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2000 Annual Report




We DELIVER Customer Satisfaction
UNITED DELIVERS
   CUSTOMER SATISFACTION

United Stationers Inc. is
North America’s largest
distributor of business
products to resellers and
a provider of marketing
and logistics services.
By asking “If I were the
customer…,” United has
built an organization
devoted to satisfying its
20,000 reseller customers
and their end consumers.


Contents
Stockholders’ Letter                                             2
                       ............................


Strengthening Our Competitive Position                           5
                                           ................


Expanding into Non-Office Products Fulfillment                   9
                                                 ............


Management’s Discussion and Analysis                            12
                                           ................


Selected Consolidated Financial Data                            20
                                           ................


Quarterly Financial and Stock Price Data                        22
                                             ..............


Report of Management/
Report of Independent Auditors                                  23
                                 ....................


Consolidated Financial Statements                               24
                                       ..................


Notes to Consolidated Financial Statements                      30
                                             ..............


Directors and Officers/                                     Inside
Stockholder Information                                 Back Cover
                          ....................
Capturing Growth Opportunities
                                                       Product Lines or
                                                       Services Offered                                            Strengths                                                    Growth Strategies
                                         •   General office and computer supplies and accessories      • North America’s leading just-in-time distributor           Build share in this $85 billion market by:
Traditional                                                                                              of business products to resellers
                                         •   Filing and record storage products                                                                                     • Focusing on operational excellence
Office Products                                                                                        • Offers more than 25,000 products
                                         •   Business machines and audio-visual equipment                                                                           • Expanding value-added services
                                                                                                       • Network of 39 regional distribution centers across
                                         •   Office furniture                                                                                                       • Improving its cost position
                                                                                                         North America
                                                                                                                                                                    • Handling a greater share of manufacturers’
                                                                                                       • Ability to reach nearly every reseller or consumer           shipments
                                                                                                         in the U.S. on the same day or overnight
                                                                                                                                                                    • Increasing penetration among current resellers
                                                                                                       • 98% order fill rate, 99.5% order accuracy rate, and
                                                                                                                                                                    • Attracting new types of resellers
                                                                                                         99% on-time delivery rate
                                                                                                                                                                    • Continuing geographic expansion
                                                                                                       • The largest and most popular General Line Catalog
                                                                                                         in the industry: more than 6 million copies distributed    • Making acquisitions
                                                                                                         in 2000                                                    • Expanding product categories
                                                                                                       • Unmatched value-added services
                                                                                                       • National presence in Canada, with three distribution
                                                                                                         centers and a bilingual customer service facility


                                         •   Janitorial and sanitation supplies                        • One of North America’s leading wholesale sources           Increase its share in this $18 billion market through:
Janitorial and                                                                                           of janitorial and sanitation maintenance products
                                         •   Paper products                                                                                                         • Greater penetration among current resellers
Sanitation                                                                                             • Offers more than 7,000 items                                 via product and service expansion
                                         •   Safety and health care products
                                                                                                       • Network of 28 regional distribution centers                • Handling larger share of manufacturers’ shipments
                                         •   Packaging supplies
                                                                                                         across the U.S.                                            • Developing new reseller relationships across
                                         •   Industrial maintenance products
                                                                                                       • Annual growth exceeding 25% per year, every year             both new and existing channels
                                         •   Food service disposables                                                   since acquired by United in 1996            • Continuing geographic expansion via new facilities
                                                                                                                        • Distributes industry-leading catalog        and/or acquisitions
                                                                                                                                                                    • Expanding e-commerce capabilities




                                                                                                       • North America’s largest specialty distributor              Expand share within this $30 billion market by:
                                         • Computer consumables           •   Computer accessories
Computer Consumables                                                                                     of office technology consumables and peripherals
                                           and supplies                                                                                                             • Handling a greater share of manufacturers’
                                                                          •   Digital imaging
                                                                                                       • Offers more than 10,000 products                             shipments
                                         • Printers, scanners, fax        •   Professional graphics
                                           machines, and all-in-ones                                   • Network of six regional distribution centers               • Increasing penetration of new
                                                                          •   Bar code and
                                                                                                         in the U.S. and Mexico that provide next-day delivery        customer markets
                                         • Peripherals                        point-of-sale products
                                                                                                                                                                    • Increasing penetration among
                                                                                                                                                                      current resellers
                                                                                                                                                                    • Attracting new types of resellers
                                                                                                                                                                    • Continuing geographic expansion
                                                                                                                                                                    • Making strategic acquisitions
                                                                                                                                                                    • Continuing to expand product offering
                                                                                                                                                                    • Using the Internet to improve efficiencies
                                                                                                                                                                      and become the partner of choice




Customer Relationship Management (CRM)   • Offers full set of third-party services, including          • Capitalizes on United’s distribution scale, logistics      Penetrate the $18 billion market for third-party
                                                                                                         expertise and technology                                   service-fee revenue by:
                                           distribution, fulfillment and customer relationship
and Fulfillment Services                   management (CRM) strategies—such as call center             • Provides seamless, reliable service from a single source   • Leveraging a solid infrastructure and refining
                                           services, data mining and warehousing, and marketing                                                                       its CRM tools
                                                                                                       • Can handle a wide variety of product categories,
                                           campaigns, which integrate with traditional and               sizes and weights                                          • Marketing its services to a broad audience
                                           e-commerce business models                                                                                                 including manufacturers, “clicks and mortar” retailers
                                                                                                       • Measures customer satisfaction and is accountable
                                                                                                                                                                      and direct marketers
                                                                                                         for performance
                                                                                                       • Utilizes robust, scaleable, flexible systems
                                                                                                       • Call center complemented by CRM technology
                                                                                                       • Provides a total back-end solution to traditional
                                                                                                         and Web-based manufacturers and retailers, service
                                                                                                         companies and resellers
Financial Highlights                                                                                          UNITED STATIONERS INC. AND SUBSIDIARIES




        (dollars in thousands, except per share data)



        Income Statement Data for the Years Ended                                                       Dec. 31, 2000                       Dec. 31, 1999
                                                                                                        $ 3,944,862
        Net sales . . . . . . . . . . . . . . . .                               .   .     .    .                                            $ 3,442,696
                                                                                                            202,546
        Income from operations . . . . . . . . . .                              .   .     .    .                                                182,194
                                                                                                            164,116
        Income before income taxes and extraordinary item                       .   .     .    .                                                143,567
                                                                                                             92,167
        Net income . . . . . . . . . . . . . . . .                              .   .     .    .                                                 83,409
                                                                                                               2.65
        Net income per common share — assuming dilution                         .   .     .    .                                                   2.37
                                                                                                             34,775
        Average number of common shares (in thousands)                          .   .     .    .                                                 35,208

        Operating Results Before Extraordinary Charge 1
                                                                                                        $           98,643
        Income before extraordinary item   ..........                                                                                       $        83,409
        Income before extraordinary item
                                                                                                                      2.84
         per common share — assuming dilution . . . . . . . .                                                                                           2.37

        Balance Sheet Data at Year End
                                                                                                        $       495,456
        Working capital . . . . . . . . . . . . . .                             .   .     .    .                                            $      415,548
                                                                                                              1,447,027
        Total assets . . . . . . . . . . . . . . . .                            .   .     .    .                                                 1,279,903
                                                                                                                427,127
        Long-term obligations (including current maturities)                    .   .     .    .                                                   355,552
                                                                                                                478,439
        Stockholders’ equity . . . . . . . . . . . .                            .   .     .    .                                                   406,009

        1. Second quarter 2000 results included an extraordinary charge of $10.7 million ($6.5 million net of tax benefit of $4.2 million) related to
           the early retirement of debt.




                                                                                                                                Net Income per Share
                                                                 Operating Income
              Net Sales
                                                           Operating income grew 11.2% despite a tight
The 14.6% increase in sales for 2000 gave                                                                                     Net income continued to outpace United’s
                                                           labor market and investments in developing the
United a 14.1% four-year compound annual                                                                                      goal of 15% annual growth, for a four-year
                                                           fulfillment business. This gave the company a
growth rate (CAGR).                                                                                                           CAGR of 29.5%.
                                                           15.7% four-year CAGR.
 DOLLARS IN BILLIONS                                         DOLLARS IN MILLIONS                                                DOLLARS PER SHARE


                                                                                                                                                                     $2.84
                                                                                                            $ 203
                                         $3.9
                                                                                              $182

                              $3.4                                                                                                                        $2.37
                                                                               $169
                    $3.1
                                                                                                                                                $2.00
                                                                     $135
         $2.6

$2.3                                                        $113
                                                                                                                                        $1.47



                                                                                                                               $1.01




                                                                                                                                          972       982                002
                                                                                                                                  96                            99
   96                                                                    972        982
             97        98        99        00                 96                                   99         00

                                                                                                                                                                             1
                                                                 2.Excluding non-recurring charges
To Our
                 Stockholders                                                       Strong Balance Sheet
                                                                                 Our interest expense was favorably affected
                                                                                 by the interest rate spread between the revolving
                                                                                 line of credit and the 12.75% bonds we
                                                                                 redeemed in May (financed through our senior
                              United ended 2000 with its 19th consecutive
                                                                                 credit facility). However, this was partially
                              quarter of record sales and earnings. This was
                                                                                 offset by higher interest rates and funding
                              possible because our channel partners were
                                                                                 requirements for the July 2000 acquisitions of
                              drawn to United’s ability to deliver customer
                                                                                 Azerty/United Canada and CallCenter Services,
                              satisfaction. However, the real story is that
                                                                                 which increased total debt to $559.9 million,
                              we achieved these results in the face of strong
                                                                                 up 12.7%. Despite the acquisitions, our debt-to-
                              growth in 1999—while investing in other
                                                                                 total book capitalization of 53.9% improved
                              opportunities for even greater expansion.
                                                                                 when compared with 1999’s 55.0%, and is well
                                 Fourth Straight Year
                                                                                 within our target range of 50-60%.
                                 of Record Performance
                                                                                    Capital spending for the core business
                              Net sales rose 14.6% to $3.9 billion. Approx-
                                                                                 during the year was $26.0 million, compared
                              imately 12% came from organic growth,
                                                                                 with 1999’s $21.3 million. In addition, we
                              exceeding our 6-9% goal. The balance
                                                                                 spent about $13.0 million to develop The Order
                              resulted from our Azerty/United Canada
                                                                                 People, bringing our total capital expenditures
                              and CallCenter Services acquisitions.
                                                                                 for 2000 to $39.0 million.
                              We saw strong performance across all
                              product categories and
                                                             Our financial strength
                              geographies, led by office
                              furniture (up 16%)
                                                          comes from a company-wide
                              and janitorial/sanitation
                                                              focus on serving customers
                              (up 26%).
                                 As expected, our 16.3% gross
                              margin was down slightly from 1999’s                   Expressing Our Confidence
                                                                                     in United’s Growth
                              16.4%. This reflects the higher amount of
                              business we are doing in two lower margin          Our ongoing challenge with investors is to com-
                              areas—computer consumables and national            municate 1) the role United plays in bringing
                              accounts business —although both have a            efficiency to the business products supply chain,
                              lower cost-to-serve. Operating expenses as         and 2) how we leverage our distribution
                              a percent of sales were 11.2% compared with        competencies to grow and capitalize on new
    Randall W. Larrimore,
                              11.1% in the prior year. Operating income          market opportunities. We often are incorrectly
    President and
                              also increased 11.1% to $202.5 million.            perceived only as a “traditional wholesaler,”
    Chief Executive Officer

                                 These numbers are even more impressive          which ships full cases of merchandise to resellers
                              when you consider that nearly $9.0 million in      so they can restock their inventory. This
                              operating expenses were used to build our third-   misperception creates some concern United
                              party fulfillment business, The Order People.      could be “bypassed” in the supply chain.



2
In reality, we are an integral part of our       technology strategist to help guide United’s
customer’s supply chain. Our role is to be an       e-commerce initiatives.
extension of our customers’ warehouses,
                                          Our 20,000 reseller
providing same-day order turnaround
so they can deliver their customers’
                                      customers have made us an
orders the next day. We pick indi-
vidual end-consumer orders for our
                                              industry leader
resellers, or drop ship them on behalf of the
reseller directly to the end consumer. We are a
just-in-time distributor of business products to       Turning Growth
                                                       Opportunities into a Reality
resellers, as well as a provider of marketing and
                                                    Our strategic goal is to be a world-class logistics
logistics fulfillment services.
                                                    and fulfillment expert, providing a complete
   We continue to take our story to investors—
                                                    suite of back-end services to office products
both in one-on-one meetings and at industry
                                                    resellers, manufacturers, and resellers of other
conferences—and believe in our bright, long-
                                                    products. To achieve this, we began looking at
term future. That’s why we are willing to invest
                                                    our company not as just a distributor of office
in our own stock. In the fourth quarter, the
                                                    products, but as fulfillment experts. This view
board authorized a $50 million stock repurchase
                                                    reveals opportunities to expand our traditional
program. During the year, we bought nearly
                                                    business and build a non-office products third-
1.0 million shares, at an average price of just
                                                    party services operation.
under $26.00 per share. At year-end, we had
                                                       We took a number of steps in 2000 to make
33.4 million shares outstanding. We see value                                                                     2000 Revenues
                                                    these growth opportunities a reality. (Details                by Product Line
in our shares and will, from time-to-time,
                                                    on how the growth strategies are being imple-
continue our repurchase program. And our                                                                           While office supplies
                                                    mented can be found in the Operations Review
commitment to investor education is ongoing.                                                                       remain United’s largest
                                                    following this letter.) Here are the highlights.               product category,
   Strengthening                                                                                                   janitorial/sanitation
   United’s Leadership                                 Increase the Geographic Penetration                   and office furniture
                                                       of our Traditional Businesses
In addition to Ilene Gordon, President of                                                                    were the fastest growing
                                                                                                             categories in 2000.
                                                    We accomplished this in a number of ways:
Pechiney Plastic Packaging, who joined our
                                                    • Added distribution facilities at United
board in January 2000, United’s leadership
                                                      Stationers Supply Co. and Lagasse—                                Office Supplies
was strengthened with the addition of two other                                                                                    35%
                                                                                                 Computer
                                                      We moved from four less efficient
professionals during the year. Eileen Kamerick                                                   Consumables 33%
                                                      facilities into three new state-of-
became Executive Vice President and Chief
                                                      the-art distribution centers and
Financial Officer in October 2000. She came
                                                      opened two new centers.
to us from BP Amoco plc where she was
                                                    • Acquisition broadens Lagasse’s reach—
Vice President/Finance, the Americas, and
                                                      Just after the end of the year, we
Vice President and Chief Financial Officer
                                                                                                    Business Machines              Office Furniture
                                                      completed the acquisition of Peerless,
BPAmerica. Eileen has extensive experience                                                          & Audio-Visual 10%                        13%

                                                      another wholesaler within the janitorial/
in acquisition evaluation, SEC reporting,                                                                               Janitorial &
                                                                                                                      Sanitation 9%
                                                      sanitation industry. This added a total of
international expansion, and banking
                                                      400,000 additional square feet of distribution
relationships. Alex Zoghlin, Chief Technology
                                                      capacity at six locations, and will help
Officer at Orbitz, joined our board in November
                                                      increase our penetration in the Northeast
2000. Alex will draw on his background as an
                                                      and Midwest facility supply markets.
innovator, a successful leader and an astute


                                                                                                                                                 3
We are continuously seeking
    ways to improve our operational                                                   third-party fulfillment business needs.
             and financial performance                                                It also provides us with two cutting-edge
                                                                                      facilities —in Salisbury, Maryland and
                                                                                      Wilkes-Barre, Pennsylvania.
                                  • Increased geographic penetration in Canada—
                                                                                          Outlook for 2001
                                    We purchased a computer consumables
                                                                                      All of our operations were performing well
                                    operation in Canada during July 2000 and
                                                                                      as we entered the new year. We are making
                                    renamed it Azerty/United Canada. This
                                                                                      investments in infrastructure and in our
                                    business has $115 million (US) in annual
                                                                                      associates to keep operating at the high level we
                                    sales and has served the Canadian
                                                                                      need to succeed in our business. We are building
                                    marketplace for 10 years. We intend to
                                                                                      new growth platforms, such as non-office
                                    leverage Azerty/United Canada’s customer
                                                                                      products fulfillment through The Order People,
                                    base by offering these companies United
                                                                                      and expanding our product lines and customer
                                    Stationers Supply Co.’s office products, giving
                                                                                      base through the Peerless acquisition. We have
                                    us scale and growth opportunities.
                                                                                      the financial strength to fund this additional
                                     Expand the Office Products                       growth. As a result, we have a positive outlook
                                     E-Commerce Business                              for the year, even though we are realistic about
                                  In 2000, we expanded two programs already           the type of challenge 2001 is likely to bring—
                                  in place. We offered our product lines to non-      especially in the first half.
    Eileen Kamerick joined
                                  traditional office products resellers involved
    United Stationers                                                                     We can meet this challenge because
                                  in e-commerce and helped our traditional
    as Executive Vice President
                                                                                      United’s commitment to delighting customers
    and CFO in October 2000.
                                  resellers increase their presence on the Web.       is enthusiastically embraced by associates at
                                      Develop Non-Office Products                     all levels. Their outstanding efforts in 2000
                                      Fulfillment Operation                           fueled our growth and built even stronger
                                  In July 2000, we formed The Order People            relationships between United and its manufac-
                                  as a subsidiary to reach this market. We believe    turers and resellers. We believe our focus on
                                  third-party fulfillment and CRM (customer           providing superior customer service will help
                                  relationship management) represents one             us continue to increase shareholder value for
                                  of United’s best opportunities for growth.          many years to come.
                                  The Order People allows United to leverage
                                  its core competencies of picking, packing and
                                  shipping office products into providing the same
                                  services for other types of products.
                                      In addition, we made an acquisition to
                                  support the new operation. CallCenter Services,
                                  purchased in July 2000, has $20+ million in         Randall W. Larrimore
                                  annual service fee revenues. It gives The Order     President and Chief Executive Officer
                                  People the in-bound call center capabilities a      March 15, 2001




4
usi
United Stationers:                        A Leader in Customer Satisfaction




                                                                                                      S AT I S F Y I N G O U R
                                                                                                  2 0 , 0 0 0 R E S E L L E R C U S TO M E R S
                                                                        AND THEIR END CONSUMERS
               U N I T E D S TAT I O N E R S i s
 N O RT H A M E R I C A’ S L A R G E S T P R O V I D E R O F :


             • OFFICE SUPPLIES


                                         • COMPUTER SUPPLIES


                        • OFFICE FURNITURE


                                  • JANITORIAL AND
                                    S A N I TAT I O N S U P P L I E S


            • M O S T P O P U L A R P R I VAT E L A B E L
              COMMODITY OFFICE PRODUCTS
DO YOU KNOW
                                                R E A L LY




          usi
                                  W H AT W E                         DO?

WE ARE A JUST - IN - TIME DISTRIBUTOR OF
            BUSINESS PRODUCTS TO RESELLERS,
  AS WELL AS A PROVIDER OF MARKETING
            AND LOGISTICS SERVICES.



                         WE PROVIDE SAME - AND NEXT - DAY DELIVERY
                                OF PRODUCTS FOR RESELLERS ACROSS NORTH AMERICA.




     WE COST - EFFECTIVELY BREAK DOWN BULK SHIPMENTS
           FROM MANUFACTURERS INTO THE SMALL QUANTITIES
       NEEDED BY END CONSUMERS.



                 WE ATTACH ADDRESS LABELS WITH RESELLERS‘ LOGOS
                     AND END - CONSUMERS’ NAMES TO 70% OF OUR SHIPMENTS —
                                 MAKING OUR SERVICES TRANSPARENT.



   WE SHARE OUR END - CONSUMER RESEARCH,
AND PROVIDE MARKETING ASSISTANCE
      TO HELP RESELLERS BUILD THEIR BUSINESSES.




             WE EXPAND THE RANGE OF PRODUCTS RESELLERS OFFER —
                    BENEFITING THEM, OUR SUPPLIERS AND END CONSUMERS.
Operations
                       Review
                                                                                      Manufacturers also want to focus on their
                                 Strengthening Our
                                 Competitive Position                               core competencies —designing and making
                                 How do we strengthen our competitive               products. They, too, want to remove extraneous
                                 position when we are already the largest           operations and costs.
                                 business products provider in North America?         The functions these companies want to
                                 Our philosophy is to add so much value—            outsource are United’s core business. Our
                                 from broad product lines to nationwide             expertise, combined with a focus on delivering
                                 distribution to marketing support— for our         customer satisfaction, makes us a compelling
                                 manufacturers and resellers that we become         channel partner for manufacturers and
                                 an integral part of how they go to market.         resellers— and gives us great opportunities
                                    In 2000, the office
                                                       Each year we find new ways to
                                 products industry
                                                   increase our value as a business partner
                                 niches we serve
                                 generated nearly
                                                         for manufacturers and resellers
                                 $130 billion in sales,
                                 and had an average growth of 5-6%. United’s        for growth. Here are the strategies we are using
                                 organic growth was nearly twice as fast, about     to capitalize on this.
                                 12%. We accomplished this by executing the
                                                                                        Gaining a Greater Share of
                                 following strategies, which stem from our              Manufacturers’ Shipments
    Efficient                    partners’ focus on their core competencies.           There is a misconception that it is more
   Distribution                     Resellers want to take costs out of their       efficient for manufacturers to sell directly to
                                 systems and focus on their core competencies—
Our fleet of 400 trucks—
                                                                                    resellers. This is not always the case, because
supplemented by UPS,
                                 selling products and solutions. To do this, they   we can provide our 500 manufacturers an
common carriers and Federal
                                 increasingly shed part or all of their inventory
Express —allows us to achieve
                                                                                    edge with resellers that they typically couldn’t
99% on-time delivery of
                                 and product distribution capabilities.             match on their own.
resellers’ and end -consumers’
orders on the same day,
                                                                                    We create demand for their products—
overnight, or the next day.

                                                                                    We distribute nearly 14 million catalogs,
                                                                                    16 million promotional flyers, and provide
                                                                                    an electronic catalog for countless Websites.
                                                                                    These are used by more than 20,000 resellers:
                                                                                    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.

                                                                                                                                        5
We broaden their geographic reach—
                                                                                       Our unmatched infrastructure allows us to
                                                                                       get products to every important U.S. and most
                                                                                       Canadian and Mexican metropolitan markets
                                                                                       within 24 hours. This fulfills the overnight
                                    We provide exposure to a broader product
    40,000 Products
                                                                                       delivery requirements of many resellers.
    Just a Click Away               offering—We stock thousands of SKUs
                                    (stockkeeping units) that most resellers do
    We receive over 90%                                                                   Increasing Penetration
    of our orders electronically,   not carry in their inventories. These products        among Current Resellers
    through a proprietary
                                    typically have significantly higher margins for    Our resellers find it’s easier to reap the benefits
    order-entry system, the
                                    all channel partners, since they are less price
    Internet and computer-to-                                                          of United’s expertise and infrastructure than it is
    computer transmission.
                                    sensitive. This gives most manufacturers           to replicate it.
                                    exposure to resellers and end consumers they
                                                                                       We offer the industry’s broadest product line—
                                    would never be able to reach without United.
                                                                                       This allows resellers to expand their product
                                    We manage the entire ordering process—             offering without investing in inventory or
                                    More than 90% of our orders are sent               warehouses, which leverages their sales and
                                    electronically to manufacturers and received       distribution assets. With our more than 40,000
                                    electronically from dealers. This automates        items, we are:
                                    order entry, reducing the chances for errors       • the largest provider of office supplies.
                                    while shortening the time between receiving
                                                                                       • the largest provider of computer supplies.
                                    the order and shipping it. In addition, by
                                                                                       • the largest provider of office furniture.
                                    working with many resellers and accumulating
                                    their orders, United saves manufacturers           • the largest provider of janitorial and
                                    substantial handling and administrative costs—       sanitation supplies.
                                    particularly on small orders.
                                                                                       • the provider of the largest selection of
                                    We efficiently handle small order quantities—        popular private label commodity products:
                                    Manufacturers need our skill in cost-effectively     the Universal brand.
                                    breaking down bulk shipments into the “one         • a leading provider of business machines/
                                    eaches” required by resellers and their end          audio-visual equipment, and barcode
                                    consumers. This means manufacturers can              scanning products.
                                    reduce warehousing and inventory costs, avoid
                                                                                       We offer unmatched value-added programs—
                                    investments in elaborate picking systems, and
                                                                                       This helps resellers sell more product and better
                                    sell products to resellers who otherwise would
                                                                                       satisfy their customers:
                                    be too small for them to serve.


6
• Sales generating materials include United’s
  General Line Catalog—the industry’s
  favorite—and specialty catalogs. These are
                                                                 The Largest Network
  available in both a paper and electronic
                                                                      in the Industry
  format. Each catalog or site is customized
  with the reseller’s (rather than United’s) name
  and contact information.
• Wrap and Label Program allows us to
  package the items ordered by an individual
  consumer into a box, attach an address label—
  featuring the reseller’s name—then send it
  to the reseller for immediate delivery, or drop
  ship it to the end consumer on the reseller’s
  behalf. Resellers benefit because they don’t
  have to break down large shipments and
  repackage them for delivery.
                                                                                                       United Stationers Supply Division

• Nationwide Express Delivery provides                                                                 Lagasse, Inc.
                                                                                                       Azerty Incorporated
  same-day, next-day or second-day delivery via                                                        Azerty/United Canada
                                                                                                       The Order People
  UPS, reaching 99% of all business customers
  in the U.S. This allows local, regional and                                                        Our 77 distribution centers
                                                                                                     allow us to reach 90% of the
                                                    sponsor research on significant industry
  virtual resellers to serve national accounts.                                                      U.S. population on a next-day
                                                    trends. Then we present the results —and our     delivery basis. We also reach
• Dealer training included teaching 115
                                                                                                     major metropolitan areas in
                                                    recommendations on how they can be used—
  courses in 2000 that attracted nearly                                                              Canada and Mexico within
                                                    to resellers throughout the country. In 2000,    24 hours of order placement.
  2,000 reseller “students” on subjects from
                                                    we helped 1,500 resellers in 33 cities better
  finance and marketing to sales and sales
                                                    understand their markets and how to build
  management. United provides professional
                                                    their businesses.
  training that might not otherwise be available
  to many resellers.                                We can handle their entire backroom operation—
                                                    Growing numbers of resellers are choosing to
• Premier Performance Shows allow resellers
                                                    outsource their warehousing and distribution,
  and their end consumers to preview new and
                                                    stocking fewer items and relying on United’s
  unique products, while the manufacturers
                                                    extensive inventory. We support this approach
  who exhibit them provide detailed
                                                    through our broad product offering and these
  information on their features. United
                                                    characteristics:
  sponsored seven shows across the country
  in 2000, showcasing products from about           • A $600 million investment in inventory.
  100 manufacturers. This helped strengthen
                                                    • State-of-the-art order processing, which
  relationships with the thousands of resellers
                                                      allowed us to handle an average of 160,000
  and consumers who attended.
                                                      customer orders each day in 2000. Our inte-
• End-consumer research gives United’s resellers      grated systems enable us to locate products
  an edge in their markets. Each year, we             at multiple warehouses, consolidate them


                                                                                                                                           7
Promoting Teamwork
                                                               Our Helton Center for Performance Improvement hosts
                                                               five-day training programs for associates. They learn to
                                                               work as teams to help us better serve our customers.




    at one of our multiple locations and provide a      • Lagasse also expanded into two larger
    single, on-time delivery of the entire order.         hub facilities, one in Chicago and one in
                                                          Los Angeles.
    • 77 regional distribution centers in 36 metro-
      politan areas in 25 states and provinces in the   • United Stationers Supply Co. began building
      U.S., Mexico and Canada. We also have 21            new centers that will replace several older
      reshipment points.                                  facilities in Denver (263,000 square feet),
                                                          expected to open in the summer of 2001, and
    • Our fleet of more than 400 trucks, which
                                                          in Charlotte (300,000 square feet) expected to
      delivers orders as soon as they are picked.
                                                          open by the end of the third quarter 2001.
    • The highest service levels in the industry. In
                                                          We estimate our investment in each of
      2000, we had a 98% order fill rate, a 99.5%
                                                        these facilities will have a relatively short
      order accuracy rate, and a 99% on-time
                                                        payback period.
      delivery rate —generally within 24 hours of
      order placement.
                                                           Making Acquisitions
    • An operating system and culture focused           We expanded our computer consumables and
      on providing superior service and fulfillment     janitorial/sanitation businesses through two
      excellence.                                       acquisitions: Azerty Canada in July 2000 and
                                                        Peerless Paper Mills in January 2001.
       Continuing
       Geographic Expansion                                                            Azerty/United
                                                                                     Canada United has
    A number of U.S. markets
    offer opportunities for greater                                                  operated in Canada
    sales or enhanced efficiency.                                                    for 10 years. As part
    In 2000, we either built new                                                     of our strategic
    distribution facilities or expanded current         planning process two years ago, we identified
    ones to capitalize on this situation:               growth opportunities in Canada and decided to
                                                        intensify our efforts there. The acquisition of
    • United Stationers Supply Co.’s 437,500
                                                        Azerty Canada significantly enhanced our
      square foot distribution center in Dallas
                                                        market position:
      replaced a two-building (383,000 square feet)
      operation there.                                  • It enables us to expand our computer
                                                          consumables, peripherals and accessories
    • United Stationers Supply Co.’s 320,000
                                                          business.
      square foot distribution center in Baltimore
      was retrofitted to provide leading-edge           • It adds scale (an additional $115 million
      picking capabilities.                               in annual sales) and infrastructure through
    • Lagasse opened a 55,000 square foot                 its distribution facilities in Toronto, Vancouver,
      distribution center in Phoenix, and a 47,000        and Montreal, and a bilingual customer
      square foot facility near Kansas City.              service facility, also in Montreal.
8
• It gives us a national presence and an             • It provides additional logistics capabilities,
  experienced staff that can help us build             sales coverage and marketing expertise.
  our business.
                                                     Expanding Into Non-Office
                                                     Products Fulfillment
• It provides opportunities to cross-sell our
                                                     Through The Order People, United is
  other product lines.
                                                     beginning to tap the fast-growing third-party
  Peerless Paper Mills This wholesale
                                                     services market. Industry experts forecast
distributor of janitorial and sanitation products,
                                                     this market will reach $27 billion in U.S.
and paper and food service products, was a
                                                     revenue by 2004.
logical addition to Lagasse:
• It will expand Lagasse’s
                                   Communicating with our customers
  product line to nearly
                           helps us continuously find new ways to
  10,000 available
  items.
                                        improve our performance
• It will allow Lagasse and Peerless to
  cross-sell complementary product lines to             Pricing arrangements for The Order People
  each other’s customers.                            will follow the tried-and-true formulas generally
                                                     used in outsourcing. Typically, this is a fee-based
• It enhances the scale and infrastructure of
                                                     business where the clients pay set-up fees,
  Lagasse’s Northeast and Midwest operations.
                                                     transaction fees and fixed time or space fees.
  This includes distribution centers in several                                                            We typically process orders
                                                     It is a low working capital business since the
  new markets, including Minneapolis,                                                                      until 6:00 p.m. We then move
                                                     clients own the inventory.                            swiftly to pick and pack orders
  Pittsburgh, and a state-of-the-art facility
                                                                                                           for products ranging from
                                                        The Order People targets a broad audience:
  outside of Philadelphia.                                                                                 pens, binders and labels to
                                                     traditional catalog merchants, “clicks and            office furniture. These are
• It generates $75 million in annual revenues,                                                             most often labeled for
                                                     mortar” retailers, manufacturers, service
  with annual increases in the high-teens and                                                              individual end users and
                                                     providers and e-commerce businesses providing         shipped on our own trucks
  the potential to improve on this through                                                                 or via UPS/Federal Express
                                                     business-to-business (B2B) and business-to-
  synergies with Lagasse.                                                                                  during the night to resellers
                                                     consumer (B2C) services. Its mission is to            and to end users on behalf
                                                                                                           of our resellers. This allows
                                                                                                           end-users’ orders to arrive at
     Turning the Order -to -Delivery Cycle into Customer Satisfaction                                      their desks the very next day.
                                                                                                           While the content of each
                                                                                                           order may vary, the customer
                                                                                                           satisfaction we deliver each
                                                                                                           day remains constant.




                                                                                                                                             9
Customer Care—Through the CallCenter
                                                                                        Services acquisition, we added two state-of-the-
                                                                                        art call centers located in Salisbury, Maryland
                                                                                        and Wilkes-Barre, Pennsylvania. Combining
                                                                                        Web-enabled end-consumer contact with
                                                                                        traditional inbound and outbound teleservices,
                                                                                        we are able to meet our customers’ expanding
                                     become the leader in the third-party service
                                                                                        needs while exceeding their end-consumer’s
                                     market by providing outstanding fulfillment
                                                                                        expectations on a 24 x 7 x 365 basis.
                                     and customer relationship management (CRM)
                                                                                           Our core offering includes order entry/status,
                                     solutions. By combining leading edge
                                                                                        up-sell and cross-sell, credit/services applica-
                                     technology with expertise in third-party
                                                                                        tions, refunds and exchanges, technical/help
                                     fulfillment, The Order People’s goal is to
                                                                                        desk, and standard reports. Our special services
                                     design and execute personalized and flexible
                                                                                        include self-service online, agent monitoring,
                                     programs that exceed expectations for its
                                                                                        credit card authorizations, script development,
                                     customers and their end consumers.
     Steven R. Schwarz,
                                                                                        system integration, software development, mul-
     Executive Vice President            Integrated,
                                                                                        tilingual representatives, and agent training.
     and President, United Supply
                                         Single-Source Solution
                                                                                           Data Mining & Warehousing—Our state-
     Division, led another year
                                     The Order People is taking United’s 80 years of
     of record revenues.
                                                                                        of-the-art data approach includes a number
                                     experience in seamless order taking, “picking,
                                                                                        of strategies:
                                     packing, shipping and tracking,”and translating
                                                                                           • Customer data acquisition and
                                     it into categories beyond office products. As
                                                                                             management—getting relevant information
                                     with United, The Order People will remain
      The Benefits of                                                                        and organizing it so our customers can
                                     transparent—end consumers will see only its
       an Integrated
                                                                                             make the best use of it.
                                     customers’ brand names.
     Warehouse Network
                                                                                          • Analytic services —analyzing end-consumer
                                        During 2000, we identified the infrastructure
     Most of our products reach
                                                                                            information to provide customers with a
                                     for The Order People’s future success. There
     resellers and end consumers
                                                                                            better understanding of this audience—from
     within 24 hours of their
                                     are two aspects to our approach: customer
     placing the order. This is
                                                                                            “customer lifetime analyses” to precision
                                     relationship management (CRM) and fulfillment.
     possible because our ware-
                                                                                            market analysis.
                                        CRM creates a win/win relationship between
     houses are linked with a
                                                                                          • Personalization services—generating
     proprietary inventory locator
                                     our customers and their end consumers—
     system, and use technology
                                                                                            personalized end-consumer interactions.
                                     The Order People breaks these strategies into
     to increase their efficiency
                                                                                          • Customer access services—providing
                                     three broad categories.
     and accuracy. Our approach
     allows us to provide very
                                                                                            or delivering services over multiple
     high service levels.
                                                                                            communication channels, from the mail
                                                                                            to pagers to the Internet.




10
• Transaction services—improving all
    contacts with end consumers, from
    informing them of products and services
    through post-sales support, such as returns
    processing and billing.
Integrated Marketing Solutions—These are
the tools customers need to acquire, retain, and
expand their end-consumer base. The Order
People will support this by combining powerful
brand building tools and customer and market
data with innovative marketing campaigns.
These include:
  • End-consumer acquisition campaigns.
  • Lead generation.
  • Incentive programs— for internal employees
                                                                                                             Cutting-edge
    and end consumers.
                                                                                                         Customer Relationship
  • End-consumer expansion campaigns—               differentiates itself with its seamless integrated    Management (CRM)
    featuring cross-sell and up-sell marketing,     approach. End consumers never know they are          The Order People gives
    coupon programs, and spiral marketing,                                                               its customers the benefits
                                                    not dealing directly with our customers. As a
                                                                                                         of CRM – without the cost
    in which end consumers are given a              result, we provide a unique solution that helps      and hassle of installing and
    continuous loop of information to increase      customers build and sustain end-consumer             managing their own systems.

    their awareness of all products and services.   relationships and brand value.
  • End-consumer retention campaigns— such             Measuring Our Progress
    as loyalty or rewards programs, satisfaction    As we entered 2001, The Order People had a
    surveys, renewal programs, memberships,         number of customers using its call center
    and frequent shopper programs.                  services and was well positioned to offer its
Fulfillment allows us to get the right products     customers logistics and fulfillment services.
to end consumers on a timely basis—In               Our goal is to continuously qualify leads each
November, The Order People opened its first         quarter and sign contracts that will enable
warehouse dedicated to third-party fulfillment,     The Order People to become profitable in
in Memphis, Tennessee. This 650,000 square          2002. We are excited about this new growth
foot facility incorporates the latest warehousing   opportunity for United and are committed to
and distribution technology, including              investing in its success.
computerized receiving and
picking systems. In addition,
                                The Order People is leveraging United’s
The Order People has
                           ability to PICK, PACK, SHIP and TRACK office supplies,
leased distribution
centers in Harrisburg,
                                     by handling other product categories
Pennsylvania, and Reno, Nevada.
  A number of companies provide one
or more of these services. The Order People


                                                                                                                                        11
Management’s Discussion and Analysis of
         Financial Condition and Results of Operations

                                                                     20,000 resellers, who in turn sell directly to end users.
         The following discussion should be read in conjunction
     with the Consolidated Financial Statements and related          These products are distributed through a computer-based
     notes.                                                          network of warehouse facilities and truck fleets radiating
         Information contained or incorporated by reference in       from 39 regional distribution centers, 28 Lagasse
     this Annual Report may contain “forward-looking                 distribution centers, six Azerty distribution centers,
     statements” within the meaning of Section 27A of the            three distribution centers that serve the Canadian
     Securities Act and Section 21E of the Exchange Act, which       marketplace and a distribution center to serve clients
     can be identified by the use of forward-looking                 of The Order People.
     terminology such as “may,” “will,” “expect,” “intend,”              On July 25, 2000, the Company announced that it
     “anticipate,” “believe,” “estimate” or “continue” or the        established The Order People (“TOP”) to operate as its
     negative thereof or other variations thereon or comparable      third-party fulfillment provider for product categories
     terminology. All statements other than statements of            beyond office products. TOP offers a full set of services
     historical fact included in this Annual Report, including       specifically designed to support a wide variety of third-
     those regarding the Company’s financial position, business      party service needs. By combining the Company’s state-
     strategy, projected costs and plans and objectives of           of-the-art distribution network with a multi-channel
     management for future operations are forward-looking            customer relationship management (CRM) capability,
     statements. Certain risks and uncertainties could cause         clients have the ability to custom design their order
     actual results to differ materially from those in such          fulfillment experience and then monitor and measure
     forward-looking statements. These include, but are not          consumer satisfaction. The Company has extensive
     limited to, the highly competitive operating environment,       experience and ability to pick, pack, ship and track
     the market potential for third-party services, the              products with a wide range of physical attributes.
     Company’s ability to adjust The Order People’s cost structure   TOP enables the Company to leverage these core
     to the timing of revenue generation, the integration of
                                                                     competencies in a broader context for third-party
     acquisitions, changes in end-users’ traditional demands for
                                                                     logistics and fulfillment.
     business products, the Company’s reliance on certain key
                                                                         In connection with TOP, the Company operates a new
     suppliers, the effects of fluctuations in manufacturers’
                                                                     650,000 square foot state-of-the-art distribution and
     pricing, potential service interruptions, customer credit
                                                                     service center in Memphis, Tennessee. In addition, the
     risk, dependence on key personnel, and general economic
                                                                     Company has leased distribution centers in Harrisburg,
     conditions. A description of these factors, as well as other
                                                                     Pennsylvania, and in Reno, Nevada.
     factors, which could affect the Company’s business, is set
                                                                         Acquisition of CallCenter Services, Inc. On July 1,
     forth in certain filings by the Company with the Securities
                                                                     2000, the Company acquired all of the capital stock of
     and Exchange Commission. All forward-looking
                                                                     CallCenter Services, Inc. from Corporate Express, a
     statements contained in this Annual Report and/or any
                                                                     Buhrmann Company. The purchase price was
     subsequent written or oral forward-looking statements
                                                                     approximately $10.7 million, financed through the
     attributable to the Company or persons acting on behalf of
                                                                     Company’s Senior Credit Facility. CallCenter Services is a
     the Company, are expressly qualified in their entirety by
                                                                     customer relationship management outsourcing service
     such cautionary statements. The Company undertakes no
                                                                     company. It has two inbound call centers, in Wilkes-
     obligation to release the results of any revisions to these
                                                                     Barre, Pennsylvania and Salisbury, Maryland, with a total
     forward-looking statements that may be made to reflect
                                                                     of up to 1,000 seats. This acquisition will complement
     any future events or circumstances.
                                                                     and significantly enhance the third-party fulfillment
     Overview                                                        business of TOP. The acquisition was accounted for using
                                                                     the purchase method of accounting and, accordingly, the
         The Company is the largest general line business
                                                                     purchase price was allocated to the assets purchased and
     products wholesaler in the United States, with 2000 net
                                                                     the liabilities assumed, based upon the estimated fair
     sales of $3.9 billion. The Company sells its products
                                                                     values at the date of acquisition. The excess of cost over
     through national distribution networks to more than


12
U N I T E D S TAT I O N E R S I N C . A N D S U B S I D I A R I E S




fair value of approximately $3.1 million was allocated to      of its common stock at a cost of approximately $49.6
goodwill. The pro forma effects of the acquisition were        million. Acquired shares are included in the issued shares
not material.                                                  of the Company, but are not included in average shares
    Acquisition of Azerty Canada. On July 5, 2000, the         outstanding when calculating earnings per share data.
Company completed the acquisition of the net assets of         During 2000 and 1999, the Company reissued 309,674
Azerty Canada from MCSi, Inc. The purchase price was           and 29,519 shares of treasury stock, respectively, to fulfill
approximately $33.6 million (U.S. dollars) financed            its obligations under its stock option plan.
through the Company’s Senior Credit Facility. Azerty               June 1998 Equity Offering. In June 1998, United
Canada is a specialty wholesale distributor of computer        completed an offering of 4.0 million shares of common
consumables, peripherals and accessories. The                  stock (the “June 1998 Equity Offering”), consisting of 3.0
acquisition was accounted for using the purchase method        million primary shares sold by United, and 1.0 million
of accounting and, accordingly, the purchase price was         secondary shares sold by certain selling stockholders. The
allocated to the assets purchased and the liabilities          shares were priced at $27.00 per share, before underwriting
assumed, based upon the estimated fair values at the date      discounts and commissions of $1.15 per share. The
of acquisition. The excess of cost over fair value of          aggregate proceeds to United of approximately $77.6
approximately $11.8 million was allocated to goodwill.         million (before deducting expenses) were delivered to USSC
The pro forma effects of the acquisition were not material.    and used to repay a portion of indebtedness under the
    Acquisition of Consumer Development Group. On              Tranche A Term Loan Facility, which caused a permanent
November 1, 1999, the Company acquired all of the              reduction of the amount borrowable under this facility.
capital stock of Consumer Development Group Inc.                   United did not receive any of the proceeds from the
(“CDG”) for approximately $4.8 million, including an           sale of the 1.0 million shares of common stock offered
initial payment to the seller of approximately $2.4            by the selling stockholders. It did, however, receive an
million, financed through senior debt. The remaining           aggregate of approximately $6.4 million paid by the
purchase price of approximately $2.4 million will be paid      selling stockholders upon exercise of employee stock
ratably on each of the first three anniversaries of the        options in connection with the June 1998 Equity
acquisition. The CDG acquisition was accounted for             Offering, which were delivered to USSC and applied to
using the purchase method of accounting and,                   the repayment of indebtedness under the New Credit
accordingly, the purchase price was allocated to the assets    Facilities.
purchased and the liabilities assumed, based upon the              After closing the June 1998 Equity Offering, the
estimated fair values at the date of acquisition. The excess   underwriters exercised an overallotment option to
of cost over fair value of approximately $4.8 million was      purchase an additional 0.4 million shares from United.
allocated to goodwill. The financial information for the       The net proceeds to United of approximately $10.3
year ended December 31, 1999, included the results of          million from the sale were delivered to USSC and used to
CDG for November and December only. The pro forma              repay an additional portion of the indebtedness
effects of this acquisition were not material. A Certificate   outstanding under the Tranche A Term Loan Facility.
of Dissolution was filed with the State of Delaware to             In the second quarter of 1998, the Company
dissolve CDG as of December 31, 1999. CDG is a                 recognized the following charges: a non-recurring charge
division of USSC.                                              of $13.9 million ($8.3 million net of tax benefit of $5.6
                                                               million) to write off the remaining payments and related
    Common Stock Repurchase. On October 23, 2000,
                                                               prepaid expense under a contract for computer services
the Company’s Board of Directors authorized the
                                                               from a vendor (see Note 1 to the Consolidated Financial
repurchase of up to $50.0 million of its common stock.
                                                               Statements), and an extraordinary loss of $9.9 million
Under this authorization, the Company purchased
                                                               ($5.9 million net of tax benefit of $4.0 million) related to
857,100 shares at a cost of approximately $22.4 million,
                                                               the early retirement of debt (collectively “1998 Charges”),
during 2000. During 1999, under a previous
                                                               see Note 1 to the Consolidated Financial Statements.
authorization, the Company purchased 3,250,000 shares


                                                                                                                                                             13
Management’s Discussion and Analysis of
         Financial Condition and Results of Operations                                                                  (continued)




                                                                   CallCenter Services Inc., increased 12.2%.
        Net income attributable to common stockholders for
                                                                       Gross Margin. Gross margin in 2000 reached $643.8
     the year ended December 31, 1998, before the 1998
                                                                   million, up 14.1% from last year and was 16.3% of net
     Charges, was $72.2 million, up 59.0%, compared with
                                                                   sales, compared with $564.2 million, or 16.4% of net
     $45.4 million, before the 1997 Charges (as defined). In
                                                                   sales, in 1999. The 0.1% rate decline is due to lower
     1998, diluted earnings per share before the 1998 Charges
                                                                   pricing margin partially offset by incremental vendor
     were $2.00 on 36.2 million weighted average shares
                                                                   allowances earned as a result of higher sales volume.
     outstanding, up 36.1%, compared with $1.47, before
                                                                       Operating Expenses. Operating expenses for 2000
     charges, on 30.8 million weighted average shares
                                                                   were up 15.5% to $441.3 million and were 11.2% of net
     outstanding for the prior year.
                                                                   sales, compared with $382.0 million, or 11.1% of net
        Acquisition of the Azerty Business. On April 3,
                                                                   sales, in the prior year. The increase in the operating
     1998, the Company acquired all of the capital stock of
                                                                   expense rate was attributable to investments in The Order
     Azerty Incorporated, Azerty de Mexico, S.A. de C.V.,
                                                                   People, the Company’s third-party fulfillment business.
     Positive ID Wholesale Inc., and AP Support Services
                                                                   Operating expenses for 2000 related to The Order People
     Incorporated (collectively the “Azerty Business”). These
                                                                   totaled $9.0 million resulting in a 0.2% increase in the
     businesses comprised substantially all of the United States
                                                                   operating expense ratio.
     and Mexican operations of the Office Products Division of
                                                                       Income from Operations. Income from operations
     Abitibi-Consolidated Inc. The aggregate purchase price
                                                                   increased 11.1% to $202.5 million, or 5.1% of net sales,
     paid by the Company for the Azerty Business was
                                                                   compared with $182.2 million, or 5.3% of net sales in
     approximately $115.7 million (including fees and
                                                                   1999. Excluding the investments in The Order People,
     expenses). The acquisition was financed primarily
                                                                   income from operations increased 15.5% to $210.5
     through senior debt. The Azerty Business acquisition was
                                                                   million or 5.4% of net sales.
     accounted for using the purchase method of accounting
                                                                       Interest Expense. Interest expense for 2000 was
     and, accordingly, the purchase price was allocated to the
                                                                   $27.2 million, or 0.7% of net sales, compared with $29.2
     assets purchased and the liabilities assumed based upon
                                                                   million, or 0.8% of net sales, in 1999. This reduction
     the estimated fair values at the date of acquisition, with
                                                                   reflects the Company’s continued leveraging of interest
     the excess of cost over fair value of approximately $73.7
                                                                   costs against higher sales, and the interest expense savings
     million allocated to goodwill. The financial information
                                                                   related to the redemption of the 12.75% Notes (as
     for the year ended December 31, 1998, included nine
                                                                   defined) partially offset by slightly higher interest rates
     months of the Azerty Business. The pro forma effects of
                                                                   on variable rate debt.
     this acquisition were not material.
                                                                       Other Expense. Other expense for 2000 reached
     Comparison of Results for the Years                           $11.2 million, or 0.3% of net sales, compared with $9.4
     Ended December 31, 2000 and 1999                              million, or 0.3% of net sales in 1999. This expense
         Net Sales. Net sales increased 14.6% to $3.9 billion      primarily represents the costs associated with the sale of
     for 2000, compared with $3.4 billion for 1999. This           certain trade accounts receivable through the Receivables
     increase reflected growth in the Company’s core business,     Securitization Program (as defined). These costs vary on
     incremental sales from acquisitions completed in 2000,        a monthly basis and generally are related to certain short-
     and increases in freight revenue. The Company’s sales         term interest rates.
     growth within its core business was broad based, with             Income Before Income Taxes and Extraordinary
     strength in all geographic regions, across all product        Item. Income before income taxes and extraordinary
     categories and customer channels. Specifically, the           item was $164.1 million, or 4.1% of net sales, compared
     janitorial and sanitation products, computer consumables      with $143.6 million, or 4.2% of net sales in 1999.
     and office furniture categories experienced strong sales          Income Taxes. Income tax expense as a percent of net
     growth. Sales growth for the year ended December 31,          sales was 1.7% in 2000 and in 1999. The effective tax
     2000, excluding the acquisitions of Azerty Canada and         rate declined to 39.9% in 2000 from 41.9% in 1999.



14
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  • 1. 2000 Annual Report We DELIVER Customer Satisfaction
  • 2. UNITED DELIVERS CUSTOMER SATISFACTION United Stationers Inc. is North America’s largest distributor of business products to resellers and a provider of marketing and logistics services. By asking “If I were the customer…,” United has built an organization devoted to satisfying its 20,000 reseller customers and their end consumers. Contents Stockholders’ Letter 2 ............................ Strengthening Our Competitive Position 5 ................ Expanding into Non-Office Products Fulfillment 9 ............ Management’s Discussion and Analysis 12 ................ Selected Consolidated Financial Data 20 ................ Quarterly Financial and Stock Price Data 22 .............. Report of Management/ Report of Independent Auditors 23 .................... Consolidated Financial Statements 24 .................. Notes to Consolidated Financial Statements 30 .............. Directors and Officers/ Inside Stockholder Information Back Cover ....................
  • 3. Capturing Growth Opportunities Product Lines or Services Offered Strengths Growth Strategies • General office and computer supplies and accessories • North America’s leading just-in-time distributor Build share in this $85 billion market by: Traditional of business products to resellers • Filing and record storage products • Focusing on operational excellence Office Products • Offers more than 25,000 products • Business machines and audio-visual equipment • Expanding value-added services • Network of 39 regional distribution centers across • Office furniture • Improving its cost position North America • Handling a greater share of manufacturers’ • Ability to reach nearly every reseller or consumer shipments in the U.S. on the same day or overnight • Increasing penetration among current resellers • 98% order fill rate, 99.5% order accuracy rate, and • Attracting new types of resellers 99% on-time delivery rate • Continuing geographic expansion • The largest and most popular General Line Catalog in the industry: more than 6 million copies distributed • Making acquisitions in 2000 • Expanding product categories • Unmatched value-added services • National presence in Canada, with three distribution centers and a bilingual customer service facility • Janitorial and sanitation supplies • One of North America’s leading wholesale sources Increase its share in this $18 billion market through: Janitorial and of janitorial and sanitation maintenance products • Paper products • Greater penetration among current resellers Sanitation • Offers more than 7,000 items via product and service expansion • Safety and health care products • Network of 28 regional distribution centers • Handling larger share of manufacturers’ shipments • Packaging supplies across the U.S. • Developing new reseller relationships across • Industrial maintenance products • Annual growth exceeding 25% per year, every year both new and existing channels • Food service disposables since acquired by United in 1996 • Continuing geographic expansion via new facilities • Distributes industry-leading catalog and/or acquisitions • Expanding e-commerce capabilities • North America’s largest specialty distributor Expand share within this $30 billion market by: • Computer consumables • Computer accessories Computer Consumables of office technology consumables and peripherals and supplies • Handling a greater share of manufacturers’ • Digital imaging • Offers more than 10,000 products shipments • Printers, scanners, fax • Professional graphics machines, and all-in-ones • Network of six regional distribution centers • Increasing penetration of new • Bar code and in the U.S. and Mexico that provide next-day delivery customer markets • Peripherals point-of-sale products • Increasing penetration among current resellers • Attracting new types of resellers • Continuing geographic expansion • Making strategic acquisitions • Continuing to expand product offering • Using the Internet to improve efficiencies and become the partner of choice Customer Relationship Management (CRM) • Offers full set of third-party services, including • Capitalizes on United’s distribution scale, logistics Penetrate the $18 billion market for third-party expertise and technology service-fee revenue by: distribution, fulfillment and customer relationship and Fulfillment Services management (CRM) strategies—such as call center • Provides seamless, reliable service from a single source • Leveraging a solid infrastructure and refining services, data mining and warehousing, and marketing its CRM tools • Can handle a wide variety of product categories, campaigns, which integrate with traditional and sizes and weights • Marketing its services to a broad audience e-commerce business models including manufacturers, “clicks and mortar” retailers • Measures customer satisfaction and is accountable and direct marketers for performance • Utilizes robust, scaleable, flexible systems • Call center complemented by CRM technology • Provides a total back-end solution to traditional and Web-based manufacturers and retailers, service companies and resellers
  • 4. Financial Highlights UNITED STATIONERS INC. AND SUBSIDIARIES (dollars in thousands, except per share data) Income Statement Data for the Years Ended Dec. 31, 2000 Dec. 31, 1999 $ 3,944,862 Net sales . . . . . . . . . . . . . . . . . . . . $ 3,442,696 202,546 Income from operations . . . . . . . . . . . . . . 182,194 164,116 Income before income taxes and extraordinary item . . . . 143,567 92,167 Net income . . . . . . . . . . . . . . . . . . . . 83,409 2.65 Net income per common share — assuming dilution . . . . 2.37 34,775 Average number of common shares (in thousands) . . . . 35,208 Operating Results Before Extraordinary Charge 1 $ 98,643 Income before extraordinary item .......... $ 83,409 Income before extraordinary item 2.84 per common share — assuming dilution . . . . . . . . 2.37 Balance Sheet Data at Year End $ 495,456 Working capital . . . . . . . . . . . . . . . . . . $ 415,548 1,447,027 Total assets . . . . . . . . . . . . . . . . . . . . 1,279,903 427,127 Long-term obligations (including current maturities) . . . . 355,552 478,439 Stockholders’ equity . . . . . . . . . . . . . . . . 406,009 1. Second quarter 2000 results included an extraordinary charge of $10.7 million ($6.5 million net of tax benefit of $4.2 million) related to the early retirement of debt. Net Income per Share Operating Income Net Sales Operating income grew 11.2% despite a tight The 14.6% increase in sales for 2000 gave Net income continued to outpace United’s labor market and investments in developing the United a 14.1% four-year compound annual goal of 15% annual growth, for a four-year fulfillment business. This gave the company a growth rate (CAGR). CAGR of 29.5%. 15.7% four-year CAGR. DOLLARS IN BILLIONS DOLLARS IN MILLIONS DOLLARS PER SHARE $2.84 $ 203 $3.9 $182 $3.4 $2.37 $169 $3.1 $2.00 $135 $2.6 $2.3 $113 $1.47 $1.01 972 982 002 96 99 96 972 982 97 98 99 00 96 99 00 1 2.Excluding non-recurring charges
  • 5. To Our Stockholders Strong Balance Sheet Our interest expense was favorably affected by the interest rate spread between the revolving line of credit and the 12.75% bonds we redeemed in May (financed through our senior United ended 2000 with its 19th consecutive credit facility). However, this was partially quarter of record sales and earnings. This was offset by higher interest rates and funding possible because our channel partners were requirements for the July 2000 acquisitions of drawn to United’s ability to deliver customer Azerty/United Canada and CallCenter Services, satisfaction. However, the real story is that which increased total debt to $559.9 million, we achieved these results in the face of strong up 12.7%. Despite the acquisitions, our debt-to- growth in 1999—while investing in other total book capitalization of 53.9% improved opportunities for even greater expansion. when compared with 1999’s 55.0%, and is well Fourth Straight Year within our target range of 50-60%. of Record Performance Capital spending for the core business Net sales rose 14.6% to $3.9 billion. Approx- during the year was $26.0 million, compared imately 12% came from organic growth, with 1999’s $21.3 million. In addition, we exceeding our 6-9% goal. The balance spent about $13.0 million to develop The Order resulted from our Azerty/United Canada People, bringing our total capital expenditures and CallCenter Services acquisitions. for 2000 to $39.0 million. We saw strong performance across all product categories and Our financial strength geographies, led by office furniture (up 16%) comes from a company-wide and janitorial/sanitation focus on serving customers (up 26%). As expected, our 16.3% gross margin was down slightly from 1999’s Expressing Our Confidence in United’s Growth 16.4%. This reflects the higher amount of business we are doing in two lower margin Our ongoing challenge with investors is to com- areas—computer consumables and national municate 1) the role United plays in bringing accounts business —although both have a efficiency to the business products supply chain, lower cost-to-serve. Operating expenses as and 2) how we leverage our distribution a percent of sales were 11.2% compared with competencies to grow and capitalize on new Randall W. Larrimore, 11.1% in the prior year. Operating income market opportunities. We often are incorrectly President and also increased 11.1% to $202.5 million. perceived only as a “traditional wholesaler,” Chief Executive Officer These numbers are even more impressive which ships full cases of merchandise to resellers when you consider that nearly $9.0 million in so they can restock their inventory. This operating expenses were used to build our third- misperception creates some concern United party fulfillment business, The Order People. could be “bypassed” in the supply chain. 2
  • 6. In reality, we are an integral part of our technology strategist to help guide United’s customer’s supply chain. Our role is to be an e-commerce initiatives. extension of our customers’ warehouses, Our 20,000 reseller providing same-day order turnaround so they can deliver their customers’ customers have made us an orders the next day. We pick indi- vidual end-consumer orders for our industry leader resellers, or drop ship them on behalf of the reseller directly to the end consumer. We are a just-in-time distributor of business products to Turning Growth Opportunities into a Reality resellers, as well as a provider of marketing and Our strategic goal is to be a world-class logistics logistics fulfillment services. and fulfillment expert, providing a complete We continue to take our story to investors— suite of back-end services to office products both in one-on-one meetings and at industry resellers, manufacturers, and resellers of other conferences—and believe in our bright, long- products. To achieve this, we began looking at term future. That’s why we are willing to invest our company not as just a distributor of office in our own stock. In the fourth quarter, the products, but as fulfillment experts. This view board authorized a $50 million stock repurchase reveals opportunities to expand our traditional program. During the year, we bought nearly business and build a non-office products third- 1.0 million shares, at an average price of just party services operation. under $26.00 per share. At year-end, we had We took a number of steps in 2000 to make 33.4 million shares outstanding. We see value 2000 Revenues these growth opportunities a reality. (Details by Product Line in our shares and will, from time-to-time, on how the growth strategies are being imple- continue our repurchase program. And our While office supplies mented can be found in the Operations Review commitment to investor education is ongoing. remain United’s largest following this letter.) Here are the highlights. product category, Strengthening janitorial/sanitation United’s Leadership Increase the Geographic Penetration and office furniture of our Traditional Businesses In addition to Ilene Gordon, President of were the fastest growing categories in 2000. We accomplished this in a number of ways: Pechiney Plastic Packaging, who joined our • Added distribution facilities at United board in January 2000, United’s leadership Stationers Supply Co. and Lagasse— Office Supplies was strengthened with the addition of two other 35% Computer We moved from four less efficient professionals during the year. Eileen Kamerick Consumables 33% facilities into three new state-of- became Executive Vice President and Chief the-art distribution centers and Financial Officer in October 2000. She came opened two new centers. to us from BP Amoco plc where she was • Acquisition broadens Lagasse’s reach— Vice President/Finance, the Americas, and Just after the end of the year, we Vice President and Chief Financial Officer Business Machines Office Furniture completed the acquisition of Peerless, BPAmerica. Eileen has extensive experience & Audio-Visual 10% 13% another wholesaler within the janitorial/ in acquisition evaluation, SEC reporting, Janitorial & Sanitation 9% sanitation industry. This added a total of international expansion, and banking 400,000 additional square feet of distribution relationships. Alex Zoghlin, Chief Technology capacity at six locations, and will help Officer at Orbitz, joined our board in November increase our penetration in the Northeast 2000. Alex will draw on his background as an and Midwest facility supply markets. innovator, a successful leader and an astute 3
  • 7. We are continuously seeking ways to improve our operational third-party fulfillment business needs. and financial performance It also provides us with two cutting-edge facilities —in Salisbury, Maryland and Wilkes-Barre, Pennsylvania. • Increased geographic penetration in Canada— Outlook for 2001 We purchased a computer consumables All of our operations were performing well operation in Canada during July 2000 and as we entered the new year. We are making renamed it Azerty/United Canada. This investments in infrastructure and in our business has $115 million (US) in annual associates to keep operating at the high level we sales and has served the Canadian need to succeed in our business. We are building marketplace for 10 years. We intend to new growth platforms, such as non-office leverage Azerty/United Canada’s customer products fulfillment through The Order People, base by offering these companies United and expanding our product lines and customer Stationers Supply Co.’s office products, giving base through the Peerless acquisition. We have us scale and growth opportunities. the financial strength to fund this additional Expand the Office Products growth. As a result, we have a positive outlook E-Commerce Business for the year, even though we are realistic about In 2000, we expanded two programs already the type of challenge 2001 is likely to bring— in place. We offered our product lines to non- especially in the first half. Eileen Kamerick joined traditional office products resellers involved United Stationers We can meet this challenge because in e-commerce and helped our traditional as Executive Vice President United’s commitment to delighting customers and CFO in October 2000. resellers increase their presence on the Web. is enthusiastically embraced by associates at Develop Non-Office Products all levels. Their outstanding efforts in 2000 Fulfillment Operation fueled our growth and built even stronger In July 2000, we formed The Order People relationships between United and its manufac- as a subsidiary to reach this market. We believe turers and resellers. We believe our focus on third-party fulfillment and CRM (customer providing superior customer service will help relationship management) represents one us continue to increase shareholder value for of United’s best opportunities for growth. many years to come. The Order People allows United to leverage its core competencies of picking, packing and shipping office products into providing the same services for other types of products. In addition, we made an acquisition to support the new operation. CallCenter Services, purchased in July 2000, has $20+ million in Randall W. Larrimore annual service fee revenues. It gives The Order President and Chief Executive Officer People the in-bound call center capabilities a March 15, 2001 4
  • 8. usi United Stationers: A Leader in Customer Satisfaction S AT I S F Y I N G O U R 2 0 , 0 0 0 R E S E L L E R C U S TO M E R S AND THEIR END CONSUMERS U N I T E D S TAT I O N E R S i s N O RT H A M E R I C A’ S L A R G E S T P R O V I D E R O F : • OFFICE SUPPLIES • COMPUTER SUPPLIES • OFFICE FURNITURE • JANITORIAL AND S A N I TAT I O N S U P P L I E S • M O S T P O P U L A R P R I VAT E L A B E L COMMODITY OFFICE PRODUCTS
  • 9. DO YOU KNOW R E A L LY usi W H AT W E DO? WE ARE A JUST - IN - TIME DISTRIBUTOR OF BUSINESS PRODUCTS TO RESELLERS, AS WELL AS A PROVIDER OF MARKETING AND LOGISTICS SERVICES. WE PROVIDE SAME - AND NEXT - DAY DELIVERY OF PRODUCTS FOR RESELLERS ACROSS NORTH AMERICA. WE COST - EFFECTIVELY BREAK DOWN BULK SHIPMENTS FROM MANUFACTURERS INTO THE SMALL QUANTITIES NEEDED BY END CONSUMERS. WE ATTACH ADDRESS LABELS WITH RESELLERS‘ LOGOS AND END - CONSUMERS’ NAMES TO 70% OF OUR SHIPMENTS — MAKING OUR SERVICES TRANSPARENT. WE SHARE OUR END - CONSUMER RESEARCH, AND PROVIDE MARKETING ASSISTANCE TO HELP RESELLERS BUILD THEIR BUSINESSES. WE EXPAND THE RANGE OF PRODUCTS RESELLERS OFFER — BENEFITING THEM, OUR SUPPLIERS AND END CONSUMERS.
  • 10. Operations Review Manufacturers also want to focus on their Strengthening Our Competitive Position core competencies —designing and making How do we strengthen our competitive products. They, too, want to remove extraneous position when we are already the largest operations and costs. business products provider in North America? The functions these companies want to Our philosophy is to add so much value— outsource are United’s core business. Our from broad product lines to nationwide expertise, combined with a focus on delivering distribution to marketing support— for our customer satisfaction, makes us a compelling manufacturers and resellers that we become channel partner for manufacturers and an integral part of how they go to market. resellers— and gives us great opportunities In 2000, the office Each year we find new ways to products industry increase our value as a business partner niches we serve generated nearly for manufacturers and resellers $130 billion in sales, and had an average growth of 5-6%. United’s for growth. Here are the strategies we are using organic growth was nearly twice as fast, about to capitalize on this. 12%. We accomplished this by executing the Gaining a Greater Share of following strategies, which stem from our Manufacturers’ Shipments Efficient partners’ focus on their core competencies. There is a misconception that it is more Distribution Resellers want to take costs out of their efficient for manufacturers to sell directly to systems and focus on their core competencies— Our fleet of 400 trucks— resellers. This is not always the case, because supplemented by UPS, selling products and solutions. To do this, they we can provide our 500 manufacturers an common carriers and Federal increasingly shed part or all of their inventory Express —allows us to achieve edge with resellers that they typically couldn’t 99% on-time delivery of and product distribution capabilities. match on their own. resellers’ and end -consumers’ orders on the same day, We create demand for their products— overnight, or the next day. We distribute nearly 14 million catalogs, 16 million promotional flyers, and provide an electronic catalog for countless Websites. These are used by more than 20,000 resellers: 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. 5
  • 11. We broaden their geographic reach— Our unmatched infrastructure allows us to get products to every important U.S. and most Canadian and Mexican metropolitan markets within 24 hours. This fulfills the overnight We provide exposure to a broader product 40,000 Products delivery requirements of many resellers. Just a Click Away offering—We stock thousands of SKUs (stockkeeping units) that most resellers do We receive over 90% Increasing Penetration of our orders electronically, not carry in their inventories. These products among Current Resellers through a proprietary typically have significantly higher margins for Our resellers find it’s easier to reap the benefits order-entry system, the all channel partners, since they are less price Internet and computer-to- of United’s expertise and infrastructure than it is computer transmission. sensitive. This gives most manufacturers to replicate it. exposure to resellers and end consumers they We offer the industry’s broadest product line— would never be able to reach without United. This allows resellers to expand their product We manage the entire ordering process— offering without investing in inventory or More than 90% of our orders are sent warehouses, which leverages their sales and electronically to manufacturers and received distribution assets. With our more than 40,000 electronically from dealers. This automates items, we are: order entry, reducing the chances for errors • the largest provider of office supplies. while shortening the time between receiving • the largest provider of computer supplies. the order and shipping it. In addition, by • the largest provider of office furniture. working with many resellers and accumulating their orders, United saves manufacturers • the largest provider of janitorial and substantial handling and administrative costs— sanitation supplies. particularly on small orders. • the provider of the largest selection of We efficiently handle small order quantities— popular private label commodity products: Manufacturers need our skill in cost-effectively the Universal brand. breaking down bulk shipments into the “one • a leading provider of business machines/ eaches” required by resellers and their end audio-visual equipment, and barcode consumers. This means manufacturers can scanning products. reduce warehousing and inventory costs, avoid We offer unmatched value-added programs— investments in elaborate picking systems, and This helps resellers sell more product and better sell products to resellers who otherwise would satisfy their customers: be too small for them to serve. 6
  • 12. • Sales generating materials include United’s General Line Catalog—the industry’s favorite—and specialty catalogs. These are The Largest Network available in both a paper and electronic in the Industry format. Each catalog or site is customized with the reseller’s (rather than United’s) name and contact information. • Wrap and Label Program allows us to package the items ordered by an individual consumer into a box, attach an address label— featuring the reseller’s name—then send it to the reseller for immediate delivery, or drop ship it to the end consumer on the reseller’s behalf. Resellers benefit because they don’t have to break down large shipments and repackage them for delivery. United Stationers Supply Division • Nationwide Express Delivery provides Lagasse, Inc. Azerty Incorporated same-day, next-day or second-day delivery via Azerty/United Canada The Order People UPS, reaching 99% of all business customers in the U.S. This allows local, regional and Our 77 distribution centers allow us to reach 90% of the sponsor research on significant industry virtual resellers to serve national accounts. U.S. population on a next-day trends. Then we present the results —and our delivery basis. We also reach • Dealer training included teaching 115 major metropolitan areas in recommendations on how they can be used— courses in 2000 that attracted nearly Canada and Mexico within to resellers throughout the country. In 2000, 24 hours of order placement. 2,000 reseller “students” on subjects from we helped 1,500 resellers in 33 cities better finance and marketing to sales and sales understand their markets and how to build management. United provides professional their businesses. training that might not otherwise be available to many resellers. We can handle their entire backroom operation— Growing numbers of resellers are choosing to • Premier Performance Shows allow resellers outsource their warehousing and distribution, and their end consumers to preview new and stocking fewer items and relying on United’s unique products, while the manufacturers extensive inventory. We support this approach who exhibit them provide detailed through our broad product offering and these information on their features. United characteristics: sponsored seven shows across the country in 2000, showcasing products from about • A $600 million investment in inventory. 100 manufacturers. This helped strengthen • State-of-the-art order processing, which relationships with the thousands of resellers allowed us to handle an average of 160,000 and consumers who attended. customer orders each day in 2000. Our inte- • End-consumer research gives United’s resellers grated systems enable us to locate products an edge in their markets. Each year, we at multiple warehouses, consolidate them 7
  • 13. Promoting Teamwork Our Helton Center for Performance Improvement hosts five-day training programs for associates. They learn to work as teams to help us better serve our customers. at one of our multiple locations and provide a • Lagasse also expanded into two larger single, on-time delivery of the entire order. hub facilities, one in Chicago and one in Los Angeles. • 77 regional distribution centers in 36 metro- politan areas in 25 states and provinces in the • United Stationers Supply Co. began building U.S., Mexico and Canada. We also have 21 new centers that will replace several older reshipment points. facilities in Denver (263,000 square feet), expected to open in the summer of 2001, and • Our fleet of more than 400 trucks, which in Charlotte (300,000 square feet) expected to delivers orders as soon as they are picked. open by the end of the third quarter 2001. • The highest service levels in the industry. In We estimate our investment in each of 2000, we had a 98% order fill rate, a 99.5% these facilities will have a relatively short order accuracy rate, and a 99% on-time payback period. delivery rate —generally within 24 hours of order placement. Making Acquisitions • An operating system and culture focused We expanded our computer consumables and on providing superior service and fulfillment janitorial/sanitation businesses through two excellence. acquisitions: Azerty Canada in July 2000 and Peerless Paper Mills in January 2001. Continuing Geographic Expansion Azerty/United Canada United has A number of U.S. markets offer opportunities for greater operated in Canada sales or enhanced efficiency. for 10 years. As part In 2000, we either built new of our strategic distribution facilities or expanded current planning process two years ago, we identified ones to capitalize on this situation: growth opportunities in Canada and decided to intensify our efforts there. The acquisition of • United Stationers Supply Co.’s 437,500 Azerty Canada significantly enhanced our square foot distribution center in Dallas market position: replaced a two-building (383,000 square feet) operation there. • It enables us to expand our computer consumables, peripherals and accessories • United Stationers Supply Co.’s 320,000 business. square foot distribution center in Baltimore was retrofitted to provide leading-edge • It adds scale (an additional $115 million picking capabilities. in annual sales) and infrastructure through • Lagasse opened a 55,000 square foot its distribution facilities in Toronto, Vancouver, distribution center in Phoenix, and a 47,000 and Montreal, and a bilingual customer square foot facility near Kansas City. service facility, also in Montreal. 8
  • 14. • It gives us a national presence and an • It provides additional logistics capabilities, experienced staff that can help us build sales coverage and marketing expertise. our business. Expanding Into Non-Office Products Fulfillment • It provides opportunities to cross-sell our Through The Order People, United is other product lines. beginning to tap the fast-growing third-party Peerless Paper Mills This wholesale services market. Industry experts forecast distributor of janitorial and sanitation products, this market will reach $27 billion in U.S. and paper and food service products, was a revenue by 2004. logical addition to Lagasse: • It will expand Lagasse’s Communicating with our customers product line to nearly helps us continuously find new ways to 10,000 available items. improve our performance • It will allow Lagasse and Peerless to cross-sell complementary product lines to Pricing arrangements for The Order People each other’s customers. will follow the tried-and-true formulas generally used in outsourcing. Typically, this is a fee-based • It enhances the scale and infrastructure of business where the clients pay set-up fees, Lagasse’s Northeast and Midwest operations. transaction fees and fixed time or space fees. This includes distribution centers in several We typically process orders It is a low working capital business since the new markets, including Minneapolis, until 6:00 p.m. We then move clients own the inventory. swiftly to pick and pack orders Pittsburgh, and a state-of-the-art facility for products ranging from The Order People targets a broad audience: outside of Philadelphia. pens, binders and labels to traditional catalog merchants, “clicks and office furniture. These are • It generates $75 million in annual revenues, most often labeled for mortar” retailers, manufacturers, service with annual increases in the high-teens and individual end users and providers and e-commerce businesses providing shipped on our own trucks the potential to improve on this through or via UPS/Federal Express business-to-business (B2B) and business-to- synergies with Lagasse. during the night to resellers consumer (B2C) services. Its mission is to and to end users on behalf of our resellers. This allows end-users’ orders to arrive at Turning the Order -to -Delivery Cycle into Customer Satisfaction their desks the very next day. While the content of each order may vary, the customer satisfaction we deliver each day remains constant. 9
  • 15. Customer Care—Through the CallCenter Services acquisition, we added two state-of-the- art call centers located in Salisbury, Maryland and Wilkes-Barre, Pennsylvania. Combining Web-enabled end-consumer contact with traditional inbound and outbound teleservices, we are able to meet our customers’ expanding become the leader in the third-party service needs while exceeding their end-consumer’s market by providing outstanding fulfillment expectations on a 24 x 7 x 365 basis. and customer relationship management (CRM) Our core offering includes order entry/status, solutions. By combining leading edge up-sell and cross-sell, credit/services applica- technology with expertise in third-party tions, refunds and exchanges, technical/help fulfillment, The Order People’s goal is to desk, and standard reports. Our special services design and execute personalized and flexible include self-service online, agent monitoring, programs that exceed expectations for its credit card authorizations, script development, customers and their end consumers. Steven R. Schwarz, system integration, software development, mul- Executive Vice President Integrated, tilingual representatives, and agent training. and President, United Supply Single-Source Solution Data Mining & Warehousing—Our state- Division, led another year The Order People is taking United’s 80 years of of record revenues. of-the-art data approach includes a number experience in seamless order taking, “picking, of strategies: packing, shipping and tracking,”and translating • Customer data acquisition and it into categories beyond office products. As management—getting relevant information with United, The Order People will remain The Benefits of and organizing it so our customers can transparent—end consumers will see only its an Integrated make the best use of it. customers’ brand names. Warehouse Network • Analytic services —analyzing end-consumer During 2000, we identified the infrastructure Most of our products reach information to provide customers with a for The Order People’s future success. There resellers and end consumers better understanding of this audience—from within 24 hours of their are two aspects to our approach: customer placing the order. This is “customer lifetime analyses” to precision relationship management (CRM) and fulfillment. possible because our ware- market analysis. CRM creates a win/win relationship between houses are linked with a • Personalization services—generating proprietary inventory locator our customers and their end consumers— system, and use technology personalized end-consumer interactions. The Order People breaks these strategies into to increase their efficiency • Customer access services—providing three broad categories. and accuracy. Our approach allows us to provide very or delivering services over multiple high service levels. communication channels, from the mail to pagers to the Internet. 10
  • 16. • Transaction services—improving all contacts with end consumers, from informing them of products and services through post-sales support, such as returns processing and billing. Integrated Marketing Solutions—These are the tools customers need to acquire, retain, and expand their end-consumer base. The Order People will support this by combining powerful brand building tools and customer and market data with innovative marketing campaigns. These include: • End-consumer acquisition campaigns. • Lead generation. • Incentive programs— for internal employees Cutting-edge and end consumers. Customer Relationship • End-consumer expansion campaigns— differentiates itself with its seamless integrated Management (CRM) featuring cross-sell and up-sell marketing, approach. End consumers never know they are The Order People gives coupon programs, and spiral marketing, its customers the benefits not dealing directly with our customers. As a of CRM – without the cost in which end consumers are given a result, we provide a unique solution that helps and hassle of installing and continuous loop of information to increase customers build and sustain end-consumer managing their own systems. their awareness of all products and services. relationships and brand value. • End-consumer retention campaigns— such Measuring Our Progress as loyalty or rewards programs, satisfaction As we entered 2001, The Order People had a surveys, renewal programs, memberships, number of customers using its call center and frequent shopper programs. services and was well positioned to offer its Fulfillment allows us to get the right products customers logistics and fulfillment services. to end consumers on a timely basis—In Our goal is to continuously qualify leads each November, The Order People opened its first quarter and sign contracts that will enable warehouse dedicated to third-party fulfillment, The Order People to become profitable in in Memphis, Tennessee. This 650,000 square 2002. We are excited about this new growth foot facility incorporates the latest warehousing opportunity for United and are committed to and distribution technology, including investing in its success. computerized receiving and picking systems. In addition, The Order People is leveraging United’s The Order People has ability to PICK, PACK, SHIP and TRACK office supplies, leased distribution centers in Harrisburg, by handling other product categories Pennsylvania, and Reno, Nevada. A number of companies provide one or more of these services. The Order People 11
  • 17. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20,000 resellers, who in turn sell directly to end users. The following discussion should be read in conjunction with the Consolidated Financial Statements and related These products are distributed through a computer-based notes. network of warehouse facilities and truck fleets radiating Information contained or incorporated by reference in from 39 regional distribution centers, 28 Lagasse this Annual Report may contain “forward-looking distribution centers, six Azerty distribution centers, statements” within the meaning of Section 27A of the three distribution centers that serve the Canadian Securities Act and Section 21E of the Exchange Act, which marketplace and a distribution center to serve clients can be identified by the use of forward-looking of The Order People. terminology such as “may,” “will,” “expect,” “intend,” On July 25, 2000, the Company announced that it “anticipate,” “believe,” “estimate” or “continue” or the established The Order People (“TOP”) to operate as its negative thereof or other variations thereon or comparable third-party fulfillment provider for product categories terminology. All statements other than statements of beyond office products. TOP offers a full set of services historical fact included in this Annual Report, including specifically designed to support a wide variety of third- those regarding the Company’s financial position, business party service needs. By combining the Company’s state- strategy, projected costs and plans and objectives of of-the-art distribution network with a multi-channel management for future operations are forward-looking customer relationship management (CRM) capability, statements. Certain risks and uncertainties could cause clients have the ability to custom design their order actual results to differ materially from those in such fulfillment experience and then monitor and measure forward-looking statements. These include, but are not consumer satisfaction. The Company has extensive limited to, the highly competitive operating environment, experience and ability to pick, pack, ship and track the market potential for third-party services, the products with a wide range of physical attributes. Company’s ability to adjust The Order People’s cost structure TOP enables the Company to leverage these core to the timing of revenue generation, the integration of competencies in a broader context for third-party acquisitions, changes in end-users’ traditional demands for logistics and fulfillment. business products, the Company’s reliance on certain key In connection with TOP, the Company operates a new suppliers, the effects of fluctuations in manufacturers’ 650,000 square foot state-of-the-art distribution and pricing, potential service interruptions, customer credit service center in Memphis, Tennessee. In addition, the risk, dependence on key personnel, and general economic Company has leased distribution centers in Harrisburg, conditions. A description of these factors, as well as other Pennsylvania, and in Reno, Nevada. factors, which could affect the Company’s business, is set Acquisition of CallCenter Services, Inc. On July 1, forth in certain filings by the Company with the Securities 2000, the Company acquired all of the capital stock of and Exchange Commission. All forward-looking CallCenter Services, Inc. from Corporate Express, a statements contained in this Annual Report and/or any Buhrmann Company. The purchase price was subsequent written or oral forward-looking statements approximately $10.7 million, financed through the attributable to the Company or persons acting on behalf of Company’s Senior Credit Facility. CallCenter Services is a the Company, are expressly qualified in their entirety by customer relationship management outsourcing service such cautionary statements. The Company undertakes no company. It has two inbound call centers, in Wilkes- obligation to release the results of any revisions to these Barre, Pennsylvania and Salisbury, Maryland, with a total forward-looking statements that may be made to reflect of up to 1,000 seats. This acquisition will complement any future events or circumstances. and significantly enhance the third-party fulfillment Overview business of TOP. The acquisition was accounted for using the purchase method of accounting and, accordingly, the The Company is the largest general line business purchase price was allocated to the assets purchased and products wholesaler in the United States, with 2000 net the liabilities assumed, based upon the estimated fair sales of $3.9 billion. The Company sells its products values at the date of acquisition. The excess of cost over through national distribution networks to more than 12
  • 18. U N I T E D S TAT I O N E R S I N C . A N D S U B S I D I A R I E S fair value of approximately $3.1 million was allocated to of its common stock at a cost of approximately $49.6 goodwill. The pro forma effects of the acquisition were million. Acquired shares are included in the issued shares not material. of the Company, but are not included in average shares Acquisition of Azerty Canada. On July 5, 2000, the outstanding when calculating earnings per share data. Company completed the acquisition of the net assets of During 2000 and 1999, the Company reissued 309,674 Azerty Canada from MCSi, Inc. The purchase price was and 29,519 shares of treasury stock, respectively, to fulfill approximately $33.6 million (U.S. dollars) financed its obligations under its stock option plan. through the Company’s Senior Credit Facility. Azerty June 1998 Equity Offering. In June 1998, United Canada is a specialty wholesale distributor of computer completed an offering of 4.0 million shares of common consumables, peripherals and accessories. The stock (the “June 1998 Equity Offering”), consisting of 3.0 acquisition was accounted for using the purchase method million primary shares sold by United, and 1.0 million of accounting and, accordingly, the purchase price was secondary shares sold by certain selling stockholders. The allocated to the assets purchased and the liabilities shares were priced at $27.00 per share, before underwriting assumed, based upon the estimated fair values at the date discounts and commissions of $1.15 per share. The of acquisition. The excess of cost over fair value of aggregate proceeds to United of approximately $77.6 approximately $11.8 million was allocated to goodwill. million (before deducting expenses) were delivered to USSC The pro forma effects of the acquisition were not material. and used to repay a portion of indebtedness under the Acquisition of Consumer Development Group. On Tranche A Term Loan Facility, which caused a permanent November 1, 1999, the Company acquired all of the reduction of the amount borrowable under this facility. capital stock of Consumer Development Group Inc. United did not receive any of the proceeds from the (“CDG”) for approximately $4.8 million, including an sale of the 1.0 million shares of common stock offered initial payment to the seller of approximately $2.4 by the selling stockholders. It did, however, receive an million, financed through senior debt. The remaining aggregate of approximately $6.4 million paid by the purchase price of approximately $2.4 million will be paid selling stockholders upon exercise of employee stock ratably on each of the first three anniversaries of the options in connection with the June 1998 Equity acquisition. The CDG acquisition was accounted for Offering, which were delivered to USSC and applied to using the purchase method of accounting and, the repayment of indebtedness under the New Credit accordingly, the purchase price was allocated to the assets Facilities. purchased and the liabilities assumed, based upon the After closing the June 1998 Equity Offering, the estimated fair values at the date of acquisition. The excess underwriters exercised an overallotment option to of cost over fair value of approximately $4.8 million was purchase an additional 0.4 million shares from United. allocated to goodwill. The financial information for the The net proceeds to United of approximately $10.3 year ended December 31, 1999, included the results of million from the sale were delivered to USSC and used to CDG for November and December only. The pro forma repay an additional portion of the indebtedness effects of this acquisition were not material. A Certificate outstanding under the Tranche A Term Loan Facility. of Dissolution was filed with the State of Delaware to In the second quarter of 1998, the Company dissolve CDG as of December 31, 1999. CDG is a recognized the following charges: a non-recurring charge division of USSC. of $13.9 million ($8.3 million net of tax benefit of $5.6 million) to write off the remaining payments and related Common Stock Repurchase. On October 23, 2000, prepaid expense under a contract for computer services the Company’s Board of Directors authorized the from a vendor (see Note 1 to the Consolidated Financial repurchase of up to $50.0 million of its common stock. Statements), and an extraordinary loss of $9.9 million Under this authorization, the Company purchased ($5.9 million net of tax benefit of $4.0 million) related to 857,100 shares at a cost of approximately $22.4 million, the early retirement of debt (collectively “1998 Charges”), during 2000. During 1999, under a previous see Note 1 to the Consolidated Financial Statements. authorization, the Company purchased 3,250,000 shares 13
  • 19. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) CallCenter Services Inc., increased 12.2%. Net income attributable to common stockholders for Gross Margin. Gross margin in 2000 reached $643.8 the year ended December 31, 1998, before the 1998 million, up 14.1% from last year and was 16.3% of net Charges, was $72.2 million, up 59.0%, compared with sales, compared with $564.2 million, or 16.4% of net $45.4 million, before the 1997 Charges (as defined). In sales, in 1999. The 0.1% rate decline is due to lower 1998, diluted earnings per share before the 1998 Charges pricing margin partially offset by incremental vendor were $2.00 on 36.2 million weighted average shares allowances earned as a result of higher sales volume. outstanding, up 36.1%, compared with $1.47, before Operating Expenses. Operating expenses for 2000 charges, on 30.8 million weighted average shares were up 15.5% to $441.3 million and were 11.2% of net outstanding for the prior year. sales, compared with $382.0 million, or 11.1% of net Acquisition of the Azerty Business. On April 3, sales, in the prior year. The increase in the operating 1998, the Company acquired all of the capital stock of expense rate was attributable to investments in The Order Azerty Incorporated, Azerty de Mexico, S.A. de C.V., People, the Company’s third-party fulfillment business. Positive ID Wholesale Inc., and AP Support Services Operating expenses for 2000 related to The Order People Incorporated (collectively the “Azerty Business”). These totaled $9.0 million resulting in a 0.2% increase in the businesses comprised substantially all of the United States operating expense ratio. and Mexican operations of the Office Products Division of Income from Operations. Income from operations Abitibi-Consolidated Inc. The aggregate purchase price increased 11.1% to $202.5 million, or 5.1% of net sales, paid by the Company for the Azerty Business was compared with $182.2 million, or 5.3% of net sales in approximately $115.7 million (including fees and 1999. Excluding the investments in The Order People, expenses). The acquisition was financed primarily income from operations increased 15.5% to $210.5 through senior debt. The Azerty Business acquisition was million or 5.4% of net sales. accounted for using the purchase method of accounting Interest Expense. Interest expense for 2000 was and, accordingly, the purchase price was allocated to the $27.2 million, or 0.7% of net sales, compared with $29.2 assets purchased and the liabilities assumed based upon million, or 0.8% of net sales, in 1999. This reduction the estimated fair values at the date of acquisition, with reflects the Company’s continued leveraging of interest the excess of cost over fair value of approximately $73.7 costs against higher sales, and the interest expense savings million allocated to goodwill. The financial information related to the redemption of the 12.75% Notes (as for the year ended December 31, 1998, included nine defined) partially offset by slightly higher interest rates months of the Azerty Business. The pro forma effects of on variable rate debt. this acquisition were not material. Other Expense. Other expense for 2000 reached Comparison of Results for the Years $11.2 million, or 0.3% of net sales, compared with $9.4 Ended December 31, 2000 and 1999 million, or 0.3% of net sales in 1999. This expense Net Sales. Net sales increased 14.6% to $3.9 billion primarily represents the costs associated with the sale of for 2000, compared with $3.4 billion for 1999. This certain trade accounts receivable through the Receivables increase reflected growth in the Company’s core business, Securitization Program (as defined). These costs vary on incremental sales from acquisitions completed in 2000, a monthly basis and generally are related to certain short- and increases in freight revenue. The Company’s sales term interest rates. growth within its core business was broad based, with Income Before Income Taxes and Extraordinary strength in all geographic regions, across all product Item. Income before income taxes and extraordinary categories and customer channels. Specifically, the item was $164.1 million, or 4.1% of net sales, compared janitorial and sanitation products, computer consumables with $143.6 million, or 4.2% of net sales in 1999. and office furniture categories experienced strong sales Income Taxes. Income tax expense as a percent of net growth. Sales growth for the year ended December 31, sales was 1.7% in 2000 and in 1999. The effective tax 2000, excluding the acquisitions of Azerty Canada and rate declined to 39.9% in 2000 from 41.9% in 1999. 14