Use these links to rapidly review the documentTABLE OF CONTENTS

---

---

United States Securities and Exchange CommissionWashington, DC 20549

---

Form 10-K

|(Mark One)                                                           |                                                                                         
|-------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                                    | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the year ended December 31, 2002                                
|or                                                                  
|o                                                                    | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                                    to

Commission file numbers:

United Stationers Inc.: 0-10653
United Stationers Supply Co.: 33-59811


---

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

|United Stationers Inc.: DelawareUnited Stationers Supply Co.: Illinois(State or Other Jurisdiction of
Incorporation or Organization)                                                    |  | United Stationers Inc.: 36-3141189United Stationers Supply Co.: 36-2431718(I.R.S. Employer Identification No.)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|2200 East Golf Road
Des Plaines, Illinois 60016-1267
(847) 699-5000(Address, Including Zip Code and Telephone Number, Including Area Code, of Registrants'
Principal Executive Offices)

---

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

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

United Stationers Inc.: Common stock, $0.01 par value per share(Title of Class)

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



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

Indicate
by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Act)



The
aggregate market value of the common stock of United Stationers Inc. based on the closing sale price of the common stock on June 28, 2002 on the Nasdaq National Market, was
approximately $1,004,355,000. United Stationers Inc. owns all of the outstanding common stock of United Stationers Supply Co.

On
March 21, 2003, United Stationers Inc. had outstanding 32,603,540 shares of common stock, par value $0.10 per share, and United Stationers Supply Co. had outstanding 880,000
shares of common stock, $1.00 par value per share outstanding.

The
registrant United Stationers Supply Co. meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with
the reduced disclosure format with respect to United Stationers Supply Co.

DOCUMENTS INCORPORATED BY REFERENCE:

Certain portions of United Stationers Inc.'s definitive Proxy Statement relating to its 2003 Annual Meeting of Stockholders to be filed within 120 days after the end of
United Stationers Inc.'s fiscal year, are incorporated herein by reference into Part III where indicated.

---

---

---

UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
FORM 10-K
For The Year Ended December 31, 2002

TABLE OF CONTENTS



|         |  |                                                                                               
|-------- |  | ----------------------------------------------------------------------------------------------
|         |  | Part I                                                                                        
|Item 1.  |  | Business                                                                                      
|Item 2.  |  | Properties                                                                                    
|Item 3.  |  | Legal Proceedings                                                                             
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                           
|Item 4A. |  | Executive Officers of the Registrant                                                          
|         |  | Part II                                                                                       
|Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                         
|Item 6.  |  | Selected Financial Data                                                                       
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations         
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                    
|Item 8.  |  | Financial Statements and Supplementary Data                                                   
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure          
|         |  | Part III                                                                                      
|Item 10. |  | Directors and Executive Officers of the Registrant                                            
|Item 11. |  | Executive Compensation                                                                        
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|Item 13. |  | Certain Relationships and Related Transactions                                                
|         |  | Part IV                                                                                       
|Item 14. |  | Controls and Procedures                                                                       
|Item 15. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|         |  | Signatures                                                                                    
|         |  | Certifications                                                                                
|         |  | Schedule II - Valuation and Qualifying Accounts                                               

---



PART I

Explanatory Note

This integrated Form 10-K is filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for each of United
Stationers Inc., a Delaware corporation, and its wholly owned subsidiary, United Stationers Supply Co., an Illinois corporation (collectively, the "Company"). United Stationers Inc. is a
holding company with no operations separate from its operating subsidiary, United Stationers Supply Co. and its subsidiaries. No separate financial information for United Stationers Supply Co. and its
subsidiaries has been provided herein because management for the Company believes such information would not be meaningful because (i) United Stationers Supply Co. is the only direct subsidiary
of United Stationers Inc., which has no operations other than those of United Stationers Supply Co. and (ii) all assets and liabilities of United Stationers Inc. are recorded on
the books of United Stationers Supply Co. There is no material difference between United Stationers Inc. and United Stationers Supply Co. for the disclosures required by the instructions to
Form 10-K and therefore, unless otherwise indicated, the responses set forth herein apply to each of United Stationers Inc. and United Stationers Supply Co.

ITEM 1. BUSINESS

General

United
Stationers Inc. ("United") is a holding company incorporated in 1981 under the laws of the State of Delaware. United is the parent company of its direct wholly owned subsidiary, United
Stationers Supply Co. ("USSC"), incorporated in 1922 under the laws of the State of Illinois. Except where the context otherwise requires, the term "Company" refers to United and USSC and its
subsidiaries. The Company, with 2002 net sales of $3.7 billion, is North America's largest broad line wholesale distributor of business products and a provider of marketing and logistics
services to resellers.

In
April 1998, USSC acquired all of the capital stock of Azerty Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID Wholesale Inc., and AP Support Services Incorporated (the
"Azerty Acquisition"). These businesses represented the United States and Mexican operations of the Office Products Division of Abitibi-Consolidated Inc. (collectively, "Azerty"). The Azerty
business is primarily a specialty wholesaler of computer consumables, peripherals and accessories in the U.S. and Mexico. The Positive ID division was sold in July 2001.

In
July 2000, USSC acquired all of the capital stock of CallCenter Services, Inc. from Corporate Express, Inc. a Buhrmann Company. CallCenter Services was a customer relationship
management outsourcing service company. The Wilkes-Barre, Pennsylvania, portion of CallCenter Services was sold to Customer Satisfaction, Inc. First in November 2001. The Salisbury,
Maryland, portion was sold to 1-800-BARNONE, a Financial Corporation, Inc., in February 2002.

In
July 2000, USSC established The Order People ("TOP")to operate as a third-party logistics and fulfillment service provider for product categories beyond office products. The Company has
significantly downsized TOP's operations as part of its 2001 and 2002 restructuring initiatives.

In
July 2000, USSC purchased certain assets of the wholesale business of MCSi Canada Inc. from MCSi, Inc. Azerty United Canada is a specialty distributor of computer consumables,
peripherals and accessories. Azerty United Canada operates as a division of USSC.

In
January 2001, Lagasse, Inc. ("Lagasse"), a wholly owned subsidiary of USSC, purchased Peerless Paper Mills, Inc., a wholesale distributor of janitorial and sanitation, paper,
and food service products. Peerless was immediately merged into Lagasse. USSC had acquired Lagasse, a wholesaler of janitorial and sanitary supplies, in 1996.

1

---

Products

The
Company offers more than 40,000 stockkeeping units ("SKUs"), which can be grouped into five primary categories:

Traditional Office Products.The Company's primary business continues to be traditional office products, which accounted for approximately
30% of the Company's net sales for 2002. This has made the Company the largest North American wholesale provider of a broad line of office supplies. The Company offers more than 25,000
brand-name products and its own private brand products, including writing instruments, paper products, organizers, calendars and general office accessories.

Computer Consumables.The Company is the largest wholesale provider of computer supplies and peripherals in North America. It offers
approximately 7,000 items to value-added computer resellers and office products dealers. Computer consumables accounted for approximately 34% of the Company's 2002 net sales.

Office Furniture.The Company is the nation's largest office furniture wholesaler. It currently offers more than 5,000
itemssuch as leather chairs, wooden and steel desks and computer furniturefrom more than 60 different manufacturers. This product group accounted for approximately 12% of the
Company's 2002 net sales.

Facilities Supplies.The Company is the largest wholesaler of janitorial and sanitation supplies in North America. It offers approximately
5,500 items in these major categories: janitorial and sanitation supplies, safety and security items, and shipping and mailing supplies. Facilities supplies accounted for approximately 11% of the
Company's net sales during 2002.

Business Machines and Presentation Products.The Company is a leading wholesale provider of business machinesfrom calculators
to telephonesas well as presentation products and supplies. This product class accounted for approximately 10% of the Company's 2002 net sales.

The
remaining 3% of the Company's net sales for 2002 were derived from miscellaneous revenue sources.

Customers

The
Company's more than 15,000 customers include independent office products dealers and contract stationers, national mega-dealers, office products superstores, computer products
resellers, office furniture dealers, mass merchandisers, mail order companies, sanitary supply distributors, and e-commerce merchants. Of its 15,000 customers, no single reseller accounted
for more than 6% of the Company's net sales in 2002.

Independent
commercial dealers and contract stationers are the Company's most significant reseller channel for office products, contributing about 75% of its revenues in 2002. These companies
typically serve medium to large businesses, institutions and government agencies.

The
Company maintains and builds its business with commercial dealers, contract stationers (including the contract stationer divisions of national office product superstores) and retail dealers. It
also has relationships with most major office products superstore chains.

Marketing and Customer Support

The
products distributed by the Company generally are available at similar prices from multiple sources, and most customers purchase their products from more than one source. To differentiate itself
from competitors, the Company concentrates its marketing efforts on providing value-added service to resellers. These include broad product offerings, a higher degree of product availability, a
variety of high quality customer services, integrated systems and national distribution capabilities that allow for

2

---

overnight delivery. 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. The catalogs usually are custom printed with each reseller's name and then sold to these resellers who, in turn, distribute the catalogs to their customers. Second, the Company
provides its resellers with a variety of dealer support and marketing services, including electronic commerce options, and promotional programs. These services are designed to help the reseller
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 general line catalog, promotional pieces and specialty catalogs for the office products, computer supplies, office furniture,
facilities management supplies and other specialty markets. The following is a list of the annual or semi-annual catalogs that United currently produces:



In
addition, the Company produces the following quarterly promotional catalogs:



The
Company also produces separate quarterly flyers covering general office supplies, office furniture, facility supplies and Universal® private brand products. Commercial dealers,
contract stationers and retail dealers typically distribute only one wholesaler's catalogs, so they can streamline order entry and concentrate their purchases. To address this, the Company tries to
maximize its catalog distribution by offering advertising credits to resellers, which can be used to offset the cost of the catalogs.

The
Company offers resellers a variety of electronic order entry systems and business management and marketing programs. For example, the Company maintains electronic data interchange and interactive
order systems that link to selected resellers. In addition, the Company's electronic order entry systems allow the reseller to forward its customers' orders directly to the Company, resulting in the
delivery of pre-sold products to the reseller. In 2002, the Company received approximately 90% of its orders electronically.

3

---

In
addition to marketing its products and services through its catalogs, the Company employs a sales force of approximately 350 field salespeople and approximately 400 customer care representatives.
The sales force is responsible for sales to current reseller customers, as well as for establishing relationships with additional resellers.

Distribution

The
Company has a network of 35 business products regional distribution centers located in 34 metropolitan areas in 24 states. Most of these centers carry a full line of business products. The Company
maintains 24 Lagasse distribution centers with a complete line of janitorial and sanitation supplies, two distribution centers in Mexico that serve computer supply resellers and two Azerty
distribution centers that serve the Canadian marketplace. During 2002, the Company integrated Azerty's computer systems and product offerings with those of USSC and closed the four Azerty
distribution centers. The Company intends to continue marketing computer consumables using the Azerty name.

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

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

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

Purchasing and Merchandising

As
the largest wholesale business products distributor in North America, the Company qualifies for substantial volume allowances and can realize significant economies of scale. The Company obtains
products from approximately 500 manufacturers and is a significant customer for most of them. In 2002, no supplier accounted for more than 22% of the Company's aggregate purchases. The Company's
centralized Merchandising Department interviews and selects suppliers and products to be included in the catalogs. Selection is based upon end-user acceptance, demand for the product and
the manufacturer's total service, price and product quality offering.

Competition

The
Company competes with office products manufacturers and with other national, regional and specialty wholesalers of office products, office furniture, computer supplies and related items, and

4

---

facility management supplies. In most cases, competition is based primarily upon net pricing, minimum order quantity and speed of delivery.

United
occasionally competes with manufacturers, which may offer lower prices to resellers. The Company remains competitive by offering a combination of value-added services: 1) marketing and
catalog programs, 2) speed of delivery, 3) broad line of business products from multiple manufacturers on a "one-stop shop" basis, and 4) lower minimum order
quantities. Manufacturers typically sell their products through a variety of distribution channels, which includes wholesalers and resellers.

Competition
with other wholesalers is based primarily on breadth of product lines, availability of products, speed of delivery to resellers, order fill rates, net pricing to resellers, and quality of
marketing and other value-added services. Management believes it is competitive in each of these areas. Most wholesale distributors of office products have local and regional operations, sometimes
with limited product lines, such as writing instruments or computer products. The Company's two major competitors are S.P. Richards (a division of Genuine Parts Co.), a national wholesaler of office
products and Daisytek International Corporation, a wholesaler of computer consumables. In 2003, Daisytek also entered the traditional office products industry in two U.S. markets with a limited line
of both products and services.

Increased
competition in the office products industry, plus increased advertising by competing companies, have heightened price awareness among end users. As a result, purchasers of commodity office
products have become more price sensitive. The Company has addressed this by emphasizing to resellers the continuing advantages of its value-added services and competitive strengths (compared with
those of manufacturers and other wholesalers).

Segments

See
Note 4 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information on the Company's operating segments and
geographical areas.

Employees

As
of March 24, 2003, the Company employed approximately 6,000 people.

Management
considers its relations with employees to be good. Approximately 900 of the shipping, warehouse and maintenance employees at certain of the Company's Philadelphia, Baltimore, Los Angeles,
Minneapolis and New York City facilities are covered by collective bargaining agreements. Agreements with employees in Baltimore and Minneapolis will expire in April 2003 and
August 2003, respectively. The other agreements expire at various times during the next three years. The Company has not experienced any work stoppages during the past five years.

Availability of the Company's Reports

The
Company's Internet Web site address iswww.unitedstationers.com. The Company's annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, amendments and exhibits to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
are available free of charge through the Company's Web site as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission.

5

---

In
addition, you may request a copy of these filings (excluding exhibits) at no cost by writing, telephoning or faxing the Investor Relations Department at the following address, telephone number or
fax number:

United Stationers Inc.
Attn: Investor Relations Department
2200 East Golf Road
Des Plaines, IL 60016-1267
Telephone: (847) 699-5000
Fax: (847) 699-4716


ITEM 2. PROPERTIES

The
Company considers its properties to be suitable and adequate for their intended uses. The Company continually evaluates its properties to achieve peak efficiency to maximize customer service and
leverage potential economies of scale. Substantially all owned facilities are subject to liens under USSC's Senior Credit Facility (See "Liquidity and Capital Resources" caption herein included
below). As of December 31, 2002, these properties consisted of the following:

Executive Offices.The Company's office space in Illinois totals 183,800 square feet, including owned office space of 135,800 square feet
in Des Plaines, leased office space of 25,000 square feet in Des Plaines, 23,000 square feet in Mt. Prospect. The Company owns approximately 48,000 square feet of office space in Orchard Park, New
York. The Company's Canadian division leases approximately 17,000 square feet of office space in Montreal, Quebec. In addition, the Company leases approximately 22,000 square feet in Harahan,
Louisiana and 6,000 square feet in Metarie, Louisiana.

Distribution Centers.The Company utilizes approximately 11 million square feet of warehouse space in 35 business products
distribution centers, 24 janitorial and sanitation supply distribution centers, two distribution centers that serve Canada and two distribution centers that serve Mexico. Of the 11 million
square feet of distribution center space, 3 million square feet was owned and 8 million square feet was leased as of December 31, 2002. The Company considers each distribution
center of equal importance to its overall operations and ability to serve its customers.

ITEM 3. LEGAL PROCEEDINGS

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

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

No
matters were submitted to a vote of security holders during the fourth quarter of 2002.

6

---

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The
executive officers of the Company are as follows:

|Name, Age and
Position with the Company                                             |  | Business Experience                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Richard W. Gochnauer
53, President and Chief Executive Officer                      |  | Richard W. Gochnauer became the Company's President and Chief Executive Officer in December 2002, after joining the Company as its Chief Operating Officer and as a Director in July 2002. From 1994 until he joined
United, Mr. Gochnauer held the positions of Vice Chairman and President, International, and President and Chief Operating Officer of Golden State Foods, a privately held food company that manufactures and distributes food and paper products.
Prior to that, he served as Executive Vice President of the Dial Corporation, with responsibility for its Household and Laundry Consumer Products businesses. Mr. Gochnauer also served as President of the Stella Cheese Company, a division of
Universal Foods, and as President of the international division of Schreiber Foods, Inc.
|Ronald C. Berg
43, Senior Vice President, Inventory
Management and Facility Support |  | Ronald C. Berg was named Senior Vice President, Inventory Management and Facility Support in October 2001. He had been the Vice President, Inventory Management since 1997. He started his career at United Stationers in 1987 as an Inventory
Rebuyer Trainee. Mr. Berg then spent the next several years managing the inventory for such product lines as MicroUnited and furniture. He then spent a couple of years in the MicroUnited Product Management area as the Sr. Product Manager until
his promotion to Director, Inventory Management in 1994. Prior to joining United Stationers, Mr. Berg managed Solar Cine Products, Inc., a family-owned, photographic equipment business.                                                                                                                    
|Brian S. Cooper
46, Senior Vice President and Treasurer                             |  | Brian S. Cooper became Senior Vice President and Treasurer of the Company in February 2001. Before coming to United, he was Treasurer of Burns International Services Corporation since 1997. Prior to this, Mr. Cooper spent twelve years in
U.S. and international finance assignments with Amoco Corporation. He also held the position of Chief Financial Officer for Amoco's operations in Norway.                                                                                                                                                                                                                                                                                                                                                                                                         
|Kathleen S. Dvorak
46, Senior Vice President
and Chief Financial Officer            |  | Kathleen S. Dvorak became Senior Vice President and Chief Financial Officer in October 2001. She has responsibility for all accounting functions, treasury, financial planning and investor relations. Prior to the her appointment as CFO,
Ms. Dvorak was the Senior Vice President of Investor Relations and Financial Administration since October 2000. She became Vice President, Investor Relations in July 1997. She is the primary liaison to the financial community, and has been
involved in various aspects of the financial function at United for the past 20 years. Ms. Dvorak has been with the Company since 1982.                                                                                                                                                                             
|                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

7

---

|James K. Fahey
52, Senior Vice President, Merchandising                                     |  | James K. Fahey is Senior Vice President of Merchandising for United Stationers. He is responsible for the product management, vendor logistics and marketing services functions as well as overseeing the operations of United Stationers Hong Kong,
Limited. Mr. Fahey joined United Stationers in 1991. He has an extensive background in product development, consumer direct marketing, catalog merchandising and worldwide sourcing.                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Deidra D. Gold
48, Senior Vice President, General
Counsel and Secretary                     |  | Deidra D. Gold joined the Company in November 2001 as Senior Vice President, General Counsel and Secretary. She was Vice President and General Counsel for eLoyalty Corporation, a publicly held $200 million company providing IT consulting and
systems integration services to Fortune 1000 clients. Previously, Ms. Gold was Counsel and Corporate Secretary at Ameritech Corporation from March 1998 to December 1999. Ms. Gold formerly was a partner at Goldberg, Kohn in Chicago and Jones,
 Day in Cleveland and was also Vice President and General Counsel at Premier Industrial Corporation for a number of years.                                                                                                                                                                                                                                      
|Mark J. Hampton
49, Senior Vice President, Marketing                                        |  | Mark J. Hampton is Senior Vice President, Marketing with responsibility for market development, merchandising and category management. Previously, he was named Senior Vice President, Marketing and Field Support Services. Prior to that,
Mr. Hampton was Senior Vice President of the Company and President and Chief Operating Officer of The Order People Company. He had served as Vice President, Marketing of the Company since September 1994 and Senior Vice President, Marketing since
October 2000. Mr. Hampton began his United career in 1980 and left to work in the dealer community in 1991. He rejoined the Company in September 1992 as Midwest Regional Vice President in charge of the Midwest and then later became Vice
President and General Manager of Micro United.                                                                       
|Jeffrey G. Howard
48, Senior Vice President, National Accounts and New Business Development |  | Jeffrey G. Howard is Senior Vice President, National Accounts and New Business Development with responsibility for national accounts, new business development and Azerty/United Canada. Previously, he was Senior Vice President, Sales and Customer
Support Services. Prior to that, Mr. Howard held the position of Senior Vice President, National Accounts since October 2000 and the position of Vice President, National Accounts since 1993. He joined the Company in 1990 as General Manager of
the Los Angeles distribution center and was promoted to Western Region Vice President in 1992. Mr. Howard has held a variety of positions including Vice President, National Accounts and Vice President of Sales. He began his career in the office
products industry in 1973 with Boorum & Pease Company which was acquired by Esselte Pendaflex in 1985.
|                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

8

---

|Stephen A. Schultz
36, President, Lagasse, Inc.            |  | Stephen A. Schultz was named President, Lagasse, Inc. on August 13, 2001 where he is responsible for all the strategy, development and day-to-day operations of the business. Mr. Schultz joined Lagasse in early 1999 as Vice
President, Marketing and Business Development and was promoted to Senior Vice President, Sales, Marketing and Service in late 2000. Mr. Schultz joined Lagasse after serving nearly 10 years in several executive sales and marketing roles for
Hospital Specialty Company, a leading manufacturer and distributor of hygiene products for the institutional janitorial and sanitation industry.                                                                                
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|John T. Sloan
51, Senior Vice President of Human Resources |  | John T. Sloan became Senior Vice President of Human Resources in January 2002. Before joining United, Mr. Sloan was Executive Vice President of Human Resources for Sears, Roebuck & Company in Chicago since 1996. Prior to this, he
served in various senior human resource and administrative capacities at The Tribune Company in Chicago for ten years and at a number of divisions within Philip Morris Incorporated, including The Seven-Up Company in St. Louis, over a period of
thirteen years.                                                                                                                                                                                                      
|Joseph R. Templet
56, Senior Vice President, Field Sales   |  | Joseph R. Templet was named Senior Vice President, Field Sales in March 2003. He is responsible for the field sales effort, the independent dealer channel and the customer care centers. Previously, Mr. Templet was named Senior Vice
President, Field Sales and Operation. In October 2000, he was named to the position of Senior Vice President, South Region. Previously, Mr. Templet had served as Vice President, South Region since 1992. He joined United Stationers in 1985 and
has held the positions of Vice President, Central Region and Vice President, Marketing and Corporate Sales. Prior to United, Mr. Templet was with the Parker Pen Company, Polaroid Corporation and Procter & Gamble.

Executive officers are appointed 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 appointed. Each executive officer serves until his or her
successor is appointed and qualifies or until his or her earlier removal or resignation.

9

---



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common and Preferred Stock

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

High

Low2002First Quarter

$
42.40

$
33.35Second Quarter


41.28


29.57Third Quarter


30.43


23.60Fourth Quarter


32.83


25.692001First Quarter

$
27.56

$
22.00Second Quarter


31.56


22.63Third Quarter


34.25


27.25Fourth Quarter


34.95


26.50


On March 19, 2003, there were approximately 796 holders of record of common stock.

During
2002, the Company purchased 1.4 million shares of its common stock at a cost of $38.3 million, compared with repurchases of 0.5 million shares at a cost of
$12.4 million during 2001. For further information on the Company's stock repurchases, see Note 1 to the Consolidated Financial Statements.

Dividends

The
Company's policy has been to reinvest earnings to fund future growth. Accordingly, the Company has not paid cash dividends and does not anticipate declaring cash dividends on its common stock in
the foreseeable future. Furthermore, as a holding company, United's ability to pay cash dividends in the
future depends upon the receipt of dividends or other payments from its operating subsidiary, USSC. In addition, the Company's debt agreements impose certain restrictions on the payment of dividends.
For further information on the Company's debt agreements, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources" and
Note 8 to the Consolidated Financial Statements.

10

---



ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data of the Company for the years ended December 31, 1998 through 2002 have been derived from the Consolidated
Financial Statements of the Company, which have been audited by Ernst & Young LLP, independent auditors. The selected consolidated financial data below should be read in conjunction with, and
is qualified in its entirety by, the Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements of the Company. Except for per
share data, all amounts presented are in thousands:

|                                                    |                                                    | Years Ended December 31, |          
|--------------------------------------------------- | -------------------------------------------------- | ------------------------ | ---------
|
|Income Statement Data:                              |                                                    |                          |          
|Net sales                                           |                                                    | $                        | 3,701,564
|Cost of goods sold                                  |                                                    |                          | 3,163,589
|                                                    |                                                    |                          |          
|                                                    | Gross profit                                       |                          |          
|Operating expenses:                                 |                                                    |                          |          
|                                                    | Warehousing, marketing and administrative expenses |                          |          
|                                                    | Goodwill amortization                              |                          |          
|                                                    | Restructuring and other charges                    |                          |          
|                                                    | Non-recurring charges                              |                          |          
|                                                    |                                                    |                          |          
|Total operating expenses                            |                                                    |                          | 422,490  
|                                                    |                                                    |                          |          
|Income from operations                              |                                                    |                          | 115,485  
|Interest expense                                    |                                                    |                          | (16,860  
|Interest income                                     |                                                    |                          | 165      
|Other expense, net(6)                               |                                                    |                          | (2,421   
|                                                    |                                                    |                          |          
|Income before income taxes                          |                                                    |                          | 96,369   
|Income tax expense                                  |                                                    |                          | 36,141   
|                                                    |                                                    |                          |          
|Net income                                          |                                                    | $                        | 60,228   
|                                                    |                                                    |                          |          
|Net income per common sharebasic                   |                                                    | $                        | 1.81     
|                                                    |                                                    |                          |          
|Net income per common shareassuming dilution       |                                                    | $                        | 1.78     
|                                                    |                                                    |                          |          
|Cash dividends declared per share                   |                                                    | $                        |         
|Balance Sheet Data:                                 |                                                    |                          |          
|Working capital(7)                                  |                                                    | $                        | 400,587  
|Total assets(7)(8)                                  |                                                    |                          | 1,349,229
|Total debt and capital leases(9)                    |                                                    |                          | 211,249  
|Total stockholders' equity                          |                                                    |                          | 558,884  
|Statement of Cash Flows Data:                       |                                                    |                          |          
|Net cash provided by operating activities           |                                                    | $                        | 105,730  
|Net cash used in investing activities               |                                                    |                          | (23,039  
|Net cash (used in) provided by financing activities |                                                    |                          | (93,917  
|Other Data:                                         |                                                    |                          |          
|EBITDA(10)                                          |                                                    | $                        | 148,951  
|EBITDA margin(11)                                   |                                                    |                          | 4.0      
|Depreciation and amortization(12)                   |                                                    | $                        | 33,466   
|Capital expenditures, net                           |                                                    |                          | 23,039   

---

11

---

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

The
following Management's Discussion and Analysis and other parts of this Annual Report on Form 10-K contain "forward-looking statements", within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These include references to plans, strategies, objectives, projected costs and savings, anticipated future performance
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. 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 restructuring plans, including its ability to
realize expected cost savings from facility rationalization, systems integration and other initiatives and the timing of any of these savings; the Company's ability to streamline its organization and
operations,

12

---

integrate acquired businesses and implement general cost-reduction initiatives; the Company's reliance on key suppliers and the impact of fluctuations in their pricing; variability in
vendor allowances and promotional incentives payable to the Company based on its inventory purchase volumes or vendor participation in the Company's general line catalog and other annual and quarterly
publications and the impact of these on the Company's gross margin; the Company's ability to anticipate and respond to changes in end-user demand; the impact of variability in customer
demand on the Company's product offerings and sales mix and, in turn, on customer rebates payable by the Company and the Company's gross margin; competitive activity and competitive pricing pressures;
reliance on key management personnel; the impact of war and acts of terrorism; and economic conditions and changes affecting the business products industry and the general economy.

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

Overview

The
Consolidated Financial Statements represent United and its wholly owned subsidiary USSC and its subsidiaries, (collectively, the "Company"). The Company is the largest general line business
products wholesaler in the United States, with 2002 net sales of $3.7 billion. The Company sells its products through a national distribution network to 15,000 resellers, who in turn sell
directly to end-users. These products are distributed through a computer-based network of 35 USSC regional 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 distribution centers that serve the Canadian marketplace. During the second quarter of 2002,
the computer systems and product offerings of Azerty were integrated into USSC.

During
2000, the Company established TOP to operate as its third-party fulfillment provider for product categories beyond office products. To become a full service provider, on July 1, 2000,
the Company acquired all of the capital stock of CallCenter Services, Inc. CallCenter Services, Inc. was a customer relationship management outsourcing service company with inbound call
centers in Wilkes-Barre, Pennsylvania, and Salisbury, Maryland.

In
2001, the Company did not achieve the estimated revenue to support TOP's cost structure. As a result, the Company decided to significantly downsize TOP's operations. In November 2001, the
Wilkes-Barre portion of the business acquired as part of CallCenter Services, Inc. was sold to Customer Satisfaction First for a nominal cash payment, the assumption of associated liabilities
and the payment of expenses relating to that business during a post-closing transition period. Disputes relating to expense payments and certain liabilities associated with this sale have
adversely contributed to the operating expenses attributable to TOP during 2002. In the second quarter of 2002, the Company sold the Salisbury portion of the business acquired as a part of CallCenter
Services, Inc. to 1-800-BARNONE, a Financial Corporation, Inc. for $1.2 million in cash and the assumption of $1.7 million of debt. The sale of
these assets did not have a material impact on the Company's financial position or results of operations.

In
2002, the Company further downsized TOP's operations as part of the restructuring and other charges recorded in the fourth quarter of 2002 (see "Restructuring and Other Charges" below).

The
Company is focused on leveraging its infrastructure across all business units to lower its operating expenses and increase cash flow. In addition, the Company continues to review its distribution
network to determine the most productive and cost efficient organization, including the ability to reduce working capital requirements.

13

---

Overview of Recent Results

Sales
for 2003 through this filing date were up slightly compared with the same period last year. The Company continues to experience soft sales in all major product categories. The weak economy and
high levels of unemployment continue to make substantial improvements in net sales challenging.

Restructuring and Other Charges

2002 Restructuring Plan

The
Company's Board of Directors approved a restructuring plan in the fourth quarter of 2002 (the "2002 Restructuring Plan") that included additional charges related to revised real estate
sub-lease assumptions used in the 2001 Restructuring Plan (described below), further downsizing of TOP operations, 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
restructuring plan calls for all initiatives to be completed within approximately one year from the commitment date.

The
restructuring plan includes workforce reductions of 105 associates. These positions primarily relate to TOP and the closure of the Milwaukee, Wisconsin distribution center. The associate groups
affected by the restructuring plan include management personnel, inside and outside sales representatives, distribution workers, and hourly administrative staff. The restructuring plan calls for all
initiatives to be completed within approximately one year from the commitment date.

As
part of the 2001 Restructuring Plan, the Company accrued certain exit costs related to facilities that were closed as part of that restructuring plan. At that time, accrued exit costs were
calculated using the most current information available about the Company's ability to sub-lease the closed facilities. Further deterioration in the real estate market for the type of
facilities made available as a result of the 2001 Restructuring Plan has resulted in unexpected difficulties in subleasing these facilities. As a result, additional charges related to revised real
estate sub-lease assumptions as compared to those used in the 2001 Restructuring Plan are included in the 2002 Restructuring Plan.

The
further downsizing of TOP's operations includes termination of fulfillment contracts with third-party customers and the elimination of approximately 240,000 square feet of warehouse space.

Non-cash
asset write-downs of $2.0 million relate to certain e-commerce-related investments. Based on substantial operating losses, management has determined that the
value of these investments is permanently impaired. Therefore, the book value of these investments has been written-down.

Employment
termination and severance costs relate to involuntary terminations and reflect cash termination payments to be paid to associates affected by the restructuring plan. Healthcare benefits and
career transition services are included in the termination and severance costs. The restructuring plan allows associates to continue their participation in the Company's healthcare plan during the
term of their severance.

Accrued
exit costs are primarily contractual lease obligations that existed prior to December 31, 2002 for buildings and office equipment that the Company had used in its closed or downsized
facilities.

During
the fourth quarter of 2002, the Company recorded pre-tax restructuring and other charges of $8.9 million, or $0.17 per share (on an after-tax basis). These
charges include a pre-tax cash charge of $6.9 million and a $2.0 million non-cash charge.

As
of December 31, 2002, the Company completed the closure of the Milwaukee distribution center and reduced the Company's overall workforce by 47 associates through an involuntary termination
program. Implementation costs associated with this restructuring plan are not expected to be material.

14

---

2001 Restructuring Plan Update

The
Company's Board of Directors approved a restructuring plan in the third quarter of 2001 that included an organizational restructuring (including a workforce reduction of 1,375 associates,
primarily relating to TOP and call center operations), a consolidation of certain distribution facilities and USSC's call center operations, an information technology platform consolidation,
divestiture of TOP's call center operations and certain other assets, and a significant reduction of TOP's cost structure. As of December 31, 2002, the 2001 restructuring plan is complete.
While the 2001 Restructuring Plan is complete, cash payments will continue for accrued exit costs which relate to long-term lease obligations that expire at various times over the next
seven years. The Company actively pursues opportunities to sublet unused facilities.

Upon
adoption of this restructuring plan in the third quarter of 2001, the Company recorded a pre-tax restructuring charge of $47.6 million, or $0.85 per share (on an
after-tax basis). This charge included a pre-tax cash charge of $31.7 million and a $15.9 million non-cash charge. During the first quarter of 2002,
the Company reversed $0.7 million of the pre-tax cash charge (with the reversal comprising $0.5 million of severance-related costs and $0.2 million of accrued exit
costs, which were lower than originally estimated) and $1.7 million of the non-cash charge (reflecting proceeds from the sale of certain assets that exceeded their estimated net
realizable value).

As
of December 31, 2002, the Company has closed 10 distribution centers and three USSC call centers, eliminated one administrative office, sold the TOP call center operations as described
above, and made substantial progress in implementing its planned organizational restructuring and
workforce reduction. As a result, the Company reduced its workforce by 1,375 associates through its voluntary and involuntary termination programs. The Company does not expect any further workforce
reductions as a result of this restructuring plan.

As
a result of the 2001 Restructuring Plan, the Company estimates it achieved approximately $25 million in cost savings during 2002. However, these cost savings were substantially offset by
reduced leverage of fixed costs as a result of the decline in annual net sales.

Implementation
costs were recognized as incurred and consisted of costs directly related to the realization of the restructuring plan. These costs included training, stay bonuses, consulting fees,
costs to relocate inventory, and accelerated depreciation. Implementation costs incurred during 2002 and 2001 totaled $5.9 million and $2.2 million, respectively. Accumulated
implementation costs incurred for the period September 30, 2001 through December 31, 2002 were $8.1 million. The Company does not expect any further implementation costs related
to the 2001 Restructuring Plan. For further information on the Company's restructuring plans, see Note 3 to the Consolidated Financial Statements.

Critical Accounting Policies, Judgments and Estimates

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

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

15

---

customers or vendors, and information available from other outside sources, as appropriate. The most significant accounting estimates inherent in the preparation of the Company's financial statements
include the following:

Revenue Recognition.Revenue is recognized when a service is rendered or when a product is shipped and title has transferred to the
customer. Management records an estimate for future product returns related to revenue recognized in the current period. This estimate is based on historical product return trends and the gross margin
associated with those returns. Management also records an estimate for customer rebates which is based on estimated annual sales volume to the Company's customers. This estimate is used to determine
the projected annual rebates earned by customers for growth components, volume hurdle components, and advertising allowances.

Shipping
and handling costs billed to customers are treated as revenues and recognized at the time products are shipped and title has transferred to the customer. Shipping and handling costs are
included in the Company's financial statements as a component of cost of goods sold and are not netted against shipping and handling revenues.

Valuation of Accounts Receivable.The Company makes judgments as to the collectibility of accounts receivable based on historical trends
and future expectations. Management estimates an allowance for sales returns and doubtful accounts, which represents the collectibility of trade accounts receivable. These allowances adjust gross
trade accounts receivable down to net realizable value. To determine the allowance for sales returns, management uses historical trends to estimate future period product returns. To determine the
allowance for doubtful accounts, management reviews specific customers and the Company's accounts receivable aging.

Customer Rebates.Customer rebates and discounts are common practice 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 Company's financial statements as a reduction of sales.

Customer
rebates include volume rebates, sales growth incentives, participation in promotions and other miscellaneous discount programs. These rebates are paid to customers monthly, quarterly and/or
annually. Estimates for volume rebates and growth incentives are based on estimated annual sales volume to the Company's customers. The aggregate amount of customer rebates depends on product sales
mix and customer mix changes. Reported results reflect management's best current estimate of such rebates. Further changes from those underlying current estimates of sales volumes, product mix,
customer mix or sales patterns may impact future results.

Manufacturers' Allowances.Manufacturers' allowances 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 above, and increased by estimated manufacturers' allowances and promotional incentives. Many of these allowances and incentives are estimated on an annual basis and the potential variation
between the actual amount of these margin contribution elements and the Company's estimates of them could be material to its financial results.

Approximately
55% to 60% of the Company's estimated annual manufacturers' allowances and incentives are variable, based on the volume of the Company's product purchases from manufacturers. These
variable allowances are recorded based on the Company's estimated annual inventory purchase volume and are included in the Consolidated Financial Statements as a reduction to cost of goods sold to
reflect the net inventory purchase cost. Manufacturers' allowances and incentives attributable to unsold inventory are carried as a component of net inventory cost. The potential amount of variable
manufacturers' allowances often differs, based on purchase volume by manufacturer and product category. As a result, lower Company sales volume (which reduce inventory purchase requirements) and
product sales mix changes (especially as higher margin products often benefit from higher

16

---

manufacturers' allowance rates) can make it difficult to reach some manufacturers' allowance growth hurdles. The remaining 40% to 45% represents promotional incentives, which are based on vendor
participation in various Company advertising and marketing publications. These promotional incentives are recorded as a reduction to cost of goods sold over the life of the publication to reflect net
advertising cost. The Company makes available to its customers the products offered in each publication throughout the life of the publication.

Self-Insurance.The Company is primarily responsible for retained liabilities related to workers' compensation, auto and
general liability and certain employee health benefits. The Company records an expense for potential claims incurred but not reported based on historical trends and certain assumptions about future
events. During 2002, the Company had an annual aggregate maximum cap on employee medical benefits. In addition, the Company had both an individual per claim maximum loss and an annual aggregate
maximum cap on workers' compensation claims.

Inventories.Inventories constituting approximately 88% of total inventories at December 31, 2002 have been valued under the
last-in, first-out ("LIFO") method. Inventory valued under the first-in, first-out ("FIFO") and LIFO accounting methods is recorded at the lower of cost
or market. Inventory reserves are recorded for shrinkage, 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.

Pension and Postretirement Health Benefits.Calculating the Company's obligations and expenses related to its pension and postretirement
health benefits requires using certain actuarial assumptions. As more fully discussed in Notes 10 and 11 to the Consolidated Financial Statements, these actuarial assumptions include discount rates,
expected long-term rates of return on plan assets, and rates of increase in compensation and healthcare costs. To select the appropriate actuarial assumptions, management relies on current
market trends, historical information and consultation with and input from the Company's outside actuaries. Pension expense for 2002 was $5.0 million, compared to $1.4 million in 2001. 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 2002 of
approximately $1.8 million.

Costs
associated with the Company's postretirement health benefits plan were $0.9 million and $0.8 million for 2002 and 2001, respectively. A one-percentage point decrease in
the assumed discount rate would have resulted in incremental postretirement healthcare expenses for 2002 of approximately $0.1 million. Based on current rates of increase in medical costs, a
one percentage point increase in the assumed average health care cost trend would not have a significant impact on the Company's postretirement health plan costs.

The
following tables summarizes 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, 2002, 2001 and 2000:

2002

2001

2000Pension plan assumptions:Assumed discount rate

6.75
%
7.25
%
7.75
%Rate of compensation increase

5.00
%
5.00
%
5.50
%Expected long-term rate of return on plan assets

8.25
%
8.50
%
8.50
%Postretirement health benefits assumptions:Assumed average healthcare cost trend

3.00
%
3.00
%
3.00
%Assumed discount rate

6.75
%
7.25
%
7.75
%


17

---

Results for the Years Ended December 31, 2002, 2001 and 2000

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

Years Ended December 31,2002

2001

2000Net sales

100.0
%
100.0
%
100.0
%Cost of goods sold

85.5

84.2

83.7Gross margin

14.5

15.8

16.3Operating expenses:Warehousing, marketing and administrative expenses

11.2

11.3

11.1Goodwill amortization



0.2

0.1Restructuring and other charges

0.2

1.2

Total operating expenses

11.4

12.7

11.2Income from operations

3.1

3.1

5.1Interest expense

(0.5)

(0.7)

(1.0)Interest income

0.1

0.1

0.1Other expense, net

(0.1)

(0.1)

(0.3)Income before income taxes

2.6

2.4

3.9Income taxes

1.0

0.9

1.6Net income

1.6
%
1.5
%
2.3
%


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

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

Years Ended December 31,2002

2001

2000Traditional office products

$
1,129

$
1,245

$
1,356Computer consumables


1,256


1,349


1,288Office furniture


449


499


513Facilities supplies


405


402


310Business machines and presentation products


362


352


385Freight revenue


50


60


64Other


51


19


29Total net sales

$
3,702

$
3,926

$
3,945


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

18

---

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

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

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

Gross Profit and Gross Margin Rate.Gross profit (gross margin dollars) for 2002 was $538.0 million, or a gross margin rate of 14.5%
(gross profit as a percentage of net sales), compared to $619.8 million, or a gross margin rate of 15.8% for 2001.

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

In
addition, lower estimates of vendor allowances also adversely affected the Company's overall gross profit and margin rate due to lower inventory purchase volume. These allowances declined to
$204 million from $241 million last year. The result is a 0.7 percentage point decline in the gross margin rate. This is indicative of the Company's continued lower inventory
purchases as well as its continued focus on managing working capital.

Operating Expenses.Operating expenses for 2002 totaled $422.5 million, or 11.4% of net sales, compared with $497.7 million,
or 12.7% of net sales in 2001. Operating expenses for 2002 included restructuring and other charges of $8.9 million (for more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation2002 Restructuring Plan") and a partial reversal of the restructuring charge taken in the third quarter of 2001 of $2.4 million (for more
information, see "Management's Discussion and Analysis of Financial Condition and Results of Operation2001 Restructuring Plan Update"). Operating expenses for 2001 included a
restructuring charge of $47.6 million (for more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operation2001 Restructuring Plan
Update"). In addition, no goodwill impairment or amortization was recorded in 2002, compared with $5.7 million of goodwill amortization recorded in 2001.

Income from Operations.Income from operations totaled $115.5 million, or 3.1% of net sales, compared with $122.1 million, or
3.1% of net sales in 2001.

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

19

---

Interest Income.Interest income for 2002 was $0.2 million, or less than 0.1% of net sales, compared with $2.1 million, or
0.1% of net sales, in 2001.

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

Income Taxes.Income tax expense was $36.1 million in 2002, compared with $36.7 million in 2001. The Company's effective tax
rate was 37.5% and 39.2% for 2002 and 2001, respectively. This change was primarily due to the accounting changes associated with the amortization of goodwill.

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

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

Comparison of Results for the Years Ended December 31, 2001 and 2000

Net Sales.Net sales were flat at $3.9 billion for 2001 and 2000. The lower sales in the categories of traditional office products
and furniture were offset by growth in janitorial and sanitation products and computer consumables, both of which were supported by acquisitions in 2000 and 2001. There were several factors that
contributed to flat sales. First, sales volume to Corporate Express Inc. and US Office Products ("USOP") declined by approximately $100 million. This is primarily due to the integration
of USOP into the Corporate Express business model. Second, at the end of July 2001, the Company completed the sale of the Positive ID business unit. This sale reduced sales growth for the year
by approximately 1%. Finally, a worsening macroeconomic environment negatively impacted all product categories.

Office
furniture sales declined by mid-single-digits, compared with the prior year. These results continue to reflect slowing consumer demand and weak macroeconomic conditions. While the
current economic environment presents challenges, the Company sees an opportunity for sales growth as dealers shift their inventory investment to wholesalers to limit their working capital
requirements. Furthermore, in a weak economy consumers tend to shift their demand toward the mid-priced furniture lines offered by the Company. However, the Company is challenged by the
excess supply of premium grade furniture available in the marketplace due to the failure of Internet and other companies. Typical purchasers of mid-grade furniture are purchasing used
premium grade furniture at extremely attractive prices.

The
janitorial and sanitation product category achieved a 31% growth rate, compared with the prior year. This growth was primarily achieved through the acquisition of Peerless Paper Mills, Inc.
This product category is primarily distributed through the Lagasse operating unit, which achieved high single-digit growth with its existing customer base.

Sales
of traditional office products experienced a decline of 7% versus the prior year. Uncertainty surrounding the economy slowed consumption of office products within the commercial sector,
particularly in medium-to-large companies.

Gross Profit and Gross Margin Rate.Gross margin in 2001 was $619.8 million, or 15.8% of net sales, compared with
$643.8 million, or 16.3% of net sales, in 2000. The gross margin rate decline was due to lower pricing margin (invoice price less standard cost) of 1.3 percentage points, which resulted
from a product mix shift toward computer consumables partially offset by incremental vendor allowances of 0.5 percentage points and combined lower inventory shrinkage and distressed inventory
losses of

20

---

0.2 percentage points. Approximately 55% of the Company's vendor rebates are variable and are directly linked to achieving certain purchase volume hurdles. During 2001, inventory purchase
levels declined significantly as evidenced by the Company's lower working capital requirements. The manufacturers' allowance increase as a percentage of net sales resulted from a change in product mix
and the impact of new vendor agreements.

Operating Expenses.Operating expenses for 2001 were $497.7 million, or 12.7% of net sales, compared with $441.3 million, or
11.2% of net sales, in the prior year. The increase in operating expenses is partially due to the $47.6 million restructuring charge (for more information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operation2001 Restructuring Plan Update"), which resulted in a 1.2 percentage point increase to the operating expense ratio. The
increase is also a result of investments in TOP, the company's third-party fulfillment business. Operating expenses for 2001 and 2000 related TOP totaled $32.9 million and $9.0 million
respectively, resulting in a 0.8 percentage point and a 0.2 percentage point increase in the operating expense ratio.

Income from Operations.Income from operations was $122.1 million, or 3.1% of net sales, compared with $202.5 million, or
5.1% of net sales in 2000.

Interest Expense.Interest expense for 2001 was $25.9 million, or 0.7% of net sales, compared with $40.9 million, or 1.0% of
net sales, in 2000. This reduction reflects the interest expense savings related to the redemption of the 12.75% Notes (as defined) as well as lower interest rates on variable rate debt. In addition,
during 2000, the Company recognized a $10.7 million interest charge related to the early extinguishment of the Company's then outstanding 12.75% Notes.

Interest Income.Interest income for 2001 was $2.1 million, or 0.1% of net sales, compared with $2.9 million, or 0.1% of net
sales, in 2000.

Other Expense, net.Other expense for 2001 was $4.6 million, or 0.1% of net sales, compared with $11.2 million, or 0.3% of
net sales in 2000. This expense primarily represents the costs associated with the sale of certain trade accounts receivable through the Receivables Securitization Program (as defined) partially
offset by a gain on the sale of fixed assets of $2.4 million.

Income Taxes.Income tax expense as a percent of net sales was 0.9% in 2001 and 1.6% in 2000. The effective tax rate declined to 39.2% in
2001 from 39.9% in 2000. This was due to a change in the mix of pre-tax earnings between states.

Net Income.Net income for 2001 was $57.0 million, or $1.68 per diluted share, compared with $92.2 million, or $2.65 per
diluted share, in 2000.

Fourth Quarter Results.Certain expense and cost of sale estimates are recorded throughout the year, including inventory shrinkage and
obsolescence, required LIFO reserve, manufacturers' allowances, advertising costs and various expense items. During the fourth quarter of 2001, the Company recorded a favorable net income adjustment
of approximately $5.8 million related to the refinement of estimates recorded in the prior three quarters.

Liquidity and Capital Resources

General

United
is a holding company and, as a result, its primary sources of funds are cash generated from the operating activities of its operating subsidiary, USSC, including the sale of certain accounts
receivable, and from borrowings by USSC. Restrictive covenants in USSC's debt agreements restrict USSC's ability to pay cash dividends and make other distributions to United. In addition, the right of
United to participate in any distribution of earnings or assets of USSC is subject to the prior claims of the creditors, including trade creditors, of USSC.

21

---

During
2002, the Company utilized cash flow to reduce debt and accounts receivable sold, to fund capital expenditures and to repurchase shares of its stock. The Company reduced total debt and accounts
receivable sold by $80.5 million during 2002. At December 31, 2002, the Company's debt to total capitalization ratio (adjusted to reflect the receivables then sold under the Company's
Receivables Securitization Program as debt) was 36%, compared to 42% at December 31, 2001.

Funding
for net capital expenditures (gross capital expenditures minus net proceeds from property, plant and equipment dispositions) was $23.0 million for 2002, compared to $28.6 million
during 2001. Capitalized software expenditures totaled $5.2 million and $7.0 million during 2002 and 2001, respectively. Net capital spending (net capital expenditures plus capitalized
software expenditures) was $28.2 million and $35.6 million for 2002 and 2001, respectively. Capital expenditures are utilized primarily to replace, upgrade and equip the Company's
distribution facilities. The Company expects net capital spending for all of 2003 to be approximately $30 million.

During
2002, the Company purchased 1.4 million shares of its common stock at a cost of $38.3 million, compared with repurchases of 0.5 million shares at a cost of
$12.4 million during 2001. Further information regarding the Company's stock repurchases is discussed in Note 1 to the Consolidated Financial Statements.

Operating
cash requirements, capital expenditures and share repurchase activities are funded from operating cash flow and available financing. Financing available from debt and the sale of accounts
receivable at December 31, 2002, is summarized below:

Availability ($in millions)Funded debt

$
211.2Accounts receivable sold


105.0Total utilized financing





316.2Revolving Credit Facility availability


229.8Available under the Receivables Securitization Program


55.0Total unutilized





284.8Total available financing, before restrictions





601.0Restricitve covenant limitation





150.0Total available financing at December 31, 2002




$
451.0


Restrictive covenants under the Credit Agreement (as defined below) separately limit total available financing at points in time, as further discussed below. At
December 31, 2002, total funding from debt and the sale of accounts receivable was effectively limited by the leverage ratio covenant in the Company's Credit Agreement to approximately
$451 million, or $150 million less than the $601 million total then available under the Company's facilities, 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.

22

---

The
Company's outstanding debt and liquidity sources consisted of the following amounts (dollars in thousands):

As of December 31,2002

2001Tranche A term loan, due in installments until March 31, 2004

$
18,251

$
32,331Tranche A-1 term loan, due in installments until June 30, 2005


78,125


109,3758.375% Senior Subordinated Notes, due April 15, 2008


100,000


100,000Industrial development bonds, at market-based interest rates, maturing at various dates through 2011


6,800


14,300Industrial development bonds, at 66% to 78% of prime, maturing at various dates through 2004


8,000


15,500Other long-term debt


73


199Total debt


211,249


271,705Receivables Securitization (liquidity sources)(1)


105,000


125,000Total outstanding debt and liquidity sources

$
316,249

$
396,705


---

Disclosures About Contractual Obligations and Commercial Commitments

The
following table aggregates all contractual commitments and commercial obligations that affect financial condition and liquidity as of December 31, 2002 (dollars in thousands):

Payment due by periodContractual obligations

2003

2004 & 2005

2006 & 2007

Thereafter

TotalLong-term debt(1)

$
45,904

$
58,545

$


$
106,800

$
211,249Operating leases


43,815


73,473


50,156


52,999


220,443Total contractual cash obligations

$
89,719

$
132,018

$
50,156

$
159,799

$
431,692


---

Credit Agreement

At
December 31, 2002, the Company had a senior secured credit facility dated April 3, 1998. USSC, as borrower, and United, as guarantor, entered into the Third Amended and Restated
Revolving Credit Agreement, dated as of June 29, 2000, and Amendment No. 1 to the Third Amended and Restated Revolving Credit Agreement dated as of May 7, 2002, (as amended, the
"Credit Agreement"), with various lenders and the administrative agent named therein. The Credit Agreement, among other things, provided a facility ("Tranche A Term Loan Facility") for the
continuation of the term loans outstanding as of its effective date under the prior credit agreement; an additional $150.0 million aggregate principal amount, five-year term loan
facility (the "Tranche A-1
Term Loan Facility" and, together with the Tranche A Term Loan Facility, the "Term Loan Facilities"); and a revolving credit facility of up to $250.0 million aggregate principal amount (the
"Revolving Credit Facility").

As
of December 31, 2002, the aggregate principal amount of debt outstanding under the Term Loan Facilities included $96.4 million of term loan borrowings. This consisted of
$18.3 million under the Tranche A Term Loan Facility and $78.1 million under the Tranche A-1 Term Loan Facility. Amounts outstanding under the Tranche A Term Loan Facility
were scheduled to be repaid in five quarterly

23

---

installments of $3.7 million. Amounts outstanding under the Tranche A-1 Term Loan Facility were scheduled to be repaid in 10 quarterly installments of $7.8 million.

The
Credit Agreement was limited by its terms to $250.0 million in aggregate principal amount, less the aggregate amount of outstanding letters of credit obligations under the facility. The
Revolving Credit Facility was scheduled to mature on March 31, 2004. As of December 31, 2002, the Company had $229.8 million available under its Revolving Credit Facility after
deducting certain outstanding letter-of-credit obligations of $20.2 million. Availability was effectively further reduced based on limitations imposed by financial
covenants under the Credit Agreement.

USSC's
obligations under the Credit Agreement were guaranteed by United and secured by a first-priority pledge by United of USSC's stock. Additionally, USSC's obligations under the Credit Agreement
were guaranteed by its direct and indirect subsidiaries (the "Affiliated Guarantors"), which exclude TOP, USS Receivables Company, Ltd. (the "Receivables Company") and other foreign
subsidiaries.

As
collateral security for the obligations of USSC and the Affiliated Guarantors, security interests and liens were placed upon accounts receivable and related instruments, inventory, equipment,
contract rights, intellectual property and all other tangible and intangible personal property (including proceeds) and fixtures and certain real property of USSC and the Affiliated Guarantors, other
than accounts receivable sold in connection with the Receivables Securitization Program (as defined). These obligations were secured by first priority pledges of all of the outstanding stock of USSC
and its domestic direct and indirect subsidiaries, including Lagasse and Azerty but excluding TOP, as well as a portion of the stock of identified foreign direct and indirect subsidiaries of USSC
excluding the Receivables Company.

The
Credit Agreement contained representations and warranties, affirmative and negative covenants, and events of default customary for financing of this type. The Company was in compliance at
December 31, 2002 with the covenants contained in the Credit Agreement.

The
right of United to participate in any distribution of earnings or assets of USSC was subject to the prior claims of the creditors of USSC. In addition, the Credit Agreement contains certain
restrictive covenants, including covenants that restricted or prohibited USSC's ability to pay cash dividends and make other distributions to United.

New Credit Agreement

On
March 21, 2003, the Company replaced its existing senior secured credit facility by entering into a new Five-Year Revolving Credit Agreement (the "New Credit Agreement") dated as
of March 21, 2003 by and among USSC, as borrower, and United, as guarantor, the various lenders and Bank One, NA, as administrative agent. The New Credit Agreement provides for a revolving
credit facility with an aggregate committed amount of $275 million. USSC may, upon the terms and conditions of the New Credit Agreement, seek additional commitments from its current or new
lenders to increase the aggregate committed principal amount under the facility to a total amount of up to $325.0 million. As a result of the replacement of the Credit Agreement (described
above), the Company will record a charge of approximately $0.9 million in the first quarter of 2003 relating to the write-off of associated deferred financing costs.

The
New Credit Agreement provides for the issuance of letters of credit for amounts totaling up to a sublimit of $90.0 million. It also provides a sublimit for swingline loans in an aggregate
principal amount not to exceed $25.0 million at any one time outstanding. These amounts, as sublimits, do not increase the aggregate committed amount, and any undrawn issued letters of credit
and all outstanding swingline loans under the facility reduce the remaining availability. The revolving credit facility matures on March 21, 2008.

24

---

Obligations
of USSC under the New Credit Agreement are guaranteed by United and certain of USSC's domestic subsidiaries. USSC's obligations under the New Credit Agreement and the guarantors'
obligations under the guaranty are secured by liens on substantially all assets, including accounts, 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 New 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 New 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, the London Interbank Offered Rate ("LIBOR") (as it may be adjusted for reserves) plus a margin of 1.25% to 2.25% per annum, or a combination thereof. The margins
applicable to floating rate and LIBOR loans are determined by reference to a pricing matrix based on the total leverage of United and its consolidated subsidiaries. Initial applicable margins are
0.50% and 2.00%, respectively.

The
Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type.

8.375% Senior Subordinated Notes and Other Debt

The
8.375% Senior Subordinated Notes ("8.375% Notes" or the "Notes") were issued on April 15, 1998, pursuant to the 8.375% Notes Indenture. As of December 31, 2002, the aggregate
outstanding principal amount of 8.375% Notes was $100.0 million. The Notes are unsecured senior subordinated obligations of USSC, and payment of the Notes is fully and unconditionally
guaranteed by the Company and USSC's domestic "restricted" subsidiaries that incur indebtedness (as defined in the 8.375% Notes Indenture) on a senior subordinated basis. The Notes are redeemable on
April 15, 2003, in whole or in part, at a redemption price of 104.188% (percentage of principal amount). The 8.375% Notes mature on April 15, 2008, and bear interest at the rate of
8.375% per annum, payable semi-annually on April 15 and October 15 of each year.

On
March 28, 2003, the trustee for the Company's Notes sent notice at the Company's request to the holders of the Notes of its intention to redeem $100.0 million principal amount of the
Notes at the redemption price of 104.188% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. The redemption is expected to be completed on April 28,
2003 and, as a result of the redemption, no Notes will be outstanding after such date. As a result of the redemption, the Company expects to record charges of approximately $4.2 million
relating to the redemption premium and $1.8 million for the write-off of deferred financing costs in the second quarter of 2003. The redemption price will be funded primarily
through the sale of accounts receivable under the Company's Receivables Securitization Program and borrowings under USSC's New Credit Agreement described above.

In
addition, as of December 31, 2002, the Company had $14.8 million of industrial development bonds outstanding. On March 12, 2003, the Company pre-paid
$8.0 million to retire one of the outstanding industrial development bonds. As of this filing, the Company has one industrial development bond outstanding with a balance of $6.8 million.

Receivables Securitization Program

General

As
part of the Company's overall financing strategies, it utilized a standard third-party receivables securitization program (the "Receivables Securitization Program") to provide low-cost
funding. Under this $163.0 million program, the Company sold, on a revolving basis, its eligible trade accounts

25

---

receivable (except for certain excluded accounts receivable, which initially included all accounts receivable from Lagasse and the Company's foreign subsidiaries) to the Receivables Company, a wholly
owned offshore, bankruptcy-remote special purpose limited liability company. This company in turn ultimately transferred the eligible trade accounts receivable to a trust, for which the trustee was
JPMorgan Chase Bank. The trustee then sold investment certificates to third-party investors, which were backed by the accounts receivable owned by the trust. As a result of the short average
collection cycle referred to below, proceeds from the collections under this revolving agreement were $3.1 billion for 2002 and $2.8 billion for 2001. Affiliates of PNC Bank and JPMorgan
Chase acted as funding agents. The funding agents, together with other commercial banks rated at least A-1/P-1, provided standby liquidity funding to support the sale of the
accounts receivable by the Receivables Company under 364-day liquidity facilities.

The
documents evidencing the Receivables Securitization Program required the Receivables Company to comply with certain affirmative and negative covenants customary for facilities of this type,
including, among others, requirements to maintain a separate corporate existence from USSC and its affiliates and to maintain a minimum net worth of $45 million at all times. USSC acted as the
servicer of the accounts receivable on behalf of the trustee, for which it received a fee, and was required to deliver reports regarding the accounts receivable and related collections, as well as to
comply with certain other covenants set forth in the servicing agreement. The sale of accounts receivable included not only those eligible trade accounts receivable that existed on the closing date of
the Receivables Securitization Program, but also eligible trade accounts receivable created thereafter. In the ordinary course, the Receivables Company used collections received by the trust to make
distributions to USSC (subject to compliance with the Receivables Company's corporate formalities and the restrictions set forth in the documents evidencing the Receivables Securitization Program);
however, in the event that receivables quality failed to satisfy certain standards, the trustee could retain the collections on the accounts receivable held by the trust and would use such collections
to repay amounts owed to the trust by the Receivables Company. Upon the occurrence of such an event, USSC would have ceased selling its trade accounts receivable into the Receivables Securitization
Program.

On
March 28, 2003, USSC replaced its Receivables Securitization Program (defined above) with a third-party receivables securitization program with Bank One, NA, as trustee (the "New Receivables
Securitization Program"). The maximum funding from the program at any one time increased from $160 million under the former program to $225 million under the new program. Under this
program, USSC sells, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable from Lagasse,
Canada and foreign subsidiaries) to the Receivables Company. The Receivables Company, in turn, ultimately transfers the eligible trade accounts receivable to a trust. The trustee then sells investment
certificates, which represent an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Affiliates of PNC Bank and Bank One act as funding agents. The
funding agents provide standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day liquidity facilities. The New 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.

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. For the
years ended December 31, 2002 and 2001, the Company had decided to sell $105 million and $125 million of trade accounts receivable, respectively. Accordingly, trade accounts
receivable of $105 million in 2002, and $125 million in 2001 are excluded from the

26

---

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, less allowance for doubtful accounts". For further
information on the Company's retained interest in the master trust, see the caption "Retained interest" included herein below.

The
Company recognizes certain costs and/or losses related to the Receivables Securitization Program. Costs related to this facility vary on a daily basis and generally are related to certain
short-term interest rates. The interest rate on the certificates issued under the Receivables Securitization Program during 2002 ranged between 1.5% and 2.1% annually. Losses recognized on
the sale of accounts receivable totaled approximately $1.9 million and $7.0 million in 2002 and 2001, respectively. Proceeds from the collections under this revolving agreement were
$3.1 billion and $2.8 billion in 2002 and 2001, respectively. All costs and/or losses related to the Receivables Securitization Program are included in the Consolidated Statements of
Income under the caption, "Other Expense, net".

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

Retained Interest

The
Receivables Company determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount. It retains a residual interest in the eligible receivables
transferred to the trust, such that amounts payable in respect of such residual interest will be distributed to the Receivables Company upon payment in full of all amounts owed by the Receivables
Company to the trust (and by the trust to the investors). The Company's retained interest on $298.7 million and $244.8 million of trade receivables in the master trust as of
December 31, 2002 and 2001 was $191.6 million and $117.6 million, respectively. The Company's retained interest in the master trust is included in the Consolidated Financial
Statements under the caption, "Retained interest in receivables sold, less allowance for doubtful accounts".

The
Company measures the fair value of its retained interest throughout the term of the securitization program using a present value model incorporating the following two key economic assumptions:
(1) an average collection cycle of 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 our financial position or results of operations. No accounts receivable sold
to the master trust were written off during 2002 or 2001.

Cash Flow Information

The
statements of cash flows for the Company for the periods indicated are summarized below:

Years Ended December 31,2002

2001

2000Net cash provided by operating activities

$
105,730

$
191,156

$
38,718Net cash used in investing activities


(23,039
)

(46,327
)

(83,534
)Net cash (used in) provided by financing activities


(93,917
)

(135,783
)

45,655


Net cash provided by operating activities for the year ended December 31, 2002 reached $105.7 million, including $60.2 million in net income,
$34.7 million in depreciation and amortization, $5.6 million in

27

---

deferred income taxes, a $0.1 million decline in accounts receivable, an $8.6 million decline in inventory, a $3.7 million increase in deferred credits, a $4.1 million
increase in other liabilities and $4.0 million related to losses on the sale of assets and write-down of certain investments partially offset by a $2.5 million decline in accounts
payable, a $9.4 million increase in other assets and a $3.5 million decline in accrued liabilities. Net cash provided by operating activities was $191.2 million for the year ended
December 31, 2001. This was primarily the result of a $105.0 million decline in inventory, $57.0 million in net income, depreciation and amortization of $39.9 million, a
$16.2 million decline in accounts receivable, a $20.1 million increase in accrued liabilities, and a $9.4 million increase in other liabilities partially offset by a
$52.2 million decline in accounts payable and a $13.0 million increase in other assets. Net cash provided by operating activities was $38.7 million for the year ended
December 31, 2000. This was primarily due to net income of $92.2 million, an increase in accounts payable of $46.4 million, and $32.9 million of depreciation and
amortization, partially offset by $73.9 million increase in inventory, a $52.9 million increase in accounts receivable and a $15.0 million increase in other assets.

Net
cash used in investing activities for the year ended December 31, 2002 was $23.0 million, including $27.2 million of capital expenditures partially offset by
$1.3 million in proceeds received from the sale of the Salisbury, Maryland portion of the CallCenters, Inc. and $2.9 million in proceeds from the disposition of property, plant
and equipment. Net cash used in investing activities for the year ended December 31, 2001 was $46.3 million, which includes $32.7 million for the acquisition of Peerless Paper
Mills, Inc., and $32.5 million for capital expenditures partially offset by $14.9 million of proceeds from the sale of Positive ID and $3.9 million in proceeds from the
disposition of property, plant and equipment. Net cash used in investing activities for the year ended December 31, 2000 was $83.5 million, including capital expenditures of
$43.6 million and business acquisitions of $44.2 million partially offset by $4.3 million of proceeds from disposition of property, plant and equipment.

Net
cash used in financing activities for the year ended December 31, 2002 was $93.9 million, including $60.5 million in repayments on debt, $38.3 million for acquisition
of treasury stock partially offset by $5.5 in proceeds from the issuance of treasury stock. Net cash used in financing activities for the year ended December 31, 2001 reached
$135.8 million, including a $98.0 million repayment under the Revolving Credit Facility, $40.2 million Term Loan repayment and $12.4 million related to the acquisition of
treasury stock partially offset by $15.8 million in proceeds from the issuance of treasury stock. Net cash provided by financing activities for the year ended December 31, 2000 was
$45.7 million, including $150.0 million of Term Loan borrowings and $45.0 million of net borrowings under the Revolving Credit Facility partially offset by $128.5 million
of Term Loan retirements and principal payments and $22.4 million related to the acquisition of treasury stock.

Seasonality

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

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

Inflation/Deflation and Changing Prices

The
Company maintains substantial inventories to accommodate the prompt service and delivery requirements of its customers. Accordingly, the Company purchases its products on a regular basis in an
effort to maintain its inventory at levels that it believes are sufficient to satisfy the anticipated needs of

28

---

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

New Accounting Pronouncements

In
January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,Consolidation of Variable Interest Entities. FIN No. 46
addresses consolidation of variable interest entities, including special purpose entities and non-voting controlled entities. FIN No. 46 requires the "primary beneficiary" of a
variable interest entity to consolidate it in its financial statements. However, FIN No. 46 specifically excludes some qualified financing mechanisms, including the Company's Receivables
Securitization Program, from the scope of the interpretation. As a result, the Company does not believe adoption of FIN No. 46 will have a material impact on its financial position or results
of operations.

In
November 2002, the FASB issued FIN No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.FIN No. 45 requires that upon issuance of a guarantee, the guarantor recognize a liability for the fair value of the obligation it assumes under the particular
guarantee. In addition, FIN No. 45 provides new disclosure requirements for all direct and indirect guarantees. Based on current circumstances, the Company does not believe adoption of FIN
No. 45 will have a material impact on its financial position or results of operations.

In
November 2002, the FASB's Emerging Issues Task Force ("EITF") issued EITF Issue No. 02-16,Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor,effective for fiscal periods beginning after December 15, 2002. EITF Issue No. 02-16 requires cash consideration
given by a vendor to a customer be recognized in the customer's financial statements as a reduction to cost of goods sold, unless certain limited conditions are met. The Company receives certain
manufacturers' allowances and promotional incentives. These promotional incentives are recorded as a reduction to cost of goods sold to reflect the net inventory purchase cost. The Company is
currently evaluating whether EITF No. 02-16 will have an impact on its financial position or results of operations.

In
December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and Disclosurean Amendment of FASB
Statement No. 123.SFAS No. 148 provides two alternative methods for accounting for the transition to the fair value based method of accounting for stock-based
compensation. In addition, SFAS No. 148 amends the annual and quarterly disclosure requirements of SFAS No. 123,Accounting for Stock-Based
Compensation. These amended disclosure and transition requirements are effective for fiscal years ending after December 15, 2002. The Company currently accounts for
stock-based compensation using the "intrinsic value" method permitted by Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock Issued to
Employees. The Company provides supplemental disclosures including the pro forma net income and earnings per share as if the fair value based accounting
method in SFAS No. 123 had been used. The Company is continuing to account for stock-based compensation using the intrinsic value and will continue to provide the required supplemental
disclosures. The Company has adopted the disclosure requirements in these financial statements. Based on current circumstances and the Company's chosen method of accounting for stock-based
compensation, the provisions of SFAS No. 148 did not have a material impact on its financial position or results of operations.

In
July 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities,which is effective for
disposal activities initiated after December 31, 2002. SFAS No. 146 nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,"Liability
Recognition for Certain Employee

29

---

Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)."SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is incurred rather than recognized at the date of commitment to an exit plan as was dictated under EITF
No. 94-3. The Company will adopt SFAS No. 146 on January 1, 2003, and based on current circumstances, does not believe that this adoption will have a material impact
on its financial position or results of operations.

In
April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, Amendment of FASB Statement No. 13, and Technical
Corrections,which is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 requires gains and losses from extinguishment of debt to be presented
as a gain or loss from continuing operations rather than as an extraordinary item. SFAS No. 145 also amends SFAS No. 13, which requires that certain capital lease modifications be
treated as a sale-leaseback transaction. As a result of the adoption of SFAS No. 145, the Company modified its income statement presentation of the previously reported loss due to
extinguishment of debt taken during the year ended December 31, 2000. The loss of $10.7 million is reported in conformity with SFAS No. 145 in interest expense
(pre-tax) with the offsetting $4.2 million tax benefit included in the income taxes line item.

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations,"which is effective for fiscal years beginning
after June 15, 2002. SFAS No. 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the
obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of
the asset. The Company will adopt SFAS No. 143 on January 1, 2003 and, based on current circumstances, does not believe that the impact of adopting SFAS No. 143 will have a
material impact on its financial position or results of operations.

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, 2002, of $211.2 million,
$105.0 million of receivables sold under the Receivables Securitization Program, whose discount rate varies with market interest rates ("Receivables Exposure") and the Company's retained
interest in the master trust (as defined above).

The
Company utilizes both fixed rate and variable rate debt. Approximately 32% of the outstanding debt and Receivables Exposure is priced at interest rates that are fixed. The Company's variable rate
debt is based primarily on the applicable prime or LIBOR rate. A 50 basis point movement in interest rates would result in an annualized increase or decrease of approximately $1.1 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 (defined above) is also subject to interest rate risk. The Company's retained interest is recorded at fair value. 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.

30

---

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF MANAGEMENT

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

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

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

| |  | /s/ Richard W. GochnauerRichard W. Gochnauer
President and Chief Executive Officer        
| |  | ------------------------------------------------------------------------------------------
| |  | /s/ Kathleen S. DvorakKathleen S. Dvorak
Senior Vice President and Chief Financial Officer

31

---



REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of
Directors of United Stationers Inc.

We
have audited the accompanying consolidated balance sheets of United Stationers Inc. and subsidiaries as of December 31, 2002 and 2001, 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, 2002. Our audit also included the financial statement schedule listed in the
index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Stationers Inc. and Subsidiaries at
December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Note 2 to the Consolidated Financial Statements, in 2002 the Company changed its method of accounting for goodwill.

|                                                                                                     |  | /s/ ERNST & YOUNG LLP
|---------------------------------------------------------------------------------------------------- |  | ---------------------
|Chicago, Illinois
January 27, 2003,
except for Notes 6 and 8, as to which
the date is March 28, 2003 |  |                      

32

---



UNITED STATIONERS INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF INCOME  (in thousands, except per share data)

|                           |                                                    | Years Ended December 31,                                        |          
|-------------------------- | -------------------------------------------------- | --------------------------------------------------------------- | ---------
|
|Net sales                  |                                                    | $                                                               | 3,701,564
|Cost of goods sold         |                                                    |                                                                 | 3,163,589
|                           |                                                    |                                                                 |          
|Gross profit               |                                                    |                                                                 | 537,975  
|Operating expenses:        |                                                    |                                                                 |          
|                           | Warehousing, marketing and administrative expenses |                                                                 |          
|                           | Goodwill amortization                              |                                                                 |          
|                           | Restructuring and other charges                    |                                                                 |          
|                           |                                                    |                                                                 |          
|Total operating expenses   |                                                    |                                                                 | 422,490  
|                           |                                                    |                                                                 |          
|Income from operations     |                                                    |                                                                 | 115,485  
|Interest expense           |                                                    |                                                                 | (16,860  
|Interest income            |                                                    |                                                                 | 165      
|Other expense, net         |                                                    |                                                                 | (2,421   
|                           |                                                    |                                                                 |          
|Income before income taxes |                                                    |                                                                 | 96,369   
|Income tax expense         |                                                    |                                                                 | 36,141   
|                           |                                                    |                                                                 |          
|Net income                 |                                                    | $                                                               | 60,228   
|                           |                                                    |                                                                 |          
|                           |                                                    | Net income per common share  basic                             |          
|                           |                                                    |                                                                 |          
|                           |                                                    | Average number of common shares outstanding  basic             |          
|                           |                                                    | Net income per common shareassuming dilution                   |          
|                           |                                                    |                                                                 |          
|                           |                                                    | Average number of common shares outstanding  assuming dilution |          

See notes to consolidated financial statements.

33

---



UNITED STATIONERS INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS  (dollars in thousands, except share data)

|                                        |                                                                                                                  | As of December 31,                         |        
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|ASSETS                                  |                                                                                                                 
|Current assets:                         |                                                                                                                  |                                            |        
|                                        | Cash and cash equivalents                                                                                        |                                            | $      
|                                        | Retained interest in receivables sold, less allowance for doubtful accounts of $2,058 in 2002 and $2,240 in 2001 |                                            |        
|                                        | Accounts receivable, less allowance for doubtful accounts of $16,445 in 2002 and $11,222 in 2001                 |                                            |        
|                                        | Inventories                                                                                                      |                                            |        
|                                        | Other current assets                                                                                             |                                            |        
|                                        |                                                                                                                  |                                            |        
|                                        |                                                                                                                  | Total current assets                       |        
|Property, plant and equipment, at cost: |                                                                                                                  |                                            |        
|                                        | Land                                                                                                             |                                            |        
|                                        | Buildings                                                                                                        |                                            |        
|                                        | Fixtures and equipment                                                                                           |                                            |        
|                                        | Leasehold improvements                                                                                           |                                            |        
|                                        |                                                                                                                  |                                            |        
|Total property, plant and equipment     |                                                                                                                  |                                            | 357,225
|                                        | Less  accumulated depreciation and amortization                                                                 |                                            |        
|                                        |                                                                                                                  |                                            |        
|Net property, plant and equipment       |                                                                                                                  |                                            | 180,536
|Goodwill, net                           |                                                                                                                  |                                            | 180,186
|Other                                   |                                                                                                                  |                                            | 21,610 
|                                        |                                                                                                                  |                                            |        
|                                        |                                                                                                                  | Total assets                               |        
|                                        |                                                                                                                  |                                            |        
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                                                                                                 
|Current liabilities:                    |                                                                                                                  |                                            |        
|                                        | Accounts payable                                                                                                 |                                            | $      
|                                        | Accrued liabilities                                                                                              |                                            |        
|                                        | Deferred credits                                                                                                 |                                            |        
|                                        | Current maturities of long-term debt                                                                             |                                            |        
|                                        |                                                                                                                  |                                            |        
|                                        |                                                                                                                  | Total current liabilities                  |        
|Deferred income taxes                   |                                                                                                                  |                                            | 17,059 
|Long-term debt                          |                                                                                                                  |                                            | 165,345
|Other long-term liabilities             |                                                                                                                  |                                            | 41,631 
|                                        |                                                                                                                  |                                            |        
|                                        |                                                                                                                  | Total liabilities                          |        
|Stockholders' equity:                   |                                                                                                                  |                                            |        
|                                        | Common stock, $0.10 par value; authorized  100,000,000 shares, issued  37,217,814 in 2002 and 2001             |                                            |        
|                                        | Additional paid-in capital                                                                                       |                                            |        
|                                        | Treasury stock, at cost  4,738,552 shares in 2002 and 3,613,954 shares in 2001                                  |                                            |        
|                                        | Retained earnings                                                                                                |                                            |        
|                                        | Accumulated other comprehensive loss                                                                             |                                            |        
|                                        |                                                                                                                  |                                            |        
|                                        |                                                                                                                  | Total stockholders' equity                 |        
|                                        |                                                                                                                  |                                            |        
|                                        |                                                                                                                  | Total liabilities and stockholders' equity |        
|                                        |                                                                                                                  |                                            |        

See notes to consolidated financial statements.

34

---



UNITED STATIONERS INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY  (dollars in thousands, except share data)

|                                                  |                    | Common Stock |   | Treasury Stock |       |   |            |   |   |          |   |   |        
|------------------------------------------------- | ------------------ | ------------ | - | -------------- | ----- | - | ---------- | - | - | -------- | - | - | -------
|
|
|As of December 31, 1999                           |                    | 37,213,207   |   | $              | 3,721 |   | (3,220,481 | ) | $ | (49,145  | ) | $ | 304,288
|Net income                                        |                    |             |   |                |      |   |           |   |   |         |   |   |       
|Unrealized translation adjustments                |                    |             |   |                |      |   |           |   |   |         |   |   |       
|                                                  |                    |              |   |                |       |   |            |   |   |          |   |   |        
|                                                  | Comprehensive loss |              |  |                |       |  |            |  |   |          |  |   |        
|Acquisition of treasury stock                     |                    |             |   |                |      |   | (857,100   | ) |   | (22,437  | ) |   |       
|Stock compensation                                |                    |             |   |                |      |   | 309,674    |   |   | 4,750    |   |   | (1,451 
|                                                  |                    |              |   |                |       |   |            |   |   |          |   |   |        
|As of December 31, 2000                           |                    | 37,213,207   |   |                | 3,721 |   | (3,767,907 | ) |   | (66,832  | ) |   | 302,837
|Net income                                        |                    |             |   |                |      |   |           |   |   |         |   |   |       
|Unrealized translation adjustments                |                    |             |   |                |      |   |           |   |   |         |   |   |       
|                                                  |                    |              |   |                |       |   |            |   |   |          |   |   |        
|                                                  | Comprehensive loss |              |  |                |       |  |            |  |   |          |  |   |        
|Acquisition of treasury stock                     |                    |             |   |                |      |   | (467,500   | ) |   | (12,383  | ) |   |       
|Stock compensation                                |                    | 4,607        |   |                | 1     |   | 621,453    |   |   | 9,813    |   |   | 7,313  
|                                                  |                    |              |   |                |       |   |            |   |   |          |   |   |        
|As of December 31, 2001                           |                    | 37,217,814   |   |                | 3,722 |   | (3,613,954 | ) |   | (69,402  | ) |   | 310,150
|Net income                                        |                    |             |   |                |      |   |           |   |   |         |   |   |       
|Unrealized translation adjustments                |                    |             |   |                |      |   |           |   |   |         |   |   |       
|Minimum pension liability adjustments, net of tax |                    |             |   |                |      |   |           |   |   |         |   |   |       
|                                                  |                    |              |   |                |       |   |            |   |   |          |   |   |        
|                                                  | Comprehensive loss |              |  |                |       |  |            |  |   |          |  |   |        
|Acquisition of treasury stock                     |                    |             |   |                |      |   | (1,365,101 | ) |   | (38,310  | ) |   |       
|Stock compensation                                |                    |             |   |                |      |   | 240,503    |   |   | 3,262    |   |   | 3,811  
|                                                  |                    |              |   |                |       |   |            |   |   |          |   |   |        
|As of December 31, 2002                           |                    | 37,217,814   |   | $              | 3,722 |   | (4,738,552 | ) | $ | (104,450 | ) | $ | 313,961
|                                                  |                    |              |   |                |       |   |            |   |   |          |   |   |        

See notes to consolidated financial statements.

35

---



UNITED STATIONERS INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS  (dollars in thousands)

|                                                             |                                                                                   | Years Ended December 31,                   |                                                    
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------------------------------
|
|Cash Flows From Operating Activities:                        |                                                                                   |                                            |                                                    
|                                                             | Net income                                                                        |                                            | $                                                  
|                                                             | Adjustments to reconcile net income to net cash provided by operating activities: |                                            |                                                    
|                                                             | Depreciation                                                                      |                                            |                                                    
|                                                             | Amortization                                                                      |                                            |                                                    
|                                                             | Amortization of capitalized financing costs                                       |                                            |                                                    
|                                                             | Restructuring and other charges  non-cash charges                                |                                            |                                                    
|                                                             | Loss (gain) on sale of property, plant and equipment                              |                                            |                                                    
|                                                             | Early extinguishment of debt                                                      |                                            |                                                    
|                                                             | Deferred income taxes                                                             |                                            |                                                    
|                                                             | Changes in operating assets and liabilities:                                      |                                            |                                                    
|                                                             |                                                                                   | Decrease (increase) in accounts receivable |                                                    
|                                                             |                                                                                   | Decrease (increase) in inventory           |                                                    
|                                                             |                                                                                   | Increase in other assets                   |                                                    
|                                                             |                                                                                   | (Decrease) increase in accounts payable    |                                                    
|                                                             |                                                                                   | (Decrease) increase in accrued liabilities |                                                    
|                                                             |                                                                                   | Increase in deferred credits               |                                                    
|                                                             |                                                                                   | Increase (decrease) in other liabilities   |                                                    
|                                                             |                                                                                   |                                            |                                                    
|                                                             |                                                                                   |                                            | Net cash provided by operating activities          
|Cash Flows From Investing Activities:                        |                                                                                   |                                            |                                                    
|                                                             | Capital expenditures                                                              |                                            |                                                    
|                                                             | Acquisitions                                                                      |                                            |                                                    
|                                                             | Proceeds from the sale of Positive ID                                             |                                            |                                                    
|                                                             | Proceeds from the sale of the Salisbury, Maryland CallCenter                      |                                            |                                                    
|                                                             | Proceeds from the disposition of property, plant and equipment                    |                                            |                                                    
|                                                             |                                                                                   |                                            |                                                    
|                                                             |                                                                                   |                                            | Net cash used in investing activities              
|Cash Flows From Financing Activities:                        |                                                                                   |                                            |                                                    
|                                                             | Retirements and principal payments of debt                                        |                                            |                                                    
|                                                             | Net borrowings (payments) under revolver                                          |                                            |                                                    
|                                                             | Borrowings under financing agreements                                             |                                            |                                                    
|                                                             | Issuance of treasury stock                                                        |                                            |                                                    
|                                                             | Acquisition of treasury stock, at cost                                            |                                            |                                                    
|                                                             | Payment of employee withholding tax related to stock option exercises             |                                            |                                                    
|                                                             |                                                                                   |                                            |                                                    
|                                                             |                                                                                   |                                            | Net cash (used in) provided by financing activities
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                            | (162                                               
|                                                             |                                                                                   |                                            |                                                    
|Net change in cash and cash equivalents                      |                                                                                   |                                            | (11,388                                            
|Cash and cash equivalents, beginning of period               |                                                                                   |                                            | 28,814                                             
|                                                             |                                                                                   |                                            |                                                    
|Cash and cash equivalents, end of period                     |                                                                                   | $                                          | 17,426                                             
|                                                             |                                                                                   |                                            |                                                    

See notes to consolidated financial statements.

36

---



UNITED STATIONERS INC. AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The
accompanying Consolidated Financial Statements represent United Stationers Inc. ("United") with its wholly owned subsidiary United Stationers Supply Co. ("USSC") and its subsidiaries
- collectively (the "Company"). The Company is the largest general line business products wholesaler in the United States and a provider of marketing and logistics services to resellers,
with net sales of $3.7 billion for the year ended December 31, 2002. The Company operates in a single reportable segment as a national wholesale distributor of business products. The
Company offers approximately 40,000 items from more than 500 manufacturers. This includes a broad spectrum of office products, computer supplies, office furniture, business machines, presentation
products and facilities management supplies. The Company primarily serves commercial and contract office products dealers. The Company sells its products through a national distribution network to
more than 15,000 resellers, who in turn sell directly to end-users. These products are distributed through a computer-based network of 35 USSC regional 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 distribution centers that serve the Canadian
marketplace. During the second quarter of 2002, the computer systems and product offerings of Azerty were integrated into USSC.

Acquisition of Peerless Paper Mills, Inc.

On
January 5, 2001, the Company's subsidiary, Lagasse, acquired all of the capital stock of Peerless Paper Mills, Inc. ("Peerless"). Subsequently, Peerless was merged into Lagasse.
Peerless was a wholesale distributor of janitorial/sanitation, paper and food service products. The purchase price of approximately $32.7 million was financed through the Company's Senior
Credit Facility. The acquisition was accounted for using the purchase method of accounting and, accordingly, the
purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of acquisition. The excess of cost over fair value of approximately
$15.5 million was allocated to goodwill. The pro forma effects of the acquisition are not material.

The Order People

During
2000, the Company established The Order People ("TOP") to operate as its third-party fulfillment provider for product categories beyond office products. To become a full service provider, on
July 1, 2000, the Company acquired all of the capital stock of CallCenter Services, Inc. CallCenter Services, Inc. was a customer relationship management outsourcing service
company with inbound call centers in Wilkes-Barre, Pennsylvania, and Salisbury, Maryland.

In
2001, the Company did not achieve the estimated revenue to support TOP's cost structure. As a result, the Company decided to significantly downsize TOP's operations. In November 2001, the
Wilkes-Barre portion of the business acquired as part of CallCenter Services, Inc. was sold to Customer Satisfaction First for a nominal cash payment, the assumption of associated liabilities
and the payment of expenses relating to that business during a post-closing transition period. Disputes relating to expense payments and certain liabilities associated with this sale have
adversely contributed to the operating expenses attributable to TOP during 2002. In the second quarter of 2002, the Company sold the Salisbury portion of the business acquired as a part of CallCenter
Services, Inc. to 1-800-BARNONE, a Financial Corporation, Inc. for $1.2 million in cash and the assumption of $1.7 million of debt. The sale of
these assets did not have a material impact on the Consolidated Financial Statements.

In
2002, the Company further downsized TOP's operations as part of the restructuring and other charges recorded in the fourth quarter of 2002 (see Note 3 "Restructuring and Other Charges"). As
part of the

37

---

restructuring initiatives, the Company will terminate current fulfillment contracts with third-party customers. The Company will provide assistance with logistics in moving third-party customer
products to new fulfillment providers in order to insure a smooth transition. The further downsizing of TOP will result in a workforce reduction of 75 associates.

Acquisition of Azerty Canada

On
July 5, 2000, the Company completed the acquisition of the net assets of Azerty Canada from MCSi, Inc. The purchase price was approximately $33.5 million (U.S. dollars)
financed through the Company's Senior Credit Facility. Azerty Canada is a specialty wholesale distributor of computer consumables, peripherals and accessories. The acquisition was accounted for using
the purchase method of accounting and, accordingly, the purchase price was allocated to the assets purchased and the liabilities assumed, based upon the estimated fair values at the date of
acquisition. The excess of cost over fair value of approximately $11.8 million was allocated to goodwill. The pro forma effects of the acquisition were not material.

Common Stock Repurchase

During
2002, the Company purchased 1.4 million shares of its common stock at a cost of $38.3 million, compared with repurchases of 0.5 million shares at a cost of
$12.4 million and 0.9 million shares at a cost of $22.4 million during 2001 and 2000, respectively.

All
purchases were executed under two separate authorizations given by the Company's Board of Directors on October 23, 2000 and July 1, 2002. A summary of these two authorizations,
shares repurchased under each authorization and the remaining amount available under each authorization is detailed as follows (amounts in millions, except share data):

AuthorizationsJuly 1, 2002

October 23, 2000

TotalCost

Shares

Cost

Shares

Cost

Shares2002 repurchases

$
23.1

858,964

$
15.2

506,137

$
38.3

1,365,1012001 repurchases







12.4

467,500


12.4

467,5002000 repurchases







22.4

857,100


22.4

857,100Total repurchases

$
23.1

858,964

$
50.0

1,830,737

$
73.1

2,689,701Total amount remaining under authorization:Initial authorization

$
50.0



$
50.0



$
100.0Less: total repurchases


(23.1
)



(50.0
)



(73.1
)Amount remaining

$
26.9



$




$
26.9


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
repurchasing its own common stock at any time without notice.

Acquired
shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data. During 2002 and

38

---

2001, the Company reissued 240,503 shares and 621,453 shares, respectively, of treasury stock primarily to fulfill its obligations under its management equity plans.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The
Consolidated Financial Statements include the accounts of the Company. All intercompany accounts and transactions have been eliminated in consolidation. For all acquisitions, account balances and
results of operations are included in the Consolidated Financial Statements as of the date acquired.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported on the Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates.

Various
assumptions and other factors underlie the determination of significant accounting estimates. The process of determining significant estimates is fact specific and takes into account factors
such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial techniques. The Company periodically reevaluates these significant factors and makes
adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the estimates described below.

Revenue Recognition

Revenue
is recognized when a service is rendered or when a product is shipped and title has transferred to the customer. Management records an estimate for future product returns related to revenue
recognized in the current period. This estimate is based on historical product return trends and the gross margin associated with those returns. Management also records an estimate for customer
rebates which is based on estimated annual sales volume to the Company's customers. This estimate is used to determine the projected annual rebates earned by customers for growth components, volume
hurdle components, and advertising allowances.

Shipping
and handling costs billed to customers are treated as revenues and recognized at the time products are shipped and title has transferred to the customer. Shipping and handling costs are
included in the Company's financial statements as a component of cost of goods sold and not netted against shipping and handling revenues.

Customer Rebates

Customer
rebates and discounts are common practice 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, participation in promotions and other miscellaneous discount programs. These rebates are paid to customers monthly, quarterly and/or
annually. Estimates for volume rebates and growth incentives are based on estimated annual sales

39

---

volume to the Company's customers. The aggregate amount of customer rebates depends on product sales mix and customer mix changes. Reported results reflect management's best current estimate of such
rebates. Further changes from those underlying current estimates of sales volumes, product mix, customer mix or sales patterns may impact future results.

Manufacturers' Allowances

Manufactures'
allowances 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 above, and increased by estimated manufactures' allowances and promotional
incentives. Many of these allowances and incentives are estimated on an annual basis and the potential variation between the actual amount of these margin contribution elements and the Company's
estimates of them could be material to its financial results.

Approximately
55% to 60% of the Company's estimated annual manufacturers' allowances and incentives are variable, based on the volume of the Company's product purchases from manufacturers. These
variable allowances are recorded based on the Company's estimated annual inventory purchase volume and are included in the Company's financial statements as a reduction
to cost of goods sold to reflect the net inventory purchase cost. Manufacturers' allowances and incentives attributable to unsold inventory are carried as a component of net inventory cost. The
potential amount of variable manufacturers' allowances often differs, based on purchase volume by manufacturer and product category. As a result, lower Company sales volume (which reduce inventory
purchase requirements) and product sales mix changes (especially as higher margin products often benefit from higher manufacturers' allowance rates) can make it difficult to reach some manufacturers'
allowance growth hurdles. The remaining 40% to 45% represents promotional incentives, which are based on vendor participation in various Company advertising and marketing publications. These
promotional incentives are recorded as a reduction to cost of goods sold over the life of the publication to reflect net advertising cost. The Company makes available to its customers the products
offered in each publication throughout the life of the publication.

Cash Equivalents

All
highly liquid debt instruments with an original maturity of three months or less are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value.

Valuation of Accounts Receivable

The
Company makes judgments as to the collectibility of accounts receivable based on historical trends and future expectations. Management estimates an allowance for sales returns and doubtful
accounts, which represents the collectibility of trade accounts receivable. These allowances adjust gross trade accounts receivable down to net realizable value. To determine the allowance for sales
returns, management uses historical trends to estimate future period product returns. To determine the allowance for doubtful accounts, management reviews specific customers and the Company's and the
Company's accounts receivable aging.

40

---

Inventories

Inventory
constituting approximately 88% and 77% of total inventory at December 31, 2002 and 2001, respectively, has been valued under the last-in, first-out ("LIFO")
method. The increase in the percentage of inventory on LIFO is primarily the result of the integration of Azerty's product offering into USSC. Inventory valued under the first-in,
first-out ("FIFO") and LIFO accounting methods is recorded at the lower of cost or market. If the lower of FIFO cost or market method of inventory accounting had been used by the Company,
inventory would have been $22.9 million and $26.2 million higher than reported at December 31, 2002 and 2001, respectively. In addition, inventory reserves are recorded for
shrinkage, 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.

Property, Plant and Equipment

Property,
plant and equipment are recorded at cost. Depreciation and amortization are determined by using the straight-line method over the estimated useful lives of the assets. The
estimated useful life assigned to fixtures and equipment is from two to 10 years; the estimated useful life assigned to buildings does not exceed 40 years; leasehold improvements are
amortized over the lesser of their useful lives or the term of the applicable lease.

Goodwill and Intangible Assets

Effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires the Company to annually, or more frequently if impairment indicators arise, test goodwill and other indefinite-lived intangible assets for
impairment rather than amortize them. During 2002, the Company completed its SFAS No. 142 required impairment analysis for its goodwill. The Company's assessment resulted in no adjustment to
the net carrying amount of goodwill. For the years ended December 31, 2001 and 2000, the Company recorded after-tax goodwill amortization of $5.4 million or $0.16 per share
and $5.2 million or $0.15 per share, respectively.

41

---

The
following table reflects the Company's reported financial results for the years ended December 31, 2002. In addition, the following table includes the years ended December 31, 2001
and 2000 assuming goodwill amortization was discontinued:

Years Ended December 31,2002

2001

2000Net income:As reported

$
60,228

$
56,978

$
92,167After-tax goodwill amortization





5,362


5,165Adjusted net income

$
60,228

$
62,340

$
97,332Net income per share:As reported

$
1.81

$
1.70

$
2.70After-tax goodwill amortization





0.16


0.15Adjusted net income per share

$
1.81

$
1.86

$
2.85Net income per share  assuming dilution:As reported

$
1.78

$
1.68

$
2.65After-tax goodwill amortization





0.16


0.15Adjusted net income per share  assuming dilution

$
1.78

$
1.84

$
2.80


Software Capitalization

The
Company capitalizes internal use software development costs in accordance with the American Institute of Certified Public Accountants' Statement of Position No. 98-1 "Accounting for Costs of Computer Software Developed or
Obtained for Internal Use."Amortization is recorded on a straight-line basis over
the estimated useful life of the software, generally not to exceed seven years.

Pension and Postretirement Health Benefits

Calculating
the Company's obligations and expenses related to its pension and postretirement health benefits requires selection and use of certain actuarial assumptions. As more fully discussed in
Notes 10 and 11 to the Consolidated Financial Statements, these actuarial assumptions include discount rates, expected long-term rates of return on plan assets, and rates of increase in
compensation and healthcare costs. To select the appropriate actuarial assumptions, management relied on current market conditions, historical information and consultation with and input from the
Company's outside actuaries. Pension expense for 2002 was $5.0 million, compared to $1.4 million in 2001. 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 2002 of approximately $1.8 million.

Costs
associated with the Company's postretirement health benefits plan were $0.9 million and $0.8 million for 2002 and 2001, respectively. A one percentage point decrease in the assumed
discount rate would have resulted in incremental postretirement healthcare expenses for 2002 of approximately $0.1 million. Based on current rates of increase in medical costs, a one percentage
point adverse

42

---

change in the assumed average healthcare cost trend would not have a significant impact on the Company's postretirement health plan costs.

Self-Insurance Liability Estimates

The
Company is primarily responsible for retained liabilities related to workers' compensation, auto and general liability and certain employee health benefits. The Company records an expense for
claims incurred but not reported based on historical trends and certain assumptions about future events. During 2002, the Company had an annual aggregate maximum cap on employee medical benefits. In
addition, the Company had both an individual per claim maximum loss and an annual aggregate maximum cap on workers' compensation claims.

Stock Based Compensation

The
Company's stock based compensation includes employee stock options. As allowed under SFAS No. 123,Accounting for Stock-Based Compensation,
the Company accounts for its stock options using the "intrinsic value" method permitted by Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock
Issued to Employees. APB No. 25 requires calculation of an intrinsic value of the stock options issued in order to determine compensation expense, if any. Several
valuation models are available for determining intrinsic value. The Company uses the Black-Scholes option-pricing model to determine the intrinsic value of its stock options.

In
conformity with SFAS No. 123 and SFAS No. 148 supplemental disclosures are provided below. Had compensation cost been determined on the basis of SFAS No. 123 for options
granted during 2002, 2001 and 2000, net income and earnings per share would have been adjusted as follows (in thousands, except per share data):

Years Ended December 31,2002

2001

2000Net income:Net income before the effect of employee compensation expense

$
60,911

$
57,666

$
92,167Compensation expense, net of tax


(683
)

(688
)

Net income, as reported

$
60,228

$
56,978

$
92,167Less: Total stock-based employee compensation determined if the fair value method had been used, net of tax


(8,904
)

(4,490
)

(4,216
)Pro forma net income

$
51,324

$
52,488

$
87,951Net Income per Common Share  Basic:As reported

$
1.81

$
1.70

$
2.70Pro forma


1.54


1.56


2.58Net Income per Common Share  Diluted:As reported

$
1.78

$
1.68

$
2.65Pro forma


1.53


1.55


2.53


43

---

The
weighted average assumptions used to value options and the weighted average fair value of options granted during 2002, 2001 and 2000 were as follows:

2002

2001

2000Fair value of options granted

$
9.61

$
12.73

$
13.84Weighted average exercise price


25.37


32.87


28.85Expected stock price volatility


49.4
%

51.0
%

52.8
%Expected dividend yield


0.0
%

0.0
%

0.0
%Risk-free interest rate


2.7


4.6


6.1Expected life of options (years)


3


3


4


Income Taxes

Income
taxes are accounted for using the liability method, under which deferred income taxes are recognized for the estimated tax consequences for temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities. A provision has not been made for deferred U.S. income taxes on the undistributed earnings of the Company's foreign subsidiaries because
these earnings are intended to be permanently invested. Further information on the Company's income taxes is provided in Note 14.

Foreign Currency Translation

The
functional currency for the Company's foreign operations is the local currency. Assets and liabilities of these operations are translated at the rates of exchange at the balance sheet date. The
resulting translation adjustments are included in accumulated other comprehensive loss, a separate component of stockholders' equity. Income and expense items are translated at average monthly rates
of exchange. Realized gains and losses from foreign currency transactions were not material.

Accumulated Other Comprehensive Loss

Accumulated
other comprehensive loss is a component of stockholders' equity and consists of unrealized translation adjustments and minimum pension liability adjustments. At December 31, 2002,
2001 and 2000 other comprehensive loss included the following (amounts in thousands):

As of December 31,2002

2001

2000Unrealized currency translation adjustments

$
(5,173
)
$
(3,196
)
$
(1,716
)Minimum pension liability adjustments, net of tax


(6,811
)




Total comprehensive loss

$
(11,984
)
$
(3,196
)
$
(1,716
)


Balance Sheet Presentation

The
Company receives promotional incentives from certain suppliers based on their participation in the Company's general line catalog and other annual and quarterly publications. These incentives are
recorded as a reduction to cost of goods sold as they are earned over the life of the publications, and the unearned portion is disclosed on the Consolidated Balance Sheets as "deferred credits". The

44

---

uncollected incentives due from suppliers are included in accounts receivable. Prior to the Company's third quarter filing on Form 10-Q, the accounts receivable balance shown on
the Consolidated Balance Sheets included the deferred credits.

For
comparative purposes, the Company adjusted its Consolidated Balance Sheets as of December 31, 2001 and 2000 to conform to the current year presentation. This resulted in an increase to the
previously reported current assets and current liabilities and had no effect on trade accounts receivable days outstanding, working capital, net income, earnings per share or equity. The following
table sets forth the impact of the change in presentation on the previously reported accounts receivable balances and the amounts that would have been shown as deferred credits on the Company's
Consolidated Balance Sheets for the periods presented (dollars in thousands):

As of December 31,2001

2000As Previously Reported:Accounts receivable and retained interest in receivables sold, net

$
311,047

$
329,934Deferred credits





Current Presentation:Accounts receivable and retained interest in receivables sold, net

$
352,047

$
364,324Deferred credits


41,000


34,390


New Accounting Pronouncements

In
January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,Consolidation of Variable Interest Entities. FIN No. 46
addresses consolidation of variable interest entities, including special purpose entities and non-voting controlled entities. FIN No. 46 requires the "primary beneficiary" of a
variable interest entity to consolidate it in its financial statements. However, FIN No. 46 specifically excludes some qualified financing mechanisms, including the Company's Receivables
Securitization Program, from the scope of the interpretation. As a result, the Company does not believe adoption of FIN No. 46 will have a material impact on its financial position or results
of operations.

In
November 2002, the FASB issued FIN No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.FIN No. 45 requires that upon issuance of a guarantee, the guarantor recognize a liability for the fair value of the obligation it assumes under the particular
guarantee. In addition, FIN No. 45 provides new disclosure requirements for all direct and indirect guarantees. Based on current circumstances, the Company does not believe adoption of FIN
No. 45 will have a material impact on its financial position or results of operations.

In
November 2002, the FASB's Emerging Issues Task Force ("EITF") issued EITF Issue No. 02-16,Accounting by a Customer (Including a Reseller) for Cash
Consideration Received from a Vendor,effective for fiscal periods beginning after December 15, 2002. EITF Issue No. 02-16 requires cash consideration
given by a vendor to a customer be recognized in the customer's financial statements as a reduction to cost of goods sold, unless certain limited conditions are met. The Company receives certain
manufacturers' allowances and promotional incentives. These promotional incentives are recorded as a reduction to cost of goods sold to reflect the net inventory purchase cost. The Company is
currently evaluating whether EITF No. 02-16 will have an impact on its financial position or results of operations.

45

---

In
December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and Disclosurean Amendment of FASB
Statement No. 123.SFAS No. 148 provides two alternative methods for accounting for the transition to the fair value based method of accounting for stock-based
compensation. In addition, SFAS No. 148 amends the annual and quarterly disclosure requirements of SFAS No. 123,Accounting for Stock-Based
Compensation. These amended disclosure and transition requirements are effective for fiscal years ending after December 15, 2002. The Company currently accounts for
stock-based compensation using the "intrinsic value" method permitted by Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock Issued to
Employees. The Company provides supplemental disclosures including the pro forma net income and earnings per share as if the fair value based accounting method in SFAS
No. 123 had been used. The Company is continuing to account for stock-based
compensation using the intrinsic value and will continue to provide the required supplemental disclosures. The Company has adopted the disclosure requirements in these financial statements. Based on
current circumstances and the Company's chosen method of accounting for stock-based compensation, the provisions of SFAS No. 148 did not have a material impact on its financial position or
results of operations.

In
July 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities,which is effective for
disposal activities initiated after December 31, 2002. SFAS No. 146 nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,"Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)."SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred rather than recognized at the date of commitment to an exit plan as was dictated
under EITF No. 94-3. The Company will adopt SFAS No. 146 on January 1, 2003, and based on current circumstances, does not believe that this adoption will have a
material impact on its financial position or results of operations.

In
April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, Amendment of FASB Statement No. 13, and Technical
Corrections,which is effective for fiscal years beginning after May 15, 2002. SFAS No. 145 requires gains and losses from extinguishment of debt to be presented
as a gain or loss from continuing operations rather than as an extraordinary item. SFAS No. 145 also amends SFAS No. 13, which requires that certain capital lease modifications be
treated as a sale-leaseback transaction. As a result of the adoption of SFAS No. 145, the Company modified its income statement presentation of the previously reported loss due to
extinguishment of debt taken during the year ended December 31, 2000. The loss of $10.7 million is reported in conformity with SFAS No. 145 in interest expense
(pre-tax) with the offsetting $4.2 million tax benefit included in the income taxes line item.

In
June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations,"which is effective for fiscal years beginning
after June 15, 2002. SFAS No. 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the
obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of
the asset. The Company will adopt SFAS No. 143 on January 1, 2003 and, based on current circumstances, does not believe that the impact of adopting SFAS No. 143 will have a
material impact on its financial position or results of operations.

46

---

3. Restructuring and Other Charges

2002 Restructuring Plan

In
the fourth quarter of 2002, the Company's Board of Directors approved a restructuring plan that includes:



As
part of the 2001 Restructuring Plan (described below), the Company accrued certain exit costs related to facilities that were closed as part of the 2002 Restructuring Plan. At that time, accrued
exit costs were calculated using the most current information available about the Company's ability to sub-lease the closed facilities. Further deterioration in the real estate market for
the type of facilities the Company made available as a result of the 2001 Restructuring Plan has resulted in unexpected difficulties in subleasing these facilities. As a result, additional charges
related to revised real estate sub-lease assumptions as compared to those used in the 2001 restructuring plan are included in the December 31, 2002 restructuring plan.

The
further downsizing of TOP's operations includes termination of fulfillment contracts with third-party customers. The Company will provide assistance with logistics in moving third-party customer
products to new fulfillment providers in order to insure a smooth transition. In addition, the 2002 Restructuring Plan includes severance and anticipated exit costs related to a portion of the
Company's Memphis distribution center as a result of the further downsizing of TOP.

The
restructuring plan includes workforce reductions of 105 associates. These positions primarily relate to TOP and the closure of the Milwaukee, Wisconsin distribution center. The associate groups
affected by the restructuring plan include management personnel, inside and outside sales representatives, distribution workers, and hourly administrative staff. The restructuring plan calls for all
initiatives to be completed within approximately one year from the commitment date.

During
the fourth quarter of 2002, the Company recorded pre-tax restructuring and other charges of $8.9 million, or $0.17 per share (on an after-tax basis). These
charges include a pre-tax cash charge of $6.9 million and a $2.0 million non-cash charge. The major components of the restructuring charge and the remaining
accrual balance as of December 31, 2002, are as follows (in thousands):

|                                                      |  | Employment
Termination and
Severance Costs |     | Accrued
Exit Costs |   | Total Accrued
Restructuring
Charge |  | Non-Cash
Asset
Write-Downs |       | Total
Restructuring
and Other Charges |  
|----------------------------------------------------- |  | ------------------------------------------ | --- | ------------------ | - | ---------------------------------- |  | -------------------------- | ----- | ------------------------------------- | -
|Restructuring and other charges                       |  | $                                          | 448 |                    | $ | 6,484                              |  | $                          | 6,932 |                                       | $
|Amounts utilized during the fourth quarter of 2002    |  |                                            | (40 | )                  |   |                                   |  |                            | (40   | )                                     |  
|                                                      |  |                                            |     |                    |   |                                    |  |                            |       |                                       |  
|Accrued restructuring costs  as of December 31, 2002 |  | $                                          | 408 |                    | $ | 6,484                              |  | $                          | 6,892 |                                       | $
|                                                      |  |                                            |     |                    |   |                                    |  |                            |       |                                       |  

47

---

Employment
termination and severance costs relate to involuntary terminations and reflect cash termination payments to be paid to associates affected by the restructuring plan. Healthcare benefits and
career transition services are included in the termination and severance costs. The restructuring plan allows associates to continue their participation in the Company's healthcare plan during the
term of their severance.

Accrued
exit costs are primarily contractual lease obligations that existed prior to December 31, 2002, for buildings and office equipment that the Company had used in its closed or downsized
facilities.

As
of December 31, 2002, the Company completed the closure of the Milwaukee distribution center and reduced the Company's overall workforce by 47 associates through an involuntary termination
program. Implementation costs associated with this restructuring plan are not expected to be material.

Non-cash
asset write-downs of $2.0 million relate to certain e-commerce-related investments. Based on substantial operating losses, management has determined that the
value of these investments is permanently impaired. Therefore, the book value of these investments has been written-down.

2001 Restructuring Plan

In
the third quarter of 2001, the Company's Board of Directors approved a restructuring plan that included:



The
restructuring plan called for a workforce reduction of 1,375. These positions primarily related to TOP and call center operations. The associate groups affected by the restructuring plan included
management personnel, inside and outside sales representatives, call center associates, distribution workers, and hourly administrative staff. As of December 31, 2002, the restructuring plan
initiatives are complete.

During
the third quarter 2001, the Company recorded a pre-tax restructuring charge of $47.6 million, or $0.85 per share (on an after-tax basis). This charge included a
pre-tax cash charge of $31.7 million and a

48

---

$15.9 million non-cash charge. The major components of the restructuring charge and the remaining accrual balance as of December 31, 2002, are as follows (in thousands):

|                                                      |             | Employment Termination and Severance Costs |         | Accrued Exit Costs |   | Total Accrued Restructuring Charge |        | Non-Cash Asset Write-Downs |         | Total Restructuring Other Charges |  
|----------------------------------------------------- | ----------- | ------------------------------------------ | ------- | ------------------ | - | ---------------------------------- | ------ | -------------------------- | ------- | --------------------------------- | -
|Restructuring charge                                  |             | $                                          | 19,189  |                    | $ | 12,489                             |        | $                          | 31,678  |                                   | $
|Amounts reversed into income:                         |             |                                            |         |                    |   |                                    |        |                            |         |                                   |  
|                                                      | During 2002 |                                            |         | (503               | ) |                                    | (197   | )                          |         | (700                              | )
|Amounts utilized:                                     |             |                                            |         |                    |   |                                    |        |                            |         |                                   |  
|                                                      | 2001        |                                            |         | (3,023             | ) |                                    | (1,226 | )                          |         | (4,249                            | )
|                                                      | 2002        |                                            |         | (13,233            | ) |                                    | (2,627 | )                          |         | (15,860                           | )
|                                                      |             |                                            |         |                    |   |                                    |        |                            |         |                                   |  
|Total amounts utilized                                |             |                                            | (16,256 | )                  |   | (3,853                             | )      |                            | (20,109 | )                                 |  
|                                                      |             |                                            |         |                    |   |                                    |        |                            |         |                                   |  
|Accrued restructuring costs  as of December 31, 2002 |             | $                                          | 2,430   |                    | $ | 8,439                              |        | $                          | 10,869  |                                   | $
|                                                      |             |                                            |         |                    |   |                                    |        |                            |         |                                   |  

The
non-cash asset write-downs of $15.9 million were primarily the result of facility closures and business divestitures, including $8.8 million related to property, plant
and equipment and $7.1 million related to goodwill. Asset write-downs were based on management's estimate of net realizable value. Proceeds from the sale of certain assets exceeded the
estimated net realizable value, resulting in the reversal of $1.7 million during the first quarter of 2002.

Employment
termination and severance costs were related to voluntary and involuntary terminations and reflected cash termination payments to be paid to associates affected by the restructuring plan.
Severance-related costs (healthcare benefits and career transition services) were included in the termination and severance costs. The restructuring plan allowed associates to continue their
participation in the Company's healthcare plans during the term of their severance. During the first quarter of 2002, the Company reversed $0.5 million of severance-related costs due to such
costs being lower than originally estimated.

Accrued
exit costs were primarily contractual lease obligations that existed prior to September 30, 2001 for buildings that the Company had closed. During the first quarter of 2002, the Company
reversed $0.2 million of accrued exit costs as a result of such costs being lower than originally estimated.

Implementation
costs were recognized as incurred and consisted of costs directly related to the realization of the restructuring plan. These costs included training, stay bonuses, consulting fees,
costs to relocate inventory, and accelerated depreciation. Implementation costs incurred during 2002 and 2001 totaled $5.9 million and $2.2 million, respectively. Accumulated
implementation costs incurred for the period September 30, 2001 through December 31, 2002 were $8.1 million. The Company does not expect any further implementation costs related
to this restructuring plan.

As
of December 31, 2002, the Company had completed the closure of 10 distribution centers and three USSC call centers, eliminated one administrative office, divested the call center operations
dedicated to serving TOP's clients and implemented its organizational restructuring and workforce reduction. As a result, the Company reduced its workforce by 1,375 associates through its voluntary
and involuntary

49

---

termination programs. The Company does not expect any further workforce reductions as a result of this restructuring plan.

While
the 2001 Restructuring Plan is complete, cash payments related to this plan are expected to continue through the next several years. Employment termination and severance payments are expected to
continue over the next six months. Payments related to accrued exit costs are expected to continue through the next seven years since they relate to long-term leases.

4. Segment Information

The
Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information,"in 1998. SFAS No. 131 requires
companies to report financial and descriptive information about their reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segment assets,
as well as information about the revenues derived from the company's products and services, the countries in which the company earns revenues and holds assets, and major customers. This statement also
requires companies that have a single reportable segment to disclose information about products and services, information about geographic areas, and information about major customers. This statement
requires the use of the management approach to determine the information to be reported. The management approach is based on the way management organizes the enterprise to assess performance and make
operating decisions regarding the allocation of resources. SFAS No. 131 permits the aggregation, based on specific criteria, of several operating segments into one reportable operating segment.
Management has chosen to aggregate its operating segments and report segment information as one reportable segment. A discussion of the factors relied upon and processes undertaken by management in
determining that the Company meets the aggregation criteria is provided below, followed by the required disclosure regarding the Company's single reportable segment.

Management
defines operating segments as individual operations that the Chief Operating Decision Maker ("CODM") (in the Company's case, the President and Chief Executive Officer) reviews for the
purpose of assessing performance and making operating decisions. When evaluating operating segments, management considers whether:



Based
on the factors referenced above, management has determined that the Company has two operating segments, USSC (referred to by the Company as "Supply"), the first-tier operating
subsidiary of United and Lagasse. Supply also includes operations in Canada and Mexico conducted through a USSC unincorporated branch and subsidiary, respectively, as well as Azerty, which has been
operationally consolidated into Supply.

Management
has also concluded that the Company's two operating segments meet all of the aggregation criteria required by in SFAS 131. Such determination is based on company-wide
similarities

50

---

in (1) the nature of products and/or services provided, (2) customers served, (3) production processes and/or distribution methods used, (4) economic characteristics
including gross margins and operating expenses and (5) regulatory environment. Management further believes aggregate presentation provides more useful information to the financial statement
user and is, therefore, consistent with the principles and objectives of SFAS No. 131.

The
following discussion sets forth the required disclosure regarding single reportable segment information:

The
Company operates as a single reportable segment as the largest general line business products wholesaler in the United States and a provider of marketing and logistics services to resellers, with
2002 net sales of $3.7 billionincluding foreign operations in Canada and Mexico. For the years ended December 31, 2002, 2001 and 2000, the Company's net sales from foreign
operations in Canada were $179.0 million, $180.4 million and $89.6 million, respectively. Net sales from foreign operations in Mexico totaled $68.9 million,
$65.8 million and $62.7 million for 2002, 2001 and 2000, respectively. The Company offers approximately 40,000 items from more than 500 manufacturers. This includes a broad spectrum of
office products, computer supplies, office furniture, business machines, presentation products and facilities management supplies. The Company primarily serves commercial and contract office products
dealers. The Company sells its products through a national distribution network to more than 15,000 resellers, who in turn sell directly to end-users. These products are distributed
through a computer-based network of 35 USSC regional 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 distribution centers that serve the Canadian marketplace. During the second quarter of 2002, the computer systems and product offerings of Azerty were
integrated into USSC. In connection with this integration, the Company closed four separate U.S. Azerty distribution centers. At December 31,
2002 and 2001, long-lived assets of the Company's foreign operations in Canada were $11.6 million and $11.7 million, respectively. Long-lived assets of the Company's foreign
operatons in Mexico were $4.0 million for each of 2002 and 2001.

The
Company's product offerings, comprised of more than 40,000 stockkeeping units (SKUs), may be divided into five primary categories. (i) The Company's primary business continues to be
traditional office products, which includes both brand name products and the Company's private brand products. Traditional office products include writing instruments, paper products, organizers and
calendars and various office accessories. (ii) The Company also offers computer supplies, and peripherals to computer resellers and office products dealers. (iii) The Company's sale of
office furniture, such as leather chairs, wooden and steel desks and computer furniture. The Company currently offers nearly 5,500 furniture items from 60 different manufacturers. (iv) A fourth
category is facility supplies, including janitorial and sanitation supplies, safety and security items, and shipping and mailing supplies. The Company distributes these products through 24 Lagasse
distribution centers to sanitary supply dealers. (v) The Company also distributes business machines and presentation products.

The
Company's customers include office products dealers, mega-dealers, office furniture dealers, office products superstores and mass merchandisers, mail order companies, computer products
resellers, sanitary supply distributors and e-commerce dealers. The Company's two largest customers each accounted for approximately 6% of the Company's annual net sales.

51

---

The
following table sets forth net sales by product category (dollars in millions):

Years Ended December 31,2002

2001

2000Traditional office products

$
1,129

$
1,245

$
1,356Computer consumables


1,256


1,349


1,288Office furniture


449


499


513Facilities supplies


405


402


310Business machines and presentation products


362


352


385Freight revenue


50


60


64Other


51


19


29Total net sales

$
3,702

$
3,926

$
3,945


5. Other Expense

The
following table sets forth the components of other expense (dollars in thousands):

Years Ended December 31,2002

2001

2000Loss on sale of accounts receivable, net of servicing revenue

$
1,909

$
7,045

$
11,133Other


512


(2,424
)(1)

68Total

$
2,421

$
4,621

$
11,201


---

6. Receivables Securitization Program

General

As
part of the Company's overall financing strategies, it utilized a standard third-party receivables securitization program (the "Receivables Securitization Program") to provide low-cost
funding. Under this $163.0 million program, the Company sold, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially
included all accounts receivable from Lagasse and the Company's foreign subsidiaries) to the Receivables Company, a wholly owned offshore, bankruptcy-remote special purpose limited liability company.
This company in turn ultimately transferred the eligible trade accounts receivable to a trust, for which the trustee was JPMorgan Chase Bank. The trustee then sold investment certificates to
third-party investors, which were backed by the accounts receivable owned by the trust. As a result of the short average collection cycle referred to below, proceeds from the collections under this
revolving agreement were $3.1 billion for 2002 and $2.8 billion for 2001. Affiliates of PNC Bank and JPMorgan Chase acted as funding agents. The funding agents, together with other
commercial banks rated at least A-1/P-1, provided standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day
liquidity facilities.

52

---

The
documents evidencing the Receivables Securitization Program required the Receivables Company to comply with certain affirmative and negative covenants customary for facilities of this
type, including, among others, requirements to maintain a separate corporate existence from USSC and its affiliates and to maintain a minimum net worth of $45 million at all times. USSC acted
as the servicer of the accounts receivable on behalf of the trustee, for which it receives a fee, and was required to deliver reports regarding the accounts receivable and related collections, as well
as to comply with certain other covenants set forth in the servicing agreement. The sale of accounts receivable included not only those eligible trade accounts receivable that existed on the closing
date of the Receivables Securitization Program, but also eligible trade accounts receivable created thereafter. In the ordinary course, the Receivables Company used collections received by the trust
to make distributions to USSC (subject to compliance with the Receivables Company's corporate formalities and the restrictions set forth in the documents evidencing the Receivables Securitization
Program); however, in the event that receivables quality fails to satisfy certain standards, the trustee could retain the collections on the accounts receivable held by the trust and will use such
collections to repay amounts owed to the trust by the Receivables Company. Upon the occurrence of such an event, USSC would cease selling its trade accounts receivable into the Receivables
Securitization Program.

On
March 28, 2003, USSC replaced its Receivables Securitization Program (defined above) with a third-party receivables securitization program with Bank One, NA, as trustee (the "New Receivables
Securitization Program"). The maximum funding from the program at any one time increased from $160 million under the former program to $225 million under the new program. Under this
program, USSC sells, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable from Lagasse,
Canada and foreign subsidiaries) to the Receivables Company. The Receivables Company, in turn, ultimately transfers the eligible trade accounts receivable to a trust. The trustee then sells investment
certificates, which represent an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Affiliates of PNC Bank and Bank One act as funding agents. The
funding agents provide standby liquidity funding to support the sale of the accounts receivable by the receivables company under 364-day liquidity facilities. The New 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.

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. For the
years ended December 31, 2002 and 2001, the Company had decided to sell $105 million and $125 million of trade accounts receivable, respectively. Accordingly, trade accounts
receivable of $105 million in 2002, and $125 million in 2001 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, less allowance for doubtful accounts". For further information on the Company's retained interest in the master trust, see the caption "Retained Interest"
included herein below.

53

---

The
Company recognizes certain costs and/or losses related to the Receivables Securitization Program. Costs related to this facility vary on a daily basis and generally are related to certain
short-term interest rates. The interest rate on the certificates issued under the Receivables Securitization Program during 2002 ranged between 1.5% and 2.1% annually. Losses recognized on
the sale of accounts receivable totaled approximately $1.9 million and $7.0 million in 2002 and 2001, respectively. Proceeds from the collections under this revolving agreement were
$3.1 billion and $2.8 billion in 2002 and 2001, respectively. All costs and/or losses related to the Receivables Securitization Program are included in the Consolidated Statements of
Income under the caption, "Other Expense, net".

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

Retained Interest

The
Receivables Company determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount. It retains a residual interest in the eligible receivables
transferred to the trust, such that amounts payable in respect of such residual interest will be distributed to the Receivables Company upon payment in full of all amounts owed by the Receivables
Company to the trust (and by the trust to the investors). The Company's retained interest on $298.7 million and $244.8 million of trade receivables in the master trust as of
December 31, 2002 and 2001 was $191.6 million and $117.6 million, respectively. The Company's retained interest in the master trust is included in the Consolidated Financial
Statements under the caption, "Retained Interest in Receivables Sold, less allowance for doubtful accounts".

The
Company measures the fair value of its retained interest throughout the term of the 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 our financial position or results of operations. No accounts
receivable sold to the master trust were written off during 2002 or 2001.

7. Earnings Per Share

Basic
earnings per share ("EPS") is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that
could occur if dilutive securities were exercised into common stock. Stock options and deferred stock units are considered dilutive securities.

54

---

The
following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

Years Ended December 31,2002

2001

2000Numerator:Net income

$
60,228

$
56,978

$
92,167Denominator:Denominator for basic earnings per share Weighted average shares


33,240


33,561


34,101Effect of dilutive securities:Employee stock options


543


367


674Denominator for diluted earnings per share -Adjusted weighted average shares and the effect of dilutive securities


33,783


33,928


34,775Net income per common share:Net income per share  basic

$
1.81

$
1.70

$
2.70Net income per share  assuming dilution

$
1.78

$
1.68

$
2.65


8. Long-Term Debt

United
is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its operating subsidiary, USSC, and from borrowings by USSC. The Credit
Agreement (as defined below) and the indentures governing the Company's 8.375% Notes (as defined below) contain restrictions on the ability of USSC to transfer cash to United.

Long-term
debt consisted of the following amounts (dollars in thousands):

As of December 31,2002

2001Tranche A term loan, due in installments until March 31, 2004

$
18,251

$
32,331Tranche A-1 term loan, due in installments until June 30, 2005


78,125


109,3758.375% Senior Subordinated Notes, due April 15, 2008


100,000


100,000Industrial development bonds, at market-based interest rates, maturing at various dates through 2011


6,800


14,300Industrial development bonds, at 66% to 78% of prime, maturing at various dates through 2004


8,000


15,500Other long-term debt


73


199Subtotal


211,249


271,705Less  current maturities


(45,904
)

(52,970
)Total

$
165,345

$
218,735


The
Company utilizes both fixed rate and variable rate debt. Approximately 32% of the outstanding debt and receivables sold under the Receivables Securitization Program (see Note 6) is priced
at interest

55

---

rates that are fixed. The Company's variable rate debt is based primarily on the applicable prime or LIBOR rate. The prevailing prime interest rates at the end of 2002 and 2001 were 4.25% and 4.75%,
respectively. The LIBOR rate at the end of 2002 was 1.45%, compared to 2.45% at the end of 2001.

Credit Agreement

At
December 31, 2002, the Company had a senior secured credit facility dated April 3, 1998. USSC, as borrower, and United, as guarantor, entered into the Third Amended and Restated
Revolving Credit Agreement, dated as of June 29, 2000, and Amendment No. 1 to the Third Amended and Restated Revolving Credit Agreement dated as of May 7, 2002, (as amended, the
"Credit Agreement"), with various lenders and the administrative agent named therein. The Credit Agreement, among other things, provided a facility ("Tranche A Term Loan Facility") for the
continuation of the term loans outstanding as of its effective date under the prior credit agreement; an additional $150.0 million aggregate principal amount, five-year term loan
facility (the "Tranche A-1 Term Loan Facility" and, together with the Tranche A Term Loan Facility, the "Term Loan Facilities"); and a revolving credit facility of up to
$250.0 million aggregate principal amount (the "Revolving Credit Facility").

As
of December 31, 2002, the aggregate principal amount of debt outstanding under the Term Loan Facilities included $96.4 million of term loan borrowings. This consisted of
$18.3 million under the Tranche A Term Loan Facility and $78.1 million under the Tranche A-1 Term Loan Facility. Amounts outstanding under the Tranche A Term Loan Facility
were scheduled to be repaid in five quarterly
installments of $3.7 million. Amounts outstanding under the Tranche A-1 Term Loan Facility were scheduled to be repaid in 10 quarterly installments of $7.8 million.

The
Credit Agreement was limited by its terms to $250.0 million in aggregate principal amount, less the aggregate amount of outstanding letters of credit obligations under the facility. The
Revolving Credit Facility was scheduled to mature on March 31, 2004. As of December 31, 2002, the Company had $229.8 million available under its Revolving Credit Facility after
deducting certain outstanding letter-of-credit obligations of $20.2 million. Availability was effectively further reduced based on limitations imposed by financial
covenants under the Credit Agreement.

USSC's
obligations under the Credit Agreement were guaranteed by United and secured by a first-priority pledge by United of USSC's stock. Additionally, USSC's obligations under the Credit Agreement
were guaranteed by its direct and indirect subsidiaries (the "Affiliated Guarantors"), which exclude TOP, USS Receivables Company, Ltd. (the "Receivables Company") and other foreign
subsidiaries.

As
collateral security for the obligations of USSC and the Affiliated Guarantors, security interests and liens were placed upon accounts receivable and related instruments, inventory, equipment,
contract rights, intellectual property and all other tangible and intangible personal property (including proceeds) and fixtures and certain real property of USSC and the Affiliated Guarantors, other
than accounts receivable sold in connection with the Receivables Securitization Program (as defined). These obligations were secured by first priority pledges of all of the outstanding stock of USSC
and its domestic direct and indirect subsidiaries, including Lagasse and Azerty but excludingTOP, as well as a portion of the stock of identified foreign direct and indirect subsidiaries of USSC
excluding the Receivables Company.

56

---

The
Credit Agreement contained representations and warranties, affirmative and negative covenants, and events of default customary for financing of this type. The Company was in compliance at
December 31, 2002 with the covenants contained in the Credit Agreement.

The
right of United to participate in any distribution of earnings or assets of USSC was subject to the prior claims of the creditors of USSC. In addition, the Credit Agreement contains certain
restrictive covenants, including covenants that restricted or prohibited USSC's ability to pay cash dividends and make other distributions to United.

Debt
maturities under the Credit Agreement as of December 31, 2002, were as follows (dollars in thousands):

Year

Amount(1)2003

$
45,9042004


42,9202005


15,6252006


2007


Later years


106,800Total

$
211,249


---

As
of December 31, 2002 and 2001, the Company had issued letters of credit of $24.9 million and $38.6 million, respectively, of which $22.7 million and
$36.0 million, respectively, were outstanding.

New Credit Agreement

On
March 21, 2003, the Company replaced its existing senior secured credit facility by entering into a new Five-Year Revolving Credit Agreement (the "New Credit Agreement") dated as
of March 21, 2003 by and among USSC, as borrower, and United, as guarantor, the various lenders and Bank One, NA, as administrative agent. The New Credit Agreement provides for a revolving
credit facility
with an aggregate committed amount of $275 million. USSC may, upon the terms and conditions of the New Credit Agreement, seek additional commitments from its current or new lenders to increase
the aggregate committed principal amount under the facility to a total amount of up to $325.0 million.

The
New Credit Agreement provides for the issuance of letters of credit for amounts totaling up to a sublimit of $90.0 million. It also provides a sublimit for swingline loans in an aggregate
principal amount not to exceed $25.0 million at any one time outstanding. These amounts, as sublimits, do not increase the aggregate committed amount, and any undrawn issued letters of credit
and all outstanding swingline loans under the facility reduce the remaining availability. The revolving credit facility matures on March 21, 2008.

57

---

Obligations
of USSC under the New Credit Agreement are guaranteed by United and certain of USSC's domestic subsidiaries. USSC's obligations under the New Credit Agreement and the guarantors'
obligations under the guaranty are secured by liens on substantially all assets, including accounts, 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 New 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 New 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, the London Interbank Offered Rate ("LIBOR") (as it may be adjusted for reserves) plus a margin of 1.25% to 2.25% per annum, or a combination thereof. The margins applicable
to floating rate and LIBOR loans are determined by reference to a pricing matrix based on the total leverage of United and its consolidated subsidiaries. Initial applicable margins are 0.50% and
2.00%, respectively.

The
Credit Agreement contains representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type.

8.375% Senior Subordinated Notes

The
8.375% Senior Subordinated Notes ("8.375% Notes" or the "Notes") were issued on April 15, 1998, under the 8.375% Notes Indenture. At December 31, 2002, the aggregate outstanding
principal amount of 8.375% Notes was $100.0 million. The 8.375% Notes are unsecured senior subordinated obligations of USSC, and payment of the Notes is fully and unconditionally guaranteed by
the Company and USSC's domestic "restricted" subsidiaries that incur indebtedness (as defined in the 8.375% Notes Indenture) on a senior subordinated basis. The Notes mature on April 15, 2008,
and bear interest at the rate of 8.375% per annum, payable semi-annually on April 15 and October 15 of each year. The 8.375% Notes are redeemable at the option of USSC at any
time on or after April 15, 2003, in whole or in part, at the following redemption prices (expressed as percentages of principal amount):

Year Beginning April 15,

Redemption
Price2003

104.188
%2004

102.792
%2005

101.396
%


After 2005, the Notes are payable at 100% of the principal amount, in each case together with accrued and unpaid interest, if any, to the redemption date.

Upon
the occurrence of a change of control (which includes the acquisition by any person or group of more than 50% of the voting power of the outstanding common stock of either United or USSC, or
certain significant changes in the composition of the Board of Directors of either United or USSC), USSC would be obligated to offer to redeem all or a portion of each holder's 8.375% Notes at 101% of
the principal amount, together with accrued and unpaid interest, if any, to the date of the redemption.

The
Indenture governing the Notes contains certain affirmative and negative covenants applicable to USSC and its subsidiaries which are customary for financings of this type, including, among others,

58

---

restrictions on the ability of USSC to make distributions to United (conditioned on the absence of a default, cumulative aggregate dollar limitations and the satisfaction of a debt incurrence test)
and on the ability of USSC and its subsidiaries to enter into transactions with their affiliates (which, in addition to conditions similar to those described above with respect to the comparable
covenant
under the Credit Agreement, may require Board approval and a fairness opinion if above prescribed dollar values). The restrictions imposed are of the same nature as those under the Credit Agreement,
but are generally less restrictive.

In
addition, the 8.375% Notes Indenture contains certain covenants, including limitations on the incurrence of indebtedness, the making of restricted payments, the existence of liens, disposition of
proceeds of asset sales, the making of guarantees by restricted subsidiaries, transfer and issuances of stock of subsidiaries, the imposition of certain payment restrictions on restricted subsidiaries
and certain mergers and sales of assets. The 8.375% Notes Indenture also permits the issuance of up to $100.0 million aggregate principal amount of additional 8.375% Notes having substantially
identical terms and conditions to the 8.375% Notes, subject to compliance with the covenants contained in the 8.375% Notes Indenture, including compliance with the restrictions contained in the 8.375%
Notes Indenture relating to incurrence of indebtedness.

On
March 28, 2003, the trustee for the Company's Notes sent notice at the Company's request to the holders of the Notes of its intention to redeem $100.0 million principal amount of the
Notes at the redemption price of 104.188% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption. The redemption is expected to be completed on April 28,
2003 and, as a result of the redemption, no Notes will be outstanding after such date.

9. Leases

The
Company has entered into non-cancelable long-term leases for certain property and equipment. Future minimum lease payments under operating leases in effect at
December 31, 2002 having initial or remaining non-cancelable lease terms in excess of one year are as follows (dollars in thousands):

Year

Operating Leases(1)2003

$
43,8152004


38,9972005


34,4762006


28,1572007


21,999Later years


52,999Total minimum lease payments

$
220,443


---

Operating lease expense was approximately $48.0 million, $44.7 million, and $31.0 million in 2002, 2001, and 2000, respectively.

59

---

10. Pension Plans and Defined Contribution Plan

Pension Plans

As
of December 31, 2002, the Company has pension plans covering approximately 4,351 of its employees. Non-contributory plans covering non-union employees provide pension
benefits that are based on years of credited service and a percentage of annual compensation. Non-contributory plans covering union members generally provide benefits of stated amounts
based on years of service. The Company funds the plans in accordance with current tax laws. The Company uses October 31 as its measurement date to determine its pension obligations.

The
following table sets forth the plans' changes in Projected Benefit Obligation for the years ended December 31, 2002 and 2001 (amounts in thousands):

2002

2001Benefit obligation at beginning of year

$
55,526

$
44,419Service costbenefit earned during the period


3,873


3,452Interest cost on projected benefit obligation


4,005


3,463Amendments


198


Actuarial loss


4,600


6,053Curtailment loss (gain)


178


(486
)Benefits paid


(1,733
)

(1,375
)Benefit obligation at end of year

$
66,647

$
55,526


The plans' assets consist of corporate and government debt securities and equity securities. The following table sets forth the change in the plans' assets for
the years ended December 31, 2002 and 2001 (dollars in thousands):

2002

2001Fair value of assets at beginning of year

$
43,689

$
56,847Actual return on plan assets


(2,027
)

(12,213
)Company contributions


30


430Benefits paid


(1,733
)

(1,375
)Fair value of plan assets at end of year

$
39,959

$
43,689


The following table sets forth the plans' funded status as of December 31, 2002 and 2001 (dollars in thousands):

2002

2001Funded status of the plan

$
(26,688
)
$
(11,837
)Company contributions after measurement date


599


Unrecognized prior service cost


1,244


1,293Unrecognized net actuarial loss


18,194


8,301Net amount recognized

$
(6,651
)
$
(2,243
)


60

---

Net periodic pension cost for the years ended December 31, 2002, 2001 and 2000 for pension and supplemental benefit plans includes the following
components (dollars in thousands):

2002

2001

2000Service costbenefit earned during the period

$
3,873

$
3,452

$
3,171Interest cost on projected benefit obligation


4,005


3,463


2,997Expected return on plan assets


(3,666
)

(4,809
)

(4,114
)Amortization of prior service cost


133


126


111Plan curtailment loss


416


10


Amortization of actuarial loss (gain)


276


(825
)

(623
)Net periodic pension cost

$
5,037

$
1,417

$
1,542


The assumptions used in accounting for the Company's defined benefit plans are set forth below:

2002

2001

2000Assumed discount rate

6.75
%
7.25
%
7.75
%Rate of compensation increase

5.00
%
5.00
%
5.50
%Expected long-term rate of return on plan assets

8.25
%
8.50
%
8.50
%


To select the appropriate actuarial assumptions, management relied on current market conditions, historical information and consultation with and input from the
Company's outside actuaries. 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 2002 of approximately $1.8 million.

Defined Contribution Plan

The
Company has a defined contribution plan. Salaried employees and non-union hourly paid employees are eligible to participate after completing six consecutive months of employment. The
plan permits employees to have contributions made as 401(k) salary deferrals on their behalf, or as voluntary after-tax contributions, and provides for Company contributions, or
contributions matching employees' salary deferral contributions, at the discretion of the Board of Directors. Company contributions to match employees' contributions were approximately
$3.0 million, $3.6 million and $3.1 million in 2002, 2001 and 2000, respectively.

11. Postretirement Health Benefits

The
Company maintains a postretirement plan. The plan is unfunded and provides healthcare benefits to substantially all retired non-union employees and their dependents. Eligibility
requirements are based on the individual's age (minimum age of 55), years of service and hire date. The benefits are subject to retiree contributions, deductible, co-payment provision and
other limitations. The following tables set

61

---

forth the plan's change in Accrued Postretirement Benefit Obligation ("APBO"), plan assets and funded status for the years ended December 31, 2002 and 2001 (dollars in thousands):

2002

2001Benefit obligation at beginning of year

$
5,542

$
4,780Service costbenefit earned during the period


530


620Interest cost on projected benefit obligation


390


366Plan participants' contributions


183


151Actuarial loss


280


93Curtailment gain





(202
)Benefits paid


(311
)

(266
)Benefit obligation at end of year

$
6,614

$
5,542Fair value of assets at beginning of year

$


$
Company contributions


128


115Plan participants' contributions


183


151Benefits paid


(311
)

(266
)Fair value of assets at end of year

$


$
Funded status of the plan

$
(6,614
)
$
(5,542
)Unrecognized net actuarial loss


280


Accrued postretirement benefit obligation in the Consolidated Balance Sheets

$
(6,334
)
$
(5,542
)


The costs of postretirement healthcare benefits for the years ended December 31, 2002, 2001 and 2000 were as follows (dollars in thousands):

2002

2001

2000Service costbenefit earned during the period

$
530

$
620

$
574Interest cost on projected benefit obligation


390


366


335Curtailment gain





(174
)

Net periodic postretirement benefit cost

$
920

$
812

$
909


The assumptions used in accounting for the Company's postretirement plan for the three years presented are set forth below:

2002

2001

2000Assumed average health care cost trend

3.00
%
3.00
%
3.00
%Assumed discount rate

6.75
%
7.25
%
7.75
%


The postretirement plan states that the Company's medical cost increases for current and future retirees and their dependents are capped at 3%. Because annual
medical cost increases are trending above 4% and the Company's portion of any increase is capped at 3%, a 1% increase or decrease in these costs will have no effect on the APBO, the service cost or
the interest cost.

62

---

12. Stock Option and Incentive Plans

The
Company has four stock option and incentive plans. The 1992 Management Equity Plan and the 2000 Management Equity Plan (collectively referred to as the "Plans") are administered by the Human
Resources Committee, or the Board of Directors or by such other committee, as determined by the Board of Directors of the Company. The Plans provide for the issuance of common stock, through the
exercise of options, to members of the Board of Directors and to key employees of the Company, either as incentive stock options or as non-qualified stock options.

During
2002, 2001 and 2000, options of approximately 1.4 million, 1.1 million and 1.0 million, respectively, were granted under the Plans to management employees and directors,
with option exercise prices equal to fair market value, generally vesting ratably between three and five years and generally expire 10 years from the date of grant. As of December 31,
2002, there were 2.1 million shares available for future grant. The Company recorded compensation expense for all of its stock option and incentive plans of $1.1 million for each of 2002
and 2001. Compensation expense for 2002 includes charges related to the acceleration of vesting periods on certain stock options.

An
optionee under the Plans must pay the full option price upon exercise of an option (i) in cash; (ii) with the consent of the Board of Directors, by delivering mature shares of common
stock already owned by the optionee and having a fair market value at least equal to the exercise price; or (iii) in any combination of the above. The Company may require the optionee to
satisfy federal tax withholding obligations with respect to the exercise of options by (i) additional withholding from the employee's salary, (ii) requiring the optionee to pay in cash,
or (iii) reducing the number of shares of common stock to be issued to meet only the minimum statutory withholding requirement (except in the case of incentive stock options).

The
following table summarizes the transactions of the Plans for the last three years:

|Management Equity Plans
(excluding restricted stock) |  | 2002      |   | Weighted
Average
Exercise
Price |  | 2001      |   | Weighted
Average
Exercise
Price |  | 2000      |   | Weighted
Average
Exercise
Price
|---------------------------------------------------- |  | --------- | - | ------------------------------- |  | --------- | - | ------------------------------- |  | --------- | - | -------------------------------
|Options outstandingJanuary 1                        |  | 3,183,928 |   | 25.29                           |  | 3,430,555 |   | 23.13                           |  | 2,968,875 |   | 19.60                          
|Granted                                              |  | 1,350,962 |   | 25.37                           |  | 1,093,740 |   | 32.87                           |  | 984,100   |   | 28.85                          
|Exercised                                            |  | (276,696  | ) | 22.98                           |  | (640,084  | ) | 20.43                           |  | (396,480  | ) | 10.82                          
|Canceled                                             |  | (169,558  | ) | 27.63                           |  | (700,283  | ) | 27.61                           |  | (125,940  | ) | 23.40                          
|                                                     |  |           |   |                                 |  |           |   |                                 |  |           |   |                                
|Options outstandingDecember 31                      |  | 4,088,636 |   | 25.37                           |  | 3,183,928 |   | 25.29                           |  | 3,430,555 |   | 23.13                          
|                                                     |  |           |   |                                 |  |           |   |                                 |  |           |   |                                
|Number of options exercisable                        |  | 1,882,842 |   | 23.30                           |  | 977,253   |   | 19.66                           |  | 834,225   |   | 19.04                          

The following table summarizes outstanding options granted under the Plans as of December 31, 2002:

Exercise
Prices

Outstanding

Remaining
Contractual
Life (Years)

Exercisable$10.8120.00

470,383

4.5

470,38320.0125.00

1,277,110

7.6

579,24025.0130.00

1,398,502

9.0

430,99630.0135.00

912,641

8.4

402,22335.0140.00

30,000

9.2

Total

4,088,636

7.8

1,882,842


63

---

Retention Grant Plan

During
2001, the Company established a Retention Grant Plan (the "Retention Plan") to retain key executives and to provide additional incentive for such key executives to achieve the objectives and
promote the business success of the Company by providing such individuals opportunities to acquire common shares of the Company through the settlement of deferred stock units. Each deferred stock unit
is equal to one share of the Company's common stock. The maximum number of deferred stock units that may be granted under the Retention Plan is 270,000. During 2001, 100,000 deferred stock units were
granted with a cliff vesting of eight years, subject to certain accelerated vesting conditions. The value of the grant of $24.25 per deferred stock unit was established by the market price of the
Company's common stock on the date of the grant. As a result of meeting the accelerated vesting conditions, 25,000 deferred stock units vested during 2002. The remaining 75,000 stock units were
forfeited. During 2002 and 2001, the Company recorded $0.4 million and $0.2 million of compensation expense in connection with the Retention Plan.

Directors Grant Plan

During
2001, the Company established a Directors Grant Plan (the "Directors Plan") to retain directors who are not employees of the Company and to provide additional incentive for such directors to
achieve the objectives and promote the business success of the Company by providing such individuals opportunities to acquire common shares of the Company through the settlement of deferred stock
units. Each deferred stock unit is equal to one share of the Company's common stock. At such times as determined by the Board of Directors of the Company, each director of the Company who is not an
employee of the Company may be granted up to 4,000 deferred stock units each year as determined by the Board of Directors in its sole discretion. Vesting terms will be determined at the time of the
grant. No deferred stock units were granted under the Directors Plan during 2002. As a result, no expense was recorded during 2002, compared with $0.6 million of expense in 2001.

Nonemployee Directors' Deferred Stock Compensation Plan

Pursuant
to the United Stationers Inc. Nonemployee Directors' Deferred Stock Compensation Plan, non-employee directors may defer receipt of all or a portion of their retainer and
meeting fees. Fees deferred are credited quarterly to each participating director in the form of stock units, based on the fair market value of the Company's common stock on the quarterly deferral
date. Each stock unit account generally is distributed and settled in whole shares of the Company's common stock on a one-for-one basis, with a cash-out of any
fractional stock unit interests, after the participant ceases to serve as a Company director.

For
the year ended December 31, 2002 and 2001, the Company recorded compensation expense of approximately $0.2 million in each year related to this plan. As of December 31, 2002
and 2001, the accumulated number of stock units outstanding under this plan was 25,465 and 18,477, respectively.

13. Preferred Stock

The
Company's authorized capital shares include 15.0 million shares of preferred stock. The rights and preferences of preferred stock are established by the Company's Board of Directors upon
issuance. At December 31, 2002, the Company had no preferred stock outstanding and all 15.0 million shares are specified as undesignated preferred stock.

64

---

14. Income Taxes

The
provision for income taxes consisted of the following (dollars in thousands):

Years Ended December 31,2002

2001

2000Currently payableFederal

$
27,596

$
41,271

$
45,832State


2,958


6,712


10,073Total currently payable


30,554


47,983


55,905Deferred, netFederal


5,023


(9,857
)

4,491State


564


(1,463
)

829Total deferred, net


5,587


(11,320
)

5,320Provision for income taxes

$
36,141

$
36,663

$
61,225


The Company's effective income tax rates for the years ended December 31, 2002, 2001 and 2000 varied from the statutory federal income tax rate as set
forth in the following table (dollars in thousands):

Years Ended December 31,2002

2001

2000Amount

% of Pre- tax
Income

Amount

% of Pre- tax
Income

Amount

% of Pre- tax
IncomeTax provision based on the federal statutory rate

$
33,728

35.0
%
$
32,774

35.0
%
$
53,689

35.0
%State and local income taxesnet of federal income tax benefit


2,314

2.4
%

3,371

3.6
%

7,217

4.7
%Non-deductible and other


99

0.1
%

518

0.6
%

319

0.2
%Provision for income taxes

$
36,141

37.5
%
$
36,663

39.2
%
$
61,225

39.9
%


65

---

The deferred tax assets and liabilities resulted from temporary differences in the recognition of certain items for financial and tax accounting purposes. The
sources of these differences and the related tax effects were as follows (dollars in thousands):

As of December 31,2002

2001Assets

Liabilities

Assets

LiabilitiesAccrued expenses

$
18,843

$


$
12,233

$
Allowance for doubtful accounts


6,953





5,930


Inventory reserves and adjustments





14,950





14,125Depreciation and amortization





33,325





29,784Restructuring costs


10,185





13,968


Reserve for stock option compensation


1,183





1,394


Other


4,870





5,397


Total

$
42,034

$
48,275

$
38,922

$
43,909


In the Consolidated Balance Sheets, these deferred assets and liabilities were classified on a net basis as current and non-current, based on the
classification of the related asset or liability or the expected reversal date of the temporary difference.

15. Supplemental Cash Flow Information

In
addition to the information provided in the Consolidated Statements of Cash Flows, the following are supplemental disclosures of cash flow information for the years ended December 31, 2002,
2001 and 2000 (dollars in thousands):

Years Ended December 31,2002

2001

2000Cash Paid During the Year For:Interest

$
15,138

$
27,036

$
28,555Discount on the sale of trade accounts receivable


2,025


6,882


10,632Income taxes


28,534


41,075


62,691


16. Fair Value of Financial Instruments

The
estimated fair value of the Company's financial instruments is as follows (dollars in thousands):

As of December 31,2002

2001Carrying
Amount

Fair
Value

Carrying
Amount

Fair
ValueCash and cash equivalents

$
17,426

$
17,426

$
28,814

$
28,814Current maturities of long-term debt


45,904


45,904


52,970


52,970Long-term debt:8.375% Subordinated Notes


100,000


101,240


100,000


101,020All other


65,345


65,345


118,735


118,735


66

---

The fair value of the 8.375% Subordinated Notes is based on quoted market prices and quotes from counter parties.

17. Quarterly Financial DataUnaudited

|                              |  | Net Sales |           | Gross Profit |   | Net Income (Loss) |  | Net Income (Loss)
Per ShareBasic(1) |        | Net Income (Loss)
Per ShareAssuming
Dilution(1) |  
|----------------------------- |  | --------- | --------- | ------------ | - | ----------------- |  | ------------------------------------ | ------ | ------------------------------------------------ | -
|Year Ended
December 31, 2002: |  |           |           |              |   |                   |  |                                      |        |                                                  |  
|First Quarter                 |  | $         | 948,092   |              | $ | 144,436           |  | $                                    | 24,152 |                                                  | $
|Second Quarter                |  |           | 897,605   |              |   | 131,112           |  |                                      | 15,733 |                                                  |  
|Third Quarter                 |  |           | 932,486   |              |   | 135,714           |  |                                      | 18,947 |                                                  |  
|Fourth Quarter                |  |           | 923,381   |              |   | 126,713           |  |                                      | 1,396  |                                                  |  
|                              |  |           |           |              |   |                   |  |                                      |        |                                                  |  
|Total                         |  | $         | 3,701,564 |              | $ | 537,975           |  | $                                    | 60,228 |                                                  | $
|                              |  |           |           |              |   |                   |  |                                      |        |                                                  |  
|Year Ended
December 31, 2001: |  |           |           |              |   |                   |  |                                      |        |                                                  |  
|First Quarter                 |  | $         | 1,059,842 |              | $ | 166,123           |  | $                                    | 21,613 |                                                  | $
|Second Quarter                |  |           | 978,886   |              |   | 155,003           |  |                                      | 21,841 |                                                  |  
|Third Quarter                 |  |           | 950,910   |              |   | 152,403           |  |                                      | (5,943 | )                                                |  
|Fourth Quarter                |  |           | 936,298   |              |   | 146,264           |  |                                      | 19,467 |                                                  |  
|                              |  |           |           |              |   |                   |  |                                      |        |                                                  |  
|Total                         |  | $         | 3,925,936 |              | $ | 619,793           |  | $                                    | 56,978 |                                                  | $
|                              |  |           |           |              |   |                   |  |                                      |        |                                                  |  

---

Certain expense and cost of sale estimates are recorded throughout the year, including inventory shrinkage and obsolescence, required LIFO reserve,
manufacturers' allowances, advertising costs and various expense items. During the fourth quarter of 2002, the Company recorded a favorable net income adjustment of approximately $0.7 million
related to the refinement of estimates recorded in the prior three quarters. For the same period in 2001, the Company recorded a favorable net income adjustment of approximately $5.8 million.

18. Condensed Consolidating Financial StatementsUnaudited

The
following table presents condensed consolidating financial information, as required by the Company's 8.375% Notes, for United Stationers Inc., the parent holding company and guarantor;
United Stationers Supply Co., the issuer; TOP, Lagasse, United Stationers Financial Services LLC, and United Stationers Technology Services LLC, the subsidiary guarantors; United Worldwide Limited,
United Stationers Hong Kong Limited and the Receivables Company, are non-guarantors; and elimination adjustments. Separate financial statements of the guarantors are not presented, as the
Company believes the condensed consolidating financial information is more meaningful in understanding the statements of operations, balance sheets, and cash flows of the guarantor subsidiaries. All
subsidiaries of the Company are wholly owned. However, the following condensed consolidating financial information has been prepared using the equity method of accounting in accordance with the
requirements for presentation of such information.

67

---

Condensed Consolidating Balance Sheets

|(dollars in thousands)               |                                                                    | United
Stationers Inc.
(Parent)            |   | United Stationers
Supply Co.
(Issuer) |         | Subsidiary
Guarantors |         | Subsidiary
Non-Guarantors |   | Eliminations |         | Consolidated
|------------------------------------ | ------------------------------------------------------------------ | ------------------------------------------ | - | ------------------------------------- | ------- | --------------------- | ------- | ------------------------- | - | ------------ | ------- | ------------
|As of December 31, 2002:             |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|ASSETS                               |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     | Cash and cash equivalents                                          |                                            | $ | 424                                   |         | $                     | 12,097  |                           | $ | 3,721        |         | $           
|                                     | Accounts receivable and retained interest in receivables sold, net |                                            |   |                                      |         |                       | 91,838  |                           |   | 78,122       |         |             
|                                     | Inventories                                                        |                                            |   |                                      |         |                       | 517,533 |                           |   | 54,965       |         |             
|                                     | Other current assets                                               |                                            |   |                                      |         |                       | 21,281  |                           |   | 5,671        |         |             
|                                     | Property, plant and equipment, net                                 |                                            |   |                                      |         |                       | 168,875 |                           |   | 11,627       |         |             
|                                     | Goodwill, net                                                      |                                            |   |                                      |         |                       | 127,271 |                           |   | 52,915       |         |             
|                                     | Intercompany notes receivable                                      |                                            |   | 114,686                               |         |                       | 7,984   |                           |   | 138,186      |         |             
|                                     | Investment in subsidiaries                                         |                                            |   | 693,185                               |         |                       | 263,318 |                           |   | 138,396      |         |             
|                                     | Other noncurrent assets                                            |                                            |   |                                      |         |                       | 12,369  |                           |   | 13,953       |         |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     |                                                                    | Total assets                               |   | $                                     | 808,295 |                       | $       | 1,222,566                 |   | $            | 497,556 |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     | Accounts payable                                                   |                                            |   |                                      |         |                       | 302,544 |                           |   | 31,256       |         |             
|                                     | Accrued liabilities                                                |                                            |   | 1,816                                 |         |                       | 100,920 |                           |   | 38,718       |         |             
|                                     | Deferred credits                                                   |                                            |   |                                      |         |                       | 44,749  |                           |   |             |         |             
|                                     | Current maturities of long-term debt                               |                                            |   |                                      |         |                       | 45,904  |                           |   |             |         |             
|                                     | Deferred income taxes                                              |                                            |   |                                      |         |                       | 15,764  |                           |   | 1,295        |         |             
|                                     | Long-term obligations                                              |                                            |   |                                      |         |                       | 206,063 |                           |   | 913          |         |             
|                                     | Intercompany notes payable                                         |                                            |   |                                      |         |                       | 258,437 |                           |   | 7,984        |         |             
|                                     | Stockholders' equity                                               |                                            |   | 806,479                               |         |                       | 248,185 |                           |   | 417,390      |         |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     |                                                                    | Total liabilities and stockholders' equity |   | $                                     | 808,295 |                       | $       | 1,222,566                 |   | $            | 497,556 |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|As of December 31, 2001:             |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|ASSETS                               |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     | Cash and cash equivalents                                          |                                            | $ | 424                                   |         | $                     | 19,349  |                           | $ | 7,673        |         | $           
|                                     | Accounts receivable and retained interest in receivables sold, net |                                            |   |                                      |         |                       | 89,764  |                           |   | 170,429      |         |             
|                                     | Inventories                                                        |                                            |   |                                      |         |                       | 450,278 |                           |   | 131,427      |         |             
|                                     | Other current assets                                               |                                            |   |                                      |         |                       | 30,287  |                           |   | 5,214        |         |             
|                                     | Property, plant and equipment, net                                 |                                            |   |                                      |         |                       | 171,031 |                           |   | 17,963       |         |             
|                                     | Goodwill, net                                                      |                                            |   |                                      |         |                       | 67,674  |                           |   | 112,443      |         |             
|                                     | Intercompany notes receivable                                      |                                            |   | 109,539                               |         |                       | 51,155  |                           |   | 54,978       |         |             
|                                     | Investment in subsidiaries                                         |                                            |   | 630,880                               |         |                       | 249,309 |                           |   | 30,630       |         |             
|                                     | Other noncurrent assets                                            |                                            |   | 4                                     |         |                       | 11,303  |                           |   | 12,540       |         |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     |                                                                    | Total assets                               |   | $                                     | 740,847 |                       | $       | 1,140,150                 |   | $            | 543,297 |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     | Accounts payable                                                   |                                            |   |                                      |         |                       | 253,561 |                           |   | 87,261       |         |             
|                                     | Accrued liabilities                                                |                                            |   | 2,549                                 |         |                       | 92,935  |                           |   | 52,592       |         |             
|                                     | Deferred credits                                                   |                                            |   |                                      |         |                       | 41,000  |                           |   |             |         |             
|                                     | Current maturities of long-term debt                               |                                            |   |                                      |         |                       | 52,830  |                           |   | 140          |         |             
|                                     | Deferred income taxes                                              |                                            |   |                                      |         |                       | 18,418  |                           |   | (190         | )       |             
|                                     | Long-term obligations                                              |                                            |   |                                      |         |                       | 261,390 |                           |   | (16,044      | )       |             
|                                     | Intercompany notes payable                                         |                                            |   |                                      |         |                       | 109,539 |                           |   | 51,155       |         |             
|                                     | Stockholders' equity                                               |                                            |   | 738,298                               |         |                       | 310,477 |                           |   | 368,383      |         |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             
|                                     |                                                                    | Total liabilities and stockholders' equity |   | $                                     | 740,847 |                       | $       | 1,140,150                 |   | $            | 543,297 |             
|                                     |                                                                    |                                            |   |                                       |         |                       |         |                           |   |              |         |             

68

---



Condensed Consolidating Statements of Income  (dollars in thousands)

|                                                   |  | United
Stationers Inc.
(Parent) |        | United Stationers
Supply Co.
(Issuer) |   | Subsidiary
Guarantors |   | Subsidiary
Non-Guarantors |           | Eliminations |   | Consolidated
|-------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------------- | - | --------------------- | - | ------------------------- | --------- | ------------ | - | ------------
|For the Year Ended
December 31, 2002:              |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Net sales                                          |  | $                               |       |                                       | $ | 3,104,293             |   | $                         | 742,357   |              | $ | 23,901      
|Cost of goods sold                                 |  |                                 |       |                                       |   | 2,633,159             |   |                           | 535,671   |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Gross profit                                       |  |                                 |       |                                       |   | 471,134               |   |                           | 206,686   |              |   | 23,901      
|Warehousing, marketing and administrative expenses |  |                                 |       |                                       |   | 398,105               |   |                           | 95,515    |              |   | 3,772       
|Restructuring reversal                             |  |                                 |       |                                       |   | 8,443                 |   |                           | (1,933    | )            |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Total operating expenses                           |  |                                 |       |                                       |   | 406,548               |   |                           | 93,582    |              |   | 3,772       
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Income from operations                             |  |                                 |       |                                       |   | 64,586                |   |                           | 113,104   |              |   | 20,129      
|Interest (income) expense, net                     |  |                                 | (5,147 | )                                     |   | 20,290                |   |                           | (355      | )            |   | 10,082      
|Other expense, net                                 |  |                                 |       |                                       |   | 57,005                |   |                           | 24,758    |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Income (loss) before income taxes                  |  |                                 | 5,147  |                                       |   | (12,709               | ) |                           | 88,701    |              |   | 10,047      
|Income taxes (benefit)                             |  |                                 | 1,930  |                                       |   | (4,767                | ) |                           | 32,987    |              |   | 4,047       
|Equity from subsidiaries                           |  |                                 | 59,786 |                                       |   | 6,000                 |   |                           |          |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Net income (loss)                                  |  | $                               | 63,003 |                                       | $ | (1,942                | ) | $                         | 55,714    |              | $ | 6,000       
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|For the Year Ended
December 31, 2001:              |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Net sales                                          |  | $                               |       |                                       | $ | 2,867,543             |   | $                         | 1,150,939 |              | $ | 27,190      
|Cost of goods sold                                 |  |                                 |       |                                       |   | 2,350,790             |   |                           | 967,160   |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Gross profit                                       |  |                                 |       |                                       |   | 516,753               |   |                           | 183,779   |              |   | 27,190      
|Warehousing, marketing and administrative expenses |  |                                 |       |                                       |   | 388,786               |   |                           | 106,850   |              |   | 3,350       
|Restructuring charge                               |  |                                 |       |                                       |   | 30,072                |   |                           | 17,531    |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Total operating expenses                           |  |                                 |       |                                       |   | 418,858               |   |                           | 124,381   |              |   | 3,350       
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Income from operations                             |  |                                 |       |                                       |   | 97,895                |   |                           | 59,398    |              |   | 23,840      
|Interest (income) expense, net                     |  |                                 | (7,222 | )                                     |   | 27,559                |   |                           | 6,949     |              |   | 13,437      
|Other expense (income), net                        |  |                                 |       |                                       |   | 76,813                |   |                           | (30,044   | )            |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Income (loss) before income taxes                  |  |                                 | 7,222  |                                       |   | (6,477                | ) |                           | 82,493    |              |   | 10,403      
|Income taxes                                       |  |                                 | 2,549  |                                       |   | 245                   |   |                           | 29,717    |              |   | 4,152       
|Equity from subsidiaries                           |  |                                 | 52,305 |                                       |   | 6,251                 |   |                           |          |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Net income (loss)                                  |  | $                               | 56,978 |                                       | $ | (471                  | ) | $                         | 52,776    |              | $ | 6,251       
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|For the Year Ended
December 31, 2000:              |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Net sales                                          |  | $                               |       |                                       | $ | 2,965,590             |   | $                         | 982,904   |              | $ | 33,305      
|Cost of goods sold                                 |  |                                 |       |                                       |   | 2,417,632             |   |                           | 885,179   |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Gross profit                                       |  |                                 |       |                                       |   | 547,958               |   |                           | 97,725    |              |   | 33,305      
|Warehousing, marketing and administrative expenses |  |                                 |       |                                       |   | 381,623               |   |                           | 59,212    |              |   | 3,495       
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Income from operations                             |  |                                 |       |                                       |   | 166,335               |   |                           | 38,513    |              |   | 29,810      
|Interest (income) expense, net                     |  |                                 | (8,793 | )                                     |   | 35,299                |   |                           | 4,220     |              |   | 18,360      
|Other expense, net                                 |  |                                 |       |                                       |   | 32,180                |   |                           |          |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Income before income taxes                         |  |                                 | 8,793  |                                       |   | 98,856                |   |                           | 34,293    |              |   | 11,450      
|Income taxes                                       |  |                                 | 3,103  |                                       |   | 39,407                |   |                           | 14,196    |              |   | 4,519       
|Equity from subsidiaries                           |  |                                 | 91,117 |                                       |   | 6,931                 |   |                           |          |              |   |            
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             
|Net income                                         |  | $                               | 96,807 |                                       | $ | 66,380                |   | $                         | 20,097    |              | $ | 6,931       
|                                                   |  |                                 |        |                                       |   |                       |   |                           |           |              |   |             

69

---



Condensed Consolidating Statements of Cash Flows        (dollars in thousands)

|                                                             |                                                                       | United
Stationers Inc.
(Parent) |         | United Stationers
Supply Co.
(Issuer) |   | Subsidiary
Guarantors |         | Subsidiary
Non-Guarantors |          | Eliminations |   | Consolidated |         
|------------------------------------------------------------ | --------------------------------------------------------------------- | ------------------------------- | ------- | ------------------------------------- | - | --------------------- | ------- | ------------------------- | -------- | ------------ | - | ------------ | --------
|For the Year Ended December 31, 2002:                        |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net cash provided by (used in) operating activities          |                                                                       | $                               | 32,764  |                                       | $ | (69,043               | )       | $                         | 36,489   |              | $ | 74,771       |         
|Cash flows from investing activities:                        |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|                                                             | Capital expenditures                                                  |                                 |         |                                      |   |                       | (28,936 | )                         |          | 1,678        |   |              | 23      
|                                                             | Proceeds from the sale of the Salisbury, Maryland Call Center         |                                 |         |                                      |   |                       |        |                           |          | 1,249        |   |              |        
|                                                             | Proceeds from the disposition of property, plant and equipment        |                                 |         |                                      |   |                       | 2,923   |                           |          | 24           |   |              |        
|                                                             | Investment in subsidiaries                                            |                                 |         |                                      |   |                       |        |                           |          | (107,766     | ) |              | (107,766
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net cash used in investing activities                        |                                                                       |                                 |        |                                       |   | (26,013               | )       |                           | (104,815 | )            |   | (107,743     | )       
|Cash flows from financing activities:                        |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|                                                             | Borrowings under revolver                                             |                                 |         |                                      |   |                       |        |                           |          |             |   |              |        
|                                                             | Principal payments of debt                                            |                                 |         |                                      |   |                       | (60,456 | )                         |          |             |   |              | (20,000 
|                                                             | Issuance of treasury stock                                            |                                 |         | 5,546                                 |   |                       |        |                           |          |             |   |              |        
|                                                             | Acquisition of treasury stock, at cost                                |                                 |         | (38,310                               | ) |                       |        |                           |          |             |   |              |        
|                                                             | Capital contribution                                                  |                                 |         |                                      |   |                       |        |                           |          | 107,766      |   |              | 107,766 
|                                                             | Intercompany notes payable                                            |                                 |         |                                      |   |                       | 148,898 |                           |          | (43,171      | ) |              | (54,978 
|                                                             | Payment of employee withholding tax related to stock option exercises |                                 |         |                                      |   |                       | (697    | )                         |          |             |   |              |        
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net cash (used in) provided by financing activities          |                                                                       |                                 | (32,764 | )                                     |   | 87,745                |         |                           | 64,595   |              |   | 32,788       |         
|Effect of exchange rate changes on cash and cash equivalents |                                                                       |                                 |        |                                       |   | 59                    |         |                           | (221     | )            |   |             |         
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net change in cash and cash equivalents                      |                                                                       |                                 |        |                                       |   | (7,252                | )       |                           | (3,952   | )            |   | (184         | )       
|Cash and cash equivalents, beginning of period               |                                                                       |                                 | 424     |                                       |   | 19,349                |         |                           | 7,673    |              |   | 1,368        |         
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Cash and cash equivalents, end of period                     |                                                                       | $                               | 424     |                                       | $ | 12,097                |         | $                         | 3,721    |              | $ | 1,184        |         
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|For the Year Ended December 31, 2001:                        |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net cash (used in) provided by operating activities          |                                                                       | $                               | (15,796 | )                                     | $ | 169,585               |         | $                         | 26,677   |              | $ | 34,890       |         
|Cash flows from investing activities:                        |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|                                                             | Acquisitions                                                          |                                 |         |                                      |   |                       |        |                           |          | (32,650      | ) |              |        
|                                                             | Capital expenditures                                                  |                                 |         |                                      |   |                       | (22,729 | )                         |          | (9,774       | ) |              |        
|                                                             | Proceeds from the disposition of property, plant and equipment        |                                 |         |                                      |   |                       | 3,800   |                           |          | 85           |   |              |        
|                                                             | Proceeds from the sale of Positive ID.                                |                                 |         |                                      |   |                       |        |                           |          | 14,941       |   |              |        
|                                                             | Investment in subsidiaries                                            |                                 |         | 12,383                                |   |                       |        |                           |          |             |   |              |        
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net cash provided by (used in) investing activities          |                                                                       |                                 | 12,383  |                                       |   | (18,929               | )       |                           | (27,398  | )            |   |             |         
|Cash flows from financing activities:                        |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|                                                             | Net repayments under revolver                                         |                                 |         |                                      |   |                       | (98,000 | )                         |          |             |   |              |        
|                                                             | Principal payments of debt                                            |                                 |         |                                      |   |                       | (40,163 | )                         |          |             |   |              | (25,000 
|                                                             | Issuance of treasury stock                                            |                                 |         | 15,796                                |   |                       |        |                           |          |             |   |              |        
|                                                             | Acquisition of treasury stock, at cost                                |                                 |         | (12,383                               | ) |                       |        |                           |          |             |   |              |        
|                                                             | Intercompany dividend                                                 |                                 |         |                                      |   |                       | (12,383 | )                         |          |             |   |              |        
|                                                             | Intercompany notes payable                                            |                                 |         |                                      |   |                       | 7,222   |                           |          | 4,057        |   |              | (10,479 
|                                                             | Payment of employee withholding tax related to stock option exercises |                                 |         |                                      |   |                       | (1,033  | )                         |          |             |   |              |        
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net cash provided by (used in) financing activities          |                                                                       |                                 | 3,413   |                                       |   | (144,357              | )       |                           | 4,057    |              |   | (35,479      | )       
|Effect of exchange rate changes on cash and cash equivalents |                                                                       |                                 |        |                                       |   | (152                  | )       |                           | 136      |              |   |             |         
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Net change in cash and cash equivalents                      |                                                                       |                                 |        |                                       |   | 6,147                 |         |                           | 3,472    |              |   | (589         | )       
|Cash and cash equivalents, beginning of period               |                                                                       |                                 | 424     |                                       |   | 13,202                |         |                           | 4,201    |              |   | 1,957        |         
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         
|Cash and cash equivalents, end of period                     |                                                                       | $                               | 424     |                                       | $ | 19,349                |         | $                         | 7,673    |              | $ | 1,368        |         
|                                                             |                                                                       |                                 |         |                                       |   |                       |         |                           |          |              |   |              |         

(Table continued on following page)

70

---

|                                                             |                                                                       | United
Stationers Inc.
(Parent) |         | United Stationers
Supply Co.
(Issuer) |   | Subsidiary
Guarantors |          | Subsidiary
Non-Guarantors |         | Eliminations |   | Consolidated |        
|------------------------------------------------------------ | --------------------------------------------------------------------- | ------------------------------- | ------- | ------------------------------------- | - | --------------------- | -------- | ------------------------- | ------- | ------------ | - | ------------ | -------
|For the Year Ended December 31, 2000:                        |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        
|Net cash (used in) provided by operating activities          |                                                                       | $                               | (4,247  | )                                     | $ | 30,123                |          | $                         | 27,969  |              | $ | 1,576        |        
|Cash flows from investing activities:                        |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        
|                                                             | Acquisitions                                                          |                                 |         |                                      |   |                       | (44,233  | )                         |         |             |   |              |       
|                                                             | Capital expenditures                                                  |                                 |         |                                      |   |                       | (41,079  | )                         |         | (2,559       | ) |              |       
|                                                             | Proceeds from the disposition of property, plant and equipment        |                                 |         |                                      |   |                       | 4,337    |                           |         |             |   |              |       
|                                                             | Investment in subsidiaries                                            |                                 |         | 22,437                                |   |                       |         |                           |         |             |   |              |       
|                                                             |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        
|Net cash provided by (used in) investing activities          |                                                                       |                                 | 22,437  |                                       |   | (80,975               | )        |                           | (2,559  | )            |   |             |        
|Cash flows from financing activities:                        |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        
|                                                             | Borrowings under revolver                                             |                                 |         |                                      |   |                       | 45,000   |                           |         |             |   |              |       
|                                                             | Principal payments of debt                                            |                                 |         |                                      |   |                       | (128,509 | )                         |         |             |   |              | (10,000
|                                                             | Issuance of treasury stock                                            |                                 |         | 4,247                                 |   |                       | 150,000  |                           |         |             |   |              |       
|                                                             | Acquisition of treasury stock, at cost                                |                                 |         | (22,437                               | ) |                       |         |                           |         |             |   |              |       
|                                                             | Intercompany notes payable                                            |                                 |         |                                      |   |                       | 8,793    |                           |         | (23,703      | ) |              | 8,207  
|                                                             | Intercompany dividend                                                 |                                 |         |                                      |   |                       | (22,437  | )                         |         |             |   |              |       
|                                                             | Payment of employee withholding tax related to stock option exercises |                                 |         |                                      |   |                       | (2,646   | )                         |         |             |   |              |       
|                                                             |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        
|Net cash (used in) provided by financing activities          |                                                                       |                                 | (18,190 | )                                     |   | 50,201                |          |                           | (23,703 | )            |   | (1,793       | )      
|Effect of exchange rate changes on cash and cash equivalents |                                                                       |                                 |        |                                       |   | (36                   | )        |                           | (12     | )            |   |             |        
|                                                             |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        
|Net change in cash and cash equivalents                      |                                                                       |                                 |        |                                       |   | (687                  | )        |                           | 1,695   |              |   | (217         | )      
|Cash and cash equivalents, beginning of period               |                                                                       |                                 | 424     |                                       |   | 13,889                |          |                           | 2,506   |              |   | 2,174        |        
|                                                             |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        
|Cash and cash equivalents, end of period                     |                                                                       | $                               | 424     |                                       | $ | 13,202                |          | $                         | 4,201   |              | $ | 1,957        |        
|                                                             |                                                                       |                                 |         |                                       |   |                       |          |                           |         |              |   |              |        

71

---



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The
Registrant had no disagreements on accounting and financial disclosure of the type referred to in Item 304 of Regulation S-K.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For
information about the Company's executive officers, see "Executive Officers of the Registrant" included as Item 4A of this Annual Report. In addition, the information contained under the captions
"Election of Directors-Director Nominees", "Election of Directors-Continuing Directors", and "Voting Securities and Principal Holders-Section 16(a) Beneficial Ownership Reporting Compliance" in
the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 14, 2003, to be filed within 120 days after the end of the Registrant's
year, is incorporated herein by reference. The directors of USSC are Richard W. Gochnauer and Kathleen S. Dvorak, their background biographical information is included in Item 4A of this Annual
Report.

ITEM 11. EXECUTIVE COMPENSATION

The
information required to be furnished pursuant to this item is incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the caption "Executive
Compensation" in the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 14, 2003, to be filed within 120 days after the end of the
Registrant's year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The
information required to be furnished pursuant to this item, with the exception of the equity compensation plan information presented below, is incorporated herein by reference, pursuant to General
Instruction G(3) to Form 10-K, from the captions "Voting Securities and Principal Holders-Security Ownership of Certain Beneficial Owners" and "Voting Securities and Principal
Holders-Security Ownership of Management" in the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 14, 2003, to be filed within
120 days after the end of the Registrant's year.

72

---

Securities Authorized for Issuance Under Equity Compensation Plans

The
following table summarizes information regarding compensation plans under which equity securities of the Company are authorized for issuance as of December 31, 2002:

|Plan Category                                               |                                 | Number of
Securities
to be Issued Upon
Exercise
of Outstanding
Options,
Warrants and
Rights
(a) |           | Weighted-average
Exercise Price of
Outstanding
Options,
Warrants
and Rights
(b) |           | Number of Securities
Remaining Available
for Future Issuance
under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
|----------------------------------------------------------- | ------------------------------- | ----------------------------------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------- | --------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved
by security holders:     |                                 |                                                                                                 |           |                                                                                 |           |                                                                                                                                                
|                                                            | 1992 Management Equity Plan     |                                                                                                 | 1,535,690 |                                                                                 | $         | 26.84                                                                                                                                          
|                                                            | 2000 Management Equity Plan     |                                                                                                 | 2,552,946 |                                                                                 |           | 24.49                                                                                                                                          
|                                                            | Nonemployee Directors' Deferred |                                                                                                 |           |                                                                                 |           |                                                                                                                                                
|                                                            |                                 | Compensation Plan                                                                               |           | 25,465                                                                          |           |                                                                                                                                                
|                                                            |                                 |                                                                                                 |           |                                                                                 |           |                                                                                                                                                
|                                                            |                                 |                                                                                                 | Total     |                                                                                 | 4,114,101 |                                                                                                                                                
|                                                            |                                 |                                                                                                 |           |                                                                                 |           |                                                                                                                                                
|Equity compensation plans not approved
by security holders: |                                 |                                                                                                 |           |                                                                                 |           |                                                                                                                                                
|                                                            | Retention Grant Plan            |                                                                                                 | 25,000    |                                                                                 |           |                                                                                                                                               
|                                                            | Directors Grant Plan            |                                                                                                 | 17,900    |                                                                                 |           |                                                                                                                                               
|                                                            |                                 |                                                                                                 |           |                                                                                 |           |                                                                                                                                                
|                                                            |                                 |                                                                                                 | Total     |                                                                                 | 42,900    |                                                                                                                                                
|                                                            |                                 |                                                                                                 |           |                                                                                 |           |                                                                                                                                                
|Total                                                       |                                 | 4,157,001                                                                                       |           | $                                                                               | 25.37     | (1)                                                                                                                                            
|                                                            |                                 |                                                                                                 |           |                                                                                 |           |                                                                                                                                                

---

For a description of the equity compensation plans noted above, see Note 12 to the Consolidated Financial Statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated
herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders
scheduled to be held on May 14, 2003, to be filed within 120 days after the end of the Registrant's year.

PART IV

ITEM 14. CONTROLS AND PROCEDURES

Within
90 days prior to the filing date of this Annual Report on Form 10-K, the Company performed an evaluation, under the supervision and with the participation of its
President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based
on this evaluation, the Company's management, including its President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, concluded that the Company's disclosure
controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the
date of their evaluation.

73

---



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)        The
following financial statements, schedules and exhibits are filed as part of this report:

|    |  |                                                                                                                         |  | Page No.
|--- |  | ----------------------------------------------------------------------------------------------------------------------- |  | --------
|(1) |  | Financial Statements of the Company:                                                                                    |  |         
|    |  | Report of Independent Auditors                                                                                          |  | 32      
|    |  | Consolidated Statements of Income for the years ended December 31, 2002, 2001
        and 2000                          |  | 33      
|    |  | Consolidated Balance Sheets as of December 31, 2002 and 2001                                                            |  | 34      
|    |  | Consolidated Statements of Changes in Stockholders' Equity for the years ended
        December 31, 2002, 2001 and 2000 |  | 35      
|    |  | Consolidated Statements of Cash Flows for the years ended December 31, 2002,
        2001 and 2000                      |  | 36      
|    |  | Notes to Consolidated Financial Statements                                                                              |  | 37      
|(2) |  | Financial Statement Schedule:                                                                                           |  |         
|    |  | Schedule IIValuation and Qualifying Accounts                                                                           |  | 83      
|(3) |  | Exhibits (numbered in accordance with Item 601 of Regulation S-K):                                                      |  |         

EXHIBIT INDEX

We
are including as exhibits to this Annual Report on Form 10-K certain documents that we have previously filed with the SEC as exhibits, and we are incorporating such documents as
exhibits herein by reference from the respective filings identified in parentheses at the end of the exhibit descriptions. Except where otherwise indicated, the identified SEC filings from which such
exhibits are incorporated by reference were made by the Company (under United's file number of 0-10653 and USSC's registration number of 33-59811). The management contracts and
compensatory plans or arrangements required to be included as exhibits to this Annual Report on Form 10-K pursuant to Item 14(c) are listed below as Exhibits 10.23 through 10.44,
inclusive, and each of them is marked with a double asterisk at the end of the related exhibit description.

|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                 
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement and Plan of Merger, dated as of February 13, 1995, between Associated Stationers, Inc. and United (Exhibit 2 to United's Schedule 14D-9 filed on February 21, 1995)                                                                                                                                                                               
|2.2            |  | Stock Purchase Agreement among USSC, Lagasse Bros., Inc. and the shareholders of Lagasse Bros., Inc. (Exhibit 99.1 to the Company's Current Report on Form 8-K filed on November 5, 1996)                                                                                                                                                                   
|2.3            |  | Stock Purchase Agreement, dated as of February 10, 1998, among the United, USSC, Abitibi-Consolidated Inc., Abitibi-Consolidated Sales Corporation, Azerty Incorporated, Azerty de Mexico, S.A. de C.V., AP Support
Services Incorporated and Positive I.D. Wholesale Inc. (Exhibit 2.1 to the Company's Current Report on Form 8-K filed on April 20, 1998)
|2.4            |  | Stock Purchase Agreement, dated as of July 1, 2000, among USSC, Corporate Express, Inc. and Corporate Express CallCenter Services, Inc. (Exhibit 2.4 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000, filed on March 29, 2001 (the "2000 Form 10-K"))                                                                      
|2.5            |  | Asset Purchase Agreement, dated June 14, 2000, among USSC, Axidata (1998) Inc. and Miami Computer Supply Corporation (Exhibit 2.5 to the Company's 2000 Form 10-K)                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                             

74

---

|2.6   |  | Stock Purchase Agreement, dated as of December 19, 2000, among Lagasse Bros., Inc., The Peerless Paper Mills and the shareholders of The Peerless Paper Mills (Exhibit 2.6 to the Company's 2000 Form 10-K)                                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Second Restated Certificate of Incorporation of United, dated as of March 19, 2002 (Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, filed on April 1, 2002 (the "2001
Form 10-K"))                                                                                       
|3.2*  |  | Amended and Restated Bylaws of United, dated as of January 28, 2003.                                                                                                                                                                                                                                                   
|3.3   |  | Restated Articles of Incorporation of USSC (Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-59811), initially filed on June 12, 1995, as amended (the "1995 S-1"))                                                                                                                
|3.4   |  | Amended and Restated Bylaws of USSC, dated as of August 30, 2001 (Exhibit 3.4 to the Company's 2001 Form 10-K)                                                                                                                                                                                                         
|4.1   |  | Rights Agreement, dated as of July 27, 1999, by and between the Company and BankBoston, N.A., as Rights Agent (Exhibit 4.1 to the Company's 2001 Form 10-K)                                                                                                                                                            
|4.2   |  | Amendment to Rights Agreement, effective as of April 2, 2002, by and among United, Fleet National Bank (f/k/a BankBoston, N.A.) and EquiServe Trust Company, N.A. (Exhibit 4.1 to the Company's Form 10-Q for the Quarter ended
March 31, 2002, filed on May 15, 2002)                                                 
|4.3   |  | Indenture, dated as of April 15, 1998, among the Company, USSC as issuer, Lagasse Bros., Inc., Azerty Incorporated, Positive ID Wholesale Inc., AP Support Services Incorporated, as guarantors, and The Bank of New York, as
trustee (Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 20, 1998)
|4.4   |  | First Supplemental Indenture, dated as of June 30, 2000, by and between USSC and The Order People Company in favor of The Bank of New York, as trustee (Exhibit 4.3 to the Company's 2001 Form 10-K)                                                                                                                   
|4.5   |  | Second Supplemental Indenture, dated as of July 1, 2000, by and between USSC and United CallCenter Services, Inc. in favor of The Bank of New York, as trustee (Exhibit 4.4 to the Company's 2001 Form 10-K)                                                                                                           
|4.6   |  | Third Supplemental Indenture, dated as of May 1, 2001, by and between USSC and United Stationers Financial Services LLC ("USFS") in favor of The Bank of New York, as trustee (Exhibit 4.5 to the Company's 2001 Form 10-K)                                                                                            
|4.7   |  | Fourth Supplemental Indenture, dated as of July 1, 2001, by and between USSC and United Stationers Technology Services LLC ("USTS") in favor of The Bank of New York, as trustee (Exhibit 4.6 to the Company's 2001 Form 10-K)                                                                                         
|4.8*  |  | Credit Agreement, dated as of March 21, 2003, among USSC as borrower, United as a credit party, the lenders from time to time thereunder (the "Lenders") and Bank One, NA, as administrative agent.                                                                                                                    
|4.9*  |  | Pledge and Security Agreement, dated as of March 21, 2003, by and between USSC as borrower, United Azerty Incorporated, Lagasse, Inc., USFS, United Stationers Technology Services LLC (collectively the "Initial Grantors"), and Bank One,
NA as agent for the Lenders                                                
|4.10* |  | Guaranty, dated as of March 21, 2003, by the Initial Guarantors in favor of Bank One, NA as administrative agent.                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                        

75

---

|10.1   |  | Amended and Restated Receivables Sale Agreement, dated as of May 1, 2001, among USSC, as seller, USFS, as purchaser, and USFS, as servicer (Exhibit 10.1 to the Company's 2001 Form 10-K)                                                                                                                                                                                                                             
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2*  |  | Second Amended and Restated Receivables Sale Agreement, dated as of March 28, 2003, among USSC, as seller, USFS, as purchaser, and USFS, as servicer                                                                                                                                                                                                                                                                  
|10.3   |  | USFS Receivables Sale Agreement, dated as of May 1, 2001, among USFS, as seller, USS Receivables Company, Ltd. ("USSR"), as purchaser, and USFS in its capacity as servicer (Exhibit 10.2 to the Company's 2001 Form 10-K)                                                                                                                                                                                            
|10.4*  |  | Amended and Restated USFS Receivables Sale Agreement, dated as of March 28, 2003, among USFS, as seller, USSR, as purchaser, and USFS as servicer                                                                                                                                                                                                                                                                     
|10.5   |  | Amended and Restated Servicing Agreement, dated as of May 1, 2001, among USSR, USFS, as servicer, USSC, as support provider, and The Chase Manhattan Bank, as trustee (Exhibit 10.3 to the Company's 2001 Form 10-K)                                                                                                                                                                                                  
|10.6*  |  | Second Amended and Restated Servicing Agreement, dated as of March 28, 2003, among USSR, USFS, as servicer, USSC, as support provider, and Bank One, NA, as trustee                                                                                                                                                                                                                                                   
|10.7   |  | Amended and Restated Pooling Agreement, dated as of May 1, 2001, among USSR, USFS, as servicer, and The Chase Manhattan Bank, as trustee and securities intermediary (Exhibit 10.4 to the Company's 2001 Form 10-K)                                                                                                                                                                                                   
|10.8*  |  | Second Amended and Restated Pooling Agreement, dated as of March 28, 2003, among USSR, USFS, as servicer, and Bank One, NA as trustee                                                                                                                                                                                                                                                                                 
|10.9*  |  | Series 2003-1 Supplement, dated as of March 28, 2003, to the Second Amended and Restated Pooling Agreement, dated as of March 28, 2003, by and among USSR, USFS, as servicer, Bank One, NA as funding agent, Falcon Asset Securitization
Corporation as initial purchaser, the other parties from time to time thereto and Bank One, as trustee                                                                       
|10.10  |  | Amended and Restated Series 2000-2 Supplement, dated as of May 1, 2001, to the Amended and Restated Pooling Agreement, dated as of May 1, 2001, by and among USSR, USFS, as servicer, Market Street Funding Corporation, as committed purchaser,
PNC Bank, National Association, as administrator, and The Chase Manhattan Bank, as trustee and securities intermediary (Exhibit 10.6 to the Company's 2001 Form 10-K)
|10.11* |  | Second Amended and Restated Series 2000-2 Supplement, dated as of March 28, 2003, to the Second Amended and Restated Pooling Agreement, dated as of March 28, 2003, by and among USSR, USFS, as servicer, Market Street Funding Corporation, as
committed purchaser, PNC Bank, National Association, as administrator, and Bank One, NA, as trustee                                                                   
|10.12  |  | Lease Agreement, dated as of January 12, 1993, as amended, among Stationers Antelope Joint Venture, AVP Trust, Adon V. Panattoni, Yolanda M. Panattoni and USSC (Exhibit 10.32 to the Company's 1995 S-1)                                                                                                                                                                                                             
|10.13  |  | Lease Agreement, dated as of December 1, 2001, between Panattoni Investments, LLC and USSC (Exhibit 10.8 to the Company's 2001 Form 10-K)                                                                                                                                                                                                                                                                             
|10.14  |  | Lease Agreement, dated as of October 12, 1998, between Corum Carol Stream Associates, LLC and USSC (Exhibit 10.94 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, filed on March 29, 1999 (the
"1998 Form 10-K"))                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                       

76

---

|10.15 |  | Standard Industrial Lease, dated March 2, 1992, between Carol Point Builders I and Associated Stationers, Inc. (Exhibit 10.34 to the Company's 1995 S-1)                                                                                                                                  
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | First Amendment to Industrial Lease dated January 23, 1997 between ERI-CP, Inc. (successor to Carol Point Builders I) and USSC (successor to Associated Stationers, Inc.) (Exhibit 10.56 to the Company's Form S-2 (Registration
No. 333-34937) filed on October 3, 1997 (the "1997 S-2"))
|10.17 |  | Lease Agreement, dated April 19, 2000, between Corporate Estates, Inc., Mitchell Investments, LLC and USSC (Exhibit 10.39 to the Company's 2000 Form 10-K)                                                                                                                                
|10.18 |  | Lease Agreement, dated July 30,1999, between Valley View Business Center, Ltd. and USSC (Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999)                                                                                                  
|10.19 |  | Lease, dated as of April 17,1989, between Isaac Heller and USSC, as amended (Exhibit 10.39 to the Company's 1995 S-1)                                                                                                                                                                     
|10.20 |  | Lease Agreement, dated March 15, 2000, between Troy Hill I LLC and USSC (Exhibit 10.42 to the Company's 2000 Form 10-K)                                                                                                                                                                   
|10.21 |  | Industrial Lease Agreement, executed as of October 21, 2001, by and between Duke Construction Limited Partnership and USSC (Exhibit 10.16 to the Company's 2001 Form 10-K)                                                                                                                
|10.22 |  | Industrial Net Lease, effective January 16, 2002, by and between The Order People Company and New West Michigan Industrial Investors, L.L.C. and assigned to USSC (Exhibit 10.1 to the Company's Form 10-Q for the Quarter ended
March 31, 2002, filed on May 15, 2002)                   
|10.23 |  | United Stationers Inc. 1992 Management Equity Plan (as amended and restated as of July 31, 2002) (Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, filed on November 14,
 2002 ("Form 10-Q filed on November 14, 2002"))**           
|10.24 |  | United Stationers Inc. 2000 Management Equity Plan (as amended and restated as of July 31, 2002) (Exhibit 10.1 to the Company's Form 10-Q filed on November 14, 2002)**                                                                                                                   
|10.25 |  | United Stationers Inc. Retention Grant Plan (Exhibit 10.20 to the Company's 2001 Form 10-K)**                                                                                                                                                                                             
|10.26 |  | United Stationers Inc. Nonemployee Directors' Deferred Stock Compensation Plan (Exhibit 10.85 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997)**                                                                                                         
|10.27 |  | United Stationers Inc. Directors Grant Plan (Exhibit 10.22 to the Company's 2001 Form 10-K)**                                                                                                                                                                                             
|10.28 |  | United Stationers Inc. and Subsidiary Companies Management Incentive Plan (Appendix B to United's definitive Proxy Statement/Schedule 14A filed on April 6, 2000)**                                                                                                                       
|10.29 |  | United Stationers Supply Co. Deferred Compensation Plan (Exhibit 10.48 to the Company's 2000 Form 10-K) **                                                                                                                                                                                
|10.30 |  | First Amendment to the United Stationers Supply Co. Deferred Compensation Plan, effective as of November 30, 2001 (Exhibit 10.25 to the Company's 2001 Form 10-K)**                                                                                                                       
|10.31 |  | Employment Agreement dated as of June 19, 2001 among United, USSC and Randall W. Larrimore, amending and restating the Employment Agreement, dated as of May 23, 1997, among the same parties (Exhibit 10.26 to the Company's 2001
Form 10-K)**                                           
|      |  |                                                                                                                                                                                                                                                                                           

77

---

|10.32  |  | Retirement Agreement effective as of November 19, 2002 entered by and among United, USSC, and Randall Larrimore (Exhibit 99.1 to the Company's Current Report on Form 8-K filed on November 25, 2002)**                                                                                                                         
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.33* |  | Separation, Release and Waiver Agreement and Covenant Not to Sue, dated as of October 3, 2002, between R. Thomas Helton and United**                                                                                                                                                                                            
|10.34  |  | Letter agreement, dated February 13, 1995, between Ergin Uskup and USSC, together with letter or letter agreement amendments or supplements thereto (Exhibit 10.32 to the Company's 2001 Form 10-K)**                                                                                                                           
|10.35  |  | Letter agreement, dated August 29, 2001, between Ergin Uskup and USSC (Exhibit 10.33 to the Company's 2001 Form 10-K)**                                                                                                                                                                                                         
|10.36  |  | Executive Employment Agreement, effective as of July 22, 2002, by and among United, USSC, and Richard W. Gochnauer (Exhibit 10.3 to the Company's Form 10-Q filed on November 14, 2002)**                                                                                                                                       
|10.37* |  | Amendment No. 1 to Executive Employment Agreement, dated as of January 1, 2003, by and among United, USSC and Richard W. Gochnauer**                                                                                                                                                                                            
|10.38  |  | Form of Executive Employment Agreement effective as of July 1, 2002, entered into by United and USSC with each of Mark J. Hampton, Joseph R. Templet and Jeffrey G. Howard (Exhibit 10.4 to the Company's Form 10-Q filed on
November 14, 2002)**                                                                               
|10.39  |  | Form of Executive Employment Agreement, effective as of July 1, 2002 entered into by United and USSC with each of Kathleen S. Dvorak, Deidra D. Gold and John T. Sloan (Exhibit 10.5 to the Company's Form 10-Q filed on
November 14, 2002)**                                                                                   
|10.40* |  | Amendment No. 1 to Executive Employment Agreement, effective as of December 16, 2002, by and among United, USSC and John T. Sloan**                                                                                                                                                                                             
|10.41  |  | Form of Employment Agreement, effective as of July 1, 2002, entered into by United and USSC with each of Ronald C. Berg, James K. Fahey and Stephen A. Schultz (Exhibit 10.6 to the Company's Form 10-Q filed on November 14,
2002)**                                                                                           
|10.42  |  | Officer Medical Reimbursement Plan, as in effect as of March 28, 2002 (Exhibit 10.35 to the Company's 2001 Form 10K)**                                                                                                                                                                                                          
|10.43  |  | Form of Indemnification Agreement entered into between the Company and United's directors and various executive officers (Exhibit 10.36 to the Company's 2001 Form 10-K)**                                                                                                                                                      
|10.44  |  | Form of Indemnification Agreement entered into by United and (for purposes of one provision) USSC with each of Richard W. Gochnauer, Randall W. Larrimore, Mark J. Hampton, Joseph R. Templet, Kathleen S. Dvorak, and other executive officers of
United (Exhibit 10.7 to the Company's Form 10-Q filed on November 14, 2002)**
|21*    |  | Subsidiaries of United                                                                                                                                                                                                                                                                                                          
|23*    |  | Consent of Ernst & Young LLP, independent auditors                                                                                                                                                                                                                                                                              
|99.1*  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Richard W. Gochnauer                                                                                                                                                                                  
|99.2*  |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Kathleen S. Dvorak                                                                                                                                                                                    
|       |  |                                                                                                                                                                                                                                                                                                                                 

78

---

|99.3* |  | Certification of Chief Executive Officer, dated as of March 28, 2003, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Richard W. Gochnauer
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.4* |  | Certification of Chief Financial Officer, dated as of March 28, 2003, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Kathleen S. Dvorak  

---



79

---





SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

| |  | UNITED STATIONERS INC.
UNITED STATIONERS SUPPLY CO.
| |  | ---------------------------------------------------
| |  | BY:                                                

Dated:
March 31, 2003

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated:

|Signature                                       |  | Capacity                                          |  | Date          
|----------------------------------------------- |  | ------------------------------------------------- |  | --------------
|                                                |  |                                                   |  |               
|/s/FREDERICK B. HEGI, JR.Frederick B. Hegi, Jr. |  | Chairman of the Board of Directors                |  | March 31, 2003
|/s/RICHARD W. GOCHNAUERRichard W. Gochnauer     |  | President, Chief Executive Officer
and a Director |  | March 31, 2003
|/s/DANIEL J. GOODDaniel J. Good                 |  | Director                                          |  | March 31, 2003
|/s/ILENE S. GORDONIlene S. Gordon               |  | Director                                          |  | March 31, 2003
|/s/ROY W. HALEYRoy W. Haley                     |  | Director                                          |  | March 31, 2003
|/s/MAX D. HOPPERMax D. Hopper                   |  | Director                                          |  | March 31, 2003
|/s/BENSON P. SHAPIROBenson P. Shapiro           |  | Director                                          |  | March 31, 2003
|/s/ALEX D. ZOGHLINAlex D. Zoghlin               |  | Director                                          |  | March 31, 2003

80

---



CERTIFICATION OF CHIEF EXECUTIVE OFFICER  AS ADOPTED PURSUANT TO  SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I,
Richard W. Gochnauer, certify that:





|Date: March 28, 2003 | /s/RICHARD W. GOCHNAUERRichard W. Gochnauer
President and Chief Executive Officer
|-------------------- | ---------------------------------------------------------------------------------

81

---



CERTIFICATION OF CHIEF FINANCIAL OFFICER  AS ADOPTED PURSUANT TO  SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I,
Kathleen S. Dvorak, certify that:





|Date: March 28, 2003 | /s/KATHLEEN S. DVORAKKathleen S. Dvorak
Senior Vice President and Chief Financial Officer
|-------------------- | -----------------------------------------------------------------------------------------

82

---



SCHEDULE II

UNITED STATIONERS INC. AND SUBSIDIARIES  VALUATION AND QUALIFYING ACCOUNTS  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

|Description
(amounts in thousands)  |      | Balance at
Beginning
of Period |   | Additions
Charged to
Costs and
Expenses |  | Deductions(1) |       | Balance
at End
of Period
|----------------------------------- | ---- | ------------------------------ | - | --------------------------------------- |  | ------------- | ----- | ------------------------
|Allowance for doubtful accounts(2): |      |                                |   |                                         |  |               |       |                         
|                                    | 2000 |                                | $ | 12,561                                  |  | $             | 4,764 |                         
|                                    | 2001 |                                |   | 14,376                                  |  |               | 6,248 |                         
|                                    | 2002 |                                |   | 13,462                                  |  |               | 9,797 |                         

---

83

---