10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number:  0-10653

UNITED STATIONERS INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	36-3141189
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	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  o

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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  x	Accelerated filer  o	Non-accelerated filer  o	Smaller reporting company  o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x

On October 31, 2008, the registrant had outstanding 23,538,000 shares of common stock, par value $0.10 per share.

UNITED STATIONERS INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 2008

TABLE OF CONTENTS

	Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Report of Independent Registered Public Accounting Firm	3
Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007	4
Condensed Consolidated Statements of Income for the Three Months and Nine Months ended September 30, 2008 and 2007	5
Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2008 and 2007	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	41
Item 4. Controls and Procedures	41
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6. Exhibits	42
SIGNATURES	44

2

Report of Independent Registered Public Accounting Firm

The Board of Directors

United Stationers Inc.

We have reviewed the condensed consolidated balance sheet of United Stationers Inc. and Subsidiaries as of September 30, 2008, and the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2008 and 2007, and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2008 and 2007.  These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of United Stationers Inc. and its subsidiaries as of December 31, 2007, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not presented herein) and in our report dated February 27, 2008, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph related to changes in accounting principles for accounting for uncertainty in income taxes, share-based payment, and employers accounting for defined benefit pension and other postretirement plans.  In our opinion, the information set forth in the accompanying balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Chicago, Illinois	/s/ Ernst & Young LLP
November 7, 2008

3

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

	As of September 30, 2008			As of December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	41,804		$	21,957
Accounts receivable, less allowance for doubtful accounts of $18,597 in 2008 and $13,351 in 2007	339,698			321,305
Retained interest in receivables sold, less allowance for doubtful accounts of $7,667 in 2008 and $5,894 in 2007	191,625			94,809
Inventories	691,258			715,161
Other current assets	35,692			38,595
Total current assets	1,300,077			1,191,827
Property, plant and equipment, at cost	420,728			424,017
Less - accumulated depreciation and amortization	264,401			250,894
Net property, plant and equipment	156,327			173,123
Intangible assets, net	68,937			68,756
Goodwill, net	317,025			315,526
Other	12,751			16,323
Total assets	$	1,855,117		$	1,765,555
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	503,530		$	448,608
Accrued liabilities	190,714			199,961
Total current liabilities	694,244			648,569
Deferred income taxes	27,244			30,172
Long-term debt	491,800			451,000
Other long-term liabilities	50,644			61,560
Total liabilities	1,263,932			1,191,301
Stockholders’ equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 37,217,814 in 2008 and 2007	3,722			3,722
Additional paid-in capital	380,112			376,379
Treasury stock, at cost - 13,679,430 shares in 2008 and 12,645,513 shares in 2007	(712,716		)	(650,187		)
Retained earnings	934,534			859,292
Accumulated other comprehensive loss	(14,467		)	(14,952		)
Total stockholders’ equity	591,185			574,254
Total liabilities and stockholders’ equity	$	1,855,117		$	1,765,555

See notes to condensed consolidated financial statements.

4

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Net sales	$	1,337,855	$	1,191,956	$	3,841,664	$	3,526,477
Cost of goods sold	1,139,995		1,015,670		3,277,480		3,000,452
Gross profit	197,860		176,286		564,184		526,025
Operating expenses:
Warehousing, marketing and administrative expenses	136,055		123,860		414,756		374,215
Restructuring charge	—		—		—		1,378
Total operating expenses	136,055		123,860		414,756		375,593
Operating income	61,805		52,426		149,428		150,432
Interest expense, net	6,380		2,664		20,123		7,831
Other expense, net	2,063		3,695		6,296		10,754
Income before income taxes	53,362		46,067		123,009		131,847
Income tax expense	20,293		18,560		47,150		52,992
Net income	$	33,069	$	27,507	$	75,859	$	78,855
Net income per share - basic:
Net income per share - basic	$	1.41	$	1.02	$	3.22	$	2.80
Average number of common shares outstanding - basic	23,438		26,894		23,591		28,157
Net income per share - diluted:
Net income per share - diluted	$	1.39	$	1.00	$	3.18	$	2.73
Average number of common shares outstanding - diluted	23,721		27,597		23,883		28,874

See notes to condensed consolidated financial statements.

5

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	For the Nine Months Ended
	September 30,
	2008			2007
Cash Flows From Operating Activities:
Net income	$	75,859		$	78,855
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	32,954			32,251
Share-based compensation	6,714			6,576
Asset impairment charge	6,735			—
Write down of assets held for sale	—			546
(Gain) loss on the disposition of property, plant and equipment	(9,832		)	136
Amortization of capitalized financing costs	720			547
Excess tax benefits related to share-based compensation	(87		)	(5,601		)
Deferred income taxes	(3,673		)	(4,826		)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Increase in accounts receivable, net	(9,118		)	(18,108		)
Increase in retained interest in receivables sold, net	(96,816		)	(40,431		)
Decrease in inventories	29,302			98,473
Decrease (increase) in other assets	3,334			(7,592		)
Increase in accounts payable	84,832			120,751
Decrease in checks in-transit	(29,752		)	(23,554		)
(Decrease) increase in accrued liabilities	(12,558		)	16,151
Decrease in other liabilities	(13,218		)	(4,722		)
Net cash provided by operating activities	65,396			249,452
Cash Flows From Investing Activities:
Capital expenditures	(25,798		)	(12,864		)
Sale of Canadian Division	—			1,295
Acquisitions	(12,944		)	—
Proceeds from the disposition of property, plant and equipment	18,170			9
Net cash used in investing activities	(20,572		)	(11,560		)
Cash Flows From Financing Activities:
Net borrowings under Revolving Credit Facility	40,800			33,400
Net proceeds from the exercise of stock options	1,898			22,350
Acquisition of treasury stock, at cost	(67,505		)	(301,679		)
Excess tax benefits related to share-based compensation	87			5,601
Payment of debt issuance costs	(256		)	(631		)
Net cash used in financing activities	(24,976		)	(240,959		)
Effect of exchange rate changes on cash and cash equivalents	(1		)	1
Net change in cash and cash equivalents	19,847			(3,066		)
Cash and cash equivalents, beginning of period	21,957			14,989
Cash and cash equivalents, end of period	$	41,804		$	11,923
Other Cash Flow Information:
Income tax payments, net	$	39,637		$	48,470
Interest paid	19,508			6,792
Loss on the sale of accounts receivable	6,308			11,809

See notes to condensed consolidated financial statements.

6

UNITED STATIONERS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying Condensed Consolidated Financial Statements are unaudited, except for the Condensed Consolidated Balance Sheet as of December 31, 2007, which was derived from the December 31, 2007 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, 2007 for further information.

In the opinion of the management of the Company (as hereafter defined), the Condensed Consolidated Financial Statements for the interim periods presented include all adjustments necessary to fairly present the Company’s results for such interim periods and its financial position as of the end of said periods. Certain interim estimates of a normal, recurring nature are recognized throughout the year, relating to accounts receivable, supplier allowances, inventory, customer rebates, price changes, and product mix. The Company evaluates these estimates periodically and makes adjustments where facts and circumstances dictate.  The Company recorded a gain on the sale of two distribution centers in the three months ended September 30, 2008.  In addition to this, the Company also recorded a gain on the sale of its former corporate headquarters as well as an asset impairment charge on capitalized software development costs in the nine months ended September 30, 2008.

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 Company is the largest broad line wholesale distributor of business products in North America, with net sales for the trailing 12 months of $5.0 billion. The Company operates in a single reportable segment as a national wholesale distributor of business products. The Company offers more than 100,000 items from over 1,000 manufacturers. These items include a broad spectrum of technology products, traditional business products, office furniture, janitorial and breakroom supplies products, and industrial supplies. In addition, the Company also offers private brand products. The Company primarily serves commercial and contract business products resellers. The Company sells its products through a national distribution network of 67 distribution centers to approximately 30,000 resellers, who in turn sell directly to end-consumers.

Acquisition of ORS Nasco Holding, Inc.

On December 21, 2007, the Company’s subsidiary, USSC, completed the purchase of 100% of the outstanding shares of ORS Nasco Holding, Inc. (ORS Nasco) from an affiliate of Brazos Private Equity Partners, LLC of Dallas, Texas, and other shareholders. This acquisition was completed with the payment of the base purchase price of $175.0 million plus estimated working capital adjustments, a pre-closing tax benefit payment, and other adjusting items.  The purchase price was also subject to certain post-closing adjustments of which approximately $0.4 million was adjusted downward based on the subsequently negotiated working capital calculations in the second quarter of 2008.  In total, the purchase price, net of cash acquired, was $180.2 million, including $0.5 million in transaction costs.  The acquisition allowed the Company to diversify its product offering and provided an entry into the wholesale industrial supplies market.  The purchase price was financed through the addition of a $200 million term loan under the Company’s credit agreement.

7

The acquisition was accounted for under the purchase method of accounting in accordance with Financial Accounting Standards No. 141, Business Combinations, with the excess purchase price over the fair market value of the assets acquired and liabilities assumed allocated to goodwill.  Based on a preliminary purchase price allocation, the preliminary purchase price of $180.2 million, net of cash received, has resulted in goodwill and intangible assets of $88.8 million and $44.6 million, respectively.  The intangible assets purchased include unamortizable intangibles of $12.3 million related to trademarks and trade names that have indefinite lives while the remaining $32.3 million in intangible assets acquired is amortizable and related to customer lists and certain non-compete agreements.  Neither the goodwill nor the intangible assets are expected to generate a tax deduction.  For financial accounting purposes, the amortizable intangible assets are treated as a temporary difference for which a deferred tax liability of $12.1 million was recorded through purchase accounting.  The amortization expense related to the intangible assets is treated as the reversal of the temporary difference which has no impact on the effective tax rate. The weighted average useful life of amortizable intangibles is expected to be approximately 14 years.  The Company recorded amortization expense of $0.5 million and $1.5 million in the three- and nine-month periods ending September 30, 2008. Amortization expense associated with the ORS Nasco intangible assets is expected to be approximately $2.1 million per year.  Subsequent adjustments may be made to the purchase price allocation based on, among other things, post-closing purchase price adjustments and finalizing the valuation of tangible and intangible assets.

Preliminary Purchase Price Allocation
(dollars in thousands)

Purchase Price, net of cash acquired			$	180,243
Allocation of Purchase Price
Accounts receivable, net	(31,615	)
Inventories	(48,552	)
Other current assets	(5,433	)
Property, plant & equipment	(8,990	)
Intangible assets	(44,610	)
Total assets acquired			(139,200		)
Trade accounts payable	23,272
Accrued liabilities	3,467
Deferred taxes	20,989
Total liabilities assumed			47,728
Amount to goodwill			$	88,771

Acquisition of Emco Distribution LLC

On September 2, 2008, the Company closed the asset acquisition of Emco Distribution LLC’s New Jersey business, including certain liabilities.  The payment of the base purchase price of $13.1 million and transaction costs of $0.2 million were funded under the Company’s credit agreement.  The purchase resulted in goodwill and intangible assets of $2.6 million and $3.7 million, respectively.  The intangible assets purchased include unamortizable intangibles of $0.7 million and amortizable intangibles of $3.0 million.  Amortization expense associated with the intangible assets is expected to be approximately $0.3 million per year.  Subsequent adjustments may be made to the purchase price allocation based on, among other things, post-closing purchase price adjustments and finalizing the valuation of tangible and intangible assets.

8

Reclassifications

Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications were limited to Balance Sheet and Cash Flow Statement presentation and did not impact the Statements of Income. Specifically, the Company reclassified certain offsets to “Accrued Liabilities” related to merchandise return reserves to “Inventories”.  This reclassification began in the fourth quarter of 2007, with prior periods updated to conform to this presentation.  For the quarter ended September 30, 2007, $6.9 million was reclassified to “Inventories” out of “Accrued Liabilities” with corresponding changes made to the Statement of Cash Flows for the nine months ended September 30, 2007 within “Cash Flows From Operating Activities”.

Additionally, the Company reclassified certain excess tax benefits related to share-based compensation within the Statement of Cash Flows for the nine months ended September 30, 2007.  Specifically, $6.2 million was reclassified as cash provided in the “Cash Flows From Financing Activities” section to cash provided in the “Cash Flows From Operating Activities” section. This reclassification began in the fourth quarter of 2007, with prior periods updated to conform to this presentation. This reclassification impacted the “Net proceeds from the exercise of stock options” in the Financing section and the “Decrease in accrued liabilities” in the Operating section.

Common Stock Repurchase

As of September 30, 2008, the Company had $0.9 million remaining of a $200 million Board authorization from August 2007 to repurchase USI common stock and $100 million remaining from a May 2008 authorization. During the nine-month period ended September 30, 2008, the Company repurchased 1,233,832 shares of common stock at a cost of $67.5 million with all of this activity coming in the first quarter. For the three and nine months ended September 30, 2007, total share repurchases totaled 2,473,085 and 5,135,970 at an aggregate cost of $150.0 million and $301.7 million, respectively.  A summary of total shares repurchased under the Company’s share repurchase authorizations is as follows (dollars in millions, except share data):

	Share Repurchases History
	Cost						Shares
Authorizations:
2008 Authorization ($100.0 million remaining)				$	100.0
2007 Authorizations ($0.9 million remaining)				400.0
2002 to 2006 Authorizations (completed)				325.0
Repurchases:
2008 repurchases	$	(67.5	)				1,233,832
2007 repurchases	(383.3		)				6,561,416
2002 to 2006 repurchases	(273.3		)				6,352,578
Total repurchases				(724.1		)	14,147,826
Remaining repurchase authorized at September 30, 2008				$	100.9

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 nine months ended September 30, 2008 and 2007, the Company reissued 209,087 and 784,784 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

9

Use of Estimates

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

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

Supplier Allowances

Supplier allowances (fixed or variable) are common practice in the business products industry and have a significant impact on the Company’s overall gross margin. Gross margin is determined by, among other items, file margin (determined by reference to invoiced price), as reduced by customer discounts and rebates as discussed below, and increased by supplier allowances and promotional incentives. Receivables related to supplier allowances totaled $118.1 million and $134.8 million as of September 30, 2008 and December 31, 2007, respectively.  These receivables are included in “Accounts receivable” in the Condensed Consolidated Balance Sheets and are due from suppliers monthly, quarterly and/or annually.

During the nine months ended September 30, 2008 and 2007, approximately 17% and 16%, respectively, of the Company’s estimated annual supplier allowances and incentives were fixed, based on supplier participation in various Company advertising and marketing publications. Fixed allowances and incentives are taken to income through lower cost of goods sold as inventory is sold.

The remaining 83% and 84% of the Company’s annual supplier allowances and incentives during the nine months ended September 30, 2008 and 2007, respectively, were variable, based on the volume and mix of the Company’s product purchases from suppliers.  These variable allowances are recorded based on the Company’s annual inventory purchase volumes and product mix and are included in the Company’s financial statements as a reduction to cost of goods sold, thereby reflecting the net inventory purchase cost. Supplier allowances and incentives attributable to unsold inventory are carried as a component of net inventory cost. The potential amount of variable supplier allowances often differs based on purchase volumes by supplier and product category. As a result, changes in the Company’s sales volume (which can increase or reduce inventory purchase requirements) and changes in product sales mix (especially because higher-margin products often benefit from higher supplier allowance rates) can create fluctuations in variable supplier allowances earned.

Customer Rebates

Customer rebates and discounts are common practice in the business products industry and have a significant impact on the Company’s overall sales and gross margin. Such rebates are reported in the Condensed Consolidated Financial Statements as a reduction of sales. Customer rebates of $57.8 million and $59.5 million as of September 30, 2008 and December 31, 2007, respectively, are included as a component of “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

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

Revenue Recognition

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

10

Shipping, handling, and fuel costs billed to customers are treated as revenues and recognized at the time title to the product has transferred to the customer. Freight costs for inbound and outbound shipments are included in the Company’s financial statements as a component of cost of goods sold and not netted against shipping and handling revenues. Net sales do not include sales tax charged to customers.

Valuation of Accounts Receivable

The Company makes judgments as to the collectability of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which addresses the collectability of trade accounts receivable. This allowance adjusts gross trade accounts receivable downward to its estimated collectible or net realizable value. To determine the allowance for doubtful accounts, management reviews specific customer risks and the Company’s accounts receivable aging.  Uncollectible receivable balances are written off against the allowance for doubtful accounts when it is determined that the receivable balance is uncollectible.

Insured Loss Liability Estimates

The Company is primarily responsible for retained liabilities related to workers’ compensation, vehicle, property and general liability, and certain employee health benefits. The Company records expense for paid and open claims and an expense for claims incurred but not reported based on historical trends and on certain assumptions about future events. The Company has an annual per-person maximum cap, provided by a third-party insurance company, on certain employee medical benefits. In addition, the Company has both a per-occurrence maximum loss and an annual aggregate maximum cap on workers’ compensation claims.

Leases

The Company leases real estate and personal property under operating leases. Certain operating leases include incentives from landlords including, landlord “build-out” allowances, rent escalation clauses, and rent holidays or periods in which rent is not payable for a certain amount of time. The Company accounts for landlord “build-out” allowances as deferred rent at the time of possession and amortizes this deferred rent on a straight-line basis over the term of the lease. The Company also recognizes leasehold improvements associated with the “build-out” allowances and amortizes these improvements over the shorter of (1) the term of the lease or (2) the expected life of the respective improvements.

The Company accounts for rent escalation and rent holidays as deferred rent at the time of possession and amortizes this deferred rent on a straight-line basis over the term of the lease. As of September 30, 2008, the Company is not a party to any capital leases.

Inventories

Inventory constituting approximately 80% and 81% of total inventory as of September 30, 2008 and December 31 2007, respectively, has been valued under the last-in, first-out (“LIFO”) accounting method. LIFO results in a better matching of costs and revenues. 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 $73.2 million and $60.4 million higher than reported as of September 30, 2008 and December 31, 2007, respectively. The Company also records adjustments to inventory for shrinkage. Inventory that is obsolete, damaged, defective or slow moving is recorded to the lower of cost or market. These adjustments are determined using historical trends and are adjusted, if necessary, as new information becomes available.

Cash and Cash Equivalents

An unfunded check balance (payments in-transit) exists for the Company’s primary disbursement accounts.  Under the Company’s cash management system, the Company utilizes available borrowings, on an as-needed basis, to fund the clearing of checks as they are presented for payment.  At September 30, 2008, the Company had $24.8 million invested in overnight securities.  As of September 30, 2008 and December 31, 2007, outstanding checks totaling $41.0 million and $70.8 million, respectively, were included in “Accounts payable” in the Condensed Consolidated Balance Sheets.  All highly liquid debt instruments with an original maturity of three months or less are considered cash equivalents. Cash equivalents are stated at cost, which approximates fair value.

11

Property, Plant and Equipment

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

On July 11, 2008, the Company completed the sale of its distribution center located in Jacksonville, FL for approximately $3.7 million. The net book value of this building and related assets was $1.8 million as of the closing date.  In addition, the Company closed on the sale of its distribution center in Tampa, FL on August 8, 2008, with a sales price of approximately $4.8 million compared with a net book value of $1.5 million.  As of December 31, 2007, the Company had one building and associated assets, related to its former corporate headquarters, with total net book value of $5.4 million classified as “assets held for sale” within “Other assets” on the Condensed Consolidated Balance Sheets. On May 7, 2008, the Company completed the sale of its former corporate headquarters for approximately $9.8 million.

Software Capitalization

The Company capitalizes internal use software development costs in accordance with the American Institute of Certified Public Accountants’ Statement of Position No. 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use. Amortization is recorded on a straight-line basis over the estimated useful life of the software, generally not to exceed seven years. Capitalized software is included in “Property, plant and equipment, at cost” on the Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007. The total costs are as follows (in thousands):

	As of September 30, 2008			As of December 31, 2007
Capitalized software development costs	$	48,975		$	56,480
Accumulated amortization	(35,308		)	(36,359		)
Net capitalized software development costs	$	13,667		$	20,121

During the second quarter of 2008, the Company recorded a $6.7 million asset impairment charge related to capitalized software development costs for the SAP Hosted Solution for Business Products Resellers project, also known as the Reseller Technology Solution (“RTS”),. The charge reflected delays in bringing this solution to market, and the acceleration of the development of other such software solutions. As a result of these changing developments, the Company’s undiscounted forecasted cash flows and fair value analysis associated with this investment declined such that a write-off of the remaining asset value was required.  This $6.7 million asset impairment charge is classified as part of “Warehousing, marketing and administrative expenses” in the Condensed Consolidated Statements of Income.  As of December 31, 2007, net capitalized software development costs included $8.3 million related to the Company’s RTS investment.  During the six months ended June 30, 2008, amortization of this capitalized software was $1.6 million, which was recorded prior to the impairment charge.

Derivative Financial Instruments

The Company’s risk management policies allow for the use of derivative financial instruments to prudently manage foreign currency exchange rate and interest rate exposure.  The policies do not allow such derivative financial instruments to be used for speculative purposes.  At this time, the Company primarily uses interest rate swaps, which are subject to the management, direction, and control of our financial officers.  Risk management practices, including the use of all derivative financial instruments, are presented to the Board of Directors for approval.

All derivatives are recognized on the balance sheet date at their fair value.  All derivatives in a net receivable position are included in “Other assets”, and those in a net liability position are included in “Other long-term liabilities”.  The interest rate swaps that the Company has entered into are classified as cash flow hedges in accordance with the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 133 as they are hedging a forecasted transaction or the variability of cash flow to be paid by the Company.  Changes in the fair value of a derivative that is qualified, designated, and highly effective as a cash flow hedge are recorded in other comprehensive income, net of tax, until earnings are affected by the forecasted transaction or the variability of cash flow, and then are reported in current earnings.

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The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions.  This process includes linking all derivatives designated as cash flow hedges to specific forecasted transactions or variable cash flows.

The Company formally assesses, at both the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.  When it is determined that a derivative is not highly effective as a hedge then hedge accounting is discontinued prospectively in accordance with SFAS No. 133.  At this time, this has not occurred as all cash flow hedges contain no ineffectiveness.  See Note 13, “Derivative Financial Instruments”, for further detail.

Income Taxes

Income taxes are accounted for using the liability method, under which deferred income taxes are recognized for the estimated tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. A provision has not been made for deferred U.S. income taxes on the undistributed earnings of the Company’s foreign subsidiaries as these earnings have historically been permanently invested.  The Company accounts for interest and penalties related to uncertain tax positions as a component of income tax expense.

Foreign Currency Translation

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

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS No. 158”). SFAS No. 158 requires employers to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. The funded status of a defined benefit pension plan is measured as the difference between plan assets at fair value and the plan’s projected benefit obligation. Under SFAS No. 158, employers are also required to measure plan assets and benefit obligations at the date of their fiscal year-end statement of financial position. The Company adopted the required recognition provisions of SFAS No. 158 as of December 31, 2006, and the requirement to measure a plan’s assets and obligations as of the balance sheet date as of January 1, 2008.  See Note 10, “Retirement Plans”, for more information regarding the adoption of the measurement date provisions of SFAS No. 158.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157), which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures regarding fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. SFAS No. 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements.  In February 2008, the FASB issued FASB Staff Position (“FSP”) 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  Effective January 1, 2008, the Company adopted SFAS No. 157 for financial assets and liabilities recognized at fair value on a recurring basis.  This adoption did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.  See Note 14, “Fair Value Measurements”, for information and related disclosures regarding the Company’s fair value measurements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), which permits all entities to choose to measure eligible financial instruments at fair value at specific election dates. SFAS No. 159 requires companies to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 applies to fiscal years beginning after November 15, 2007. SFAS No. 159 was effective for the Company as of January 1, 2008.  However, the Company does not currently have any instruments that it has elected to measure at fair value.  As a result, the adoption of SFAS No. 159 did not impact the Company’s consolidated financial position, results of operations or cash flows.

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In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”), which is a revision to SFAS No. 141, Business Combinations, originally issued in June 2001.  The revised statement retains the fundamental requirements of SFAS No. 141 but also defines the acquirer and establishes the acquisition date as the date that the acquirer achieves control. The main features of SFAS No. 141(R) are that it requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions noted in the Statement.  SFAS No. 141(R) requires the acquirer to recognize goodwill as of the acquisition date.  Finally, the new Statement makes a number of other significant amendments to other Statements and other authoritative guidance including requiring research and development costs acquired to be capitalized separately from goodwill and requiring the expensing of transaction costs directly related to an acquisition.  This new Statement is not effective until fiscal years beginning on or after December 15, 2008.  The Company does not expect the adoption of SFAS No. 141(R) to have a material impact on its financial position and/or its results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS No. 160”), which requires, among other items, that ownership interest in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity.  The Statement also requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. Finally, SFAS No. 160 requires that entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  This Statement is effective for fiscal years beginning on or after December 15, 2008.  The Company does not expect the adoption of SFAS No. 160 to have a material impact on its financial position and/or its results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”), which amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of an entity’s derivative and hedging activities.  Specifically, SFAS No. 161 requires further disclosure on the following: 1) how and why an entity uses derivative instruments; 2) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and 3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. In order to meet these requirements, SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit risk-related contingent features in derivative agreements.  This Statement is effective for fiscal years beginning after November 15, 2008.  The Company does not expect the adoption of SFAS No. 161 to have a material impact on its financial position and/or its results of operations.

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets.  This FSP amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets.  Disclosures will be required to provide information that will enable users of financial statements to assess the extent to which the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement.  The FSP is effective for fiscal years beginning after December 15, 2008.  The Company has not yet completed its evaluation of the impact of this FSP on its consolidated financial statements.

In June 2008, the FASB issued Emerging Issue Task Force (“EITF”) Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Transactions Are Participating Securities. This EITF addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, thus impacting the calculation of earnings per share. If a share-based payment is determined to be a participating security, then the two-class method of calculating earnings per share may be required. This EITF is effective for fiscal years beginning after December 15, 2008. The Company has not yet completed its evaluation of the impact of this EITF on its consolidated financial statements.

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3. Share-Based Compensation

Overview

As of September 30, 2008, the Company has two active equity compensation plans. A description of these plans is as follows:

Amended 2004 Long-Term Incentive Plan (“LTIP”)

In June 2004, the Company’s Board of Directors adopted the LTIP to, among other things, attract and retain managerial talent, further align the interest of key associates to those of the Company’s stockholders and provide competitive compensation to key associates. Award vehicles include stock options, stock appreciation rights, full value awards, cash incentive awards and performance-based awards. Key associates and non-employee directors of the Company are eligible to become participants in the LTIP, except that non-employee directors may not be granted incentive stock options. The Company granted 143,577 and 191,077 shares of restricted stock awards under the LTIP during the third quarter of 2008 and for the nine months ended September 30, 2008, respectively.  The Company did not grant stock options under the LTIP during 2008.

Nonemployee Directors’ Deferred Stock Compensation Plan

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

Accounting For Share-Based Compensation

The Company recorded a pre-tax charge of $2.3 million ($1.4 million after-tax), or $0.06 per basic and diluted share, for share-based compensation for the third quarter of 2008. The Company recorded a pre-tax charge of $2.6 million ($1.6 million after-tax), or $0.06 per basic and diluted share, for share-based compensation for the three months ended September 30, 2007. During the nine months ended September 30, 2008, the Company recorded a pre-tax charge of $6.7 million ($4.1 million after-tax), or $0.18 per basic and $0.17 per diluted share for share-based compensation. During the same period last year, the Company recorded a pre-tax charge of $6.6 million ($4.0 million after-tax), or $0.14 per basic and diluted share for share-based compensation.

The following tables summarize the intrinsic value of options outstanding, exercisable, and exercised for the applicable periods listed below:

Intrinsic Value of Options

(in thousands of dollars)

	Outstanding		Exercisable
As of September 30, 2008	$	13,496	$	13,105
As of September 30, 2007	43,249		36,817

Intrinsic Value of Options Exercised

(in thousands of dollars)

	For the three months ended		For the nine months ended
September 30, 2008	$	247	$	1,273
September 30, 2007	701		16,725

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The following tables summarize the intrinsic value of restricted shares outstanding and vested for the applicable periods listed below:

Intrinsic Value of Restricted Shares

(in thousands of dollars)

	Outstanding
As of September 30, 2008	$	13,265
As of September 30, 2007	7,164

Intrinsic Value of Restricted Shares Vested

(in thousands of dollars)

	For the three months ended		For the nine months ended
September 30, 2008	$	1,617	$	1,617
September 30, 2007	—		333

As of September 30, 2008, there was $16.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted. This cost is expected to be recognized over a weighted-average period of 2.2 years.

SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), requires that cash flows resulting from the tax benefits from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) be classified as financing cash flows. For the nine months ended September 30, 2008 and 2007, respectively, the $0.1 million and $5.6 million excess tax benefits classified as financing cash inflows on the Consolidated Statement of Cash Flows would have been classified as operating cash inflows if the Company had not adopted SFAS No. 123(R).

Historically, the majority of awards issued under these plans have been stock options with service-type conditions. The Company began utilizing restricted stock awards in its annual award grant in September 2007.

Stock Options

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses various assumptions including the expected stock price volatility, risk-free interest rate, and expected life of the option. Stock options generally vest in annual increments over three years and have a term of 10 years. Compensation costs for all stock options are recognized, net of estimated forfeitures, on a straight-line basis as a single award typically over the vesting period. The Company estimates expected volatility based on historical volatility of the price of its common stock. The Company estimates the expected term of share-based awards by using historical data relating to option exercises and employee terminations to estimate the period of time that options granted are expected to be outstanding. The interest rate for periods during the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.  As of September 30, 2008, there was $5.7 million of total unrecognized compensation cost related to non-vested stock option awards granted. The Company granted 449,175 and 450,298 stock options during the three- and nine-month periods ended September 30, 2007.  There were no stock options granted during the first nine months of 2008.  Fair values for stock options granted during the three- and nine-month periods ended September 30, 2007 were estimated using the following weighted-average assumptions:

	For the Three Months Ended			For the Nine Months Ended
	September 30, 2007			September 30, 2007
Fair value of options granted	$	14.28		$	14.28
Exercise price	59.82			59.83
Expected stock price volatility	23.3		%	23.3		%
Risk free interest rate	4.3		%	4.3		%
Expected life of options (years)	3.5			3.5
Expected dividend yield	0.0		%	0.0		%

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The following table summarizes the transactions, excluding restricted stock awards, under the Company’s equity compensation plans for the nine months ended September 30, 2008:

Stock Options Only	Shares		Weighted Average Exercise Price		Weighted Average Exercise Contractual Life	Aggregate Intrinsic Value ($000)
Options outstanding - December 31, 2007	2,827,582		$	44.45
Granted	—		—
Exercised	(92,035	)	34.43
Canceled	(110,241	)	48.43
Options outstanding - September 30, 2008	2,625,306		$	44.63	6.7	$	13,496
Number of options exercisable	2,116,834		$	42.44	6.2	$	13,105

Restricted Stock

During the third quarter 2008, 123,404 shares of restricted stock were granted and 20,173 restricted stock units (RSUs) were granted. For the nine months ended September, 30, 2008, 146,904 shares of restricted stock and 44,173 restricted stock units (RSUs) were granted. The majority of the restricted stock granted vests three years from the date of the grant.  Approximately half of the RSUs granted vests in four years with annual performance conditions based on a predetermined internal financial performance metric that impacts the number of shares earned. The other half of RSUs granted represent deferred compensation for non-employee directors.  The Company granted 112,179 and 119,679 shares of restricted stock for the three- and nine-month periods ended September 30, 2007.  Included in the third quarter 2007 grant were 60,196 shares granted to non-executive officer employees and 6,189 deferred RSUs were granted to non-employee Directors.  As of September 30, 2008, there was $11.2 million of total unrecognized compensation cost related to non-vested restricted stock awards granted. A summary of the status of the Company’s restricted stock award grants and changes during the nine months ended September 30, 2008 is as follows:

Restricted Shares Only	Shares		Weighted Average Grant Date Fair Value		Weighted Average Contractual Life	Aggregate Intrinsic Value ($000)
Shares outstanding - December 31, 2007	125,865		$	58.79
Granted	191,077		49.90
Vested	(32,612	)	59.02
Canceled	(6,990	)	59.02
Nonvested - September 30, 2008	277,340		$	52.63	9.5	$	13,265

4. Goodwill and Intangible Assets

As of September 30, 2008 and December 31, 2007, the Company’s Condensed Consolidated Balance Sheets reflected $317.0 million and $315.5 million, respectively, of goodwill and $68.9 million and $68.8 million in net intangible assets for the same respective periods. The net intangible assets consist primarily of customer lists and non-compete agreements purchased as part of past acquisitions, including the ORS Nasco and Emco Distribution acquisitions (see “Acquisition of ORS Nasco Holding, Inc.” and “Acquisition of Emco Distribution LLC” in Note 1). Amortization of intangible assets totaled $1.2 million and $3.5 million for the three- and nine-month periods ended September 30, 2008, respectively. During the same three- and nine-month periods ended September 30, 2007, amortization of intangible assets totaled $0.6 million and $1.9 million, respectively.  Accumulated amortization of intangible assets as of September 30, 2008 and December 31, 2007 totaled $10.1 million and $6.6 million, respectively.

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5. Restructuring and Other Charges

2006 Workforce Reduction Program

On October 17, 2006, the Company announced a restructuring plan to eliminate staff positions through both voluntary and involuntary separation plans (the “Workforce Reduction Program”).  The Workforce Reduction Program included workforce reductions of 110 associates and, as of December 31, 2006, the measures were substantially complete.  The Company recorded a pre-tax charge of $6.0 million in the fourth quarter of 2006 for severance pay and benefits, prorated bonuses and outplacement costs that were paid primarily during 2007.  The Company recorded an additional charge of $1.4 million in the first quarter of 2007 related to this action. Cash outlays associated with the Workforce Reduction Program during the three-month period ended September 30, 2008 were minimal and for the year were $0.6 million.  Cash outlays during the same three- and nine-month periods ended September 30, 2007, totaled $1.2 million and $5.8 million, respectively.  As of September 30, 2008 and December 31, 2007, the Company had accrued liabilities for the Workforce Reduction Program of $0.1 million and $0.7 million, respectively.

2002 Restructuring Plan

The Company’s Board of Directors approved a restructuring plan in the fourth quarter of 2002 (the “2002 Restructuring Plan”) that included additional charges related to revised real estate sub-lease assumptions used in the 2001 Restructuring Plan, further downsizing of The Order People (“TOP”) operations (including severance and anticipated exit costs related to a portion of the Company’s Memphis distribution center), closure of the Milwaukee, Wisconsin distribution center, and the write-down of certain e-commerce related investments. All initiatives under the 2002 Restructuring Plan are complete. However, certain cash payments will continue for accrued exit costs that relate to long-term lease obligations that expire at various times over the next two to three years.

2001 Restructuring Plan

The Company’s Board of Directors approved a restructuring plan in the third quarter of 2001 (the “2001 Restructuring Plan”) that included an organizational restructuring, a consolidation of certain distribution facilities and USSC’s call center operations, an information technology platform consolidation, divestiture of the call center operations of TOP and certain other assets, and a significant reduction of TOP’s cost structure. The restructuring plan included workforce reductions of approximately 1,375 associates. All initiatives under the 2001 Restructuring Plan are complete. However, certain cash payments will continue for accrued exit costs that relate to long-term lease obligations that expire at various times over the next two to three years.

The Company had accrued restructuring costs on its balance sheet of approximately $1.2 million and $1.6 million as of September 30, 2008 and December 31, 2007, respectively, for the remaining exit costs related to the 2002 and 2001 Restructuring Plans. Net cash payments related to the 2002 and 2001 Restructuring Plans for the three-month period ended September 30, 2008 were minimal and for the nine-month period ended September 30, 2008 totaled approximately $0.3 million, respectively. Net cash payments for the same three-month period ended September 30, 2007 were minimal while net cash payments for the prior year-to-date period totaled approximately $0.2 million.  During the third quarter of 2008, the Company reversed approximately $0.1 million in restructuring and other charges as a result of events impacting estimates for future lease obligations.  During the second quarter of 2007, the Company reversed $0.4 million in restructuring and other charges for the same reasons.

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6. Comprehensive Income

Comprehensive income is a component of stockholders’ equity and consists of the following components (in thousands):

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2008			2007			2008			2007
Net income	$	33,069		$	27,507		$	75,859		$	78,855
Unrealized foreign currency translation adjustment	(949		)	(250		)	(49		)	(284		)
Unrealized (loss) gain - interest rate swaps, net of tax	(1,885		)	—			61			—
Minimum pension liability adjustment, net of tax	—			—			293			—
Minimum postretirement liability, net of tax	—			—			181			—
Total comprehensive income	$	30,235		$	27,257		$	76,345		$	78,571

7. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options and restricted stock are considered dilutive securities.  Weighted average anti-dilutive stock options to purchase 1.6 million shares of common stock were outstanding for both the three- and nine-month periods ended September 30 2008, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. The amount of antidilutive options for the three- and nine-month periods ended September 30, 2007 is not material.

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Numerator:
Net income	$	33,069	$	27,507	$	75,859	$	78,855
Denominator:
Denominator for basic earnings per share -
weighted average shares	23,438		26,894		23,591		28,157
Effect of dilutive securities:
Employee stock options	283		703		292		717
Denominator for diluted earnings per share -
Adjusted weighted average shares and the effect of dilutive securities	23,721		27,597		23,883		28,874
Net income per share:
Net income per share - basic	$	1.41	$	1.02	$	3.22	$	2.80
Net income per share - diluted	$	1.39	$	1.00	$	3.18	$	2.73

8. Receivables Securitization Program

General

On March 28, 2003, USSC entered into a third-party receivables securitization program with JPMorgan Chase Bank as trustee (the “Receivables Securitization Program” or the “Program”). On November 10, 2006, the Company entered into an amendment to its revolving credit agreement which, among other things, increased the permitted size of the Receivables Securitization Program to $350 million, a $75 million increase from the $275 million limit under the prior credit agreement.  During the first quarter of 2007, the Company increased its commitments for third party purchases of receivables and the maximum funding available under the Program is now $250 million.  The Company utilizes the Program as an alternate source of liquidity.

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Under the Program, USSC sells, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable of Lagasse, Inc. and foreign operations) to USS Receivables Company, Ltd. (the “Receivables Company”). The Receivables Company, in turn, ultimately transfers the eligible trade accounts receivable to a trust. The trust then sells investment certificates, which represent an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Affiliates of JPMorgan Chase Bank, PNC Bank, and Fifth Third Bank act as funding agents. The funding agents, or their affiliates, provide standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day liquidity facilities. The Receivables Securitization Program provides for the possibility of other liquidity facilities that may be provided by other commercial banks rated at least A-1/P-1.

Standby liquidity funding is committed for 364 days and must be renewed before maturity in order for the Program to continue. The Program liquidity was renewed on March 21, 2008. The Program contains certain covenants and requirements, including criteria relating to the quality of receivables within the pool of receivables. If the covenants or requirements were compromised, funding from the Program could be restricted or suspended, or its costs could increase. In such a circumstance, or if the standby liquidity funding were not renewed, the Company could require replacement liquidity. The Company’s 2007 Credit Agreement is an existing alternate liquidity source. The Company believes that, if so required, it also could access other liquidity sources to replace funding from the Program.

Financial Statement Presentation

The Receivables Securitization Program is accounted for as a sale in accordance with SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Trade accounts receivable sold under this program are excluded from accounts receivable in the Consolidated Financial Statements. As of September 30, 2008, the Company sold $222 million of interests in trade accounts receivable, compared with $248 million as of December 31, 2007. Accordingly, trade accounts receivable of $222 million as of September 30, 2008 and $248 million as of December 31, 2007 are excluded from the Consolidated Financial Statements. As discussed below, the Company retains an interest in the trust based on funding levels determined by the Receivables Company. The Company’s retained interest in the trust is included in the Condensed Consolidated Balance Sheets under the caption, “Retained interest in receivables sold, net.” For further information on the Company’s retained interest in the trust, see the caption “Retained Interest” below.

The Company recognizes certain costs and/or losses related to the Receivables Securitization Program. Costs related to the Program vary on a daily basis and generally are related to certain short-term interest rates. The annual interest rate on the certificates issued under the Receivables Securitization Program for the nine months ended September 30, 2008 ranged between 3.3% and 5.9%. In addition to the interest on the certificates, the Company pays certain bank fees related to the program. Losses recognized on the sale of accounts receivable, which represent the interest and bank fees that are the financial cost of funding under the Program, including amortization of previously capitalized bank fees and excluding servicing revenues, totaled $2.0 million for the three months ended September 30, 2008, compared with $3.7 million for the same period of 2007. These losses totaled $6.2 million for the nine months ended September 30, 2008, compared with $10.6 million for the same period of 2007. Proceeds from the collections under the Program for the three- and nine-month periods ended September 30, 2008 totaled $1.0 billion and $2.9 billion, respectively. Proceeds for the same periods ended September 30, 2007 were $0.9 billion and $2.8 billion, respectively.  All costs and/or losses related to the Receivables Securitization Program are included in the Condensed Consolidated Statements of Income under the caption “Other Expense, net.”

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

Retained Interest

The Receivables Company determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount. It retains a residual interest in the eligible receivables transferred to the trust, such that amounts payable in respect of the residual interest will be distributed to the Receivables Company upon payment in full of all amounts owed by the Receivables Company to the trust (and by the trust to its investors). The Company’s net retained interest on $413.6 million and $342.8 million of trade receivables in the trust as of September 30, 2008 and December 31, 2007 was $191.6 million and $94.8 million, respectively. The Company’s retained interest in the trust is included in the Consolidated Financial Statements under the caption, “Retained interest in receivables sold, net.”

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The Company measures the fair value of its retained interest throughout the term of the Receivables Securitization Program using a present value model incorporating the following two key economic assumptions: (1) an average collection cycle of approximately 40 days; and (2) an assumed discount rate of 5% per annum. In addition, the Company estimates and records an allowance for doubtful accounts related to the Company’s retained interest. Considering the above noted economic factors and estimates of doubtful accounts, the book value of the Company’s retained interest approximates fair value. A 10% or 20% adverse change in the assumed discount rate or average collection cycle would not have a material impact on the Company’s financial position or results of operations. Accounts receivable sold to the trust and written off during third quarter of 2008 were not material.

9. Long-Term 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 2007 Credit Agreement (as defined below) and the 2007 Master Note Purchase Agreement (as defined below) contain restrictions on the ability of USSC to transfer cash to USI.

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

	As of September 30, 2008		As of December 31, 2007
2007 Credit Agreement - Revolving Credit Facility	$	150,000	$	109,200
2007 Credit Agreement - Term Loan	200,000		200,000
2007 Master Note Purchase Agreement (Private Placement)	135,000		135,000
Industrial development bond, at market-based interest rates, maturing in 2011	6,800		6,800
Total	$	491,800	$	451,000

As of September 30, 2008, 100% of the Company’s outstanding debt is priced at variable interest rates based primarily on the applicable bank prime rate, the London InterBank Offered Rate (“LIBOR”) or the applicable commercial paper rates related to the Receivables Securitization Program. As of September 30, 2008, the applicable bank prime interest rates used for the Company’s various borrowings was 5.00% and the average rate for LIBOR borrowing was approximately 3.13%.  While the Company has $485.0 million of outstanding LIBOR based debt at September 30, 2008, the Company has hedged $435.0 million of this debt with three separate interest rate swaps further discussed in Note 2, “Summary of Significant Accounting Policies”; and Note 13, “Derivative Financial Instruments”, to the Consolidated Financial Statements.  At September 30, 2008 funding levels (including amounts sold under the Receivables Securitization Program), a 50 basis point movement in interest rates would result in an annualized increase or decrease of approximately $1.4 million in interest expense and loss on the sale of certain accounts receivable, on a pre-tax basis, and ultimately upon cash flows from operations.

Credit Agreement and Other Debt

On July 5, 2007, USI and USSC entered into a Second Amended and Restated Five-Year Revolving Credit Agreement with PNC Bank, National Association and U.S. Bank National Association, as Syndication Agents, KeyBank National Association and LaSalle Bank, National Association, as Documentation Agents, and JPMorgan Chase Bank, National Association, as Agent (as amended on December 21, 2007, the “2007 Credit Agreement”).  The 2007 Credit Agreement provides a Revolving Credit Facility with a committed principal amount of $425 million and a Term Loan in the principal amount of $200 million.  Interest on the Revolving Credit Facility is based primarily on the applicable bank prime rate or the LIBOR rate for periods ranging from one to twelve months plus an interest margin based up on the Company’s debt to EBITDA ratio (or “Leverage Ratio”, as defined in the 2007 Credit Agreement). The Term Loan is based on the three-month LIBOR plus an interest margin based upon the Company’s Leverage Ratio.  The 2007 Credit Agreement prohibits the Company from exceeding a Leverage Ratio of 3.25 to 1.00 and imposes other restrictions on the Company’s ability to incur additional debt.  The Revolving Credit Facility expires on July 5, 2012, which is also the maturity date of the Term Loan.

On October 15, 2007, USI and USSC entered into a Master Note Purchase Agreement (the “2007 Note Purchase Agreement”) with several purchasers.  The 2007 Note Purchase Agreement allows USSC to issue up to $1 billion of senior secured notes, subject to the debt restrictions contained in the 2007 Credit Agreement.  Pursuant to the 2007 Note Purchase Agreement, USSC issued and sold $135 million of floating rate senior secured notes due October 15, 2014 at par in a private placement (the “Series 2007-A Notes”).  Interest on the Series 2007-A Notes is payable quarterly in arrears at a rate per annum equal to three-month LIBOR plus 1.30%, beginning January 15, 2008.  USSC may issue additional series of senior secured notes from time to time under the 2007 Note Purchase Agreement but has no specific plans to do so at this time.  USSC used the proceeds from the sale of these notes to repay borrowings under the 2007 Credit Agreement.

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USSC has entered into several interest rate swap transactions to mitigate its floating rate risk on a portion of its total long-term debt.  See Note 13, “Derivative Financial Instruments”, for further detail on these swap transactions and their accounting treatment.

The 2007 Credit Agreement also provides for the issuance of letters of credit in an aggregate amount of up to a sublimit of $90 million and provides a sublimit for swingline loans in an aggregate outstanding principal amount not to exceed $30 million at any one time. These amounts, as sublimits, do not increase the maximum aggregate principal amount, and any undrawn issued letters of credit and all outstanding swingline loans under the facility reduce the remaining availability under the 2007 Credit Agreement. As of September 30, 2008 and December 31, 2007, the Company had outstanding letters of credit under the 2007 Credit Agreement of $19.5 million.

Obligations of USSC under the 2007 Credit Agreement and the 2007 Note Purchase Agreement are guaranteed by USI and certain of USSC’s domestic subsidiaries.  USSC’s obligations under these agreements and the guarantors’ obligations under the guaranties are secured by liens on substantially all Company assets, including accounts receivable, chattel paper, commercial tort claims, documents, equipment, fixtures, instruments, inventory, investment property, pledged deposits and all other tangible and intangible personal property (including proceeds) and certain real property, but excluding accounts receivable (and related credit support) subject to any accounts receivable securitization program permitted under the 2007 Credit Agreement.  Also securing these obligations are first priority pledges of all of the capital stock of USSC and the domestic subsidiaries of USSC.

10.Retirement Plans

Pension and Postretirement Health Care Benefit Plans

The Company maintains pension plans covering a majority of its employees. In addition, the Company has a postretirement health care benefit plan covering substantially all retired non-union employees and their dependents. For more information on the Company’s retirement plans, see Notes 12 and 13 to the Company’s Consolidated Financial Statements for the year ended December 31, 2007. A summary of net periodic benefit cost related to the Company’s pension and postretirement health care benefit plans for the three and nine months ended September 30, 2008 and 2007 is as follows (dollars in thousands):

	Pension Benefits
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Service cost - benefit earned during the period	$	1,473		$	1,546		$	4,426		$	4,638
Interest cost on projected benefit obligation	1,979			1,754			5,843			5,262
Expected return on plan assets	(2,197		)	(1,795		)	(6,592		)	(5,385		)
Amortization of prior service cost	51			51			154			153
Amortization of actuarial loss	149			299			446			897
Net periodic pension cost	$	1,455		$	1,855		$	4,277		$	5,565

	Postretirement Healthcare
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2008			2007			2008			2007
Service cost - benefit earned during the period	$	65		$	66		$	194		$	198
Interest cost on projected benefit obligation	56			53			168			159
Amortization of actuarial gain	(78		)	(79		)	(234		)	(237		)
Net periodic postretirement healthcare benefit cost	$	43		$	40		$	128		$	120

The Company made cash contributions of $16.2 million and $14.1 million to its pension plans for the nine months ended September 30, 2008 and 2007.

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Measurement Date Provisions of SFAS No. 158

SFAS No. 158 provides two transition alternatives related to the change in measurement date provisions.  The Company elected the standard method. The transition from a previous measurement date of October 31, 2007 to December 31, 2007, beginning in fiscal 2008, required the Company to reduce its Retained Earnings as of January 1, 2008 by $0.6 million to recognize the one-time after-tax effect of an additional two months of net periodic benefit expense for the Company’s pension and postretirement healthcare benefit plans.  There was no impact on the Company’s results of operations.  The balance sheet adjustments as of January 1, 2008 were as follows (in thousands):

	Increase (decrease)
Deferred income tax liability	$	(88	)
Accrued pension benefits liability	488
Accrued postretirement benefits liability	(257		)
Retained earnings	(617		)
Accumulated other comprehensive income	474

Defined Contribution Plan

The Company has defined contribution plans covering certain salaried employees and non-union hourly paid employees (the “Plan”). The Plan permits employees to defer a portion of their pre-tax and after-tax salary as contributions to the Plan.  The Plan also provides for discretionary Company contributions and Company contributions matching employees’ salary deferral contributions, at the discretion of the Board of Directors. The Company recorded expense of $1.2 million and $3.9 million for the Company match of employee contributions to the Plan for the three- and nine-month periods ended September 30, 2008. During the same periods last year, the Company recorded $1.2 million and $3.4 million for the same match.

11. Other Long-Term Assets and Long-Term Liabilities

Other long-term assets and long-term liabilities as of September 30, 2008 and December 31, 2007 were as follows (in thousands):

	As of September 30, 2008		As of December 31, 2007
Other Long-Term Assets, net:
Assets held for sale	$	—	$	5,388
Investment in deferred compensation	3,590		4,144
Long-term accounts receivable	4,410		3,562
Interest rate swap asset	2,250		—
Capitalized financing costs	2,321		2,718
Other	180		511
Total other long-term assets, net	$	12,751	$	16,323
Other Long-Term Liabilities:
Accrued pension benefits liability	$	11,842	$	24,697
Deferred rent	15,070		14,494
Accrued postretirement benefits liability	3,574		3,832
Deferred directors compensation	3,608		4,144
Interest rate swap liability	5,837		3,679
Long-term income tax liability	7,645		7,542
Other	3,068		3,172
Total other long-term liabilities	$	50,644	$	61,560

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12. Accounting for Uncertainty in Income Taxes

At December 31, 2007, the Company had $9.2 million in gross unrecognized tax benefits.  At September 30, 2008, the gross unrecognized tax benefits decreased to $8.5 million. This net decrease of $0.7 million was due to expiring statutes of limitations and effectively settled audits, offset by uncertain tax positions related to the current year.  At September 30, 2008 and December 31, 2007, $7.3 million of these gross unrecognized tax benefits would, if recognized, decrease the Company’s effective tax rate, with the remainder, if recognized, impacting “Goodwill” and “Other Current Assets”.

The Company recognizes net interest and penalties related to unrecognized tax benefits in income tax expense.  The gross amount of interest and penalties reflected in the Consolidated Statement of Income for the year to date period ended September 30, 2008 was $0.4 million and the amounts related to the other periods presented were not material. The Condensed Consolidated Balance Sheets at September 30, 2008 and December 31, 2007 include $1.9 million and $1.7 million, respectively, accrued for the potential payment of interest and penalties.

As of September 30, 2008, the Company’s U.S. Federal income tax returns for 2005 and subsequent years remain subject to examination by tax authorities. In addition, the Company’s state income tax returns for the tax years 2001 through 2007 remain subject to examinations by state and local income tax authorities.

Due to the potential for resolution of ongoing examinations and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $3.6 million.  These unrecognized tax benefits are currently accrued for in the Condensed Consolidated Balance Sheets.

13. 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.

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. USSC entered into the November 2007 Swap Transaction to mitigate USSC’s floating rate risk on an aggregate of $135 million of LIBOR based interest rate risk. Under the terms of the November 2007 Swap Transaction, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on a notional amount of $135 million at a fixed rate of 4.674%, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount. The November 2007 Swap Transaction has an effective date of January 15, 2008 and a termination date of January 15, 2013. Notwithstanding the terms of the November 2007 Swap Transaction, USSC is ultimately obligated for all amounts due and payable under its credit agreements.

Subsequently, on December 20, 2007, USSC entered into another interest rate swap transaction (the “December 2007 Swap Transaction”) with Key Bank National Association as the counterparty. USSC entered into the December 2007 Swap Transaction to mitigate USSC’s floating rate risk on an aggregate of $200 million of LIBOR based interest rate risk. Under the terms of the December 2007 Swap Transaction, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on a notional amount of $200 million at a fixed rate of 4.075%, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount. The December 2007 Swap Transaction has an effective date of December 21, 2007 and a termination date of June 21, 2012. Notwithstanding the terms of the December 2007 Swap Transaction, USSC is ultimately obligated for all amounts due and payable under its credit agreements.

On March 13, 2008, USSC entered into an interest rate swap transaction (the “March 2008 Swap Transaction”) with U.S. Bank National Association as the counterparty. USSC entered into the March 2008 Swap Transaction to mitigate USSC’s floating rate risk on an aggregate of $100 million of LIBOR based interest rate risk. Under the terms of the March 2008 Swap Transaction, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on a notional amount of $100 million at a fixed rate of 3.212%, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount. The March 2008 Swap Transaction had an effective date of March 31, 2008 and a termination date of June 29, 2012. Notwithstanding the terms of the March 2008 Swap Transaction, USSC is ultimately obligated for all amounts due and payable under its credit agreements.

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The interest rate swap agreements that were outstanding as of September 30, 2008 were as follows (in thousands):

As of September 30, 2008	Notional Amount		Receive	Pay		Maturity Date	Fair Value Asset (Liability) (1)
November 2007 Swap Transaction	$	135,000	Floating 3-month LIBOR	4.674	%	January 15, 2013	$	(3,991	)
December 2007 Swap Transaction	200,000		Floating 3-month LIBOR	4.075	%	June 21, 2012	(1,846		)
March 2008 Swap Transaction	100,000		Floating 3-month LIBOR	3.212	%	June 29, 2012	2,250

(1) These interest rate derivatives qualify for hedge accounting.  Therefore, the fair value of each interest rate derivative is included in the Company’s Consolidated Balance Sheets as either a component of “Other assets” or “Other long-term liabilities” with an offsetting component in “Stockholders’ Equity” as part of “Accumulated Other Comprehensive Loss”.  Fair value adjustments of the interest rate swaps will be deferred and recognized as an adjustment to interest expense over the remaining term of the hedged instrument.

These hedged transactions described above qualify as cash flow hedges under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). This Statement 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 (for example, hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), 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 (for example, in “interest expense” when the hedged transactions are interest cash flows associated with floating-rate debt).

The Company has entered into these interest rate swap agreements, described above, that effectively convert a portion of its floating-rate debt to a fixed-rate basis. This 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 agreements (as noted above) will fail to perform under the terms of the agreements.  The Company attempts to minimize the credit risk in these agreements by only entering into transactions with credit worthy counterparties.  The market risk is the adverse effect on the value of a derivative financial instrument that results from a change in interest rates.

Approximately 88% ($435 million) of the Company’s outstanding long-term debt had its interest payments designated as the hedged forecasted transactions to interest rate swap agreements at September 30, 2008.

14. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including:

·the retained interest in accounts receivables sold under the Receivables Securitization Program based on observable inputs including an average collection cycle and assumed discount rate (see Note 8, “Receivables Securitization Program” for further information and a detailed description of this asset); and

·interest rate swap liabilities related to interest rate swap derivatives based on the mark-to-market position of the Company’s interest rate swap positions and other observable interest rates (see Note 13, “Derivative Financial Instruments”, for more information on these interest rate swaps).

SFAS No. 157 establishes a fair value hierarchy for those instruments measured at fair value that 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.

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Determining which category an asset or liability falls within the hierarchy 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 Sheet as of September 30, 2008 (in thousands):

	Fair Value Measurements as of September 30, 2008
			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
Assets
Retained interest in receivables sold, less allowance for doubtful accounts	$	191,625	$	—	$	—	$	191,625
Interest rate swap asset	$	2,250	$	—	$	2,250	$	—
Liabilities
Interest rate swap liability	$	5,837	$	—	$	5,837	$	—

The following tables present the changes in Level 3 assets measured at fair value on a recurring basis for the three and nine months ended September 30, 2008:

	Retained Interest
	in receivables sold, net
Balance as of June 30, 2008	$	123,580
Net payments/sales	68,991
Realized losses	(946		)
Balance as of September 30, 2008	$	191,625

	Retained Interest
	in receivables sold, net
Balance as of December 31, 2007	$	94,809
Net payments/sales	98,592
Realized losses	(1,776		)
Balance as of September 30, 2008	$	191,625

The realized losses associated with Level 3 assets relate to that portion of the Company’s bad debt expense related to the retained interest in receivables sold.  This expense is reflected in the Company’s Condensed Consolidated Statements of Income under the caption “Warehousing, marketing and administrative expenses.”

SFAS No. 157 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 September 30, 2008, no assets or liabilities are measured at fair value on a nonrecurring basis.

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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, 2007.

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 Overview

The Company is North America’s largest broad line wholesale distributor of business products, with 2007 net sales of $4.6 billion. The Company sells its products through a national distribution network of 67 distribution centers to approximately 30,000 resellers, who in turn sell directly to end consumers.

Key Company and Industry Trends

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

·During the third quarter of 2008, worsening economic conditions had an adverse impact on business-related spending.  The overall economic conditions including continued weakness in the labor, housing and credit markets, the challenges confronting the financial services industry, and the overall uncertainty of the economy have led to lower consumer spending. As a result, the Company’s sales have been negatively impacted.  It is unclear how these overall economic conditions will impact future sales.  As reported in the Company’s press release dated October 30, 2008, net sales growth for October trended lower, with overall growth including ORS Nasco at approximately 5% versus last year.

·On December 21, 2007, the Company completed the acquisition of ORS Nasco, a pure wholesale distributor of industrial supplies.  ORS Nasco sales for the third quarter of 2008 were $84 million and earnings per share for the third quarter included a $0.09 per share contribution from ORS Nasco.  ORS Nasco sales for the nine months ended September 30, 2008 were nearly $238 million with an approximate $0.21 per share contribution to EPS.  The Company is on track for expected 8 – 10 percent sales growth and is realizing planned synergies as the $0.21 per share accretion is already above the targeted full year 15 – 20 cents of earnings per share accretion in 2008.

·On September 2, 2008, the Company closed the asset acquisition of Emco Distribution LLC’s New Jersey business, including certain liabilities.  This acquisition is expected to add $70 million in annual revenue.  The $13 million purchase price was funded under the Company’s credit agreement.

·Total Company sales for the third quarter of 2008 reached $1.34 billion which represents growth of 10.5% per selling day.  Excluding ORS Nasco, sales per selling day were up 3.6% due primarily to 15% growth in the janitorial and breakroom category, 3% growth in office supplies and 2% growth in technology.  These growth items were partially offset by an approximate 10% decline in office furniture.

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·Gross margin as a percent of sales for the third quarter of 2008 was 14.8%, consistent with the third quarter of 2007. Gross margin in the third quarter was benefited by the effects of price increases, resulting inventory standard cost changes, and an approximate 20 basis point benefit from ORS Nasco.  These items helped offset lower margin sales mix across and within categories.

·Total operating expenses as a percent of sales for the third quarter of 2008 were 10.2% compared to 10.4% for the same quarter of the prior year.  The gain on the sale of two distribution centers, totaling $5.1 million, favorably impacted operating expenses for the quarter. Excluding this gain, non-GAAP operating expenses as a percent of sales for the quarter were 10.6%. ORS Nasco operating expenses for the third quarter 2008 were $9.5 million. Third quarter operating expenses also reflected increased expenses to fund various strategic initiatives and a higher level of bad debt costs in the quarter. The current economic environment could further impact the quality of the Company’s receivables going forward.

·Operating cash flows for the year through September were $65.4 million versus $249.5 million in the same nine-month period in the prior year, reflecting the liquidation of a high year-end 2006 working capital investment and other timing related working capital changes at September 30, 2007. After excluding the impacts of accounts receivable sold under the Receivables Securitization Program, the Company’s operating cash flows were $91.4 million for the nine months ended September 30, 2008, compared to $234.5 million for the same nine months ended in 2007.

·Many of the Company’s product suppliers announced price increases which took effect during the third quarter and these increases resulted in a gross margin benefit in the quarter.  Additional supplier price increases have been announced for the fourth quarter of 2008 as well.  Gross margin benefits from product cost inflation are related to inventory standard cost changes as the Company passes these increases through the supply chain.

·During the first nine months of 2008, the Company acquired approximately 1.2 million shares of common stock under its publicly-announced share repurchase programs for $67.5 million.  During the third quarter of 2008, the Company did not repurchase any shares of its common stock.  As of October 30, 2008, the Company had approximately $100 million remaining of its existing share repurchase authorizations from the Board of Directors.

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 Company and Industry Trends” 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, 2007.

Acquisition of ORS Nasco Holding, Inc.

On December 21, 2007, the Company’s subsidiary, USSC, completed the purchase of 100% of the outstanding shares of ORS Nasco Holding, Inc. (ORS Nasco) from an affiliate of Brazos Private Equity Partners, LLC of Dallas, Texas, and other shareholders. This acquisition was completed with the payment of the base purchase price of $175.0 million plus estimated working capital adjustments, a pre-closing tax benefit payment, and other adjusting items.  The purchase price was also subject to certain post-closing adjustments of which approximately $0.4 million was adjusted downward based on the subsequently negotiated working capital calculations in the second quarter of 2008.  In total, the purchase price, net of cash acquired, was $180.2 million, including $0.5 million in transaction costs.  The acquisition allowed the Company to diversify its product offering and provided an entry into the wholesale industrial supplies market.  The purchase price was financed through the addition of a $200 million term loan under the Company’s credit agreement.

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The acquisition was accounted for under the purchase method of accounting in accordance with Financial Accounting Standards No. 141, Business Combinations, with the excess purchase price over the fair market value of the assets acquired and liabilities assumed allocated to goodwill.  Based on a preliminary purchase price allocation, the preliminary purchase price of $180.2 million, net of cash received, has resulted in goodwill and intangible assets of $88.8 million and $44.6 million, respectively.  The intangible assets purchased include unamortizable intangibles of $12.3 million related to trademarks and trade names that have indefinite lives while the remaining $32.3 million in intangible assets acquired is amortizable and related to customer lists and certain non-compete agreements.  Neither the goodwill nor the intangible assets are expected to generate a tax deduction.  For financial accounting purposes, the amortizable intangible assets are treated as a temporary difference for which a deferred tax liability of $12.1 million was recorded through purchase accounting.  The amortization expense related to the intangible assets is treated as the reversal of the temporary difference which has no impact on the effective tax rate. The weighted average useful life of amortizable intangibles is expected to be approximately 14 years.  The Company recorded amortization expense of $0.5 million and $1.5 million in the three- and nine-month periods ending September 30, 2008. Amortization expense associated with the ORS Nasco intangible assets is expected to be approximately $2.1 million per year.  Subsequent adjustments may be made to the purchase price allocation based on, among other things, post-closing purchase price adjustments and finalizing the valuation of tangible and intangible assets.

Acquisition of Emco Distribution LLC

On September 2, 2008, the Company closed the asset acquisition of Emco Distribution LLC’s New Jersey business, including certain liabilities.  The payment of the base purchase price of $13.1 million and transaction costs of $0.2 million were funded under the Company’s credit agreement.  The purchase resulted in goodwill and intangible assets of $2.6 million and $3.7 million, respectively.  The intangible assets purchased include unamortizable intangibles of $0.7 million and amortizable intangibles of $3.0 million.  Amortization expense associated with the intangible assets is expected to be approximately $0.3 million per year.  Subsequent adjustments may be made to the purchase price allocation based on, among other things, post-closing purchase price adjustments and finalizing the valuation of tangible and intangible assets.

Stock Repurchase Program

During the first nine months of 2008, the Company repurchased 1,233,832 shares at an aggregate cost of $67.5 million with all such activity coming in the first quarter of 2008. For the three and nine months ended September 30, 2007, total share repurchases totaled 2,473,085 and 5,135,970 at an aggregate cost of $150.0 million and $301.7 million, respectively.  At September 30, 2008, the Company had approximately $100 million remaining of its Board authorizations to repurchase USI common stock.  The Company may purchase stock from time to time in the open market or in privately negotiated transactions.  Depending on market and business conditions and other factors, including the Company’s leverage target, credit agreement restrictions, cost of borrowing, and other potential investment opportunities, these repurchases may be commenced or suspended at any time without notice.

Critical Accounting Policies, Judgments and Estimates

During the third quarter of 2008, 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, 2007.

The Company adopted the required measurement date provisions of SFAS No. 158 as of January 1, 2008.  SFAS No. 158 provides two transition alternatives related to the change in measurement date provisions.  The Company elected the standard method. The transition from a previous measurement date of October 31, 2007 to December 31, 2007, beginning in fiscal 2008, required the Company to reduce its Retained Earnings as of January 1, 2008 by $0.6 million to recognize the one-time after-tax effect of an additional two months of net periodic benefit expense for the Company’s pension and postretirement healthcare benefit plans.  There was no impact on the Company’s results of operations.

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Results of Operations

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Net sales	100.00	%	100.00	%	100.00	%	100.00	%
Cost of goods sold	85.21		85.21		85.31		85.08
Gross margin	14.79		14.79		14.69		14.92
Operating expenses
Warehousing, marketing and administrative expenses	10.17		10.39		10.80		10.61
Restructuring charge	—		—		—		0.04
Total operating expenses	10.17		10.39		10.80		10.65
Operating income	4.62		4.40		3.89		4.27
Interest expense, net	0.48		0.23		0.52		0.22
Other expense, net	0.15		0.31		0.17		0.31
Income before income taxes	3.99		3.86		3.20		3.74
Income tax expense	1.52		1.55		1.23		1.50
Net income	2.47	%	2.31	%	1.97	%	2.24	%

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Adjusted Operating Income and Earnings Per Share

The following tables present Adjusted Operating Income and Earnings Per Share for the three- and nine-month periods ending September 30, 2008 and 2007 (in millions, except per share data). The tables show Adjusted Operating Income and Earnings per Share excluding the effects of gains on the sale of buildings, the second quarter asset impairment charge related to RTS and the first quarter 2007 restructuring charge related to a workforce reduction. Generally Accepted Accounting Principles (GAAP) require that the effects of these items be included in the Condensed Consolidated Statements of Income. The Company believes that excluding these items is an appropriate comparison of its ongoing operating results to last year and that 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 GAAP.

	For the Three Months Ended September 30,
	2008					2007
				% to				% to
	Amount			Net Sales		Amount		Net Sales
Net Sales	$	1,337.9		100.00	%	$	1,192.0	100.00	%
Gross profit	$	197.9		14.79	%	$	176.3	14.79	%
Operating expenses	$	136.1		10.17	%	$	123.9	10.39	%
Gain on sale of distribution centers	5.1			0.38	%	—		—
Adjusted operating expenses	$	141.2		10.55	%	$	123.9	10.39	%
Operating income	$	61.8		4.62	%	$	52.4	4.40	%
Operating expense item noted above	(5.1		)	-0.38	%	—		—
Adjusted operating income	$	56.7		4.24	%	$	52.4	4.40	%
Net income per share - diluted	$	1.39				$	1.00
Per share operating expense item noted above	(0.13		)			—
Adjusted net income per share - diluted	$	1.26				$	1.00
Adjusted net income per diluted share growth rate over the prior year period	26		%
Weighted average number of common shares - diluted	23.7					27.6

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	For the Nine Months Ended September 30,
	2008					2007
				% to					% to
	Amount			Net Sales		Amount			Net Sales
Net Sales	$	3,841.7		100.00	%	$	3,526.5		100.00	%
Gross profit	$	564.2		14.69	%	$	526.0		14.92	%
Operating expenses	$	414.8		10.80	%	$	375.6		10.65	%
Asset impairment charge	(6.7		)	-0.17	%	—			—
Gain on sale of distribution centers	5.1			0.13	%	—			—
Gain on sale of former corporate headquarters	4.7			0.12	%	—			—
Restructuring charge related to workforce reduction	—			—		(1.4		)	-0.04	%
Adjusted operating expenses	$	417.9		10.88	%	$	374.2		10.61	%
Operating income	$	149.4		3.89	%	$	150.4		4.27	%
Operating expense item noted above	(3.1		)	-0.08	%	1.4			0.04	%
Adjusted operating income	$	146.3		3.81	%	$	151.8		4.31	%
Net income per share - diluted	$	3.18				$	2.73
Per share operating expense item noted above	(0.08		)			0.03
Adjusted net income per share - diluted	$	3.10				$	2.76
Adjusted net income per diluted share growth rate over the prior year period	12		%
Weighted average number of common shares - diluted	23.9					28.9

Results of Operations—Three Months Ended September 30, 2008 Compared with the Three Months Ended September 30, 2007

Net Sales. Net sales for the third quarter of 2008 were $1.34 billion, up 12.2%, or 10.5% adjusting for one additional selling day in 2008, compared with sales of $1.19 billion for the same three-month period of 2007.  Excluding ORS Nasco, sales were $1.25 billion, an increase of 5.2% or 3.6% adjusting for one additional selling day in 2008. In general, the Company was able to pass supplier price increases through the supply chain.  These price increases accounted for approximately 3% of the sales growth.

The following table summarizes net sales by product category for the three months ended September 30, 2008 and 2007 (in millions):

	Three Months Ended September 30,
	2008		2007 (1)
Technology products	$	448	$	434
Office supplies (including cut-sheet paper)	359		344
Janitorial and breakroom supplies	281		240
Office furniture	141		155
Freight revenue	24		18
Industrial supplies	84		—
Other	1		1
Total net sales	$	1,338	$	1,192

(1) Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications were limited to changes between the “Office supplies” and “Office furniture” product categories presentation and did not impact the Consolidated Statements of Income.

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Sales in the technology products category in the third quarter of 2008 were up approximately 3%, or 2% per selling day, versus the third quarter of 2007.  This category, which continues to represent the largest percentage of the Company’s consolidated net sales, accounted for approximately 33% of net sales for the third quarter of 2008.  Sales in this category were favorably impacted by increases in sales of printer imaging supplies.

Sales of office supplies in the third quarter of 2008 improved by approximately 4%, or 3% per selling day, versus the third quarter of 2007. This category experienced significant growth in cut-sheet paper which typically earns lower margins.  This growth more than offset declining traditional office product sales. Office supplies represented approximately 27% of the Company’s consolidated net sales for the third quarter of 2008.

Sales growth in the janitorial and breakroom supplies product category continued to be solid, rising over 17%, or 15% per selling day, in the third quarter of 2008 compared to the third quarter of 2007.  This category accounted for approximately 21% of the Company’s third quarter of 2008 consolidated net sales. Growth in this category was primarily due to the addition of a significant account late in 2007 and continued growth in foodservice consumables and paper-based janitorial/sanitation supplies.

Office furniture sales in the third quarter of 2008 decreased by approximately 9%, or 10% per selling day, compared to the same three-month period of 2007. This decline was due primarily to the overall poor economy as consumers were putting off discretionary, high dollar purchases such as furniture.  Office furniture accounted for 11% of the Company’s third quarter of 2008 consolidated net sales.

Sales of industrial supplies accounted for 6% of the Company’s net sales for the third quarter of 2008 as the Company continued to see the benefits of its investment in ORS Nasco.

Freight and other revenues represented 2% of net sales for the third quarter of 2008.  Freight revenues increased due to higher sales, increased delivery charges driven by carrier rate increases, and increased fuel surcharges which partially offset the impact of rising fuel costs.

Gross Profit and Gross Margin Rate.  Gross profit (gross margin dollars) for the third quarter of 2008 was $197.9 million, compared to $176.3 million in the third quarter of 2007. The increase in gross profit dollars was mainly due to the addition of ORS Nasco.  The gross margin rate (gross profit as a percentage of net sales) for the third quarter of 2008 was 14.8%, flat with the prior-year quarter.  The gross margin rate for the third quarter of 2008 was favorably impacted by approximately 20 basis points contribution from ORS Nasco and 40 basis points of inventory standard cost changes related to supplier price increases. Many of the Company’s product suppliers announced price increases which took effect during the third quarter and these increases resulted in a gross margin benefit in the quarter.  Additional supplier price increases have been announced for the fourth quarter of 2008 as well.  Gross margin benefits from product cost inflation are related to inventory standard cost changes as the Company passes these increases through the supply chain. However, the effects of lower margin sales mix across and within product categories negatively impacted pricing margin by 20 basis points and supplier allowances/purchase discounts by 25 basis points.  Also, a higher investment in advertising programs and publications lowered the gross margin rate by 15 basis points, while cost reduction efforts contributed to offsetting inflationary increases, such as fuel cost.

Operating Expenses. Operating expenses for the third quarter of 2008 totaled $136.1 million, or 10.2% of net sales, compared with $123.9 million, or 10.4% of net sales in the third quarter of 2007.  Excluding the $5.1 million pre-tax gain on the sale of two distribution centers, operating expenses as a percent of sales for the quarter were 10.6%. ORS Nasco operating expenses for the third quarter 2008 were $9.5 million. Operating expense increases were also due to a 25 basis point increase in bad debt costs.  Approximately one half of the increase in bad debt costs reflected a specific dealer issue that was not related to the economy, while the remainder brought bad debt reserves to a slightly higher level than the Company’s historic norm.  Another 14 basis point increase in operating expenses was due to investments in strategic initiatives, including roll-out of our new e-catalog and information technology projects.  These expense increases as well as general inflation were partially offset by cost reduction efforts particularly in employee related travel and entertainment (9 basis points).  Also, depreciation expense was lower in the quarter by approximately 10 basis points.

Interest Expense, net. Interest expense for the third quarter of 2008 was $6.4 million, compared with $2.7 million for the same period in 2007. The increase in interest expense for the third quarter of 2008 was attributable to higher borrowings as the Company’s debt increased by $341.1 million from September 30, 2007 to September 30, 2008. This increase was partially offset by reduced interest rates.

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Other Expense, net. Other expense for the third quarter of 2008 was $2.1 million, compared with $3.7 million in the third quarter of 2007, due to a decrease in the loss on the sale of accounts receivable through the Company’s Receivables Securitization Program and reductions in the outstanding balance of receivables sold as of September 30, 2008 compared to September 30, 2007.

Income Taxes. Income tax expense was $20.3 million for the third quarter of 2008, compared with $18.6 million for the same period in 2007. The Company’s effective tax rates for the third quarter of 2008 and 2007 were 38.0% and 40.3%, respectively. The decline reflected lower tax contingencies.

Net Income. Net income for the third quarter of 2008 totaled $33.1 million, or $1.39 per diluted share, compared with net income of $27.5 million, or $1.00 per diluted share for the same three-month period in 2007.  Adjusted for the impact of the $5.1 million pre-tax gain on the sale of two distribution centers, third quarter 2008 diluted earnings per share were $1.26.

Results of Operations—Nine months Ended September 30, 2008 Compared with the Nine months Ended September 30, 2007

Net Sales. Net sales for the first nine months of 2008 were $3.84 billion, up 8.9%, or 8.4% adjusting for one additional selling day in 2008, compared with sales of $3.53 billion for the same period of 2007.  Excluding ORS Nasco, sales were $3.6 billion, an increase of 2% adjusting for one additional workday in 2008. In general, the Company was able to pass supplier price increases through the supply chain, particularly in the third quarter.  These price increases accounted for approximately 3% of the sales growth.  The following table summarizes net sales by product category for the nine months ended September 30, 2008 and 2007 (in millions):

	Nine Months Ended September 30,
	2008 (1)		2007 (1)
Technology products	$	1,297	$	1,320
Office supplies (including cut-sheet paper)	1,039		1,019
Janitorial and breakroom supplies	799		693
Office furniture	399		436
Freight revenue	66		56
Industrial supplies	238		—
Other	4		3
Total net sales	$	3,842	$	3,527

(1) Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications were limited to changes between the “Office supplies” and “Office furniture” product categories presentation and did not impact the Consolidated Statements of Income.

Sales in the technology products category for the first nine months of 2008 were down 2% per selling day versus the same period in 2007. This category, which continues to represent the largest percentage of the Company’s consolidated net sales, accounted for approximately 34% of net sales for the nine months ended September 30, 2008. Sales in this category declined due to the weak economy, reduced discretionary spending by end consumers, and overall price competition in this category.  Increased printer imaging sales helped to partially offset the decline.

Sales of office supplies for year-to-date 2008 improved by 2% per selling day, versus the same period in 2007. This category experienced significant growth in cut-sheet paper which typically earns lower margins.  This growth more than offset lower traditional office product sales. Office supplies represented approximately 27% of the Company’s consolidated net sales for the first nine months of 2008.

Sales growth in the janitorial and breakroom supplies product category remained strong, rising 15% per selling day, compared to the last year.  This category accounted for approximately 21% of the Company’s year-to-date 2008 consolidated net sales. Growth in this category was primarily due to the addition of a significant account late in the third quarter of 2007 and continued growth in foodservice consumables and paper based janitorial/sanitation supplies.

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Office furniture sales in the first nine months of 2008 decreased by 9% per selling day, compared to the same nine-month period of 2007. This decline was due primarily to the overall poor economy as consumers were putting off discretionary, high dollar purchases such as furniture.  Office furniture accounted for 10% of the Company’s year-to-date 2008 consolidated net sales.

Sales of industrial supplies accounted for 6% of the Company’s net sales for the first nine months of 2008 as the Company continued to see the benefits of its investment in ORS Nasco.

Freight and other revenues represented 2% of net sales for the first nine months of 2008.  Freight revenues increased due to higher sales, increased delivery charges driven by carrier rate increases, and increased fuel surcharges which partially offset the impact of rising fuel costs.

Gross Profit and Gross Margin Rate.  Gross profit (gross margin dollars) for the first nine months of 2008 was $564.2 million, compared to $526.0 million in the same period during 2007. The increase in gross profit dollars was primarily due to the addition of ORS Nasco partially offset by lower gross margin dollars in the Company’s base business.  The gross margin rate (gross profit as a percentage of net sales) for year-to-date 2008 was 14.7%, down 20 basis points from the same period in the prior year.  The gross margin rate for the first nine months of 2008 was negatively impacted by approximately 36 basis points due to reduced pricing margin, 20 basis points related to supplier allowances and purchase discounts, and 13 basis points due to increased sales volume and rising fuel costs partially offset by cost reduction actions. These unfavorable items were partially offset by a 20 basis point improvement from product cost inflation, an 8 basis point improvement in credit memo margin related to improved processes, and approximately 20 basis points contribution from ORS Nasco to the Company’s overall gross margin rate.

Operating Expenses. Operating expenses for the first nine months of 2008 totaled $414.8 million, or 10.8% of net sales, compared with $375.6 million, or 10.7% of net sales in the same period of 2007.  The current year amount included the $9.8 million gain on the sale of two distribution centers and the Company’s former corporate headquarters and an asset impairment charge of $6.7 million related to capitalized software development costs. ORS Nasco operating expenses for the first nine months of 2008 were $28.2 million.  Excluding ORS Nasco and the items mentioned above, operating expenses were 10.8% of net sales.  Excluding the prior year restructuring charge in the first quarter of 2007, operating expenses for the first nine months of 2007 were 10.6% of net sales.  The overall increase in operating expenses was due to increases in bad debt reserves (14 basis points) and investments in key strategic initiatives (9 basis points).

Interest Expense, net. Interest expense for the first nine months of 2008 was $20.1 million, compared with $7.8 million for the same period in 2007. The increase in interest expense was attributable to higher borrowings as the Company’s debt increased by $341.1 million from September 30, 2007 to September 30, 2008. This increase was partially offset by reduced interest rates.

Other Expense, net. Other expense for the first nine months of 2008 was $6.3 million, compared with $10.8 million in the first nine months of 2007 due to a decrease in the loss on the sale of accounts receivable sold through the Company’s Receivables Securitization Program and reductions in the average outstanding balance of receivables sold in 2008.

Income Taxes. Income tax expense was $47.2 million for the first nine months of 2008, compared with $53.0 million for the same period in 2007. The Company’s effective tax rates for the year-to-date 2008 and 2007 were 38.3% and 40.2%, respectively. The decline reflected lower tax contingencies.

Net Income. Net income for the nine months ended September 30, 2008 totaled $75.9 million, or $3.18 per diluted share, compared with net income of $78.9 million, or $2.73 per diluted share for the same nine-month period in 2007.  Adjusted for the impact of the $9.8 million pre-tax gain on the sale of two distribution centers and the Company’s former corporate headquarters, and a pre-tax asset impairment charge of $6.7 million related to capitalized software development costs, year-to-date 2008 diluted earnings per share were $3.10 versus $2.76 per share after adjusting 2007 by $1.4 million (pre-tax) related to the workforce reduction restructuring charge.

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Liquidity and Capital Resources

Debt

The Company’s outstanding debt under GAAP, together with funds generated from the sale of receivables under the Company’s off-balance sheet Receivables Securitization Program (as defined below), consisted of the following amounts (in thousands):

	As of			As of
	September 30, 2008			December 31, 2007
2007 Credit Agreement - Revolving Credit Facility	$	150,000		$	109,200
2007 Credit Agreement - Term Loan	200,000			200,000
2007 Note Purchase Agreement	135,000			135,000
Industrial development bond, at market-based interest rates, maturing in 2011	6,800			6,800
Debt under GAAP	491,800			451,000
Accounts receivable sold (1)	222,000			248,000
Total outstanding debt under GAAP and accounts receivable sold (adjusted debt)	713,800			699,000
Stockholders’ equity	591,185			574,254
Total capitalization	$	1,304,985		$	1,273,254
Adjusted debt-to-total capitalization ratio	54.7		%	54.9		%

(1)See discussion below under “Off-Balance Sheet Arrangements - Receivables Securitization Program”

The most directly comparable financial measure to adjusted debt that is calculated and presented in accordance with GAAP is total debt (as provided in the above table as “Debt under GAAP”). Under GAAP, accounts receivable sold under the Company’s Receivables Securitization Program are required to be reflected as a reduction in accounts receivable and not reported as debt. Internally, the Company considers accounts receivables sold to be a financing mechanism. The Company therefore believes it is helpful to provide readers of its financial statements with a measure (“adjusted debt”) that adds accounts receivable sold to debt and calculates debt-to-total capitalization on the same basis.  A reconciliation of these non-GAAP measures is provided in the table above.  Adjusted debt and the adjusted debt-to-total-capitalization ratio are provided as additional liquidity measures.

In accordance with GAAP, total debt outstanding at September 30, 2008 increased by $40.8 million to $491.8 million from the balance at December 31, 2007. This resulted from an increase in borrowings under the Revolving Credit Facility of the 2007 Credit Agreement. Adjusted debt as of September 30, 2008 increased by $14.8 million from the balance at December 31, 2007 as a result of this increase in borrowings under the Revolving Credit Facility and a $26 million decrease in the amount sold under the Company’s Receivables Securitization Program.

At September 30, 2008, the Company’s adjusted debt-to-total capitalization ratio was 54.7%, compared to 54.9% at December 31, 2007.

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Operating cash requirements and capital expenditures are funded from operating cash flow and available financing. Financing available from debt and the sale of accounts receivable as of September 30, 2008, is summarized below (in millions):

Availability

Maximum financing available under:
2007 Credit Agreement - Revolving Credit Facility	$	425.0
2007 Credit Agreement - Term Loan	200.0
2007 Note Purchase Agreement	135.0
Receivables Securitization Program (1)	250.0
Industrial Development Bond	6.8
Maximum financing available			$	1,016.8
Amounts utilized:
2007 Credit Agreement - Revolving Credit Facility	150.0
2007 Credit Agreement - Term Loan	200.0
2007 Master Note Purchase Agreement	135.0
Receivables Securitization Program	222.0
Outstanding letters of credit	19.5
Industrial Development Bond	6.8
Total financing utilized			733.3
Available financing, before restrictions			283.5
Restrictive covenant limitation			89.5
Available financing as of September 30, 2008			$	194.0

(1) The Receivables Securitization Program provides for maximum funding available of the lesser of $250 million or the total amount of eligible receivables.

Restrictive covenants, most notably the leverage ratio covenant under the 2007 Credit Agreement and the 2007 Master Note Purchase Agreement (both as defined in Note 9, “Long-Term Debt”), may limit total available financing at points in time, as shown above. These and other covenants may also limit the Company’s ability to acquire shares of its common stock.

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

Contractual Obligations

During the nine months ended September 30, 2008, there were several significant changes to the Company’s contractual obligations from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.  Included in these changes were several new lease obligations and the addition of a third interest rate swap transaction on a portion of the Company’s long-term debt.  The additional fixed interest payments on this latest interest rate swap transaction are based on the notional amount and fixed rate inherent in the swap transaction and related debt instrument.  These additional contractual obligations to those disclosed in the Company’s Form 10-K for the year ended December 31, 2007, are noted below:

	Payment due by period
New contractual obligations	2008		2009 & 2010		2011 & 2012		Thereafter		Total
Operating leases	$	1,837	$	15,967	$	20,097	$	18,815	$	56,716
Fixed interest payments on long-term debt	3,212		6,424		4,796		—		14,432

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Credit Agreement and Other Debt

On July 5, 2007, USI and USSC entered into a Second Amended and Restated Five-Year Revolving Credit Agreement with PNC Bank, National Association and U.S. Bank National Association, as Syndication Agents, KeyBank National Association and LaSalle Bank, National Association, as Documentation Agents, and JPMorgan Chase Bank, National Association, as Agent (as amended on December 21, 2007, the “2007 Credit Agreement”).  The 2007 Credit Agreement provides a Revolving Credit Facility with a committed principal amount of $425 million and a Term Loan in the principal amount of $200 million.  Interest on the Revolving Credit Facility is based primarily on the applicable bank prime rate or the LIBOR rate for periods ranging from one to twelve months plus an interest margin based up on the Company’s debt to EBITDA ratio (or “Leverage Ratio”, as defined in the 2007 Credit Agreement). The Term Loan is based on the three-month LIBOR plus an interest margin based upon the Company’s Leverage Ratio.  The 2007 Credit Agreement prohibits the Company from exceeding a Leverage Ratio of 3.25 to 1.00 and imposes other restrictions on the Company’s ability to incur additional debt.  The Revolving Credit Facility expires on July 5, 2012, which is also the maturity date of the Term Loan.

On October 15, 2007, USI and USSC entered into a Master Note Purchase Agreement (the “2007 Note Purchase Agreement”) with several purchasers.  The 2007 Note Purchase Agreement allows USSC to issue up to $1 billion of senior secured notes, subject to the debt restrictions contained in the 2007 Credit Agreement.  Pursuant to the 2007 Note Purchase Agreement, USSC issued and sold $135 million of floating rate senior secured notes due October 15, 2014 at par in a private placement (the “Series 2007-A Notes”).  Interest on the Series 2007-A Notes is payable quarterly in arrears at a rate per annum equal to three-month LIBOR plus 1.30%, beginning January 15, 2008.  USSC may issue additional series of senior secured notes from time to time under the 2007 Note Purchase Agreement but has no specific plans to do so at this time.  USSC used the proceeds from the sale of these notes to repay borrowings under the 2007 Credit Agreement.

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. USSC entered into the November 2007 Swap Transaction to mitigate USSC’s floating rate risk on an aggregate of $135 million of LIBOR based interest rate risk. Under the terms of the November 2007 Swap Transaction, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on a notional amount of $135 million at a fixed rate of 4.674%, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount. The November 2007 Swap Transaction had an effective date of January 15, 2008 and a termination date of January 15, 2013.

On December 20, 2007, USSC entered into an interest rate swap transaction (the “December 2007 Swap Transaction”) with Key Bank National Association as the counterparty. USSC entered into the December 2007 Swap Transaction to mitigate USSC’s floating rate risk on an aggregate of $200 million of LIBOR based interest rate risk. Under the terms of the December 2007 Swap Transaction, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on a notional amount of $200 million at a fixed rate of 4.075%, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount. The December 2007 Swap Transaction had an effective date of December 21, 2007 and a termination date of June 21, 2012.

On March 13, 2008, USSC entered into an interest rate swap transaction (the “March 2008 Swap Transaction”) with U.S. Bank National Association as the counterparty. USSC entered into the March 2008 Swap Transaction to mitigate USSC’s floating rate risk on an aggregate of $100 million of LIBOR based interest rate risk. Under the terms of the March 2008 Swap Transaction, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on a notional amount of $100 million at a fixed rate of 3.212%, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount. The March 2008 Swap Transaction had an effective date of March 31, 2008 and a termination date of June 29, 2012.

The Company had outstanding letters of credit under the 2007 Credit Agreement and its predecessor agreement of $19.5 million as of September 30, 2008 and December 31, 2007, respectively.

At September 30, 2008 funding levels (including amounts sold under the Receivables Securitization Program), a 50 basis point movement in interest rates would result in an annualized increase or decrease of approximately $1.4 million in interest expense and loss on the sale of certain accounts receivable, on a pre-tax basis, and ultimately upon cash flows from operations.

As of September 30, 2008, the Company had an industrial development bond outstanding with a balance of $6.8 million.  This bond is scheduled to mature in 2011 and carries market-based interest rates.

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Off-Balance Sheet Arrangements—Receivables Securitization Program

USSC maintains a third-party receivables securitization program (the “Receivables Securitization Program” or the “Program”). On November 10, 2006, the Company entered into an amendment to its revolving credit agreement, which, among other things, increased the permitted size of the Receivables Securitization Program to $350 million, a $75 million increase from the $275 million limit under the prior credit agreement.  During the first quarter of 2007, the Company increased its commitments to the maximum available of $250 million.  Under the Receivables Securitization Program, USSC sells, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable of Lagasse, Inc. and foreign operations) to USS Receivables Company, Ltd. (the “Receivables Company”). The Receivables Company, in turn, ultimately transfers the eligible trade accounts receivable to a trust. The trust then sells investment certificates, which represent an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Certain bank funding agents, or their affiliates, provide standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day liquidity facilities.  Standby liquidity funding is committed for 364 days and must be renewed before maturity in order for the Program to continue. The Program liquidity was renewed on March 21, 2008. The Program contains certain covenants and requirements, including criteria relating to the quality of receivables within the pool of receivables. If the covenants or requirements were compromised, funding from the Program could be restricted or suspended, or its costs could increase. In such a circumstance, or if the standby liquidity funding were not renewed, the Company could require replacement liquidity. As of September 30, 2008, the Company sold $222 million of interests in trade accounts receivable.

Cash Flows

Cash flows for the Company for the nine months ended September 30, 2008 and 2007 are summarized below (in thousands):

	For the Nine Months Ended
	September 30,
	2008			2007
Net cash provided by operating activities	$	65,396		$	249,452
Net cash used in investing activities	(20,572		)	(11,560		)
Net cash used in financing activities	(24,976		)	(240,959		)

Cash Flow From Operations

Net cash provided by operating activities for the nine months ended September 30, 2008 totaled $65.4 million, compared with net cash provided by operating activities of $249.5 million in the same nine-month period of 2007.  After excluding the impacts of accounts receivable sold under the Receivables Securitization Program (see table below), the Company’s operating cash flows were $91.4 million for the nine months ended September 30, 2008, compared to $234.5 million for the same nine months ended in 2007.

Operating cash flows for the nine months ended September 30, 2008 were unfavorably impacted by unusually low working capital at September 30, 2007, particularly in inventories and payables compared to the same nine-month period of 2007.  Inventories were at $582.5 million at September 30, 2007 down from December 31, 2006 inventories of $681.1 million due to continued inventory management and timing of investment buys which increased during the fourth quarter of 2007 due to the seasonal build in inventory and year end investment buy opportunities.  Inventories returned to more normal levels in the fourth quarter of 2007.  Accounts payable at September 30, 2007 was unusually high as a result of payment and purchase timing and returned to a more normal range in the fourth quarter as well.  These two items accounted for approximately $70 million and $42 million, respectively, of the decline in adjusted operating cash flows compared to the nine months ended September 30, 2007.  The remaining $31 million decline was primarily due to the timing of accrued liabilities and payments particularly with accrued advertising allowances and accrued stock repurchases.

Internally, the Company views accounts receivable sold through its Receivables Securitization Program (the “Program”) to be a financing mechanism based on the following considerations and reasons:

·The Program typically is the Company’s preferred source of floating rate financing, primarily because it generally carries a lower cost than other traditional borrowings;

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·The Program’s characteristics are similar to those of traditional debt, including being securitized, having an interest component and being viewed as traditional debt by the Program’s financial providers in determining capacity to support and service debt;

·The terms of the Program are structured similar to those in many revolving credit facilities, including provisions addressing maximum commitments, costs of borrowing, financial covenants, and events of default;

·As with debt, the Company elects, in accordance with the terms of the Program, how much is funded through the Program at any given time;

·Provisions of the 2007 Credit Agreement and the 2007 Note Purchase Agreement aggregate true debt (including borrowings under the Credit Facility) together with the balance of accounts receivable sold under the Program into the concept of “Consolidated Funded Indebtedness.”  This effectively treats the Program as debt for purposes of requirements and covenants under those agreements; and

·For purposes of managing working capital requirements, the Company evaluates working capital before any sale of accounts receivables sold through the Program to assess accounts receivable requirements and performance, on measures such as days outstanding and working capital efficiency.

Net cash provided by operating activities excluding the effects of receivables sold and net cash used in financing activities including the effects of receivables sold for the nine months ended September 30, 2008 and 2007 are provided below as an additional liquidity measure (in thousands):

	For the Nine Months Ended September 30,
	2008			2007
Cash Flows From Operating Activities:
Net cash provided by operating activities	$	65,396		$	249,452
Excluding the change in accounts receivable	26,000			(15,000		)
Net cash provided by operating activities excluding the effects of receivables sold	$	91,396		$	234,452
Cash Flows Used In Financing Activities:
Net cash used in financing activities	$	(24,976	)	$	(240,959	)
Including the change in accounts receivable sold	(26,000		)	15,000
Net cash used in financing activities including the effects of receivables sold	$	(50,976	)	$	(225,959	)

Cash Flow From Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2008 was $20.6 million, compared to net cash used in investing activities of $11.6 million for the nine months ended September 30, 2007. Net cash used in investing activities for the nine months ended September 30, 2008 included $5.9 million in capitalized software development costs compared to $3.1 million for the same period in 2007.  This increase is attributable to investments in information technology systems including a new financial system.  Other gross capital expenditures increased to $19.9 million from $9.8 million in the first nine months of 2007. This increase reflects investments in information technology hardware and distribution center equipment including several facility projects.  Proceeds from the sale of two distribution centers and the Company’s former corporate headquarters were $18.2 million.  The Company also acquired certain assets and liabilities of Emco Distribution LLC in the third quarter of 2008 for $13.3 million.  For 2008, the Company expects gross capital expenditures to be approximately $30 million.

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Cash Flow From Financing Activities

Net cash used by financing activities for the nine months ended September 30, 2008 totaled $25.0 million, compared with a use of cash of $241.0 million in the prior year period.  Cash used in financing activities for the nine months ended September 30, 2008 included a use of $67.5 million to repurchase shares of the Company’s common stock partially offset by an increase of $40.8 million in borrowings under the Revolving Credit Facility.

Cash used in financing activities for the nine months ended September 30, 2007 included $301.7 million in repurchases of the Company’s common stock partially offset by $33.4 million in increased borrowings under the Revolving Credit Facility and $22.4 million in net proceeds from the issuance of treasury stock upon the exercise of stock options under the Company’s equity compensation plans.

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 third quarter of 2008 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

ITEM 4.CONTROLS AND PROCEDURES.

Attached as exhibits to this Quarterly Report are certifications of the Company’s President and Chief Executive Officer (“CEO”) and Senior Vice President and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 under the Exchange Act. This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in such certifications.

Inherent Limitations on Effectiveness of Controls

The Company’s management, including the CEO and CFO, does not expect that the Company’s Disclosure Controls or its internal control over financial reporting will prevent or detect all error or all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the existence of resource constraints. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the fact that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by managerial override. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and no design is likely to succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks, including that controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Disclosure Controls and Procedures

At the end of the period covered by this Quarterly Report the Company’s management performed an evaluation, under the supervision and with the participation of the Company’s CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Such disclosure controls and procedures (“Disclosure Controls”) are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Management’s quarterly evaluation of Disclosure Controls includes an evaluation of some components of the Company’s internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis.

Based on this evaluation, the Company’s management (including its CEO and CFO) concluded that as of September 30, 2008, the Company’s Disclosure Controls were effective at the reasonable assurance level.

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Changes in Internal Control over Financial Reporting

The Company successfully implemented a new SAP financial accounting system on August 1, 2008.  As a result, the Company’s internal control over financial reporting changed during the quarter ended September 30, 2008.  The implementation was undertaken to replace the Company’s legacy general ledger and accounts payable systems with more advanced technology.  The new financial accounting system underwent rigorous pre-implementation review and testing, and associates have been trained.  As the system is new, management has not yet completed testing operating effectiveness of key controls.  However, post-implementation monitoring has been ongoing and management believes internal controls are being maintained or enhanced by the new system.  Management will continue to evaluate the operating effectiveness of related key controls during subsequent periods.  There were no other changes to internal controls during the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS.

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

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, 2007. There have been no material changes to the risk factors described in such Form 10-K.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Common Stock Purchase

The Company did not repurchase any common stock during the third quarter of 2008.  As of September 30, 2008, the Company’s remaining authorized dollar values for common stock repurchases remained at $100.9 million unchanged since June 30, 2008.

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 United’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	Second Restated Certificate of Incorporation of United, dated as of March 19, 2002 (Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, filed on April 1, 2002 (the “2001 Form 10-K”)
3.2	Amended and Restated Bylaws of United, dated as of October 10, 2007 (Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on October 12, 2007
4.1	Rights Agreement, dated as of July 27, 1999, by and between the Company and BankBoston, N.A., as Rights Agent (Exhibit 4.1 to the Company’s 2001 Form 10-K)
4.2	Amendment to Rights Agreement, effective as of April 2, 2002, by and among United, Fleet National Bank (f/k/a BankBoston, N.A. and EquiServe Trust Company, N.A. (Exhibit 4.1 to the Company’s Form 10-Q for the Quarter ended March 31, 2002, filed on May 15, 2002)

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10.1	Omnibus Amendment, dated as of March 21, 2008, by and among USS Receivables Company, Ltd., United Stationers Financial Services LLC, United Stationers Supply Co., Falcon Asset Securitization Company LLC, PNC Bank, National Association, Market Street Funding LLC, JPMorgan Chase Bank, N.A. (successor by merger to Bank One, NA (Main Office Chicago)), Fifth Third Bank, and The Bank of New York Trust Company, N.A. (successor in interest to JPMorgan Chase Bank, N.A.), as trustee (Exhibit 10.1 to the Company’s Form 10-Q for the Quarter ended March 31, 2008, filed on May 9, 2008)
10.2*	Summary of compensation of non-employee directors of United Stationers Inc. as amended July 31, 2008 with an effective date of September 1, 2008**
10.3*	Executive Employment Agreement, effective August 13, 2008 among USI, USSC and Barbara J. Kennedy**
10.4*	Form of Restricted Stock Award Agreement for non-employee directors under the United Stationers Inc. Amended and Restated 2004 Long-Term Incentive Plan**
10.5*	Form of Restricted Stock Unit Award Agreement for non-employee directors under the United Stationers Inc. Amended and Restated 2004 Long-Term Incentive Plan**
15.1*	Letter regarding unaudited interim financial information
31.1*	Certification of Chief Executive Officer, dated as of November 7, 2008, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer, dated as of November 7, 2008 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 November 7, 2008, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*   -	Filed herewith
** -	Represents a management contract or compensatory plan or arrangement.

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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)
	/s/ VICTORIA J. REICH
Date:  November 7, 2008	Victoria J. Reich
	Senior Vice President and Chief Financial Officer (Duly authorized signatory and principal financial officer)

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EX-10.2

Exhibit 10.2

United Stationers Inc.
Executive Summary of Board of Directors Compensation
(approved as of 7/31/08 with an effective date of 9/1/08)

During 2008 the Board of Directors of United Stationers Inc., upon recommendation by the Governance Committee, approved certain adjustments to the overall compensation paid to Board members. Following is a summary of the forms and levels of compensation to be provided to Directors from September 1, 2008.

Director Compensation Component	2008 Amount	Comment
Annual Retainer	$60,000 annual rate	Unchanged from 2005
Board Meeting Fees
· In person	$4,000 per meeting	Unchanged from 2005
· Telephonic	$1,000 per meeting	Unchanged from 2004.
Committee Meeting Fees
· Held in connection with a Board meeting
· Held by teleconference
—Audit Committee Chairman	$2,500 per meeting	Unchanged from 2005
— Other Committee Chairmen	$2,000 per meeting	Unchanged from 2006
— Other non-employee members	$500 per meeting	Unchanged from 2004
· In-person meeting not held in connection with a Board meeting
— Audit Committee Chairman	$2,500	Unchanged from 2005
— Other Committee Chairmen	$2,000 per meeting	Unchanged from 2006
— Other non-employee members	$1,000 per meeting	Unchanged from 2004
Deferred Compensation	N/A	Allows for deferrals of all or a portion (but not less than 50%) of the annual retainer and meeting fees into stock units. Such stock units are paid out after cessation of service as a Director.

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Director Compensation Component	2008 Amount	Comment
Equity Compensation
· Chairman of the Board	Approximately $120,000	Increased in 2008 from $100,000 to $120,000.
		Restricted stock to be granted on September 1, 2008 will be for the number of shares having an economic value of $120,000 based upon the closing price of the Company’s Common Stock on August 29, 2008. The restricted stock will vest in substantially equal installments over 3 years.
· Other non-employee directors	Approximately $110,000	Increased in 2008 from $90,000 to $110,000.
		Restricted stock to be granted on September 1, 2008 will be for the number of shares having an economic value of $110,000 based upon the closing price of the Company’s Common Stock on August 29, 2008. The restricted stock will vest in substantially equal installments over 3 years.
Reimbursement	Reasonable travel-related expenses	Directors are reimbursed for reasonable travel-related expenses incurred in connection with their attendance at Board meetings, Committee meetings, and certain Company events. In addition, the Company encourages their periodic attendance at accredited “Directors’ Colleges” at Company expense.

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EX-10.3

Exhibit 10.3

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made, entered into and effective as of August 13, 2008 (the “Effective Date”) by and among UNITED STATIONERS INC., a Delaware corporation (hereinafter, together with its successors, referred to as “Holding”), UNITED STATIONERS SUPPLY CO., an Illinois corporation (hereinafter, together with its successors, referred to as the “Company”, and, together with Holding, the “Companies”), and Barbara J. Kennedy (hereinafter referred to as the “Executive”).

WHEREAS, the Companies have a need for executive management services; and

WHEREAS, the Executive is qualified and willing to render such services to the Companies; and

WHEREAS, Executive will be a key member of the management of the Companies and is expected to devote substantial skill and effort to the affairs of the Companies, and the Companies desire to recognize the significant personal contribution that Executive makes and is expected to continue to make to further the best interests of the Companies and their shareholders; and

WHEREAS, it is desirable and in the best interests of the Companies and its shareholders to obtain the benefits of Executive’s services and attention to the affairs of the Companies, and to provide inducement for Executive (1) to remain in the service of the Companies in the event of any proposed or anticipated Change of Control and (2) to remain in the service of the Companies in order to facilitate an orderly transition in the event of a Change of Control; and

WHEREAS, it is desirable and in the best interests of the Companies and their shareholders that Executive be in a position to make judgments and advise the Companies with respect to any proposed Change of Control without regard to the possibility that Executive’s employment may be terminated without compensation in the event of a Change of Control; and

WHEREAS, Executive will have access to confidential, proprietary and trade secret information of the Companies and their subsidiaries, and it is desirable and in the best interests of the Companies and their shareholders to protect confidential, proprietary and trade secret information of the Companies and their subsidiaries, to prevent unfair competition by former executives of the Companies following separation of their employment with the Company and to secure cooperation from former executives with respect to matters related to their employment with the Company; and

WHEREAS, it is desirable and in the best interests of the Companies and their shareholders to obtain commitments from Executive with respect to Executive’s service with the Company, and to facilitate a smooth transition upon separation from service for former executives,

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties agree as follows:

Section 1.              Definitions.

(a)           As used in this Agreement, the following terms have the respective meanings set forth below:

“Accrued Benefits” means (i) all salary earned or accrued through the date the Executive’s employment is terminated, (ii) reimbursement for any and all monies advanced in connection with the Executive’s employment for reasonable and necessary expenses incurred by the Executive through the date the Executive’s employment is terminated, (iii) all accrued and unpaid annual incentive compensation awards for the year immediately prior to the year in which the Executive’s employment is terminated, and (iv) all other payments and benefits payable on or after termination of employment to which the Executive is entitled at the date of termination under the terms of any applicable compensation arrangement or benefit plan or program of the Company.  “Accrued Benefits” shall not include any entitlement to severance pay or severance benefits under any Company severance policy or plan generally applicable to the Company’s salaried employees.

“Affiliate” shall have the meaning given such term in Rule 12b-2 of the Exchange Act.

“Board” shall mean, so long as Holding owns all of the outstanding Voting Securities (as hereinafter defined in the definition of Change of Control) of the Company, the board of directors of Holding.  In all other cases, Board means the board of directors of the Company.

“Cause” shall mean (i) conviction of, or plea of nolo contendere to, a felony (excluding motor vehicle violations); (ii) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company or any of its Affiliates; (iii) illegal use of drugs; (iv) material breach of this Agreement or any employment-related undertakings provided in a writing signed by the Executive prior to or concurrently with this Agreement; (v) commission of any act or acts of moral turpitude; (vi) gross negligence or willful misconduct in the performance of Executive’s duties; (vii) breach of any fiduciary duty owed to the Company, including, without limitation, engaging in competitive acts while employed by the Company; or (viii) the Executive’s willful refusal to perform the assigned duties for which the Executive is qualified as directed by the Executive’s Supervising Officer (as hereinafter defined) or the Board; provided, that in the case of any event constituting Cause within clauses (iv) through (viii) which is curable by the Executive, the Executive has been given written notice by the Companies of such event said to constitute Cause, describing such event in reasonable detail, and has not cured such action within thirty (30) days of such written notice as reasonably determined by the Chief Executive Officer.  For purposes of this definition of Cause, action or inaction by the Executive shall not be considered “willful” unless done or omitted by the Executive (A) intentionally or not in good faith and (B) without reasonable belief that the Executive’s action

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or inaction was in the best interests of the Companies, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness.

“Change of Control” shall mean (a) Any “Person” (having the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” within the meaning of Section 13(d)(3)) has or acquires “Beneficial Ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting power of Holding’s then outstanding voting securities entitled to vote generally in the election of directors (“Voting Securities”); provided, however, that the acquisition or holding of Voting Securities by (i) Holding of any of its subsidiaries, (ii) an employee benefit plan (or a trust forming a part thereof) maintained by Holding or any of its subsidiaries, or (iii) any Person in which the Executive has a substantial equity interest shall not constitute a Change of Control.  Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person acquired Beneficial Ownership of more than the permitted amount of Voting Securities as a result of the issuance of Voting Securities by Holding in exchange for assets (including equity interests) or funds with a fair value equal to the fair value of the Voting Securities so issued; provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the issuance of Voting Securities by Holding, and after such issuance of Voting Securities by Holding, such Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the Voting Securities Beneficially Owned by such Person to more than 50% of the Voting Securities of Holding, then a Change of Control shall occur; (b) At any time during a period of two consecutive years, the individuals who at the beginning of such period constituted the Board (the “Incumbent Board”) cease for any reason to constitute more than 50% of the Board; provided, however, that if the election, or nomination for election by Holding’s stockholders, of any new director was approved by a vote of more than 50% of the directors then comprising the Incumbent Board, such new director shall, for purposes of this subsection (b), be considered as though such person were a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of (i) either an actual “Election Consent” (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board (a “Proxy Contest”), or (ii) by reason of an agreement intended to avoid or settle any actual or threatened Election Contest or Proxy Contest; (c) Consummation of a merger, consolidation or reorganization or approval by Holding’s stockholders of a liquidation or dissolution of Holding or the occurrence of a liquidation or dissolution of Holding (“Business Combination”), unless, following such Business Combination: (1) the Persons with Beneficial Ownership of Holding, immediately before such Business Combination, have Beneficial Ownership of more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation

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(or in the election of a comparable governing body of any other type of entity) resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns Holding or all or substantially all of Holding’s assets either directly or through one or more subsidiaries) (the “Surviving Company”) in substantially the same proportions as their Beneficial Ownership of the Voting Securities immediately before such Business Combination, (2) the individuals who were members of the Incumbent Board immediately prior to the execution of the initial agreement providing for such Business Combination constitute more than 50% of the members of the board of directors (or comparable governing body of a noncorporate entity) of the Surviving Company; and (3) no Person (other than Holding, any of its subsidiaries or any employee benefit plan (or any trust forming a part thereof) maintained by Holding, the Surviving Company or any Person who immediately prior to such Business Combination had Beneficial Ownership of 30% or more of the then Voting Securities) has Beneficial Ownership of 30% or more of the then combined voting power of the Surviving Company’s then outstanding voting securities; provided, that notwithstanding this clause (3), a Change of Control shall not be deemed to occur solely because any Person acquired Beneficial Ownership of more than 30% of Voting Securities as a result of the issuance of Voting Securities by Holding in exchange for assets (including equity interests) or funds with a fair value equal to the fair value of the Voting Securities so issued; provided, however that a Business Combination with a Person in which the Executive has a substantial equity interest shall not constitute a Change of Control, or (d) Approval by Holding’s stockholders of an agreement for the assignment, sale, conveyance, transfer, lease or other disposition of all or substantially all of the assets of Holding to any Person (other than a Person in which the Executive has a substantial equity interest and other than a subsidiary of Holding or other entity, the Persons with Beneficial Ownership of which are the same Persons with Beneficial Ownership of Holding and such Beneficial Ownership is in substantially the same proportions), or the occurrence of the same.  Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person acquired Beneficial Ownership of more than the permitted amount of Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Person; provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such acquisition of Voting Securities by the Company, such Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the Voting Securities Beneficially Owned by such Person, then a Change of Control shall occur.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Good Reason” shall mean:  (i) any material breach by the Companies of this Agreement without Executive’s written consent, (ii) any material reduction,

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without the Executive’s written consent, in the Executive’s duties, responsibilities or authority; provided, however, that for purposes of this clause (ii), neither (A) a change in the Executive’s Supervising Officer or the number or identity of the Executive’s direct reports, nor (B) a change in the Executive’s title, duties, responsibilities or authority as a result of a realignment or restructuring of the Companies’ executive organizational chart nor (C) a change in the Executive’s title, duties, responsibilities or authority as a result of a realignment or restructuring of the Companies shall be deemed by itself to materially reduce Executive’s duties, responsibilities or authority, as long as, in the case of either (B) or (C), Executive continues to report to either the Chief Executive Officer or Chief Operating Officer of the Companies or to the Supervising Officer to whom he reported immediately prior to the Change of Control or a Supervising Officer of equivalent responsibility and authority, or (iii) without Executive’s written consent:  (A) a material reduction in the Executive’s Base Salary, (B) the relocation of the Executive’s principal place of employment more than fifty (50) miles from its location on the date of a Change in Control, or (C) the relocation of the Company’s corporate headquarters office outside of the metropolitan area in which it is located on the date of a Change in Control.  For purposes of this Agreement, a Change of Control, alone, does not constitute Good Reason.  Furthermore, notwithstanding the above, the occurrence of any of the events described above will not constitute Good Reason unless the Executive gives the Companies written notice within thirty (30) days after the initial occurrence of any of such events that the Executive believes that such event constitutes Good Reason, and the Companies thereafter fail to cure any such event within sixty (60) days after receipt of such notice.

“Person” shall mean any natural person, firm, corporation, limited liability company, trust, partnership, limited or limited liability partnership, business association, joint venture or other entity and, for purposes of the definition of Change of Control herein, shall comprise any “person”, within the meaning of Sections 13(d) and 14(d) of the Exchange Act, including a “group” as therein defined.

“Subsidiary” shall mean, with respect to any Person, any other Person of which such first Person owns 20% or more of the economic interest in such Person or owns or has the power to vote, directly or indirectly, securities representing 20%or more of the votes ordinarily entitled to be cast for the election of directors or other governing Persons.

(b)           The capitalized terms used in Section 5(j) have the respective meanings assigned to them in such Section and the following additional terms have the respective meanings assigned to them in the Sections hereof set forth opposite them:

“Annual Bonus”	Section 4(b)
“Base Salary”	Section 4(b)
“Bonus Plan”	Section 4(b)
“Code”	Section 2

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“Confidential information or proprietary data”	Section 6(a)(2)
“Customer”	Section 6(d)(2)
“Disability”	Section 5(c)
“Employment Period”	Section 2
“Retirement”	Section 5(f)
“Supervising Officer”	Section 3(a)
“Supplier”	Section 6(d)(2)
“Term” and “Termination Date”	Section 2

Section 2.Term and Employment Period.  Subject to Section 19 hereof, the term of this Agreement (the “Term”) shall commence on the Effective Date of this Agreement and shall continue until (A) December 31, 2011, provided that such period shall be automatically extended for one year, and from year to year thereafter, until written notice of termination of this Agreement is given by the Companies or Executive to the other party hereto at least 60 days prior to December 31, 2011 or the extension year then in effect, or (B) if a Change of Control occurs prior to December 31, 2011 (or prior to the end of the extension year then in effect), the second anniversary of the occurrence of the Change of Control.  The period during which the Executive is employed by the Companies during the Term and ending on the effective date of termination of the Executive’s employment hereunder pursuant to Section 5 of this Agreement is referred to herein as the “Employment Period.”  The date on which termination of the Executive’s employment hereunder shall become effective is referred to herein as the “Termination Date.”  For purposes of Section 5 of this Agreement only, the Termination Date shall mean the date on which a “separation from service” has occurred for purposes of Section 409A of the Internal Revenue Code and the regulations and guidance thereunder (the “Code”).

Section 3.Duties.

(a)During the Employment Period, the Executive (i) shall serve as Senior Vice President , Human Resources, (ii) shall report directly to an officer of the Companies (the “Supervising Officer”) who shall be selected by the Board or the Chief Executive Officer in its or his or her sole discretion, (iii) shall, subject to and in accordance with the authority and direction of the Board and/or the Supervising Officer have such authority and perform in a diligent and competent manner such duties as may be assigned to the Executive from time to time by the Board and/or the Supervising Officer and (iv) shall devote the Executive’s best efforts and such time, attention, knowledge and skill to the operation of the business and affairs of the Companies as shall be necessary to perform the Executive’s duties.  During the Employment Period, the Executive’s place of performance for the Executive’s duties and responsibilities shall be at the Companies’ corporate headquarters office, unless another principal place of performance is agreed in writing among the parties and except for required travel by the Executive on the Companies’ business or as may be reasonably required by the Companies.

(b)Notwithstanding the foregoing, it is understood during the Employment Period, subject to any conflict of interest policies of the Companies, the Executive may (i) serve in any capacity with any civic, charitable, educational or professional organization provided that such service does not materially interfere with the Executive’s

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duties and responsibilities hereunder, (ii) make and manage personal investments of the Executive’s choice, and (iii) with the prior consent of the Companies’ Chief Executive Officer, which shall not be unreasonably withheld, serve on the board of directors of one (1) for-profit business enterprise.

Section 4.Compensation.  During the Employment Period, the Executive shall be compensated as follows:

(a)the Executive shall receive, at such intervals and in accordance with such Company payroll policies as may be in effect from time to time, an annual salary (pro rata for any partial year) equal to $285,000 (“Base Salary”).  The Base Salary shall be reviewed by the Board from time to time and may, in the Board’s sole discretion, be increased when deemed appropriate by the Board; if so increased, it shall not thereafter be reduced (other than an across-the-board reduction applied in the same percentage at the same time to all of the Companies’ senior executives at the same grade level);

(b)the Executive shall be eligible to earn an annual incentive compensation award under the Companies’ management incentive or bonus plan, or a successor plan thereto, as shall be in effect from time to time (the “Bonus Plan”), subject to achievement of performance goals determined in accordance with the terms of the Bonus Plan (such annual incentive compensation award, the “Annual Bonus”), with such Annual Bonus to be payable in a cash lump sum at such time as bonuses are ordinarily paid to the Companies’ senior executives at the same grade level;

(c)the Executive shall be reimbursed, at such intervals and in accordance with such Company policies as may be in effect from time to time, for any and all reasonable and necessary business expenses incurred by the Executive during the Employment Period for the benefit of the Companies, subject to documentation in accordance with the Companies’ policies;

(d)the Executive shall be entitled to participate in all incentive, savings and retirement plans, stock option plans, practices, policies and programs applicable generally to other senior executives of the Companies at the same grade level and as determined by the Board from time to time;

(e)the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company to senior executives of the Companies at the same grade level (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, and accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Companies at the same grade level;

(f)the Executive shall be entitled to not less than twenty (20) paid vacation days per calendar year (pro rata for any partial year); and

(g)the Executive shall be entitled to participate in the Company’s other executive fringe benefits and perquisites generally applicable to the Companies’ senior

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executives at the same grade level in accordance with the terms and conditions of such arrangements as are in effect from time to time.

Section 5.Termination of Employment.

(a)All Accrued Benefits to which the Executive (or the Executive’s estate or beneficiary) is entitled shall be payable within thirty (30) days following the Termination Date, except as otherwise specifically provided herein or under the terms of any applicable policy, plan or program, in which case the payment terms of such policy, plan or program shall be determinative.

(b)Any termination by the Companies, or by the Executive, of the Employment Period shall be communicated by written notice of such termination to the Executive, if such notice is delivered by the Companies, and to the Companies, if such notice is delivered by the Executive, each in compliance with the requirements of Section 13 hereof.  Except in the event of termination of the Employment Period by reason of Cause or the Executive’s death, the effective date of the termination of Executive’s employment shall be no earlier than thirty (30) days following the date on which notice of termination is delivered by one party to the other in compliance with the requirements of Section 13 hereof.

(c)If the Employment Period is terminated prior to the expiration of the Term by the Companies for any reason other than Cause or the Executive’s permanent disability, as defined in the Companies’ Board-approved disability plan or policy as in effect from time to time (“Disability”) and other than within two (2) years following a Change of Control, then, as the Executive’s exclusive right and remedy in respect of such termination:

(i)the Executive shall be entitled to receive from the Company the Executive’s Accrued Benefits in accordance with Section 5(a);

(ii)the Executive shall be entitled to an amount equal to one and one-half (1½) times the Executive’s then existing Base Salary, to be paid in such intervals and at such times in accordance with the Company’s payroll practices in effect from time to time over the eighteen (18) month period following the Termination Date, but in no event shall such amount paid under this Section 5(c)(ii) exceed the lesser of (A) $460,000.00 or (B) two (2) times Executive’s annualized compensation based upon the annual rate of pay for services to the Companies for the calendar year prior to the calendar year in which the Termination Date occurs (adjusted for any increase during that year that was expected to continue indefinitely if the Executive had not separated from service), consistent with the parties’ intention that the payments under this Section 5(c)(ii) constitute a “separation pay plan due to involuntary separation from service” under Treas. Reg. § 1.409A-1(b)(9)(iii);

(iii)in the event that an amount equal to one and one-half times (1½) the Executive’s then-existing Base Salary exceeds the limitations of Subsections

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5(c)(ii)(A) or (B) above, then the Executive shall be entitled to an additional lump sum payment equal to the difference between (x) one and one-half (1½) times the Executive’s then-existing Base Salary and (y) the amount payable to Executive under Subsection 5(c)(ii), such lump sum payable to Executive on the first regular payroll date of the Company to occur following the date that is six months after the Termination Date;

(iv)the Executive shall be entitled to a payment in an amount equal to one and one-half (1½) times the actual Annual Bonus award which would otherwise be payable for the calendar year during which the Termination Date occurs, as if the Executive had been employed for all of such calendar year based on actual performance, to be paid at such time as the Annual Bonus award would otherwise be paid in accordance with the Company’s policies;

(v)the Executive shall continue to be covered, upon the same terms and conditions described in Section 4(e) hereof, by the same or equivalent medical and/or dental insurance plans, programs and/or arrangements as in effect for the Executive immediately prior to the Termination Date until the earlier of:  (A) the eighteen (18) month anniversary following the date of the Executive’s Termination Date, and (B) the date the Executive receives substantially equivalent coverage under the plans, programs and/or arrangements of a subsequent employer, provided that Executive timely pays the Executive’s portion of such coverage;

 (vi)the Executive shall receive a lump sum payment in an amount equal to the amount the Company would otherwise expend for 18 month’s coverage for its share of the premiums for life and disability insurance plans or programs as in effect for Executive immediately prior to the Termination Date, payable to Executive within thirty (30) days following the Termination Date; and

(vii)for the period commencing on the Termination Date and ending not later than the last day of the second calendar year after the Termination Date, the Executive shall be entitled to receive executive level career transition assistance services provided by a career transition assistance firm selected by the Executive and paid for by the Companies in an amount not to exceed ten percent (10%) of the Executive’s then existing Base Salary.  The Executive shall not be eligible to receive cash in lieu of executive level career transition assistance services.

(d)If during the Employment Period, a Change of Control occurs and the Employment Period is terminated by the Companies for any reason other than Cause or Disability or by the Executive for Good Reason, each within two (2) years from the date of such Change of Control, and, in the case of Executive’s resignation for Good Reason, the Executive’s separation from service occurs within two years following the initial existence of the condition giving rise to Good Reason, then:

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(i)            the Executive shall be entitled to receive from the Company the Executive’s Accrued Benefits in accordance with Section 5(a);

(ii)           the Executive shall be entitled to a lump-sum payment in an amount equal to two (2) times the Executive’s then existing Base Salary, to be paid within thirty (30) days following the Termination Date;

(iii)          the Executive shall be entitled to a lump-sum payment in an amount equal to two (2) times the Executive’s target incentive compensation award for the calendar year during which the Termination Date occurs, to be paid within thirty (30) days following the Termination Date;

(iv)          the Executive shall be entitled to a lump-sum payment to be paid within thirty (30) days following the Termination Date in an amount equal to the pro-rata target incentive compensation award for the calendar year during which the Termination Date occurs.  Such pro-rata target incentive compensation award shall be determined by multiplying the target incentive compensation award amount by a fraction, the numerator of which is the number of days in the calendar year of the Termination Date elapsed prior to the Termination Date and the denominator of which is three hundred and sixty-five (365);

(v)           the Executive shall continue to be covered, upon the same terms and conditions described in Section 4(e) hereof, by the same or equivalent medical and/or dental insurance plans, programs and/or arrangements as in effect for the Executive immediately prior to the Change of Control until the earlier of: (A) the second anniversary following the date of the Executive’s Termination Date, and (B) the date the Executive receives substantially equivalent coverage under the plans, programs and/or arrangements of a subsequent employer, provided that Executive timely pays the Executive’s portion of such coverage.  The Executive shall not be eligible to receive cash in lieu of medical and/or dental coverage hereunder;

                (vi)          the Executive shall receive a lump sum payment in an amount equal to the amount the Company would otherwise expend for 24-month’s coverage for its share of the premiums for life and disability insurance plans or programs as in effect for Executive immediately prior to the Termination Date, payable to Executive within thirty (30) days following the Termination Date;

(vii)         the Executive shall receive a lump sum cash payment, payable to Executive with thirty (30) days following the Termination Date, in an amount equal to the additional benefit value (on a present value, differential basis) that would be payable to Executive under the Company’s defined benefit retirement plan if he had two (2) additional years of credit for purposes of age, benefit service and vesting;

(viii)        if the Executive’s outstanding stock options have not by then fully vested pursuant to the terms of the Companies’ applicable stock option plan(s) and applicable option agreement(s), then to the extent permitted in the

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Companies’ applicable stock option plan(s) and as provided in the applicable stock option agreement(s), the Executive shall continue to vest in the Executive’s unvested stock options following the Termination Date;

(ix)           for the period commencing on the Termination Date and ending not later than the last day of the second calendar year after the Termination Date, the Executive shall be entitled to receive executive level career transition assistance services provided by a career transition assistance firm selected by the Executive and paid for by the Companies in an amount not to exceed ten percent (10%) of the Executive’s then existing Base Salary.  The Executive shall not be eligible to receive cash in lieu of executive level career transition assistance services; and

(x)            the Executive shall be entitled to be reimbursed by the Company for the Executive’s reasonable attorneys’ fees, costs and expenses incurred in conjunction with any dispute regarding Section 5(d) if Executive prevails in any material respect in such dispute, provided that (A) the applicable statutes of limitations shall not have expired for any claim arising from the dispute that could be raised in a court of law; (B) Executive shall submit to the Company verification of legal expenses for reimbursement within 60 days from the date the expense was incurred; (C) the Company shall reimburse Executive for eligible expenses promptly thereafter, but in any event not earlier than the first day of the seventh month following the Termination Date and not later than December 31 of the calendar year following the calendar year in which the expense was incurred; (D) the expenses eligible for reimbursement during any given calendar year shall not affect the expenses eligible for reimbursement in any other calendar year; and (E) the right to reimbursement hereunder may not be liquidated or exchanged for cash or any other benefit.

(e)Any amounts payable pursuant to Sections 5(c) and 5(d) above shall be considered severance payments and, except for the Executive’s vested benefits under the Companies’ employee benefit plans (other than severance plans), shall be in full and complete satisfaction of the obligations of the Companies to the Executive in connection with the termination of the Executive’s employment.

(f)If the Employment Period is terminated as a result of the Executive’s death, Disability or retirement, as defined in the Companies’ Board-approved retirement plan or policy, as in effect from time to time (“Retirement”), then the Executive shall be entitled to (i) the Executive’s Accrued Benefits in accordance with Section 5(a), (ii) any benefits that may be payable to the Executive under any applicable Board-approved disability, life insurance or retirement plan or policy in accordance with the terms of such plan or policy, and (iii) a lump sum payment in an amount equal to the pro-rata target Annual Bonus award for the calendar year during which the Termination Date occurs by reason of the Executive’s death, Disability or Retirement.  Such lump sum payment shall be determined by multiplying the target Annual Bonus award amount by a fraction, the numerator of which is the number of days in the calendar year of the Termination Date elapsed prior to the Termination Date and the denominator of which is three hundred and

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sixty-five (365).  Such lump sum payment shall be made within thirty (30) days following the Termination Date in the event the Employment Period is terminated as a result of Executive’s death, or, in the event the Employment Period is terminated as a result of Executive’s Disability or Retirement, such lump sum payment shall be made on the first regular payroll date of the Company to occur following the date that is six months after the Termination Date.

(g)           Notwithstanding anything else contained herein, if the Executive terminates his employment for any reason other than Disability or Retirement and, if after a Change of Control, without Good Reason, or the Companies terminate the Executive’s employment for Cause, all of the Executive’s rights to payment from the Companies (including pursuant to any plan or policy of the Companies) shall terminate immediately, except the right to payment for Accrued Benefits in respect of periods prior to such termination.

(h)           Notwithstanding anything to the contrary contained in this Section 5, the Executive shall be required to execute the Companies’ then current standard release agreement as a condition to receiving any of the payments and benefits provided for in Sections 5(c) and (d), excluding the Accrued Benefits in accordance with Section 5(a), and no payments and benefits provided for in Sections 5(c) and (d) other than the Accrued Benefits in accordance with Section 5(a) shall be payable to Executive unless and until all applicable consideration and rescission periods for the release agreement have expired, Executive has not rescinded the release agreement and Executive is in compliance with each of the terms and conditions of such release agreement and this Agreement as of the date of such payments and benefits.  It is acknowledged and agreed that the then current standard release agreement shall not diminish or terminate the Executive’s rights under this Agreement.

(i)            In the event of a termination of the Executive’s employment entitling the Executive to benefits under Section 5(c) above, the Executive shall use reasonable efforts to obtain employment suitable to his education, training and experience, and, upon obtaining any such other employment shall promptly notify the Companies thereof.  The remaining obligation of the Companies under Section 5(c) shall be offset by any compensation earned by the Executive from such other employment during the eighteen-month period commencing on his Termination Date.  Except as set forth in the first sentence of this Section 5(i) and subject to the Executive’s affirmative obligations pursuant to Section 6, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Companies under this Agreement.

(j)            Notwithstanding any provision to the contrary contained in this Agreement, if the cash payments due and the other benefits to which Executive shall become entitled under Section 5(d), either alone or together with other payments in the nature of compensation to Executive which are contingent on a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company or otherwise, would constitute a “parachute payment” (as defined in Section 280G of the Code or any successor provision thereto), such payments or

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benefits shall be reduced (but not below zero) to the largest aggregate amount as will result in no portion thereof being subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or being non-deductible to the Company for Federal Income Tax purposes pursuant to Section 280G of the Code (or any successor provision thereto), provided, however, that no such reduction shall occur, and this Section 5(j) shall not apply, in the event that the amount of such reduction would be more than 10% of the aggregate value of such payments and benefits.  The Companies shall in good faith determine the amount of any reduction to be made pursuant to this Section 5(j), and the Executive shall select from among the foregoing benefits and payments those which shall be reduced. No modification of, or successor provision to, Section 280G or Section 4999 subsequent to the date of this Agreement shall, however, reduce the benefits to which the Executive would be entitled under this Agreement in the absence of this Section 5(j) to a greater extent than they would have been reduced if Section 280G and Section 4999 had not been modified or superseded subsequent to the date of this Agreement, notwithstanding anything to the contrary provided in the first sentence of this Section 5(j).

(k)Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that Section 5(j) above does not apply and any payment or distribution of any type to or in respect of the Executive made directly or indirectly, by the Companies or by any other party in connection with a Change of Control, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the “Total Payments”), is or will be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.

(i)            All computations and determinations relevant to Section 5(k) and this subsection 5(k)(i) shall be made by a national accounting firm selected and reimbursed by the Companies from among the ten (10) largest accounting firms in the United States as determined by gross revenues (the “Accounting Firm”), subject to the Executive’s consent (not to be unreasonably withheld), which firm may be the Companies’ accountants.  Such determinations shall include whether any of the Total Payments are “parachute payments” (within the meaning of Section 280G of the Code).  In making the initial determination hereunder as to whether a Gross-Up Payment is required, the Accounting Firm shall determine that no Gross-Up Payment is required if the Accounting Firm is able to conclude that no “Change of Control” has occurred (within the meaning of Section 280G of the Code).  If the Accounting Firm determines that a Gross-Up Payment is required, the Accounting Firm shall provide its determination (the “Determination”), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter both to the

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Companies and the Executive by no later than thirty (30) days following the Termination Date, if applicable, or such earlier time as is requested by the Companies or the Executive (if the Executive reasonably believes that any of the Total Payments may be subject to the Excise Tax).  If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive and the Companies with a written statement that such Accounting Firm has concluded that it is more likely than not that no Excise Tax is payable (including the reasons therefor) and the Executive is not required to report any Excise Tax on Executive’s federal income tax return.

(ii)           If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Companies by the Accounting Firm.  Any determination by the Accounting Firm shall be binding upon the Companies and the Executive, absent manifest error.

(iii)          As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Companies should have been made (“Underpayment”), or that Gross-Up Payments will have been made by the Companies which should not have been made (“Overpayment”).  In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred.  In the case of an Underpayment, the amount of such Underpayment (together with an amount which after payment of all taxes thereon is equal to any interest and penalties payable by the Executive as a result of such Underpayment) shall be promptly paid by the Companies to or for the benefit of the Executive.

(iv)          In the case of an Overpayment, the Executive shall, at the direction and expense of the Companies, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Companies, and otherwise reasonably cooperate with the Companies to correct such Overpayment, provided, however, that the Executive shall not in any event be obligated to return to the Companies an amount greater than the portion of the Overpayment that Executive has retained after payment of all taxes thereon or has recovered as a refund from the applicable taxing authorities.

(v)           The Executive shall notify the Companies in writing of any claim by the Internal Revenue Service relating to the possible application of the Excise Tax under Section 4999 of the Code to any of the payments and amounts referred to herein and shall afford the Companies, at their expense, the opportunity to control the defense of such claim (for the sake of clarity, if the Internal Revenue Service is successful in any such claim or the Executive reaches a final settlement with the Internal Revenue Service with respect to such claim (after having afforded the Companies, at their expense, the opportunity to control the defense of

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such claim), the amount of the Excise Tax resulting from such successful claim or settlement shall be determinative as to whether or not there has been an Underpayment or an Overpayment for purposes of subsection 5(j)(iii).

(vi)          Without limiting the intent of this Section 5(j) to make the Executive whole, on an after-tax basis, from the application of the Excise Taxes, all determinations by the Accounting Firm shall be made with a view to minimizing the application of Sections 280G and 4999 of the Code of any of the Total Payments, subject, however, to the following:  the Accounting Firm shall make its determination on the basis of “substantial authority” (within the meaning of Section 6230 of the Code) and shall provide opinions to that effect to both the Companies and the Executive upon the request of either of them.

(vii)         Notwithstanding any provision above to the contrary, any Gross-Up Payment payable under this Section 5(k) shall be made by the end of the calendar year following the calendar year in which the Executive remits the taxes.  Further, notwithstanding any provision above to the contrary, any right to reimbursement under this Section 5(k) of expenses incurred by Executive due to a tax audit or litigation addressing the existence or amount of a tax liability shall be made by the end of the calendar year following the calendar year in which the taxes that are the subject of the audit or litigation are remitted, or where as a result of the audit or litigation no taxes are remitted, the end of the calendar year following the calendar year in which the audit is completed or there is a final and non-appealable settlement or other resolution of the litigation.  Any Gross-Up Payment and any reimbursement of expenses payable under this Section 5(k) shall not be made before the date that is six months after the Termination Date.

Section 6.Further Obligations of the Executive.

(a)(1)           During the Executive’s employment by the Companies, whether before or after the Employment Period, and after the termination of Executive’s employment by the Companies, the Executive shall not, directly or indirectly, disclose, disseminate, make available or use any confidential information or proprietary data of the Companies or any of their Subsidiaries, except as reasonably necessary or appropriate for the Executive to perform the Executive’s duties for the Companies, or as authorized in writing by the Board or as required by any court or administrative agency (and then only after prompt notice to the Companies to permit the Companies to seek a protective order).

(2)           For purposes of this Agreement, “confidential information or proprietary data” means information and data prepared, compiled, or acquired by or for the Executive during or in connection with the Executive’s employment by the Companies (including, without limitation, information belonging to or provided in confidence by any Customer, Supplier, trading partner or other Person to which the Executive had access by reason of Executive’s employment with the Companies) which is not generally known to the public or which could be harmful  to the Companies or their Subsidiaries if disclosed to Persons outside of the Companies.  Such confidential information or proprietary data may exist in any form, tangible or intangible, or media

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(including any information technology-related or electronic media) and includes, but is not limited to, the following information of or relating to the Companies or any of their Subsidiaries, Customers or Suppliers:

(i)            Business, financial and strategic information, such as sales and earnings information and trends, material, overhead and other costs, profit margins, accounting information, banking and financing information, pricing policies, capital expenditure/investment plans and budgets, forecasts, strategies, plans and prospects.

(ii)           Organizational and operational information, such as personnel and salary data, information concerning the utilization or capabilities of personnel, facilities or equipment, logistics management techniques, methodologies and systems, methods of operation data and facilities plans.

(iii)          Advertising, marketing and sales information, such as marketing and advertising data, plans, programs, techniques, strategies, results and budgets, pricing and volume strategies, catalog, licensing or other agreements or arrangements, and market research and forecasts and marketing and sales training and development courses, aids, techniques, instruction and materials.

(iv)          Product and merchandising information, such as information concerning offered or proposed products or services and the sourcing of the same, product or services specifications, data, drawings, designs, performance characteristics, features, capabilities and plans and development and delivery schedules.

(v)           Information about existing or prospective Customers or Suppliers, such as Customer and Supplier lists and contact information, Customer preference data, purchasing habits, authority levels and business methodologies, sales history, pricing and rebate levels, credit information and contracts.

(vi)          Technical information, such as information regarding plant and equipment organization, performance and design, information technology and logistics systems and related designs, integration, capabilities, performance and plans, computer hardware and software, research and development objectives, budgets and results, intellectual property applications, and other design and performance data.

(b)All records, files, documents and materials, in whatever form and media, relating to the Companies’ or any of their Subsidiaries’ business (including, but not limited to, those containing or reflecting any confidential information or proprietary data) which the Executive prepares, uses, or comes into contact with, including the originals and all copies thereof and extracts and derivatives therefrom, shall be and remain the sole property of the Companies or their Subsidiaries.  Upon termination of the Executive’s employment for any reason, whether during or after the Employment Period, the Executive shall immediately return all such records, files, documents, materials and other

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property of the Companies and their Subsidiaries in the Executive’s possession, custody or control, in good condition, to the Companies.

(c)The Companies maintain, and Executive acknowledges and agrees, the Companies have and will entrust Executive with proprietary information, strategies, knowledge, customer relationships and know-how which would be detrimental to the Companies’ interest in protecting relationships with Customers and/or Suppliers if Executive were to provide services or otherwise participate in the operation of a competitor of the Companies.  Therefore, during (i) the Executive’s employment by the Companies, whether during or after the Employment Period, and (ii) the eighteen (18) month period following the end of Executive’s employment with the Companies, the Executive shall not in any capacity (whether as an owner, employee, consultant or otherwise) at any time perform, manage, supervise, or be responsible or accountable for anyone else who is performing services — which are the same as, substantially similar or related to the services the Executive is providing, or during the last two years of the Executive’s employment by the Companies has provided, for the Companies or their Subsidiaries — for, or on behalf of, any other Person who or which is (1) a wholesaler of office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products, audio/visual and business machines or such other products whether or not related to the foregoing provided by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period, (2) a provider of services the same as or substantially similar to those provided by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after Employment Period, or (3) engaged in a line of business other than described in (1) or (2) hereinabove which is the same or substantially similar to the lines of business engaged in by the Companies or their Subsidiaries, or to any line of business which to the Executive’s knowledge is under active consideration or planning by the Companies and their Subsidiaries, during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after Employment Period.

(d)(1)           During (i) the Executive’s employment by the Companies, whether during or after the Employment Period, and (ii) the eighteen (18) month period following the end of the Executive’s  employment with the Companies, the Executive shall not at any time, directly or indirectly, solicit any Customer for or on behalf of any Person other than the Companies or any of their Subsidiaries with respect to the purchase of (A) office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products, audio/visual and business machines, or such other products whether or not related to the foregoing provided by the Companies or their Subsidiaries to such Customer during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after Employment Period, (B) services the same as or substantially similar to those provided by the Companies or their Subsidiaries to such Customer and/or Supplier during the last twelve (12) months of the Executive’s  employment with the Companies, whether during or after Employment Period or (C) products or services from a line of business other than as described in (A) or (B) herein which are the same or substantially

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similar to the products and services provided to such Customer from a line of business engaged in by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s  employment with the Companies, whether during or after Employment Period.  Without limiting the foregoing, (i) during the Executive’s employment by the Companies, whether during or after the Employment Period, and (ii) insofar as the Executive may be employed by, or acting for or on behalf of, a Supplier at any time within the eighteen (18) month period following the end of the Executive’s employment with the Companies, the Executive shall not at any time, directly or indirectly, solicit any Customer to switch the purchase of the products or services described hereinabove from the Companies or their Subsidiaries to Supplier.

(2)           For purposes of this Agreement, a “Customer” is any Person who or which has ordered or purchased by or from the Companies or any of their Subsidiaries (A) office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products, audio/visual and business machines or such other products whether or not related to the foregoing, (B) services provided by or from the Companies or any of their Subsidiaries or (C) products or services from a line of business other than as described in (A) or (B) herein which are the same or substantially similar to the products and services from a line of business engaged in by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after Employment Period.  For purposes of this Agreement, a “Supplier” is any Person who or which has furnished to the Companies or their Subsidiaries for resale (A) office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products, audio/visual and business machines or such other products whether or nor related to the foregoing (B) services provided by or from the Companies or any of their Subsidiaries or (C) products or services from a line of business other than as described in (A) or (B) herein which are the same or substantially similar to the products and services from a line of business engaged in by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after Employment Period.

(e)During the Executive’s employment by the Companies, whether during or after the Employment Period, and during the twenty-four (24) month period following the end of the Executive’s employment with the Companies, the Executive shall not at any time, directly or indirectly, induce or solicit any employee of the Companies or any of their Subsidiaries for the purpose of causing such employee to terminate his or her employment with the Companies or such Subsidiary.

(f)The Executive shall not, directly or indirectly, make or cause to be made (and shall prohibit the officers, directors, employees, agents and representatives of any Person controlled by Executive not to make or cause to be made) any disparaging, derogatory, misleading or false statement, whether orally or in writing, to any Person, including members of the investment community, press, and customers, competitors and advisors to the Companies, about the Companies, their respective parents, Subsidiaries or Affiliates, their respective officers or members of their boards of directors, or the

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business strategy or plans, policies, practices or operations of the Companies, or of their respective parents, Subsidiaries or Affiliates.

(g)If any court determines that any portion of this Section 6 is invalid or unenforceable, the remainder of this Section 6 shall not thereby be affected and shall be given full effect without regard to the invalid provision.  If any court construes any of the provisions of Section 6(c), 6(d), 6(e) or 6(f) above, or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(h)During the Executive’s employment with the Companies, whether during or after Employment Period, and during the eighteen (18) month period following the end of Executive’s employment with the Companies, the Executive agrees that, prior to accepting employment with a Customer or Supplier of the Companies, the Executive will give notice to the Chief Executive Officer of the Companies.  The Companies reserve the right to make such Customer or Supplier aware of the Executive’s obligations under Section 6 of this Agreement.

(i)During and following Executive’s Employment Period, the Executive shall furnish a copy of this Section 6 in its entirety to any prospective employer prior to accepting employment with such prospective employer.

(j)The Executive hereby acknowledges and agrees that damages will not be an adequate remedy for the Executive’s breach of any provision of this Section 6, and further agrees that the Companies shall be entitled to obtain appropriate injunctive and/or other equitable relief for any such breach, without the posting of any bond or other security, in addition to all other legal remedies to which the Companies may be entitled.

Section 7.Successors.  The Companies may assign their rights under this Agreement to any successor to all or substantially all the assets of the Companies by merger or otherwise, and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Companies.  Any such assignment by the Companies shall remain subject to the Executive’s rights under Section 5 hereof.  The rights of the Executive under this Agreement may not be assigned or encumbered by the Executive, voluntarily or involuntarily, during the Executive’s lifetime, and any such purported assignment shall be void ab initio.  Notwithstanding the foregoing, all rights of the Executive under this Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, estates, executors, administrators, heirs and beneficiaries.  All amounts payable to the Executive hereunder shall be paid, in the event of the Executive’s death, to the Executive’s estate, heirs or representatives.

Section 8.Third Parties.  Except for the rights granted to the Companies and their Subsidiaries pursuant hereto (including, without limitation, pursuant to Section 6 hereof) and except as expressly set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give any person other than the parties hereto and

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their successors and permitted assigns any rights or remedies under or by reason of this Agreement.

Section 9.              Enforcement.  The provisions of this Agreement shall be regarded as divisible and, if any of said provisions or any part or application thereof is declared invalid or unenforceable by a court of competent jurisdiction, the same shall not affect the other provisions hereof, other parts or applications thereof or the whole of this Agreement, but such provision shall be deemed modified to the extent necessary to render such provision enforceable, and the rights and obligations of the parties shall be construed and enforced accordingly, preserving to the fullest permissible extent the intent and agreements of the parties herein set forth.

Section 10.            Amendment.  This Agreement may not be amended or modified at any time except by a written instrument approved by the Board, and executed by the Companies and the Executive; provided, however, that any attempted amendment or modification without such approval and execution shall be null and void ab initio and of no effect.

Section 11.            Payment; Taxes and Withholding.  The Company shall be responsible as employer for payment of all cash compensation and severance payments provided herein and Holding shall cause the Company to make such payments.  The Executive shall not be entitled to receive any additional compensation from either of the Companies for any services the Executive provides to Holding or the Companies’ Subsidiaries.  The Company shall be entitled to withhold from any amounts to be paid to the Executive hereunder any federal, state, local, or foreign withholding or other taxes or charges which it is from time to time required to withhold.  The Company shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise.  This Agreement is intended to satisfy the requirements of Section 409A(a)(2), (3) and (4) of the Code, including current and future guidance and regulations interpreting such provisions, and should be interpreted accordingly

Section 12.            Governing Law.  This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to principles of conflicts of law of Illinois or any other jurisdiction.

Section 13.            Notice.  Notices given pursuant to this Agreement shall be in writing and shall be deemed given when received and, if mailed, shall be mailed by United States registered or certified mail, return receipt requested, addressee only, postage prepaid:

If to the Companies:

United Stationers Inc.

United Stationers Supply Co.

One Parkway North Blvd.

Suite 100

Deerfield, Illinois  60015-2559

Attention:  General Counsel

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If to the Executive:

Barbara J. Kennedy

or to such other address as the party to be notified shall have given to the other in accordance with the notice provisions set forth in this Section 13.

Section 14.            No Waiver.  No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time.

Section 15.            Headings.  The headings contained herein are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.

Section 16.            Indemnification.  The provisions set forth in the Indemnification Agreement appended hereto as Attachment A are hereby incorporated into this Agreement and made a part hereof.  The parties shall execute the Indemnification Agreement contemporaneously with the execution of this Agreement.

Section 17.            Execution in Counterparts.  This Agreement, including the Indemnification Agreement, may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Section 18.            Arbitration.  Any dispute, controversy or question arising under, out of, or relating to this Agreement (or the breach thereof), or, the Executive’s employment with the Companies or termination thereof, shall be referred for arbitration in Chicago, Illinois to a neutral arbitrator selected by the Executive and the Companies (or if the parties are unable to agree on selection of such an arbitrator, one selected by the American Arbitration Association pursuant to its rules referred to below) and this shall be the exclusive and sole means for resolving such dispute.  Such arbitration shall be conducted in accordance with the National Rules for Resolution of Employment Disputes of the American Arbitration Association.  Except as provided in Section 5(d)(x) above, the arbitrator shall have the discretion to award reasonable attorneys’ fees, costs and expenses to the prevailing party.  Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.  Nothing in this Section 18 shall be construed so as to deny the Companies the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by the Executive of any of the Executive’s covenants in Section 6 hereof.  Moreover, this Section 18 and Section 12 hereof shall not be applicable to any dispute, controversy or question arising under, out of, or relating to the Indemnification Agreement.

Section 19.            Survival.  Notwithstanding the stated Term of this Agreement, the provisions of this Agreement necessary to carry out the intention of the parties as expressed

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herein, including without limitation those in Sections 5, 6, 7, 16 and 18, shall survive the termination or expiration of this Agreement.

Section 20.            Construction.  The parties acknowledge that this Agreement is the result of arm’s-length negotiations between sophisticated parties each afforded representation by legal counsel.  Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement.

Section 21.            Free to Contract.  The Executive represents and warrants to the Companies that the Executive is able freely to accept employment by the Companies as described in this Agreement and that there are no existing agreements, arrangements or understandings, written or oral, that would prevent the Executive from entering into this Agreement, would prevent or restrict the Executive in any way from rendering services to the Companies as provided herein during the Employment Period or would be breached by the future performance by the Executive of the Executive’s duties and responsibilities hereunder.

Section 22.            Entire Agreement.  This Agreement, including the Indemnification Agreement and any other written undertakings by the Executive referred to herein, supersedes all other agreements, arrangements or understandings (whether written or oral) between the Companies and the Executive with respect to the subject matter of this Agreement, including without limitation the Prior Agreement and the Executive’s employment relationship with the Companies and any of their Subsidiaries, and this Agreement contains the sole and entire agreement among the parties hereto with respect to the subject matter hereof.

*              *              *

IN WITNESS WHEREOF, the parties have executed this Agreement in one or more counterparts, each of which shall be deemed one and the same instrument, as of the day and year first written above.

EXECUTED ON:	UNITED STATIONERS INC.
, 2008	By:
		Name:	Richard W. Gochnauer
		Title:	President and Chief Executive Officer

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EXECUTED ON:	UNITED STATIONERS SUPPLY CO.
, 2008	By:
		Name:		Richard W. Gochnauer
		Title:		President and Chief Executive Officer
EXECUTED ON:	EXECUTIVE:
, 2008
			Barbara J. Kennedy

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ATTACHMENT A

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EX-10.4

Exhibit 10.4

UNITED STATIONERS INC.

2004 LONG-TERM INCENTIVE PLAN

RESTRICTED STOCK AWARD AGREEMENT

(Non-Employee Directors)

«F11» «F10»

«F5» «F6»

«F3», «F8»  «F9»

Dear «F11»:

This Restricted Stock Award Agreement (this “Agreement”), dated as September 1, 200_, (the “Award Date”), is by and between «F11» «F10» (the “Participant”), and United Stationers Inc., a Delaware corporation (the “Company”).  Any term capitalized but not defined in this Agreement will have the meaning set forth in the Company’s 2004 Long-Term Incentive Plan (the “Plan”).

In the exercise of its discretion to issue stock of the Company, the Committee has determined that the Participant should receive a restricted stock award, on the following terms and conditions:

1.Grant.  The Company hereby grants to the Participant a Restricted Stock Award (the “Award”) of [Number] shares of Stock (the “Restricted Shares”).  The Award will be subject to the terms and conditions of the Plan and this Agreement.  The Award constitutes the right, subject to the terms and conditions of the Plan and this Agreement, to distribution of the Restricted Shares.

2.Stock Certificates.  The Company will issue certificates for, or cause its transfer agent to maintain a book entry account reflecting the issuance of, the Restricted Shares in the Participant’s name.  The Secretary of the Company, or the Company’s transfer agent, will hold the certificates for the Restricted Shares, or cause such Restricted Shares to be maintained as restricted shares in a book entry account, until the Restricted Shares either vest or are forfeited.  Any certificates that are issued for Restricted Shares will bear a legend, and any book entry accounts that are maintained therefor will have an appropriate notation, in accordance with Section 6 hereof.  The Participant’s right to receive the Award hereunder is contingent upon the Participant’s execution and delivery to the Secretary of the Company of all stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the Restricted Shares in the event such Restricted Shares are forfeited hi whole or in part The Company, or its transfer agent, will distribute to the Participant (or, if applicable, the Participant’s designated beneficiary or other appropriate recipient in accordance with Section 5

hereof) certificates evidencing ownership of vested Restricted Shares as and when provided in Sections 4 and 5 hereof.

3.Rights as Stockholder.  On and after the Award Date, and except to the extent provided in Section 9 hereof, the Participant will be entitled to all of the rights of a stockholder with respect to the Restricted Shares, including the right to vote the Restricted Shares, the right to receive dividends and other distributions payable with respect to the Restricted Shares, and the right to participate in any capital adjustment applicable to all holders of Stock; provided, however, that a distribution with respect to shares of Stock, other than any regular cash dividend, will be deposited with the Company and will be subject to the same restrictions as the Restricted Shares. If the Participant forfeits any rights he or she may have under this Award in accordance with Section 4 hereof, the Participant shall, on the day following the event of forfeiture, no longer have any rights as a stockholder with respect to any and all Restricted Shares not then vested and so forfeited, or any interest therein, and the Participant shall no longer be entitled to receive dividends on or vote any such Restricted Shares as of any record date occurring thereafter.

4.Vesting; Effect of Date of Termination.  So long as the Participant’s Date of Termination has not yet occurred, the Participant’s Restricted Shares will vest in accordance with the following schedule:

Scheduled Vesting Date	Percentage of Restricted Shares To Vest
September 1, 20	33 1/3%
September 1, 20	33 1/3%
September 1, 20	33 1/3%

If the Participant’s Date of Termination occurs for any reason before any Scheduled Vesting Date, the Participant’s Restricted Shares that are not yet vested immediately prior to such Date of Termination will be forfeited on and after the Participant’s Date of Termination, subject to the following:

(a)If the Participant’s Date of Termination occurs before a Scheduled Vesting Date by reason of the Participant’s death or Permanent and Total Disability (as defined below), a Pro Rata Portion of the then unvested Restricted Shares will become vested as of the Participant’s Date of Termination.  As used herein, the “Pro Rata Portion” of the then unvested Restricted Shares shall be determined by multiplying the number of unvested Restricted Shares immediately prior to the Participant’s Date of Termination by a fraction, the numerator of which shall be the number of whole months elapsed between the most recent Scheduled Vesting Date prior to the Date of Termination (or the Award Date, if no Scheduled Vesting Date has yet occurred) and the Date of Termination, and the denominator of which shall be the number of whole months between the most recent Scheduled Vesting Date prior to the Date of Termination (or the Award Date, if no

Scheduled Vesting Date has yet occurred) and the final Scheduled Vesting Date.

(b)If the Participant’s Date of Termination occurs before a Scheduled Vesting Date as a result of the Participant having completed a term as a member of the Company’s Board and not being re-elected to a succeeding term (for whatever reason, including the Participant’s decision not to stand for re-election), and if on the Date of Termination the Participant is at least 60 years old and has served as a member of the Company’s Board for at least 6 years, then all of the Restricted Shares that were not yet vested as of the Date of Termination will become fully vested as of the Date of Termination.

(c)If a Change of Control occurs after the Award Date and prior to the Participant’s Date of Termination, then all of the Restricted Shares that were not yet vested immediately prior to the Change of Control will then become fully vested as of the date of such Change of Control.

(d)For purposes of this Agreement, the term “Permanent and Total Disability” means the Participant’s inability, due to illness, accident, injury, physical or mental incapacity or other disability, effectively to carry out his duties and obligations as a director of the Company or to participate effectively and actively as a director of the Company for 90 consecutive days or shorter periods aggregating at least 180 days (whether or not consecutive) during any twelve-month period.

Except as otherwise specifically provided, the Company will not have any further obligations to the Participant under this Agreement if the Participant’s Restricted Shares are forfeited as provided herein.

5.Terms and Conditions of Distribution.  The Company, or its transfer agent, will distribute to the Participant certificates for any portion of the Restricted Shares which becomes vested in accordance with this Agreement as soon as practicable after the vesting thereof.  If the Participant dies before the Company has distributed certificates for any vested portion of the Restricted Shares, the Company will distribute certificates for that vested portion of the Restricted Shares and, to the extent provided under Section 4 hereof, the remaining balance of the Restricted Shares which become vested upon the Participant’s death to the beneficiary designated by the Participant on a form provided by the Company for this purpose.  If the Participant failed to designate a beneficiary, the Company will distribute certificates for such Restricted Shares in accordance with the Participant’s will or, if the Participant did not have a will, in accordance with the laws of descent and distribution,

The Participant may file a written election with the Internal Revenue Service, within 30 days of the Award Date, electing pursuant to Section 83(b) of the Code to be taxed currently on the Fair Market Value of the Restricted Shares as of the

Award Date.  The Participant acknowledges that it is his sole responsibility to timely file an election under Section 83(b) of the Code.  If the Participant makes such election, he shall promptly provide the Company with a copy.  If the Participant does not make an election to be taxed currently under Section 83(b), then at the time the Restricted Shares vest, the Participant will be obligated to recognize ordinary income in an amount equal to the Fair Market Value as of the date of vesting of the Restricted Shares then vesting.

The Company will not be required to make any distribution of any portion of the Restricted Shares under this Section 5 (i) before the first date that such portion of the Restricted Shares may be distributed to the Participant without penalty or forfeiture under federal or state laws or regulations governing short swing trading of securities, or (ii) at any other time when the Company or the Committee reasonably determines that such distribution or any subsequent sale of the Restricted Shares would not be in compliance with other applicable securities or other laws or regulations.  In determining whether a distribution would result in any such penalty, forfeiture or noncompliance, the Company and the Committee may rely upon information reasonably available to them or upon representations of the Participant or the Participant’s legal or personal representative.

6.Legend on Stock Certificates.  If one or more certificates for all or any portion of the Restricted Shares are issued in the Participant’s name under this Agreement before such Restricted Shares become vested, the certificates shall bear the following legend, or any alternate legend that counsel to the Company believes is necessary or desirable, to facilitate compliance with applicable securities or other laws:

“The securities represented by this Certificate are subject to certain restrictions on transfer specified in the Restricted Stock Award Agreement dated as of [the Award Date] between the issuer (the “Company”) and the holder named on this Certificate, and the Company reserves the right to refuse the transfer of such securities, whether voluntary, involuntary or by operation of law, until such conditions have been fulfilled with respect to such transfer.  A copy of such conditions shall be furnished by the Company to the holder hereof upon written request and without charge.”

If any such Restricted Shares are not represented by certificate(s) prior to their vesting, but are instead maintained by the Company’s transfer agent in uncertificated form in a book entry account, the account shall bear an appropriate notation to the effect that the Restricted Shares included therein are subject to the restrictions of this Agreement.  Whether maintained hi certificated or uncertificated book entry form, the Company may instruct its transfer agent to impose stop transfer instructions with respect to any such unvested Restricted Shares.

The foregoing legend or notation and stop transfer instructions will be removed from the certificates evidencing or account maintained for all or any portion of the

Restricted Shares after the conditions set forth in Sections 4 and 5 hereof have been satisfied as to such Restricted Shares.

7.Delivery of Certificates.  Despite the provisions of Sections 4 and 5 hereof, the Company is not required to issue or deliver any certificates for Restricted Shares if at any time the Company determines that the listing, registration or qualification of such Restricted Shares upon any securities exchange or under any law, the consent or approval of any governmental body or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of the Restricted Shares hereunder in compliance with all applicable laws and regulations, unless such listing, registration, qualification, consent, approval or other action has been effected or obtained, free of any conditions not acceptable to the Company.

8.No Right to Continued Service.  Nothing herein confers upon the Participant any right to continue in the service of the Company or any Subsidiary.

9.Nontransferabiliy.  Except as otherwise provided by the Committee or as provided in Section 5, and except with respect to vested shares, the Participant’s interests and rights in and under this Agreement may not be assigned, transferred, exchanged, pledged or otherwise encumbered other than as designated by the Participant by will or by the laws of descent and distribution.  Distribution of Restricted Shares will be made only to the Participant; or, if the Committee has been provided with evidence acceptable to it that the Participant is legally incompetent, the Participant’s personal representative; or, if the Participant is deceased, to the designated beneficiary or other appropriate recipient in accordance with Section 5 hereof.  The Committee may require personal receipts or endorsements of a Participant’s personal representative, designated beneficiary or alternate recipient provided for herein, and the Committee shall extend to those individuals the rights otherwise exercisable by the Participant with regard to any withholding tax election in accordance with Section 5 hereof.  Any effort to otherwise assign or transfer any Restricted Shares (before they are distributed) or any rights or interests therein or thereto under this Agreement will be wholly ineffective, and will be grounds for termination by the Committee of all rights and interests of the Participant and his or her beneficiary in and under this Agreement.

10.Administration and Interpretation.  The Committee has the authority to control and manage the operation and administration of the Plan.  Any interpretations of the Plan by the Committee and any decisions made by it under the Plan are final and binding on the Participant and all other persons.

11.Governing Law.  This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the state of Delaware, without regard to principles of conflicts of law of Delaware or any other jurisdiction.

12.Sole Agreement.  Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to all of the terms and conditions of the Plan (as the same may be amended in accordance with its terms), a copy of which may be obtained by the Participant from the office of the Secretary of the Company.  In addition, this Agreement and the Participant’s rights hereunder shall be subject to all interpretations, determinations, guidelines, rules and regulations adopted or made by the Committee from time to time pursuant to the Plan.  This Agreement is the entire agreement between the parties to it with respect to the subject matter hereof, and supersedes any and all prior oral and written discussions, commitments, undertakings, representations or agreements (including, without limitation, any terms of any employment offers, discussions or agreements between the parties),

13.Binding Effect.  This Agreement will be binding upon and will inure to the benefit of the Company and the Participant and, as and to the extent provided herein and under the Plan, their respective heirs, executors, administrators, legal representatives, successors and assigns,

14.Amendment and Waiver.  This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement between the Company and the Participant without the consent of any other person.  No course of conduct or failure or delay in enforcing the provisions of this Agreement will affect the validity, binding effect or enforceability of this Agreement.

IN WITNESS WHEREOF, the Company has duly executed this Agreement as of the Award Date.

Very truly yours,
UNITED STATIONERS INC.
By:
	Frederick B. Hegi, Jr.
	Chairman of the Board

EX-10.5

Exhibit 10.5

UNITED STATIONERS INC.
2004 LONG-TERM INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT

(NON-EMPLOYEE DIRECTORS)

«F11» «F10»

«F5» «F6»

«F3», «F8»  «F9»

Dear «F11»:

This Restricted Stock Unit Award Agreement (this “Agreement”), effective as of September 1, 200_ (the “Award Date”), is by and between «F11» «F10» (the “Participant”), and United Stationers Inc., a Delaware corporation (the “Company”).  Any term capitalized but not defined in this Agreement will have the meaning set forth in the Company’s 2004 Long-Term Incentive Plan (the “Plan”).

In the exercise of its discretion to grant awards under the Plan, the Committee determined that the Participant should receive an award on the Award Date of either restricted stock or restricted stock units under the Plan, and provided the Participant with the opportunity to elect the form of award to be received.  Prior to the Award Date, the Participant submitted to the Company a Deferral Election Agreement whereby the Participant elected to receive an award in the form of restricted stock units, and to defer the settlement of all such units until his separation from service as a director of the Company.  This Agreement is intended to effect the resulting award of restricted stock units on the following terms and conditions:

1.Grant.  The Company hereby grants to the Participant a Restricted Stock Unit Award (the “Award”) of «F32» restricted stock units, each representing the right to receive one share of the Company’s Stock as provided in Section 5 of this Agreement.  The Award will be subject to the terms and conditions of the Plan and this Agreement.  Restricted stock units that are subject to the terms and conditions of this Agreement are referred to as the “Units.”  The Company will establish a bookkeeping account in the Participant’s name to reflect the number of Units credited to the Participant.

2.No Rights as a Stockholder.  The Units granted pursuant to this Award do not entitle the Participant to any rights of a stockholder of the Company’s Stock.  The Participant’s rights with respect to the Units shall remain forfeitable at all times until satisfaction of the vesting conditions set forth in Section 3 of this Agreement.

3.Vesting; Effect of Date of Termination.  So long as the Participant’s Date of Termination has not yet occurred, the Participant’s Units will vest in accordance with the following schedule:

Scheduled Vesting Date	Percentage of Total Units To Vest (cumulative)
September 1, 20	33 1/3%
September 1, 20	33 1/3%
September 1, 20	33 1/3%

If the Participant’s Date of Termination occurs for any reason before any Scheduled Vesting Date, the Participant’s Units that are not yet vested immediately prior to such Date of Termination will be forfeited on and after the Participant’s Date of Termination, subject to the following:

(a)If the Participant’s Date of Termination occurs before a Scheduled Vesting Date by reason of the Participant’s death or Permanent and Total Disability (as defined below), a Pro Rata Portion of the then unvested Units will become vested as of the Participant’s Date of Termination.  As used herein, the “Pro Rata Portion” of the Units shall be determined by multiplying the number of unvested Units immediately prior to the Participant’s Date of Termination by a fraction, the numerator of which shall be the number of whole months elapsed between the most recent Scheduled Vesting Date prior to the Date of Termination (or the Award Date, if no Scheduled Vesting Date has yet occurred) and the Date of Termination, and the denominator of which shall be the number of whole months between the most recent Scheduled Vesting Date prior to the Date of Termination (or the Award Date, if no Scheduled Vesting Date has yet occurred) and the final Scheduled Vesting Date.

(b)If the Participant’s Date of Termination occurs before a Scheduled Vesting Date as a result of the Participant having completed a term as a member of the Company’s Board and not being re-elected to a succeeding term (for whatever reason, including the Participant’s decision not to stand for re-election), and if on the Date of Termination the Participant is at least 60 years old and has served as a member of the Company’s Board for at least 6 years, then all of the Units that were not yet vested as of the Date of Termination will become fully vested as of the Date of Termination.

(c)If a Change of Control occurs after the Award Date and prior to the Participant’s Date of Termination, then all of the Units that were not yet vested immediately prior to the Change of Control will then become fully vested as of the date of such Change of Control.

(d)For purposes of this Agreement, the term “Permanent and Total Disability” means the Participant’s inability, due to illness, accident,

injury, physical or mental incapacity or other disability, effectively to carry out his duties and obligations as a director of the Company or to participate effectively and actively as a director of the Company for 90 consecutive days or shorter periods aggregating at least 180 days (whether or not consecutive) during any twelve-month period.

(e)For purposes of this Agreement, a Date of Termination shall be deemed to have occurred only if on such date the Participant has experienced a “separation from service” as defined in the regulations promulgated under Section 409A of the Code.

Except as otherwise specifically provided, the Company will not have any further obligations to the Participant under this Agreement if the Participant’s Units are forfeited as provided herein.

4.Dividend Equivalents.  If the Company pays cash dividends on its Stock on or after the date of this Agreement, then the Company shall credit to the Participant’s account, as of any dividend payment date, a number of additional Units.  The number of additional Units so credited will be equal to the total number of Units previously credited to your account under this Award (including any Units previously credited pursuant to this Section 4) multiplied by the per share dollar amount of the cash dividend paid on that date, divided by the Fair Market Value of a share of Company Stock on that date.  Any additional Units so credited shall be subject to the same terms and conditions as the Units to which such additional Units relate, and will be forfeited if the Units with respect to which such additional Units were credited are forfeited.

5.Settlement of Units.  As soon as administratively practicable after the Participant’s Date of Termination, but in no event more than 75 days after such Date of Termination, the Company shall cause to be delivered to the Participant, or to the Participant’s beneficiary or legal representative in the event of Participant’s death, one share of Stock in payment, settlement and full satisfaction of each vested Unit.  Such shares shall be delivered (i) by delivering a stock certificate evidencing such shares, (ii) by an appropriate entry on the books of the Company or a duly authorized transfer agent of the Company, or (iii) if Participant requests, by electronically transferring such shares to a brokerage account designated by the Participant.  If the number of vested Units at the time of settlement includes a fractional Unit, the Company will issue a number of shares equal to the number of whole Units and settle any fractional Unit in cash.

6.Compliance with Laws.  Despite the provisions of Section 5 hereof, the Company is not required to issue or deliver any shares of Stock if at any time the Company determines that the listing, registration or qualification of such shares upon any securities exchange or under any law, the consent or approval of any governmental body or the taking of any other action is necessary or desirable as a condition of, or in connection with, the issuance or delivery of the shares hereunder in compliance with all applicable laws and regulations, unless such

listing, registration, qualification, consent, approval or other action has been effected or obtained, free of any conditions not acceptable to the Company.

7.No Right to Continued Service.  Nothing herein confers upon the Participant any right to continue in the service of the Company or any Subsidiary.

8.Nontransferability.  Except as otherwise provided by the Committee or as provided in Section 5, and except with respect to shares of Stock issued in settlement of vested Units, the Participant’s interests and rights in and under this Agreement may not be assigned, transferred, exchanged, pledged or otherwise encumbered other than as designated by the Participant by will or by the laws of descent and distribution.  Issuance of shares of Stock in settlement of Units will be made only to the Participant; or, if the Committee has been provided with evidence acceptable to it that the Participant is legally incompetent, the Participant’s personal representative; or, if the Participant is deceased, to the designated beneficiary or other appropriate recipient in accordance with Section 5 hereof.  The Committee may require personal receipts or endorsements of a Participant’s personal representative, designated beneficiary or alternate recipient provided for herein.  Any effort to otherwise assign or transfer any Units or any rights or interests therein or thereto under this Agreement will be wholly ineffective, and will be grounds for termination by the Committee of all rights and interests of the Participant and his or her beneficiary in and under this Agreement.

9.Administration and Interpretation.  The Committee has the authority to control and manage the operation and administration of the Plan.  Any interpretations of the Plan by the Committee and any decisions made by it under the Plan are final and binding on the Participant and all other persons.

10.Governing Law.  This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the state of Delaware, without regard to principles of conflicts of law of Delaware or any other jurisdiction.

11.Sole Agreement.  Notwithstanding anything in this Agreement to the contrary, the terms of this Agreement shall be subject to all of the terms and conditions of the Plan (as the same may be amended in accordance with its terms), a copy of which may be obtained by the Participant from the office of the Secretary of the Company.  In addition, this Agreement and the Participant’s rights hereunder shall be subject to all interpretations, determinations, guidelines, rules and regulations adopted or made by the Committee from time to time pursuant to the Plan.  This Agreement is the entire agreement between the parties to it with respect to the subject matter hereof, and supersedes any and all prior oral and written discussions, commitments, undertakings, representations or agreements (including, without limitation, any terms of any employment offers, discussions or agreements between the parties).

12.Binding Effect.  This Agreement will be binding upon and will inure to the benefit of the Company and the Participant and, as and to the extent provided herein and under the Plan, their respective heirs, executors, administrators, legal representatives, successors and assigns.

13.Amendment and Waiver.  This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement between the Company and the Participant without the consent of any other person.  No course of conduct or failure or delay in enforcing the provisions of this Agreement will affect the validity, binding effect or enforceability of this Agreement.

IN WITNESS WHEREOF, the Company has duly executed this Agreement as of the Award Date.

Very truly yours,
UNITED STATIONERS INC.
By:
	Frederick B. Hegi, Jr.
	Chairman of the Board

EX-15.1

Exhibit 15.1

Acknowledgement of Independent Registered Public Accounting Firm

November 7, 2008

The Board of Directors

Untied Stationers Inc.

We are aware of the incorporation by reference in the Registration Statements (Form S-8 No. 333-134058, No. 333-120563, No. 333-66352, No. 333-37665) of United Stationers Inc. of our report dated November 7, 2008 relating to the unaudited condensed consolidated interim financial statements of United Stationers Inc. that are included in its Forms 10-Q for the quarter ended September 30, 2008.

/s/ Ernst & Young LLP

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EX-31.1

Exhibit 31.1

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

I, Richard W. Gochnauer, certify that:

1.I have reviewed this quarterly report on Form 10-Q of United Stationers Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 7, 2008	/s/ RICHARD W. GOCHNAUER
	Richard W. Gochnauer
	President and Chief Executive Officer

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EX-31.2

Exhibit 31.2

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

I, Victoria J. Reich, certify that:

1.I have reviewed this quarterly report on Form 10-Q of United Stationers Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2008	/s/ VICTORIA J. REICH
	Victoria J. Reich
	Senior Vice President and Chief Financial Officer

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EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of United Stationers Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard W. Gochnauer, President and Chief Executive Officer of the Company, and Victoria J. Reich, Senior Vice President and Chief Financial Officer of the Company, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ RICHARD W. GOCHNAUER

Richard W. Gochnauer

President and Chief Executive Officer

November 7, 2008

/s/ VICTORIA J. REICH

Victoria J. Reich

Senior Vice President and Chief Financial Officer

November 7, 2008

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