United Stationers Inc.
A YEAR OF
D E T E R M I N AT I O N
Annual Report 2001
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
Stockholder Information Inside Back Cover
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
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,944,862
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,546
Income before income taxes and extraordinary item . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,116
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,167
Net income per share—assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.65
Operating Results Before Restructuring1 and Extraordinary 2 Charges
$ 169,658 1
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 202,546
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,6432
Net income per share — assuming dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.842
Balance Sheet Data at Year End
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 495,4563
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447,0273
Long-term debt (including current maturities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,867
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 478,439
NET SALES NET INCOME PER SHARE
(Dollars in Millions)
(Dollars in Billions) (Dollars per Share)
$2.00 2, 4
$1.47 2, 4
97 98 99 00 01
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
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.)
United Stationers Annual Report
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
competitive company with an even greater focus on customer Office Products
service, distribution excellence, employee advancement and 35%
return on invested capital.
Machines & Office
Both traditional office products and computer consumables
continue to account for about a third of our business.
2 United Stationers Annual Report
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
about $35 million, which includes $17 million in restructuring-
on our gross margin, which
1.9 x 3
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
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
per share in 2001, compared with $92.2 million, or $2.65 per
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.
Our Balance Sheet
We kept capital expenditures under control during the year.
Spending totaled $28.6 million compared with $39.3 million
United Stationers Annual Report
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:
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
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
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
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
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.
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.
United Stationers Annual Report
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.
We also are looking at ways to modernize and reduce the
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
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
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
United Stationers Annual Report
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.
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
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,
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
next-day delivery to resellers or end-consumers across
• 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.
United Stationers Annual Report
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
costs and increase their financial returns.
• 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
• 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
Best Places to Work in IT.” The judging criteria included
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.
United Stationers Annual Report
Working for a
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
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
• 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
net sales of $3.9 billion. The Company sells its products through
United Stationers Annual Report
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
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
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
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
• Customer Rebates
Cost of goods sold . . . . . . . . . . . . . . . . . . 83.7 83.6
Customer rebates and discounts are common practice in the
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
administrative expenses . . . . . . . . . . . . 11.2 11.1
other miscellaneous discount programs. These rebates are
Restructuring charge . . . . . . . . . . . . . . . — —
recorded as a reduction to gross sales. Customer rebates are
Total operating expenses . . . . . . . . . . . . . 11.2 11.1
estimated based on customer participation and are recorded as
Income from operations . . . . . . . . . . . . . . 5.1 5.3
revenue is recognized. These estimates are adjusted, if necessary,
Interest expense . . . . . . . . . . . . . . . . . . . . (0.8) (0.8)
as new information becomes available. 0.1
Interest income. . . . . . . . . . . . . . . . . . . . . 0.1 —
Other expense, net . . . . . . . . . . . . . . . . . (0.3) (0.3)
• Manufacturers’ Allowances
Manufacturers’ allowances and promotional incentives are Income before income taxes and
extraordinary item . . . . . . . . . . . . . . . . . 4.1 4.2
common practice in the business products industry and contribute
Income taxes . . . . . . . . . . . . . . . . . . . . . . 1.7 1.8
significantly to the Company’s gross margin. Manufacturers’
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
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
United Stationers Annual Report