Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
USTR > SEC Filings for USTR > Form 10-Q on 30-Oct-2012All Recent SEC Filings

Show all filings for UNITED STATIONERS INC

Form 10-Q for UNITED STATIONERS INC


30-Oct-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements often contain words such as "expects," "anticipates," "estimates," "intends," "plans," "believes," "seeks," "will," "is likely," "scheduled," "positioned to," "continue," "forecast," "predicting," "projection," "potential" or similar expressions. Forward-looking statements include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management's current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, without limitation, those set forth in "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year-ended December 31, 2011.

Readers should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it.

Company Overview

The Company is a leading wholesale distributor of business products, with 2011 net sales of approximately $5.0 billion. The Company sells its products through a national distribution network of 60 distribution centers to approximately 25,000 resellers, who in turn sell directly to end consumers.

Key Trends and Recent Results

The following is a summary of selected trends, events or uncertainties that the Company believes may have a significant impact on its future performance.

The Company's "Winning-from-the-Middle" strategy has two primary components: 1) to strengthen and extend the Company's core office products business, and 2) to diversify the Company's portfolio into higher growth categories and channels.

In office products, the Company serves a diverse set of customers across many channels. The Company provides wholesale distribution services that allow its reseller customers to operate more efficiently and become more adaptable in today's rapidly changing marketplace. This is enabled through a highly efficient supply chain and advanced logistics capabilities, coupled with marketing, merchandising, and e-businesses solutions. These offerings allow the Company's customers to grow faster, better manage their working capital, and extend the depth and breadth of their product assortment. The Company is beginning to see long-term declining demand trends in certain office products categories as a result of the digitization of the workspace. In addition, online sales of these products continue to gain a larger share of the market. The Company's core independent and national account customers value the scale and services that United provides in helping them succeed in this changing marketplace.


Table of Contents

The Company's acquisitions have extended its reach into the industrial and janitorial/breakroom categories. The recent agreement to acquire O.K.I. Supply Co. (O.K.I.), described in more detail below, demonstrates the Company's strategic focus to expand the role of wholesale distribution services into areas where they are currently underpenetrated. The services and capabilities offered to customers in these categories are similar to those in office products. A common distribution and supply chain infrastructure is used across all categories to drive efficiencies in the supply chain. These efforts are continuing to prove the value of wholesale and continue to drive organic growth.

On October 22, 2012, the Company announced that USSC signed a stock purchase agreement to acquire 100% of the outstanding shares of O.K.I. for an all cash purchase price of $90 million. O.K.I. has annual revenues of approximately $150 million, offering 80,000 premium manufacturer-branded and private label products. The potential for accelerated growth and value creation from this acquisition is attractive given the Company's unique nationwide pure wholesale distribution network, broad product offering, and marketing capabilities. O.K.I. sells to more than 9,000 independent distributors across multiple channels through nine distribution centers strategically located across the United States. It also has operations in Canada and Dubai, UAE that are positioned for strong growth. The acquisition is expected to be completed in November 2012.

In the short-term, the Company continues to: 1) increase investment in growth categories and channels, 2) optimize its distribution and transportation network, 3) align the organization's structure around future priorities, 4) accelerate cost savings through its "War on Waste" or WOW program, and 5) strengthen its value proposition and improve margins.

As mentioned, the industry and marketplace continue to change quickly. Business and retail consumers are rapidly shifting their purchases of the product categories the Company offers from traditional "brick and mortar" channels to the internet. Many of the Company's customers are growing rapidly online and new customers are emerging. The Company offers industry-leading fulfillment services along with content and marketing services to provide its customers with the scale and capabilities to succeed online.

Sales for the third quarter remained flat to the prior year quarter, after adjusting for one less selling day this quarter, at $1.29 billion. These sales reflected softening market conditions with industrial, janitorial/breakroom, and office product categories increasing 7.0%, 2.3%, and 1.3%, respectively. Technology category sales declined 4.5% and furniture category sales were down 2.9%.

The gross margin for the quarter was $203.8 million or 15.8% of sales, compared with $199.8 million or 15.3% of sales in the prior-year quarter. This 56 basis point improvement was positively impacted by higher inventory purchase-related supplier allowances.

Third quarter operating expenses were $140.1 million or 10.9% of sales, compared with $135.1 million or 10.3% of sales in the third quarter of 2011. Higher pension, healthcare and variable labor costs were partially offset by savings from WOW initiatives. The prior-year quarter also included a favorable resolution of a non-income based tax liability.

Operating income for the quarter ended September 30, 2012 was $63.6 million or 4.9% of sales, versus $64.6 million or 4.9% of sales in the third quarter of 2011.

Diluted earnings per share for the latest quarter were $0.91, compared with $0.81 in the prior-year period. Lower interest expense and lower average shares outstanding during the quarter benefited earnings per share.

Net cash provided by operating activities for the nine months ended September 30, 2012 was $155.7 million, compared with $99.5 million in the same period last year. Cash flow used in investing activities totaled $20.1 million in 2012, compared with $20.7 million in the same period last year. Capital spending is expected to be in the range of $30 million to $35 million for all of 2012.

On July 12, 2012, the Board approved a $0.13 per share dividend to shareholders of record at the close of business on September 14, 2012. The Company paid the dividend on October 15, 2012. On October 17, 2012, the Board approved a $0.14 per share cash dividend, an increase of 8%, to shareholders of record on December 14, 2012 and payable on January 15, 2013.

The Company currently has approximately $985 million of total committed debt capacity and $455 million of debt outstanding at September 30, 2012. Debt-to-total capitalization declined to 39.0% at September 30, 2012 from 40.4% at September 30, 2011. During the latest nine months, the Company paid $67.5 million to acquire approximately 2.4 million shares and paid cash dividends of $16.1 million to common shareholders.

On July 18, 2012, the Company entered into an amendment to an existing agreement with Bank of America, National Association. As a result, the maximum financing available under its accounts receivable securitization program increased to the lesser of $150 million or the total amount of eligible receivables less excess concentrations and applicable reserves.


Table of Contents

On the same day, the Company entered into a two-year forward, three-year interest rate swap transaction with U.S. Bank National Association as the counterparty. The Company entered into the swap transaction to mitigate its interest rate risk on $150 million of future one-month LIBOR-based debt. The swap transaction has an effective date of July 18, 2014 and a maturity date of July 18, 2017. The swap transaction effectively fixes the interest rate on $150 million of future borrowings at 1.0535% plus the applicable interest margin on the underlying borrowings.

In February 2012, the Company announced a distribution network optimization and targeted cost reduction program. Three distribution centers were closed during the first quarter and certain positions were eliminated. In addition, an organizational realignment eliminated certain management positions. The first quarter 2012 charge related to these actions totaled $6.2 million. The steps taken are expected to meet the strategic objectives set for them, as well as generate $5 million to $6 million in savings during 2012, with ongoing annual cost savings of $7 million to $8 million. The Company intends to continue investing the savings from these actions into growth and other initiatives. A fourth distribution center was closed during the second quarter of 2012 and the Company closed a fifth facility during the third quarter of 2012, with additional expenses and savings from these actions.

For a further discussion of selected trends, events or uncertainties the Company believes may have a significant impact on its future performance, readers should refer to "Key Company and Industry Trends" under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year-ended December 31, 2011.

Stock Repurchase Program

During the nine-month period ended September 30, 2012 and 2011, the Company repurchased 2,363,686 and 4,310,820 shares of USI's common stock at an aggregate cost of $67.5 million and $137.7 million, respectively. Through October 26, 2012, the Company repurchased 2.5 million shares year-to-date for $69.9 million. As of that date, the Company had approximately $55.1 million remaining of existing share repurchase authorization from the Board of Directors.

Stock purchases may be made from time to time in the open market or in privately negotiated transactions. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its common stock at any time without notice. Acquired shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data.

Critical Accounting Policies, Judgments and Estimates

During the first nine months of 2012, there were no significant changes to the Company's critical accounting policies, judgments or estimates from those disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Results of Operations

The following table presents operating income as a percentage of net sales:



                                                         Three Months Ended            Nine Months Ended
                                                           September 30,                 September 30,
                                                        2012            2011           2012          2011
Net sales                                                100.00 %       100.00 %       100.00 %      100.00 %
Cost of goods sold                                        84.19          84.75          85.06         85.11

Gross margin                                              15.81          15.25          14.94         14.89

Operating expenses
Warehousing, marketing and administrative expenses        10.87          10.32          11.14         10.88

Operating income                                           4.94           4.93           3.80          4.01

Adjusted Operating Income, Net Income and Earnings Per Share

The following table presents Adjusted Operating Income, Net Income and Earnings Per Share for the nine-month period ended September 30, 2012 and 2011 (in thousands, except per share data). The tables show Adjusted Operating Income, Net Income and Earnings per Share excluding the effects of a non-cash pre-tax equity compensation charge taken with respect to a transition agreement with the Company's former chief executive officer in the second quarter of 2011, a non-cash, non-tax deductible asset impairment charge in the first quarter of 2011, and a pre-tax charge related to facility closures and severance costs in the first quarter of 2012. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income. Management believes that excluding these items is an appropriate comparison of its ongoing operating results to last year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.


Table of Contents
                                                      For the Nine Months Ended September 30,
                                                     2012                                  2011
                                                              % to                                 % to
                                          Amount            Net Sales            Amount          Net Sales
Net Sales                               $ 3,836,032             100.00 %       $ 3,804,110           100.00 %

Gross profit                            $   572,946              14.94 %       $   566,362            14.89 %

Operating expenses                      $   427,389              11.14 %       $   413,917            10.88 %
Facility closures and severance
charge                                       (6,247 )            (0.16 )%               -                -
Equity compensation-CEO transition               -                  -               (4,409 )          (0.12 )%
Asset impairment charge                          -                  -               (1,635 )          (0.04 )%

Adjusted operating expenses             $   421,142              10.98 %       $   407,873            10.72 %

Operating income                        $   145,557               3.80 %       $   152,445             4.01 %
Operating expense item noted above            6,247               0.16 %             6,044             0.16 %

Adjusted operating income               $   151,804               3.96 %       $   158,489             4.17 %

Net income                              $    78,905                            $    81,062
Operating expense item noted above            3,873                                  4,367

Adjusted net income                     $    82,778                            $    85,429

Diluted earnings per share              $      1.91                            $      1.77
Per share operating expense item
noted above                                    0.10                                   0.10

Adjusted diluted earnings per share     $      2.01                            $      1.87

Adjusted diluted earnings per
share-growth rate over the prior
year period                                     7.5 %

Weighted average number of common
shares-diluted                               41,229                                 45,718

Results of Operations-Three Months Ended September 30, 2012 Compared with the Three Months Ended September 30, 2011

Net Sales. Net sales for the third quarter of 2012 were $1.29 billion, flat compared with the prior-year quarter, after adjusting for one less selling day in the third quarter 2012. The following table summarizes net sales by product category for the three-month periods ended September 30, 2012 and 2011 (in thousands):

                                                       Three Months Ended September 30,
                                                         2012                  2011 (1)
Technology products                                $         381,512       $         406,029
Traditional office products (including
cut-sheet paper)                                             361,911                 363,085
Janitorial and breakroom supplies                            326,521                 324,254
Industrial supplies                                           99,261                  94,248
Office furniture                                              86,165                  90,169
Freight revenue                                               25,310                  23,969
Services, Advertising and Other                                7,995                   8,275

Total net sales                                    $       1,288,675       $       1,310,029

(1) Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes between several product categories due to several specific products being reclassified to different categories. These changes did not impact the Consolidated Statements of Income.


Table of Contents

Sales in the technology products category decreased in the third quarter of 2012 by 4.5% versus the third quarter of 2011, after adjusting for one less selling day in the current year quarter. This category, which continues to represent the largest percentage of the Company's consolidated net sales, accounted for 29.6% of net sales for the third quarter of 2012. The decline versus the prior-year quarter was due to reduced sales of printer imaging supplies and the loss of some business at a key national account customer in the second half of 2011.

Sales of traditional office products increased in the third quarter of 2012 by 1.3% versus the third quarter of 2011, after adjusting for one less selling day. Traditional office supplies represented 28.1% of the Company's consolidated net sales for the third quarter of 2012. Within this category, growth was driven by cut-sheet paper, private brands, new channels, and public sector penetration partially offset by the loss of some business with a key national account customer.

Sales in the janitorial and breakroom supplies product category increased 2.3% in the third quarter of 2012, adjusted for selling days, compared to the third quarter of 2011. This category accounted for 25.3% of the Company's third quarter of 2012 consolidated net sales. The category faced challenging comparisons with last year's third quarter, which was aided by strong inflation and the addition of a key national account customer. In this year's quarter, inflation was negligible and some other national account business shifted to direct purchases from manufacturers. Despite these factors, the Company's janitorial and breakroom growth continued to outperform the underlying market.

Industrial supplies sales in the third quarter of 2012 increased 7.0%, adjusted for selling days, compared to the same prior-year period. Sales of industrial supplies accounted for 7.7% of the Company's net sales for the third quarter of 2012. Sales growth in industrial supplies reflected a moderation in market growth rates that began in the second quarter 2012. The Company nevertheless continued to outperform the market in this category and growth began to accelerate towards the end of the quarter.

Office furniture sales in the third quarter of 2012 declined 2.9% compared to the third quarter of 2011, after adjusting for one less selling day. Office furniture accounted for 6.7% of the Company's third quarter of 2012 consolidated net sales. This decline was due to the shift of some national account business to direct purchases from manufacturers and decreased end user demand.

The remaining 2.6% of the Company's third quarter 2012 net sales were composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the third quarter of 2012 was $203.8 million, compared to $199.8 million in the third quarter of 2011. The gross margin rate of 15.8% was up 56 basis points
(bps) from the prior-year quarter gross margin rate of 15.3%. Gross margin was positively affected by lower cost of goods sold primarily driven by inventory purchase-related supplier allowances (70 bps) and lower advertising costs (10 bps) as well as ongoing War on Waste (WOW) initiatives. These improvements were partially offset by increased obsolescence costs (10 bps), increased LIFO expense (10 bps), and ongoing competitive pricing pressures.

Operating Expenses.Operating expenses for the latest quarter were $140.1 million or 10.9% of sales, compared with $135.1 million or 10.3% of sales in the same period last year. Operating expenses in the third quarter 2012 were affected by higher pension expense (10 bps), health care costs (5 bps), labor expense (10 bps), variable management compensation costs (10 bps), and workers compensation costs (10 bps). In addition, the prior-year quarter included a favorable resolution of a non-income based tax liability (15 bps). These items were partially offset by a decrease in bad debt expense (10 bps) and by continued success with WOW efforts.

Interest Expense, net. Interest expense, net for the third quarter of 2012 was $4.7 million, down by $2.3 million from the same period in 2011, mainly due to the maturity of two interest rate swaps since the prior year quarter.

Income Taxes. Income tax expense was $22.2 million for the third quarter of 2012, compared with $21.8 million for the same period in 2011. The Company's effective tax rate was 37.6% for the current-year quarter and 37.8% for the same period in 2011.

Net Income. Net income for the third quarter of 2012 totaled $36.8 million, or $0.91 per diluted share, compared with net income of $35.8 million, or $0.81 per diluted share for the same three-month period in 2011. Lower average shares outstanding due to ongoing stock repurchases contributed approximately 6 cents per share to the current quarter results.


Table of Contents

Results of Operations-Nine Months Ended September 30, 2012 Compared with the Nine Months Ended September 30, 2011

Net Sales. Net sales for the first nine months of 2012 were $3.84 billion, up 1.4%, after adjusting for one less selling day in 2012, compared with sales of $3.80 billion for the same nine-month period of 2011. The following table summarizes net sales by product category for the nine-month periods ended September 30, 2012 and 2011 (in millions):

                                                        Nine Months Ended September 30,
                                                        2012(1)                2011(1)
Technology products                                 $      1,174,124       $      1,236,068
Traditional office products (including cut-sheet
paper)                                                     1,047,249              1,045,248
Janitorial and breakroom supplies                            971,704                917,211
Industrial supplies                                          297,010                263,184
Office furniture                                             248,344                251,493
Freight revenue                                               73,585                 67,807
Services, Advertising and Other                               24,016                 23,099

Total net sales                                     $      3,836,032       $      3,804,110

(1) Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes between several product categories due to several specific products being reclassified to different categories. These changes did not impact the Consolidated Statements of Income.

Sales in the technology products category decreased in the first nine months of 2012 by 4.5% versus the first nine months of 2011, after adjusting for one less selling day in the current year. This category accounted for 30.6% of net sales for the first nine months of 2012. The loss of some business from a key national account customer negatively impacted this category as well as reduced sales of printer imaging supplies.

Sales of traditional office products were up 0.7% in the first nine months of 2012 compared to the first nine months of 2011, after adjusting for one less selling day. Traditional office supplies represented 27.3% of the Company's consolidated net sales for the first nine months of 2012. Within this category, cut-sheet paper sales drove growth. Additionally, increased sales of private brands and growth in new channels and public sector sales were offset by the loss of some national account business.

Sales in the janitorial and breakroom supplies product category increased 6.5% in the first nine months of 2012, adjusted for selling days, compared to the first nine months of 2011. This category accounted for 25.3% of the Company's first nine months of 2012 consolidated net sales. While the Company's growth rate in this category has moderated, it has continued to outperform the underlying market growth. This has been the result of continued execution of growth initiatives, new channel sales growth, and new national account business that more than offset the shift of other national account business to direct purchases from manufacturers.

Industrial supplies sales in the first nine months of 2012 increased 13.4% compared to the same prior-year period, after adjusting for one less selling day. Sales of industrial supplies accounted for 7.7% of the Company's net sales for the first nine months of 2012. Industrial sales growth continued to reflect a positive economic environment in this category, growth from strategic investments, and execution of sales initiatives.

Office furniture sales in the first nine months of 2012 were down 0.7% compared to the first nine months of 2011, after adjusting for selling days. Office furniture accounted for 6.5% of the Company's consolidated net sales for the first nine months of 2012. This slight decrease demonstrates a decrease in end-user demand for value products and growth with furniture-focused dealers and the loss of some national account business.

The remaining 2.6% of the Company's first nine months of 2012 net sales were composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the first nine months of 2012 was $572.9 million, compared to $566.4 million in 2011. The gross margin rate of 14.9% was flat to the rate for the first nine months of the prior year. Gross margin was impacted by increased obsolescence charges (10 bps), increased LIFO expense (15 bps), as well as continued . . .

  Add USTR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for USTR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.