Back to GetFilings.com

Use these links to rapidly review the document
TABLE OF CONTENTS

United States Securities and Exchange Commission
Washington, DC 20549

FORM 10-K

Commission file number: 0-10653

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 the 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 the 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 the 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, 2004 was approximately $1,293,056,995.

On March 14, 2005, United Stationers Inc. had 33,195,666 shares of common stock outstanding.

Documents Incorporated by Reference:

Certain portions of United Stationers Inc.'s definitive Proxy Statement relating to its 2005 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, 2004

TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS.

General

United Stationers Inc. is the largest broad line wholesale distributor of business products in North America with 2004 consolidated net sales of approximately $4.0 billion. United has over 15,000 customers, which resell products purchased from United to end consumers. The Company provides its customers with a number of competitive advantages, including access to more than 40,000 items, high order accuracy and fill rates, same- or next-day delivery to more than 90% of the U.S. and major cities in Canada and Mexico, and comprehensive training and marketing programs to help resellers reach end consumers.

Except where the context otherwise requires, the terms "United" and the "Company" refer to United Stationers Inc. and its consolidated subsidiaries. The parent holding company, United Stationers Inc. ("USI"), was incorporated in 1981 in the State of Delaware. USI's only direct wholly owned subsidiary and the Company's principal operating company is United Stationers Supply Co. ("USSC"), incorporated in 1922 in the State of Illinois. USSC sells traditional business products, as well as technology products through its Azerty marketing division and janitorial and sanitation products through its subsidiary, Lagasse, Inc.

Products

United distributes more than 40,000 stockkeeping units ("SKUs") within the following principal categories:

Technology Products.    The Company is a leading wholesale distributor of computer supplies and peripherals in North America. It offers approximately 12,000 items—such as printer cartridges, data storage, and digital cameras—to value-added computer resellers, office products dealers, drug stores and grocery chains. Technology products accounted for approximately 45% of the Company's 2004 consolidated net sales.

Traditional Office Products.    United is one of the largest national wholesale distributors of a broad range of office supplies. The Company offers approximately 20,000 brand-name and private label products—such as writing instruments, paper products, organizers, calendars and general office accessories. These products accounted for approximately 30% of the Company's 2004 consolidated net sales.

Office Furniture.    United is one of the largest office furniture wholesalers in North America. It offers more than 4,500 items—such as vertical and lateral file cabinets, leather chairs, wooden and steel desks and computer furniture—from approximately 60 manufacturers. This product category accounted for approximately 12% of the Company's 2004 consolidated net sales.

Janitorial/Sanitation Products.    The Company is a leading wholesaler of janitorial and sanitation supplies. It offers over 5,000 items in the following primary subcategories: janitorial and sanitation supplies, food service disposables, safety and security items, and paper and packaging supplies. The janitorial/sanitation product category accounted for approximately 12% of the Company's 2004 consolidated net sales.

The remaining 1% of the Company's consolidated net sales came from freight and advertising revenue.

As part of its efforts to improve product category management, in 2003 United introduced another category—New and Emerging Products. The Company established this category to focus on specific niche markets, such as supplies for education and physicians' offices, and to develop product lines and promotional materials to help its resellers increase their sales in these markets. Since most of the products offered in this category fall into the other four primary categories, revenues from New and Emerging Products are not reported separately. During 2004, the Company reclassified certain products between categories and, as a result, previously disclosed percentages for both product category growth

1

and total sales mix are not comparable to the current year presentation. The reclassifications did not impact total net sales. See Note 5 to the Consolidated Financial Statements showing 2003 and 2002 net sales by product category that conform to the current year presentation.

For more information on sales by product category, as well as sales and assets attributable to domestic and foreign locations in which the Company conducts business, see Note 5 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Customers

The Company serves a diverse group of over 15,000 customers, including 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 grocery store chains, and e-commerce merchants. No single customer accounted for more than 7.5% of United's 2004 consolidated net sales.

Independent resellers accounted for nearly 80% of United's 2004 consolidated net sales. The Company provides these customers with specialized services designed to help them market their products and services while improving operating efficiencies and eliminating costs.

Marketing and Customer Support

United's customers can purchase most of the products the Company distributes at similar prices from many other sources. Most of the Company's reseller customers purchase their products from more than one source, frequently using "first call" and "second call" distributors. A "first call" distributor typically is a reseller's primary wholesaler, which is given the first opportunity to fill an order. In the event the "first call" distributor is unable to fill an order or to do so timely, the reseller will transmit the order to its "second call" distributor.

To differentiate itself from its competition, United focuses its marketing efforts on providing value-added services to resellers, including:

•

A broad line of products for one-stop shopping;



•

High levels of products in stock, with an average order fill rate greater than 97% in 2004;



•

Efficient order processing, resulting in a 99.5% order accuracy rate in 2004;



•

High-quality customer service from several state-of-the-art call centers;



•

National distribution capabilities that enable same-day or overnight delivery to more than 90% of the U.S. and major metropolitan areas in Canada and Mexico, providing a 99% on-time delivery rate in 2004;



•

Training programs designed to help resellers improve their operations; and



•

End-consumer research to help resellers better understand and market to their customers.

United's marketing programs have emphasized 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, then sold to the resellers who, in turn, distribute them to their customers. Second, United 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 each quarter.

United also develops separate quarterly flyers covering most of its product categories, including its Universal® private brand line, offering a large selection of popular commodity products. Since catalogs

2

provide product exposure to end consumers and generate demand, United tries to maximize their distribution by offering incentives to resellers, which they can use to offset the cost of the catalogs.

Resellers can place orders with the Company through the Internet, by phone, fax and e-mail and through a variety of electronic order entry systems. Electronic order entry systems allow resellers to forward their customers' orders directly to United, resulting in the delivery of pre-sold products to the reseller. In 2004, United received almost 90% of its orders electronically.

At year-end, the Company employed approximately 260 field salespeople, 140 tele-salespeople and 460 customer care representatives in support of its sales, marketing and customer service activities. United's sales force tailors its service offerings to serve each 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, including technology products, traditional office products and office furniture. United also has 24 Lagasse distribution centers that carry a comprehensive line of janitorial and sanitation supplies. In addition, the Company 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 generated $3.8 billion of its $4.0 billion in 2004 consolidated net sales, and its international operations contributed another $0.2 billion to 2004 net sales.

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

United 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 will search for the product at alternative facilities within the shuttle network. When the item is found, the alternate location coordinates shipping with the primary facility. For the majority of resellers, the result is a single on-time delivery of all items. This system gives United added inventory support while minimizing working capital requirements. As a result, the Company can provide higher service levels to its reseller customers, reduce back orders, and minimize time spent searching for substitute merchandise. These factors contribute to a high order fill rate and efficient levels of inventory. To meet the Company's delivery commitments and to maintain high order fill rates, United 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 resellers. This program gives resellers the option to receive individually packaged orders ready to be delivered to its end-consumers. For example, when a reseller places orders for several individual consumers, United can group and wrap the items separately, identifying each specific consumer, so that the reseller need only deliver the already individualized packages. Resellers find the "Wrap and Label" program advantageous because it eliminates the need to break down bulk shipments and repackage orders before delivering them to consumers.

In addition to these value-adding programs for resellers, United is committed to reducing its operating costs. The Company's "war on waste" program has a goal of removing $20 million in costs per year through a combination of new and continuing activities such as streamlining the Company's receiving operations, improving its returns policies and procedures, and maximizing the efficiency of its fleet and transportation system.

Purchasing and Merchandising

As the largest broad line wholesale business products distributor in North America, United is able to leverage its broad product selection as a key merchandising strategy. The Company orders products

3

from more than 450 manufacturers. As a result of its purchasing volume, United receives substantial supplier allowances and can realize significant economies of scale in its logistics and distribution activities. In 2004, United's largest supplier was Hewlett-Packard Company, representing approximately 24% of its 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. As part of its effort to create an integrated supplier approach, United introduced the Preferred Supplier Program. This program is designed to strengthen relationships with suppliers, by offering their products as preferred brands in the Company's marketing efforts, while working closely with them to reduce overall supply chain costs.

Competition

United competes with office products manufacturers and with other national, regional and specialty wholesalers of office products, office furniture, technology products, 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.

The Company competes with manufacturers who often sell their products directly to resellers and may offer lower prices. United believes that 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 broad line wholesalers is based 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 one national broad line office products competitor, as well as local and regional office products wholesalers and furniture and janitorial/sanitation distributors, each of which typically offer more limited product lines. In addition, United competes with various national distributors of computer consumables primarily on net pricing to resellers.

General competition in the office products industry has led to greater price awareness among end consumers. 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 as compared to those of manufacturers and other wholesalers.

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 and release previously deferred purchase orders.

Employees

As of March 1, 2005, United employed approximately 5,550 people.

Management believes it has good relations with its employees. Approximately 740 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. United successfully renegotiated agreements with employees in Philadelphia and Los Angeles in 2004. The agreement with employees in New York is set to expire on April 30, 2005. The other agreements expire at

4

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 principal Internet Web site address is www.unitedstationers.com. The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as amendments and exhibits to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (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 ("SEC"). In addition, copies of these filings (excluding exhibits) may be requested 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 evaluates its properties on an ongoing basis 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, 2004, these properties consisted of the following:

Offices.    The Company owns its approximately 136,000 square foot headquarters office in Des Plaines, Illinois. It also owns approximately 49,000 square feet of office space in Orchard Park, New York. The Company leases approximately 49,000 square feet of additional office space in Des Plaines, Illinois and Mt. Prospect, Illinois. Its 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 10.5 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 10.5 million square feet of distribution center space, 3.0 million square feet are owned and 7.5 million square feet are leased.

ITEM 3. LEGAL PROCEEDINGS.

For information with respect to legal proceedings, see Note 3 to the Company's Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

The Company has been advised by the staff of the SEC that the staff is conducting an informal inquiry regarding the Company in connection with its Azerty United Canada division and related financial reporting matters. For additional information with respect to such matters, see Item 7 of this Annual Report under the caption, "Review of Canadian Division," and Item 9A under the caption, "Changes in Internal Control over Financial Reporting." The Company intends to continue to cooperate with the SEC in this inquiry. Due to the early stage of this inquiry, the Company is unable to predict its ultimate scope or outcome.

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 2004.

5

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

6

7

8

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.

9

PART II

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

Common Stock Information

USI'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 USI's common stock as reported by NASDAQ:

On March 2, 2005, there were approximately 737 holders of record of common stock. A greater number of holders of USI common stock are "street name" or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Common Stock Repurchases

The Company did not repurchase any shares of USI common stock during the fourth quarter of 2004. During full year 2004, the Company repurchased 1,072,654 shares of such common stock at an aggregate cost of $40.9 million. The Company did not repurchase any stock during 2003. As of December 31, 2004, the Company had authority from its Board of Directors and is permitted under its debt agreements to additionally repurchase up to $86 million of USI common stock.

Dividends

The Company's policy has been to reinvest earnings to enhance its financial flexibility and to fund future growth. Accordingly, USI 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, USI'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 limited 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" in Item 7, and Note 9 to the Consolidated Financial Statements included in Item 8 of this Annual Report.

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 Annual Report.

10

ITEM 6. SELECTED FINANCIAL DATA.

The selected consolidated financial data of the Company for the years ended December 31, 2000 through 2004 have been derived from the Consolidated Financial Statements of the Company, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. The selected consolidated financial data below should be read in conjunction with, and is qualified in its entirety by, Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company included in Items 7 and 8, respectively, of this Annual Report. Except for per share data, all amounts presented are in thousands:

(1)

During 2004, the Company recorded a pre-tax write-off of approximately $13.2 million in supplier allowances, customer rebates and trade receivables, inventory and other items associated with the Company's Canadian Division. The write-off related to amounts that were either incorrectly accrued or overaccrued, or that had become uncollectible. The write-off includes items related to prior years of approximately $6.7 million (pre-tax), based on prior period exchange rates. See Notes 1 and 18 to the Consolidated Financial Statements included in Item 8 of this Annual Report.

(2)

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 is tested at least annually for impairment.

11

(3)

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 4 to the Consolidated Financial Statements.

(4)

In the third quarter of 2001, the Company recorded a restructuring charge of $47.6 million. See Note 4 to the Consolidated Financial Statements.

(5)

During 2003, the Company redeemed its 8.375% Senior Subordinated Notes and replaced its then existing credit agreement with a new Five-Year Revolving Credit Agreement. 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 Item 7 and Note 9 to the Consolidated Financial Statements.

(6)

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

(7)

Represents the loss on the sale of certain trade accounts receivable through the Company's Receivables Securitization Program (as defined and further described as noted in the next sentence) 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" under Item 7 of this Annual Report.

(8)

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.

(9)

In accordance with Generally Accepted Accounting Principles ("GAAP"), total assets exclude $118.5 million in 2004, $150.0 million in 2003, $105.0 million in 2002, $125.0 million in 2001 and $150.0 million in 2000 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" under Item 7 of this Annual Report.

(10)

Total debt includes 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. Forward-looking statements often contain words such as "expects," "anticipates," "estimates," "intends," "plans," "believes," "seeks," "will," "is likely," "scheduled," "positioned to," "continue," "forecast," "predicting," "projection," "potential" or similar expressions. Forward-looking statements include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management's current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, but are not limited to:

•

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



•

the Company's ability to successfully procure and implement new information technology ("IT") packages and systems, integrating them with and/or migrating from existing IT systems and platforms without business disruption or other unanticipated difficulties or costs;



•

the Company's ability to effectively integrate past and future acquisitions into its management, operations and financial and IT systems;



•

the Company's ability to implement, timely and effectively, improved internal controls in response to conditions previously or subsequently identified at the Company's Canadian division or elsewhere, in order to maintain on an ongoing basis an effective internal control environment in compliance with the Sarbanes-Oxley Act of 2002;

12

•

the conduct and scope of the SEC's informal inquiry relating to the Company's Canadian division or any formal investigation that may arise therefrom, and the ultimate resolution of such inquiry or investigation;



•

the outcome of and costs associated with the defense of legal proceedings pending against the Company;



•

the Company's reliance on key suppliers and the impact of variability in their pricing, allowance programs and other terms, conditions and policies, such as those relating to geographic or product sourcing limitations, price protection terms and return rights;



•

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, and the impact of such supplier allowances and promotional incentives on the Company's gross margins;



•

the Company's reliance on key customers, the top five of which accounted for approximately 26% of the Company's 2004 net sales, and the business, credit and other risks inherent in continuing or increased customer concentration;



•

continuing or increasing competitive activity and pricing pressures within existing or expanded product categories;



•

increases in customers' purchases directly from product manufacturers;



•

the Company's ability to anticipate and respond to changes in end-user demand and to effectively manage levels of excess or obsolete inventory;



•

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;



•

reliance on key management personnel, both in day-to-day operations and in execution of new business initiatives;



•

uncertainties attendant to any new regulations applicable to the Company, including any new rulemaking by the SEC;



•

acts of terrorism or war; and



•

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. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it.

13

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

The following discussion should be read in conjunction with both the information at the end of Item 6 of this Annual Report appearing under the caption, "Forward Looking Information," and the Company's Consolidated Financial Statements and related notes contained in Item 8 of this Annual Report.

Overview; Recent Results

The Company is North America's largest broad line wholesale distributor of business products, with 2004 net sales of approximately $4.0 billion. Through its national distribution network, the Company distributes its products to over 15,000 resellers, who in turn sell directly to end-consumers. Products are distributed through computer-linked networks of 35 USSC distribution centers, 24 Lagasse distribution centers that serve the janitorial and sanitation industry, two distribution centers in Mexico that serve computer supply resellers, and two Azerty distribution centers that serve the Canadian marketplace.

Sales for 2005 through the filing date of this Annual Report were up approximately 9% compared with the same period last year. Of this 9% year-over-year sales growth, the Company estimates that approximately 2% is attributable to manufacturers' price increases. While there are recent favorable economic indicators that generally correlate with increasing demand for business products, there can be no assurance that such economic trends will be sustainable, that they will in fact lead to increased demand for the Company's products on an ongoing basis or that any increased demand will not be negatively impacted by increasing competition or other developments affecting the Company's business or industry.

Key Company and Industry Trends

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

•

Generally, unemployment levels, job creation and office space utilization are directional indicators of business-related spending for business products. While there are early 2005 indications that an improving economy may bring positive changes in some or all of these areas, any significant favorable impact on Company performance will be dependent on whether such changes are sustainable over a longer period and whether such general trends positively impact demand for both value-added services like those offered by the Company and previously deferred, discretionary expenditures on higher-margin products.



•

Office furniture sales, accounting for 12% of the Company's total 2004 net sales, grew 7.6% in 2004 as compared to 2003. Industry forecasts for office furniture sales continue to show an improving trend. The Company has sought to enhance its furniture offerings and so believes it should be well positioned to take advantage of any such favorable market conditions.



•

Significant manufacturers' price increases have recently been announced in product categories affected by increased raw material prices for steel, petroleum/resin-based products and paper. The Company generally has the ability to cover resulting increases in its product purchase costs by increasing its sale prices to its reseller customers, thereby contributing to increased Company net sales without eroding margin. In any cases in which the Company is not able to do so fully and timely (as a result, for example, of competitive market conditions or customer contract terms), there would be a negative impact on the Company's pricing and gross margin. The Company often seeks to forward buy products in advance of manufacturers' announced price increases, consistent with its distribution center capacity and prudent working capital management. The Company's margin will be favorably impacted to the extent it is able to undertake such forward buying activities and pass through increased manufacturers' prices to its reseller customers.

14

•

Technology products continue to be the Company's largest product category by sales volume, accounting for approximately 45% of the Company's 2004 consolidated net sales. The Company expects that technology products will continue to account for a significant portion of its net sales, reflecting industry-wide trends. Technology products 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. Moreover, the Company's sales mix within the technology products category tends to be weighted more heavily toward computer consumables (such as toner) that are subject to substantial competitive pricing pressure and therefore tend to have pricing margins (invoice price less standard cost) at the lower end of these for products within the technology product category.



•

The Company has offered competitive pricing on many key commodity products, including cut sheet paper and computer consumables. This pricing strategy has stimulated sales and thereby enabled the Company to better leverage its substantial fixed costs across higher sales. However, it has negatively impacted the Company's pricing margin rate and therefore its gross margin rate (pricing margin increased for supplier allowances and reduced by customer rebates). This downward pressure on pricing margin and its negative effect on the Company's gross margin has been partially mitigated by the Company's "war on waste" initiatives, which may not be sustainable at the same levels in future years. The Company expects that its commodity products will continue to be subject to significant price competition, and that it will continue to respond with market competitive pricing initiatives, resulting in an ongoing negative impact on pricing margin and therefore gross margin.



•

Independent dealers account for nearly 80% of the Company's net sales. Their continued viability and success are important to future sales and earnings growth for the Company. Independent dealers face increasing competition from existing national resellers who are targeting the middle market. National resellers may have competitive advantages over independent dealers, such as greater economies of scale, greater marketing, advertising and financial resources, a broader retail presence and a more sophisticated online ecommerce offering. Independent dealers typically compete with national resellers by providing greater service flexibility and offering other value-added services.



•

Management has renewed its emphasis on reducing costs and leveraging the Company's existing infrastructure. However, as described below in this Item 7 under the caption "Cash Flows—Cash Flows from Investing Activities," the Company expects its 2005 net capital spending to increase substantially over the prior year, as it plans to make substantial investments in its IT systems and infrastructure.

Review of Canadian Division

During 2004, the Company recorded a write-off of approximately $13.2 million ($8.3 million after-tax, or $0.24 per diluted share) in supplier allowances, customer rebates and trade receivables, inventory and other items associated with the Company's Azerty United Canada division (the "Canadian Division"). The Canadian Division accounted for approximately 3.8% of the Company's consolidated net sales for the year ended December 31, 2004. Of the $13.2 million total write-off (referenced above), $12.9 million related to cost of goods sold and $0.3 million related to operating expenses. The write-off related to amounts that were either incorrectly accrued or overaccrued, or that had become uncollectible. The write-off includes items related to prior years of approximately $6.7 million ($4.2 million after-tax, or $0.12 per diluted share), based on prior period exchange rates and tax rates.

In October 2004, the Company began conducting a review of supplier allowances and other items at its Canadian Division. This included a detailed review of the Canadian Division's financial records by the Company's U.S. headquarters accounting staff. In addition, the Company's Audit Committee, with the

15

assistance of outside counsel and forensic accounting experts, conducted an investigation of transactions with customers and suppliers, related accounting entries and allegations of misconduct at the Canadian Division.

Both the accounting review and the Audit Committee investigation were completed in February 2005. The Company determined that the Canadian Division incorrectly accounted for certain items, primarily during 2003 and 2004, including: accruing supplier allowances that it did not qualify for under the terms of its supplier agreements; failing to timely write off anticipated supplier allowances and other receivables that, although properly accrued initially, were no longer collectible; and failing to properly record customer returns and make other adjustments to inventory balances required under generally accepted accounting principles.

The Audit Committee's investigation found no evidence that management in the United States had knowledge of, or involvement in, improper activities at the Canadian Division. The investigation did reveal, however, evidence of fraud by personnel at the Canadian Division, involving improper and fictitious sales transactions, including sale and buyback transactions, and other accounting improprieties. Revenues from sale and buyback transactions totaling $4.6 million were reversed on the Company's books in the fourth quarter of 2004.

The investigation revealed that personnel at the Canadian Division recorded sales before shipment and held month ends open to record additional sales. Due to the relatively low daily sales volume at the Canadian Division, the Company concluded that sales recorded before shipment or after month end, which could not in most cases be quantified from the Canadian Division's accounting records, did not have a significant impact on the Company's consolidated results, and therefore no adjustments were made in connection therewith.

The investigation concluded that these activities were undertaken to improve the apparent financial performance of the Canadian Division.

In early November 2004, the Company replaced certain members of management at the Canadian Division. In addition, the Company held discussions with the suppliers that were impacted by these activities and has resolved historical issues with them related to the Canadian Division.

In connection with this review, the Company, in consultation with its independent registered public accountants, Ernst & Young LLP ("E&Y"), identified several internal control deficiencies related to its Canadian Division and determined that those constituted significant deficiencies for the third and fourth quarters of 2004. These and other internal control deficiencies are discussed in Item 9A, "Controls and Procedures."

The Company has been advised that the staff of the SEC is conducting an informal inquiry regarding the Company in connection with its Canadian Division and associated financial reporting matters. See Item 3 of this Annual Report.

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 U.S. generally accepted accounting principles ("GAAP") 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.

16

The Company's critical accounting policies are those that are important to portraying the Company's financial condition and results of operations 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 significant accounting polices and estimates inherent in the preparation of the Company's financial statements include the following:

Supplier Allowances

Supplier 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 includes, among other items, file margin (determined by reference to invoiced price), as reduced by estimated customer discounts and rebates as discussed below, and increased by estimated supplier allowances and promotional incentives.

Approximately 40% to 45% of the Company's annual supplier allowances and incentives are fixed and are based on supplier 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 supplier allowances and incentives are variable, based on the volume of the Company's product purchases from suppliers. These variable allowances are recorded based on the Company's estimated annual inventory purchase volumes and product mix and are included in the Company's financial statements as a reduction to cost of goods sold, thereby reflecting the net inventory purchase cost. Supplier allowances and incentives attributable to unsold inventory are carried as a component of net inventory cost. The potential amount of variable supplier allowances often differs based on purchase volumes by supplier 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 supplier allowance rates) can make it difficult to reach some supplier 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.

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.

Revenue Recognition

Revenue is recognized when a service is rendered or when title to the product has transferred to the customer. Management establishes a reserve and records an estimate for future product returns related to revenue recognized in the current period. This estimate requires management to make certain estimates and judgments, including estimating the amount of future returns of products sold in the current period. This estimate is based on historical product return trends and the loss of gross margin associated with those returns. This methodology involves some risk and uncertainty due to its

17

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, causing actual results of operation or financial condition to differ from those expected.

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. This allowance adjusts gross trade accounts receivable downward to its estimated collectible, or net realizable, value. To determine the appropriate allowance for doubtful accounts, management undertakes a two-step process. First, a general allowance percentage is applied to accounts receivables generated as a result of sales. This percentage is based on historical trends for customer write-offs. Periodically, management reviews this allowance percentage, based on current information and trends. Second, management reviews specific customers accounts receivable balances and specific customer circumstances to determine whether further allowance for specific accounts is necessary. As part of this specific customer analysis, management will consider items such as bankruptcy filings, historical charge-off patterns, accounts receivable concentrations and the current level of receivables compared with historical customer account balances.

The primary risks in the methodology used to estimate the allowance for doubtful accounts are its dependence on historical information to predict the collectability of accounts receivable and the sometime unavailability of current financial information from customers. 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.

Insured Loss Liability Estimates

The Company is primarily responsible for retained liabilities related to workers' compensation, vehicle and general liability and certain employee health benefits. The Company records expense for paid and open claims and an expense for claims incurred but not reported based on historical trends and on certain assumptions about future events. 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 88% and 90% of total inventory as of December 31, 2004 and 2003, respectively, has been valued under the last-in, first-out ("LIFO") accounting method. 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 $27.2 million and $22.9 million higher than reported as of December 31, 2004 and December 31, 2003, respectively. 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 assesses temporary differences that exist due to differing treatments of items for tax and financial statement purposes. These differences

18

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 tax laws, and tax planning. Future changes in tax laws, changes in projected levels of taxable income, and tax planning could impact the effective tax rate and tax balances recorded by the Company. Management's estimates as of the date of the Consolidated 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 11 and 12 to the Consolidated Financial Statements included in Item 8 of this Annual Report, 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 information. Pension expense for 2004 was $6.8 million, compared to $6.6 million in 2003. 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 2004 of approximately $2.8 million.

Costs associated with the Company's postretirement health benefits plan were $0.8 million and $1.1 million for 2004 and 2003, respectively. A one-percentage point decrease in the assumed discount rate would have resulted in incremental postretirement healthcare expenses for 2004 of approximately $0.2 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, 2004, 2003 and 2002:

19

Results for the Years Ended December 31, 2004, 2003 and 2002

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

Comparison of Results for the Years Ended December 31, 2004 and 2003

Net Sales.    Net sales for the year ended December 31, 2004 were $4.0 billion, up 3.7%, compared with $3.8 billion in the prior year. The following table shows net sales by product category for 2004 and 2003 (in millions):

Note: To conform with current year presentation, reclassifications between product catagories were made to the 2003 presentation. The reclassifications did not impact total net sales.

Sales in the technology products category grew 2.6% in 2004 compared to the prior year. This category continues to represent the largest percentage of the Company's consolidated net sales (approximately 45%). Sales in this category benefited from continued Company initiatives, including those supporting the Company's position as a "single source" for delivery of office products and technology products together, competitive pricing and new approaches to marketing products.

20

Traditional office supplies represented approximately 30% percent of the Company's sales in 2004. Sales of traditional office supplies grew 1.8% versus the prior year. The growth in this category was driven by higher cut-sheet paper sales and initiatives within the school supplies market.

Sales growth in 2004 in the janitorial and sanitation product category remained strong, rising 11% and accounting for 12% of the Company's 2004 sales. Growth in this sector was primarily due to continued growth with large distributors the Company serves. In addition, the Company is launching new initiatives to help drive continued growth in this category. For example, the Company's OfficeJan initiative was designed to drive demand of janitorial and sanitation supplies to office products dealers by making these products available as part of a consolidated shipment.

Office furniture sales in 2004 increased 7.6% compared to the prior year. Office furniture accounted for 12% of the Company's sales during 2004. This category benefited from positive economic trends, including rising employment levels combined with increases in office space occupancy. In addition, sales during 2004 were positively impacted through more competitive pricing and dedicated resources to serving key markets within this category.

The remaining 1% of the Company's net sales for 2004 were derived from freight and advertising revenue.

Gross Profit and Gross Margin Rate.    Gross profit (gross margin dollars) for 2004 was $582.2 million, compared to $560.5 million for 2003. The increase in gross profit is primarily due to higher net sales. Gross profit for 2004 was adversely affected by a $12.9 million write-off in supplier allowances, customer rebates and trade receivables, inventory and other items at the Company's Canadian Division, of which $6.2 million was related to prior years (see the information above under the caption "Review of Canadian Division").

The Company's 2004 gross margin rate (gross profit as a percentage of net sales) was 14.6%, even with 2003. Although the Company's gross margin rate was relatively even during the first three quarters of 2004, it was 13.8% for the fourth quarter of 2004, reflecting the negative impact of both competitive pricing initiatives and write-offs related to the Company's Canadian Division. The Company's gross margin rate for the full 2004 year was adversely impacted by lower pricing margin (invoice price less standard cost) for technology products and a pricing strategy within certain other product categories designed to generate higher sales through more competitive pricing. As a result, the pricing margin rate declined approximately 0.3 percentage points versus last year. This decline was offset by improvements in net delivery expense (0.2 percentage points) and a reduction in losses from damaged merchandise (0.1 percentage points) resulting from "war on waste" internal initiatives. The Company's gross margin rate for 2004 was also adversely affected by a $12.9 million charge related to the Company's Canadian Division.

Operating Expenses.    Operating expenses for 2004 totaled $433.0 million, or 10.9% of net sales, compared with $414.9 million, or 10.8% of net sales in 2003. Operating expenses for 2004 increased primarily as a result of a $10.8 million increase in employee payroll, travel and other employee related costs and a $5.6 million increase in professional fees, primarily relating to the review and investigation of the Company's Canadian Division and costs associated with the Company's compliance with the Sarbanes-Oxley Act of 2002. Operating expenses as a percentage of net sales increased only slightly as a result of higher net sales in 2004 compared with 2003.

Interest Expense.    Interest expense for 2004 was $3.3 million, or less than 0.1% of net sales, compared with $6.8 million, or 0.2% of net sales in 2003. This decline primarily reflects lower borrowing levels.

Loss on Early Retirement of Debt.    On April 28, 2003, the Company redeemed the entire $100 million outstanding principal amount of its 8.375% Senior Subordinated Notes (the "8.375% Notes") at the redemption price of 104.188% of the principal amount thereof, plus accrued and unpaid interest to the

21

date of redemption. As a result of the redemption of the 8.375% Notes and replacement of the Company's credit agreement in 2003, 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 credit agreement (see Note 9 to the Consolidated Financial Statements). No such loss was recorded in 2004.

Other Expense, net.    Other expense for 2004 was $3.5 million, or 0.1% of net sales, compared with $4.8 million, or 0.1% of net sales in 2003. Net other expense for 2004 includes $3.1 million associated with the sale of certain trade accounts receivable through the Receivables Securitization Program, $0.3 million related to the write-down of certain assets held for sale and $0.1 million loss on the sale of certain assets. 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.

Income Taxes.    Income tax expense was $52.8 million in 2004, compared with $48.5 million in 2003. The Company's effective tax rate was 37.0% and 38.0% for 2004 and 2003, respectively. The change in the effective rate was from lower state and local rates due to the mix of income between states, closing open tax years under audit and tax planning.

Cumulative Effect of a Change in Accounting Principle.    The Company recorded a cumulative effect of a change in accounting principle in 2003 of $6.1 million, 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 2004.

Net Income.    For 2004, the Company recorded net income of $90 million, or $2.65 per diluted share, compared with net income of $73.0 million, or $2.18 per diluted share, in 2003. Net income for 2004 includes an after-tax charge of $4.2 million, or $0.12 per diluted share, for write-offs related to supplier allowances, customer rebates and trade receivables, inventory and other items associated with the Company's Canadian Division that are attributable to prior-years (see above caption "Review of Canadian Division"). 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 a change in accounting principle.

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 2002. The following table shows net sales by product category for 2003 and 2002 (in millions):

Note: To conform with current year presentation, reclassifications between product categories were made to the 2003 and 2002 presentation. The reclassifications did not impact total net sales.

22

Sales in the technology products category for 2003 were up nearly 14% compared with 2002 and represented 45% of the Company's 2003 consolidated net sales, compared with 42% of such sales in 2002. The growth in this category was 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 4.0% 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 4.6% compared with 2002. These results reflected soft customer demand for products, such as furniture, that are regarded as "discretionary" purchases in light of 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 3.2%. Growth in this category was primarily due to continued growth with 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 in 2002. 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 supplier allowances (0.5 percentage points) as a result of higher net sales and achieving certain volume growth hurdles. These allowances increased to $231 million in 2003 from $204 million in 2002.

The Company's gross margin rate was negatively impacted by the shift in overall product sales mix, as well as shifts within each major product category. The Company's customers postponed 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 0.7 percentage points versus 2002.

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 (the "2001 Restructuring Plan"). 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 also reflected workforce reductions. All initiatives under the 2002 Restructuring Plan are completed. However, 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 4 to the Consolidated Financial Statements for more information regarding these restructuring and other charges and remaining accrual balances.

23

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 credit agreement in 2003, the Company recorded a loss on early retirement of debt in 2003 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 credit agreement (see Note 9 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.

Income Taxes.    Income tax expense was $48.5 million in 2003, compared with $36.1 million in 2002. The Company's effective tax rate was 38.0% and 37.5% for 2003 and 2002, respectively.

Cumulative Effect of a Change in Accounting Principle.    Cumulative effect of a change in accounting principle in 2003 was $6.1 million, 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 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.

Liquidity and Capital Resources

General

USI 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 USI. In addition, the right of USI 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.

24

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 (as defined below) consisted of the following amounts (in thousands):

(1)

See discussion below under "Off-Balance Sheet Arrangements—Receivables Securitization Program"

The most directly comparable financial measure to adjusted debt that is calculated and presented in accordance with GAAP is total debt (as provided in the above table as "Debt under GAAP"). 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 therefore believes it is helpful to provide readers of its financial statements with a measure that adds accounts receivable sold to debt.

In accordance with GAAP, total debt outstanding as of December 31, 2004 increased by $0.7 million to $18.0 million from the balance as of December 31, 2003. This increase was the result of additional borrowings under the Company's Revolving Credit Facility. Adjusted debt is defined as outstanding debt under GAAP combined with accounts receivable sold under the Receivables Securitization Program. Adjusted debt as of December 31, 2004 declined by $30.8 million from the balance as of December 31, 2003. As of December 31, 2004, the Company's adjusted debt to total capitalization ratio (adjusted from the debt under GAAP amount to add the receivables then sold under the Company's Receivables Securitization Program as debt) was 15.7%, compared to 19.9% as of December 31, 2003.

The adjusted debt to total capitalization ratio is provided as an additional liquidity measure. As noted above, 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 debt-to-total capitalization on the same basis. A reconciliation of this non-GAAP measure is provided in the table above.

25

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 as of December 31, 2004, is summarized below (in millions):

Restrictive covenants under the Credit Agreement (as defined below) separately limit total available financing at points in time, as further discussed below. As of December 31, 2004, the leverage ratio covenant in the Company's Credit Agreement did not impact the Company's available 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

The following table aggregates all contractual obligations that affect financial condition and liquidity as of December 31, 2004 (in thousands):

Credit Agreement and Other Debt

In March 2003, the Company entered into a Five-Year Revolving Credit Agreement (the "Credit Agreement"), by and among USSC, as borrower, USI, as guarantor, various lenders that from time to time are parties thereto and Bank One, NA, as administrative agent. The Credit Agreement provides for a revolving credit facility (the "Revolving Credit Facility") with an aggregate committed principal amount of $275 million. Subject to the terms and conditions of the Credit Agreement, USSC may 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. The Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type.

26

Effective June 30, 2004, the Company entered into an amendment (the "Amendment") to the Credit Agreement. Prior to the Amendment, the Credit Agreement restricted the ability of each of USI and USSC to pay dividends or make distributions on its capital stock, other than stock dividends or distributions by USSC to USI to fund certain expenses. It also limited the amount of USSC distributions to USI to enable USI to repurchase its own shares of common stock. The Amendment, among other things, permits stock repurchases, as well as cash dividends and other distributions, up to a new combined aggregate limit equal to (a) the greater of (i) $250 million or (ii) $250 million plus 25% of the Company's consolidated net income (or minus 25% of any loss) in each fiscal quarter beginning June 30, 2003, plus (b) the net cash proceeds received from the exercise of stock options. As the Company had substantially exhausted the approximately $50 million share repurchase limit originally provided under the Credit Agreement, the Amendment provided the Company an additional $200 million to use for share repurchases, dividends or other permitted distributions.

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

Obligations of USSC under the Credit Agreement are guaranteed by USI and certain of USSC's domestic subsidiaries. USSC's obligations under the Credit Agreement and the guarantors' obligations under the guaranty are secured by liens on substantially all Company 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 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 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. Applicable margins are up to 0.75% and 2.25%.

As of December 31, 2004 and 2003, the Company had outstanding letters of credit of $16.4 million and $15.1 million, respectively.

27

Off-Balance Sheet Arrangements—Receivables Securitization Program

General

On March 28, 2003, USSC entered into a third-party receivables securitization program with JP Morgan Chase Bank, as trustee (the "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 and foreign operations) to USS Receivables Company, Ltd. (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, PNC Bank and (as of March 26, 2004) Fifth Third Bank act as funding agents. The funding agents, or their affiliates, provide standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day liquidity facilities. The 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 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 liquidity was renewed on March 26, 2004. 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 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. As of December 31, 2004, the Company sold $118.5 million of interests in trade accounts receivable, compared with $150.0 million as of December 31, 2003. Accordingly, trade accounts receivable of $118.5 million as of December 31, 2004 and $150.0 million as of December 31, 2003 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" 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 2004 ranged between 1.1% and 2.3%. In addition to the interest on the certificates, the Company pays certain bank fees related to the program. Losses recognized on the sale of accounts receivable, which represent the financial cost of funding under the program, totaled $3.1 million for 2004, compared with $3.5 million for 2003. Proceeds from the collections under this revolving agreement for 2004 and 2003 were $3.6 billion and $3.4 billion, respectively. 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."

28

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 received 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 $346.3 million and $303.7 million of trade receivables in the master trust as of December 31, 2004 and December 31, 2003 was $227.8 million and $153.7 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 and written off during 2004 were not material.

Cash Flows

Cash flows for the Company for the years ended December 31, 2004 and 2003 are summarized below (in thousands):

Cash Flows 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, 2004 totaled $47.0 million, compared with $167.7 million and $105.7 million in 2003 and 2002, respectively. Net cash provided by operating activities was positively impacted by higher net income and accounts payable, offset by higher inventory levels and changes in accounts receivable components. Net income for 2004 reached $90.0 million, compared to $73.0 million in 2003. Higher trending sales and forward inventory purchases in advance of product cost increases resulted in inventory being a use of cash of $68.2 million in 2004 versus a $26.0 million source of cash in 2003. In 2004, accounts payable increased $44.7 million, compared to an increase of $23.5 million in 2003 due largely to higher inventory purchases. The combination of "Accounts receivable, net" and "Retained interest in receivables sold, net" increased $57.2 million, compared with a decline of $0.9 million in 2003 as a result of higher sales and changes in the amount of accounts receivable sold under the Receivables Securitization Program.

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

29

2002. Improvements in working capital components include a $26.0 million decline in inventory as a result of enhanced 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.

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. 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. Net cash provided by operating activities excluding the effects of receivables sold and net cash used in financing activities including the effects of receivables sold for the years ended December 31, 2004, 2003 and 2002 is provided below as an additional liquidity measure (in thousands):

Cash Flows From Investing Activities

Net cash used in investing activities for the years ended December 31, 2004, 2003 and 2002 was $9.7 million, $10.9 million and $23.0 million, respectively. The exclusive use of cash for investing activities was for net capital expenditures for ongoing operations.

Funding for gross capital expenditures for 2004, 2003 and 2002 totaled $19.7 million, $14.6 million and $27.2 million, respectively. Proceeds from the disposition of property, plant and equipment totaled $10.0 million for 2004, $3.6 million for 2003 and $4.2 million for 2002. As a result, net capital expenditures (gross capital expenditures minus net proceeds from property, plant and equipment dispositions) totaled $9.7 million, $10.9 million and $23.0 million for 2004, 2003 and 2002, respectively. For the years ended December 31, 2004, 2003 and 2002, capitalized software costs totaled $3.7 million, $3.3 million and $5.2 million, respectively. Net capital spending (net capital expenditures plus capitalized software costs) for 2004 was $13.4 million, compared with $14.3 million in 2003 and $28.2 million in 2002. Capital expenditures are utilized primarily to replace, upgrade and equip the Company's distribution facilities. The Company expects net capital spending for 2005 to be approximately $30 million, which may include substantial investments in IT systems and infrastructure.

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 expenditures (as defined). Under GAAP, net capital expenditures are required to be included on the cash

30

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 (in thousands):

Cash Flows From Financing Activities

Net cash used in financing activities for 2004, 2003 and 2002 was $32.0 million, $164.4 million and $93.9 million, respectively. In 2004, the Company repurchased 1,072,654 shares of its common stock at an aggregate cost of $40.9 million (see caption "Stock Repurchase Program"). In addition, for 2004 the Company's financing activities included $1.4 million in payments of employee withholding tax on stock option exercises, offset by $9.6 million in proceeds from the issuance of treasury stock and borrowings of $0.7 million under the Revolving Credit Facility. During 2003, the Company's strong cash flow from operations (see discussion above under "Cash Flows From Operations") allowed it to further reduce outstanding debt, including retirements and principal payments 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 of debt, $38.3 million for acquisition of treasury stock partially offset by $5.5 million in proceeds from the issuance of treasury stock.

Stock Repurchase Program

On July 22, 2004, USI's Board of Directors approved a share repurchase program pursuant to which the Company is authorized to purchase an additional $100 million of USI's common stock. Purchases may be made from time to time in the open market or in privately negotiated transactions. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its common stock at any time without notice. As of December 31, 2004, the Company had approximately $86 million available under the authorization.

Seasonality

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 January sales period. See the information under the heading "Seasonality" in Part I, Item 1 of this Annual Report. 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.

31

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 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 effect on the Company's net sales, gross margins and net income.

New Accounting Pronouncements

In May 2004, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003(the "Medicare Act"). FSP No. 106-2 supersedes FSP No. 106-1 and provides guidance on the accounting for the effects of the Medicare Act on postretirement health benefit plans. In addition, FSP No. 106-2 requires certain financial statement disclosures regarding the effects of the Medicare Act. The effects of the Medicare Act are not reflected in the accrued postretirement benefit obligation and net periodic postretirement benefit cost recognized in the Company's Consolidated Financial Statements and accompanying Note 12. The Company does not believe adoption of FSP No. 106-2 will have a material impact on its financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets. This Statement amends the guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions. APB 29 provided an exception to the basic measurement principle (fair value) for exchanges of similar assets, requiring that some nonmonetary exchanges be recorded on a carryover basis. SFAS 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance, that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. The provisions of SFAS 153 are effective for exchanges of nonmonetary assets occurring in fiscal periods beginning after June 15, 2005. As of December 31, 2004, the Company does not believe that the impact of adopting SFAS No. 153 will have a material impact on its financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. This Statement is a revision to SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render service. The Company will adopt SFAS 123(R) on July 1, 2005, requiring the cost of equity awards be recorded on the Company's financial statements as an operating expense for the portion of outstanding unvested awards on such date as well as any subsequent awards. The Company is currently evaluating the impact of adopting SFAS No. 123(R), including alternative stock option pricing models and the resulting impact on its financial position, results of operations or cash flows.

In December 2004, the FASB issued FSP No 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision with the American Jobs Creation Act of 2004 (the "Act"). The Act was signed into law on October 22, 2004 and provides for a special one-time tax deduction, or dividend

32

received deduction ("DRD"), of 85% of qualifying foreign earnings that are repatriated in either a company's last tax year that began before the enactment date or the first tax year that begins during the one-year period beginning on the enactment date. FSP No. 109-2 provides entities additional time to assess the effect of repatriating foreign earnings under the Act for purposes of applying SFAS No. 109, Accounting for Income Taxes, which typically requires the effect of a new tax law to be recorded in the period of enactment. The Company is currently evaluating the effects of the Act. The evaluation is expected to be completed in 2005. The range of income tax effects of such repatriation cannot be reasonably estimated at this time, however, the Company does not believe such effects will have a material impact on its financial position, results of operations or cash flows.

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, 2004 of $18.0 million, $118.5 million of receivables sold under the Receivables Securitization Program and the Company's $227.8 million retained interest in the master trust (as defined).

The Company has historically used both fixed-rate and variable or short-term rate debt. As of December 31, 2004, 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"). As of December 31, 2004, the prevailing prime interest rate was 5.25% and the LIBOR rate was approximately 2.42%. A 50 basis point movement in interest rates would result in an annualized increase or decrease of approximately $0.7 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.

33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act to mean a process designed by, or under the supervision of, the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, in relation to the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included an evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and the Company's overall control environment. That assessment was supported by testing and monitoring performed both by our Internal Audit organization and our Finance organization.

Based on that assessment, management concluded that, as of December 31, 2004, the Company's internal control over financial reporting was effective. We reviewed the results of management's assessment with the Audit Committee of our Board of Directors.

Management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears on page 35 of this Annual Report on Form 10-K.

34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and
Stockholders of United Stationers Inc.

We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that United Stationers Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). United Stationers Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that United Stationers Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, United Stationers Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated financial statements of the Company as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, and our report dated March 14, 2005 expressed an unqualified opinion thereon.

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
United Stationers Inc.

We have audited the accompanying consolidated balance sheets of United Stationers Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits 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 the standards of the Public Company Accounting Oversight Board (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 as of December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. 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 forth therein.

As discussed in Note 2 of the Consolidated Financial Statements, in 2003 the Company changed its method of accounting for supplier allowances.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of United Stationers Inc. and subsidiaries' internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion thereon.

36

UNITED STATIONERS INC. AND SUBSIDIARIES

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

See notes to consolidated financial statements.

37

UNITED STATIONERS INC. AND SUBSIDIARIES

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