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TABLE OF CONTENTS

United States Securities and Exchange Commission
Washington, DC 20549

FORM 10-K

UNITED STATIONERS INC.
(Exact Name of Registrant as Specified in its Charter)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.10 par value per share
(Title of Class)

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý     No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

Yes  ý     No  o

The aggregate market value of the common stock of United Stationers Inc. held by non-affiliates as of June 30, 2003 was approximately $1,155,403,847.

On March 8, 2004, United Stationers Inc. had 33,923,155 shares of Common Stock outstanding.

Documents Incorporated by Reference:

Certain portions of United Stationers Inc.'s definitive Proxy Statement relating to its 2004 Annual Meeting of Stockholders, to be filed within 120 days after the end of United Stationers Inc.'s fiscal year, are incorporated by reference into Part III.

UNITED STATIONERS INC.
FORM 10-K
For The Year Ended December 31, 2003

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS.

General

With 2003 net sales of $3.8 billion, United Stationers Inc. ("United") is North America's largest broad line wholesale distributor of business products and a provider of marketing and logistics services to resellers. United markets its products and services in the U.S., Canada and Mexico through its United Stationers, Azerty and Lagasse divisions and subsidiaries.

United was incorporated in 1981 under the laws of the State of Delaware. United's operating company and its only direct wholly owned subsidiary is United Stationers Supply Co. ("USSC"), which was incorporated in 1922 under the laws of the State of Illinois. Except where the context otherwise requires, the term "Company" refers to United and its consolidated subsidiaries, including USSC.

Products

The Company distributes more than 40,000 stockkeeping units ("SKUs"), which currently are classified into five categories:

 Computer Consumables.    The Company is one of the largest wholesale distributors of computer supplies and peripherals in North America. It offers almost 9,000 items to value-added computer resellers, office products dealers, drug stores and grocery chains. Computer consumables accounted for approximately 41% of the Company's 2003 net sales.

 Traditional Office Products.    Traditional office products accounted for approximately 25% of the Company's net sales for 2003. The Company is the largest national wholesale distributor of a broad line of office supplies, including such items as writing instruments, paper products, organizers, calendars and general office accessories. The Company offers approximately 20,000 brand-name products as well as its own private brand products.

 Office Furniture.    The Company is the largest national office furniture wholesaler. It currently offers more than 4,000 items—such as leather chairs, wooden and steel desks and computer furniture—from more than 60 different manufacturers. This product group accounted for approximately 11% of the Company's 2003 net sales.

 Janitorial/Sanitation Supplies.    The Company is the largest national wholesaler of janitorial and sanitation supplies in North America. It offers over 5,000 items in these major categories: janitorial and sanitation supplies, safety and security items, and shipping and mailing supplies. Janitorial/Sanitation accounted for approximately 11% of the Company's net sales during 2003.

 Business Machines and Presentation Products.    The Company is a leading wholesale distributor of business machines—from calculators to telephones—as well as presentation products and supplies. This product class accounted for approximately 9% of the Company's 2003 net sales.

The remaining 3% of the Company's net sales for 2003 were derived from miscellaneous revenue.

For more information on revenue by product category, see Note 4 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Customers

The Company's more than 15,000 customers include independent office products dealers and contract stationers, national mega-dealers, office products superstores, computer products resellers, office furniture dealers, mass merchandisers, mail order companies, sanitary supply distributors, drug and

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grocery store chains, and e-commerce merchants. Of its 15,000 customers, no single customer accounted for more than 6.5% of the Company's net sales in 2003.

Independent resellers contributed about 80% of United's revenues in 2003. The Company provides these customers with specialized services designed to aid them in achieving efficiencies and eliminating costs in their overall operations.

Marketing and Customer Support

The products distributed by the Company generally are available to its customers at similar prices from many other sources. Most customers purchase their products from more than one source. To differentiate itself from its competition, the Company focuses its marketing efforts on providing value-added services to resellers. These include product breadth and in-stock availability, high-quality customer service, and national distribution capabilities that enable same-day or overnight delivery. United's marketing programs emphasize two other major components. First, the Company produces an extensive array of catalogs for commercial dealers, contract stationers and retail dealers. These catalogs usually are custom printed with each reseller's name and then sold to these resellers who, in turn, distribute the catalogs to their customers. Second, the Company provides its resellers with a variety of dealer support and marketing services. These services are designed to help resellers differentiate themselves from their competitors by addressing the needs of the end-user's procurement process.

Nearly all of the Company's 40,000 SKUs are sold through its comprehensive annual general line catalog (available in both print and electronic versions) and semi-annual specialty catalogs. Promotional catalogs are typically produced quarterly.

The Company also produces separate quarterly flyers covering the majority of its product categories, including Universal® private brand products. Catalogs provide product exposure to end-consumers and generate demand; therefore the Company tries to maximize the distribution of its catalogs by offering various incentives to resellers, which resellers can use to offset the cost of the catalogs.

Resellers can place orders with the Company through the Internet, by phone, fax, e-mail and through a variety of electronic order entry systems. Use of electronic order entry systems allow the reseller to forward its customers' orders directly to the Company, resulting in the delivery of pre-sold products to the reseller. In 2003, the Company received approximately 80% of its orders electronically.

The Company employs a sales force of approximately 240 field salespeople, 160 tele-salespeople and approximately 400 customer care representatives in support of its sales, marketing and customer service activities. The Company's sales force tailors its service offerings to optimally serve the customer's needs and reduce costs.

Distribution

USSC has a network of 35 business products regional distribution centers located in 24 states. Most of these centers carry the Company's complete offering of business products. The Company's 24 Lagasse distribution centers carry a comprehensive line of janitorial and sanitation supplies. The Company also operates two distribution centers in Mexico that serve computer supply resellers and two Azerty distribution centers that serve the Canadian marketplace. United's domestic operations account for $3.5 billion and its foreign operations account for $0.3 billion of its total net sales of $3.8 billion.

The Company supplements its regional distribution centers with 20 local distribution points throughout the United States, which serve as re-distribution points for orders filled at the regional distribution centers. The Company uses a dedicated fleet of more than 400 trucks, most of which are contracted for by the Company, to enable direct delivery to resellers from the regional distribution centers and local distribution points.

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The Company enhances its distribution capabilities through a proprietary computerized inventory locator system. If a reseller places an order for an item that is out of stock at the nearest distribution center, the system has the capability to search for it at other nearby distribution centers. If the item is available at another location, the system automatically forwards the order back to the primary facility. The alternate location coordinates shipping with the primary facility and, for the majority of resellers, provides a single on-time delivery of all items. The system effectively gives the Company added inventory support while minimizing working capital requirements. This means the Company can provide higher service levels to the reseller, reduce back orders and minimize time spent searching for merchandise substitutes. All of these factors contribute to a high order fill rate and efficient levels of inventory. In order to meet the Company's delivery commitments and to maintain a high order fill rate, the Company carries a significant amount of inventory, which contributes to its overall working capital requirements.

The "wrap and label" program is another service the Company offers to its resellers. This gives resellers the option to receive individually packaged orders customized to meet the needs of their specific customer. For example, when a reseller receives orders for several individual consumers, the Company can group and wrap the orders separately, identifying each specific consumer, so that the reseller need only deliver the already individualized packages. Resellers like the "wrap and label" program because it eliminates the need to break down bulk shipments and repackage orders before delivery.

Purchasing and Merchandising

As the largest wholesale business products distributor in North America, the Company's merchandising strategy is to offer a broad product selection. The Company obtains products from over 400 manufacturers. As a result of its purchasing volume, United qualifies for substantial volume allowances and can realize significant economies of scale in its logistics and distribution activities. In 2003, the Company's largest supplier was Hewlett Packard, representing approximately 24% of the Company's aggregate purchases. The Company's centralized Merchandising Department is responsible for selecting, purchasing and pricing merchandise as well as managing the entire supplier relationship. Product selection is based upon end-user acceptance, anticipated demand for the product and the manufacturer's total service, price and product quality. The Company has recently introduced its Preferred Supplier Program, which is designed to strengthen supplier relationships by developing product category strategies to reduce overall supply chain costs.

Competition

The Company competes with office products manufacturers and with other national, regional and specialty wholesalers of office products, office furniture, computer consumables and janitorial and sanitation supplies. In most cases, competition is based primarily upon net pricing, minimum order quantity, speed of delivery, and value-added marketing and logistics services.

United competes with manufacturers who often sell their products directly to resellers and may offer lower prices. The Company believes it provides an attractive alternative to manufacturer direct purchases by offering a combination of value-added services, including 1) marketing and catalog programs; 2) same-day and next-day delivery; 3) a broad line of business products from multiple manufacturers on a "one-stop shop" basis; and 4) lower minimum order quantities.

Competition with other wholesalers is based primarily on breadth of product lines, availability of products, speed of delivery to resellers, order fill rates, net pricing to resellers, and quality of marketing and other value-added services. The Company competes with local and regional office products wholesalers who typically offer limited product lines as well as one national broad line office products competitor. In addition, the Company competes with various national distributors of computer consumables.

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Competition in the office products industry amplifies price awareness among end users. As a result, purchasers of commodity office products appear increasingly more price sensitive. The Company has addressed this by emphasizing to resellers the continuing advantages of its value-added services and competitive strengths (compared with those of manufacturers and other wholesalers).

Employees

As of March 8, 2004, the Company employed approximately 5,700 people.

Management considers its relations with employees to be good. Approximately 800 of the shipping, warehouse and maintenance employees at certain of the Company's Philadelphia, Baltimore, Los Angeles and New York City facilities are covered by collective bargaining agreements. Agreements with employees in Philadelphia and Los Angeles will expire on June 30, 2004 and August 31, 2004, respectively. The other agreements expire at various times during the next three years. The Company has not experienced any work stoppages during the past five years.

Availability of the Company's Reports

The Company's Internet Web site address is www.unitedstationers.com. The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and amendments and exhibits to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through the Company's Web site as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. You may request a copy of these filings (excluding exhibits) at no cost by contacting the Investor Relations Department at:

ITEM 2. PROPERTIES.

The Company considers its properties to be suitable with adequate capacity for their intended uses. The Company continually evaluates its properties to improve efficiency and customer service and leverage potential economies of scale. Substantially all owned facilities are subject to liens under USSC's debt agreements (see the information under the caption "Liquidity and Capital Resources" included below under Item 7). As of December 31, 2003, these properties consisted of the following:

 Executive Offices.    The Company owns its approximately 184,000 square foot headquarters office in Des Plaines, Illinois. In addition, it leases approximately 48,000 square feet of additional office space in Des Plaines, Illinois and Mt. Prospect, Illinois. The Company also owns approximately 48,000 square feet of office space in Orchard Park, New York. The Company's Canadian division leases approximately 17,000 square feet of office space in Montreal, Quebec. In addition, the Company leases approximately 22,000 square feet of office space in Harahan, Louisiana and approximately 6,000 square feet of office space in Metarie, Louisiana.

 Distribution Centers.    The Company utilizes approximately 11 million square feet of warehouse space. USSC has 35 business products distribution centers located throughout the United States. The Company maintains 24 Lagasse janitorial and sanitation supply distribution centers in the United States, two distribution centers in Mexico that serve computer supply resellers and two Azerty distribution centers that serve the Canadian marketplace. Of the 11 million square feet of distribution center space,

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three million square feet are owned and eight million square feet are leased. In addition, the Company has two distribution centers available for sale, which consist of approximately 420,000 square feet of space.

ITEM 3. LEGAL PROCEEDINGS.

The Company is involved in legal proceedings arising in the ordinary course of its business. The Company is not involved in any legal proceedings that management expects will result, individually or in the aggregate, in a material adverse effect upon its financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth quarter of 2003.

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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

        The executive officers of the Company are as follows:

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7

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Executive officers are elected by the Board of Directors. Except as required by individual employment agreements between executive officers and the Company, there exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her successor is appointed and qualified or until his or her earlier removal or resignation.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Common Stock Information

 The Company's common stock is quoted through The NASDAQ Stock Market® ("NASDAQ") under the symbol USTR. The following table shows the high and low closing sale prices per share for the Company's common stock as reported by NASDAQ:

On March 8, 2004, there were approximately 757 holders of record of common stock.

The Company did not repurchase any of its common stock during 2003, compared with repurchases of 1.4 million shares at a cost of $38.3 million during 2002. As of December 31, 2003, the Company had authority from its Board of Directors and is permitted under its debt agreements to repurchase up to $27 million of its common stock. For further information on the Company's stock repurchases, see Note 1 to the Consolidated Financial Statements.

Dividends

 The Company's policy has been to reinvest earnings to enhance its financial flexibility and to fund future growth. Accordingly, the Company has not paid cash dividends and has no plans to declare cash dividends on its common stock at this time. Furthermore, as a holding company, United's ability to pay cash dividends in the future depends upon the receipt of dividends or other payments from its operating subsidiary, USSC. The Company's debt agreements impose restrictions on the payment of dividends. For further information on the Company's debt agreements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and Note 8 to the Consolidated Financial Statements.

Securities Authorized for Issuance under Equity Compensation Plans

 The information required by Item 201(d) of Regulation S-K (Securities Authorized for Issuance under Equity Compensation Plans) is included in Item 12 of this report.

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ITEM 6. SELECTED FINANCIAL DATA.

        The selected consolidated financial data of the Company for the years ended December 31, 1999 through 2003 have been derived from the Consolidated Financial Statements of the Company, which have been audited by Ernst & Young LLP, independent auditors. The selected consolidated financial data below should be read in conjunction with, and is qualified in its entirety by, the Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company. Except for per share data, all amounts presented are in thousands:

(1)

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill is no longer amortized but tested at least annually for impairment. See Note 2 to the Consolidated Financial Statements.

(2)

In the first quarter of 2002, the Company reversed $2.4 million of the restructuring charge taken in the third quarter of 2001. In addition, the Company recorded restructuring and other charges of $8.9 million in the fourth quarter of 2002. See Note 3 to the Consolidated Financial Statements.

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(3)

In the third quarter of 2001, the Company recorded a restructuring charge of $47.6 million. See Note 3 to the Consolidated Financial Statements.

(4)

During 2003, the Company redeemed its 8.375% Senior Subordinated Notes and replaced its Prior Credit Agreement (as defined) with the 2003 Credit Agreement (as defined). As a result, the Company recorded a loss on early retirement of debt totaling $6.7 million, of which $5.9 million was associated with the redemption of the 8.375% Senior Subordinated Notes and $0.8 million related to the write-off of deferred financing costs associated with replacing the Prior Credit Agreement. See Note 8 to the Consolidated Financial Statements.

(5)

During 2000, the Company recorded a charge of $10.7 million for the early retirement of the Company's 12.75% Senior Subordinated Notes.

(6)

Represents the loss on the sale of certain trade accounts receivable through the Company's Receivables Securitization Program (as defined) and certain gains or losses on the sale of capital assets. For further information on the Company's Receivables Securitization Program, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Off-Balance Sheet Arrangements—Receivables Securitization Program."

(7)

Effective January 1, 2003, the Company adopted EITF Issue No. 02-16. As a result, during the first quarter of 2003 the Company recorded a non-cash, cumulative after-tax charge of $6.1 million, or $0.19 per diluted share, related to the capitalization into inventory of a portion of fixed promotional allowances received from vendors for participation in the Company's advertising publications. See Note 2 to the Consolidated Financial Statements.

(8)

In accordance with Generally Accepted Accounting Principles ("GAAP"), total assets exclude $150.0 million in 2003, $105.0 million in 2002, $125.0 million in 2001, $150.0 million in 2000 and $160.0 million in 1999 of certain trade accounts receivable sold through the Company's Receivables Securitization Program. For further information on the Company's Receivables Securitization Program, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Off-Balance Sheet Arrangements—Receivables Securitization Program."

(9)

Total debt and capital leases include current maturities.

FORWARD LOOKING INFORMATION

 This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management's current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, but are not limited to:

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the Company's ability to effectively manage its operations and to implement general cost-reduction initiatives;



•

the Company's reliance on key suppliers and the impact of fluctuations in their pricing;



•

variability in supplier allowances and promotional incentives payable to the Company based on inventory purchase volumes, attainment of supplier-established growth hurdles, and supplier participation in the Company's annual and quarterly catalogs and other marketing programs;



•

the impact of supplier allowances and promotional incentives on the Company's gross margin;



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the Company's ability to anticipate and respond to changes in end-user demand;



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the Company's ability to retain existing customers and attract new ones;



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the impact of variability in customer demand on the Company's product offerings and sales mix and, in turn, on customer rebates payable, and supplier allowances earned, by the Company and on the Company's gross margin;



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competitive activity and pricing pressures;



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reliance on key management personnel;



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acts of terrorism or war;



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uncertainties surrounding the Sarbanes-Oxley Act of 2002 and potential new rulemaking by the Securities and Exchange Commission; and



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prevailing economic conditions and changes affecting the business products industry and the general economy.

Readers should not place undue reliance on forward-looking statements contained in this Annual Report on Form 10-K. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it. The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

 The Company is the largest broad line wholesale distributor of business products and a provider of marketing and logistics services to resellers, with 2003 net sales of $3.8 billion. Through its national distribution network, the Company distributes its products to 15,000 resellers, who in turn sell directly to end-users. Products are distributed through computer-linked networks of 35 United Stationers Supply Company regional distribution centers, 24 Lagasse distribution centers that serve the janitorial and sanitation industry and two distribution centers in each of Mexico and Canada that primarily serve computer supply resellers.

The following is a summary of selected trends that are known, or expected, to have a significant impact on the Company's performance.

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Continuing high unemployment has made sales growth challenging for the Company, particularly unemployment among the white-collar workers who comprise a significant part of the market served by the Company's reseller customers. To avoid or delay hiring additional employees, many companies are asking existing workers to become more productive, contributing to the "jobless recovery." Some companies are also using temporary workers or delaying hiring until they are certain an economic recovery will be sustained.



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Computer consumables such as ink cartridges for printers became the Company's largest product category by sales volume in 2001 and contributed the majority of the increase in net sales in 2003 over 2002. The growth in this category is primarily attributable to office workers' increasing reliance on office technology. Sales in 2003 also benefited from the bankruptcy of a competitor in this product category. Computer consumables generally have lower gross margins than the Company's other product categories, although the associated operating costs are typically lower than operating costs for the other product categories distributed by the Company.



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Budget constraints are limiting some companies' purchases to products that are critical to operating their businesses while deferring higher-margin discretionary purchases such as office furniture. This has put downward pressure on the Company's gross margin as a result of the shift in product mix.



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Independent dealers account for a significant percentage of the Company's annual sales. Their continued viability and success are important to future sales and earnings growth. Independent dealers face significant challenges, including weak end-consumer demand as a result of macroeconomic pressures and increasing competition from existing national resellers. National resellers may have competitive advantages over independent dealers, such as greater economies of scale, bigger marketing and advertising budgets and larger retail and online presence and scope. Independent dealers typically compete with national resellers by providing value-added services.



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The Company's gross margin has declined over the past several years. The annual gross margin percentage was essentially flat between 2003 and 2002. While the Company experienced a slightly higher gross margin exit rate at the end of 2003, this resulted primarily from increased vendor allowances, as well as some opportunistic inventory purchases and other influences that may not continue at the same level. Gross margin pressures are expected to continue.

Despite these challenges, in 2003 the Company increased its net sales, net income and operating cash flow over 2002 results. Several factors contributed to the Company's 2003 performance and will be important to its future results, including the following:

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•

The Company continues to emphasize reducing costs and leveraging its existing infrastructure. In 2003, the Company launched its "War on Waste" to lower the Company's cost structure through initiatives such as reducing expenses associated with damaged merchandise and increasing vendor support. The 2004 "War on Waste" includes a review of the Company's stocking strategies and initiatives to improve productivity in support of overall supply chain efficiencies.



•

To offset the pressure on gross margin the Company is actively managing other components of gross margin, including customer rebate eligibility, credit memos, distressed merchandise, vendor terms and variable allowances, freight expense and freight recoveries, and inventory obsolescence and shrinkage.



•

The Company continues to develop new marketing programs to help its reseller customers attract, retain and increase sales to their customers.



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In 2003, the Company launched a new category management initiative. The Company created separate category management teams for office products, technology products, office furniture, janitorial and sanitation products, and new and emerging products. The objective of the category management teams is to create and implement business strategies that meet the needs of suppliers, resellers and end-users.



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The Company continues to benefit from improved working capital management. In 2003, this focus contributed to strong cash flow and a significant reduction in debt and other funding sources. While further improvements will likely be more challenging, the Company continues to closely monitor and minimize working capital requirements. The Company's solid financial position gives it the ability to reinvest in efforts that it believes afford the best opportunity to increase sales and earnings, including the initiatives described above.

Overview of Recent Results

 Sales for 2004 through this filing date were up slightly compared with the same period last year. While some indicators are showing signs of economic improvement, the "jobless recovery" appears to be restraining the Company's sales growth.

Critical Accounting Policies, Judgments and Estimates

 The Company's significant accounting policies are more fully described in Note 2 of the Consolidated Financial Statements. As described in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results may differ from those estimates. The Company believes that such differences would have to vary significantly from historical trends to have a material impact on the Company's financial results. Historically, actual results have not deviated significantly from estimates.

The Company's critical accounting policies are those that are important to portraying the Company's financial condition and results and require especially difficult, subjective or complex judgments or estimates by management. In most cases, critical accounting policies require management to make estimates on matters that are uncertain at the time the estimate is made. The basis for the estimates is historical experience, terms of existing contracts, observance of industry trends, information provided by customers or vendors, and information available from other outside sources, as appropriate. The most

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significant accounting policies and estimates inherent in the preparation of the Company's financial statements include the following:

Revenue Recognition

Revenue is recognized when a service is rendered or when title to the product has transferred to the customer. Management records an estimate for future product returns related to revenue recognized in the current period. This estimate is based on historical product-return trends and the gross margin associated with those returns. In determining estimates for future product returns, management must make certain estimates and judgments. The risk in the methodology used is the dependence on historical information for product returns and gross margins to record an estimate of future product returns. If actual product returns on current period sales differ from historical trends, the amounts estimated for product returns (which reduce net sales) for the period may be overstated or understated.

Valuation of Accounts Receivable

The Company makes judgments as to the collectability of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which represents the collectability of trade accounts receivable. This allowance adjusts gross trade accounts receivable downward to its estimated net realizable value. To determine the allowance for doubtful accounts, management reviews specific customer risks and the Company's accounts receivable aging.

The primary risk in the methodology used to estimate the allowance for doubtful accounts is its dependence on historical information to predict the collectability of accounts receivable. To the extent actual collections of accounts receivable differ from historical trends, the allowance for doubtful accounts and related expense for the current period may be overstated or understated.

Customer Rebates

Customer rebates and discounts are common in the business products industry and have a significant impact on the Company's overall sales and gross margin. Such rebates are reported in the Consolidated Financial Statements as a reduction of sales.

Customer rebates include volume rebates, sales growth incentives, advertising allowances, participation in promotions and other miscellaneous discount programs. These rebates are paid to customers monthly, quarterly and/or annually. Volume rebates and growth incentives are based on the Company's annual sales volumes to its customers. The aggregate amount of customer rebates depends on product sales mix and customer mix changes.

Manufacturers' Allowances and Cumulative Effect of a Change in Accounting Principle

Manufacturers' allowances (fixed or variable) are common practice in the business products industry and have a significant impact on the Company's overall gross margin. Gross margin is determined by, among other items, file margin (determined by reference to invoiced price), as reduced by customer discounts and rebates as discussed above, and increased by manufacturers' allowances and promotional incentives.

Approximately 40% to 45% of the Company's annual manufacturers' allowances and incentives are fixed and are based on vendor participation in various Company advertising and marketing publications. Fixed allowances and incentives are taken to income through lower cost of goods sold as inventory is sold. The remaining 55% to 60% of the Company's annual manufacturers' allowances and incentives are variable, based on the volume of the Company's product purchases from manufacturers. These variable allowances are recorded based on the Company's annual inventory purchase volumes and are included in the Company's financial statements as a reduction to cost of goods sold, thereby reflecting the net

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inventory purchase cost. Manufacturers' allowances and incentives attributable to unsold inventory are carried as a component of net inventory cost. The potential amount of variable manufacturers' allowances often differs based on purchase volumes by manufacturer and product category. As a result, lower Company sales volume (which reduce inventory purchase requirements) and product sales mix changes (especially because higher-margin products often benefit from higher manufacturers' allowance rates) can make it difficult to reach some manufacturers' allowance growth hurdles. To the extent the Company's sales volumes or product sales mix differ from those estimated, the variable allowances for the current period may be overstated or understated.

Insured Loss Liability Estimates

As a result of relatively high deductible amounts under insurance coverage, the Company is primarily responsible for retained liabilities related to workers' compensation, vehicle and general liability and certain employee health benefits. The Company records an expense for claims incurred but not reported based on historical trends. The Company has an annual per person maximum cap on certain employee medical benefits provided by a third-party insurance company. In addition, the Company has both a per-occurrence maximum loss and an annual aggregate maximum cap on workers' compensation claims.

Inventories

Inventory constituting approximately 90% and 88% of total inventory at December 31, 2003 and 2002, respectively, has been valued under the last-in, first-out ("LIFO") accounting method, and the remaining inventory is valued under the first-in, first-out ("FIFO") accounting method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost or market. If the lower of FIFO cost or market had been used by the Company for its entire inventory, inventory would have been $22.9 million higher than reported at both December 31, 2003 and 2002. In addition, inventory reserves are recorded for shrinkage and for obsolete, damaged, defective, and slow-moving inventory. These reserve estimates are determined using historical trends and are adjusted, if necessary, as new information becomes available.

Income taxes

 The Company accounts for income taxes in accordance with FASB Statement No. 109, "Accounting for Income Taxes." The Company estimates actual current tax expense and assess temporary differences that exist due to differing treatments of items for tax and financial statement purposes. These differences result in the recognition of deferred tax assets and liabilities. The tax balances and income tax expense recognized by the Company are based on management's interpretation of the tax laws of multiple jurisdictions. Income tax expense also reflects the Company's best estimates and assumptions regarding, among other things, the level of future taxable income, interpretation of the tax laws, and tax planning. Future changes in tax laws, changes in projected levels of taxable income, and tax planning could affect the effective tax rate and tax balances recorded by the Company. Management's estimates as of the date of the financial statements reflect its best judgment giving consideration to all currently available facts and circumstances. As such, these estimates may require adjustment in the future, as additional facts become known or as circumstances change.

Pension and Postretirement Health Benefits

Calculating the Company's obligations and expenses related to its pension and postretirement health benefits requires using certain actuarial assumptions. As more fully discussed in Notes 10 and 11 to the Consolidated Financial Statements, these actuarial assumptions include discount rates, expected long-term rates of return on plan assets, and rates of increase in compensation and healthcare costs. To select the appropriate actuarial assumptions, management relies on current market trends and historical

16

information. Pension expense for 2003 was $6.6 million, compared to $5.0 million in 2002. A one percentage point decrease in the expected long-term rate of return on plan assets and the assumed discount rate would have resulted in an increase in pension expense for 2003 of approximately $2.5 million.

Costs associated with the Company's postretirement health benefits plan were $1.1 million and $0.9 million for 2003 and 2002, respectively. A one-percentage point decrease in the assumed discount rate would have resulted in incremental postretirement healthcare expenses for 2003 of approximately $0.1 million. Current rates of medical cost increases are trending above the Company's medical cost increase cap provided by the plan. Accordingly, a one percentage point increase in the assumed average healthcare cost trend would not have a significant impact on the Company's postretirement health plan costs.

The following tables summarize the Company's actuarial assumptions for discount rates, expected long-term rates of return on plan assets, and rates of increase in compensation and healthcare costs for the years ended December 31, 2003, 2002 and 2001:

Results for the Years Ended December 31, 2003, 2002 and 2001

 The following table presents the Consolidated Statements of Income as a percentage of net sales:

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Comparison of Results for the Years Ended December 31, 2003 and 2002

 Net Sales.    Net sales for the year ended December 31, 2003 were $3.8 billion, up 3.9%, compared with $3.7 billion in the prior year. The following table shows net sales by product category for 2003 and 2002 (dollars in millions):

Note: To conform with current year presentation, reclassifications between product categories were made to the 2002 sales by product category amounts. The reclassifications did not impact total net sales.

Sales in the computer consumables category for 2003 were up over 14% compared with the prior year and represented 41% of the Company's 2003 consolidated net sales, compared with 37% of such sales in 2002. The growth in this category is primarily the result of favorable industry dynamics and the addition of new customers in new and existing channels.

Sales of traditional office products experienced a decline of 5.1% versus the prior year. The decline in sales of traditional office products was primarily the result of weak end-consumer demand as a result of continued negative macroeconomic pressures including workforce reductions and cost-reduction initiatives by end user businesses.

Office furniture sales in 2003 were down by 3.6% compared with 2002. These results continue to reflect soft customer demand for products, such as furniture, that are regarded as "discretionary" purchases in light of continued weak macroeconomic and employment conditions, as well as the continuing availability of high-quality used office furniture at substantially discounted prices.

Sales in the janitorial and sanitation product category, primarily distributed through the Company's Lagasse subsidiary, grew 3.6%. Growth in this category was primarily due to continued growth at larger distributors the Company serves.

 Gross Profit and Gross Margin Rate.    Gross profit (gross margin dollars) for 2003 was $560.5 million, compared to $538.0 million. The increase in gross profit is primarily due to higher net sales.

The Company's 2003 gross margin rate (gross profit as a percentage of net sales) was 14.6%, as compared to 14.5% for 2002. The Company's gross margin rate was favorably impacted by higher vendor allowances (0.5 percentage points) as a result of higher net sales and achieving certain growth hurdles. These allowances increased to $231 million from $204 million last year.

The Company's gross margin rate continues to be negatively impacted by the shift in overall product sales mix, as well as a mix shift within each major product category. The Company's customers continue to postpone higher margin, discretionary purchases, such as furniture, and order primarily lower margin, commodity business products essential for their companies. As a result of these trends, the file margin (invoice price less standard cost) rate declined approximately 0.7 percentage points versus last year.

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 Operating Expenses.    Operating expenses for 2003 totaled $414.9 million, or 10.8% of net sales, compared with $422.5 million, or 11.4% of net sales in 2002. The favorable reduction in 2003 operating expenses as a percentage of net sales was due primarily to lower payroll costs, depreciation and amortization and increased leverage of fixed costs resulting from somewhat higher sales. In addition, 2002 operating expenses were adversely impacted by the restructuring and other charges taken in 2002 (described below) and a $1.8 million charge related to the retirement of the Company's former president and chief executive officer.

Operating expenses for 2002 included (i) restructuring and other charges of $8.9 million under a restructuring plan approved by the Company's Board of Directors in the fourth quarter of 2002 (the "2002 Restructuring Plan") and (ii) a $2.4 million partial reversal of the restructuring charge taken in the third quarter of 2001 (as further described below).The 2002 Restructuring Plan included additional charges related to: revised real estate sub-lease assumptions as compared to those used in the 2001 Restructuring Plan; further downsizing of the operations of the Company's third-party fulfillment services for products other than office products, conducted under the name The Order People ("TOP"), including severance and anticipated exit costs related to a portion of the Company's Memphis distribution center; closure of the Milwaukee, Wisconsin distribution center; and the write-down of certain e-commerce-related investments. The 2002 Restructuring Plan reflected workforce reductions of 105 associates through involuntary separation programs. All initiatives under the 2002 Restructuring Plan are complete and associated implementation costs were not material. However, certain cash payments will continue for accrued exit costs relating to long-term lease obligations expiring at various times over the next seven years. See Note 3 to the Consolidated Financial Statements for more information regarding these restructuring and other charges and remaining accrual balances. The Company continues to actively pursue opportunities to sublet unused facilities.

 Interest Expense.    Interest expense for 2003 was $6.8 million, or 0.2% of net sales, compared with $16.9 million, or 0.5% of net sales in 2002. This decline reflects savings due to the redemption of the Company's 8.375% Notes financed primarily through the Company's lower-cost Receivables Securitization Program.

 Loss on Early Retirement of Debt.    As a result of the redemption of the 8.375% Notes and replacement of the Company's Prior Credit Agreement, the Company recorded a loss on early retirement of debt totaling $6.7 million, of which $5.9 million was associated with the redemption of the 8.375% Notes and $0.8 million related to the write-off of deferred financing costs associated with replacing the Prior Credit Agreement (see Note 8 to the Consolidated Financial Statements). No such loss was recorded in 2002.

 Other Expense, net.    Other expense for 2003 was $4.8 million, or 0.1% of net sales, compared with $2.4 million, or 0.1% of net sales in 2002. Net other expense for 2003 includes $1.3 million related to the write-down of certain assets held for sale and $3.5 million associated with the sale of certain trade accounts receivable through the Receivables Securitization Program. Other expense for 2002 represents costs associated with the Receivables Securitization Program.

 Cumulative Effect of a Change in Accounting Principle.    Cumulative effect of a change in accounting principle was $6.1 million in 2003, representing a one-time, non-cash, cumulative after-tax charge related to the adoption of EITF Issue No. 02-16 (see Note 2 to the Consolidated Financial Statements). No such charge was recorded in 2002.

 Net Income.    For 2003, the Company recorded net income of $73.0 million, or $2.18 per diluted share, compared with net income of $60.2 million, or $1.78 per diluted share, in 2002. Net income for 2003 includes an after-tax charge of $4.2 million, or $0.12 per diluted share related to the early retirement of debt, and an after-tax charge of $6.1 million, or $0.19 per diluted share, related to the cumulative effect of

19

a change in accounting principle. Net income for 2002 includes net restructuring and other after-tax charges of $4.1 million, or $0.12 per diluted share.

 Fourth Quarter Results.    Certain expense and cost of sale estimates are recorded throughout the year, including inventory shrinkage and obsolescence, required LIFO reserve, manufacturers' allowances, advertising costs and various expense items. The Company regularly reevaluates estimates and makes adjustments where facts and circumstances dictate. During the fourth quarter of 2003, the Company recorded a favorable net income adjustment of approximately $2.7 million related to the update of estimates recorded in the prior three quarters.

Comparison of Results for the Years Ended December 31, 2002 and 2001

 Net Sales.    Net sales for the year ended December 31, 2002 were $3.7 billion, down 5.7%, compared with $3.9 billion for the year ended December 31, 2001. Two primary factors led to the decline in net sales: approximately $150 million related to the integration of U.S. Office Products ("USOP") into the Corporate Express business model (in which a greater percentage of products are bought directly from manufacturers) and approximately $15 million related to the divestiture of the CallCenter Services, Inc. business. Additionally, continued pressure from macroeconomic factors and unemployment levels, especially for white-collar workers, negatively impacted sales across all product categories. The following table shows net sales by product category for 2002 and 2001 (dollars in millions):

Sales in the computer consumables category experienced a decline in the mid-single digits versus the prior year due to the consolidation of Corporate Express and USOP, which resulted in an increasing percentage of USOP purchases being made through the internal Corporate Express distribution network.

Sales of traditional office products experienced a decline in the high single digits versus 2001. Consumption of discretionary office products slowed within the commercial sector, particularly in medium-to-large companies affected by workforce reductions and cost-reduction initiatives. In addition, the consolidation of USOP into Corporate Express was a major factor in the decline in sales in this product category.

Office furniture sales were down approximately 10%, compared with 2001. These results continue to reflect slower customer demand for products, such as furniture, that are regarded as "discretionary" purchases in light of continued weak macroeconomic and employment conditions, as well as the continuing availability of high-quality used office furniture at substantially discounted prices.

Sales in the janitorial and sanitation product category, primarily distributed through the Company's Lagasse subsidiary, showed modest growth compared with the prior year. Lower levels of spending on higher-priced discretionary purchases weakened growth in this sector.

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 Gross Profit and Gross Margin Rate.    Gross profit (gross margin dollars) for 2002 was $538.0 million, compared to $619.8 million. The decline in gross profit was due primarily to lower net sales.

The Company's 2002 gross margin rate (gross profit as a percentage of net sales) was 14.5%, as compared to 15.8% for 2001. The Company's gross margin rate was negatively impacted by the continued shift in overall product sales mix, as well as within each major product category. The Company's customers continued to postpone higher margin, discretionary purchases, such as furniture, and ordered primarily lower margin, commodity business products essential for their companies. As a result of these trends, the file margin (invoice price less standard cost) rate declined approximately 1.2 percentage points versus the prior year. However, this was offset by a 0.7 percentage point decline in customer rebates. These rebates, which are based on customer purchase volume, payment terms and product mix, were down due to declining sales, as customers were not on track to reach certain product purchase or incremental growth milestones.

In addition, lower estimates of vendor allowances also adversely affected the Company's overall gross profit and margin rate due to lower inventory purchase volume. These allowances declined to $204 million in 2002 from $241 million in the prior year. The result was a 0.7 percentage point decline in the gross margin rate.

 Operating Expenses.    Operating expenses for 2002 totaled $422.5 million, or 11.4% of net sales, compared with $497.7 million, or 12.7% of net sales in 2001. However, operating expenses for each year were affected by one-time charges. Operating expenses for 2002 included restructuring and other charges of $8.9 million and a $2.4 million partial reversal of the restructuring charge taken in the third quarter of 2001, as described above. Operating expenses for 2001 included a restructuring charge of $47.6 million, pursuant to a restructuring plan described in the next paragraph. In addition, no goodwill impairment or amortization was recorded in 2002, compared with $5.7 million of goodwill amortization recorded in 2001.

The $47.6 million restructuring charge reflected in 2001 operating expenses was pursuant to a restructuring plan approved by the Company's Board of Directors in the third quarter of 2001 (the "2001 Restructuring Plan"). The 2001 Restructuring Plan included an organizational restructuring, a consolidation of certain distribution facilities and USSC's call center operations, an information technology platform consolidation undertaken as part of the integration of Azerty into USSC, divestiture of TOP's call center operations and certain other assets, and a significant reduction of TOP's cost structure. The Company undertook these TOP-related divestiture and cost reduction activities because it had failed to realize anticipated revenues sufficient to support TOP's cost structure. The 2001 Restructuring Plan included workforce reductions of approximately 1,375 associates through voluntary and involuntary separation programs, including the call center divestitures. Although all initiatives under the 2001 Restructuring Plan are complete, certain cash payments will continue for accrued exit costs relating to long-term lease obligations expiring at various times over the next six years. See Note 3 to the Consolidated Financial Statements for additional information.

 Interest Expense.    Interest expense for 2002 was $16.9 million, or 0.5% of net sales, compared with $25.9 million, or 0.7% of net sales, in 2001. This reduction reflects lower borrowings as a result of the Company's reduction in working capital requirements and lower interest rates. Working capital reductions contributed to a decline of approximately $60 million in total debt during 2002 and a $20 million reduction in the amount of account receivables sold under the Company's Receivables Securitization Program.

 Other Expense, net.    Other expense for 2002 was $2.4 million, or 0.1% of net sales, compared with $4.6 million, or 0.1% of net sales in 2001. Other expense represents the costs associated with the sale of certain trade accounts receivable through the Receivables Securitization Program (as defined).

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 Net Income.    For 2002, the Company recorded net income of $60.2 million, or $1.78 per diluted share, compared with net income of $57.0 million, or $1.68 per diluted share, in 2001.

 Fourth Quarter Results.    Certain expense and cost of sale estimates are recorded throughout the year, including inventory shrinkage and obsolescence, required LIFO reserve, manufacturers' allowances, advertising costs and various expense items. The Company regularly reevaluates estimates and makes adjustments where facts and circumstances dictate. During the fourth quarter of 2002, the Company recorded a favorable net income adjustment of approximately $0.7 million related to the update of estimates recorded in the prior three quarters.

Liquidity and Capital Resources

General

 United is a holding company and, as a result, its primary sources of funds are cash generated from the operating activities of its operating subsidiary, USSC, including the sale of certain accounts receivable, and cash from borrowings by USSC. Restrictive covenants in USSC's debt agreements restrict USSC's ability to pay cash dividends and make other distributions to United. In addition, the right of United to participate in any distribution of earnings or assets of USSC is subject to the prior claims of the creditors, including trade creditors, of USSC. The Company's outstanding debt under GAAP, together with funds generated from the sale of receivables under the Company's off-balance sheet Receivables Securitization Program (also referred to below as "liquidity sources") consisted of the following amounts (in thousands):

(1)

See discussion under Receivables Securitization Program

Total debt (as provided in the above table as "Total debt under GAAP") is the most directly comparable financial measure, presented in accordance with GAAP, to adjusted total outstanding debt under GAAP and liquidity sources." Under GAAP, accounts receivable sold under the Company's Receivables Securitization Program are required to be reflected as a reduction in accounts receivable and not reported as debt. Internally, the Company considers accounts receivables sold to be a financing mechanism. The Company believes it is helpful to provide readers of its financial statements with a measure that adds accounts receivable sold to debt.

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During 2003, the Company utilized cash flow to reduce debt. As of December 31, 2003 and 2002, the Company had outstanding debt of $17.3 million and $211.2 million, respectively. The Company reduced adjusted total outstanding debt under GAAP and liquidity sources by $148.9 million during 2003. At December 31, 2003, the Company's adjusted debt-to-total capitalization ratio (adjusted from the GAAP total debt amount to add the receivables then sold under the Company's Receivables Securitization Program) was 19.9%, compared to 36.1% at December 31, 2002.

The adjusted debt-to-total capitalization ratio is provided as an additional liquidity measure. GAAP requires that accounts receivable sold under the Company's Receivables Securitization Program be reflected as a reduction in accounts receivable and not reported as debt. Internally, the Company considers accounts receivables sold to be a financing mechanism. The Company believes it is helpful to provide readers of its financial statements with a measure that adds accounts receivable sold to debt, and calculates adjusted debt-to-total capitalization on the same basis. A reconciliation of this non-GAAP measure is provided in the table above.

Operating cash requirements and capital expenditures are funded from operating cash flow and available financing. Financing available from debt and the sale of accounts receivable at December 31, 2003, is summarized below:

Restrictive covenants under the 2003 Credit Agreement (as defined) separately limit total available financing at points in time, as further discussed below. At December 31, 2003, the leverage ratio covenant in the Company's 2003 Credit Agreement did not impact the Company's $492 million of available total funding from debt and the sale of accounts receivable (as shown above).

The Company believes that its operating cash flow and financing capacity, as described, provide adequate liquidity for operating the business for the foreseeable future.

Disclosures About Contractual Obligations and Commercial Commitments

 The following table aggregates all contractual commitments that affect financial condition and liquidity as of December 31, 2003 (dollars in thousands):

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2003 Credit Agreement

 In March 2003, the Company replaced its then existing senior secured credit facility (the "Prior Credit Agreement") by entering into a new Five-Year Revolving Credit Agreement (the "2003 Credit Agreement") dated as of March 21, 2003 by and among USSC, as borrower, United, as guarantor, the various lenders and Bank One, NA, as administrative agent. The 2003 Credit Agreement provides for a revolving credit facility with an aggregate committed principal amount of $275 million. USSC may, upon the terms and conditions of the 2003 Credit Agreement, seek additional commitments from its current or new lenders to increase the aggregate committed principal amount under the facility to a total amount of up to $325 million. As a result of the replacement of the Prior Credit Agreement, the Company recorded pre-tax charges of $0.8 million in the first quarter of 2003.

The 2003 Credit Agreement provides for the issuance of letters of credit for amounts totaling up to a sublimit of $90 million. It also provides a sublimit for swingline loans in an aggregate principal amount not to exceed $25 million at any one time outstanding. These amounts, as sublimits, do not increase the aggregate committed principal amount, and any undrawn issued letters of credit and all outstanding swingline loans under the facility reduce the remaining availability. The revolving credit facility matures on March 21, 2008.

Obligations of USSC under the 2003 Credit Agreement are guaranteed by United and certain of USSC's domestic subsidiaries. USSC's obligations under the 2003 Credit Agreement and the guarantors' obligations under the guaranty are secured by liens on substantially all assets, including accounts receivable, chattel paper, commercial tort claims, documents, equipment, fixtures, instruments, inventory, investment property, pledged deposits and all other tangible and intangible personal property (including proceeds) and certain real property, but excluding accounts receivable (and related credit support) subject to any accounts receivable securitization program permitted under the 2003 Credit Agreement. Also securing these obligations are first priority pledges of all of the capital stock of USSC and the domestic subsidiaries of USSC, other than TOP.

Loans outstanding under the 2003 Credit Agreement bear interest at a floating rate (based on the higher of either the prime rate or the federal funds rate plus 0.50%) plus a margin of 0% to 0.75% per annum, or at USSC's option, LIBOR (as it may be adjusted for reserves) plus a margin of 1.25% to 2.25% per annum, or a combination thereof. The margins applicable to floating rate and LIBOR loans are determined by reference to a pricing matrix based on the total leverage of United and its consolidated subsidiaries. Initial applicable margins are 0.50% and 2.00%, respectively.

The 2003 Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type. As of December 31, 2003 and 2002, the Company had outstanding letters of credit of $15.1 million and $21.9 million, respectively.

8.375% Senior Subordinated Notes and Other Debt

 On April 28, 2003, the Company redeemed the entire $100 million outstanding principal amount of its 8.375% Senior Subordinated Notes ("8.375% Notes" or the "Notes") at the redemption price of 104.188% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. In connection with the redemption of the Notes, the Company recorded a pre-tax cash charge of $4.2 million and $1.7 million relating to the write-off of associated deferred financing costs in the second quarter of 2003.

The 8.375% Notes were issued on April 15, 1998, pursuant to the 8.375% Notes Indenture. The Notes were unsecured senior subordinated obligations of USSC, and payment of the Notes were fully and unconditionally guaranteed by the Company and USSC's domestic "restricted" subsidiaries that incur indebtedness (as defined in the 8.375% Notes Indenture) on a senior subordinated basis. The Notes were redeemable on or after April 15, 2003, in whole or in part, at a redemption price of 104.188%

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(percentage of principal amount). The 8.375% Notes were to mature on April 15, 2008, and bore interest at the rate of 8.375% per annum, payable semi-annually on April 15 and October 15 of each year.

During 2003, the Company redeemed one of its remaining industrial development bonds in the amount of $8 million, which was scheduled to mature on December 1, 2004. As of December 31, 2003 the Company has one remaining industrial development bond outstanding with a balance of $6.8 million.

Off-Balance Sheet Arrangements—Receivables Securitization Program

General

 On March 28, 2003, USSC replaced its then existing $160 million Receivables Securitization Program with a new third-party receivables securitization program with Bank One, NA, as trustee (the "2003 Receivables Securitization Program"). Under this $225 million program, USSC sells, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable of Lagasse, Canada and foreign subsidiaries) to the Receivables Company. The Receivables Company, in turn, ultimately transfers the eligible trade accounts receivable to a trust. The trustee then sells investment certificates, which represent an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Affiliates of Bank One and PNC Bank act as funding agents. The funding agents provide standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day liquidity facilities. The 2003 Receivables Securitization Program provides for the possibility of other liquidity facilities that may be provided by other commercial banks rated at least A-1/P-1.

The Company utilizes this program to fund its cash requirements more cost effectively than under the 2003 Credit Agreement. Standby liquidity funding is committed for only 364 days and must be renewed before maturity in order for the program to continue. The program contains certain covenants and requirements, including criteria relating to the quality of receivables within the pool of receivables. If the covenants or requirements were compromised, funding from the program could be restricted or suspended, or its costs could increase. In such a circumstance, or if the standby liquidity funding were not renewed, the Company could require replacement liquidity. As discussed above, the Company's 2003 Credit Agreement is an existing alternate liquidity source. The Company believes that, if so required, it also could access other liquidity sources to replace funding from the program.

Financial Statement Presentation

 The Receivables Securitization Program is accounted for as a sale in accordance with FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Trade accounts receivable sold under this Program are excluded from accounts receivable in the Consolidated Financial Statements. At December 31, 2003, the Company sold $150 million of interests in trade accounts receivable, compared with $105 million at December 31, 2002. Accordingly, trade accounts receivable of $150 million as of December 31, 2003 and $105 million as of December 31, 2002 are excluded from the Consolidated Financial Statements. As discussed further below, the Company retains an interest in the master trust based on funding levels determined by the Receivables Company. The Company's retained interest in the master trust is included in the Consolidated Financial Statements under the caption, "Retained interest in receivables sold, net." For further information on the Company's retained interest in the master trust, see the caption "Retained Interest" included herein below.

The Company recognizes certain costs and/or losses related to the Receivables Securitization Program. Costs related to this program vary on a daily basis and generally are related to certain short-term interest rates. The annual interest rate on the certificates issued under the Receivables Securitization Program during 2003 ranged between 0.9% and 1.6%. Losses recognized on the sale of accounts receivable, which represent the financial cost of funding under the program, totaled approximately $3.5 million and $1.9 million for 2003 and 2002, respectively. Proceeds from the collections under this revolving

25

agreement were $3.4 billion for 2003, compared with $3.1 billion for 2002. All costs and/or losses related to the Receivables Securitization Program are included in the Consolidated Financial Statements of Income under the caption "Other Expense, net."

The Company has maintained the responsibility for servicing the sold trade accounts receivable and those transferred to the master trust. No servicing asset or liability has been recorded because the fees the Company receives for servicing the receivables approximate the related costs.

Retained Interest

 The Receivables Company determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount. It retains a residual interest in the eligible receivables transferred to the trust, such that amounts payable in respect of such residual interest will be distributed to the Receivables Company upon payment in full of all amounts owed by the Receivables Company to the trust (and by the trust to its investors). The Company's net retained interest on $303.7 million and $296.6 million of trade receivables in the master trust as of December 31, 2003 and 2002 was $153.7 million and $191.6 million, respectively. The Company's retained interest in the master trust is included in the Consolidated Financial Statements under the caption, "Retained interest in receivables sold, net."

The Company measures the fair value of its retained interest throughout the term of the Receivables Securitization Program using a present value model incorporating the following two key economic assumptions: (1) an average collection cycle of approximately 40 days; and (2) an assumed discount rate of 5% per annum. In addition, the Company estimates and records an allowance for doubtful accounts related to the Company's retained interest. Considering the above noted economic factors and estimates of doubtful accounts, the book value of the Company's retained interest approximates fair value. A 10% and 20% adverse change in the assumed discount rate or average collection cycle would not have a material impact on the Company's financial position or results of operations. Accounts receivable sold to the master trust that were written off during 2003 and 2002 were not material.

Cash Flow Information

 The statements of cash flows for the Company for the periods indicated are summarized below (dollars in thousands):

Cash Flow From Operations

 A key strength of our business is our ability to consistently generate strong cash from operations. The Company's cash from operations is generated primarily from net income and improvements in working capital. Net cash provided by operating activities for the year ended December 31, 2003 reached $167.7 million, compared with $105.7 million and $191.2 million in 2002 and 2001, respectively. Net cash provided by operating activities in 2003 was impacted by higher net income and improved working capital management. Net income for 2003 reached $73.0 million, compared with $60.2 million in 2002. Improvements in working capital components include a $26.0 million decline in inventory as a result of better inventory management, resulting in lower inventory purchases and higher inventory turnover, and a $23.5 million increase in accounts payable resulting from focused initiatives in this area.

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Net cash provided by operating activities in 2002 reflects net income of $60.2 million and depreciation and amortization of $34.6 million. Net cash provided by operating activities did experience a decline from 2001 primarily as a result of more moderate declines in working capital components in 2002 compared with 2001, including inventory and accounts payable.

Internally, the Company considers accounts receivable sold under the Receivables Securitization Program (as defined) as a financing mechanism and not, as required under GAAP, a source of cash flow from operations. Since the Company's retirement of its 8.375% Notes and replacement of the Prior Credit Agreement (see Note 8 to the Consolidated Financial Statements for a discussion of these events), the Receivables Securitization Program is the Company's primary financing mechanism. The Company believes it is useful to provide the readers of its financial statements with net cash provided by operating activities and net cash used in financing activities adjusted for the effects of changes in accounts receivable sold. Adjusted cash flow provided by operating activities and net cash used in financing activities for the years ended December 31, 2003 and 2002 is provided below as an additional liquidity measure (in millions):

Cash Flow From Investing Activities

 Net cash used in investing activities for the years ended December 31, 2003, 2002 and 2001 was $10.9 million, $23.0 million and $46.3 million, respectively. The exclusive use of cash for investing activities in 2003 and 2002 was for net capital expenditures for ongoing operations. In 2001, cash used for investing activities reflected net capital expenditures for ongoing operations of $28.6 million, $32.7 million for the acquisition of Peerless Paper Mills, Inc and proceeds from the sale of Positive ID of $12.4 million.

Funding for gross capital expenditures for 2003, 2002 and 2001 totaled $14.6 million, $27.2 million and $32.5 million, respectively. For the years ended December 31, 2003, 2002 and 2001, capitalized software costs totaled $3.3 million, $5.2 million and $7.0 million, respectively. Proceeds from the disposition of property, plant and equipment totaled $3.6 million for 2003, compared with $4.2 million for 2002 and $3.9 million for 2001. As a result, net capital expenditures (gross capital expenditures minus net proceeds from property, plant and equipment dispositions) totaled $10.9 million, $23.0 million and $28.6 million for 2003, 2002 and 2001, respectively. Net capital spending (net capital expenditures plus capitalized software costs) for 2003 was $14.3 million, compared with $28.2 million in 2002 and $35.6 million in 2001. Capital expenditures are utilized primarily to replace, upgrade and equip the Company's distribution facilities. The Company expects net capital spending for all of 2004 to be approximately $25 million.

Net capital spending is provided as an additional measure of investing activities. The most directly comparable financial measure calculated and presented in accordance with GAAP is net capital

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expenditures (as defined). Under GAAP, net capital expenditures are required to be included on the cash flow statement under the caption "Net Cash Used in Investing Activities." The Company's accounting policy is to include capitalized software (system costs) in "Other Assets." GAAP requires that "Other Assets" be included on the cash flow statements under the caption "Net Cash Provided by Operating Activities. Internally, the Company measures cash used in investing activities including capitalized software. A reconciliation of this non-GAAP measure is provided as follows:

Cash Flow From Financing Activities

 Net cash used in financing for 2003, 2002 and 2001 was $164.4 million, $93.9 million and $135.8 million, respectively. During 2003, the Company's strong cash flow from operations (see discussion above under "Cash Flow From Operations") allowed it to further reduce outstanding debt, including principal repayments and retirements of debt totaling $204.4 million. In addition, for 2003 the Company's financing activities included $5.6 million in payments of employee withholding tax on stock option exercises, offset by $35.1 million in proceeds from the issuance of treasury stock and borrowings of $10.5 million under the Revolving Credit Facility. Net cash used in financing activities for the year ended December 31, 2002 was $93.9 million, including $60.5 million in repayments on debt, $38.3 million for acquisition of treasury stock, partially offset by $5.5 million in proceeds from the issuance of treasury stock. Net cash used in financing activities for the year ended December 31, 2001 reached $135.8 million, including a $98.0 million repayment under the Revolving Credit Facility, $40.2 million Term Loan repayment and $12.4 million related to the acquisition of treasury stock, partially offset by $15.8 million in proceeds from the issuance of treasury stock.

Seasonality

 The Company's sales generally are relatively steady throughout the year. However, sales vary to the extent of seasonal buying patterns of consumers of office products. In particular, the Company's sales usually are higher than average during January, when many businesses begin operating under new annual budgets.

The Company experiences seasonality in its working capital needs, with highest requirements in December through February, reflecting a build-up in inventory prior to and during the peak sales period. The Company believes that its current availability under the Revolving Credit Facility is sufficient to satisfy the seasonal working capital needs for the foreseeable future.

Inflation/Deflation and Changing Prices

 The Company maintains substantial inventories to accommodate the prompt service and delivery requirements of its customers. Accordingly, the Company purchases its products on a regular basis in an effort to maintain its inventory at levels that it believes are sufficient to satisfy the anticipated needs of its customers, based upon historical buying practices and market conditions. Although the Company historically has been able to pass through manufacturers' price increases to its customers on a timely

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basis, competitive conditions will influence how much of future price increases can be passed on to the Company's customers. Conversely, when manufacturers' prices decline, lower sales prices could result in lower margins as the Company sells existing inventory. As a result, changes in the prices paid by the Company for its products could have a material adverse effect on the Company's net sales, gross margins and net income.

New Accounting Pronouncements

 In December 2003, the FASB revised Statement of Financial Accounting Standards ("SFAS") No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The revisions include modifications to disclosure requirements for pension and other postretirement benefit plans, including additional information on changes in plan benefit obligations, plan investment strategies, and the types and fair values of plan assets. The new disclosure requirements are generally effective beginning with financial statements with fiscal years ending after December 15, 2003. The Company has adopted the disclosure requirements in these financial statements and such requirements did not have a material impact on its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 requires certain freestanding financial instruments, such as mandatorily redeemable preferred stock, to be measured at fair value and classified as liabilities. The provisions of SFAS No. 150 were generally effective beginning with the third quarter of 2003. The Company does not currently utilize financial instruments covered by SFAS No. 150 as part of its financing strategy. Accordingly, the adoption of SFAS No. 150 did not have a material impact on its financial position or results of operations.

In January 2004, the FASB issued FASB Staff Position ("FSP") No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). FSP No. 106-1 provides preliminary accounting guidance on how to account for the effects of the Act on postretirement benefit plans. As permitted by FSB No. 106-1, the Company has elected to defer accounting for the impact of the Act until the FASB issues final accounting guidance later in 2004. As a result, the Company's accrued postretirement benefit obligation and net periodic postretirement benefit cost recognized in the Company's Consolidated Financial Statements and accompanying Note 11, do not reflect the effects of the Act. In addition, specific authoritative guidance on the accounting for the Act is pending and that guidance, when issued, could require the Company to change previously reported information. The Company is currently evaluating the impact of the Act on its postretirement benefit plan.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates.

Interest Rate Risk

 The Company's exposure to interest rate risks is principally limited to the Company's outstanding long-term debt at December 31, 2003 of $17.3 million, $150.0 million of receivables sold under the Receivables Securitization Program and the Company's $153.7 million retained interest in the master trust (as defined).

The Company has historically used both fixed-rate and variable or short-term rate debt. At December 31, 2003, 100% of the Company's outstanding debt is priced at variable interest rates. The Company's variable rate debt is based primarily on the applicable prime or London InterBank Offered Rate ("LIBOR"). The prevailing prime interest rate was 4.0% at December 31, 2003 and the LIBOR rate as of December 31, 2003 was approximately 1.5%. A 50 basis point movement in interest rates would result in

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an annualized increase or decrease of approximately $0.8 million in interest expense, loss on the sale of certain accounts receivable and cash flows from operations.

The Company's retained interest in the master trust is also subject to interest rate risk. The Company measures the fair value of its retained interest throughout the term of the securitization program using a present value model that includes an assumed discount rate of 5% per annum and an average collection cycle of approximately 40 days. Based on the assumed discount rate and short average collection cycle, the retained interest is recorded at book value, which approximates fair value. Accordingly, a 50 basis point movement in interest rates would not result in a material impact on the Company's results of operations.

Foreign Currency Exchange Rate Risk

 The Company's foreign currency exchange rate risk is limited principally to the Mexican Peso and the Canadian Dollar, as well as product purchases from Asian countries valued in the local currency and paid in U.S. dollars. Many of the products the Company sells in Mexico and Canada are purchased in U.S. dollars, while the sale is invoiced in the local currency. The Company's foreign currency exchange rate risk is not material to its financial position, results of operations and cash flows. The Company has not previously hedged these transactions, but it may enter into such transactions in the future.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF MANAGEMENT

The management of United Stationers Inc. is primarily responsible for the information and representations contained in this Annual Report on Form 10-K. The Consolidated Financial Statements and related Notes are prepared in accordance with accounting principles generally accepted in the United States and include amounts that are based on management's best judgments and estimates. The other financial information included in this Annual Report is consistent with that in the Consolidated Financial Statements.

In meeting its responsibility for the reliability of the Consolidated Financial Statements, the Company depends on its system of internal accounting control. The system is designed to provide reasonable, but not absolute, assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. It is management's opinion that its system of internal controls was effective in providing reasonable assurance that its financial statements are free of material misstatement. In addition, the system is augmented by written policies and an internal audit department.

The Audit Committee of the Board of Directors, comprised solely of directors who are not officers or employees, meets regularly with management, with the Company's internal auditors, and with its independent auditors to discuss their evaluation of internal accounting controls and the quality of financial reporting. The independent auditors and the internal auditors have free access to the Audit Committee, without management's presence.

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REPORT OF INDEPENDENT AUDITORS

The Stockholders and Board of
Directors of United Stationers Inc.

 We have audited the accompanying consolidated balance sheets of United Stationers Inc. and Subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2003. Our audit also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Stationers Inc. and Subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set therein.

As discussed in Note 2 of the Consolidated Financial Statements, in 2002 the Company changed its method of accounting for goodwill and in 2003 the Company changed its method of accounting for manufacturers' allowances.

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UNITED STATIONERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)

See notes to consolidated financial statements.

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UNITED STATIONERS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

See notes to consolidated financial statements.

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UNITED STATIONERS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except share data)