefits of using one supplier rather than several. • Our state-of-the-art order processing capabilities allowed us to handle an average of 525,000 order lines per day last A Critical Link year. United receives orders from its customers by phone, for Resellers fax, e-mail or the Internet. Then our integrated systems As resellers look for ways to reduce their costs without help us to locate products at warehouses across the country, compromising product offerings and service to end-consumers, consolidate the items, and then provide a single on-time United becomes their natural choice. delivery of the entire order. Broadest Product Line Without investing in inventory • Our state-of-the-art distribution infrastructure includes and warehouses, resellers capitalize on United’s capabilities as 65 regional distribution centers in 40 major cities in 29 North America’s: states and provinces in the U.S., Canada and Mexico. In the past three years, we invested nearly $50 million in new • Largest wholesale distributor of traditional office supplies. distribution centers and in warehouse technology — some- • Largest wholesale distributor of computer consumables. thing our competition has not done. • Largest wholesale distributor of office furniture. • Our fleet of more than 400 trucks delivers orders as soon as they have been picked. In addition, our relationships • Largest wholesale distributor of janitorial and with third-party express and package carriers help us ensure sanitation supplies. next-day delivery to resellers or end-consumers across North America. • Leading wholesale distributor of business machines and presentation products. This operating system is backed by a corporate culture focused on providing superior service and fulfillment excellence. As a United’s 2002 General Line Catalog has 27,000 items and result, we have maintained the highest service levels in the indus- the most new products ever introduced in one year: 1,700 on try: a 98% order fill rate, a 99.5% order accuracy rate, and a 99% 96 more pages than in 2001. on-time delivery rate. 9 United Stationers Annual Report
  • 12. Delivering Fulfillment Excellence Unmatched Value-Added Programs United has a number • End-consumer research. United sponsors end-consumer of programs designed to help resellers sell more products research each year, then presents the results and recom- and better serve their customers. Some of our more popular mendations to our resellers on how to capitalize on ones include: them. For example, purchasers of business products say a “big catalog” is the single most important item they • A wide range of sales generating materials. These want to see from a prospective supplier — so United’s include print and online catalogs that are informative, General Line Catalog is a competitive advantage. Last easy to use — and feature the reseller’s name. Promotional year, thousands of resellers turned to United for a better flyers remind end-consumers that resellers are price- understanding of end-consumers and how to reach them. competitive on commodity items. • Premier Performance Shows. In 2001, resellers and • Customized packaging programs. This includes our end-consumers attended six shows across the country, Wrap and Label Program. United packages the items sponsored by United, to preview new products and ordered by each end-consumer, attaches an address label receive in-depth product information from approximately with the reseller’s name, then delivers the order to the 60 manufacturers. These shows are more than informa- reseller or facilitates delivery to the end-consumer at the tive. They also help strengthen relationships between reseller’s direction. Resellers value this program because the thousands of dealers and end-consumers who attend. it means they do not need to break down bulk shipments from manufacturers and repackage them for end-consumers. As a result, they can reduce handling delays, lower their Pursuing costs and increase their financial returns. Operational Excellence • Customized delivery programs. Our relationships Over 90% of the orders we fill each day represent orders that with a network of small package carriers and other serv- our resellers received earlier that same day. We truly provide ice providers allow us to offer the Nationwide Express just-in-time delivery to resellers so they can offer same- or Delivery Program. Products ordered through United next-day delivery to their customers. We essentially serve as reach 98% of business consumers in the U.S. on a same- a warehouse for our resellers — for many of them we are their day, next-day or second-day basis. This means that local, warehouse. Our services are critical to resellers, so we continue regional and virtual resellers can serve end-consumers to look for ways to strengthen them. Here are some of the across the country. enhancements made in 2001: • Customer training programs. United provides profes- • We now pick orders based on the times when trucks sional, affordable training on business-related subjects must leave to deliver them. This improves our ability that otherwise would not be available to many resellers. to meet shipping cut-off times for our own truck fleet In 2001, this translated into 90 courses attended by and third-party carriers. 1,200 resellers — from “Exceptional Customer Service” • Packing lists now are laser-printed with a shipping to “Growing Market Share and Margin.” label and the picking document on the same form. We also provide a peel-off label on the packing list to make the return process easier. In addition, resellers and end-consumers have the option of choosing a separate packing list for each box of the order rather than a single packing list for the entire order. 10 United Stationers Annual Report
  • 13. • We now have a carton-sizing standardization program. • Information Week Magazine ranked United 104th in It uses a formula that looks at the “cube” requirement of its “Information Week 500,” which tracks the largest an order to ensure it is put in the appropriate-sized box for and most innovative IT organizations based in the U.S. shipping. This leads to improved handling, reduced shipping Companies included in this annual listing had at least damage and lower packaging costs. $1 billion in annual revenue and exhibited “a pattern of technological, procedural, and organizational innovation.” • United also placed #21 in Computerworld Magazine’s “100 Recognition of Best Places to Work in IT.” The judging criteria included Our Strengths company benefits, training and development, average salary In a year when we could not post strong near-term financial increases, and staff advancement and turnover. results, it was particularly gratifying to receive recognition for the approach we take to our business. • United was again listed as a “Fortune 500” company. • In 2002, Fortune Magazine included United as one of “America’s Most Admired Companies.” The survey identified the 10 largest companies (by revenue), in 58 industries. Then 10,000 executives, directors and securities analysts rated the companies on eight criteria. United ranked #6 in the “Stores and Distributors” category, under “Wholesalers: Electronics and Office Equipment.” • United was named to Forbes Magazine’s “Platinum 400” list of best performing companies. The list includes “the best big companies in America”— those “that are better than their competitors, with outstanding profitability and growth.” The companies are selected based on 23 broad industry sectors. United posted the highest earnings-per-share growth rate in the “Business Supplies” sector. Delivering Fulfillment Excellence Products offered by United Stationers and Azerty now are available through one integrated system. This means one order, one shipment and one invoice from United, the leading wholesale distributor of business products for office supplies and computer consumables. 11 United Stationers Annual Report
  • 14. Working for a Brighter Future Returning to • We are driving down our cost base, so we can reach Record Results acceptable profitability at a lower level of revenue. We are committed to returning to our long-term growth • We have reorganized our operation to better share and goals: 6-9% annual revenue expansion, 12-15% increases implement best practices and capitalize on opportunities in earnings, a 300 basis point improvement in return on that come our way. invested capital, and free cash flow in excess of $100 million. • We are strengthening our leadership team and are We face some significant challenges in reaching these goals: providing them with the tools needed to succeed. • Economists currently expect a slower first half of the • We are using incentives to reward employees for achiev- year, followed by a stronger second half— of course, ing cost reductions and working capital efficiency goals. they did forecast the same scenario a year ago. • We have proven that United can continue to offer • We also will have to overcome some macroeconomic fulfillment excellence to its customers — in tough times and industry-related trends. Economic conditions and as well as good. widespread layoffs mean there is a smaller employee population in need of our products, as well as budget On behalf of the board of directors and management team, constraints on the amount of dollars spent per employee I want to extend my thanks to all of our associates for their on office supplies. In addition, there is an excess supply hard work during this difficult year. I also want to thank the of Grade “A” furniture due to the shareholders who supported us in 2001 and renew our pledge demise of dot.com and other companies. to create even more value for them in the coming years. As a result, the office products industry is expected to experience only nominal growth during this year. What makes us expect that United can do better than the market? The first reason is history: we have grown faster than the market for most of the last 20 Randall W. Larrimore years. Secondly, we believe the steps we President and Chief Executive Officer are taking should position us well for the changing industry conditions. March 15, 2002 “United Stationers has a tradition of meeting challenges with change, determination and just as importantly — enthusiasm. This has made us the industry leader and we believe will create Randall W. Larrimore opportunities for continued growth and profitability.” 12 United Stationers Annual Report
  • 15. Management’s Discussion and Analysis of Financial Condition and Results of Operations United Stationers Inc. and Subsidiaries The following Management’s Discussion and Analysis and a national distribution network to more than 20,000 resellers, other parts of this Annual Report contain “forward-looking who in turn sell directly to end-users. These products are statements,” within the meaning of Section 27A of the Securities distributed through a computer-based network of 36 USSC Act and Section 21E of the Exchange Act, that are based on regional distribution centers, 24 dedicated Lagasse, Inc. current management expectations, forecasts and assumptions. (“Lagasse”) distribution centers that serve the janitorial and These include, without limitation, statements using forward- sanitation industry, four Azerty Incorporated (“Azerty”) looking terminology such as “may,” “will,” “future,” “expect,” distribution centers that serve the U.S. and two in Mexico that “intend,” “anticipate,” “believe,” “estimate,” “project,” “forecast” serve computer supply resellers, two distribution centers that serve or “continue” or the negative thereof or other variations thereon the Canadian marketplace and a mega-center that supports or comparable terminology. All statements other than statements USSC, Azerty, Lagasse, and The Order People. During the of historical fact included in this Annual Report, including those second quarter of 2002, Azerty’s computer systems and product regarding the Company’s financial position, business strategy, offering will be integrated into USSC and the Company intends projected costs and plans and objectives of management for future to close the four Azerty distribution centers. Following the operations are forward-looking statements. Certain risks and integration the Company intends to continue to market uncertainties could cause actual results to differ materially from computer consumables using the Azerty name. those in such forward-looking statements. Such risks and During 2000, the Company established The Order People uncertainties include, but are not limited to, uncertainties (“TOP”) to operate as its third-party fulfillment provider for relating to: the Company’s restructuring plan, including its ability product categories beyond office products. To become a full to realize expected cost savings from facility rationalization, service provider, the Company acquired CallCenter Services, Inc. systems integration and other initiatives and the timing of those which was a customer relationship management outsourcing savings; the Company’s ability to streamline its organization and service company with inbound call centers in Wilkes-Barre, operation, successfully integrate Azerty and implement general Pennsylvania, and Salisbury, Maryland. In 2001, the Company did cost-reduction initiatives; the Company’s reliance on key not achieve the estimated revenue to support TOP’s cost structure. suppliers and the impact of fluctuations in their pricing and As a result, the Company began to significantly reduce the variability in vendor allowances based on sales volume; the operating expenses of TOP. Therefore, in November 2001, the Company’s ability to anticipate and respond to changes in end- Wilkes-Barre portion of CallCenter Services, Inc. was sold to user demand; competitive activity and the resulting impact on Customer Satisfaction First and the Salisbury portion was sold to pricing and product offerings and mix; reliance on key 1-800-BARNONE, a Financial Corporation, Inc., in January 2002. management personnel; and economic conditions and changes However, the Company remains committed to building the third- affecting the business products industry and the general economic party fulfillment business and to providing outstanding customer conditions. A description of these factors, as well as other service to current and future clients. To accomplish this, TOP’s factors, which could affect the Company’s business, can be found clients will be serviced utilizing the resources within the Company’s in certain filings by the Company with the Securities and Supply Division. TOP will use the Memphis distribution center as Exchange Commission. its lead distribution point with USSC’s facilities providing support Readers are cautioned not to place undue reliance on forward- where necessary. looking statements contained in this Annual Report. The The Company is focused on leveraging its infrastructure across Company undertakes no obligation to release the results of any all business units to lower its operating expenses and increase cash updates or revisions to these forward-looking statements that may flow. In addition, the Company’s entire distribution network is be made to reflect any future events or circumstances. continuously under review to improve productivity and efficiency, The following discussion should be read in conjunction with including the ability to reduce working capital requirements. the Company’s Consolidated Financial Statements and related Restructuring Charge. In the third quarter of 2001, the notes appearing elsewhere in this Annual Report. Company’s Board of Directors approved a restructuring plan that includes: Overview • An organizational restructuring aimed at eliminating certain United Stationers Inc. through its wholly owned operating layers of management to achieve a lower cost structure and subsidiary United Stationers Supply Co. (“USSC”), and USSC’s provide better customer service; subsidiaries (collectively, the “Company”) is the largest general • The consolidation of certain distribution facilities and call line business products wholesaler in the United States, with 2001 center operations; net sales of $3.9 billion. The Company sells its products through 13 United Stationers Annual Report
  • 16. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) • An information technology platform consolidation; include training, stay bonuses, consulting fees, costs to relocate inventory, and accelerated depreciation. Implementation costs • Divestiture of The Order People’s call center operations and incurred through December 31, 2001, were $2.2 million. certain other assets; and As of December 31, 2001, the Company completed the closure • A significant reduction to The Order People’s cost structure. of three distribution centers and one USSC call center, The restructuring plan calls for a workforce reduction of 1,375. eliminated one administrative office, divested a portion of the call These positions are related primarily to The Order People and center operations dedicated to serving The Order People’s clients call center operations. The associate groups that will be affected and began the implementation of its organizational restructuring by the restructuring plan include management personnel, inside and workforce reduction. As a result, the Company reduced its and outside sales representatives, call center associates, workforce by 580 associates through its voluntary and involuntary distribution workers, and hourly administrative staff. The termination programs. The remaining 795 associates will be restructuring plan is designed to have all initiatives completed terminated throughout the implementation period of within approximately one year from the commitment date. approximately one year. During the third quarter 2001, the Company recorded a pre- Common Stock Repurchase. On October 23, 2000, the tax restructuring charge of $47.6 million, or $0.85 per share (on Company’s Board of Directors authorized the repurchase of up to an after-tax basis). This charge includes a pre-tax cash charge of $50.0 million of its common stock. Under this authorization, the $31.7 million and a $15.9 million non-cash charge. The major Company purchased 467,500 and 857,100 shares of its common components of the restructuring charge and the remaining accrual stock at a cost of approximately $12.4 million and $22.4 million, balance as of December 31, 2001, are as follows: during 2001 and 2000, respectively. Acquired shares are included Employment in the issued shares of the Company, but are not included in Non-Cash Termination average shares outstanding when calculating earnings per share Asset and Accrued Total Write- Severance Exit Restructuring data. During 2001 and 2000, the Company reissued 621,453 and (dollars in thousands) Downs Costs Costs Charge 309,674 shares of treasury stock, respectively, to fulfill its Restructuring Charge . . . . . . . $15,925 $19,189 $12,489 $47,603 obligations under its management equity plan. Amounts Utilized – as of December 31, 2001 . . . . . . . (15,925) (3,023) (1,226) (20,174) Critical Accounting Policies Accrued Restructuring Costs – The Company’s accounting policies are more fully described in as of December 31, 2001 . . . . $ — $16,166 $11,263 $27,429 Note 2 to the Consolidated Financial Statements. As disclosed The non-cash asset write-downs of $15.9 million were primarily in Note 2, the preparation of financial statements in conformity the result of facility closures and business divestitures, including with generally accepted accounting principles requires $8.8 million related to property, plant and equipment and $7.1 management to make estimates and assumptions about future million related to goodwill. Asset write-downs are based on events that affect the amounts reported in the financial management’s estimate of net realizable value. statements and accompanying notes. Future events and their Employment termination and severance costs are related to effects cannot be determined with absolute certainty. Therefore, voluntary and involuntary terminations and reflect cash the determination of estimates requires the exercise of judgment. termination payments to be paid to associates affected by the Actual results inevitably will differ from those estimates, and such restructuring plan. Healthcare benefits and career transition differences may be material to the financial statements. The most services are included in the termination and severance costs. significant accounting estimates inherent in the preparation of The restructuring plan allows associates to continue their participation in the Company’s healthcare plan during the term the Company’s financial statements include the following: of their severance. • Revenue Recognition Accrued exit costs are primarily contractual lease obligations Revenue is recognized when a service is rendered or when a that existed prior to September 30, 2001, for buildings that the product is shipped and title has transferred to the customer. Company has closed or will be closing in the near future. Implementation costs will be recognized as incurred and consist • Valuation of Accounts Receivable of incremental costs directly related to the realization of the The Company makes judgments as to the collectibility of restructuring plan. The Company estimates that the total cost accounts receivable based on historical trends and future of implementation will be approximately $6.7 million incurred expectations. Management estimates an allowance for sales ratably through approximately September 30, 2002. These costs returns and doubtful accounts, which represents the collectibility 14 United Stationers Annual Report
  • 17. United Stationers Inc. and Subsidiaries of trade accounts receivable. These allowances adjust gross trade Results for the Years Ended accounts receivable down to net realizable value. To determine December 31, 2001, 2000, and 1999 the allowance for sales returns, management uses historical trends The following table presents the Consolidated Statements of to estimate future period product returns. To determine the Income as a percentage of net sales: allowance for doubtful accounts, management reviews specific customers and the Company’s accounts receivable aging. 2001 2000 1999 100.0% Net sales . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% • Customer Rebates 84.2 Cost of goods sold . . . . . . . . . . . . . . . . . . 83.7 83.6 Customer rebates and discounts are common practice in the 15.8 Gross margin . . . . . . . . . . . . . . . . . . . . . . 16.3 16.4 business products industry. Customer rebates consist of volume Operating expenses: rebates, sales growth incentives, participation in promotions and Warehouse, marketing and 11.5 administrative expenses . . . . . . . . . . . . 11.2 11.1 other miscellaneous discount programs. These rebates are 1.2 Restructuring charge . . . . . . . . . . . . . . . — — recorded as a reduction to gross sales. Customer rebates are 12.7 Total operating expenses . . . . . . . . . . . . . 11.2 11.1 estimated based on customer participation and are recorded as 3.1 Income from operations . . . . . . . . . . . . . . 5.1 5.3 revenue is recognized. These estimates are adjusted, if necessary, (0.7) Interest expense . . . . . . . . . . . . . . . . . . . . (0.8) (0.8) as new information becomes available. 0.1 Interest income. . . . . . . . . . . . . . . . . . . . . 0.1 — (0.1) Other expense, net . . . . . . . . . . . . . . . . . (0.3) (0.3) • Manufacturers’ Allowances Manufacturers’ allowances and promotional incentives are Income before income taxes and 2.4 extraordinary item . . . . . . . . . . . . . . . . . 4.1 4.2 common practice in the business products industry and contribute 0.9 Income taxes . . . . . . . . . . . . . . . . . . . . . . 1.7 1.8 significantly to the Company’s gross margin. Manufacturers’ 1.5 Income before extraordinary item . . . . . . 2.4 2.4 allowances are recorded at the time of sale based upon the Extraordinary item – loss on early Company’s inventory purchase volume estimates. Promotional — retirement of debt, net of tax benefit . . . (0.1) — incentives are based on vendor participation in the Company’s 1.5% Net income . . . . . . . . . . . . . . . . . . . . . . . 2.3% 2.4% various advertising programs. These programs are recorded as a reduction to cost of goods sold to reflect the net inventory Comparison of Results for the Years purchase cost and the net advertising cost. Ended December 31, 2001 and 2000 • Inventory Net Sales. Net sales were flat at $3.9 billion for 2001 and 2000. Inventories constituting approximately 77% of total The lower sales in the categories of traditional office products and inventories at December 31, 2001, have been valued under the furniture were offset by growth in janitorial and sanitation products last-in, first-out (“LIFO”) method. The remaining inventories are and computer consumables, both of which were supported by valued under the first-in, first-out (“FIFO”) method. Inventory acquisitions in 2001 and 2000. There were several factors that valued under the FIFO and LIFO accounting methods is recorded contributed to flat sales. First, sales volume to Corporate Express Inc. and US Office Products (“USOP”) declined by approximately at the lower of cost or market. Inventory reserves are recorded for $100 million. This primarily is due to the integration of USOP shrinkage, obsolete, damaged, defective, and slow-moving into the Corporate Express business model, which is designed to inventory. These reserve estimates are determined using buy more products directly from the manufacturer. Second, at the historical trends and are adjusted, if necessary, as new information end of July 2001, the Company completed the sale of the Positive becomes available. ID business unit. This sale reduced sales growth for the year by Various assumptions and other factors underlie the approximately 1%. Finally, a worsening macroeconomic determination of significant accounting estimates. The process of environment negatively impacted all product categories. determining significant estimates is fact specific and takes into Office furniture sales declined by mid-single-digits, compared account factors such as historical experience, current and with the prior year. These results continue to reflect slowing expected economic conditions, product mix, and in some cases, consumer demand and weak macroeconomic conditions. While actuarial techniques. The Company periodically reevaluates these the current economic environment presents challenges, the significant factors and makes adjustments where facts and Company sees an opportunity for sales growth as dealers shift their circumstances dictate. Historically, actual results have not inventory investment to wholesalers to limit their working capital requirements. Furthermore, in a weak economy consumers tend to significantly deviated from those determined using the estimates shift their demand toward the mid-priced furniture lines offered by described above. 15 United Stationers Annual Report
  • 18. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) the Company. However, the Company is challenged by the $202.5 million, or 5.1% of net sales in 2000. Excluding the excess supply of premium grade furniture available in the investments in The Order People and the restructuring charge, marketplace due to the failure of Internet and other companies. income from operations decreased 9.1% to $191.4 million or Typical purchasers of mid-grade furniture are purchasing used 4.9% of net sales in 2001, compared with an increase of 15.5% to premium grade furniture at extremely attractive prices. $210.5 million or 5.4% of net sales in 2000. The janitorial and sanitation product category, primarily Interest Expense. Interest expense for 2001 was $25.9 million, distributed through the Lagasse operating unit, achieved a 31% or 0.7% of net sales, compared with $30.2 million, or 0.8% of net growth rate, compared with the prior year. This growth primarily sales, in 2000. This reduction reflected the interest expense reflected Lagasse’s January 5, 2001, acquisition of Peerless Paper savings related to the redemption of the 12.75% Notes (as Mills, Inc. (“Peerless”) as well as a growth rate in the high single- defined) as well as lower interest rates on variable rate debt. digits with Lagasse’s existing customer base. Peerless was a Interest Income. Interest income for 2001 was $2.1 million, or wholesale distributor of janitorial/sanitation, paper, and food 0.1% of net sales, compared with $2.9 million, or 0.1% of net service products. This acquisition enabled the Company to sales, in 2000. expand the Lagasse product line, enhance scale and infrastructure, Other Expense. Other expense for 2001 was $4.6 million, or and add experienced management to the Lagasse operation. 0.1% of net sales, compared with $11.2 million, or 0.3% of net Sales of traditional office products experienced a decline sales in 2000. This expense primarily represented the costs of 7% versus the prior year. Uncertainty surrounding the associated with the sale of certain trade accounts receivable economy and workforce reductions slowed consumption of office through the Receivables Securitization Program (as defined) products within the commercial sector, particularly in medium-to- partially offset by a gain on the sale of fixed assets of $2.4 million. large companies. Income Taxes. Income tax expense as a percent of net sales Gross Margin. Gross margin in 2001 was $619.8 million, or was 0.9% in 2001 and 1.7% in 2000. The effective tax rate 15.8% of net sales, compared with $643.8 million, or 16.3% of declined to 39.2% in 2001 from 39.9% in 2000. This was due to net sales, in 2000. The rate decline is due to lower pricing margin a change in the mix of pre-tax earnings between states. due to a shift in product mix toward computer consumables, Net Income. Net income for 2001 decreased 38.2% to $57.0 partially offset by incremental vendor allowances, lower inventory million, or 1.5% of net sales, from $92.2 million, or 2.3% of net shrinkage and lower distressed inventory losses. Approximately sales, in 2000. Excluding the restructuring charge, net income 55% of the Company’s vendor rebates are variable and are directly for 2001 was $85.9 million, compared with $98.6 million in 2000, linked to achieving certain purchase volume hurdles. During excluding the extraordinary item. 2001, inventory purchase levels declined significantly as Fourth Quarter Results. Certain expense and cost of sale evidenced by the Company’s lower working capital requirements. estimates are recorded throughout the year, including inventory Manufacturers’ allowances as a percentage of net sales increased shrinkage and obsolescence, required LIFO reserve, by approximately 0.5% resulting from a change in product mix manufacturers’ allowances, advertising costs and various expense and the impact of new vendor agreements. items. During the fourth quarter of 2001, the Company Operating Expenses. Operating expenses for 2001 were up recorded a favorable net income adjustment of approximately 12.8% to $497.7 million and were 12.7% of net sales, compared $5.8 million related to the refinement of estimates recorded in with $441.3 million, or 11.2% of net sales, in the prior year. The the prior three quarters. increase in operating expenses was partially due to the $47.6 million restructuring charge (see Note 3 to the Consolidated Comparison of Results for the Years Financial Statements), which resulted in a 1.2% increase to the Ended December 31, 2000 and 1999 operating expense ratio. The increase was also a result of Net Sales. Net sales increased 14.6% to $3.9 billion for 2000, investments in The Order People, the Company’s third-party compared with $3.4 billion for 1999. This increase reflected fulfillment business. Operating expenses related to TOP for 2001, growth in the Company’s core business, incremental sales from excluding the TOP portion of the restructuring charge, and 2000, acquisitions completed in 2000, and increases in freight revenue. totaled $18.2 million and $9.0 million, respectively, resulting in a The Company’s sales growth within its core business was broad 0.5% and a 0.2% increase in the operating expense ratio. based, with strength in all geographic regions, across all product Income from Operations. Income from operations decreased categories and customer channels. Specifically, the janitorial 39.7% to $122.1 million, or 3.1% of net sales, compared with 16 United Stationers Annual Report
  • 19. United Stationers Inc. and Subsidiaries and sanitation products, computer consumables and office Income Taxes. Income tax expense as a percent of net sales was furniture categories experienced strong sales growth. Sales 1.7% in 2000 compared to 1.8% in 1999. The effective tax rate growth for the year ended December 31, 2000, excluding the declined to 39.9% in 2000 from 41.9% in 1999. This was due to a acquisitions of Azerty Canada and CallCenter Services, Inc., change in the mix of pre-tax earnings between states and higher increased 12.2%. pre-tax earnings with relatively constant nondeductible expenses, Gross Margin. Gross margin in 2000 reached $643.8 million, such as goodwill. up 14.1% from last year and was 16.3% of net sales, compared Net Income. Net income for 2000 increased 10.6% to $92.2 with $564.2 million, or 16.4% of net sales, in 1999. The 0.1% million, or 2.3% of net sales, from $83.4 million, or 2.4% of net rate decline was due to lower pricing margin partially offset by sales, in 1999. Net income for 2000, excluding the impact of the incremental vendor allowances earned as a result of higher extraordinary item, increased 18.2% to $98.6 million, or 2.4% of sales volume. net sales. Operating Expenses. Operating expenses for 2000 were up Fourth Quarter Results. Certain expense and cost of sale 15.5% to $441.3 million and were 11.2% of net sales, compared estimates are recorded throughout the year, including inventory with $382.0 million, or 11.1% of net sales, in the prior year. The shrinkage and obsolescence, required LIFO reserve, manufacturers’ increase in the operating expense rate was attributable to allowances, advertising costs and various expense items. During investments in The Order People, the Company’s third-party the fourth quarter of 2000, the Company recorded a favorable net fulfillment business. Operating expenses for 2000 related to The income adjustment of approximately $5.9 million related to the Order People totaled $9.0 million resulting in a 0.2% increase in refinement of estimates recorded in the prior three quarters. the operating expense ratio. Liquidity and Capital Resources Income from Operations. Income from operations increased United is a holding company and, as a result, its primary source 11.1% to $202.5 million, or 5.1% of net sales, compared with of funds is cash generated from operating activities of its operating $182.2 million, or 5.3% of net sales, in 1999. Excluding the subsidiary, USSC, and bank borrowings by USSC. The Credit investments in The Order People, income from operations Agreement and the indentures governing the Notes contain increased 15.5% to $210.5 million or 5.4% of net sales. restrictions on the ability of USSC to transfer cash to United. Interest Expense. Interest expense for 2000 was $30.2 million, The Company’s outstanding debt and liquidity sources(1) or 0.8% of net sales, compared with $30.0 million, or 0.8% of net consisted of the following amounts (dollars in thousands): sales, in 1999. This reduction reflected the Company’s continued leveraging of interest costs against higher sales, and the interest As of December 31, expense savings related to the redemption of the 12.75% Notes 2001 2000 (as defined) partially offset by slightly higher interest rates on Revolver – $250.0 million less letter of $ — $ 98,000 credit liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . variable rate debt. Tranche A term loan, due in installments Interest Income. Interest income for 2000 was $2.9 million, 32,331 until March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . 44,325 or 0.1% of net sales, compared with $0.8 million in 1999. This Tranche A-1 term loan due in installments until increase was primarily due to an increase in interest earned on 109,375 June 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,500 notes receivable. 8.375% Senior Subordinated Notes, due 100,000 April 15, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Other Expense. Other expense for 2000 reached $11.2 Industrial development bonds, at market interest million, or 0.3% of net sales, compared with $9.4 million, or 0.3% 14,300 rates, maturing at various dates through 2011 . . . . . . 14,300 of net sales, in 1999. This expense primarily represents the costs Industrial development bonds, at 66% to 78% of associated with the sale of certain trade accounts receivable 15,500 prime, maturing at various dates through 2004 . . . . 15,500 199 Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 242 through the Receivables Securitization Program (as defined). 271,705 Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,867 These costs vary on a monthly basis and generally are related to 125,000 Receivables Securitization (liquidity sources)(1) . . . . . 150,000 certain short-term interest rates. $396,705 $559,867 Total outstanding debt and liquidity sources(1) . . . . . . Income Before Income Taxes and Extraordinary Item. Income (1) See discussion under Receivables Securitization Program. before income taxes and extraordinary item was $164.1 million, or 4.1% of net sales, compared with $143.6 million, or 4.2% of net sales, in 1999. 17 United Stationers Annual Report
  • 20. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Disclosures about Contractual Obligations As of December 31, 2001, principal amounts borrowed and outstanding under the Term Loan Facilities consisted of a $32.3 and Commercial Commitments million Tranche A Term Loan Facility and a $109.4 million The following table aggregates all contractual commitments Tranche A-1 Term Loan Facility. Amounts outstanding under the and commercial obligations that affect financial condition and Tranche A Term Loan Facility are to be repaid in nine quarterly liquidity as of December 31, 2001. installments ranging from $3.1 million at March 31, 2002, to $3.7 Dollars in thousands Payment due by period million at March 31, 2004. Amounts outstanding under the Less than 1–3 4–5 After 5 Tranche A-1 Term Loan Facility are to be repaid in 14 quarterly Contractual obligations 1 year years years years Total installments of $7.8 million. Long-term debt . . . . . . . . . . . . $52,970 $111,935 $ — $106,800 $271,705 The Revolving Credit Facility is limited to $250.0 million, Operating leases . . . 43,887 95,018 36,101 36,867 211,873 less the aggregate amount of letter of credit liabilities under the Total contractual cash facility, and contains a provision for swingline loans in an obligations . . . . . . $96,857 $206,953 $36,101 $143,667 $483,578 aggregate amount up to $25.0 million. The Revolving Credit Facility matures on March 31, 2004. The Company had no In addition, the Company obtains up to $160.0 million of borrowings outstanding under the Revolving Credit Facility at liquidity from the Company’s Receivables Securitization Program December 31, 2001. As of December 31, 2001, the Company (as defined). At December 31, 2001, the Company had liquidity had $215.8 million available under its Revolving Credit Facility of $125.0 million from the sale of accounts receivable under this after deducting certain outstanding letter-of-credit liabilities of program. Continued sales of receivables under this program $34.2 million. depend upon stand-by liquidity funding that is subject to annual As collateral security for the obligations of USSC and security renewal. If the stand-by liquidity funding were unavailable, no interests, liens have been placed upon accounts receivable and new sale of accounts receivable would occur and collections related instruments, inventory, equipment, contract rights, against accounts receivable would largely be dedicated to reducing intellectual property and all other tangible and intangible the balance of accounts receivable sold under the Receivables personal property (including proceeds) and fixtures and certain Securitization Program and as a result debt may increase or real property of USSC and its domestic subsidiaries, other than liquid assets may decrease. accounts receivables sold in connection with the Receivables Credit Agreement Securitization Program. Also securing these obligations are first In order to restate and further amend the Second Amended priority pledges of all of the outstanding stock of USSC and of its and Restated Credit Agreement, dated April 3, 1998 (the “Prior domestic direct and indirect subsidiaries, including Lagasse and Credit Agreement”), USSC, as issuer, entered into the Third Azerty but excluding The Order People, as well as certain of the Amended and Restated Revolving Credit Agreement, dated stock of identified foreign direct and indirect subsidiaries of USSC June 29, 2000, with various lenders and the administrative agent (excluding USS Receivables Company, Ltd.). named therein (the “Credit Agreement”). The Credit Agreement, The loans outstanding under the Term Loan Facilities and the among other things, provides a facility (“Tranche A Term Loan Revolving Credit Facility bear interest as determined within a Facility”) for the continuation of the term loans outstanding as of pricing matrix. The interest rate is based on the ratio of total debt its effective date under the Prior Credit Agreement, an additional to earnings before interest, taxes, depreciation, and amortization $150.0 million aggregate principal amount, five-year term loan (“EBITDA”). The Tranche A Facility and Revolving Credit facility (the “Tranche A-1 Term Loan Facility” and, together with Facility bear interest at the prime rate plus 0% to 1.00%, or, at the Tranche A Term Loan Facility, the “Term Loan Facilities”), the Company’s option, the London Interbank Offered Rate and a revolving credit facility of up to $250.0 million aggregate (“LIBOR”) plus 1.25% to 2.25%. The Tranche A-1 Facility principal amount (the “Revolving Credit Facility”). Availability bears interest at the prime rate plus 0.25% to 1.25%, or, at the under the Revolving Credit Facility is reduced by the amount of Company’s option, LIBOR plus 1.50% to 2.50%. letters of credit outstanding under the facility. The Credit Agreement contains representations and As of December 31, 2001, the available credit under the Term warranties, affirmative and negative covenants, and events of Loan Facilities included $141.7 million of term loan borrowings. default customary for financing of this type. At December 31, In addition, the Company has $100.0 million of 8.375% Senior 2001, the Company was in compliance with all covenants Subordinated Notes due 2008, and $29.8 million of industrial contained in the Credit Agreement. revenue bonds. 18 United Stationers Annual Report
  • 21. United Stationers Inc. and Subsidiaries The right of United to participate in any distribution of 8.375% Senior Subordinated Notes earnings or assets of USSC is subject to the prior claims of the The 8.375% Senior Subordinated Notes (“8.375% Notes”) creditors of USSC. In addition, the Credit Agreement contains were issued on April 15, 1998, pursuant to the 8.375% Notes certain restrictive covenants, including covenants that restrict or Indenture. As of December 31, 2001, the aggregate outstanding prohibit USSC’s ability to pay cash dividends and make other principal amount of 8.375% Notes was $100.0 million. The distributions to United. 8.375% Notes are unsecured senior subordinated obligations of The Company is exposed to market risk for changes in interest USSC, and payment of the 8.375% Notes is fully and rates. The Company may enter into interest rate protection unconditionally guaranteed by the Company and USSC’s agreements, including collar agreements, to reduce the impact of domestic “restricted” subsidiaries that incur indebtedness (as fluctuations in interest rates on a portion of its variable rate debt. defined in the 8.375% Notes Indenture) on a senior subordinated These agreements generally require the Company to pay to or basis. The Notes are redeemable on April 15, 2003, in whole or entitle the Company to receive from the other party the amount, in part, at a redemption price of 104.188% (percentage of if any, by which the Company’s interest payments fluctuate principal amount). The 8.375% Notes mature on April 15, 2008, beyond the rates specified in the agreements. The Company is and bear interest at the rate of 8.375% per annum, payable semi- subject to the credit risk that the other party may fail to perform annually on April 15 and October 15 of each year. under such agreements. The Company’s cost for these agreements was amortized to interest expense over the term of the Receivables Securitization Program agreements, and the unamortized cost was included in other As part of an overall financing strategy, the Company utilizes a assets. Any payments received or made as a result of the standard third-party receivables securitization program to provide agreements were recorded as an addition to or a reduction from low-cost funding. Under this $163.0 million program, the interest expense. For the year ended December 31, 1999, the Company sells its eligible accounts receivable (except for certain Company recorded $0.2 million to interest expense resulting from excluded accounts receivable, which initially includes all LIBOR rate fluctuations below the floor rate specified in the accounts receivable from Azerty and Lagasse) to the Receivables collar agreements. The Company’s interest rate collar agreements on $200.0 million of borrowings at LIBOR rates between 5.2% Company, a wholly owned offshore, bankruptcy-remote special and 8.0% expired on October 29, 1999. As of December 31, purpose limited liability company. This company in turn 2001, the Company has not entered into any new interest rate ultimately transfers the eligible accounts receivable to a third- collar agreements. party, multi-seller asset-backed commercial paper program, Management believes that the Company’s cash on hand, existing solely for the purpose of issuing commercial paper anticipated funds generated from operations and borrowings rated A-1/P-1 or higher. The sale of trade accounts receivable available under the Credit Agreement will be sufficient to meet includes not only those eligible accounts receivable that existed the short-term (fewer than 12 months) and long-term operating on the closing date of the Receivables Securitization Program, and capital needs of the Company, as well as to service its debt in but also eligible accounts receivable created thereafter. Costs accordance with its terms. There is, however, no assurance that related to this facility vary on a monthly basis and generally are this will be accomplished. related to certain short-term interest rates. These costs are 12.75% Senior Subordinated Notes included in the Consolidated Statements of Income under the The 12.75% Senior Subordinated Notes (“12.75% Notes”) caption Other Expense. were originally issued on May 3, 1995, pursuant to the 12.75% Affiliates of PNC Bank and JP Morgan Chase act as funding Notes Indenture. On May 2, 2000, the Company redeemed the agents. The funding agents, together with other commercial remaining $100.0 million of its 12.75% Senior Subordinated banks rated at least A-1/P-1, provide standby liquidity funding to Notes (the “12.75% Notes”). The 12.75% Notes were redeemed support the sale of the accounts receivable by the Receivables at the redemption price of 106.375% of the principal amount plus Company under 364-day liquidity facilities. The Receivables accrued interest. As a result, the Company recognized an Company retains an interest in the eligible receivables transferred extraordinary loss on the early retirement of debt of to the third party. As a result of the Receivables Securitization approximately $10.7 million ($6.5 million net of tax benefit of Program, the balance sheet assets of the Company as of $4.2 million). This charge included the write-off of approximately December 31, 2001 and 2000 exclude $125.0 million and $4.3 million ($2.6 million net of tax benefit of $1.7 million) of $150.0 million, respectively, of accounts receivable sold to the capitalized costs. The redemption was funded through the Receivables Company. Company’s Revolving Credit Facility. 19 United Stationers Annual Report
  • 22. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Cash Flow Information financing activities for the year ended December 31, 2000, was $45.7 million, including $150.0 million of Term Loan borrowings The statements of cash flows for the Company for the periods and $45.0 million of net borrowings under the Revolving Credit indicated are summarized below: Facility, partially offset by $128.5 million of Term Loan Years Ended December 31, retirements and principal payments and $22.4 million related to 2001 (dollars in thousands) 2000 1999 the acquisition of treasury stock. Net cash used in financing Net cash provided by $191,140 operating activities . . . . . . . . . . . . . . $ 38,670 $ 53,581 activities for the year ended December 31, 1999, was $27.6 Net cash used in million, including $49.6 million of common stock repurchases, (46,327) investing activities . . . . . . . . . . . . . . . (83,534) (26,011) partially offset by net borrowings of $21.5 million. Net cash (used in) provided by (135,783) financing activities . . . . . . . . . . . . . . 45,655 (27,615) Seasonality Net cash provided by operating activities for the year ended The Company’s sales generally are relatively steady throughout December 31, 2001, reached $191.1 million, including a $105.7 the year. However, sales vary to the extent of seasonal buying million decline in inventory, $57.0 million in net income, $39.9 patterns of consumers of office products. In particular, the million in depreciation and amortization, a $23.4 million decline Company’s sales usually are higher than average during January, in accounts receivable, a $20.0 million increase in accrued when many businesses begin operating under new annual budgets. liabilities, and a $9.4 million increase in other liabilities partially The Company experiences seasonality in its working capital offset by a $52.6 million decline in accounts payable and a $12.8 needs, with highest requirements in December through February, million increase in other assets. Net cash provided by operating reflecting a build-up in inventory prior to and during the peak activities was $38.7 million for the year ended December 31, 2000. sales period. The Company believes that its current availability This was primarily due to net income of $92.2 million, an increase under the Revolving Credit Facility is sufficient to satisfy the in accounts payable of $46.2 million, and $32.9 million of seasonal working capital needs for the foreseeable future. depreciation and amortization, partially offset by a $73.7 million increase in inventory, a $49.5 million increase in accounts Inflation/Deflation and Changing Prices receivable and a $14.9 million increase in other assets. Net cash The Company maintains substantial inventories to provided by operating activities for the year ended December 31, accommodate the prompt service and delivery requirements of its 1999, was $53.6 million. This was primarily driven by net income customers. Accordingly, the Company purchases its products on a of $83.4 million and depreciation and amortization of $31.3 regular basis in an effort to maintain its inventory at levels that it million, partially offset by a $62.0 million increase in net believes are sufficient to satisfy the anticipated needs of its operating assets and liabilities. customers, based upon historical buying practices and market Net cash used in investing activities for the year ended conditions. Although the Company historically has been able to December 31, 2001, was $46.3 million, which includes $32.7 pass through manufacturers’ price increases to its customers on a million for the acquisition of Peerless Paper Mills, Inc., and $32.5 timely basis, competitive conditions will influence how much of million for capital expenditures, partially offset by $14.9 million of future price increases can be passed on to the Company’s proceeds from the sale of Positive ID and $3.9 million in proceeds customers. Conversely, when manufacturers’ prices decline, lower from the disposition of property, plant and equipment. Net cash sales prices could result in lower margins as the Company sells used in investing activities for the year ended December 31, 2000, existing inventory. As a result, changes in the prices paid by the was $83.5 million, including capital expenditures of $43.6 million Company for its products could have a material adverse effect on and business acquisitions of $44.2 million, partially offset by $4.3 the Company’s net sales, gross margins and net income. million of proceeds from disposition of property, plant and New Accounting Pronouncements equipment. Net cash used in investing activities for the year ended December 31, 1999, was $26.0 million, resulting primarily from In August 2001, the Financial Accounting Standards Board capital expenditures of $25.5 million. (“FASB”) issued Statements of Financial Accounting Standards Net cash used in financing activities for the year ended (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of December 31, 2001, reached $135.8 million, including a $98.0 Long-Lived Assets,” which addresses financial accounting and million repayment under the Revolving Credit Facility, $40.2 reporting for the impairment or disposal of long-lived assets. million Term Loan repayment and $12.4 million related to the SFAS 144 is effective for fiscal years beginning after December acquisition of treasury stock, partially offset by $15.8 million in 15, 2001. The Company will adopt SFAS 144 as of January 1, proceeds from the issuance of treasury stock. Net cash provided by 2002 and it does not expect that the adoption of the Statement 20 United Stationers Annual Report
  • 23. United Stationers Inc. and Subsidiaries will have a significant impact on its financial position and results Standards Board. SFAS No. 133, as amended by SFAS Nos. 137 of operations. and 138, establishes accounting and reporting standards for In June 2001, the FASB issued SFAS No. 141, “Business derivative instruments and hedging activities. It requires an entity Combinations,” and SFAS No. 142, “Goodwill and Other Intangible to recognize all derivatives as either assets or liabilities on the Assets.” SFAS 141 requires that the purchase method of balance sheet. The statement also requires changes in the fair accounting be used for all business combinations initiated after value of the derivative instruments to be recorded in either net June 30, 2001. In addition, SFAS 141 includes guidance on the earnings or other comprehensive income depending on their initial recognition and measurement of goodwill and other intended use. The adoption of SFAS Nos. 133, 137, and 138 did intangible assets arising from business combinations completed not have a material impact on the Company’s Consolidated after June 30, 2001. The amortization of goodwill and intangible Financial Statements. assets with indefinite useful lives is prohibited under SFAS 142. Quantitative and Qualitative Disclosure SFAS 142 requires that these assets be reviewed for impairment at About Market Risk least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, The Company is subject to market risk associated principally SFAS 142 requires that goodwill included in the carrying value of with changes in interest rates and foreign currency exchange equity method investments no longer be amortized. rates. Interest rate exposure principally is limited to the The Company will apply SFAS 142 beginning in the first half Company’s outstanding long-term debt at December 31, 2001, of of 2002. Application of the non-amortization provisions of SFAS $271.7 million, and $125.0 million of receivables sold under the 142 is expected to result in an increase in net income of Receivables Securitization Program, whose discount rate varies approximately $4.9 million, or $0.15 per share, in 2002. Changes with market interest rates (“Receivables Exposure”). in the estimated useful lives of intangible assets are not expected Approximately 25% of the outstanding debt and Receivables to have a material impact on net income in 2002. The Company Exposure is priced at interest rates that are fixed. The remaining debt and Receivables Exposure are priced at interest rates that re- will test goodwill for impairment using the two-step process price with the market. A 50 basis point movement in interest prescribed in SFAS 142. The first step is a screen for potential rates would result in an annualized increase or decrease of impairment, while the second step measures the amount of the approximately $1.5 million in interest expense, loss on the sale of impairment, if any. The Company expects to perform the first certain accounts receivable and cash flows. The Company may of the required impairment tests of goodwill and indefinite lived from time-to-time enter into interest rate swaps, options or intangible assets in the first half of 2002. Any impairment collars. The Company does not use financial or commodity charge resulting from these transitional impairment tests will derivative instruments for trading purposes. Typically, the use be reflected as the cumulative effect of a change in accounting of such derivative instruments is limited to interest rate swaps, principle in the first half of 2002. The Company has not yet options or collars on the Company’s outstanding long-term determined what the effect of these tests will be on its earnings debt. The Company’s exposure related to such derivative and financial position. instruments is, in the aggregate, not material to its financial In June 2001, the FASB issued SFAS No. 143, “Accounting for position, results of operations and cash flows. As of December 31, Asset Retirement Obligations,” which is effective for fiscal years 2001, the Company had no financial or commodity derivative beginning after June 15, 2002. The Statement requires legal instruments outstanding. obligations associated with the retirement of long-lived assets to The Company’s foreign currency exchange rate risk is limited be recognized at their fair value at the time that the obligations principally to the Mexican Peso, Canadian Dollar, as well as are incurred. Upon initial recognition of a liability, that cost product purchases from Asian countries currently paid in U.S. should be capitalized as part of the related long-lived asset and dollars. Many of the products the Company sells in Mexico and allocated to expense over the useful life of the asset. The Canada are purchased in U.S. dollars, while the sale is invoiced Company will adopt SFAS 143 on January 1, 2003, and, based on in the local currency. The Company’s foreign currency exchange current circumstances, does not believe that the impact of rate risk is not material to its financial position, results of adoption of SFAS 143 will have a material impact on its financial operations and cash flows. The Company has not previously position or results of operations. hedged these transactions, but it may enter into such transactions Effective January 1, 2001, the Company adopted the when it believes there is a financial advantage. provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” issued by the Financial Accounting 21 United Stationers Annual Report
  • 24. Selected Consolidated Financial Data (dollars in thousands, except per share data) 2001 Years Ended December 31, 2000 Income Statement Data: $3,925,936 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,944,862 3,306,143 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,301,018 619,793 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643,844 Operating expenses: 450,135 Warehousing, marketing and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441,298 47,603(1) Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Non-recurring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 497,738 Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441,298 122,055 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,546 (25,872) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,171) 2,079 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,942 (4,621)(4) Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,201)(4) 93,641 Income before income taxes and extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,116 36,663 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,473 56,978 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,643 Extraordinary item – loss on early retirement of debt, net of tax benefit — of $4,248 in 2000, $3,970 in 1998, and $3,956 in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,476) $ 56,978 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,167 $ 56,978 Net income attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,167 Net income per common share – assuming dilution $ 1.68 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.84 — Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.19) $ 1.68 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.65 $ — Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — Operating and Other Data: 160,596 EBITDA(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,651 4.1% EBITDA margin(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9% $ 38,541 Depreciation and amortization(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,105 28,618 Capital expenditures, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,301 Operating Results Before Charges: (8, 9, 10, 11) 169,658 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,546 85,921 Net income attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,643 2.53 Net income per common share – assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.84 208,199 EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,651 5.3% EBITDA margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9% Balance Sheet Data $ 412,766(12) Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 495,456(12) 1,339,587(12) Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447,027(12) 271,705 Total debt and capital leases(13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,867 538,681 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,439 22 United Stationers Annual Report
  • 25. United Stationers Inc. and Subsidiaries 1999 1998 1997 The selected consolidated financial data of the Company for the years ended December 31, 1997 through 2001 have been $ 3,442,696 $ 3,097,595 $2,585,826 derived from the Consolidated Financial Statements of the 2,878,539 2,566,158 2,137,551 Company, which have been audited by Ernst & Young LLP, 564,157 531,437 448,275 independent auditors. All selected consolidated financial data set forth should be read in conjunction with, and is qualified in 381,963 362,074 313,346 its entirety by Management’s Discussion and Analysis of — — — Financial Condition and Results of Operations and the — 13,852(2) 64,698(3) Consolidated Financial Statements of the Company. 381,963 375,926 378,044 182,194 155,511 70,231 (1) In the third quarter of 2001, the Company recorded a restructuring charge of (30,044) (37,095) (53,741) $47.6 million ($28.9 million net of tax benefit of $18.7 million). See Note 3 to the Consolidated Financial Statements. 849 794 230 (2) In the second quarter of 1998, the Company recognized a non-recurring charge (9,432)(4) (8,221)(4) — of $13.9 million ($8.3 million net of tax benefit of $5.6 million) related to the write-off of the remaining payments and prepaid expense under a contract for 143,567 110,989 16,720 computer services from a vendor. 60,158 47,064 8,532 (3) In the fourth quarter of 1997, the Company recognized a non-recurring non- cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9 million), 83,409 63,925 8,188 and a non-recurring cash charge of $5.3 million ($3.2 million net of tax benefit of $2.1 million) related to the vesting of stock options and the termination of certain management advisory service agreements. — (5,907) (5,884) (4) Represents the loss on the sale of certain trade accounts receivable through an $ 83,409 $ 58,018 $ 2,304 asset-backed securitization program and the gain or loss on the sale of certain capital assets. See Note 5 to the Consolidated Financial Statements. $ 83,409 $ 58,018 $ 776 (5) EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and extraordinary items. EBITDA is commonly used by certain investors to analyze operating performance and to determine a company’s $ 2.37 $ 1.76 $ 0.22 ability to service and incur debt. EBITDA should not be considered in isolation from, or as a substitute for, measurements prepared in accordance with — (0.16) (0.19) generally accepted accounting principles. (6) EBITDA margin represents EBITDA as a percent of net sales. $ 2.37 $ 1.60 $ 0.03 (7) Excludes amortization related to deferred financing costs, which is a component $ — $ — $ — of interest expense. (8) In the third quarter of 2001, the Company recorded a restructuring charge of $47.6 million ($28.9 million net of tax benefit of $18.7 million). See Note 3 to the Consolidated Financial Statements. 211,642 182,449 96,272 (9) In the second quarter of 2000, the Company recorded an extraordinary charge 6.1% 5.9% 3.7% of $10.7 million ($6.5 million net of tax benefit of $4.2 million) related to the early retirement of debt. See Note 7 to the Consolidated Financial Statements. $ 29,448 $ 26,938 $ 26,041 (10) In the second quarter of 1998, the Company recognized a non-recurring 21,331 24,616 12,991 charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) related to the write-off of the remaining payments and prepaid expense under a contract for computer services from a vendor. In addition, during the second quarter of 1998 the Company recorded an extraordinary charge of $9.9 182,194 169,363 134,929 million ($5.9 million net of tax benefit of $4.0 million) related to the early 83,409 72,212 45,364 retirement of debt. (11) In the fourth quarter of 1997, the Company recognized a non-recurring non- 2.37 2.00 1.47 cash charge of $59.4 million ($35.5 million net of tax benefit of $23.9 211,642 196,301 160,970 million) and a non-recurring cash charge of $5.3 million ($3.2 million net of tax benefit of $2.1 million) related to the vesting of stock options and the 6.1% 6.3% 6.2% termination of certain management advisory service agreements. In addition, during the fourth quarter of 1997 the Company recorded an extraordinary charge of $9.8 million ($5.9 million net of tax benefit of $3.9 million) related to early retirement of debt. $ 415,548(12) $ 357,024(12) $ 451,449 (12) Excludes $125.0 million in 2001, $150.0 million in 2000 and $160.0 million 1,279,903(12) 1,166,991(12) 1,148,021 in 1999 and 1998 of certain trade accounts receivable sold through an asset- backed securitization program. See Note 5 to the Consolidated Financial 336,927 315,384 537,135 Statements. 406,009 370,563 223,308 (13) Total debt and capital leases include current maturities. 23 United Stationers Annual Report
  • 26. Quarterly Financial Data (dollars in thousands, except share data) (unaudited) Income/ Income/ (Loss) Net (Loss) Per Diluted Income/ Before Net Share Before (Loss) Extraordinary Income/ Extraordinary Per Diluted (dollars in thousands, except share data) Net Sales Gross Profit Item (Loss) Item (1) Share (1) Year Ended December 31, 2001 First Quarter . . . . . . . . . . . . . . . . . . . . . $1,059,842 $ 166,123 $ 21,613 $ 21,613 $ 0.64 $ 0.64 Second Quarter . . . . . . . . . . . . . . . . . . . 978,886 155,003 21,841 21,841 0.65 0.65 Third Quarter . . . . . . . . . . . . . . . . . . . . 950,910 152,403 (5,943) (5,943) (0.18) (0.18) Fourth Quarter . . . . . . . . . . . . . . . . . . . 936,298 146,264 19,467 19,467 0.57 0.57 Total . . . . . . . . . . . . . . . . . . . . . . . . . . $3,925,936 $ 619,793 $ 56,978 $ 56,978 1.68 1.68 Year Ended December 31, 2000 First Quarter . . . . . . . . . . . . . . . . . . . . . $ 994,883 $ 158,130 $ 23,924 $ 23,924 $ 0.69 $ 0.69 Second Quarter . . . . . . . . . . . . . . . . . . . 944,023 148,795 22,768 16,292 0.65 0.47 Third Quarter . . . . . . . . . . . . . . . . . . . . 1,015,441 164,516 26,427 26,427 0.76 0.76 Fourth Quarter . . . . . . . . . . . . . . . . . . . 990,515 172,403 25,524 25,524 0.74 0.74 Total . . . . . . . . . . . . . . . . . . . . . . . . . . $3,944,862 $ 643,844 $ 98,643 $ 92,167 2.84 2.65 (1) As a result of changes in the number of common and common equivalent shares during the year, the sum of quarterly earnings per share will not necessarily equal earnings per share for the total year. Quarterly Stock Price Data The Company’s common stock is quoted through the Nasdaq of dividends or other payments from its operating subsidiary, USSC. National Market System under the symbol USTR. The following The payment of these dividends is subject to certain restrictions table shows the high and low closing sale prices per share for the imposed by the Company’s debt agreements. See Note 7 to the Company’s common stock as reported by Nasdaq. Consolidated Financial Statements. On October 23, 2000, the Company’s Board of Directors 2001 High Low authorized the repurchase of up to $50.0 million of its common First Quarter . . . . . . . . . . . . . . . . . . $ 27.56 $ 22.00 stock. Under this authorization, the Company purchased 467,500 Second Quarter . . . . . . . . . . . . . . . . 31.56 22.63 shares at a cost of approximately $12.4 million during 2001. During Third Quarter . . . . . . . . . . . . . . . . . 34.25 27.25 2000, the Company purchased 857,100 shares of its common stock at Fourth Quarter . . . . . . . . . . . . . . . . 34.95 26.50 a cost of approximately $22.4 million. Acquired shares are included in the issued shares of the Company, but are not included in average 2000 High Low shares outstanding when calculating earnings per share data. During First Quarter . . . . . . . . . . . . . . . . . . $ 37.25 $ 25.31 2001 and 2000, the Company reissued 621,453 and 309,674 shares of Second Quarter . . . . . . . . . . . . . . . . 37.81 28.31 treasury stock, respectively, to fulfill its obligations under its Third Quarter . . . . . . . . . . . . . . . . . 32.75 26.88 management equity plan. Fourth Quarter . . . . . . . . . . . . . . . . 30.63 21.50 Common Stock On March 11, 2002, there were approximately 841 holders of 100,000,000 shares authorized, $0.10 par value, 37,217,814 and record of common stock. 37,213,207 shares issued as of December 31, 2001 and 2000, The Company’s policy has been to reinvest earnings to fund future respectively. growth. Accordingly, the Company has not paid cash dividends and Preferred Stock does not anticipate declaring cash dividends on its common stock in 15,000,000 shares authorized, without par value, no shares the foreseeable future. Furthermore, as a holding company, United’s outstanding as of December 31, 2001 and 2000. ability to pay cash dividends in the future depends upon the receipt 24 United Stationers Annual Report
  • 27. Report of Management United Stationers Inc. and Subsidiaries misstatement. In addition, the system is augmented by written The management of United Stationers Inc. is primarily policies and an internal audit department. responsible for the information and representations contained in this The Audit Committee of the Board of Directors, comprised solely Annual Report. The Consolidated Financial Statements and related of directors who are not officers or employees, meets regularly with Notes were prepared in accordance with accounting principles management, with the Company’s internal auditors, and with its generally accepted in the United States and include amounts that independent auditors to discuss their evaluation of internal are based on management’s best judgments and estimates. The other accounting controls and the quality of financial reporting. The financial information included in this Annual Report is consistent independent auditors and the internal auditors have free access to with that in the Consolidated Financial Statements. the Audit Committee, without management’s presence. In meeting its responsibility for the reliability of the Consolidated Financial Statements, the Company depends on its system of internal accounting control. The system is designed to provide reasonable, but not absolute, assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management’s authorization. It is management’s opinion that its system of internal controls was effective in providing President and Chief Executive Officer reasonable assurance that its financial statements are free of material Report of Independent Auditors To the Stockholders and Board of estimates made by management, as well as evaluating the overall Directors of United Stationers Inc. financial statement presentation. We believe that our audits provide We have audited the accompanying consolidated balance sheets of a reasonable basis for our opinion. United Stationers Inc. and Subsidiaries as of December 31, 2001 and In our opinion, the financial statements referred to above present 2000 and the related consolidated statements of income, changes in fairly, in all material respects, the consolidated financial position of stockholders’ equity and cash flows for each of the three years in the United Stationers Inc. and Subsidiaries at December 31, 2001 and period ended December 31, 2001. These financial statements are the 2000, and the consolidated results of their operations and their cash responsibility of the Company’s management. Our responsibility is to flows for each of the three years in the period ended December 31, express an opinion on these financial statements based on our audits. 2001 in conformity with accounting principles generally accepted in We conducted our audits in accordance with auditing standards the United States. generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also Chicago, Illinois includes assessing the accounting principles used and significant January 29, 2002 25 United Stationers Annual Report
  • 28. Consolidated Statements of Income United Stationers Inc. and Subsidiaries (dollars in thousands, except per share data) Years Ended December 31, 2001 2000 1999 $ 3,925,936 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,944,862 $ 3,442,696 3,306,143 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,301,018 2,878,539 619,793 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643,844 564,157 Operating expenses: 450,135 Warehousing, marketing and administrative expenses . . . . . . . . . . . . . . . . 441,298 381,963 47,603 Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 497,738 Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441,298 381,963 122,055 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,546 182,194 (25,872) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,171) (30,044) 2,079 Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,942 849 Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,621) (11,201) (9,432) 93,641 Income before income taxes and extraordinary item . . . . . . . . . . . . . . . . . . . . . . 164,116 143,567 36,663 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,473 60,158 56,978 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,643 83,409 Extraordinary item – loss on early retirement of debt, net of tax benefit — of $4,248 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,476) — $ 56,978 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,167 $ 83,409 Net income per common share: $ 1.70 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.89 $ 2.40 — Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.19) — $ 1.70 Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.70 $ 2.40 33,561 Average number of common shares (in thousands) . . . . . . . . . . . . . . . . . . . 34,101 34,708 Net income per common share – assuming dilution: $ 1.68 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.84 $ 2.37 — Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.19) — $ 1.68 Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.65 $ 2.37 33,928 Average number of common shares (in thousands) . . . . . . . . . . . . . . . . . . . 34,775 35,208 See notes to consolidated financial statements. 26 United Stationers Annual Report
  • 29. Consolidated Statements of Cash Flows United Stationers Inc. and Subsidiaries (dollars in thousands) Years Ended December 31, 2001 2000 1999 Cash Flows from Operating Activities: $ 56,978 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,167 $ 83,409 Adjustments to reconcile net income to net cash provided by operating activities: 29,210 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,835 22,817 9,331 Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,270 6,631 1,310 Amortization of capitalized financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,748 1,828 15,925 Restructuring charge – write-down of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (2,424) Gain on sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . — — — Extraordinary item – early retirement of debt . . . . . . . . . . . . . . . . . . . . . . . . . 10,724 — (11,320) Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,320 662 (1,060) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (546) 236 Changes in operating assets and liabilities, net of acquisitions and dispositions: 23,414 Decrease (increase) in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,506) (59,965) 105,723 Decrease (increase) in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73,663) (52,742) (12,758) Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,943) (2,831) (52,555) (Decrease) increase in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,231 44,606 20,014 Increase (decrease) in accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,894) 11,120 9,352 Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,073) (2,190) 191,140 Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,670 53,581 Cash Flows from Investing Activities: (32,650) Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,233) (4,680) 14,941 Sale of Positive ID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (32,503) Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (43,638) (25,461) 3,885 Proceeds from the disposition of property, plant & equipment . . . . . . . . . . . . . 4,337 4,130 (46,327) Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,534) (26,011) Cash Flows from Financing Activities: (98,000) Net (repayments) borrowings under revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 29,000 (40,163) Retirements and principal payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (128,509) (7,604) — Borrowings under financing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 145 — Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 250 — Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,523 15,796 Issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,247 323 (12,383) Acquisition of treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,437) (49,600) (1,033) Payment of employee withholding tax related to stock option exercises . . . . . (2,646) (2,652) (135,783) Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . 45,655 (27,615) Net Change in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,030 791 (45) Cash and Cash Equivalents, Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . 19,784 18,993 19,038 Cash and Cash Equivalents, End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,814 $ 19,784 $ 18,993 See notes to consolidated financial statements. 27 United Stationers Annual Report
  • 30. Consolidated Balance Sheets (dollars in thousands, except share data) As of December 31, Assets 2001 2000 Current assets: $ 28,814 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,784 Accounts receivable, less allowance for doubtful accounts 311,047 of $13,462 in 2001 and $14,376 in 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,934 581,705 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,926 28,532 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,843 950,098 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,054,487 Property, plant and equipment, at cost: 19,423 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,898 92,855 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,471 235,039 Fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,257 3,433 Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,906 350,750 Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,532 161,738 Less — accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,745 189,012 Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189,787 180,117 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,923 20,360 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,830 $ 1,339,587 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,447,027 See notes to consolidated financial statements. 28 United Stationers Annual Report
  • 31. United Stationers Inc. and Subsidiaries As of December 31, Liabilities and Stockholders’ Equity 2001 2000 Current liabilities: $ 336,722 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 392,789 147,640 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,969 52,970 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,273 537,332 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559,031 18,228 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,703 218,735 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369,594 26,611 Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,260 800,906 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 968,588 Stockholders’ equity: Common stock, $0.10 par value; authorized – 100,000,000 shares, issued – 37,217,814 shares in 3,722 2001 and 37,213,207 shares in 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,721 310,150 Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,837 (69,402) Treasury stock, at cost – 3,613,954 shares in 2001 and 3,767,907 shares in 2000 . . . . . . . . . . . . . . . . . . . (66,832) 297,407 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,429 (3,196) Accumulated translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,716) 538,681 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,439 $ 1,339,587 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,447,027 29 United Stationers Annual Report
  • 32. Consolidated Statements of Changes in Stockholders’ Equity (dollars in thousands, except share data) Number of Common Common Shares Stock As of December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,912,173 $ 3,691 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Unrealized translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,254 30 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,780 — As of December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,213,207 3,721 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Unrealized translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — As of December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,213,207 3,721 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Unrealized translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,607 1 As of December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,217,814 $ 3,722 See notes to consolidated financial statements. 30 United Stationers Annual Report
  • 33. United Stationers Inc. and Subsidiaries Number of Treasury Capital Other Total Treasury Stock in Excess Comprehensive Retained Stockholders’ Shares at Cost of Par Income Earnings Equity — $ — $ 303,330 $ (1,311) $ 64,853 $ 370,563 — — — — 83,409 83,409 — — — 194 — 194 — — — 194 83,409 83,603 (3,250,000) (49,600) — — — (49,600) 29,519 455 666 — — 1,151 — — 292 — — 292 (3,220,481) (49,145) 304,288 (1,117) 148,262 406,009 — — — — 92,167 92,167 — — — (599) — (599) — — — (599) 92,167 91,568 (857,100) (22,437) — — — (22,437) 309,674 4,750 (1,451) — — 3,299 (3,767,907) (66,832) 302,837 (1,716) 240,429 478,439 — — — — 56,978 56,978 — — — (1,480) — (1,480) — — — (1,480) 56,978 55,498 (467,500) (12,383) — — — (12,383) 621,453 9,813 7,313 — — 17,127 (3,613,954) $ (69,402) $ 310,150 $ (3,196) $ 297,407 $ 538,681 31 United Stationers Annual Report
  • 34. Notes to Consolidated Financial Statements Basis of Presentation Note 1. The Consolidated Financial Statements represent United accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased Stationers Inc. (“United”) with its wholly owned subsidiary United and the liabilities assumed, based upon the estimated fair values at Stationers Supply Co. (“USSC”) and its subsidiaries – collectively the date of acquisition. The excess of cost over fair value of (the “Company”). The Company is the largest general line business approximately $3.1 million was allocated to goodwill. The pro forma products wholesaler in the United States, with 2001 net sales of $3.9 effects of the acquisition were not material. billion. The Company operates in a single reportable segment as a In November 2001, the Wilkes-Barre portion of CallCenter national wholesale distributor of business products. The Company Services, Inc. was sold to Customer Satisfaction First. In addition, offers approximately 40,000 items from more than 500 manufacturers. the Salisbury portion of CallCenter Services, Inc. was sold to 1-800- This includes a broad spectrum of office products, computer supplies, BARNONE, a Financial Corporation, Inc., in January 2002 for $1.2 office furniture, business machines, presentation products and million in cash and the assumption of $1.7 million of debt. The sale facilities management supplies. The Company primarily serves of these assets did not have a material impact on the Company’s commercial and contract office products dealers. The Company sells Consolidated Financial Statements. its products through a national distribution network to more than 20,000 resellers, who in turn sell directly to end-users. These Acquisition of Azerty Canada products are distributed through a computer-based network of 36 On July 5, 2000, the Company completed the acquisition of the USSC regional distribution centers, 24 dedicated Lagasse, Inc. net assets of Azerty Canada from MCSi, Inc. The purchase price (“Lagasse”) distribution centers that serve the janitorial and was approximately $33.5 million (U.S. dollars) financed through sanitation industry, four Azerty Incorporated (“Azerty”) distribution the Company’s Senior Credit Facility. Azerty Canada is a specialty centers that serve the U.S. and two in Mexico that serve computer wholesale distributor of computer consumables, peripherals and supply resellers, two distribution centers that serve the Canadian accessories. The acquisition was accounted for using the purchase marketplace and a mega-center that supports USSC, Azerty, Lagasse, method of accounting and, accordingly, the purchase price was and The Order People. During the second quarter of 2002, Azerty’s allocated to the assets purchased and the liabilities assumed, computer systems and product offering will be integrated into USSC. based upon the estimated fair values at the date of acquisition. In connection with this integration, the Company intends to close The excess of cost over fair value of approximately $11.8 million the four Azerty distribution centers. was allocated to goodwill. The pro forma effects of the acquisition were not material. Acquisition of Peerless Paper Mills, Inc. On January 5, 2001, the Company’s subsidiary Lagasse acquired all Establishing The Order People of the capital stock of Peerless Paper Mills, Inc. (“Peerless”). During 2000, the Company established The Order People (“TOP”) Subsequently, Peerless was merged into Lagasse. Peerless was a to operate as its third-party fulfillment provider for product categories wholesale distributor of janitorial/sanitation, paper and food service beyond office products. In 2001, the Company did not achieve the products. The purchase price of approximately $32.7 million was estimated revenue to support TOP’s cost structure. As a result, the financed through the Company’s Senior Credit Facility. The Company began to reduce the operating expenses of TOP. However, acquisition was accounted for using the purchase method of the Company remains committed to building the third-party accounting and, accordingly, the purchase price was allocated to the fulfillment business. assets purchased and the liabilities assumed, based upon the estimated Common Stock Repurchase fair values at the date of acquisition. The excess of cost over fair On October 23, 2000, the Company’s Board of Directors value of approximately $15.5 million was allocated to goodwill. The authorized the repurchase of up to $50.0 million of its Common pro forma effects of the acquisition are not material. Stock. Under this authorization, the Company purchased 467,500 Acquisition of CallCenter Services, Inc. shares at a cost of approximately $12.4 million, during 2001. During On July 1, 2000, the Company acquired all of the capital stock of 2000, the Company purchased 857,100 shares of its Common Stock CallCenter Services, Inc. from Corporate Express, a Buhrmann at a cost of approximately $22.4 million. Acquired shares are Company. The purchase price was approximately $10.7 million included in the issued shares of the Company and treasury stock, but financed through the Company’s Senior Credit Facility. CallCenter are not included in average shares outstanding when calculating Services, Inc. was a customer relationship management outsourcing earnings per share data. During 2001 and 2000, the Company service company with inbound call centers in Wilkes-Barre, reissued 621,453 and 309,674 shares of treasury stock, respectively, to Pennsylvania, and Salisbury, Maryland. The acquisition was fulfill its obligations under its management equity plan. 32 United Stationers Annual Report
  • 35. United Stationers Inc. and Subsidiaries Summary of Significant Accounting Policies Note 2. the Company reversed approximately $9.2 million of goodwill related Principles of Consolidation to certain purchase accounting reserves recorded in conjunction with The Consolidated Financial Statements include the accounts of the 1995 ASI/USI merger. See New Accounting Pronouncements the Company. All intercompany accounts and transactions have within this note regarding changes in goodwill accounting. been eliminated in consolidation. For all acquisitions, account balances and results of operations are included in the Consolidated Software Capitalization Financial Statements as of the date acquired. The Company capitalizes internal use software development costs in accordance with the American Institute of Certified Public Revenue Recognition Accountants’ Statement of Position No. 98-1 “Accounting for Costs Revenue is recognized when a service is rendered or when a of Computer Software Developed or Obtained for Internal Use.” product is shipped and title is transferred to the customer. Amortization is recorded on a straight-line basis over the estimated Cash Equivalents useful life of the software, generally not to exceed seven years. All highly liquid debt instruments with an original maturity of Income Taxes three months or less are considered cash equivalents. Cash Income taxes are accounted for using the liability method, under equivalents are stated at cost, which approximates market value. which deferred income taxes are recognized for the estimated tax Inventories consequences for temporary differences between the financial Inventories constituting approximately 77% and 73% of total statement carrying amounts and the tax basis of assets and liabilities. inventories at December 31, 2001 and 2000, respectively, have been Provision has not been made for deferred U.S. income taxes on the valued under the last-in, first-out (“LIFO”) method. The increase in undistributed earnings of the Company’s foreign subsidiaries because the percentage of inventory on LIFO resulted from a decline in these earnings are intended to be permanently invested. inventory levels at business units whose inventory is valued under Foreign Currency Translation the first-in, first-out (“FIFO”) method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost The functional currency for the Company’s foreign operations is or market. If the lower of FIFO cost or market method of inventory the local currency. Assets and liabilities of these operations are accounting had been used by the Company for all inventories, translated at the rates of exchange at the balance sheet date. The merchandise inventories would have been approximately $26.2 resulting translation adjustments are included in accumulated other million and $19.0 million higher than reported at December 31, comprehensive income, a separate component of stockholders’ 2001 and 2000, respectively. equity. Income and expense items are translated at average monthly rates of exchange. Gains and losses from foreign currency Property, Plant and Equipment transactions were not material. Property, plant and equipment are recorded at cost. Depreciation and amortization are determined by using the straight-line method Use of Estimates over the estimated useful lives of the assets. The preparation of financial statements in conformity with The estimated useful life assigned to fixtures and equipment is from accounting principles generally accepted in the United States two to 10 years; the estimated useful life assigned to buildings does requires management to make estimates and assumptions that not exceed 40 years; leasehold improvements are amortized over the affect the amounts reported in the Consolidated Financial lesser of their useful lives or the term of the applicable lease. Statements and accompanying notes. Actual results could differ Goodwill from these estimates. Goodwill represents the excess of cost over the value of net assets New Accounting Pronouncements of businesses acquired and is amortized on a straight-line basis over In August 2001, the Financial Accounting Standards Board periods ranging between 10 and 40 years. The Company periodically (“FASB”) issued Statements of Financial Accounting Standards evaluates whether events or circumstances have occurred indicating (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long- that the remaining estimated useful life of goodwill may not be Lived Assets,” which addresses financial accounting and reporting for appropriate. If factors indicate that goodwill should be evaluated for the impairment or disposal of long-lived assets. SFAS 144 is possible impairment, the Company will use an estimate of effective for fiscal years beginning after December 15, 2001. The undiscounted future operating income compared with the carrying Company will adopt SFAS 144 as of January 1, 2002 and it does not value of goodwill to determine if a write-off is necessary. The expect that the adoption of the Statement will have a significant cumulative amount of goodwill amortized at December 31, 2001 and impact on its financial position and results of operations. 2000 is $27.9 million and $22.2 million, respectively. During 2000, 33 United Stationers Annual Report
  • 36. Notes to Consolidated Financial Statements (continued) Summary of Significant Accounting Policies Note 2. (continued) In June 2001, the FASB issued SFAS No. 141, “Business change in accounting principle in the first half of 2002. The Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Company has not yet determined what the effect of these tests will Assets.” SFAS 141 requires that the purchase method of accounting be on its earnings and financial position. be used for all business combinations initiated after June 30, 2001. In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset In addition, SFAS 141 includes guidance on the initial recognition Retirement Obligations,” which is effective for fiscal years beginning and measurement of goodwill and other intangible assets arising after June 15, 2002. The Statement requires legal obligations from business combinations completed after June 30, 2001. associated with the retirement of long-lived assets to be recognized at The amortization of goodwill and intangible assets with indefinite their fair value at the time that the obligations are incurred. Upon useful lives is prohibited under SFAS 142. SFAS 142 requires that initial recognition of a liability, that cost should be capitalized as part these assets be reviewed for impairment at least annually. Intangible of the related long-lived asset and allocated to expense over the useful assets with finite lives will continue to be amortized over their life of the asset. The Company will adopt SFAS 143 on January 1, estimated useful lives. Additionally, SFAS 142 requires that 2003, and, based on current circumstances, does not believe that the goodwill included in the carrying value of equity method investments impact of adoption of SFAS 143 will have a material impact on its no longer be amortized. financial position or results of operations. The Company will apply SFAS 142 beginning in the first half of Effective January 1, 2001, the Company adopted the provisions of 2002. Application of the non-amortization provisions of SFAS 142 is SFAS No. 133, “Accounting for Derivative Instruments and Hedging expected to result in an increase in net income of approximately $4.9 Activities” issued by the Financial Accounting Standards Board. million, or $0.15 per share, in 2002. Changes in the estimated useful SFAS No. 133, as amended by SFAS Nos. 137 and 138, establishes lives of intangible assets are not expected to have a material impact accounting and reporting standards for derivative instruments and on net income in 2002. The Company will test goodwill for hedging activities. It requires an entity to recognize all derivatives as impairment using the two-step process prescribed in SFAS 142. The either assets or liabilities on the balance sheet. The statement also first step is a screen for potential impairment, while the second step requires changes in the fair value of the derivative instruments to be measures the amount of the impairment, if any. The Company recorded in either net earnings or other comprehensive income expects to perform the first of the required impairment tests of depending on their intended use. The adoption of SFAS Nos. 133, goodwill and indefinite lived intangible assets in the first half of 137, and 138 did not have a material impact on the Company’s 2002. Any impairment charge resulting from these transitional Consolidated Financial Statements. impairment tests will be reflected as the cumulative effect of a Restructuring Charge Note 3. In the third quarter 2001, the Company’s board of directors restructuring plan include management personnel, inside and outside approved a restructuring plan that includes: sales representatives, call center associates, distribution workers, and hourly administrative staff. The restructuring plan is designed to • An organizational restructuring aimed at eliminating certain have all initiatives completed within approximately one year from layers of management to achieve a lower cost structure and the commitment date. provide better customer service; During the third quarter 2001, the Company recorded a pre-tax • The consolidation of certain distribution facilities and call restructuring charge of $47.6 million, or $0.85 per share (on an center operations; after-tax basis). This charge includes a pre-tax cash charge of • An information technology platform consolidation; $31.7 million and a $15.9 million non-cash charge. The major • Divestiture of The Order People’s call center operations and components of the restructuring charge and the remaining accrual certain other assets; and balance as of December 31, 2001, are as follows: • A significant reduction to The Order People’s cost structure. The restructuring plan calls for a workforce reduction of 1,375. These positions primarily are related to The Order People and call center operations. The associate groups that will be affected by the 34 United Stationers Annual Report
  • 37. United Stationers Inc. and Subsidiaries Non-Cash Employment Asset Termination Accrued Total Write- and Severance Exit Restructuring (dollars in thousands) Downs Costs Costs Charge Restructuring Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,925 $ 19,189 $ 12,489 $ 47,603 Amounts Utilized – as of December 31, 2001 . . . . . . . . . . . . . . . . . . (15,925) (3,023) (1,226) (20,174) Accrued Restructuring Costs – as of December 31, 2001 . . . . . . . . . $ — $ 16,166 $ 11,263 $ 27,429 The non-cash asset write-downs of $15.9 million were primarily incremental costs directly related to the realization of the the result of facility closures and business divestitures, including $8.8 restructuring plan. The Company estimates that the total cost of million related to property, plant and equipment and $7.1 million implementation will be approximately $6.7 million incurred ratably related to goodwill. Asset write-downs are based on management’s through approximately September 30, 2002. These costs include estimate of net realizable value. training, stay bonuses, consulting fees, costs to relocate inventory, Employment termination and severance costs are related to and accelerated depreciation. Implementation costs incurred voluntary and involuntary terminations and reflect cash termination through December 31, 2001, were $2.2 million. payments to be paid to associates affected by the restructuring plan. As of December 31, 2001, the Company completed the closure of Healthcare benefits and career transition services are included in three distribution centers and one USSC call center, eliminated one the termination and severance costs. The restructuring plan allows administrative office, divested a portion of the call center operations associates to continue their participation in the Company’s dedicated to serving The Order People’s clients and began the healthcare plan during the term of their severance. implementation of its organizational restructuring and workforce Accrued exit costs are primarily contractual lease obligations that reduction. As a result, the Company reduced its workforce by existed prior to September 30, 2001, for buildings that the Company 580 associates through its voluntary and involuntary termination has closed or will be closing in the near future. programs. The remaining 795 associates will be terminated Implementation costs will be recognized as incurred and consist of throughout the implementation period of approximately one year. Segment Information Note 4. United States, which were immaterial. The Company sells its The Company adopted SFAS No. 131, “Disclosure about Segments products through a national distribution network to more than of an Enterprise and Related Information,” in 1998. SFAS No. 131 20,000 resellers, who in turn sell directly to end-users. These requires companies to report financial and descriptive information products are distributed through a computer-based network of 36 about their reportable operating segments, including segment profit USSC regional distribution centers, 24 dedicated Lagasse distribution or loss, certain specific revenue and expense items, and segment centers that serve the janitorial and sanitation industry, four Azerty assets, as well as information about the revenues derived from the distribution centers that serve the U.S. and two in Mexico that serve company’s products and services, the countries in which the computer supply resellers, two distribution centers that serve the company earns revenues and holds assets, and major customers. Canadian marketplace and a mega-center that supports USSC, This statement also requires companies that have a single reportable Azerty, Lagasse, and The Order People. During the second quarter of segment to disclose information about products and services, 2002, Azerty’s computer systems and product offering will be information about geographic areas, and information about major integrated into USSC. In connection with this integration, the customers. This statement requires the use of the management Company will close the four Azerty distribution centers. approach to determine the information to be reported. The The Company’s product offerings, comprised of more than 40,000 management approach is based on the way management organizes stockkeeping units (SKUs), may be divided into five primary the enterprise to assess performance and make operating decisions categories. (i) The Company’s core business continues to be regarding the allocation of resources. It is management’s opinion traditional office products, which includes both brand name products that, at this time, the Company has several operating segments, and the Company’s private brand products. Traditional office however only one reportable segment. products include writing instruments, paper products, organizers and The following discussion sets forth the required disclosure calendars and various office accessories. (ii) The Company also regarding single segment information: offers computer supplies, and peripherals to computer resellers and The Company operates as a single reportable segment as the largest office products dealers. (iii) The Company sells office furniture, general line business products wholesaler in the United States with such as leather chairs, wooden and steel desks and computer 2001 net sales of $3.9 billion – including operations outside the 35 United Stationers Annual Report
  • 38. Notes to Consolidated Financial Statements (continued) Segment Information Note 4. (continued) furniture. The Company currently offers nearly 5,500 furniture items facilitate its sale to Corporate Express. On May 14, 2001, the sale of USOP to Corporate Express was completed. Other than Corporate from 60 different manufacturers. (iv) A fourth category is facility Express, no single customer accounted for more than 6% of the supplies, including janitorial and sanitation supplies, safety and Company’s net sales in 2001. security items, and shipping and mailing supplies. The Company The following table sets forth net sales by product category distributes these products through 24 Lagasse distribution centers to (dollars in millions): sanitary supply dealers. (v) The Company also distributes business machines and presentation products. Years Ended December 31, The Company’s customers include office products dealers, mega- 2001 2000 1999 dealers, office furniture dealers, office products superstores and mass $ 1,245 Traditional office products . . . . . . . . . . $ 1,356 $ 1,204 1,349 Computer consumables . . . . . . . . . . . . 1,288 1,136 merchandisers, mail order companies, computer products resellers, 499 Office furniture . . . . . . . . . . . . . . . . . . 513 435 sanitary supply distributors and e-commerce dealers. For the year 402 Facilities supplies . . . . . . . . . . . . . . . . . 310 240 ended December 31, 2001, Corporate Express, Inc. (“Corporate Business machines and Express”) accounted for approximately 10% of the Company’s net 352 presentation products . . . . . . . . . . . . . . 385 344 60 Freight revenue . . . . . . . . . . . . . . . . . . 64 50 sales. This percentage includes the combined 12-month volume for 19 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 29 34 Corporate Express and U.S. Office Products (“USOP”). On March $ 3,926 Total net sales . . . . . . . . . . . . . . . . . . . $ 3,945 $ 3,443 5, 2001, USOP filed for Chapter 11 bankruptcy protection to Other Expense Note 5. The following table sets forth the components of other expense The Receivables Securitization Program is accounted for as a sale (dollars in thousands): in accordance with FASB Statement No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Years Ended December 31, Liabilities.” The Company formed a master trust for purposes of 2001 2000 1999 pooling its eligible accounts receivable. The Company transfers all Loss on the sale of accounts receivable, of its right, title and interest in, to and under these accounts $ 7,045 $ 11,133 net of servicing revenue . . . . . . . . . . $ 9,393 (2,424)(1) receivable to the master trust. At the direction of the Company, this Other . . . . . . . . . . . . . . . . . . . . . . . . . . 68 39 master trust issues investor certificates that represent undivided $ 4,621 Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,201 $ 9,432 interests in the eligible accounts receivable. Accounts receivable (1) Represents a net gain on the sale of a distribution center. sold under these arrangements are excluded from accounts receivable Receivables Securitization Program in the Consolidated Balance Sheets. The interest rate on the As part of an overall financing strategy, the Company utilizes a certificates issued under the Receivables Securitization Program standard third-party receivables securitization program, to provide low- during 2001 ranged between 2.1% and 6.5% annually. The cost funding. Under this $163.0 million program the Company sells, Company’s retained interests on $244.8 million and $248.2 million on a revolving basis, its eligible accounts receivable (except for certain of receivables in the master trust as of December 31, 2001 and 2000, excluded accounts receivable, which initially includes all accounts were approximately $119.8 million and $98.2 million, respectively. receivable from Azerty and Lagasse) to the Receivables Company, a Accordingly, as of December 31, 2001 and 2000, the Company had wholly owned offshore, bankruptcy-remote special purpose limited sold $125.0 million and $150.0 million, respectively, of accounts liability company. This company in turn ultimately transfers the receivable through the Receivables Securitization Program. The eligible accounts receivable to a third-party, multi-seller asset-backed retained interest, which is included in the accounts receivable commercial paper program, existing solely for the purpose of issuing balance reflected in the Consolidated Balance Sheets, is recorded at commercial paper rated A-1/P-1 or higher. The sale of trade accounts fair value. Due to a short average collection cycle for such accounts receivable includes not only those eligible receivables that existed on receivable of approximately 40 days and the Company’s collection the closing date of the Receivables Securitization Program, but also history, the fair value of the Company’s retained interest eligible accounts receivable created thereafter. Affiliates of PNC Bank approximates book value. Losses recognized on the sale of accounts and JP Morgan Chase act as funding agents. The funding agents, receivable totaled approximately $7.0 million, $11.1 million and $9.4 together with other commercial banks rated at least A-1/P-1, provide million in 2001, 2000, and 1999, respectively. These costs vary on a standby liquidity funding to support the sale of the accounts receivable monthly basis and generally are related to certain short-term interest by the Receivables Company under 364-day liquidity facilities. 36 United Stationers Annual Report
  • 39. United Stationers Inc. and Subsidiaries rates. These costs are included in the Consolidated Statements of Company has retained the responsibility for servicing accounts Income under the caption Other Expense. As a result of the short receivable transferred to the master trust. No servicing asset or liability average collection cycle referenced above, proceeds from the has been recorded because the fees the Company receives for servicing collections under this revolving agreement were $2.8 billion, $2.9 the receivables approximate the related costs. No accounts receivable billion and $2.8 billion in 2001, 2000, and 1999, respectively. The sold to the master trust were written off during 2001, 2000 or 1999. Earnings Per Share Note 6. Basic earnings per share is calculated by dividing net income by the equivalent shares outstanding during the period. Stock options and weighted average number of common shares outstanding during the deferred stock units are considered common equivalent shares. period. Diluted earnings per share is calculated by dividing net The following table sets forth the computation of basic and diluted income by the weighted average number of common and common earnings per share (in thousands, except per share data): Years Ended December 31, 2001 2000 1999 Numerator: $ 56,978 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,643 $ 83,409 — Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,476) — $ 56,978 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,167 $ 83,409 Denominator: 33,561 Denominator for basic earnings per share – weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,101 34,708 Effect of dilutive securities: 367 Employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 674 500 33,928 Denominator for diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,775 35,208 Earnings per common share: Basic $ 1.70 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.89 $ 2.40 — Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.19) — $ 1.70 Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.70 $ 2.40 Diluted $ 1.68 Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.84 $ 2.37 — Extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.19) — $ 1.68 Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.65 $ 2.37 Long-Term Debt Note 7. United is a holding company and, as a result, its primary source of defined) contain restrictions on the ability of USSC to transfer funds is cash generated from operating activities of its operating cash to United. subsidiary, USSC, and bank borrowings by USSC. The Credit Long-term debt consisted of the following amounts (dollars in Agreement and the indentures governing the 8.375% Notes (as thousands): As of December 31, 2001 2000 $ — Revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,000 32,331 Tranche A term loan, due in installments until March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,325 109,375 Tranche A-1 term loan due in installments until June 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,500 100,000 8.375% Senior Subordinated Notes, due April 15, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 14,300 Industrial development bonds, at market interest rates, maturing at various dates through 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . 14,300 15,500 Industrial development bonds, at 66% to 78% of prime, maturing at various dates through 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 15,500 199 Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 271,705 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,867 (52,970) Less – current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,273) $ 218,735 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $369,594 37 United Stationers Annual Report
  • 40. Notes to Consolidated Financial Statements (continued) Long-Term Debt Note 7. (continued) The prevailing prime interest rates at the end of 2001 and 2000 were The loans outstanding under the Term Loan Facilities and the 4.75% and 9.50%, respectively. Revolving Credit Facility bear interest as determined within a pricing In order to restate and further amend the Second Amended and matrix. The interest rate is based on the ratio of total debt to earnings Restated Credit Agreement, dated April 3, 1998 (the “Prior Credit before interest, taxes, depreciation, and amortization (“EBITDA”). The Agreement”), USSC, as issuer, entered into the Third Amended and Tranche A Term Loan Facility and Revolving Credit Facility bear Restated Revolving Credit Agreement, dated June 29, 2000, with interest at the prime rate plus 0% to 1.00%, or, at the Company’s option, various lenders and the administrative agent named therein (the the London Interbank Offered Rate (“LIBOR”) plus 1.25% to 2.25%. “Credit Agreement”). The Credit Agreement, among other things, The Tranche A-1 Term Loan Facility bears interest at the prime rate provides a facility (“Tranche A Term Loan Facility”) for the plus 0.25% to 1.25%, or, at the Company’s option, LIBOR plus 1.50% continuation of the term loans outstanding as of its effective date to 2.50%. under the Prior Credit Agreement, an additional $150.0 million The Credit Agreement contains representations and warranties, aggregate principal amount, five-year term loan facility (the “Tranche affirmative and negative covenants, and events of default customary for A-1 Term Loan Facility” and, together the Tranche A Term Loan financings of this type. At December 31, 2001, the Company was in Facility, the “Term Loan Facilities”), and a revolving credit facility of compliance with all covenants contained in the Credit Agreement. The right of United to participate in any distribution of earnings or up to $250.0 million aggregate principal amount (the Revolving assets of USSC is subject to the prior claims of the creditors of USSC. Credit Facility”). In addition, the Credit Agreement contains certain restrictive As of December 31, 2001, the available credit under the Term Loan covenants, including covenants that restrict or prohibit USSC’s ability Facilities included $141.7 million of term loan borrowings. In addition, to pay cash dividends and make other distributions to United. the Company has $100.0 million of 8.375% Senior Subordinated Notes The Company is exposed to market risk for changes in interest rates. due 2008, and $29.8 million of industrial development bonds. The Company may enter into interest rate protection agreements, As of December 31, 2001, principal amounts borrowed and including collar agreements, to reduce the impact of fluctuations in outstanding under the Term Loan Facilities consisted of a $32.3 million interest rates on a portion of its variable rate debt. These agreements Tranche A Term Loan Facility and a $109.4 million Tranche A-1 Term generally require the Company to pay to or entitle the Company to Loan Facility. Amounts outstanding under the Tranche A Term Loan receive from the other party the amount, if any, by which the Company’s Facility are to be repaid in nine quarterly installments ranging from interest payments fluctuate beyond the rates specified in the agreements. $3.1 million at March 31, 2002, to $3.7 million at March 31, 2004. The Company is subject to the credit risk that the other party may fail to Amounts outstanding under the Tranche A-1 Term Loan Facility are to perform under such agreements. The Company’s cost for these be repaid in 14 quarterly installments of $7.8 million. agreements was amortized to interest expense over the term of the The Revolving Credit Facility is limited to $250.0 million, less the agreements, and the unamortized cost was included in other assets. aggregate amount of letter of credit liabilities under the facility, and Any payments received or made as a result of the agreements were contains a provision for swingline loans in an aggregate amount up to recorded as an addition to or a reduction from interest expense. For the $25.0 million. The Revolving Credit Facility matures on March 31, year ended December 31, 1999, the Company recorded $0.2 million to 2004. The Company had no borrowings outstanding under the interest expense resulting from LIBOR rate fluctuations below the floor Revolving Credit Facility at December 31, 2001. As of December 31, rate specified in the collar agreements. The Company’s interest rate 2001, the Company had $215.8 million available under its Revolving collar agreements on $200.0 million of borrowings at LIBOR rates Credit Facility after deducting certain outstanding letter-of-credit between 5.2% and 8.0% expired on October 29, 1999. As of December liabilities of $34.2 million. 31, 2001, the Company has not entered into any new interest rate As collateral security for the obligations of USSC and security collar agreements. interests, liens have been placed upon accounts receivable and related Debt maturities for the years subsequent to December 31, 2001, are as instruments, inventory, equipment, contract rights, intellectual property follows (dollars in thousands): and all other tangible and intangible personal property (including proceeds) and fixtures and certain real property of USSC and its Year Amount domestic subsidiaries, other than accounts receivables sold in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,970 connection with the Receivables Securitization Program. Also securing 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,401 these obligations are first priority pledges of all of the outstanding stock 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,909 of USSC and of its domestic direct and indirect subsidiaries, including 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,625 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Lagasse and Azerty but excluding The Order People Company, as well Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,800 as certain of the stock of identified foreign direct and indirect Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 271,705 subsidiaries of USSC (excluding USS Receivables Company, Ltd.) 38 United Stationers Annual Report
  • 41. United Stationers Inc. and Subsidiaries As of December 31, 2001 and 2000, the Company had issued time on or after April 15, 2003, in whole or in part, at the following letters of credit of $38.6 million and $53.0 million, respectively, of redemption prices (expressed as percentages of principal amount): which $36.0 million and $49.6 million, respectively, were Year Beginning April 15, Redemption Price outstanding. 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.188% 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.792% 12.75% Senior Subordinated Notes 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.396% The 12.75% Senior Subordinated Notes (“12.75% Notes”) were originally issued on May 3, 1995, under the 12.75% Notes Indenture. After 2005 the Notes are payable at 100% of the principal amount, On May 2, 2000, the Company redeemed the remaining $100.0 in each case together with accrued and unpaid interest, if any, to the million of its 12.75% Senior Subordinated Notes. The 12.75% redemption date. Notes were redeemed at the redemption price of 106.375% of the Upon the occurrence of a change of control (which includes the principal amount plus accrued interest. As a result, the Company acquisition by any person or group of more than 50% of the voting recognized an extraordinary loss on the early retirement of debt of power of the outstanding Common Stock of either the Company approximately $10.7 million ($6.5 million net of tax benefit of $4.2 or USSC, or certain significant changes in the composition of the million). This charge included the write-off of approximately $4.3 Board of Directors of either the Company or USSC), USSC shall million ($2.6 million net of tax benefit of $1.7 million) of capitalized be obligated to offer to redeem all or a portion of each holder’s 8.375% costs. The redemption was funded through the Company’s Revolving Notes at 101% of the principal amount, together with accrued and Credit Facility. unpaid interest, if any, to the date of the redemption. This obligation, if it arose, could have a material adverse effect on the Company. 8.375% Senior Subordinated Notes The 8.375% Notes Indenture governing the 8.375% Notes contains The 8.375% Senior Subordinated Notes (“8.375% Notes”) were certain covenants, including limitations on the incurrence of issued on April 15, 1998, under the 8.375% Notes Indenture. As of indebtedness, the making of restricted payments, transactions with December 31, 2001, the aggregate outstanding principal amount of affiliates, the existence of liens, disposition of proceeds of asset sales, 8.375% Notes was $100.0 million. The 8.375% Notes are unsecured the making of guarantees by restricted subsidiaries, transfer and senior subordinated obligations of USSC, and payment of the issuances of stock of subsidiaries, the imposition of certain payment 8.375% Notes is fully and unconditionally guaranteed by the restrictions on restricted subsidiaries and certain mergers and sales of Company and USSC’s domestic “restricted” subsidiaries that incur assets. In addition, the 8.375% Notes Indenture provides for the indebtedness (as defined in the 8.375% Notes Indenture) on a senior issuance of up to $100.0 million aggregate principal amount of subordinated basis. The 8.375% Notes mature on April 15, 2008, additional 8.375% Notes having substantially identical terms and and bear interest at the rate of 8.375% per annum, payable semi- conditions to the 8.375% Notes, subject to compliance with the annually on April 15 and October 15 of each year. covenants contained in the 8.375% Notes Indenture, including The 8.375% Notes are redeemable at the option of USSC at any compliance with the restrictions contained in the 8.375% Notes Indenture relating to incurrence of indebtedness. Leases Note 8. The Company has entered into non-cancelable long-term leases Operating for certain property and equipment. Future minimum lease payments Year Leases (1) under operating leases in effect at December 31, 2001 having initial 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,887 or remaining non-cancelable lease terms in excess of one year are as 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,286 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,840 follows (dollars in thousands): 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,892 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,647 Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,321 Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . $ 211,873 (1) Operating leases are net of immaterial sublease income. Operating lease expense was approximately $44.7 million, $31.0 million, and $27.1 million in 2001, 2000, and 1999, respectively. 39 United Stationers Annual Report
  • 42. Notes to Consolidated Financial Statements (continued) Pension Plans and Defined Contribution Plan Note 9. Pension Plans generally provide benefits of stated amounts based on years of service. The Company funds the plans in accordance with current tax laws. As of December 31, 2001, the Company has pension plans The following table sets forth the plans’ changes in Projected covering approximately 4,600 of its employees. Non-contributory Benefit Obligation for the years ended December 31, 2001 and 2000 plans covering non-union employees provide pension benefits that (dollars in thousands): are based on years of credited service and a percentage of annual compensation. Non-contributory plans covering union members 2001 2000 $ 44,419 Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,647 3,452 Service cost – benefit earned during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,171 3,463 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,997 — Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 6,053 Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,447 (486) Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1,375) Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,110) $ 55,526 Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,419 The plans’ assets consist of corporate and government debt securities and equity securities. The following table sets forth the change in the plans’ assets for the years ended December 31, 2001 and 2000 (dollars in thousands): 2001 2000 $ 56,847 Fair value of assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,891 (12,213) Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,015 430 Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,051 (1,375) Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,110) $ 43,689 Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,847 The following table sets forth the plans’ funded status as of December 31, 2001 and 2000 (dollars in thousands): 2001 2000 $ (11,836) Funded status of the plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,428 1,293 Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,429 8,300 Unrecognized net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,113) $ (2,243) Pension liability recognized in the Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,256) Net periodic pension cost for 2001, 2000 and 1999 for pension and supplemental benefit plans includes the following components (dollars in thousands): 2001 2000 1999 $ 3,452 Service cost – benefit earned during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,171 $ 3,231 3,463 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,997 2,598 (4,809) Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,114) (3,485) 126 Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 99 10 Plan curtailment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 193 (825) Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (623) (13) $ 1,417 Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,542 $ 2,623 The assumptions used in accounting for the Company’s defined benefit plans are set forth below: 2001 2000 1999 7.25% Assumed discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.75% 7.75% 5.00% Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.50% 5.50% 8.50% Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.50% 8.50% 40 United Stationers Annual Report
  • 43. United Stationers Inc. and Subsidiaries Defined Contribution Plan provides for Company contributions, or contributions matching employees’ salary deferral contributions, at the discretion of the The Company has a defined contribution plan. Salaried employees Board of Directors. Company contributions to match employees’ and non-union hourly paid employees are eligible to participate after contributions were approximately $3.6 million, $3.1 million and completing six consecutive months of employment. The plan $1.5 million in 2001, 2000 and 1999, respectively. permits employees to have contributions made as 401(k) salary deferrals on their behalf, or as voluntary after-tax contributions, and Postretirement Benefits Note 10. The Company maintains a postretirement plan. The plan is contributions, deductible, co-payment provision and other unfunded and provides health care benefits to substantially all retired limitations. The following tables set forth the plan’s change in non-union employees and their dependents. Eligibility requirements Accrued Postretirement Benefit Obligation (“APBO”), plan assets are based on the individual’s age (minimum age of 55), years of and funded status for the years ended December 31, 2001 and 2000 service and hire date. The benefits are subject to retiree (dollars in thousands): 2001 2000 $ 4,780 Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,606 620 Service cost – benefit earned during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574 366 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 151 Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 93 Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 (202) Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (266) Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (459) $ 5,542 Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,780 $ — Fair value of assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — 115 Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348 151 Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 (266) Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (459) $ — Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ (5,542) Funded status of the plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,780) — Unrecognized net actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (65) $ (5,542) Accrued postretirement benefit obligation in the Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,845) The costs of postretirement health care benefits for the years ended December 31, 2001, 2000 and 1999 were as follows (dollars in thousands): 2001 2000 1999 $ 620 Service cost – benefit earned during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 574 $ 498 366 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 229 (174) Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — Amortization of actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (7) $ 812 Net periodic postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 909 $ 720 The assumptions used in accounting for the Company’s postretirement plan for the three years presented are set forth below: 2001 2000 1999 3.00% Assumed average health care cost trend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00% 3.00% 7.25% Assumed discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.75% 7.75% The postretirement plan states that the Company’s medical cost increases for current and future retirees and their dependents are capped at 3%. Because annual medical cost increases are trending above 4% and the Company’s portion of any increase is capped at 3%, a 1% increase or decrease in these costs will have no effect on the APBO, the service cost or the interest cost. 41 United Stationers Annual Report
  • 44. Notes to Consolidated Financial Statements (continued) Stock Option Plan Note 11. The Management Equity Plan (the “Plan”) is administered by the and five years and generally expire 10 years from the date of grant. Human Resources Committee, or the Board of Directors or by such As of December 31, 2001, there were 3.2 million shares available for other committee, as determined by the Board of Directors of the future grant. Company. The Plan provides for the issuance of Common Stock, An optionee under the Plan must pay the full option price upon through the exercise of options, to members of the Board of Directors exercise of an option (i) in cash; (ii) with the consent of the Board and to key employees of the Company, either as incentive stock of Directors, by delivering mature shares of Common Stock already options or as non-qualified stock options. owned by the optionee and having a fair market value at least equal In May 2000, the Company’s stockholders approved the 2000 to the exercise price; or (iii) in any combination of the above. The Management Equity Plan, which provided for the issuance of up to Company may require the optionee to satisfy federal tax withholding 3.7 million shares of Common Stock through the exercise of options, obligations with respect to the exercise of options by (i) additional to members of the Board of Directors and to key employees of the withholding from the employee’s salary, (ii) requiring the optionee to Company. During 2001, 2000 and 1999, options of approximately pay in cash, or (iii) reducing the number of shares of Common Stock 1.0 million, 1.0 million and 1.3 million, respectively, were granted to to be issued to meet only the minimum statutory withholding management employees and directors, with option exercise prices requirement (except in the case of incentive stock options). equal to fair market value, generally vesting ratably between three The following table summarizes the transactions of the Plan for the last three years: Weighted Weighted Weighted Average Average Average Exercise Management Equity Plan Exercise Exercise 2001 Prices (excluding restricted stock) 2000 Prices 1999 Prices Options outstanding at beginning 3,430,555 $ 23.13 of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,968,875 $ 19.60 2,212,578 $ 15.28 1,093,740 32.87 Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984,100 28.85 1,293,025 22.89 (640,084) 20.43 Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (396,480) 10.82 (434,978) 6.52 (700,283) 27.61 Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (125,940) 23.40 (101,750) 23.41 Options outstanding at 3,183,928 $ 25.29 end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . 3,430,555 $ 23.13 2,968,875 $ 19.60 977,253 $ 19.66 Number of options exercisable . . . . . . . . . . . . . . . 834,225 $ 19.04 701,160 $ 12.98 The following table summarizes information concerning the Plan’s The Company elected the supplemental disclosure requirements outstanding options as of December 31, 2001: of SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, the Company is required to disclose pro forma net Remaining income and earnings per share as if the fair value-based accounting Exercise Contractual Prices Outstanding Life (Years) Exercisable method in SFAS No. 123 had been used to account for stock-based $ 10.81 500,000 5.5 400,000 compensation cost. 22.00 237,130 7.6 59,080 Options granted under the Plan during 2001, 2000 and 1999 did 22.13 30,000 6.0 24,000 not require compensation cost to be recognized in the income 23.38 332,740 6.2 110,380 statement. However, they are subject to the supplemental disclosure 23.38 448,060 7.2 139,640 requirements of SFAS No. 123. Had compensation cost been 26.25 30,000 8.2 6,000 determined on the basis of SFAS No. 123 for options granted during 26.83 30,000 9.0 6,000 2001, 2000 and 1999, net income and earnings per share would have 29.13 627,158 8.7 190,153 30.56 3,600 6.5 2,400 been adjusted as follows (in thousands, except per share data): 30.84 51,000 10.0 — 31.63 30,000 6.3 18,000 32.40 20,000 9.7 — 32.99 810,640 9.7 — 33.06 30,000 6.7 18,000 33.56 3,600 6.7 3,600 Total 3,183,928 977,253 42 United Stationers Annual Report
  • 45. United Stationers Inc. and Subsidiaries 2001 2000 1999 Net Income Attributable to Common Stockholders: $ 56,978 As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,167 $ 83,409 52,488 Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,951 79,821 Net Income per Common Share – Basic: $ 1.70 As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.70 $ 2.40 1.56 Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.58 2.30 33,561 Average number of common shares (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,101 34,708 Net Income per Common Share – Diluted: $ 1.68 As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.65 $ 2.37 1.55 Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.53 2.27 33,928 Average number of common shares (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,775 35,208 The Company uses a binomial option pricing model to estimate the fair value of options at the date of grant. The weighted average assumptions used to value options and the weighted average fair value of options granted during 2001, 2000 and 1999 were as follows: 2001 2000 1999 $ 12.73 Fair value of options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.84 $ 13.20 32.87 Exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.85 22.89 51.0% Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52.8% 55.5% 0.0% Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% 0.0% 4.6% Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1% 5.1% 3 years Expected life of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 years 6 years Retention Grant Plan Directors Grant Plan During 2001, the Company established a Retention Grant Plan During 2001, the Company established a Directors Grant Plan (the “Retention Plan”) to retain key executives and to provide (the “Directors Plan”) to retain directors who are not employees of additional incentive for such key executives to achieve the objectives the Company and to provide additional incentive for such directors and promote the business success of the Company by providing such to achieve the objectives and promote the business success of the individuals opportunities to acquire common shares of the Company Company by providing such individuals opportunities to acquire through the settlement of deferred stock units. Each deferred stock common shares of the Company through the settlement of deferred unit is equal to one share of the Company’s Common Stock. The stock units. Each deferred stock unit is equal to one share of the maximum number of deferred stock units that may be granted under Company’s Common Stock. At such times as determined by the the Retention Plan is 270,000. During 2001, 100,000 deferred stock Board of Directors of the Company, each director of the Company units were granted with a cliff vesting of eight years, subject to who is not an employee of the Company may be granted up to 4,000 certain accelerated vesting conditions. The value of the grant of deferred stock units each year as determined by the Board of $24.25 per deferred stock unit was established by the market price of Directors in its sole discretion. Vesting terms will be determined at the Company’s Common Stock on the date of the grant. During the time of the grant. During 2001, 19,200 deferred stock units were 2001, the Company recorded approximately $0.2 million of expense granted to certain members of the Board of Directors, which vested in connection with the Retention Plan. immediately. The value of the grant was established by the market price of the Company’s Common Stock on the date of the grant. During 2001, the Company recorded approximately $0.6 million of expense, which represented the entire value of the grant, in connection with the Directors Plan. Preferred Stock Note 12. The Company’s authorized capital shares include 15.0 million issuance. At December 31, 2001, the Company had no preferred shares of preferred stock. The rights and preferences of preferred stock outstanding and all 15.0 million shares are specified as stock are established by the Company’s Board of Directors upon undesignated preferred stock. 43 United Stationers Annual Report
  • 46. Notes to Consolidated Financial Statements (continued) Income Taxes Note 13. The provision for income taxes consisted of the following (dollars in thousands): Years Ended December 31, 2001 2000 1999 Currently Payable – $ 41,271 Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,329 $ 47,774 6,712 State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,824 11,722 47,983 Total currently payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,153 59,496 Deferred, net – (9,857) Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,491 530 (1,463) State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829 132 (11,320) Total deferred, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,320 662 $ 36,663 Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,473 $ 60,158 The Company’s effective income tax rates for the years ended December 31, 2001, 2000 and 1999 varied from the statutory federal income tax rate as set forth in the following table (dollars in thousands): Years Ended December 31, 2001 2000 1999 % of % of % of Pre-tax Pre-tax Pre-tax Amount Income Amount Income Amount Income $ 32,774 35.0% Tax provision based on the federal statutory rate . . . . . . . . $ 57,441 35.0% $ 50,248 35.0% State and local income taxes – net of federal 3,371 3.6 income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,713 4.7 7,710 5.4 518 0.6 Non-deductible and other . . . . . . . . . . . . . . . . . . . . . . . . . . 319 0.2 2,200 1.5 $ 36,663 39.2% Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,473 39.9% $ 60,158 41.9% The deferred tax assets and liabilities resulted from temporary differences in the recognition of certain income and expense items for financial and tax accounting purposes. The sources of these differences and the related tax effects were as follows (dollars in thousands): As of December 31, 2001 2000 Assets Liabilities Assets Liabilities $ 12,233 $ — Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,926 $ — 5,930 — Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,251 — — 14,125 Inventory reserves and adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 13,411 — 29,784 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 28,604 13,968 — Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1,394 — Reserve for stock option compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 — 5,397 — Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,858 — $ 38,922 $ 43,909 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,482 $ 42,015 In the Consolidated Balance Sheets, these deferred assets and liabilities were classified on a net basis as current and non-current, based on the classification of the related asset or liability or the expected reversal date of the temporary difference. 44 United Stationers Annual Report
  • 47. United Stationers Inc. and Subsidiaries Supplemental Cash Flow Information Note 14. In addition to the information provided in the Consolidated Statements of Cash Flows, the following are supplemental disclosures of cash flow information for the years ended December 31, 2001, 2000 and 1999 (dollars in thousands): 2001 2000 1999 Cash Paid During the Year for: $ 27,036 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,555 $ 27,449 6,882 Discount on the sale of accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,632 8,919 41,075 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,691 54,520 Fair Value of Financial Instruments Note 15. The estimated fair value of the Company’s financial instruments is as follows (dollars in thousands): As of December 31, 2001 As of December 31, 2000 Carrying Fair Carrying Fair Amount Value Amount Value $ 28,814 $ 28,814 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,784 $ 19,784 52,970 52,970 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,273 40,273 Long-term debt: 100,000 101,020 8.375% Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 92,950 118,735 118,735 All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,594 269,594 The fair value of the Notes are based on quoted market prices and quotes from counterparties, respectively. Quarterly Financial Data – Unaudited Note 16. Income/ Income/ (Loss) Net (Loss) Per Diluted Income/ Before Net Share Before (Loss) Extraordinary Income/ Extraordinary Per Diluted (dollars in thousands, except share data) Net Sales Gross Profit Item (Loss) Item (1) Share (1) Year Ended December 31, 2001 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $1,059,842 $ 166,123 $ 21,613 $ 21,613 $ 0.64 $ 0.64 Second Quarter . . . . . . . . . . . . . . . . . . . . . . . 978,886 155,003 21,841 21,841 0.65 0.65 Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 950,910 152,403 (5,943) (5,943) (0.18) (0.18) Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . 936,298 146,264 19,467 19,467 0.57 0.57 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,925,936 $ 619,793 $ 56,978 $ 56,978 1.68 1.68 Year Ended December 31, 2000 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . $ 994,883 $ 158,130 $ 23,924 $ 23,924 $ 0.69 $ 0.69 Second Quarter . . . . . . . . . . . . . . . . . . . . . . . 944,023 148,795 22,768 16,292 0.65 0.47 Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 1,015,441 164,516 26,427 26,427 0.76 0.76 Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . 990,515 172,403 25,524 25,524 0.74 0.74 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,944,862 $ 643,844 $ 98,643 $ 92,167 2.84 2.65 (1) As a result of changes in the number of common and common equivalent shares during the year, the sum of quarterly earnings per share will not necessarily equal earnings per share for the total year. 45 United Stationers Annual Report
  • 48. Notes to Consolidated Financial Statements (continued) Condensed Consolidating Financial Statements – Unaudited Note 17. adjustments. Separate financial statements of the guarantors are The following table presents condensed consolidating financial not presented, as the Company believes the condensed consolidating information, as required by the Company’s 8.375% Notes for United financial information is more meaningful in understanding the Stationers Inc., the parent holding company; United Stationers statements of operations, balance sheets, and cash flows of the Supply Co., the issuer; Azerty Incorporated, The Order People, guarantor subsidiaries. Therefore, the following condensed Lagasse, Inc., United Stationers Financial Services LLC, and United consolidating financial information has been prepared using the Stationers Technology Services LLC, the guarantors; United equity method of accounting in accordance with the requirements Worldwide Limited, United Stationers Hong Kong Limited and USS for presentation of such information. Receivables Company, LTD., are non-guarantors; and elimination Condensed Consolidating Statements of Operations (dollars in thousands) United United Stationers Stationers Subsidiary Inc. Supply Co. Subsidiary Non- (Parent) (Issuer) Guarantors Guarantors Eliminations Consolidated For the Year Ended December 31, 2001: Net Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 2,867,543 $ 1,150,939 $ 27,190 $ (119,736) $ 3,925,936 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,350,790 967,160 — (11,807) 3,306,143 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 516,753 183,779 27,190 (107,929) 619,793 Warehouse, marketing and administrative expenses . . . . . . . — 388,786 106,850 3,350 (48,851) 450,135 Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 30,072 17,531 — — 47,603 Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 418,858 124,381 3,350 (48,851) 497,738 Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . — 97,895 59,398 23,840 (59,078) 122,055 Other expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 76,813 (30,044) — (42,148) 4,621 Interest (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,222) 27,559 6,949 13,437 (16,930) 23,793 Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 7,222 (6,477) 82,493 10,403 — 93,641 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,549 245 29,717 4,152 — 36,663 Equity from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,305 6,251 — — (58,556) — Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,978 $ (471) $ 52,776 $ 6,251 $ (58,556) $ 56,978 For the Year Ended December 31, 2000: Net Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 2,965,590 $ 982,904 $ 33,305 $ (36,937) $ 3,944,862 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,417,632 885,179 — (1,793) 3,301,018 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 547,958 97,725 33,305 (35,144) 643,844 Warehouse, marketing and administrative expenses . . . . . . . — 381,623 59,212 3,495 (3,032) 441,298 Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 32,180 — — (20,979) 11,201 Interest (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,793) 24,575 4,220 18,360 (11,133) 27,229 Income before income taxes and and extraordinary item . . . 8,793 109,580 34,293 11,450 — 164,116 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,103 43,655 14,196 4,519 — 65,473 Equity from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91,117 6,931 — — (98,048) — Income before extraordinary item . . . . . . . . . . . . . . . . . . . . . 96,807 72,856 20,097 6,931 (98,048) 98,643 Extraordinary item — loss on early retirement of debt, net of tax . . . . . . . . . . . . . . . . . . . . . . . — (6,476) — — — (6,476) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,807 $ 66,380 $ 20,097 $ 6,931 $ (98,048) $ 92,167 For the Year Ended December 31, 1999: Net Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 2,624,564 $ 819,448 $ 31,570 $ (32,886) $ 3,442,696 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,138,757 739,782 — — 2,878,539 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 485,807 79,666 31,570 (32,886) 564,157 Warehouse, marketing and administrative expenses . . . . . . . — 330,162 51,045 3,444 (2,688) 381,963 Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 30,237 — — (20,805) 9,432 Interest (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,978) 25,364 4,894 15,308 (9,393) 29,195 Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 6,978 100,044 23,727 12,818 — 143,567 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,491 42,127 10,293 5,247 — 60,158 Equity from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,922 7,571 — — (86,493) — Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,409 $ 65,488 $ 13,434 $ 7,571 $ (86,493) $ 83,409 46 United Stationers Annual Report
  • 49. Condensed Consolidating Statements of Cash Flows United Stationers Inc. and Subsidiaries (dollars in thousands) United United Stationers Stationers Subsidiary Inc. Supply Co. Subsidiary Non- (Parent) (Issuer) Guarantors Guarantors Eliminations Consolidated For the Year Ended December 31, 2001: Net cash flows (used in) provided by operating activities . . . . . . . . $ (15,796) $ 169,433 $ 26,813 $ 34,890 $ (24,200) $ 191,140 Cash flows from investing activities: Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (32,650) — — (32,650) Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (22,729) (9,774) — — (32,503) Proceeds from the disposition of property, plant and equipment . . . — 3,800 85 — — 3,885 Proceeds from the sale of Positive ID. . . . . . . . . . . . . . . . . . . . . . . . — — 14,941 — — 14,941 Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,383 — — — (12,383) — Net cash provided by (used in) investing activities . . . . . . . . . . . . . 12,383 (18,929) (27,398) — (12,383) (46,327) Cash flows from financing activities: Net repayments under revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (98,000) — — — (98,000) Retirements and principal payments of debt . . . . . . . . . . . . . . . . . . — (40,163) — (25,000) 25,000 (40,163) Issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,796 — — — — 15,796 Acquisition of treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . (12,383) — — — — (12,383) Intercompany dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (12,383) — — 12,383 — Intercompany notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 7,222 4,057 (10,479) (800) — Payment of employee withholding tax related to stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1,033) — — — (1,033) Net cash provided by (used in) financing activities . . . . . . . . . . . . . 3,413 (144,357) 4,057 (35,479) 36,583 (135,783) Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . — 6,147 3,472 (589) — 9,030 Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . 424 13,202 4,201 1,957 — 19,784 Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . $ 424 $ 19,349 $ 7,673 $ 1,368 $ — $ 28,814 For the Year Ended December 31, 2000: Net cash flows (used in) provided by operating activities . . . . . . . . $ (4,247) $ 30,087 $ 27,957 $ 1,576 $ (16,703) $ 38,670 Cash flows from investing activities: Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (44,233) — — — (44,233) Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (41,079) (2,559) — — (43,638) Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,437 — — — (22,437) — Proceeds from the disposition of property, plant and equipment . . . — 4,337 — — — 4,337 Net cash provided by (used in) investing activities . . . . . . . . . . . . . 22,437 (80,975) (2,559) — (22,437) (83,534) Cash flows from financing activities: Net borrowings under revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 45,000 — — — 45,000 Retirements and principal payments of debt . . . . . . . . . . . . . . . . . . — (128,509) — (10,000) 10,000 (128,509) Borrowings under financing agreements . . . . . . . . . . . . . . . . . . . . . — 150,000 — — — 150,000 Issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,247 — — — — 4,247 Acquisition of treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . (22,437) — — — — (22,437) Intercompany dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (22,437) — — 22,437 — Intercompany notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8,793 (23,703) 8,207 6,703 — Payment of employee withholding tax related to stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2,646) — — — (2,646) Net cash (used in) provided by financing activities . . . . . . . . . . . . (18,190) 50,201 (23,703) (1,793) 39,140 45,655 Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . — (687) 1,695 (217) — 791 Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . 424 13,889 2,506 2,174 — 18,993 Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . $ 424 $ 13,202 $ 4,201 $ 1,957 $ — $ 19,784 For the Year Ended December 31, 1999: Net cash flows (used in) provided by operating activities . . . . . . . . $ (2,848) $ 54,589 $ (46,712) $ 11,597 $ 36,955 $ 53,581 Cash flows from investing activities: Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (4,680) — — — (4,680) Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (21,910) (3,551) — — (25,461) Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,600 — — — (49,600) — Proceeds from the disposition of property, plant and equipment . . . — 4,130 — — — 4,130 Net cash provided by (used in) investing activities . . . . . . . . . . . . . 49,600 (22,460) (3,551) — (49,600) (26,011) Cash flows from financing activities: Net borrowings under revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 29,000 — — — 29,000 Retirements and principal payments of debt . . . . . . . . . . . . . . . . . . — (7,604) — — — (7,604) Borrowings under financing agreements . . . . . . . . . . . . . . . . . . . . . . . . — 145 — — — 145 Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 250 — — — 250 Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,523 — — — — 2,523 Issuance of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 — — — — 323 Acquisition of treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . (49,600) — — — — (49,600) Intercompany dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (49,600) — — 49,600 — Intercompany notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (234) 47,618 (10,429) (36,955) — Payment of employee withholding tax related to stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2,652) — — — (2,652) Net cash (used in) provided by financing activities . . . . . . . . . . . . . (46,754) (30,695) 47,618 (10,429) 12,645) (27,615) Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . (2) 1,434 (2,645) 1,168 — (45) Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . 426 12,455 5,151 1,006 — 19,038 Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . $ 424 $ 13,889 $ 2,506 $ 2,174 $ — $ 18,993 47 United Stationers Annual Report
  • 50. Notes to Consolidated Financial Statements United Stationers Inc. and Subsidiaries (continued) Condensed Consolidating Financial Statements – Unaudited Note 17. (continued) Condensed Consolidating Balance Sheets (dollars in thousands) United United Stationers Stationers Subsidiary Inc. Supply Co. Subsidiary Non- (Parent) (Issuer) Guarantors Guarantors Eliminations Consolidated As of December 31, 2001: Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 424 $ 19,349 $ 7,673 $ 1,368 $ — $ 28,814 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . — 48,764 170,429 220,031 (128,177) 311,047 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 450,278 131,427 — — 581,705 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 30,287 5,214 16 (6,985) 28,532 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . — 171,031 17,963 18 — 189,012 Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 67,674 112,443 — — 180,117 Intercompany notes receivable . . . . . . . . . . . . . . . . . . . . . . . 109,539 51,155 54,978 — (215,672) — Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 630,880 249,309 30,630 — (910,819) — Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 11,303 12,540 — (3,487) 20,360 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740,847 1,099,150 543,297 221,433 (1,265,140) 1,339,587 Liabilities and Stockholders’ Equity Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 253,561 87,261 — (4,100) 336,722 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,549 92,935 52,592 5,016 (5,452) 147,640 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . — 52,830 140 — — 52,970 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 18,418 (190) — — 18,228 Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 261,390 (16,044) 125,000 (125,000) 245,346 Intercompany notes payable . . . . . . . . . . . . . . . . . . . . . . . . . — 109,539 51,155 54,978 (215,672) — Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 738,298 310,477 368,383 36,439 (914,916) 538,681 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . $ 740,847 $1,099,150 $ 543,297 $ 221,433 $(1,265,140) $ 1,339,587 As of December 31, 2000: Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 424 $ 13,202 $ 4,201 $ 1,957 $ — $ 19,784 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 139,905 124,451 241,572 (175,994) 329,934 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 524,120 164,806 — — 688,926 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10,599 5,239 5 — 15,843 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . — 179,370 10,412 5 — 189,787 Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 77,914 104,009 — — 181,923 Intercompany notes receivable . . . . . . . . . . . . . . . . . . . . . . . 102,317 112,555 — — (214,872) — Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 525,011 197,198 — — (722,209) — Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 21,157 — — (329) 20,830 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627,754 1,276,020 413,118 243,539 (1,113,404) 1,447,027 Liabilities and Stockholders’ Equity Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 273,697 119,092 — — 392,789 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,102 95,001 27,563 5,575 (5,272) 125,969 Current maturities of long-term debt . . . . . . . . . . . . . . . . . . — 40,193 80 — — 40,273 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 22,301 402 — — 22,703 Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 393,178 (6,324) 150,000 (150,000) 386,854 Intercompany notes payable . . . . . . . . . . . . . . . . . . . . . . . . . — 102,317 47,098 65,457 (214,872) — Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624,652 349,333 225,207 22,507 (743,260) 478,439 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . $ 627,754 $1,276,020 $ 413,118 $ 243,539 $(1,113,404) $ 1,447,027 48 United Stationers Annual Report
  • 51. Board of Directors Back row, left to right: Alex D. Zoghlin; Roy W. Haley; Ilene S. Gordon; Daniel J. Good; and Max D. Hopper. Front row, left to right: Benson P. Shapiro; Randall W. Larrimore; and Frederick B. Hegi, Jr. Directors Directors Frederick B. Hegi, Jr. Ilene S. Gordon Max D. Hopper Alex D. Zoghlin (e) (g) (a) (h) (a) (h) Chairman of President, Pechiney Principal and Chief Technology Officer, United Stationers Inc.; Plastic Packaging, Inc. Chief Executive Officer, Orbitz, LLC Founding Partner of Max D. Hopper Associates, Inc.; Roy W. Haley (a) (h) Wingate Partners Retired Chairman of Chairman and SABRE Technology Group Randall W. Larrimore (e) Chief Executive Officer, (a) Audit Committee Benson P. Shapiro (e) (g) President and WESCO International, Inc. (e) Executive Committee Chief Executive Officer, Malcolm P. McNair Professor (g) Governance Committee United Stationers Inc. of Marketing Emeritus at (h) Human Resources Committee Harvard Business School; consultant and speaker Daniel J. Good (g) Chairman, Good Capital Co., Inc. Design: Hirsch O’Connor Design, Chicago, Ill. Major Photography: Paradise Photographic, Elk Grove Village, Ill. Printing: Triangle/Expercolor, Skokie, Ill. Executive Executive Randall W. Larrimore Kathleen S. Dvorak Mark J. Hampton Joseph R. Templet Officers Officers President and Senior Vice President Senior Vice President, Marketing Senior Vice President, Chief Executive Officer and Chief Financial Officer and Field Support Services Field Sales and Operations Steven M. Cappaert Deidra D. Gold Jeffrey G. Howard Ergin Uskup Senior Vice President Senior Vice President, General Senior Vice President, Sales Senior Vice President and and Controller Counsel and Secretary and Customer Support Services Chief Information Officer Brian S. Cooper John T. Sloan Senior Vice President Senior Vice President, and Treasurer Human Resources Stockholder Stockholder Offer of 10 -K Headquarters Stock Market Listing Transfer Agent Information Information The annual report on Form and Registrar United Stationers Inc. Nasdaq National Market System Communications on stock 10-K filed with the SEC is 2200 East Golf Road Trading Symbol: USTR transfer requirements, lost available without charge on Des Plaines, IL 60016-1267 Included in the stock certificates or change of the company’s Web site at TELEPHONE: (847) 699-5000 S&P SmallCap 600 Index address should be directed to: www.unitedstationers.com FAX: (847) 699-4716 Annual Meeting EquiServe Trust Company, N. A. or by writing to the Investor www.unitedstationers.com The annual meeting of P. O. Box 43010 Relations Department at Investor stockholders is scheduled for Providence, RI 02940-3010 United Stationers’ headquarters. Relations Contact 2:00 p.m. on May 8, 2002, at TELEPHONE: (781) 575-3400 Kathleen Dvorak United Stationers’ headquarters. E-MAIL: Senior Vice President and shareholder-equiserve @ Chief Financial Officer equiserve.com E-MAIL: kdvorak@ussco.com WEB SITE: TELEPHONE: www.equiserve.com (847) 699-5000 EXT. 2321 Printed on Recycled Paper
  • 52. CHALLENGES CHANGE + D E T E R M I N AT I O N 2200 East Golf Road Des Plaines, Illinois 60016 (847) 699-5000 www.unitedstationers.com