Delaware

~~Delaware~~

36-3141189

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

One Parkway North Boulevard

Suite 100

Deerfield, Illinois 60015-2559

(847) 627-7000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Indicate by check mark whether 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

On ~~July 18,~~October 17, 2014, the registrant had outstanding ~~38,963,474~~38,899,710 shares of common stock, par value $0.10 per share.

UNITED STATIONERS INC.

FORM 10-Q

For the Quarterly Period Ended ~~June~~September 30, 2014

TABLE OF CONTENTS

			Page No.
	~~Page No.~~
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2014 and December 31, 2013		3

Condensed Consolidated Statements of Income for the Three Months and ~~Six~~Nine Months Ended ~~June~~September 30, 2014 and 2013		4

Condensed Consolidated Statements of Comprehensive Income for the Three Months and ~~Six~~Nine Months Ended ~~June~~September 30, 2014 and 2013		5

Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2014 and 2013		6

Notes to Condensed Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15	18

Item 3. Quantitative and Qualitative Disclosures About Market Risk		21	25

Item 4. Controls and Procedures		22	25

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		22	26

Item 1A. Risk Factors		22	26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22	26

Item 6. Exhibits		23	27

SIGNATURES		24	28

PART I – FINANCIAL INFORMATION

~~ITEM 1. FINANCIAL STATEMENTS~~
ITEM 1.
FINANCIAL STATEMENTS

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

							(Unaudited)			(Audited)
	(Unaudited)			(Audited)			As of September 30,			As of December 31,
	As of June 30, 2014			As of December 31, 2013			2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	31,495		$	22,326		$	24,838		$	22,326
Accounts receivable, less allowance for doubtful accounts of $19,037 in 2014 and $20,608 in 2013		662,772			643,379
Accounts receivable, less allowance for doubtful accounts of $20,168 in 2014 and $20,608 in 2013								749,415			643,379
Inventories		804,395			830,295			796,325			830,295
Other current assets		31,436			29,255			20,599			29,255

Total current assets		1,530,098			1,525,255			1,591,177			1,525,255
Property, plant and equipment, net		135,529			143,050			133,076			143,050
Goodwill		382,950			356,811			381,687			356,811
Intangible assets, net		75,210			65,502			72,499			65,502
Other long-term assets		26,059			25,576			24,372			25,576

Total assets	$	2,149,846		$	2,116,194		$	2,202,811		$	2,116,194

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	486,621		$	476,113		$	515,350		$	476,113
Accrued liabilities		187,414			191,531			189,224			191,531
Current maturities of long-term debt		1,098			373			894			373

Total current liabilities		675,133			668,017			705,468			668,017
Deferred income taxes		27,539			29,552			28,265			29,552
Long-term debt		542,410			533,324			545,009			533,324
Other long-term liabilities		63,082			59,787			60,500			59,787

Total liabilities		1,308,164			1,290,680			1,339,242			1,290,680
Stockholders’ equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2014 and 2013		7,444			7,444			7,444			7,444
Additional paid-in capital		412,839			411,954			410,303			411,954
Treasury stock, at cost – 35,413,470 shares in 2014 and 34,714,083 shares in 2013		(1,027,575	)		(998,234	)
Treasury stock, at cost – 35,562,874 shares in 2014 and 34,714,083 shares in 2013								(1,035,570	)		(998,234	)
Retained earnings		1,488,469			1,444,238			1,521,230			1,444,238
Accumulated other comprehensive loss		(39,495	)		(39,888	)		(39,838	)		(39,888	)

Total stockholders’ equity		841,682			825,514			863,569			825,514

Total liabilities and stockholders’ equity	$	2,149,846		$	2,116,194		$	2,202,811		$	2,116,194

See notes to condensed consolidated financial statements.

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2014		2013		2014		2013		2014		2013		2014		2013
Net sales	$	1,320,037	$	1,274,494	$	2,574,176	$	2,524,979	$	1,419,947	$	1,336,676	$	3,994,123	$	3,861,655
Cost of goods sold		1,120,577		1,072,558		2,187,633		2,134,518		1,208,919		1,133,015		3,396,552		3,267,533

Gross profit		199,460		201,936		386,543		390,461		211,028		203,661		597,571		594,122
Operating expenses:
Warehousing, marketing and administrative expenses		142,186		143,009		291,035		306,293		146,560		136,265		437,595		442,558

Operating income		57,274		58,927		95,508		84,168		64,468		67,396		159,976		151,564
Interest expense, net		3,833		2,856		7,207		5,969		3,992		2,734		11,199		8,703

Income before income taxes		53,441		56,071		88,301		78,199		60,476		64,662		148,777		142,861
Income tax expense		20,110		21,401		33,113		29,655		22,307		24,161		55,420		53,816

Net income	$	33,331	$	34,670	$	55,188	$	48,544	$	38,169	$	40,501	$	93,357	$	89,045

Net income per share - basic:
Net income per share - basic	$	0.86	$	0.87	$	1.41	$	1.22	$	0.99	$	1.03	$	2.41	$	2.24

Average number of common shares outstanding - basic		38,816		39,762		39,004		39,867		38,450		39,468		38,817		39,732
Net income per share - diluted:
Net income per share - diluted	$	0.85	$	0.86	$	1.40	$	1.20	$	0.98	$	1.01	$	2.38	$	2.21

Average number of common shares outstanding - diluted		39,226		40,328		39,435		40,475		38,884		40,031		39,244		40,331
Dividends declared per share	$	0.14	$	0.14	$	0.28	$	0.28	$	0.14	$	0.14	$	0.42	$	0.42

See notes to condensed consolidated financial statements.

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

   For the Three Months Ended For the Six Months Ended
   June 30, June 30,
   2014 2013 2014 2013
Net income
   $ 33,331    $ 34,670    $ 55,188    $ 48,544
Other comprehensive income, net of tax

Unrealized translation adjustment
   562    (1,384 ) 17    (639 )
Minimum pension liability adjustments
   580    967    1,161    1,987
Unrealized interest rate swap adjustments
   (626 ) 3,158    (785 ) 3,302


Total other comprehensive income, net of tax
   516    2,741    393    4,650


Comprehensive income
   $ 33,847    $ 37,411    $ 55,581    $ 53,194

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2014

2013

2014

2013

Net income
$
38,169

$
40,501

$
93,357

$
89,045

Other comprehensive income, net of tax

       Unrealized translation adjustment

(1,395
)

(111
)

(1,378
)

(751
)
       Minimum pension liability adjustments

606

994

1,767

2,982

       Unrealized interest rate swap adjustments

446

(1,152
)

(339
)

2,150

Total other comprehensive income, net of tax

(343
)

(269
)

50

4,381

Comprehensive income
$
37,826

$
40,232

$
93,407

$
93,426

See notes to condensed consolidated financial statements.

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)


	For the Six Months Ended						For the Nine Months Ended
	June 30,						September 30,
	2014			2013			2014			2013
Cash Flows From Operating Activities:
Net income	$	55,188		$	48,544		$	93,357		$	89,045
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,430			19,381			29,699			29,236
Share-based compensation		4,294			5,538			5,935			7,526
Loss (gain) on the disposition of property, plant and equipment		96			(219	)		97			(108	)
Amortization of capitalized financing costs		460			446			657			687
Excess tax benefits related to share-based compensation		(638	)		(1,545	)		(1,166	)		(3,223	)
Deferred income taxes		(5,317	)		(7,195	)		(7,618	)		(8,214	)
Changes in operating assets and liabilities:
Changes in operating assets and liabilities (net of acquisitions):
Increase in accounts receivable, net		(17,650	)		(4,036	)		(104,540	)		(36,855	)
Decrease in inventory		39,290			31,604			46,591			40,936
(Increase) decrease in other assets		(2,765	)		997
Decrease in other assets								10,000			1,612
Increase (decrease) in accounts payable		21,961			(36,236	)		24,663			(24,677	)
(Decrease) increase in checks in-transit		(28,545	)		16,094
Decrease in accrued liabilities		(1,106	)		(20,757	)
Decrease in checks in-transit								(2,679	)		(835	)
Increase (decrease) in accrued liabilities								3,438			(7,569	)
Decrease in other liabilities		(5,809	)		(7,366	)		(4,768	)		(8,120	)

Net cash provided by operating activities		78,889			45,250			93,666			79,441
Cash Flows From Investing Activities:
Capital expenditures		(10,335	)		(17,044	)		(15,431	)		(22,822	)
Proceeds from the disposition of property, plant and equipment		869			3,522			872			3,522
Acquisition, net of cash acquired		(26,161	)		—			(26,725	)		-
Net cash used in investing activities								(41,284	)		(19,300	)

Net cash used in investing activities		(35,627	)		(13,522	)
Cash Flows From Financing Activities:
Net repayments under revolving credit facility		(14,489	)		(55,891	)		(12,094	)		(66,891	)
Borrowings under Receivables Securitization Program		9,300			50,000			9,300			50,000
Repayment of debt		(135,000	)		—			(135,000	)		-
Proceeds from the issuance of debt		150,000			—			150,000			-
Net (disbursements) proceeds from share-based compensation arrangements		(1,788	)		14,366			(3,142	)		18,143
Acquisition of treasury stock, at cost		(31,152	)		(39,810	)		(43,037	)		(46,984	)
Payment of cash dividends		(10,991	)		(11,220	)		(16,407	)		(16,764	)
Excess tax benefits related to share-based compensation		638			1,545			1,166			3,223
Payment of debt issuance costs		(615	)		(410	)		(623	)		(1,680	)

Net cash used in financing activities		(34,097	)		(41,420	)		(49,837	)		(60,953	)
Effect of exchange rate changes on cash and cash equivalents		4			(110	)		(33	)		36

Net change in cash and cash equivalents		9,169			(9,802	)		2,512			(776	)
Cash and cash equivalents, beginning of period		22,326			30,919			22,326			30,919

Cash and cash equivalents, end of period	$	31,495		$	21,117		$	24,838		$	30,143

Other Cash Flow Information:
Income tax payments, net	$	25,236		$	36,882		$	55,867		$	60,342
Interest paid		4,621			7,115			9,838			9,806

See notes to condensed consolidated financial statements.

UNITED STATIONERS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying Condensed Consolidated Financial Statements represent United Stationers Inc. (“USI”) with its wholly owned subsidiary United Stationers Supply Co. (“USSC”), and USSC’s subsidiaries (collectively, “United” or the “Company”). The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of USI and its subsidiaries. All intercompany transactions and balances have been eliminated. The Company operates in a single reportable segment as a leading distributor of business essentials.

The accompanying Condensed Consolidated Financial Statements are unaudited, except for the Condensed Consolidated Balance Sheet as of December 31, 2013, which was derived from the December 31, 2013 audited financial statements. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for further information.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of United at ~~June~~September 30, 2014 and the results of operations and cash flows for the ~~six~~nine months ended ~~June~~September 30, 2014 and 2013. The results of operations for the three months and ~~six~~nine months ended ~~June~~September 30, 2014 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year.

Inventory

Approximately ~~75%~~74% and 76% of total inventory as of ~~June~~September 30, 2014 and December 31, 2013, respectively has been valued under the last-in, first-out (“LIFO”) accounting method. The remaining inventory is valued under the first-in, first-out (“FIFO”) accounting method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost or market. If the Company had valued its entire inventory under the lower of FIFO cost or market, inventory would have been ~~$114.0~~$117.3 million and $112.4 million higher than reported as of ~~June~~September 30, 2014 and December 31, 2013, respectively.

The ~~six-month~~nine-month change in the LIFO reserve as of ~~June~~September 30, 2014 resulted in a ~~$1.6~~$4.9 million increase in cost of goods sold which included a LIFO liquidation relating to decrements in the Company’s office products and furniture pools. These decrements resulted in liquidation of LIFO inventory quantities carried at lower costs in prior years as compared with the cost of current year purchases. This liquidation resulted in LIFO income of $3.4 million, which was more than offset by LIFO expense of ~~$5.0~~$8.3 million related to current ~~inflation for an overall net increase in cost of sales of $1.6 million as referenced above.~~inflation.

New Accounting Pronouncements

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. The standard requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition, and compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. This ASU is effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. This new standard will not have an effect on the Company’s consolidated financial statements as it is in alignment with the Company’s current accounting policies for equity based compensation.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue From Contracts With Customers, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11,Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists(ASU 2013-11). This ASU requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as either a reduction to a deferred tax asset or separately as a liability depending on the existence, availability and/or use of an operating loss carry forward, a similar tax loss, or a tax credit carry forward. This ASU was effective for the Company beginning in the first quarter of 2014. There was no impact on the Company’s financial condition or results of operations due to the adoption of this standard.

Acquisition of CPO Commerce, Inc.

On May 30, 2014, USSC completed the acquisition of CPO Commerce, Inc. (“CPO”), a leading ~~e-retailer~~online retailer of brand name power tools and equipment. The acquisition of CPO will significantly expand the Company’s digital resources and capabilities to support customers and supplier partners. The Company financed the 100% stock acquisition with borrowings under the Company’s available committed bank facilities.

The purchase price was ~~$38.9~~$37.4 million, including ~~$0.5 million reserved as a payable upon completion of a three month indemnification period. The purchase price also included $6.7~~$5.1 million related to the estimated fair value of contingent consideration which is based upon the achievement of certain sales targets during a three-year period, immediately following the acquisition date. The final payments related to the contingent consideration are determined by actual achievement in the earn-out periods and range from zero to $10.0 million. After the finalization of the contingent consideration, any changes to the estimated fair value will be recorded in “warehousing, marketing and administrative expenses” in the period in which a change occurs.

The Company has developed a preliminary estimate of the fair value of assets acquired and liabilities assumed for purposes of allocating the purchase ~~price, but this~~price. This estimate is subject to change as the valuation activities are completed. The fair value of the assets and liabilities acquired were estimated using various valuation methods including estimated selling price, a market approach, and discounted cash flows using both an income and cost approach.

At ~~June~~September 30, 2014, the preliminary allocation of the purchase price is as follows (amounts in thousands):


Purchase price, net of cash acquired				$	33,361					$	31,825
Inventories	$	(13,302	)				$	(13,051	)
Accounts receivable		(2,551	)					(2,658	)
Other current assets		(307	)					(307	)
Property, plant and equipment, net		(488	)					(488	)
Intangible assets		(13,300	)					(12,800	)

Total assets acquired					(29,948	)					(29,304	)
Accounts payable		17,124						17,124
Accrued liabilities		2,113						2,130
Other long-term liabilities		51						51
Deferred income taxes		3,547						3,233

Total liabilities assumed					22,835						22,538

Goodwill				$	26,248					$	25,059

The purchased identifiable intangible assets are as follows (amounts in thousands):


	Total		Estimated Life		Total		Estimated Life
Customer relationships	$	5,500		2 years	$	5,200	3 years
Trademark		7,800		15 years		7,600	15 years

Total	$	13,300			$	12,800

Any changes to the preliminary estimates of the fair value of assets acquired and liabilities assumed, some of which may be material, will be allocated to residual goodwill.

The impact of CPO on the Company’s ~~second-quarter~~third-quarter 2014 net financial sales ~~after its acquisition on May 30, 2014~~ was immaterial. Had the CPO acquisition been completed as of the beginning of 2013, the Company’s unaudited pro forma net sales and net income for the three-month and ~~six-month~~nine-month periods ending ~~June~~September 30, 2014 and 2013 would not have been materially impacted.

Agreement to Purchase MEDCO

On September 11, 2014, USSC signed an agreement to acquire Liberty Bell Equipment Corp., a United States wholesaler of automotive aftermarket tools and supplies, and its affiliates (collectively, “MEDCO”) including G2S Equipment de Fabrication et d'Entretien ULC, a Canadian wholesaler. The all cash purchase price is $130.0 million, subject to closing adjustments, with up to an additional $10 million to be paid over three years based on performance. The acquisition is expected to be completed in the fourth quarter of 2014 and is subject to customary closing conditions. This acquisition will be funded through a combination of cash on hand and cash available under our revolving credit facility.

2. Share-Based Compensation

As of ~~June~~September 30, 2014, the Company has two active equity compensation plans. Under the Amended and Restated 2004 Long-Term Incentive Plan, award vehicles include, but are not limited to, stock options, restricted stock awards, restricted stock units (“RSUs”), and performance-based awards. Associates and non-employee directors of the Company are eligible to become participants in the plan. The Nonemployee Directors’ Deferred Stock Compensation Plan allows non-employee directors to elect to defer receipt of all or a portion of their retainer and meeting fees.

The Company granted ~~62,594~~229,477 shares of restricted stock, ~~147,725~~176,717 RSUs, and 5,538 stock options during the first ~~six~~nine months of 2014. During the first ~~six~~nine months of 2013, the Company granted ~~41,379~~181,916 shares of restricted stock, ~~152,513~~166,348 RSUs, and ~~575,426~~585,189 stock options.

3. Severance and Restructuring Charges

During the first quarter of 2013, the Company recorded a $14.4 million pre-tax charge related to a workforce reduction and facility closures. The pre-tax charge is comprised of certain OKI facility closure expenses of $1.2 million and severance and workforce reduction-related expenses of $13.2 million which were included in operating expenses. Cash outflows for these actions occurred primarily during 2013 and have continued into 2014. Cash outlays associated with these charges in the ~~six~~nine months ended ~~June~~September 30, 2014 were ~~$3.0~~$3.6 million. During 2013, the Company reversed a portion of these charges totaling $1.4 million. Additionally, the Company reversed a portion of these charges totaling $0.3 million in the first quarter of 2014. As of ~~June~~September 30, 2014 and December 31, 2013, the Company had accrued liabilities for these actions of ~~$1.1~~$0.5 million and $4.4 million, respectively.

4. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are noted in the following table (in thousands):


Goodwill, balance as of December 31, 2013	$	356,811		$	356,811
Acquisition of CPO		26,248			25,059
Currency translation adjustment		(109	)		(183	)

Goodwill, balance as of June 30, 2014	$	382,950

Goodwill, balance as of September 30, 2014				$	381,687

The following table summarizes the intangible assets of the Company by major class of intangible assets and the cost, accumulated amortization, net carrying amount, and weighted average life, if applicable (in thousands):

   June 30, 2014    December 31, 2013
   Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Amount    Weighted
Average
Useful
Life
(years)    Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Amount    Weighted
Average
Useful
Life
(years)
Intangible assets subject to amortization

Customer relationships and other intangibles
   $ 89,948       $ (39,351 ) $ 50,597       17       $ 84,470       $ (36,232 ) $ 48,238       17
Non-compete agreements
   4,687       (2,014 ) 2,673       4       4,700       (1,952 ) 2,748       4
Trademarks
   10,649       (1,009 ) 9,640       14       2,890       (674 ) 2,216       5









Total
   $ 105,284       $ (42,374 ) $ 62,910          $ 92,060       $ (38,858 ) $ 53,202
Intangible assets not subject to amortization

Trademarks
   12,300       —      12,300       n/a       12,300       —      12,300       n/a









Total
   $ 117,584       $ (42,374 ) $ 75,210          $ 104,360       $ (38,858 ) $ 65,502

	September 30, 2014								December 31, 2013
								Weighted								Weighted
								Average								Average
	Gross					Net		Useful	Gross					Net		Useful
	Carrying		Accumulated			Carrying		Life	Carrying		Accumulated			Carrying		Life
	Amount		Amortization			Amount		(years)	Amount		Amortization			Amount		(years)
Intangible assets subject to amortization
Customer relationships and other intangibles	$	89,632	$	(41,145	)	$	48,487	17	$	84,470	$	(36,232	)	$	48,238	17
Non-compete agreements		4,679		(2,108	)		2,571	4		4,700		(1,952	)		2,748	4
Trademarks		10,433		(1,292	)		9,141	14		2,890		(674	)		2,216	5
Total	$	104,744	$	(44,545	)	$	60,199		$	92,060	$	(38,858	)	$	53,202
Intangible assets not subject to amortization
Trademarks		12,300		-			12,300	n/a		12,300	-				12,300	n/a
Total	$	117,044	$	(44,545	)	$	72,499		$	104,360	$	(38,858	)	$	65,502

Based upon the preliminary purchase price allocation for the acquisition of CPO, the Company has recorded ~~$5.5~~$5.2 million of customer relationships to be amortized over a period of ~~two~~3 years and a ~~$7.8~~$7.6 million trademark to be amortized over a period of 15 years. See Note 1 “Basis of Presentation” for further discussion of the acquisition.

5. Accumulated Other Comprehensive Income (Loss)

The change in Accumulated Other Comprehensive Income (Loss) (“AOCI”) by component, net of tax, for the period ended ~~June~~September 30, 2014 is as ~~follows:~~follows (amounts in thousands):

													Foreign Currency Translation			Cash Flow Hedges			Defined Benefit Pension Plans			Total
(amounts in thousands)	Foreign Currency Translation			Cash Flow Hedges			Defined Benefit Pension Plans			Total
AOCI, balance as of December 31, 2013	$	(6,661	)	$	871		$	(34,098	)	$	(39,888	)	$	(6,661	)	$	871		$	(34,098	)	$	(39,888	)
Other comprehensive (loss) income before reclassifications		17			(808	)		—			(791	)		(1,378	)		(573	)	—				(1,951	)
Amounts reclassified from AOCI		—			23			1,161			1,184		—				234			1,767			2,001

Net other comprehensive (loss) income		17			(785	)		1,161			393			(1,378	)		(339	)		1,767			50

AOCI, balance as of June 30, 2014	$	(6,644	)	$	86		$	(32,937	)	$	(39,495	)

AOCI, balance as of September 30, 2014													$	(8,039	)	$	532		$	(32,331	)	$	(39,838	)

The following table details the amounts reclassified out of AOCI into the income statement during the three-month and ~~six-month~~nine-month periods ending ~~June~~September 30, 2014 ~~respectively:~~respectively (in thousands):

								Amount Reclassified From AOCI
								For the Three			For the Nine
								Months Ended			Months Ended
								September 30,			September 30,			Affected Line Item In The Statement
Details About AOCI Components	Amount Reclassified From AOCI						Affected Line Item In The Statement Where Net Income Is Presented	2014			2014			Where Net Income is Presented
Details About AOCI Components	For the Three Months Ended June 30, 2014			For the Six Months Ended June 30, 2014
Gain on interest rate swap cash flow hedges, before tax	$	37		$	37		Interest expense, net	$	339		$	376		Interest expense, net
		(14	)		(14	)	Tax provision

	$	23		$	23		Net of tax		(128	)		(142	)	Tax provision
								$	211		$	234		Net of tax
Amortization of defined benefit pension plan items:
Prior service cost and unrecognized loss	$	950		$	1,900		Warehousing, marketing and administrative expenses	$	992		$	2,892		Warehousing, marketing and administrative expenses
		(370	)		(739	)	Tax provision		(386	)		(1,125	)	Tax provision
									606			1,767		Net of tax
		580			1,161		Net of tax

Total reclassifications for the period	$	603		$	1,184		Net of tax	$	817		$	2,001		Net of tax

6. 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, restricted stock, restricted stock units and deferred stock units are considered dilutive securities. For the three-month ~~and six-month~~ periods ending ~~June~~September 30, 2014 and 2013, 0.5 million and 0.6 million shares of such securities, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. For the nine-month periods ending September 30, 2014 and 2013, 0.5 million and 0.7 million shares of such securities, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2014		2013		2014		2013		2014		2013		2014		2013
Numerator:
Net income	$	33,331	$	34,670	$	55,188	$	48,544	$	38,169	$	40,501	$	93,357	$	89,045
Denominator:
Denominator for basic earnings per share - weighted average shares		38,816		39,762		39,004		39,867
Denominator for basic earnings per share -
weighted average shares										38,450		39,468		38,817		39,732
Effect of dilutive securities:
Employee stock options and restricted units		410		566		431		608		434		563		427		599

Denominator for diluted earnings per share - Adjusted weighted average shares and the effect of dilutive securities		39,226		40,328		39,435		40,475

Denominator for diluted earnings per share -
Adjusted weighted average shares and the effect of dilutive
securities										38,884		40,031		39,244		40,331
Net income per share:
Net income per share - basic	$	0.86	$	0.87	$	1.41	$	1.22	$	0.99	$	1.03	$	2.41	$	2.24
Net income per share - diluted	$	0.85	$	0.86	$	1.40	$	1.20	$	0.98	$	1.01	$	2.38	$	2.21

Common Stock Repurchases

As of December 31, 2013, the Company had Board authorization to repurchase $93.0 million of USI common stock. During the three-month periods ended ~~June~~September 30, 2014 and 2013, the Company repurchased ~~459,922~~283,283 and ~~978,194~~166,570 shares of USI’s common stock at an aggregate cost of ~~$17.9~~$11.4 million and ~~$33.2~~$6.5 million, respectively. During the ~~six-month~~nine-month periods ended ~~June~~September 30, 2014 and 2013, the Company repurchased ~~791,291~~1,074,574 and ~~1,186,468~~1,353,020 shares of USI’s common stock at an aggregate cost of ~~$31.7~~$43.0 million and ~~$41.0~~$47.5 million, respectively. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its 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 the first ~~six~~nine months of 2014 and 2013, the Company reissued ~~91,904~~225,783 and ~~697,326~~1,014,554 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

7. Debt

USI is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its direct operating subsidiary, USSC, and from borrowings by USSC. The 2013 Credit Agreement, the 2013 Note Purchase Agreement, the 2007 Note Purchase Agreement, and the Receivables Securitization Program (each as defined in Note 9 of the Company’s Form 10-K for the year ended December 31, 2013) contain restrictions on the use of cash transferred from USSC to USI.

Debt consisted of the following amounts (in millions):

					As of		As of
					September 30, 2014		December 31, 2013
	As of June 30, 2014		As of December 31, 2013
2013 Credit Agreement	$	192.4	$	206.8	$	195.0	$	206.8
2013 Note Purchase Agreement		150.0		—		150.0		-
2007 Note Purchase Agreement		—		135.0		-		135.0
Receivables Securitization Program		200.0		190.7		200.0		190.7
Mortgage & Capital Lease		1.1		1.2		0.9		1.2

Total	$	543.5	$	533.7	$	545.9	$	533.7

As of ~~June~~September 30, 2014, ~~72.3%~~72.4% of the Company’s outstanding debt, excluding capital leases, is priced at variable interest rates based primarily on the applicable bank prime rate or London InterBank Offered Rate (“LIBOR”).

Pursuant to the 2013 Note Purchase Agreement, on January 15, 2014 USSC issued an aggregate of $150 million of senior secured notes due January 15, 2021 (the “2014 Notes”). USSC used the proceeds from the sale of the 2014 Notes to repay the Series 2007-A Notes issued under the 2007 Note Purchase Agreement and to reduce the borrowings under the 2013 Credit Agreement. The parties to the 2007 Note Purchase Agreement have satisfied their obligations under that agreement. The Company will not issue any new debt under the 2007 Note Purchase Agreement.

The Company had outstanding letters of credit of $11.1 million under the 2013 Credit Agreement as of ~~June~~September 30, 2014 and December 31, 2013.

Borrowings under the 2013 Credit Agreement bear interest at LIBOR for specified interest periods or at the Alternate Base Rate (as defined in the 2013 Credit Agreement), plus, in each case, a margin determined based on the Company’s permitted debt to EBITDA ratio calculated as provided in Section 6.20 of the 2013 Credit Agreement (the “Leverage Ratio”). Depending on the Company’s Leverage Ratio, the margin on LIBOR-based loans ranges from 1.00% to 2.00% and on Alternate Base Rate loans ranges from ~~0.00%~~0% to 1.00%. As of ~~June~~September 30, 2014, the applicable margin for LIBOR-based loans was ~~1.375%~~1.25% and for Alternate Base Rate loans was ~~0.375%~~0.25%. USSC is required to pay the lenders a fee on the unutilized portion of the commitments under the 2013 Credit Agreement at a rate per annum between 0.15% and 0.35%, depending on the Company’s Leverage Ratio.

As of ~~June~~September 30, 2014 and December 31, 2013, ~~$373.0~~$427.6 million and $355.4 million, respectively, of receivables had been sold to the Investors (as defined in Note 9 of the Company’s Form 10-K for the year ended December 31, 2013). As of ~~June~~September 30, 2014, United Stationers Receivables, LLC (“USR”) had $200.0 million outstanding under the Receivables Securitization Program. As of December 31, 2013, USR had $190.7 million outstanding under the Receivables Securitization Program.

For additional information about the 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program, see Note 9 of the Company’s Form 10-K for the year ended December 31, 2013.

8. Pension and Post-Retirement Benefit Plans

The Company maintains pension plans covering union and certain non-union employees. For more information on the Company’s retirement plans, see Note 11 to the Company’s Consolidated Financial Statements in the Form 10-K for the year ended December 31, 2013. A summary of net periodic pension cost related to the Company’s pension plans for the three and ~~six~~nine months ended ~~June~~September 30, 2014 and 2013 is as follows (dollars in thousands):


	Pension Benefits												Pension Benefits
	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013			2014			2013			2014			2013
Service cost - benefit earned during the period	$	327		$	303		$	655		$	607		$	147		$	304		$	802		$	911
Interest cost on projected benefit obligation		2,242			2,098			4,485			4,195			2,235			2,097			6,720			6,292
Expected return on plan assets		(2,557	)		(2,841	)		(5,115	)		(5,683	)		(2,599	)		(2,842	)		(7,714	)		(8,525	)
Amortization of prior service cost		45			47			90			95			47			48			137			143
Amortization of actuarial loss		905			1,577			1,810			3,154			945			1,577			2,755			4,731

Net periodic pension cost	$	962		$	1,184		$	1,925		$	2,368		$	775		$	1,184		$	2,700		$	3,552

The Company made cash contributions of $2.0 million and $13.0 million to its pension plans during each of the first ~~six~~nine months ended ~~June~~September 30, 2014 and 2013, respectively. Additional ~~fundings,~~contributions, if any, for 2014 have not yet been determined. As of ~~June~~September 30, 2014 and December 31, 2013, respectively, the Company had accrued ~~$18.8~~$18.6 million and $20.8 million of pension liability within “Other Long-Term Liabilities” on the Condensed Consolidated Balance Sheets.

Defined Contribution Plan

The Company has defined contribution plans covering certain salaried associates and non-union hourly paid associates (the “Plan”). The Plan permits associates to defer a portion of their pre-tax and after-tax salary as contributions to the Plan. The Plan also provides for Company-funded discretionary contributions as well as matching associates’ salary deferral contributions, at the discretion of the Board of Directors. The Company recorded expense of ~~$1.3~~$1.4 million and ~~$2.7~~$4.2 million for the Company match of employee contributions to the Plan for the three and ~~six~~nine months ended ~~June~~September 30, 2014. During the same periods last year, the Company recorded expense of ~~$1.5~~$1.3 million and ~~$2.9~~$4.2 million to match employee contributions.

9. Derivative Financial Instruments

Interest rate movements create a degree of risk to the Company’s operations by affecting the amount of interest payments. Interest rate swap agreements are used to manage the Company’s exposure to interest rate changes. The Company designates its floating-to-fixed interest rate swaps as cash flow hedges of the variability of future cash flows at the inception of the swap contract to support hedge accounting.

USSC has entered into various separate swap transactions to mitigate USSC’s floating rate risk on the noted aggregate notional amount of LIBOR-based interest rate risk noted in the table below. These swap transactions occurred as follows:

·	On November 6, 2007, USSC entered into an interest rate swap transaction (the “November 2007 Swap Transaction”) with U.S. Bank National Association as the counterparty. This swap transaction matured on January 15, 2013.

·	On July 18, 2012, USSC entered into a two-year forward, three-year interest rate swap transaction (the “July 2012 Swap Transaction”) with U.S. Bank National Association as the counterparty. The swap transaction became effective July 18, 2014 and has a maturity date of July 18, 2017.

On November 6, 2007, USSC entered into an interest rate swap transaction (the “November 2007 Swap Transaction”) with U.S. Bank National Association as the counterparty. This swap transaction matured on January 15, 2013.

On July 18, 2012, USSC entered into a two-year forward, three-year interest rate swap transaction (the “July 2012 Swap Transaction”) with U.S. Bank National Association as the counterparty. The swap transaction has an effective date of July 18, 2014 and a maturity date of July 18, 2017.

On June 11, 2013, USSC entered into a seven-month forward, seven-year interest rate swap transaction (the “June 2013 Swap Transaction”) with J.P. Morgan Chase Bank as the counterparty. The swap transaction had an effective date of January 15, 2014 and a maturity date of January 15, 2021. This swap was terminated in October 2013.

As of ~~June~~September 30, 2014, approximately ~~27.7%~~27.5% ($~~150~~150.0 million) of the Company’s current outstanding debt had its interest payments designated as hedged forecasted transactions.

The Company’s outstanding swap transaction is accounted for as a cash flow hedge and is recorded at fair value on the Condensed Consolidated Balance Sheet as of ~~June~~September 30, 2014 and December 31, 2013, at the following amounts (in thousands):

As of June 30, 2014
   Notional
Amount
Receive
   Pay Maturity Date    Fair Value Net
Liability ⁽¹⁾
July 2012 Swap Transaction
   $ 150,000       Floating 1-month LIBOR    1.054 % July 18, 2017       $ 612

As of December 31, 2013
   Notional
Amount
Receive
   Pay Maturity Date    Fair Value Net
Asset ⁽¹⁾
July 2012 Swap Transaction
   $ 150,000       Floating 1-month LIBOR    1.054 % July 18, 2017       $ 599

Notional

Fair Value Net

As of September 30, 2014

Amount

Receive

Pay

Maturity Date

Asset ⁽¹⁾

July 2012 Swap Transaction

150,000

Floating 1-month LIBOR

1.05%

July 18, 2017

138

Notional

Fair Value Net

As of December 31, 2013

Amount

Receive

Pay

Maturity Date

Asset ⁽¹⁾

July 2012 Swap Transaction

150,000

Floating 1-month LIBOR

1.05%

July 18, 2017

599

(1)

This interest rate derivative qualifies for hedge accounting, and is in a net ~~liability~~asset position at ~~June~~September 30, 2014 and ~~a net asset position at~~ December 31, 2013. Therefore, the fair value of the interest rate derivative is included in the Company’s Condensed Consolidated Balance Sheets as a component of “Other long-term ~~liabilities” or “Other long-term~~ assets,” with an offsetting component in “Stockholders’ Equity” as part of “Accumulated Other Comprehensive Loss”.

Under the terms of the July 2012 Swap Transaction, USSC will be required to make monthly fixed rate payments to the counterparty calculated based on the notional amounts noted in the table above at a fixed rate also noted in the table above, while the counterparty will be obligated to make monthly floating rate payments to USSC based on the one-month LIBOR on the same referenced notional amount.

The hedged transactions described above qualify as cash flow hedges in accordance with accounting guidance on derivative instruments. This guidance requires companies to recognize all of their derivative instruments as either assets or liabilities in the statement of financial position at fair value. The Company does not offset fair value amounts recognized for interest rate swaps executed with the same counterparty.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings.

In connection with the pricing of the 2013 Note Purchase Agreement the Company terminated the June 2013 Swap Transaction. The gain of $0.9 million realized by the Company on the termination has been recorded as a component of Other Comprehensive Income on the Company’s consolidated balance sheet as of December 31, 2013 and will be reclassified into earnings over the term of the 2014 Notes. During the ~~six-month~~nine-month period ending ~~June~~September 30, 2014, the Company recognized $0.1 million into earnings from AOCI.

This swap reduces the exposure to variability in interest rates between the date the Company entered into the hedge and the date the Company priced the 2014 Notes.

The July 2012 Swap Transaction effectively converts a portion of the Company’s future floating-rate debt to a fixed-rate basis. This swap transaction reduces the impact of interest rate changes on future interest expense. By using such derivative financial instruments, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty to the interest rate swap (as noted above) will fail to perform under the terms of the agreement. The Company attempts to minimize the credit risk in these agreements by only entering into transactions with counterparties the Company determines are creditworthy. The market risk is the adverse effect on the value of a derivative financial instrument that results from a change in interest rates.

The Company’s agreement with its derivative counterparty provides that if an event of default occurs on any Company debt of $25 million or more, the counterparty can terminate the swap agreement. If an event of default had occurred and the counterparty had exercised early termination right under the outstanding swap transaction as of ~~June~~September 30, 2014, the Company would have been required to pay the aggregate fair value net asset of ~~$0.6~~$0.1 million plus accrued interest to the counterparty.

The swap transaction that was in effect as of ~~June~~September 30, 2014 and the swap transaction that was in effect as of ~~June~~September 30, 2013 contained no ineffectiveness; therefore, all gains or losses on those derivative instruments were reported as a component of other comprehensive income (“OCI”) and reclassified into earnings as “interest expense” in the same period or periods during which they affected earnings.

The following table depicts the effect of these derivative instruments on the statements of income and comprehensive income for the three and ~~six~~nine month periods ended ~~June~~September 30, 2014 and ~~June~~September 30, ~~2013.~~2013 (in thousands).


	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)					Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)							Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	For the Three Months Ended June 30, 2014			For the Six Months Ended June 30, 2014				For the Three Months Ended June 30, 2014		For the Six Months Ended June 30, 2014			For the Three Months Ended September 30, 2014			For the Nine Months Ended September 30, 2014			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	For the Three Months Ended September 30, 2014		For the Nine Months Ended September 30, 2014
July 2012 Swap Transaction		(574	)		(748	)	Interest expense, net		—		—		$	748		$	(1	)	Interest expense, net	$	281	$	281

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)					Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)							Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	For the Three Months Ended June 30, 2013			For the Six Months Ended June 30, 2013				For the Three Months Ended June 30, 2013		For the Six Months Ended June 30, 2013			For the Three Months Ended September 30, 2013			For the Nine Months Ended September 30, 2013			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	For the Three Months Ended September 30, 2013		For the Nine Months Ended September 30, 2013
November 2007 Swap Transaction	$	—		$	(77	)	Interest expense, net	$	—	$	(228	)	$	-		$	(77	)	Interest expense, net	$	-	$	(228	)
July 2012 Swap Transaction		1,459			1,452		Interest expense, net		—		—			(574	)		878		Interest expense, net		-		-
June 2013 Swap Transaction		1,699			1,699		Interest expense, net		—		—			(578	)		1,121		Interest expense, net		-		-

10. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including interest rate swap derivatives, based on the mark-to-market position of the Company’s positions and other observable interest rates (see Note 9 “Derivative Financial Instruments”, for more information on these interest rate swaps).

Accounting guidance on fair value establishes a hierarchy for those instruments measured at fair value which distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

·	Level 1—Quoted market prices in active markets for identical assets or liabilities;

·	Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable; and

·	Level 3—Unobservable inputs developed using estimates and assumptions developed by the Company which reflect those that a market participant would use.

Determining which level to apply to an asset or liability requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The following table summarizes the financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2014 and December 31, 2013 (in thousands):

									Fair Value Measurements as of September 30, 2014
	Fair Value Measurements as of June 30, 2014										Quoted Market Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
			Quoted Market Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs		Total		Level 1		Level 2		Level 3
	Total		Level 1		Level 2		Level 3
Liabilities
Interest rate swap liability	$	612	$	—	$	612	$	—

Assets
Interest rate swap asset									$	138	$	-	$	138	$	-

	Fair Value Measurements as of December 31, 2013								Fair Value Measurements as of December 31, 2013
			Quoted Market Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Market Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets
Interest rate swap asset	$	599	$	—	$	599	$	—	$	599	$	-	$	599	$	-

The carrying amount of accounts receivable at ~~June~~September 30, 2014, including ~~$373.0~~$427.6 million of receivables sold under the Receivables Securitization Program, approximates fair value because of the short-term nature of this item.

Accounting guidance on fair value measurements requires separate disclosure of assets and liabilities measured at fair value on a recurring basis, as noted above, from those measured at fair value on a nonrecurring basis. As of ~~June~~September 30, 2014, no assets or liabilities are measured at fair value on a nonrecurring basis.

11. Other Assets and Liabilities

The Company had receivables related to supplier allowances totaling ~~$80.4~~$95.4 million and $103.2 million included in “Accounts receivable” in the Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2014 and December 31, 2013, respectively.

Accrued customer rebates of ~~$45.4~~$57.4 million and $52.6 million as of ~~June~~September 30, 2014 and December 31, 2013, respectively, were included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

~~ITEM~~ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements often contain words such as “expects,” “anticipates,” “estimates,” “intends,” “plans,” “believes,” “seeks,” “will,” “is likely,” “scheduled,” “positioned to,” “continue,” “forecast,” “predicting,” “projection,” “potential” or similar expressions. Forward-looking statements include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management’s current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, without limitation, those set forth in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2013.

Readers should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it.

Company Background

United is a leading ~~wholesale distributor~~supplier of business ~~products~~essentials, with 2013 net sales of approximately $5.1 billion. United stocks over 140,000 items from over 1,600 manufacturers. These items include a broad spectrum of manufacturer-branded and private brand technology products, traditional office products, office furniture, janitorial and breakroom supplies, and industrial supplies. United

sells its products through a network of 65 distribution centers to its approximately 25,000 reseller customers, who in turn sell directly to end-consumers. The Company’s customers include independent office products dealers; contract stationers; office products superstores; computer products resellers; office furniture dealers; mass merchandisers; mail order companies; sanitary supply, paper and foodservice distributors; drug and grocery store chains; healthcare distributors; e-commerce merchants; oil field, welding supply and industrial/MRO distributors; and other independent distributors. Additionally, newly acquired CPO Commerce, LLC (“CPO”) is an e-retailer of brand name power tools and equipment who sells directly to end consumers.

Overview of Strategy, Key Trends and Recent Results

Our strategy is comprised of three key initiatives: 1) strengthen our core business, including driving efficiency and cost improvements, 2) win the shift to online, and 3) diversify our offering of higher margin and higher growth channels and categories, such as janitorial and breakroom and industrial products.

We are repositioning United to become the premier supplier of digitally sourced business essentials by combining our office products and janitorial operating platforms. We believe this effort will help us become the most effective source for our customers’ business essentials through our nationwide distribution network and logistics capabilities, order efficiency with enhanced ecommerce capabilities, broad product portfolio, superior product category knowledge and commercial expertise. We have piloted this project with several customers during 2014. In 2015, we expect to begin implementing this platform in individual facilities.

Online product procurement by end-consumers continues to gain a larger share of the markets our reseller customers serve. We continue to invest in digital and online capabilities to help leading online resellers accelerate their growth in the categories we offer. Our business model allows these resellers to quickly enter new categories and scale their offerings.

During the third quarter we entered into an agreement to acquire Liberty Bell Equipment Corp, a United States wholesaler of automotive aftermarket tools and supplies, and its affiliates (collectively, “MEDCO”) including G2S Equipment de Fabrication et d'Entretien ULC, a Canadian wholesaler. The all cash purchase price is $130.0 million, subject to closing adjustments, with up to an additional $10.0 million to be paid over three years based on achievement of certain performance conditions. MEDCO annual sales are approximately $240.0 million. MEDCO advances a key pillar of our strategy, diversification into higher growth and margin channels and categories. We expect the acquisition to be completed in the fourth quarter of 2014 and is subject to customary closing conditions. This acquisition will be funded through a combination of cash on hand and cash available under our revolving credit facility. The transaction is expected to be neutral to earnings in 2014 and accretive within the first year.

In the second quarter we acquired CPO, a leading e-retailer of brand name power tools and equipment, for a total cash purchase price of $42.3 million which assumes the full $10.0 million of contingent consideration will be paid by the end of the earn-out period. This transaction significantly expands United’s digital resources and capabilities to support resellers as they transition to an increasingly online environment. CPO’s expertise will strengthen United’s ability to deliver such features as improved product content, real-time access to inventory and pricing, and digital marketing and merchandising. CPO also provides an enhanced digital platform to our manufacturing partners. We expect this acquisition to positively impact gross margin as a percent of sales (15 bps to 20 bps) and increase operating expenses as a percent of sales (25 bps to 30 bps), and have a slightly dilutive impact on earnings per share during the first year of ownership.

We are repositioning United to become the premier supplier of digitally sourced business essentials by combining our office products and janitorial operating platforms. We believe this effort will help us become the most effective source for our customers’ business essentials through our nationwide distribution network and logistics capabilities, order efficiency with enhanced ebusiness capabilities, broad product portfolio, and superior product category knowledge and commercial expertise. We have piloted this project with several customers and are receiving good feedback.

As previously detailed in the first quarter, we were named the second-call office products supplier to support Office Depot’s office products business as well as the primary supplier for Office Depot’s janitorial and breakroom business. These actions resulted in the loss of some of our office products business but added new janitorial and breakroom business to United. We estimate that these changes will negatively impact net sales in a range of $20.0 million to $30.0 million and EPS in a range of $0.05 to $0.08 this year, and net sales by $75.0 million to $90.0 million and a decrease in EPS in a range of $0.14 to $0.22 in 2015, absent any offsetting actions. We are well positioned to mitigate this impact with our robust pipeline and strong service proposition as we pursue sustainable new business to drive growth and profitability.

Online product procurement by end-consumers continues to gain a larger share of the markets our reseller customers serve. We continue to invest in digital and online capabilities and work with leading online resellers to help accelerate their growth in the categories we offer. Our business model allows these resellers to quickly enter new categories and scale their offerings.

·	Diluted earnings per share for the third quarter of 2014 were $0.98, compared with $1.01 in the prior-year period.

During the quarter we acquired CPO, a leading e-retailer of brand name power tools and equipment, for a total cash purchase price of $42.2 million which assumes the full $10.0 million of contingent consideration will be paid by the end of the earn-out period. This transaction significantly expands United’s digital resources and capabilities to support resellers as they transition to an increasingly online environment. CPO’s expertise will strengthen United’s ability to deliver such features as improved product content, real-time access to inventory and pricing, and digital marketing and merchandising. CPO also provides an enhanced digital platform to our manufacturing partners. We expect this acquisition to positively impact gross margin as a percent of sales (15 bps to 20 bps) and increase operating expenses as a percent of sales (25 bps to 30 bps), and have a slightly dilutive impact on earnings per share during 2014.

·	Third quarter sales were $1.42 billion, up 6.2% over the prior-year quarter. The sales increase was driven by growth in our janitorial and breakroom category and industrial supplies, including CPO, of 12.1% and 24.4%, respectively, quarter over quarter.

As previously detailed in the first quarter, we were named the second-call office products supplier to support Office Depot’s office products business as well as the primary supplier for Office Depot’s janitorial and breakroom business. These actions will result in the loss of some of our office products business but will bring new janitorial and breakroom business to United. We estimate that these changes will negatively impact net sales in a range of $20.0 million to $30.0 million and EPS in a range of $0.05 to $0.08 in the second half of this year, and net sales by $75.0 million to $90.0 million and a decrease in EPS in a range of $0.14 to $0.22 in 2015, absent any offsetting actions. We are well positioned to mitigate this impact with our robust pipeline and strong service proposition as we pursue sustainable new business to drive growth and profitability.

·	The gross margin rate in the third quarter of 2014 of 14.9% was down from the prior-year quarter gross margin rate of 15.2%. This decline reflects higher freight and inventory-related costs from inflation partially offset by favorable product margins.

~~Diluted earnings per share for the second quarter of 2014 were $0.85, compared with $0.86 in the prior-year period.~~

·	Operating expenses in the third quarter of 2014 were $146.6 million or 10.3% of sales, compared with $136.3 million or 10.2% of sales in the prior-year quarter. Operating expenses were higher due primarily to the addition of CPO and an increase in bad debt expense.

Second quarter sales were $1.32 billion, up 3.6% over the prior-year quarter. The sales increase was driven by growth in our janitorial and breakroom category and industrial supplies of 7.5% and 10.8%, respectively, quarter over quarter.

·	Operating income for the quarter ended September 30, 2014 was $64.5 million or 4.5% of sales, versus $67.4 million or 5.0% of sales in the third quarter of 2013.

The gross margin rate in the second quarter of 2014 of 15.1% was down from the prior-year quarter gross margin rate of 15.8%. This decline reflects the impact of opportunistic technology sales, investments in our industrial business, and higher freight costs.

Operating expenses in the second quarter of 2014 were $142.2 million or 10.8% of sales, compared with $143.0 million or 11.2% of sales in the prior-year quarter. Operating expenses were down due primarily to lower operating costs across the organization, lower variable management incentive compensation, and an improvement in bad debt expense. We expect operating expenses to be higher in the second half of 2014 than in the prior year due to the impact of the loss of Office Depot sales, the CPO acquisition and favorable items in the prior year.

~~Operating income for the quarter ended June 30, 2014 was $57.3 million or 4.3% of sales, versus $58.9 million or 4.6% of sales in the second quarter of 2013.~~

For a further discussion of selected trends, events or uncertainties the Company believes may have a significant impact on its future performance, readers should refer to “Key Trends and Recent Results” under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2013.

Critical Accounting Policies, Judgments and Estimates

During the first ~~six~~nine months of 2014, there were no significant changes to the Company’s critical accounting policies, judgments or estimates from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Adjusted Operating Income, Net Income and Earnings Per Share

The following table presents Adjusted Operating Expenses, Operating Income, Net Income, and Diluted Earnings Per Share for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2014 and 2013 (in thousands, except per share data) excluding the effects of $14.4 million pre-tax charge related to workforce reductions and facility closures in the first quarter of 2013. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income. Management believes that excluding these items is an appropriate comparison of its ongoing operating results to last year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.


	For the Six Months Ended June 30,												For the Nine Months Ended September 30,
	2014						2013						2014						2013
				% to						% to						% to						% to
	Amount			Net Sales			Amount			Net Sales			Amount			Net Sales			Amount			Net Sales
Net Sales	$	2,574,176			100.00	%	$	2,524,979			100.00	%	$	3,994,123			100.0	%	$	3,861,655			100.0	%

Gross profit	$	386,543			15.02	%	$	390,461			15.46	%	$	597,571			15.0	%	$	594,122			15.4	%
Operating expenses	$	291,035			11.31	%	$	306,293			12.13	%	$	437,595			11.0	%	$	442,558			11.5	%
Workforce reduction and facility closure charge		—			—			(14,432	)		(0.57	)%		-			0.0	%		(14,432	)		(0.4	%)

Adjusted operating expenses	$	291,035			11.31	%	$	291,861			11.56	%	$	437,595			11.0	%	$	428,126			11.1	%

Operating income	$	95,508			3.71	%	$	84,168			3.33	%	$	159,976			4.0	%	$	151,564			3.9	%
Operating expense item noted above		—			—			14,432			0.57	%		-			0.0	%		14,432			0.4	%

Adjusted operating income	$	95,508			3.71	%	$	98,600			3.90	%	$	159,976			4.0	%	$	165,996			4.3	%

Net income	$	55,188					$	48,544					$	93,357					$	89,045
Operating expense item noted above, net of tax		—						8,948						-						8,948

Adjusted net income	$	55,188					$	57,492					$	93,357					$	97,993

Diluted earnings per share	$	1.40					$	1.20					$	2.38					$	2.21
Per share operating expense item noted above		—						0.22						-						0.22

Adjusted diluted earnings per share	$	1.40					$	1.42					$	2.38					$	2.43

Adjusted diluted earnings per share - change over the prior year period		(1.4	)%											(2.1	%)
Weighted average number of common shares - diluted		39,435						40,475						39,244						40,331

Results of Operations—Three Months Ended ~~June~~September 30, 2014 Compared with the Three Months Ended ~~June~~September 30, 2013

Net Sales.Net sales for the ~~second~~third quarter of 2014 were ~~$1.32~~$1.42 billion. The following table summarizes net sales by product category for the three-month periods ended ~~June~~September 30, 2014 and 2013 (in thousands):

   Three Months Ended June 30,
   2014    2013⁽¹⁾
Technology products
   $ 367,293       $ 374,252
Janitorial and breakroom supplies
   357,882       332,878
Traditional office products (including cut-sheet paper)
   330,743       323,923
Industrial supplies
   146,571       132,275

					Three Months Ended September 30,
	Three Months Ended June 30,				2014		2013⁽¹⁾
	2014		2013⁽¹⁾
Technology products					$	381,210	$	381,580
Janitorial and breakroom supplies						386,060		344,459
Traditional office products (including cut-sheet paper)						360,353		355,222
Industrial supplies						163,514		131,462
Office furniture		78,410		76,729		84,512		85,098
Freight revenue		29,638		25,365		33,302		29,222
Services, Advertising and Other		9,500		9,072		10,996		9,633

Total net sales	$	1,320,037	$	1,274,494	$	1,419,947	$	1,336,676

(1)

Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes between several product categories due to several specific products being reclassified to different categories. These changes did not impact the Condensed Consolidated Statements of Income.

Sales in the technology products category (primarily ink and toner) ~~decreased in~~were flat to the ~~second quarter of 2014 by 1.9% versus the second~~third quarter of 2013. This category ~~which continues to represent the largest percentage of the Company’s consolidated net sales,~~ accounted for ~~27.8%~~26.8% of net sales for the ~~second~~third quarter of 2014. Sales declines in this category mainly resulted from a new distribution policy by our largest product line manufacturer that limits ~~wholesalers to resell products only~~our sales to certain authorized resellers. This negative impact was ~~partially~~ offset by ~~large purchases by~~sales to certain large customers during the quarter and the addition of new ~~business to replace volume lost from the new distribution policy.~~business.

Sales in the janitorial and breakroom supplies product category increased ~~7.5%~~12.1% in the ~~second~~third quarter of 2014 compared to the ~~second~~third quarter of 2013. This category accounted for ~~27.1%~~27.2% of the Company’s ~~second~~third quarter 2014 consolidated net sales. Sales growth in this category was driven by enhanced product line launches which increased breakroom sales through our traditional ~~channels.~~channels as well as 2.4% of incremental sales from being named the primary supplier for Office Depot’s janitorial and breakroom business.

Sales of traditional office products ~~grew~~increased in the ~~second~~third quarter of 2014 by ~~2.1%~~1.4% versus the ~~second~~third quarter of 2013. Traditional office supplies represented ~~25.1%~~25.4% of the Company’s consolidated net sales for the ~~second~~third quarter of 2014. Within this category, we saw continued double-digit growth in e-tailers, a rebound in government spending, and growth with certain larger ~~customers that~~customers. These were partially offset by lower sales of cut-sheet paper and the continued effects of workplace digitization which is lowering overall consumption.

Industrial supplies sales in the ~~second~~third quarter of 2014 increased by ~~10.8%~~24.4% compared to the same prior-year period. Sales of industrial supplies accounted for ~~11.1%~~11.5% of the Company’s net sales for the ~~second~~third quarter of ~~2014. Solid~~2014 and reflected solid sales momentum in the general industrial channel ~~double digit~~and double-digit growth in the safety and e-commerce ~~channels and a~~channels. We also saw moderate ~~sales increase~~growth in the oilfield-pipeline ~~channel were partially offset by the continued decline in the~~and welding ~~channel.~~channels. The acquisition of CPO contributed ~~$8.2~~$21.9 million in incremental sales which benefited the quarterly growth rate. Without CPO, industrial sales increased 7.7% over the prior-year quarter.

Office furniture sales in the ~~second~~third quarter of 2014 ~~increased 2.2%~~decreased 0.7% compared to the ~~second~~third quarter of 2013. Office furniture accounted for ~~5.9%~~6.0% of the Company’s ~~second~~third quarter of 2014 consolidated net sales. ~~Second quarter sales improved~~Declines in this category ~~driven~~are due to lower sales in national accounts offset by ~~strong direct order sales and~~ increased sales to ~~new channel~~e-commerce customers.

The remainder of the Company’s ~~second~~third quarter 2014 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate.Gross profit ~~(gross margin dollars)~~ for the ~~second~~third quarter of 2014 was ~~$199.5~~$211.0 million, compared to ~~$201.9~~$203.7 million in the ~~second~~third quarter of 2013. The gross margin rate of ~~15.1%~~14.9% was down 7037 basis points (bps) from the prior-year quarter gross margin rate of ~~15.8%~~15.2%. This decline was due primarily from ~~lower product margin (45~~higher freight costs (55 bps) ~~which included opportunistic lower margin sales in the technology category~~ and ~~targeted investments in our industrial business,~~higher inventory related costs (15 bps). This decline was partially offset by favorable product margins (30 bps), which was driven by increased supplier allowances, and ~~higher inflation.~~lower advertising expenses. CPO had a favorable impact (15 bps) on the gross margin rate in the quarter. Gross margin ~~was also unfavorably affected by higher freight costs (15 bps)~~is expected to be volatile as we diversify and ~~a higher LIFO charge (10 bps).~~invest in the business.

Operating Expenses. Operating expenses for the ~~latest~~third quarter were ~~$142.2~~$146.6 million or ~~10.8%~~10.3% of sales, compared with ~~$143.0~~$136.3 million or ~~11.2%~~10.2% of sales in the same period last year. Operating expenses were unfavorably impacted by the addition of CPO (25 bps) and increased bad debt expense (10 bps). Current quarter operating expenses were also impacted by savings from ~~decreased variable management incentive compensation (25 bps), bad debt expense (10 bps),~~favorable capitalization

of purchase, storage, and ~~professional services (10~~handling costs (20 bps). The Company incurred approximately ~~$1.0~~$0.5 million in incremental expenses in the quarter ~~related~~in addition to the internal resources deployed to the initiative to combine the Company’s office product and janitorial platforms.

Interest Expense, net.Interest expense, net for the ~~second~~third quarter of 2014 was ~~$3.8~~$4.0 million compared to ~~$2.9~~$2.7 million in the ~~second~~third quarter of 2013. This was driven ~~primarily~~ by higher debt outstanding as well as the issuance of seven-year notes in January 2014, which replaced floating rate debt with long term, fixed rate debt. Interest expense is expected to be higher in 2014 than in the prior year.

Income Taxes.Income tax expense was ~~$20.1~~$22.3 million for the ~~second~~third quarter of 2014, compared with ~~$21.4~~$24.2 million for the same period in 2013. The Company’s effective tax rate was ~~37.6%~~36.9% for the current-year quarter and ~~38.2%~~37.4% for the same period in 2013.

The current quarter tax rate was favorably impacted by net favorable permanent differences, a favorable federal return to provision adjustment, and a decrease in state reserves.

Net Income.Net income for the ~~second~~third quarter of 2014 totaled ~~$33.3~~$38.2 million or ~~$0.85~~$0.98 per diluted share, compared with net income of ~~$34.7~~$40.5 million or ~~$0.86~~$1.01 per diluted share for the same three-month period in 2013.

Results of Operations—~~Six~~Nine Months Ended ~~June~~September 30, 2014 Compared with the ~~Six~~Nine Months Ended ~~June~~September 30, 2013

Net Sales.Net sales for the first ~~six~~nine months of 2014 were ~~$2.57~~$3.99 billion. The following table summarizes net sales by product category for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2014 and 2013 (in thousands):


	Six Months Ended June 30,				Nine Months Ended September 30,
	2014⁽¹⁾		2013⁽¹⁾		2014⁽¹⁾		2013⁽¹⁾
Technology products	$	720,748	$	738,740	$	1,102,085	$	1,120,372
Janitorial and breakroom supplies		690,607		658,219		1,076,679		1,002,715
Traditional office products (including cut-sheet paper)		655,960		644,060		1,016,260		999,356
Industrial supplies		278,067		262,001		441,580		393,463
Office furniture		153,164		154,425		237,591		239,359
Freight revenue		58,818		50,674		92,120		79,896
Services, Advertising and Other		16,812		16,860		27,808		26,494

Total net sales	$	2,574,176	$	2,524,979	$	3,994,123	$	3,861,655

(1)

Sales in the technology products category (primarily ink and toner) decreased in the first ~~six~~nine months of 2014 by ~~2.4%~~1.6% versus the first ~~six~~nine months of 2013. This category, which continues to represent the largest percentage of the Company’s consolidated net sales on a year to date basis, accounted for ~~28.0%~~27.6% of net sales for the first ~~six~~nine months of 2014. Sales declines in this category were partially due to a new distribution policy by our largest product line manufacturer that ~~allows wholesalers to resell products only~~limits our sales to certain authorized resellers. This negative impact was offset by ~~adding~~ new business ~~to replace volume lost in the transition. Favorable timing of~~with certain ~~opportunistic customer sales and new business additions also contributed to the increase in sales for this category.~~large customers.

Sales in the janitorial and breakroom supplies product category increased ~~4.9%~~7.4% in the first ~~half~~nine months of 2014 compared to the first ~~half~~nine months of 2013. This category accounted for ~~26.8%~~27.0% of the Company’s first ~~half~~nine months of 2014 consolidated net sales. Sales growth in this category was driven by gains in breakroom as we launched an enhanced product ~~line.~~line as well as incremental sales from now being the primary supplier for Office Depot’s janitorial and breakroom business.

Sales of traditional office products ~~grew~~increased in the first ~~six~~nine months of 2014 by ~~1.8%~~1.7% versus the first ~~six~~nine months of 2013. Traditional office supplies represented ~~25.5%~~25.4% of the Company’s consolidated net sales for the first ~~six~~nine months of 2014. Within this category, higher sales of cut-sheet paper, continued double-digit growth in sales to e-tailers, and a rebound in government spending were partially offset by the continued effects of workplace digitization which is lowering overall consumption.

Industrial supplies sales in the first ~~half~~nine months of 2014 increased by ~~6.1%~~12.2% compared to the same prior-year period. Sales of industrial supplies accounted for ~~10.8%~~11.1% of the Company’s net sales for the first ~~six~~nine months of 2014. Increases in the general industrial, oilfield-pipeline and safety channels were partially offset by the continued decline in welding. ~~The acquisition of~~ CPO contributed ~~$8.2~~$30.1 million in incremental sales which benefited the growth rate. Excluding sales from CPO, industrial supplies sales increased 4.6% over the same period last year.

Office furniture sales in the first ~~six~~nine months of 2014 ~~were down 0.8%~~decreased 0.7% compared to the first ~~six~~nine months of 2013. Office furniture accounted for ~~6.0%~~5.9% of the Company’s first ~~six~~nine months of 2014 consolidated net sales. Sales in this category were down slightly due to ~~reduced~~lower sales toin independent channel dealers and national accounts offset by growth with e-tailer customers.

The remainder of the Company’s first ~~half~~nine months of 2014 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate.Gross profit ~~(gross margin dollars)~~ for the first ~~six~~nine months of 2014 was ~~$386.5~~$597.6 million, compared to ~~$390.5~~$594.1 million in the first ~~six~~nine months of 2013. The gross margin rate of 15.0% was down 5040 basis points (bps) from the prior-year period gross margin rate of ~~15.5%~~15.4%. This decline was due primarily to lower product margin ~~(35~~(15 bps) which included ~~targeted investments in our industrial business and~~ a shifting product and customer mix compared to the prior-year period, offset by favorable supplier ~~allowances and higher inflation.~~allowances. Gross margin was also unfavorably affected by higher freight costs ~~(10~~(20 bps) and higher inventory-related ~~items~~adjustments driven by inflation (5 bps).

Operating Expenses. Operating expenses for the first ~~half~~nine months of 2014 were ~~$291.0~~$437.6 million or ~~11.3%~~11.0% of sales, compared with ~~$306.3~~$442.6 million or ~~12.1%~~11.5% of sales in the same period last year. Excluding the $14.4 million network optimization and cost reduction charge in the first ~~half~~nine months of 2013, adjusted operating expenses were ~~$291.9~~$428.1 million or ~~11.6%~~11.1% of sales in 2013. Current period operating expenses were affected by lower employee-related expenses ~~(20~~(15 bps) ~~and a decline in bad debt expense (10 bps),~~ offset by ~~a reversal of previously capitalized purchase, storage and handling costs (5 bps).~~investments in the business. The Company incurred approximately ~~$2.0~~$2.5 million in the first ~~half~~nine months of 2014 related to the initiative to combine the Company’s office product and janitorial platforms.

Interest Expense, net.Interest expense, net for the first ~~six~~nine months of 2014 was ~~$7.2~~$11.2 million compared to ~~$6.0~~$8.7 million in the first ~~six~~nine months of 2013. This was driven primarily by higher borrowings in the period as well as the issuance of seven-year notes in January 2014 which replaced floating rate debt with long-term, fixed rate debt.

Income Taxes.Income tax expense was ~~$33.1~~$55.4 million for the first ~~six~~nine months of 2014, compared with ~~$29.7~~$53.8 million for the same period in 2013. The Company’s effective tax rate was ~~37.5%~~37.3% for the current-year period and ~~37.9%~~37.7% for the same period in 2013.

Net Income.Net income for the first ~~six~~nine months of 2014 totaled ~~$55.2~~$93.4 million or ~~$1.40~~$2.38 per diluted share, compared with net income of ~~$48.5~~$89.0 million or ~~$1.20~~$2.21 per diluted share for the same ~~six-month~~nine-month period in 2013. Adjusted for the impact of the network optimization and cost reduction charge in the first ~~half~~nine months of 2013, net income was ~~$57.5~~$98.0 million or ~~$1.42~~$2.43 per diluted share in the prior-year period.

Cash Flows

The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flows.

Operating Activities

Net cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2014 totaled ~~$78.9~~$93.7 million, compared with ~~$45.3~~$79.4 million in the same ~~six-month~~nine-month period of 2013. The current ~~six-month~~nine-month period cash flow was positively affected by a reduction in inventory levels from December 31, 2013 and ~~increased net income,~~a favorable change in accounts payable, partially offset by ~~slightly~~ higher accounts receivables. Additionally in the first quarter of 2013, the Company paid a cash contribution to its pension plans totaling $13.0 million. The cash contribution to the pension plan in the first quarter of 2014 was $2.0 million.

Investing Activities

Net cash used in investing activities for the first ~~six~~nine months of 2014 was ~~$35.6~~$41.3 million, compared ~~to net cash used in investing activities of $13.5~~with $19.3 million for the ~~six~~nine months ended ~~June~~September 30, 2013. This included the ~~$26.2~~$26.7 million acquisition, net of cash acquired, of CPO in May 2014. For the full year 2014, the Company expects capital spending to be approximately ~~$25.0~~$20.0 million to ~~$30.0~~$25.0 million.

Financing Activities

Net cash used in financing activities for the ~~six~~nine months ended ~~June~~September 30, 2014 totaled ~~$34.1~~$49.8 million, compared with ~~$41.4~~$61.0 million in the prior-year period. Net cash used in financing activities during the first ~~six~~nine months of 2014 was impacted by ~~$9.8~~$12.2 million in net borrowings under debt arrangements offset by ~~$31.2~~$43.0 million in share repurchases and ~~$11.0~~$16.4 million in payments of cash dividends.

Liquidity and Capital Resources

United’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. ~~The Company believes~~We believe that ~~its~~our cash from operations and collections of receivables, coupled with ~~its~~our sources of borrowings and available cash on hand, are sufficient to fund its currently anticipated requirements. These requirements include payments of interest and dividends, scheduled debt repayments, capital expenditures, working capital needs, restructuring activities, the funding of pension plans, and funding for additional share repurchases and acquisitions, if any. Due to our credit profile over the years, external funds have been available at an acceptable cost. We believe that current credit arrangements are sound and that the strength of our balance sheet affords us the financial flexibility to respond to both internal growth opportunities and those available through acquisitions.

Financing available from debt and the sale of accounts receivable as of ~~June~~September 30, 2014, is summarized below (in millions):

Availability


Maximum financing available under:
2013 Credit Agreement	$	700.0			$	700.0
2013 Note Purchase Agreement		150.0				150.0
Receivables Securitization Program⁽¹⁾		200.0				200.0

Maximum financing available			$	1,050.0			$	1,050.0
Amounts utilized:
2013 Credit Agreement		192.4				195.0
2013 Note Purchase Agreement		150.0				150.0
Receivables Securitization Program⁽¹⁾		200.0				200.0
Outstanding letters of credit		11.1				11.1

Total financing utilized				553.5				556.1

Available financing, before restrictions				496.5				493.9
Restrictive covenant limitation				77.8				78.0

Available financing as of June 30, 2014			$	418.7

Available financing as of September 30, 2014							$	415.9

(1)	The Receivables Securitization Program provides for maximum funding available of the lesser of $200.0 million or the total amount of eligible receivables less excess concentrations and applicable reserves.

The Company’s outstanding debt consisted of the following amounts (in millions):

   As of As of
   June 30,
2014 December 31,
2013
2013 Credit Agreement
   $ 192.4    $ 206.8
2013 Note Purchase Agreement
   150.0    —
2007 Note Purchase Agreement⁽²⁾
   —      135.0
Receivables Securitization Program
   200.0    190.7
Mortgage & Capital Lease
   1.1    1.2


Debt
   543.5    533.7
Stockholders’ equity
   841.7    825.5


Total capitalization
   $ 1,385.2    $ 1,359.2


Debt-to-total capitalization ratio
   39.2 % 39.3 %

	As of			As of
	September 30,			December 31,
	2014			2013
2013 Credit Agreement	$	195.0		$	206.8
2013 Note Purchase Agreement		150.0			-
2007 Note Purchase Agreement ⁽²⁾		-			135.0
Receivables Securitization Program		200.0			190.7
Mortgage & Capital Lease		0.9			1.2
Debt		545.9			533.7
Stockholders’ equity		863.6			825.5
Total capitalization	$	1,409.5		$	1,359.2

Debt-to-total capitalization ratio		38.7	%		39.3	%

(2)	The parties to the 2007 Note Purchase Agreement have satisfied their obligations under that agreement. The Company will not issue any new debt under the 2007 Note Purchase Agreement.

~~The Company believes~~We believe that ~~its~~our operating cash flow and financing capacity, as described, provide adequate liquidity for operating the business for the foreseeable future. Refer to Note 7, “Debt”, for further descriptions of the provisions of ~~the Company’s~~our financing facilities as well as Note 9 “Debt” in ~~the Company’s~~our Annual Report on Form 10-K for the year-ended December 31, 2013.

Contractual Obligations

During the ~~six-month~~nine-month period ended ~~June~~September 30, 2014, contractual obligations increased ~~$13.7~~$18.0 million from those disclosed in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, 2013, primarily driven by a new software license and maintenance agreement and renewed building leases.

~~ITEM~~ITEM 3.

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. There were no material changes to the Company’s exposures to market risk during the first ~~six~~nine months of 2014 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

~~ITEM~~

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act is made known to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended ~~June~~September 30, 2014, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

~~ITEM~~ITEM 1.

LEGAL PROCEEDINGS.

The Company is involved in legal proceedings arising in the ordinary course of or incidental to its business. The Company has established reserves, which are not material, for potential losses that are probable and reasonably estimable that may result from those proceedings. In many cases, however, it is difficult to determine whether a loss is probable or even possible or to estimate the amount or range of potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated. The Company believes that pending legal proceedings will be resolved with no material adverse effect upon its financial condition or results of operations.

~~ITEM 1A. RISK FACTORS.~~
ITEM 1A.
RISK FACTORS.

For information regarding risk factors, see “Risk Factors” in Item 1A of Part I of the Company’s Form 10-K for the year ended December 31, 2013. There have been no material changes to the risk factors described in such Form 10-K.

~~ITEM~~

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

~~(a)~~

Not applicable.

(b)

~~(b)~~

Not applicable.

(c)

~~(c)~~

Common Stock Purchases.

During the six-month periods ended June 30, 2014 and 2013, the Company repurchased 791,291 and 1,186,468 shares of USI’s common stock at an aggregate cost of $31.7 million and $41.0 million, respectively. The Company repurchased 0.9 million shares for $35.9 million year-to-date through July 18, 2014. As of that date, the Company had approximately $57.2

During the nine-month periods ended September 30, 2014 and 2013, the Company repurchased 1,074,574 and 1,353,020 shares of USI’s common stock at an aggregate cost of $43.0 million and $47.5 million, respectively. The Company repurchased 1,074,574 million shares for $43.0 million year-to-date through October 17, 2014. As of that date, the Company had approximately $50.0 million remaining of existing share repurchase authorization from the Board of Directors.

2014 Fiscal Month	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
July 1, 2014 to July 31, 2014		176,499	$	40.08		176,499	$	54,301,155
August 1, 2014 to August 31, 2014		106,784		40.28		106,784		50,000,029
September 1, 2014 to September 30, 2014		-		-		-		50,000,029
Total Third Quarter		283,283	$	-		283,283	$	50,000,029

2014 Fiscal Month
   Total Number
of Shares
Purchased    Average Price
Paid
per Share    Total Number of
Shares Purchased as
Part of a Publicly
Announced Program    Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Program
April 1, 2014 to April 30, 2014
   111,276       $ 38.55       111,276       $ 75,000,026
May 1, 2014 to May 31, 2014
   243,881       38.43       243,881       65,627,535
June 1, 2014 to June 30, 2014
   104,765       40.59       104,765       61,375,464








Total Second Quarter
   459,922       $ 38.95       459,922       $ 61,375,464

~~ITEM~~

ITEM 6.

EXHIBITS

(a)

Exhibits

This Quarterly Report on Form 10-Q includes as exhibits certain documents that the Company has previously filed with the SEC. Such previously filed documents are incorporated herein by reference from the respective filings indicated in parentheses at the end of the exhibit descriptions (all made under the Company’s file number of 0-10653). Each of the management contracts and compensatory plans or arrangements included below as an exhibit is identified as such by a double asterisk at the end of the related exhibit description.


Exhibit No.		Description
3.1
~~3.1~~		Third Restated Certificate of Incorporation of the Company, 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)

3.2		Amended and Restated Bylaws of the Company, dated as of July ~~16, 2009 (Exhibit 3.1 to the Company’s~~21, 2014 (Company’s current report on Form ~~10-Q for the quarter ended September 30, 2009,~~8-K, filed on ~~November 5, 2009)~~July 24, 2014)

4.1		Master Note Purchase Agreement, dated as of October 15, 2007, among United Stationers Inc. (“USI”), United Stationers Supply Co. (“USSC”), and the note Purchasers identified therein (Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended June 30, 2010, filed on August 6, 2010)

4.2		Parent Guaranty, dated as of October 15, 2007, by USI in favor of holders of the promissory notes identified therein (Exhibit 4.4 to the Company’s Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007)

4.3		Subsidiary Guaranty, dated as of October 15, 2007, by Lagasse, Inc., United Stationers Technology Services LLC (“USTS”) and United Stationers Financial Services LLC (“USFS”) in favor of the holders of the promissory notes identified therein (Exhibit 4.5 to the Company’s Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007)

10.1*		Third Amendment to Amended and Restated Transfer and Administration Agreement, dated as of July 25, 2014, by United Stationers Receivables, LLC, USSC, USFS, PNC Bank, National Association and ~~Plan~~the Bank of ~~Merger~~Tokyo-Mitsubishi UFJ, Ltd., New York Branch.

10.2*		Equity Purchase Agreement, dated as of September 10, 2014, by USSC, Richard Bell, Lauren R. Bell, Alison R. Bell Keim, Andrew Keim, Chant Tobi, Donald R. Bernhardt, The Bell Family Trust for Lauren Bell, The Bell Family Trust for Alison (Bell) Keim, 6772731 Canada Inc., and among USSC, SW Acquisition Corp. (“Merger Sub”), CPO Commerce, Inc. (“CPO”), certain security holders of CPO (“Principal Holders”) and Capstar Capital, LLC, as representative of the holders of CPO securities (“Representative”) dated May 28, 2014.Logistics Resource Group, L.P. In accordance with Item 601(b)(2) of Regulation S-K, the schedules and exhibit to the Agreement ~~and Plan of Merger~~ are not being filed. The Agreement ~~and Plan of Merger~~ contains a list briefly identifying the contents of all omitted schedules and exhibits and the Company hereby agrees to furnish supplementally a copy of any omitted schedule and exhibits to the Securities and Exchange Commission upon request.

22 31.1*		~~Published Report regarding matters submitted to vote of security holders (Company‘s current report on Form 8-K, filed on May 23, 2014)~~

31.1*		Certification of Chief Executive Officer, dated as of ~~July 24,~~October 23, 2014, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer, dated as of ~~July 24,~~October 23, 2014, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer and Chief Financial Officer, dated as of ~~July 24,~~October 23, 2014, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*		The following financial information from United Stationers Inc.’s Quarterly Report on Form 10-Q for the period ended ~~June~~September 30, 2014, filed with the SEC on ~~July 24,~~October 23, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statement of Income for the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2014 and 2013, (ii) the Condensed Consolidated Balance Sheet at ~~June~~September 30, 2014 and December 31, 2013, (iii) the Condensed Consolidated Statement of Cash Flows for the ~~six-month~~nine-month period ended ~~June~~September 30, 2014 and 2013, and (iv) Notes to Condensed Consolidated Financial Statements.

*

*	-	Filed herewith

Represents a management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements 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.
		(Registrant)

Date: ~~July 24,~~October 23, 2014		/s/ Todd A. Shelton
		Todd A. Shelton
		Senior Vice President and Chief Financial Officer

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