United has expanded through acquisitions, growing its product offering and distribution network. It serves over 20,000 reseller customers through a broad inventory of over 35,000 items and a network of distribution centers. United aims to be an indispensable partner for resellers and manufacturers by providing fulfillment excellence through high order fill rates, on-time delivery, and same-day shipping to nearly every US location.

2. Acquisitions have
expanded United’s
reach:
United merged
with Associated
United is an United carries the
Stationers in
indispensable partner industry’s broadest
March 1995
for manufacturers— product offering:
to become the
moving products to 35,000 items from industry leader.
resellers and consumers 500 manufacturers,
that manufacturers United’s integrated
including traditional United’s proprietary 95% of United’s United has a 98% United acquired Lagasse
could not efficiently national distribution
office products, system is integrated, orders from resellers order fill rate, in October 1996 to
reach on their own. network draws on
computer consumables, linking its distribution are pre-sold— a 99.5% order aggressively pursue the
39 full line regional meaning a reseller
office furniture, centers and enabling accuracy rate, and janitorial and sanitation
distribution centers, already has a
United can reach business machines its reseller customers a 99% on-time supply market.
21 janitorial and sanitation consumer order
nearly every reseller and audio-visual to optimize a $600 delivery rate.
supply centers, and in-hand before
or consumer in the equipment, and million inventory United acquired
six computer supply requiring fulfillment
U.S. on the same day janitorial and investment. Azerty in April 1998
centers—more than from United.
or overnight. sanitation supplies.
to expand its computer
nine million square feet
consumables business.
of warehouse space.
United’s Dealer Through its resellers, United distributes nearly
Economic Model 14 million catalogs, plus 16 million flyers annually.
This allows resellers and working capital
helps resellers
to reduce their requirements—
evaluate which
inventory investment and improve their
products they
profitability.
should stock and
which should e-NITED Business United serves as
Solutions allows
be sourced a “silent partner”
United adds value
Internet e-tailers to
from United. for its reseller
for resellers by: • Providing
focus on sales and customers —
• Offering a broad customized
marketing, while providing a full
product assortment, marketing programs,
United Stationers
leveraging United range of value-
which promotes which include a
serves more than
Stationers’ fulfillment added services
one-stop shopping. variety of catalogs
20,000 reseller
capabilities with its while remaining
• Using an efficient
customers: office and promotional
substantial inventory transparent to
distribution system,
products dealers, materials.
and distribution the end consumer.
which reduces costs
mega-dealers, • Conducting consumer
infrastructure.
while maintaining
contract stationers, research and reseller
high in-stock
office products training programs.
service levels.
superstores,
• Offering multiple
computer products
distribution solutions,
resellers, office
including United’s
furniture dealers,
dedicated fleet,
mass merchandisers,
common carriers,
mail order compa-
and drop shipments
nies, sanitary
direct to end
supply distributors,
consumers on behalf
and e-commerce
of its resellers.
merchants.

3. United Stationers is North America’s leading
business products wholesale distributor. We
help our resellers win in the marketplace by
picking individual end-consumer orders for
personalized delivery, as well as shipping full
cases and even pallets of merchandise. We also
help our resellers win through our extensive
i n v e n t o r y, b r o a d g e o g r a p h i c r e a c h a n d
state-of-the-art technology, which allow us
to achieve high fill rates and provide same-
day / next-day service. This “pick, pack, ship
and track” core competency also enables us
t o c a p i t a l i z e o n e m e rg i n g o p p o r t u n i t i e s i n
t h e w o r l d o f e - c o m m e rc e .

4. UNITED STATIONERS INC. AND SUBSIDIARIES
Financial Highlights
(dollars in thousands, except per share data)
Dec. 31, 1998*
Income Statement Data for the Years Ended Dec. 31, 1999
Net sales . . . . . . . . . . . . . . . . . . . . $ 3,393,045 $ 3,059,166
Income from operations . . . . . . . . . . . . . . 182,194 155,511
Income before income taxes and extraordinary item . . . . 143,567 110,989
Net income . . . . . . . . . . . . . . . . . . . . 83,409 58,018
Net income per common share — assuming dilution . . . . 2.37 1.60
Average number of common shares (in thousands) . . . . 35,208 36,171
Operating Results Before Charges*
Income from operations . . . . . . . . . . . . . . $ 182,194 $ 169,363
Net income .................. 83,409 72,212
Net income per common share — assuming dilution . . . . 2.37 2.00
Balance Sheet Data at Year End
Working capital . . . . . . . . . . . . . . . . . . $ 415,548 $ 357,024
Total assets . . . . . . . . . . . . . . . . . . . . 1,279,903 1,166,991
Long-term obligations (including current maturities) . . . . 355,552 336,200
Stockholders’ equity . . . . . . . . . . . . . . . . 406,009 370,563
*Second quarter results included in the year ended Dec. 31, 1998, reflect the write-off of the remaining term of a contract for computer services
from a vendor. As a result, the company recorded a non-recurring charge of $13.9 million ($8.3 million net of tax benefit of $5.6 million) to write off
the remaining payments and related prepaid expense under this contract. In addition, during the second quarter of 1998 the company recorded an
extraordinary loss of $9.9 million ($5.9 million net of tax benefit of $4.0 million) related to the early retirement of debt.
Operating Net Income
Net Sales Income per Share
DOLLARS IN BILLIONS $3.4 DOLLARS IN MILLIONS DOLLARS PER SHARE
3.5 200 2.50
$182 $2.37
$3.1
175
3.0 $169
$2.00
2.00
$2.6
150
2.5 $135
$2.3
$2.2
125 $1.47
1.50
$113
2.0
100
$1.01
$ 81
1.5
1.00
75
1.0
50
0.50
$0.40
0.5
25
0 0 0
951 96 97 98 99 951 972 982 951 972 982
96 99 96 99
1
Pro forma
2
Before charges (See Note 1 to the Consolidated Financial Statements.)
1

5. To Our Stockholders
Last year’s report introduced our strategic plan for growth. As we followed that plan in
1999, it became clear that fulfillment excellence—getting the right products in the right
package to the right consumer at the right time, and tracking the package all the way—
is critical to our operating strategy. That is why it’s the theme for this report.
Let’s review some of the objectives on which we’re focusing.
Achieved
Exceeding Our Financial Goals
Record Sales In 1999, net sales rose 10.9% to $3.4 billion.
Fifteen
About 8% of this increase came from organic growth. While
Consecutive
sales expanded more slowly at the beginning of the year,
momentum accelerated for the remainder of the year as we
Quarters of
1) benefited from increasing interest in products and programs
targeted at both independent dealers and national accounts;
Record Sales
2) completed the merger integration between Micro United
and Earnings
and Azerty and began to aggressively market their combined
capabilities; 3) experienced strong demand for Lagasse’s
janitorial and sanitation supply products; 4) began to capitalize on the growth in
e-commerce; 5) increased our focus on product categories with excellent growth
opportunities, such as office furniture and audio-visual equipment.
Record Operating Income As expected, a greater percentage of lower margin computer
consumables reduced our gross margin for the year from 1998’s 17.3% to 16.6% in 1999.
United’s ordering
process is designed
However, lower operating expenses associated with the sale of computer consumables,
for the convenience of
combined with ongoing productivity improvements, led to record operating income—
its reseller customers.
The company can
up 7.6% to $182.2 million.
receive orders by phone,
fax, the Internet, and Record Earnings Net income was $83.4 million, or $2.37 per diluted share. This
through a proprietary
was 18.5% higher than 1998’s results—exceeding our goal of a 15% increase in
order-entry system.
annual earnings.
R e p u rc h a s i n g Stock
Early in the second quarter we
repurchased 3.3 million shares,
paying an average of $15.26
per share, and reducing out-
standing shares by 9%. This was
financed through free cash flow and our existing revolving credit line.
Strengthening Our Balance Sheet
We continued to use the $160 million receivables securitization, initiated last year,
to provide off-balance sheet funding and reduce interest expense. We also reduced
debt, improving our debt-to-total capitalization to 55.0% from 1998’s 56.2%.
Then we generated free cash flow of nearly $75 million, using $50 million for the
share repurchase.
2

6. Adding Expertise to Our Board
In a continuing effort to strengthen our board, we elected Ilene S. Gordon a
director in January. Ilene is president of Pechiney Plastic Packaging, where
she oversees its worldwide flexible films and lamination, and plastic bottle The Internet plays an integral role for each of
activities. We believe her expertise in domestic and international operations United’s business units. The company developed a
number of informative and easy-to-use Websites:
will be invaluable.
www.unitedstationers.com
Achieving Fulfillment Excellence Several trends highlight the need for fulfillment
provides background on
excellence. ❏ One-Stop Shopping Both independent dealers and mega-dealers recognize
the entire company and
the profit opportunities in selling a broad product offering. Wholesalers such as United links to all other sites.
Stationers are filling this need. We pick and pack a growing percentage of their orders
specifically for an end consumer, and increasingly ship it directly on behalf of the reseller.
❏ E-Commerce Companies initially assumed the challenge of e-commerce was to get
United Stationers Inc.
orders from consumers over the Internet. Instead, they are finding the greater challenge is
to get orders delivered quickly and efficiently to consumers. In 1999, Web retailers shipped www.ussco.com
about 230 million packages, and Forrester Research expects this number to increase by provides background on
North America’s leading
59% per year for the next four years. Consumers not only want their products delivered,
wholesaler of business
they want access to “real-time inventory,” including product availability and shipping
products to resellers.
status. In the office products arena, three types of “e-tailers” have emerged: 1) companies
that focus only on office products, 2) companies with established destination sites that are
expanding their offerings to include office products, and 3) portals or Internet malls that
United Stationers Supply Co.
offer a variety of products from a single site. In most cases, these operations do not have
www.lagassenet.com
extensive product logistics capabilities as their core competecy, so they need to rely on
provides background
United Stationers. ❏ Non-Traditional Outlets Retail outlets such as drugstore and grocery on the nation’s leading
chains now are offering computer consumables as convenience items. As they expand into wholesale source
of janitorial/sanitary
this relatively new product category, they rely on United Stationers for merchandising
maintenance products.
❏ Outsourcing More office
expertise, inventory management and rapid re-supply.
products manufacturers want to focus on what they do best—manufacturing products—
rather than dealing with distributing products to their customers. Manufacturers ship 80%
Lagasse Bros., Inc.
of their products directly to resellers, with wholesalers handling the other 20%. We believe
www.e-nited.com
the role of the wholesaler will grow, as manufacturers increasingly rely on companies such
provides background
as United to handle product logistics. This will be beneficial for wholesalers: each 1% shift
on a new division that
in marketshare generates a $2.0 billion increase in annual wholesalers’ revenues. focuses on e-commerce
and offers integrated
These trends will fuel United’s growth in the years ahead.
marketing, customer
solutions and fulfillment
C re a t i n g a S u s t a i n a b l e A d v a n t a g e services to resellers.
Fulfillment excellence is fundamental to our business. Each day we pick,
pack, ship and track hundreds of thousands of individual items for same/
next-day delivery across the U.S. We operate with a consumer satisfaction e-NITED Business Solutions
mindset. In 1999, we had 98% order fill rates and 99% on-time delivery. Our www.azerty.com
provides background on
broad product offering—over 35,000 items —offers one-stop shopping for
North America’s largest
resellers and their consumers. We are a pure wholesale distributor that does specialty wholesaler of
office technology products,
not compete with our reseller customers. We serve as an extension of our
such as computer
resellers’ inventory—together we work to get products into consumers’ consumables, hardware
and accessories.
hands, fast and reliably.
By providing our resellers and their end consumers with “best-in-class” Azerty Incorporated
service, we create a sustainable competitive advantage that makes us
attractive to resellers, and builds value for stockholders.
5

7. Strengthening Our Distribution Channels
Our goal is to provide resellers with the products and services they need to reach
Through its value-added
targeted end-consumer markets. We introduced several initiatives in this area during programs, United helps
resellers generate demand
the year. from the end consumer.
This includes the most
Vision 2000 We confirmed our commitment to understanding the dynamics of end- popular general line catalog
in the industry and a number
consumer behavior by undertaking several significant research studies. These studies of specialty catalogs.
revealed such factors as what size offices buy the most products and
how much they spend each year, how consumers feel about single
sourcing, what supplier attributes are most important, etc. The research
was presented to our reseller customers in a series of presentations
called Vision 2000.
Increasing Office Furniture Sales We appointed a vice president of
furniture, Steve Odden, to lead this effort. As a result, our National
Accounts salesforce began working with their customers to expand the mid-grade
furniture portion of their product lines and create opportunities for further growth. Our
salespeople explain United’s advantages: its broad line of furniture, same/next-day
delivery, and the programs to help resellers market furniture to their customers. This
allowed us to increase furniture sales by 5% in 1999, compared with a 1% reduction for
the industry, as reported by the Business and Institutional Furniture Manufacturer’s
Association (BIFMA).
Increasing E-Commerce We are helping dealers capitalize on these opportunities.
Our updated Electronic Catalog showcases 25,000 products through color photos and
consumer-friendly descriptions, and features enhanced search capabilities. In 1999, we
entered into a relationship with Internet Office Solutions and Services (IOS2) to provide
our resellers with the “latest and greatest” in Web technology. IOS2 gives resellers a
personalized Website, which allows them to use the Internet to market, sell and take
orders from their customers.
Value-Added Programs
Offering Value-Added Services We continue
to offer these programs, which give United a
and Services Give Resellers
competitive advantage: ❏ Wrap and Label
a Competitive Advantage
Program allows us to pick and pack the items
ordered by an individual consumer, attach an
address label featuring the reseller’s name, then deliver it to the reseller or drop ship it
directly to the consumer. Resellers appreciate this because they do not have to break down
large shipments from manufacturers and repackage them for consumers. ❏ Nationwide
Express Delivery provides same-day, next- or second-day delivery via UPS, and can reach
the vast majority of all business customers in the U.S. This means local or regional
resellers can expand their marketing scope and serve larger, multi-location accounts.
❏ United Dealer Training’s 65 courses in 1999 reached 2,000 reseller “students” who
wanted to learn more about subjects from finance to marketing. United provides
professional, affordable training that might not otherwise be available to many resellers.
6

8. Wholesalers ❏ Premier Performance Shows let resellers and
their consumers preview products and have
Add Value Through manufacturers answer their questions. United
Overnight Delivery held seven shows in 1999, featuring products
from over 40 suppliers, attracting thousands of
resellers and consumers. ❏ United Worldwide Limited is a unique full-service import
management company. It works with approximately 25 manufacturers in the Far East,
Europe and South America to develop new items based on customer specifications;
then it handles the logistics of product distribution. ❏ United’s General Line Catalog
and Specialty Catalogs are the most widely distributed in the industry—nearly 14
million copies.
In addition, we help our resellers increase their profitability. This includes providing a
“right-stocking” model that improves sales and profits for both of us. Resellers use
right-stocking to decide which
The Dealer Economic
products they should stock in
Model Helps Dealers
their warehouses and those they
Providing same-day,
should source from us. In 1999,
overnight and
Improve Their Return
next-day delivery
McKinsey & Company developed
across the U.S. is
no small feat.
a model for United that resellers
On Investment
United reaches its
resellers and their end
can use to look at the total cost of
consumers through
a dedicated fleet of
procuring products —warehousing, investment in inventory, etc.—in addition to invoice
400 trucks, UPS,
common carriers
price. This means resellers can calculate their return on investment under various
and Federal Express.
scenarios. The benefit for
resellers is they can make
decisions that increase their
operating income, improve
their return on investment,
increase their cash flow, reduce
their risk and overhead. This
allows them to spend more time focusing on how to increase sales instead of buying
and stocking products. The benefit for our company is increased sales as resellers turn
to us for products they traditionally—and less profitably—kept in stock.
Focusing on E- commerce
The biggest step we took in 1999 was to introduce e-NITED Business Solutions as
a sales and support organization for the exploding Internet economy. Internet office
product sales are expected to reach $200 billion—nearly the size of the non-Internet
market we currently serve. e-NITED will help us serve this channel by giving us access,
through Internet resellers, to consumer markets we do not currently reach — such as
small office / home office. It also will allow us to serve a new reseller market —
e-tailers. By doing this, we will leverage our infrastructure: 66 distribution centers
with nine million square feet and 10 call centers.
8

9. e-NITED offers a suite of e-commerce support services, including distribution,
fulfillment, Internet technologies, and outbound marketing and call capabilities. Our
target markets include e-tailers, virtual resellers (who maintain no inventory), and United has the power
of an integrated national
other Internet businesses that can benefit from our infrastructure, so they do not have distribution network.
to build their own.
By year end, we had established relationships
with 75 new customers, from e-tail start-ups to
nationally recognized brand-name organizations.
We expect this business will become an important
contributor for United in 2000 and beyond.
Expanding Our Presence in Canada
We took steps to increase our business in Canada
during the year. This is a particularly promising
market, since no wholesale distributor in this
country has a nationwide reach. In 1999, we
MEXICO
modified our information technology system to
do business in Canadian dollars. Then we
United Stationers Supply Co.
broadened our product offering within this market Lagasse Bros., Inc.
to 25,000 items, and launched a furniture Azerty Incorporated
initiative, leveraging our distribution facilities
Its 39 full line regional
along the northern U.S. border. distribution centers
stock a wide array
Enhancing Efficiency
of traditional business
Adding distribution facilities The 365,000 square foot center in Carol Stream, Illinois, products. Its 21
janitorial and sanitation
is our second facility in the Chicago area, serving the growing demand within this
supply centers provide
market. We also opened a 240,000 square foot regional distribution center in Houston. more than 7,000
products. Its six computer
Replacing four older warehouses, this state-of-the-art facility features computerized
supply centers offer
receiving and picking systems. In addition, Lagasse continued its geographic expansion, 6,000 computer
consumables and supplies
adding facilities in St. Louis and Phoenix. This brings its
for other office automation
United Can
nationwide network to 21 distribution centers. products. Many of
its warehouses also
Because these facilities are so efficient—especially when
Reach Nearly use computerized
they are replacing older operations—they have a relatively conveyor systems and
other types of automation.
short payback period.
Every Reseller As a result, United has
Energizing Associates Part of our strategy to enhance one of the lowest
cost structures while
or Consumer
productivity and quality is a national initiative called the offering the highest service
levels in the industry.
Facility Development Process (FDP). This initiative creates
in the U.S. on
a link between associate performance and corporate
business goals. Leadership teams across the country are being
the Same Day
taught how to align themselves and their processes with
United’s strategic objectives and the requirements of our
or Overnight
resellers, consumers, vendors, stockholders and associates.
11

10. Sharing “Best Practices” Operational excellence has been and always will be central
to United’s success. United has an ongoing program to identify and document best
practices, and then requires organization-wide adoption. Best practices focuses on the
quality of service we provide to our resellers, as well as process improvements that will
drive down our costs.
Outlook for Another Strong Year
As we look ahead in 2000, several factors are clear. ❏ Sales for the two months ending
February 29, 2000, were up 14% on equivalent workdays. This gives us confidence that
we will be on the high end of our goal of achieving 6 -9% sales growth and
15% earnings growth for 2000. The
Capitalizing
growth drivers for this year will be additional
volume from independent dealers and national
on Opportunities
accounts, increased participation in e-commerce,
for Growth
expansion of our furniture initiative, and
continued increases in computer and janitorial/
sanitation supply products sales. ❏ In addition, we are making progress toward
achieving a 6% operating margin by 2003. We expect to bring more to our bottom line
by increasing throughput, improving productivity, and implementing best practices
From left to right:
throughout the organization.
Steven Schwarz (left)
In 1999, our associates proved they are committed to the plan developed in 1998 and Executive Vice President
will take it to the next level: fulfillment excellence. We believe their efforts, combined and President,
United Supply Division
with our long-term partnerships with suppliers and resellers, will increase United’s
Randall Larrimore (right)
shareholder value in 2000 and beyond. President and
Chief Executive Officer
Randall W. Larrimore
President and Chief Executive Officer
March 15, 2000
13

11. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion should be read in conjunction with and into United (the “Merger” and, collectively with
with the Consolidated Financial Statements and the Offer, the “Acquisition”), and Associated Stationers,
related notes. Inc. (“ASI”), a wholly owned subsidiary of Associated,
Certain information presented in this Annual Report merged with and into United Stationers Supply Co.
may contain “forward-looking statements” within the (“USSC”), a wholly owned subsidiary of United. United
meaning of Section 27A of the Securities Act and Section and USSC continued as the respective surviving
21E of the Exchange Act, which can be identified by the corporations. Although United was the surviving
use of forward-looking terminology such as “may,” “will,” corporation in the Merger, the transaction was treated
“expect,” “intend,” “anticipate,” “believe,” “estimate” or as a reverse acquisition for accounting purposes, with
“continue” or the negative thereof or other variations Associated as the acquiring corporation.
thereon or comparable terminology. All statements other Consumer Development Group Acquisition.
than statements of historical fact included in this Annual On November 1, 1999, the Company acquired all of the
Report, including those regarding the Company’s financial capital stock of Consumer Development Group Inc.
position, business strategy, projected costs and plans and (“CDG”) for approximately $4.8 million and made an
objectives of management for future operations are initial payment to the seller of approximately $2.4 million,
forward-looking statements. The following matters and financed through senior debt. The remaining purchase
certain other factors noted throughout this Annual Report price of approximately $2.4 million will be paid ratably on
constitute cautionary statements identifying important each of the first three anniversaries of the acquisition. The
factors with respect to any such forward-looking CDG acquisition was accounted for using the purchase
statements, including certain risks and uncertainties, that method of accounting and, accordingly, the purchase price
could cause actual results to differ materially from those was allocated to the assets purchased and the liabilities
in such forward-looking statements. Such risks and assumed, based upon the estimated fair values at the date
uncertainties include, but are not limited to, the highly- of acquisition. The excess of cost over fair value of
competitive environment in which the Company operates, approximately $4.8 million was allocated to goodwill. The
the integration of acquisitions, changes in end-users’ financial information for the year ended December 31,
traditional demands for business products, the Company’s 1999, includes the results of CDG for November and
reliance on certain key suppliers, the effects of fluctuations December only. The pro forma effects of this acquisition
in manufacturers’ pricing, potential service interruptions, were not material.
dependence on key personnel, and general economic A Certificate of Dissolution was filed with the State of
conditions. A description of these factors, as well as other Delaware to dissolve CDG as of December 31, 1999.
factors that could affect the Company’s business, is set Upon its dissolution, CDG was merged into USSC.
forth in certain filings by the Company with the Securities Common Stock Repurchase. On March 11, 1999,
and Exchange Commission. All forward-looking the Company’s Board of Directors authorized the
statements contained in this Annual Report and/or any repurchase of up to $50.0 million of its Common Stock.
subsequent written or oral forward-looking statements Under this authorization, the Company purchased
attributable to the Company or persons acting on behalf of 3,250,000 shares of Common Stock at a cost of
the Company, are expressly qualified in their entirety by approximately $49.6 million in 1999. Acquired shares are
such cautionary statements. The Company undertakes no included in the issued shares of the Company, but are not
obligation to release the results of any revisions to these included in average shares outstanding when calculating
forward-looking statements that may be made to reflect earnings per share. During 1999, the Company reissued
any future events or circumstances. 29,519 shares of treasury stock to fulfill its obligations
under its stock option plan.
Overview Common Stock Dividend. All share and per share
On March 30, 1995, Associated Holdings, Inc. data reflect a two-for-one stock split in the form of a 100%
(“Associated”) purchased 92.5% of the outstanding shares Common Stock dividend paid September 28, 1998.
of the Common Stock, $0.10 par value (“Common Stock”) June 1998 Equity Offering. In June 1998, United
of United Stationers Inc. (“United”) for approximately completed an offering of 4.0 million shares of Common
$266.6 million in the aggregate pursuant to a tender offer Stock (the “June 1998 Equity Offering”), consisting of 3.0
(the “Offer”). Immediately thereafter, Associated merged million primary shares sold by United, and 1.0 million
14

12. UNITED STATIONERS INC. AND SUBSIDIARIES
secondary shares sold by certain selling stockholders. comprised substantially all of the United States and
The shares were priced at $27.00 per share, before Mexican operations of the Office Products Division of
underwriting discounts and commissions of $1.15 per Abitibi-Consolidated Inc. The aggregate purchase price
share. The aggregate proceeds to United of approximately paid by the Company for the Azerty Business was
$77.6 million (before deducting expenses) were approximately $115.7 million (including fees and
delivered to USSC and used to repay a portion of expenses). The acquisition was financed primarily through
indebtedness under the Tranche A Term Loan Facility, senior debt. The Azerty Business acquisition was
which caused a permanent reduction of the amount accounted for using the purchase method of accounting
borrowable thereunder. and, accordingly, the purchase price was allocated to the
United did not receive any of the proceeds from the assets purchased and the liabilities assumed based upon
sale of the 1.0 million shares of Common Stock offered the estimated fair values at the date of acquisition, with the
by the selling stockholders. It did, however, receive an excess of cost over fair value of approximately $73.7
aggregate of approximately $6.4 million paid by the selling million allocated to goodwill. The financial information
stockholders upon exercise of employee stock options in for the year ended December 31, 1998, included nine
connection with the June 1998 Equity Offering, which months of the Azerty Business. The pro forma effects of
were delivered to USSC and applied to the repayment this acquisition were not material.
of indebtedness under the New Credit Facilities. October 1997 Equity Offering. On October 9,
Subsequent to the closing of the June 1998 Equity 1997, the Company completed a 4.0 million share primary
Offering, the underwriters exercised an overallotment offering of Common Stock and a 6.8 million share
option to purchase an additional 0.4 million shares from secondary offering of Common Stock (the “October 1997
United. The net proceeds to United of approximately Equity Offering”). The shares were priced at $19.00 per
$10.3 million from the sale were delivered to USSC and share, before underwriting discounts and commissions of
used to repay an additional portion of the indebtedness $0.95 per share. The aggregate net proceeds to the
outstanding under the Tranche A Term Loan Facility. Company from this equity offering of $72.2 million (before
In the second quarter of 1998, the Company recognized deducting expenses) and proceeds of $0.1 million resulting
the following charges: a non-recurring charge of $13.9 from the conversion of approximately 2.2 million warrants
million ($8.3 million net of tax benefit of $5.6 million) to into Common Stock were used to (i) redeem $50.0
write off the remaining payments and related prepaid million of the Company’s 12.75% Senior Subordinated
expense under a contract for computer services from a Notes and pay the redemption premium of $6.4 million,
vendor (see Note 1 to the Consolidated Financial (ii) pay fees related to the October 1997 Equity Offering,
Statements), and an extraordinary loss of $9.9 million and (iii) reduce by $15.5 million the indebtedness under
($5.9 million net of tax benefit of $4.0 million) related the Term Loan Facilities. The repayment of indebtedness
to the early retirement of debt (collectively “1998 resulted in an extraordinary loss of $9.8 million ($5.9
Charges”), see Notes 1 and 7 to the Consolidated million net of tax benefit of $3.9 million) and caused a
Financial Statements. permanent reduction of the amount borrowable under
Net income attributable to common stockholders for the the Term Loan Facilities.
year ended December 31, 1998, before the 1998 Charges, As a result of the October 1997 Equity Offering, the
was $72.2 million, up 59.0%, compared with $45.4 Company recognized the following charges in the fourth
million, before the 1997 Charges (as defined). In 1998, quarter of 1997: (i) pre-tax non-recurring non-cash charge
diluted earnings per share before the 1998 Charges were of $59.4 million ($35.5 million net of tax benefit of $23.9
$2.00 on 36.2 million weighted average shares million), (see Notes 1 and 11 to the Consolidated Financial
outstanding, up 36.1%, compared with $1.47, before the Statements) and a non-recurring cash charge of $5.3
1997 Charges (as defined), on 30.8 million weighted million ($3.2 million net of tax benefit of $2.1 million)
average shares outstanding for the prior year. related to the vesting of stock options and the termination
of certain management advisory service agreements (see
Azerty Business Acquisition. On April 3, 1998,
Notes 1 and 13 to the Consolidated Financial Statements);
the Company acquired all of the capital stock of Azerty
and (ii) an extraordinary loss of $9.8 million ($5.9 million
Incorporated, Azerty de Mexico, S.A. de C.V., Positive ID
net of tax benefit of $3.9 million) related to the early
Wholesale Inc., and AP Support Services Incorporated
retirement of debt (collectively “1997 Charges”), see
(collectively the “Azerty Business”). These businesses
15

13. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
These Merger Incentive Options, which were
Note 1 to the Consolidated Financial Statements.
performance-based, were granted to provide incentives to
Net income attributable to common stockholders for the
management with respect to the successful development
year ended December 31, 1997, before the 1997 Charges,
of ASI and the integration of ASI with the Company.
was $45.4 million, up 50.3%, compared with $30.2
All Merger Incentive Options were vested and became
million in 1996. Diluted earnings per share before the
exercisable with the completion of the October 1997
1997 Charges were $1.47 on 30.8 million weighted
Equity Offering. In the fourth quarter of 1997, the
average shares outstanding, up 45.3%, compared with
Company recognized compensation expense based upon
$1.01 on 29.8 million weighted average shares outstanding
the difference between the fair market value of the
for the prior year.
Common Stock and the exercise prices. Based on the
Lagasse Bros., Inc. Acquisition. On October 31,
closing stock price on October 10, 1997, of $19.56, and
1996, the Company acquired all of the capital stock of
options outstanding as of October 10, 1997, the Company
Lagasse Bros., Inc. (“Lagasse”) for approximately $51.9
recognized a non-recurring non-cash charge of $59.4
million. The acquisition was financed primarily through
million ($35.5 million net of tax benefit of $23.9 million).
senior debt. The Lagasse acquisition was accounted for
using the purchase method of accounting and, accordingly,
Comparison of Results for the Years
the purchase price was allocated to the assets purchased
Ended December 31, 1999 and 1998
and the liabilities assumed based upon the estimated fair
Net Sales. Net sales increased 10.9% to $3.4 billion
values at the date of acquisition, with the excess of cost
for 1999, compared with $3.1 billion for 1998. The
over fair value of approximately $39.0 million allocated to
Company’s sales growth was broad based, with strength in
goodwill. The pro forma effects of this acquisition were
all geographic regions, across all product categories and
not material.
customer channels. Specifically, the janitorial and
General Information sanitation products, computer consumables and office
Employee Stock Options. The Management furniture categories experienced strong sales growth.
Equity Plan (the “Plan”) is administered by the Board of The Company’s sales with both national accounts and
Directors, although the Plan allows the Board of Directors independent dealers are strengthening. Organic sales
of the Company to designate an option committee to for the year ended December 31, 1999, increased 7.8%.
administer the Plan. The Plan provides for the issuance of This included pre-acquisition first quarter 1998 net sales
Common Stock, through the exercise of options, to officers of $99.7 million for the Azerty Business.
and management employees of the Company, either as Net sales for the two months ended February 29, 2000,
incentive stock options or as non-qualified stock options. were up 14% on equivalent workdays, compared with
In October 1997, the Company’s stockholders approved the prior year. However, the Company’s long-term goal
an amendment to the Plan that provided for the issuance is to produce a consistent top-line organic growth rate of
of approximately 3.0 million additional options to 6% to 9%.
management employees and directors. During 1999, 1998 Gross Margin. Gross margin in 1999 reached
and 1997, options of approximately 1.3 million, 1.0 $562.1 million, up 6.2% from last year and was 16.6%
million and 0.5 million, respectively, were granted to of net sales, compared with $529.2 million, or 17.3%
management employees and directors, with option exercise of net sales, in 1998. This rate decrease reflected the trend
prices equal to fair market value. toward a lower-margin product mix. The lower margin
In September 1995, the Company’s Board of Directors rate reflecting product mix partially was offset by
approved an amendment to the Plan, which provided for incremental vendor allowances earned as a result of
the issuance of options in connection with the Merger higher sales volume.
(“Merger Incentive Options”) to management employees of Operating Expenses. Operating expenses for 1999
the Company, exercisable for up to 4.4 million additional totaled $379.9 million, up 5.6% from last year and were
shares of its Common Stock. Subsequently, approximately 11.2% of net sales, compared with $359.9 million, or
4.4 million options were granted during 1995 and 1996 to 11.8% of net sales, in the prior year (excluding non-
management employees. Some of the options were recurring charges). The decline in the operating expense
granted at an option exercise price below market value, rate is attributable to the continued leveraging of fixed
and the exercise price of certain options increased by costs. The non-recurring charge recorded in the second
$0.31 on a quarterly basis effective April 1, 1996. quarter of 1998 of $13.9 million ($8.3 million net of tax
16

14. UNITED STATIONERS INC. AND SUBSIDIARIES
benefit of $5.6 million) was related to the write-off of a Fourth Quarter Results. Certain expense and cost
contract for computer services from a vendor (see Note 1 of sale estimates are recorded throughout the year,
to the Consolidated Financial Statements). Operating including inventory shrinkage and obsolescence, required
expenses, including these charges, totaled $373.8 million, LIFO reserve, manufacturers’ allowances, advertising costs
or 12.2% of net sales, in 1998. and various expense items. During the fourth quarter
Income from Operations. Income from of 1999, the Company recorded a favorable net income
operations totaled $182.2 million, or 5.4% of net sales, adjustment of approximately $4.0 million related to
compared with $169.3 million, or 5.5% of net sales in the refinement of estimates recorded in the prior
1998, before non-recurring charges. Including the non- three quarters.
recurring charge, income from operations totaled $155.4
Comparison of Results for the Years
million, or 5.1% of net sales, in 1998.
Ended December 31, 1998 and 1997
Interest Expense. Interest expense for 1999 was
Net Sales. Net sales increased 19.6%, on equivalent
$29.2 million, or 0.9% of net sales, compared with $36.3
workdays, to $3.1 billion for 1998, compared with $2.6
million, or 1.2% of net sales, in 1998. This reduction
billion for 1997. The Company experienced sales
reflects the continued leveraging of fixed interest costs
strength in all geographic regions and across all product
against higher sales, and the repayment of indebtedness
categories. Specifically, the janitorial and sanitation
with the proceeds received from the June 1998 Equity
products and computer consumables product categories
Offering and the Receivables Securitization Program (as
experienced sales growth rates of 26% and 7%,
defined). These transactions were partially offset by three
respectively, during 1998.
months of incremental interest expense related to the
Net sales for 1998 included nine months of incremental
acquisition of the Azerty Business in April of 1998 for a
sales resulting from the April 1998 Azerty Acquisition.
purchase price of approximately $115.7 million, and the
After adjusting for the acquisition, the Company achieved
placement of $100.0 million of Senior Subordinated Notes
an organic net sales growth rate of 8.4%, on equivalent
at 8.375% in April 1998.
workdays.
Other Expense. Other expense for 1999 reached
Gross Margin. Gross margin declined to 17.3% in
$9.4 million, or 0.3% of net sales, compared with $8.2
1998, compared with 17.4% in 1997. This decrease is
million, or 0.3% of net sales in 1998. This expense
primarily the result of the blending in of the lower-margin
primarily represents the costs associated with the sale
computer consumables Azerty Business, which was
of certain trade accounts receivable through the
substantially offset by the continuing shift away from
Receivables Securitization Program (as defined). These
lower-margin hardware items and a higher level of
costs vary on a monthly basis and generally are related
vendor allowances.
to certain interest rates.
Operating Expenses. Operating expenses as a
Income Before Income Taxes and
percent of net sales, before a non-recurring charge,
Extraordinary Item. Income before income taxes and
declined to 11.8% in 1998, compared with 12.2% before
extraordinary item were $143.6 million, or 4.2% of net
non-recurring charges in 1997. This reduction represents
sales, compared with $124.8 million, or 4.0% of net sales
the impact of combining the lower operating expense ratio
in 1998, before non-recurring charges. Including the non-
from the Azerty Business with the Company’s traditional
recurring charge, income before income taxes and
operating expense ratio. The non-recurring charge
extraordinary item totaled $110.9 million, or 3.6% of net
recorded in the second quarter of 1998 of $13.9 million
sales, in 1998.
($8.3 million net of tax benefit of $5.6 million) was related
Net Income. Net income for 1999 increased 15.5%
to the write-off of a contract for computer services from a
to $83.4 million, or 2.5% of net sales, from $72.2 million,
vendor (see Note 1 to the Consolidated Financial
or 2.4% of net sales, in 1998, excluding the non-recurring
Statements). Non-recurring charges recorded in the
charge of $13.9 million ($8.3 million net of tax benefit of
fourth quarter of 1997 were $59.4 million (non-cash),
$5.6 million) and an extraordinary item – loss on the early
(see Notes 1 and 11 to the Consolidated Financial
retirement of debt of $9.9 million ($5.9 million net of tax
Statements) and $5.3 million (cash) related to the
benefit of $4.0 million) (see Note 1 to the Consolidated
vesting of stock options and the termination of certain
Financial Statements). Net income in 1998, excluding the
management advisory service agreements (see Notes 1
impact of the non-recurring charge and the extraordinary
and 13 to the Consolidated Financial Statements).
item, totaled $58.0 million, or 1.9% of net sales.
17

15. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Operating expenses, as a percent of net sales, including million ($8.3 million net of tax benefit of $5.6 million)
the above charges, were 12.2% in 1998, compared with related to the write-off of a contract for computer services
14.7% in 1997. from a vendor (see Note 1 to the Consolidated Financial
Income from Operations. Income from Statements) and an extraordinary loss of $9.9 million ($5.9
operations as a percent of net sales, before non-recurring million net of tax benefit of $4.0 million) related to the
charges in 1998 and 1997, increased to 5.5% in 1998 early retirement of debt (see Notes 1 and 7 to the
from 5.2% in 1997. Including the non-recurring charge, Consolidated Financial Statements).
income from operations as a percent of net sales was 5.1% Fourth Quarter Results. Certain expense and cost
in 1998, compared with 2.7% in 1997. of sale estimates are recorded throughout the year,
Interest Expense. Interest expense as a percent of including inventory shrinkage and obsolescence, required
net sales was 1.2% in 1998, compared with 2.1% in 1997. LIFO reserve, manufacturers’ allowances, advertising
This reduction reflected the continued leveraging of fixed costs and various expense items. During the fourth
interest costs against higher sales and the repayment of quarter of 1998, the Company recorded a favorable net
indebtedness with the proceeds received from the June income adjustment of approximately $2.3 million related
1998 Equity Offering, the Receivables Securitization to the refinement of estimates recorded in the prior
Program (as defined), and the October 1997 Equity three quarters.
Offering. These transactions were partially offset by the
Liquidity and Capital Resources
acquisition of the Azerty Business in April of 1998 for a
purchase price of approximately $115.7 million and the Credit Agreement
placement of $100.0 million of Senior Subordinated Notes At December 31, 1999, the available credit under the
at 8.375% in April 1998. Second Amended and Restated Credit Agreement (the
Other Expense. Other expense as a percent of net “Credit Agreement”) included $53.7 million of term loan
sales was 0.3% in 1998. This expense primarily represented borrowings (the “Term Loan Facilities”), and up to $250.0
the costs associated with the sale of certain trade accounts million of revolving loan borrowings (the “Revolving
receivable through the Receivables Securitization Program Credit Facility”). In addition, the Company had $100.0
(as defined). These costs vary on a monthly basis and million of 12.75% Senior Subordinated Notes due 2005
generally are related to certain interest rates. (as defined), $100.0 million of 8.375% Senior
Income Before Income Taxes and Subordinated Notes due 2008 and $29.8 million of
Extraordinary Item. Income before income taxes and industrial revenue bonds.
extraordinary item as a percent of net sales, excluding the The Term Loan Facilities consist of a $53.7 million
impact of the non-recurring charges in 1998 and 1997, Tranche A term loan facility (“Tranche A Facility”).
increased to 4.0% in 1998 from 3.1% in 1997. Including Amounts outstanding under the Tranche A Facility are
the non-recurring charge, income before income taxes and to be repaid in 17 quarterly installments ranging from
extraordinary item as a percent of net sales was 3.6% in $1.6 million at March 31, 2000, to $3.7 million at
1998, compared with 0.6% in 1997. March 31, 2004.
Net Income. Net income in 1998 and 1997 included The Revolving Credit Facility is limited to $250.0
an extraordinary item: loss on the early retirement of debt million, less the aggregate amount of letter of credit
of $9.9 million ($5.9 million net of tax benefit of $4.0 liabilities, and contains a provision for swingline loans in
million) and $9.8 million ($5.9 million net of tax benefit an aggregate amount up to $25.0 million. The Revolving
of $3.9 million), respectively (see Note 1 to the Credit Facility matures on March 31, 2004 and $53.0
Consolidated Financial Statements). Net income as a million was outstanding at December 31, 1999.
percent of net sales, excluding the impact of the non- The Term Loan Facilities and the Revolving Credit
recurring charge and the extraordinary item, increased to Facility are secured by first priority pledges of the stock of
2.4% compared with 1.8% in 1997. Including the impact USSC, all of the stock of domestic direct and indirect
of the non-recurring charge and the extraordinary item, subsidiaries of USSC, the stock of Lagasse and Azerty,
net income as a percent of net sales was 1.9% in 1998, and certain of the foreign and direct and indirect
compared with 0.1% in 1997. subsidiaries of USSC (excluding USS Receivables
In the second quarter of 1998, the Company recognized Company, Ltd.) and security interests and liens upon all
the following charges: a non-recurring charge of $13.9 accounts receivable, inventory, contract rights and certain
18

16. UNITED STATIONERS INC. AND SUBSIDIARIES
borrowings under the Credit Agreement, will be sufficient
real property of USSC and its domestic subsidiaries other
to meet the short-term (fewer than 12 months) and long-
than accounts receivables sold in connection with the
term operating and capital needs of the Company, as well
Receivables Securitization Program.
as to service its debt in accordance with its terms. There is,
The loans outstanding under the Term Loan Facilities and
however, no assurance that this will be accomplished.
the Revolving Credit Facility bear interest as determined
United is a holding company and, as a result, its primary
within a set range. The rate is based on the ratio of total
source of funds is cash generated from operating activities
debt to earnings before interest, taxes, depreciation, and
of its operating subsidiary, USSC, and bank borrowings by
amortization (“EBITDA”). The Tranche A Facility and
USSC. The Credit Agreement and the indentures governing
Revolving Credit Facility bear interest at prime to prime plus
the Notes contain restrictions on the ability of USSC to
0.75%, or, at the Company’s option, the London Interbank
transfer cash to United.
Offered Rate (“LIBOR”) plus 1.00% to 2.00%.
The Credit Agreement contains representations and 12.75% Senior Subordinated Notes
warranties, affirmative and negative covenants and events The 12.75% Senior Subordinated Notes (“12.75%
of default customary for financings of this type. At Notes”) originally were issued on May 3, 1995, pursuant
December 31, 1999, the Company was in compliance to the 12.75% Notes Indenture. As of December 31, 1999,
with all covenants. the aggregate outstanding principal amount of the
The right of United to participate in any distribution of 12.75% Notes was $100.0 million. The 12.75% Notes
earnings or assets of USSC is subject to the prior claims of are unsecured senior subordinated obligations of USSC,
USSC creditors. In addition, the Credit Agreement and payment of the 12.75% Notes is fully and
contains certain restrictive covenants, including covenants unconditionally guaranteed by the Company and USSC’s
that restrict or prohibit USSC’s ability to pay cash dividends domestic “restricted” subsidiaries on a senior subordinated
and make other distributions to United. basis. The Notes are redeemable on May 1, 2000, in whole
The Company is exposed to market risk for changes in or in part, at a redemption price of 106.375% (percentage
interest rates. The Company may enter into interest rate of principal amount). The 12.75% Notes mature on
protection agreements, including collar agreements, to May 1, 2005, and bear interest at the rate of 12.75%
reduce the impact of fluctuations in interest rates on a per annum, payable semi-annually on May 1 and
portion of its variable rate debt. These agreements November 1 of each year.
generally require the Company to pay to or entitle the
8.375% Senior Subordinated Notes
Company to receive from the other party the amount, if
The 8.375% Senior Subordinated Notes (“8.375% Notes”)
any, by which the Company’s interest payments fluctuate
were issued on April 15, 1998, pursuant to the 8.375%
beyond the rates specified in the agreements. The
Notes Indenture. As of December 31, 1999, the aggregate
Company is subject to the credit risk that the other party
outstanding principal amount of 8.375% Notes was $100.0
may fail to perform under such agreements. The
million. The 8.375% Notes are unsecured senior
Company’s allocated cost of such agreements is amortized
subordinated obligations of USSC, and payment of the
to interest expense over the term of the agreements, and
8.375% Notes is fully and unconditionally guaranteed by
the unamortized cost is included in other assets. Any
the Company and USSC’s domestic “restricted” subsidiaries
payments received or made as a result of the agreements,
that incur indebtedness (as defined in the 8.375% Notes
are recorded as an addition to or a reduction from interest
Indenture) on a senior subordinated basis. The Notes are
expense. For the years ended December 31, 1999, 1998,
redeemable on April 15, 2003, in whole or in part, at a
and 1997, the Company recorded $0.2 million, $0.2
redemption price of 104.188% (percentage of principal
million, and $0.6 million, respectively, to interest expense
amount). The 8.375% Notes mature on April 15, 2008,
resulting from LIBOR rate fluctuations below the floor rate
and bear interest at the rate of 8.375% per annum, payable
specified in the collar agreements. The Company’s interest
semi-annually on April 15 and October 15 of each year.
rate collar agreements on $200.0 million of borrowings at
LIBOR rates between 5.2% and 8.0% expired on October Receivables Securitization Program
29, 1999. As of December 31, 1999, the Company had On April 3, 1998, in connection with the refinancing
not entered into any new interest rate collar agreements. of its credit facilities, the Company entered into a $163.0
Management believes that the Company’s cash on hand, million Receivables Securitization Program. Under this
anticipated funds generated from operations and available program, the Company sells its eligible receivables (except
19