UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2010

or

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

For the transition period from to

Commission File 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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 definitions 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 July 30, 2010, the registrant had outstanding 23,371,100 shares of common stock, par value $0.10 per share.

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UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	(Unaudited)
	As of June 30, 2010			As of December 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	13,393		$	18,555
Accounts receivable and retained interest in receivables sold, less allowance for doubtful accounts of $32,187 in 2010 and $35,216 in 2009	642,607			641,317
Inventories	639,192			590,854
Other current assets	28,347			33,026
Total current assets	1,323,539			1,283,752

Property, plant and equipment, at cost	431,761			422,334
Less - accumulated depreciation and amortization	302,557			287,302
Net property, plant and equipment	129,204			135,032

Intangible assets, net	64,003			62,932
Goodwill	328,445			314,429
Other	16,097			12,371
Total assets	$	1,861,288		$	1,808,516

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	443,857		$	390,883
Accrued liabilities	164,921			171,366
Total current liabilities	608,778			562,249

Deferred income taxes	199			4,052
Long-term debt	453,400			441,800
Other long-term liabilities	88,319			93,702
Total liabilities	1,150,696			1,101,803

Stockholders’ equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 37,217,814 shares in 2010 and 2009	3,722			3,722
Additional paid-in capital	398,178			387,131
Treasury stock, at cost —13,850,940 and 13,237,495 shares at June 30, 2010 and December 31, 2009, respectively	(750,106		)	(700,294		)
Retained earnings	1,103,301			1,058,074
Accumulated other comprehensive loss	(44,503		)	(41,920		)
Total stockholders’ equity	710,592			706,713
Total liabilities and stockholders’ equity	$	1,861,288		$	1,808,516

See notes to condensed consolidated financial statements.

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UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)
(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009

Net sales	$	1,220,759	$	1,159,195	$	2,375,068	$	2,280,502
Cost of goods sold	1,041,520		995,782		2,028,963		1,952,753

Gross profit	179,239		163,413		346,105		327,749

Operating expenses:
Warehousing, marketing and administrative expenses	128,918		122,173		259,986		257,625

Operating income	50,321		41,240		86,119		70,124

Interest expense, net	6,436		6,949		12,665		14,129

Other expense, net	—		—		—		204

Income before income taxes	43,885		34,291		73,454		55,791

Income tax expense	16,883		13,133		28,227		21,112

Net income	$	27,002	$	21,158	$	45,227	$	34,679

Net income per share - basic:
Net income per share - basic	$	1.12	$	0.91	$	1.88	$	1.49
Average number of common shares outstanding - basic	24,021		23,324		24,068		23,320

Net income per share - diluted:
Net income per share - diluted	$	1.10	$	0.88	$	1.83	$	1.45
Average number of common shares outstanding - diluted	24,636		23,952		24,723		23,839

See notes to condensed consolidated financial statements.

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UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)
(Unaudited)

	For the Six Months Ended
	June 30,
	2010			2009

Cash Flows From Operating Activities:
Net income	$	45,227		$	34,679
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	18,441			20,813
Share-based compensation	6,811			5,861
Loss on the disposition of property, plant and equipment	4			25
Amortization of capitalized financing costs	366			462
Excess tax benefits related to share-based compensation	(3,480		)	(57		)
Deferred income taxes	(2,827		)	(7,429		)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and retained interest in receivables sold, net	(815		)	14,566
(Increase) decrease in inventory	(47,528		)	161,671
Decrease in other assets	5,450			9,840
Increase in accounts payable	104,284			44,157
Decrease in checks in-transit	(51,872		)	(11,113		)
Decrease in accrued liabilities	(7,561		)	(30,712		)
(Decrease) increase in other liabilities	(11,792		)	189
Net cash provided by operating activities	54,708			242,952

Cash Flows From Investing Activities:
Capital expenditures	(10,684		)	(4,756		)
Acquisitions and investments, net of cash acquired	(15,527		)	—
Proceeds from the disposition of property, plant and equipment	38			95
Net cash used in investing activities	(26,173		)	(4,661		)

Cash Flows From Financing Activities:
Borrowings (repayments) under Revolving Credit Facility	11,600			(191,300		)
Net proceeds from share-based compensation arrangements	25,941			315
Acquisition of treasury stock, at cost	(74,675		)	—
Excess tax benefits related to share-based compensation	3,480			57
Payment of debt issuance costs	(39		)	(51		)
Net cash used in financing activities	(33,693		)	(190,979		)

Effect of exchange rate changes on cash and cash equivalents	(4		)	4
Net change in cash and cash equivalents	(5,162		)	47,316
Cash and cash equivalents, beginning of period	18,555			10,662
Cash and cash equivalents, end of period	$	13,393		$	57,978

Other Cash Flow Information:
Income tax payments, net	$	31,411		$	15,404
Interest paid	12,837			14,251
Loss on the sale of accounts receivable	—			652

See notes to condensed consolidated financial statements.

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UNITED STATIONERS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying Condensed Consolidated Financial Statements represent United Stationers Inc. (“USI”) with its wholly owned subsidiary United Stationers Supply Co. (“USSC”), and USSC’s subsidiaries (collectively, “United” or the “Company”). The Company is a leading wholesale distributor of business products, with net sales for the trailing 12 months of $4.8 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, and industrial supplies. In addition, the Company also offers private brand products. The Company primarily serves commercial and contract office products dealers, janitorial/breakroom product distributors, computer product resellers, furniture dealers and industrial product distributors. The Company sells its products through a national distribution network of 64 distribution centers to approximately 25,000 resellers, who in turn sell directly to end-consumers.

The accompanying Condensed Consolidated Financial Statements are unaudited, except for the Condensed Consolidated Balance Sheet as of December 31, 2009, which was derived from the December 31, 2009 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, 2009 for further information.

In the opinion of the management of the Company, the Condensed Consolidated Financial Statements for the periods presented include all adjustments necessary to fairly present the Company’s results for such 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.

Acquisition and Investments

During the first quarter of 2010, the Company completed the acquisition of all of the capital stock of MBS Dev, Inc. (“MBS Dev”), a software solutions provider to business products resellers, which allows the Company to accelerate e-business development and enable customers and suppliers to leverage the internet. The purchase price included $12 million plus $3 million in deferred payments and an additional potential $3 million earn-out based upon the achievement of certain financial goals. The $3 million in deferred payments are to be paid to the former owners over the course of the next four years, the timing of which is based upon the achievement of certain financial goals. As a result of the acquisition, the Company recorded $14.0 million of goodwill, $3.7 million in intangible assets, and $4.1 million of liabilities, at fair value, to be paid for the deferred payments and the earn-out. Net of cash held by MBS Dev at closing, the initial cash outlay was $10.5 million.

During the second quarter of 2010, the Company invested $5 million to acquire a minority interest in the capital stock of a managed print services and technology solution business.

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.

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.

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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 $67.8 million and $78.2 million as of June 30, 2010 and December 31, 2009, respectively. These receivables are included in “Accounts receivable” in the Condensed Consolidated Balance Sheets.

In the second quarter of 2010, approximately 16% 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 84% of the Company’s annual supplier allowances and incentives in the second quarter of 2010 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.

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 $43.6 million and $59.5 million as of June 30, 2010 and December 31, 2009, 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.

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 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.

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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 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 June 30, 2010, the Company is not a party to any capital leases.

Inventories

Inventory valued under the last-in, first-out (“LIFO”) accounting method constituted approximately 78% and 79% of total inventory as of June 30, 2010 and December 31, 2009, respectively. 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 $83.8 million and $80.9 million higher than reported as of June 30, 2010 and December 31, 2009, respectively. The change in the LIFO reserve since December 31, 2009, resulted in a $2.9 million increase in cost of goods sold.

The Company also records adjustments to inventory for shrinkage. Inventory that is obsolete, damaged, defective or slow moving is recorded at the lower of cost or market. These adjustments are determined using historical trends and are adjusted, if necessary, as new information becomes available. The Company charges certain warehousing and administrative expenses to inventory each period with $26.2 million and $25.3 million remaining in inventory as of June 30, 2010 and December 31, 2009, respectively.

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 cash and borrowings, on an as-needed basis, to fund the clearing of checks as they are presented for payment. As of June 30, 2010 and December 31, 2009, outstanding checks totaling $36.6 million and $88.4 million, respectively, were included in “Accounts payable” in the Condensed Consolidated Balance Sheets.

All highly-liquid investments with original maturities of three months or less are considered to be short-term investments. Short-term investments consist primarily of money market funds rated AAA and are stated at cost, which approximates fair value.

	As of June 30, 2010		As of December 31, 2009
Cash	$	13,393	$	10,655
Short-term investments	—		7,900
Total cash and short-term investments	$	13,393	$	18,555

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.

Software Capitalization

The Company capitalizes internal use software development costs in accordance with accounting guidance on 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 June 30, 2010 and December 31, 2009. The total costs are as follows (in thousands):

	As of June 30, 2010			As of December 31, 2009
Capitalized software development costs	$	59,278		$	56,183
Write-off of capitalized software development costs	—			(271		)
Accumulated amortization	(43,280		)	(40,375		)
Net capitalized software development costs	$	15,998		$	15,537

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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 accounting guidance on derivative instruments as they are hedging forecasted transactions related to 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 accumulated other comprehensive income, net of tax, until earnings are affected by forecasted transactions related to variability of cash flow, and then are reported in current earnings.

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 with 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 the 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 accounting guidance on derivative instruments and hedging activities. At this time, this has not occurred as all cash flow hedges contain no ineffectiveness. See Note 13, “Derivative Financial Instruments” and Note 14, “Fair Value Measurements”, for further detail.

Income Taxes

The Company accounts for income taxes using the liability method in accordance with accounting guidance on income taxes. The Company estimates actual current tax expense and assesses temporary differences that exist due to differing treatments for tax and financial statement purposes. These temporary differences result in the recognition of deferred tax 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. It is not practicable to determine the amount of unrecognized deferred tax liability for such unremitted foreign earnings. 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 May 2009, the FASB issued ASC Topic 855 “Subsequent Events”, intended to improve disclosure of significant events that occur after the interim and/or annual financial statement date as well as to specify a time period through which management has included analysis of such subsequent events. ASC Topic 855 is effective for all interim and annual periods beginning on or after June 15, 2009. Accordingly, the Company adopted ASC Topic 855 during the second quarter of 2009. The Company has evaluated subsequent events through August 4, 2010.

In June 2009, the FASB issued ASC Topic 810 “Accounting for Transfers of Financial Assets”. ASC Topic 810 is a revision to prior guidance and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets, and requires additional disclosures. Also, in June 2009, the FASB issued ASC Topic 810 “Amendments to FASB Interpretation No. 46 (R)” for accounting for variable interest entities (VIEs). This new guidance on VIEs is a revision to prior guidance, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. ASC Topic 810 was effective at the start of a company’s first fiscal year beginning after November 15, 2009. The adoption of ASC Topic 810 did not have an impact on the Company’s financial position and/or its results of operations.

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In January 2010, the FASB issued ASC Topic 820 “Fair Value Measurements and Disclosures”, which updated and clarified previously issued guidance to improve disclosures about fair value measurements. These new disclosures include stating separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers. In addition, it states that a reporting entity should present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using Level 3 inputs. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASC Topic 820 did not have an impact on the Company’s financial position and/or its results of operations. See Note 14, “Fair Value Measurements”, for information and related disclosures regarding the Company’s fair value measurements.

3. Share-Based Compensation

Overview

As of June 30, 2010, the Company has two active equity compensation plans under which share-based awards are issued. A description of these plans is as follows:

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

In March 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 12,104 shares of restricted stock and 103,624 restricted stock units (RSUs) under the LTIP during the first six months of 2010. The Company did not grant stock options, stock appreciation rights nor cash incentive awards under the LTIP during 2010.

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 following table summarizes the share-based compensation expense (in thousands):

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009

Numerator:
Pre-tax expense	$	3,545		$	2,977		$	6,811		$	5,861
Tax effect	(1,364		)	(1,140		)	(2,617		)	(2,218		)
After tax expense	2,181			1,837			4,194			3,643

Denominator:
Denominator for basic shares -
weighted average shares	24,021			23,324			24,068			23,320

Denominator for diluted shares -
Adjusted weighted average shares and the effect of dilutive securities	24,636			23,952			24,723			23,839

Net expense per share:
Net expense per share - basic	$	0.09		$	0.08		$	0.17		$	0.16
Net expense per share - diluted	$	0.09		$	0.08		$	0.17		$	0.15

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The following tables summarize the intrinsic value of options outstanding, based on the stock prices of $54.47 and $34.88 as of June 30, 2010 and 2009, respectively, and exercisable and exercised for the applicable periods listed below (in thousands of dollars):

Intrinsic Value of Options

	Outstanding		Exercisable
As of June 30, 2010	$	14,455	$	14,438
As of June 30, 2009	2,155		2,155

Intrinsic Value of Options Exercised

	For the Three Months Ended		For the Six Months Ended
June 30, 2010	$	4,786	$	13,855
June 30, 2009	123		149

The following tables summarize the intrinsic value of restricted shares outstanding and vested for the applicable periods listed below (in thousands of dollars):

Intrinsic Value of Restricted Shares Outstanding

As of June 30, 2010		$	40,323
As of June 30, 2009		21,801

Intrinsic Value of Restricted Shares Vested

	For the Three Months Ended		For the Six Months Ended
June 30, 2010	$	416	$	3,855
June 30, 2009	3		129

As of June 30, 2010, there was $0.3 million of total unrecognized compensation cost related to non-vested stock option awards granted and $18.2 million of total unrecognized compensation cost related to non-vested restricted stock awards and RSUs granted. These costs are expected to be recognized over a weighted-average period of 1.7 years.

Accounting guidance from the FASB on share-based payments requires that cash flows resulting from the tax benefits of tax deductions in excess of the compensation cost recognized for share-based compensation (excess tax benefits) be classified as financing cash flows. For the six months ended June 30, 2010, excess tax benefits of $3.5 million, 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 this guidance on share-based payments. For the six months ended June 30, 2009 this amount was not significant.

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. There were no stock options granted during the first six months of 2010 or 2009.

The following table summarizes the transactions relating to stock options under the Company’s equity compensation plans for the six months ended June 30, 2010:

Stock Options Only	Shares		Weighted Average Exercise Price		Weighted Average Exercise Contractual Life	Aggregate Intrinsic Value ($000)
Options outstanding - December 31, 2009	2,384,224		$	45.01
Granted	—		—
Exercised	(738,338	)	40.53
Canceled	(1,903	)	59.02
Options outstanding — June 30, 2010	1,643,983		$	47.00	5.3	$	14,455
Number of options exercisable	1,508,778		$	45.87	5.2	$	14,438

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Restricted Stock and Restricted Stock Units (RSUs)

During the first six months of 2010, the Company granted 12,104 shares of restricted stock and 103,624 RSUs. During the first six months of 2009, 182,781 shares of restricted stock and 206,474 RSUs were granted. The restricted stock granted in each period vests in three equal annual installments on the anniversaries of the date of the grant. The RSUs granted in 2009 vest on December 31, 2012 to the extent earned based on the cumulative economic profit performance against target economic profit goals. The RSUs granted in 2010 vest in three annual installments on the appropriate calendar year ends, to the extent earned based on annual economic profit performance against target economic profit goals. A summary of the status of the Company’s restricted stock award and RSU grants and changes during the first six months of 2010 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, 2009	704,810		$	36.41
Granted	115,728		59.10
Vested	(68,041	)	37.41
Canceled	(12,226	)	40.12
Outstanding — June 30, 2010	740,271		$	39.89	8.7	$	40,323

4. Goodwill and Intangible Assets

Accounting guidance from the FASB on goodwill and intangible assets requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company performs an annual impairment test on goodwill and intangible assets with indefinite lives at December 31st of each year. Based on this latest test, the Company concluded that the fair value of each of the reporting units was in excess of the carrying value as of December 31, 2009. The Company did not consider there to be any triggering event during the six-month period ended June 30, 2010 that would require an interim impairment assessment. As a result, none of the goodwill or intangible assets with indefinite lives were tested for impairment during the three- and six-month periods ended June 30, 2010.

As of June 30, 2010 and December 31, 2009, the Company’s Condensed Consolidated Balance Sheets reflect $328.4 million and $314.4 million of goodwill, and $64.0 million and $62.9 million in net intangible assets, respectively.

The net intangible assets consist primarily of customer lists and non-compete agreements purchased as part of past acquisitions. The Company has no intention to renew or extend the terms of acquired intangible assets and accordingly, did not incur any related costs during the first six months of 2010. Amortization of intangible assets totaled $1.3 million and $2.6 million for the three and six months ended June 30, 2010. Amortization of intangible assets totaled $1.3 million and $2.5 million for the three and six months ended June 30, 2009. Accumulated amortization of intangible assets as of June 30, 2010 and December 31, 2009 totaled $19.0 million and $16.4 million, respectively.

5. 2009 Severance Charge

On January 27, 2009, the Company announced a plan to eliminate staff positions through an involuntary separation plan. The severance charge included workforce reductions of 250 associates. The Company recorded a pre-tax charge of $3.4 million in the first quarter of 2009 for estimated severance pay and benefits, prorated bonuses, and outplacement costs. This charge is included in “Warehousing, marketing and administrative expenses” on the Company’s Statements of Income. Cash outlays associated with the severance charge in the three and six months ended June 30, 2009 totaled $1.0 million and $2.1 million, respectively. The Company had accrued liabilities for the severance charge of $1.3 million as of June 30, 2009 which were paid throughout the remainder of 2009. As a result, the Company had no accrued reserves for this workforce reduction as of December 31, 2009.

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 Six Months Ended
	June 30,					June 30,
(dollars in thousands)	2010			2009		2010			2009
Net income	$	27,002		$	21,158	$	45,227		$	34,679
Unrealized foreign currency translation adjustment	(764		)	1,167		129			513
Unrealized (loss) gain - interest rate swaps, net of tax	(565		)	5,000		(1,877		)	5,566
Minimum pension liability adjustment, net of tax	—			—		—			7,439
Post-retirement medical plan termination, net of tax	(834		)	—		(834		)	—
Total comprehensive income	$	24,839		$	27,325	$	42,645		$	48,197

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7. Earnings Per Share

Basic earnings per share (“EPS”) are 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, non-vested restricted stock and restricted stock units are considered dilutive securities. Stock options to purchase 0.4 million shares of common stock were outstanding for each of the three- and six- month periods ended June 30, 2010, 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 the antidilutive options for the three- and six-month periods ended June 30, 2009 were 2.3 million shares, each. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009
Numerator:
Net income	$	27,002	$	21,158	$	45,227	$	34,679

Denominator:
Denominator for basic earnings per share -
weighted average shares	24,021		23,324		24,068		23,320

Effect of dilutive securities:
Employee stock options and restricted units	615		628		655		519

Denominator for diluted earnings per share -
Adjusted weighted average shares and the effect of dilutive securities	24,636		23,952		24,723		23,839

Net income per share:
Net income per share - basic	$	1.12	$	0.91	$	1.88	$	1.49
Net income per share - diluted	$	1.10	$	0.88	$	1.83	$	1.45

Common Stock Repurchase

As of June 30, 2010, the Company had $26.2 million remaining of Board authorizations to repurchase USI common stock. During the three-month period ended June 30, 2010, the Company repurchased 1,085,747 shares of common stock at a cost of $63.0 million. During the six-month period ended June 30, 2010, the Company repurchased 1,283,821 shares of common stock at a cost of $74.7 million. There were no share repurchases in the first three or six months of 2009. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its common stock at any time without notice. Acquired shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data. During the first six months of 2010 and 2009, the Company reissued 699,398 and 186,761 shares, respectively, of treasury stock to fulfill its obligations under its equity compensation plans.

8. Off-Balance Sheet Financing

General

On March 28, 2003, USSC entered into a third-party receivables securitization program with JP Morgan Chase Bank, as trustee (the “Prior Receivables Securitization Program” or the “Prior 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 Prior 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 Prior Program became $250 million. On March 2, 2009, in preparation for entering into a new securitization program (see Note 9, “Debt” for more information on the new program), USI’s subsidiaries United Stationers Financial Services (“USFS”) and USS Receivables Company, Ltd. (“USSRC”) terminated the Prior Program. The Prior Program typically had been the Company’s preferred source of floating rate financing, primarily because it generally carried a lower cost than other traditional borrowings.

Under the Prior Program, USSC sold, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially included all accounts receivable of Lagasse, Inc. and foreign operations) to USSRC. USSRC, in turn, ultimately transferred the eligible trade accounts receivable to a trust. The trust then sold investment certificates, which represented an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Affiliates of J.P. Morgan Chase Bank, PNC Bank and Fifth Third Bank acted as funding agents. The funding agents, or their affiliates, provided standby liquidity funding to support the sale of the accounts receivable by USSRC under 364-day liquidity facilities. The Prior Program provided for the possibility of other liquidity facilities that may have been provided by other commercial banks rated at least A-1/P-1.

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Financial Statement Presentation

The Prior Program was accounted for as a sale in accordance with FASB accounting guidance on the accounting for transfers and servicing of financial assets and extinguishments of liabilities. Trade accounts receivable sold under the Prior Program were excluded from accounts receivable in the Consolidated Financial Statements.

The Company recognized certain costs and/or losses related to the Prior Program. Costs related to the Prior Program varied on a daily basis and generally were related to certain short-term interest rates. The annual interest rate on the certificates issued under the Prior Program for the first two months of 2009 ranged between 0.6% and 2.3%. In addition to the interest on the certificates, the Company paid 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 Prior Program including amortization of previously capitalized bank fees and excluding servicing revenues, totaled $0.2 million for the three months ended March 31, 2009. Proceeds from collections for the three month period ended March 31, 2009 totaled $0.6 billion under the Prior Program. There were no losses or proceeds from the Prior Program during the three months ended June 30, 2009 as the program was terminated on March 2, 2009. All costs and/or losses related to the Prior Program are included in the Condensed Consolidated Statements of Income under the caption “Other Expense, net.”

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

Retained Interest

USSRC determined the level of funding achieved by the sale of trade accounts receivable under the Prior Program, subject to a maximum amount. It retained a residual interest in the eligible receivables transferred to the trust, such that amounts payable in respect of the residual interest would be distributed to USSRC upon payment in full of all amounts owed by USSRC to the trust (and by the trust to its investors).

The Company measured the fair value of its retained interest throughout the term of the Prior Program using a present value model incorporating the following two key economic assumptions: (1) an average collection cycle of approximately 45 days; and (2) an assumed discount rate of 3% per annum, which approximated the Company’s interest cost on the Prior Program. In addition, the Company estimated and recorded 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 approximated fair value at year-end 2008. 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 the first quarter of 2009 were not material.

9. 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), the 2007 Master Note Purchase Agreement (as defined below) and the 2009 Receivables Securitization Program (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 June 30, 2010		As of December 31, 2009
2007 Credit Agreement - Revolving Credit Facility	$	111,600	$	100,000
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	$	453,400	$	441,800

As of June 30, 2010, 100% of the Company’s outstanding debt was 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 2009 Receivables Securitization Program (the “2009 Program”). While the Company had primarily all of its outstanding debt based on LIBOR at June 30, 2010, the Company had 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. As of June 30, 2010, the overall weighted average effective borrowing rate of the Company’s debt was 4.9%. At June 30, 2010 funding levels, a 50 basis point movement in interest rates would not result in a material increase or decrease in annualized interest expense on a pre-tax basis, nor upon cash flows from operations.

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2009 Receivables Securitization Program

On March 3, 2009, USI entered into an accounts receivables securitization program (as amended to date, the 2009 Receivables Securitization Program” or the “2009 Program”) that replaced the securitization program that USI terminated on March 2, 2009 (the “Prior Receivables Securitization Program” or the “Prior Program”). The parties to the 2009 Program are USI, USSC, USFS, and United Stationers Receivables, LLC (“USR”), and Bank of America, National Association (“Bank of America”) and Enterprise Funding Company LLC (“Enterprise” and, together with Bank of America, the “Investors”). The 2009 Program is governed by the following agreements:

· Transfer and Administration Agreement among USSC, USFS, USR, and the Investors;

· Receivables Sale Agreement between USSC and USFS;

· Receivables Purchase Agreement between USFS and USR; and

· Performance Guaranty executed by USI in favor of USR.

The assets of USR are not available to satisfy the creditors of any other person, including USFS, USSC or USI, until all amounts outstanding under the facility are repaid and the 2009 Program has been terminated. The maturity date of the 2009 Program is November 23, 2013, subject to the Investors’ renewing their commitments as liquidity providers supporting the 2009 Program, which expire on January 21, 2011.

The receivables sold to Bank of America will remain on USI’s Condensed Consolidated Balance Sheet, and amounts advanced to USR by Enterprise, Bank of America or any successor Investor will be recorded as debt on USI’s Condensed Consolidated Balance Sheet. The cost of such debt will be recorded as interest expense on USI’s income statement. As of June 30, 2010 and December 31, 2009, $444.2 million and $445.3 million, respectively, of receivables have been sold and no amounts have been advanced to USR.

The Transfer and Administration 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. This agreement also contains additional covenants, requirements and events of default that are customary for this type of agreement, including the failure to make any required payments when due.

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 both the Revolving Credit Facility and the Term Loan is based on the three-month LIBOR plus an interest margin based upon the Company’s debt to EBITDA ratio (or “Leverage Ratio”, as defined in the 2007 Credit Agreement). 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.

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 2, “Summary of Significant Accounting Policies”; and Note 13, “Derivative Financial Instruments”, to the Consolidated Financial Statements, for further details on these swap transactions and their accounting treatment.

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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 both June 30, 2010 and December 31, 2009, the Company had outstanding letters of credit under the 2007 Credit Agreement of $17.9 million. Approximately, $7.0 million of these letters of credit were used to guarantee the industrial development bond. The industrial development bond had $6.8 million outstanding as of June 30, 2010 and carried market-based interest rates.

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.

The 2007 Credit Agreement and 2007 Note Purchase Agreement prohibit the Company from exceeding a Leverage Ratio of 3.25 to 1.00 and impose other restrictions on the Company’s ability to incur additional debt. Those agreements also contain additional covenants, requirements and events of default that are customary for those types of agreements, including the failure to pay principal or interest when due. The 2007 Credit Agreement, 2007 Note Purchase Agreement, and the Transfer and Administration Agreement all contain cross-default provisions. As a result, if a termination event occurs under any of those agreements, the lenders under all of the agreements may cease to make additional loans, accelerate any loans then outstanding and/or terminate the agreements to which they are party.

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 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, 2009. A summary of net periodic benefit cost related to the Company’s pension and postretirement health care benefit plans for the three and six months ended June 30, 2010 and 2009 is as follows (dollars in thousands):

	Pension Benefits
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2010			2009			2010			2009
Service cost - benefit earned during the period	$	217		$	861		$	434		$	1,253
Interest cost on projected benefit obligation	2,055			2,036			4,110			4,046
Expected return on plan assets	(2,159		)	(1,718		)	(4,318		)	(3,436		)
Amortization of prior service cost	34			28			68			56
Amortization of actuarial loss	475			715			951			1,599
Net loss	622			1,922			1,245			3,518
Curtailment loss	—			—			—			182
Net periodic pension cost	$	622		$	1,922		$	1,245		$	3,700

	Postretirement Healthcare
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2010			2009			2010			2009
Service cost - benefit earned during the period	$	58		$	56		$	116		$	112
Interest cost on projected benefit obligation	65			55			130			110
Amortization of actuarial gain	(85		)	(80		)	(170		)	(160		)
Net periodic postretirement healthcare benefit cost	$	38		$	31		$	76		$	62

Effective March 1, 2009, the Company froze pension service benefits for employees not covered by collective bargaining agreements. As a result, the Company incurred a curtailment loss of $0.2 million in the first quarter of 2009. The Company also reduced the Pension Benefit Obligation (“PBO”) by $11.8 million as a result of this action. The PBO reduction led to an $11.8 million reduction in the “Accrued pension benefits liability” and a corresponding increase in accumulated other comprehensive income, net of tax.

The Company made cash contributions of $8.7 million and $3.8 million to its pension plans during the first six months ended June 30, 2010 and 2009, respectively. The Company does not expect to make any additional contributions to its pension plans during the remaining six months of 2010.

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On April 15, 2010, the Company notified the participants of a negative plan amendment that would terminate the Retiree Medical Plan effective December 31, 2010. The amendment of the Retiree Medical Plan will eliminate any future obligation of the Company to provide cost sharing benefits to current or future retirees. In the second quarter of 2010, the Company recorded a pre-tax gain of $2.8 million for the reversal of actuarially based liabilities resulting from the amendment of the Retiree Medical Plan. The Company anticipates that the amendment of the Retiree Medical Plan will result in a future gain of approximately $6.6 million. This gain will be amortized equally over the remaining quarters of 2010.

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 $0.8 million and $1.6 million for the Company match of employee contributions to the Plan for the three and six months ended June 30, 2010. During the same periods last year, the Company recorded $0.8 million and $2.0 million for the same match. Effective May 1, 2009 through December 31, 2009, the Company temporarily suspended the matching of employee contributions to the Plan for all exempt associates, which was reinstated beginning January 1, 2010 at a reduced matching percentage.

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

Other long-term assets and long-term liabilities as of June 30, 2010 and December 31, 2009 were as follows (in thousands):

	As of June 30, 2010		As of December 31, 2009
Other Long-Term Assets, net:
Investment in deferred compensation	$	3,707	$	3,939
Investment in minority interest	4,835		—
Long-term accounts receivable	4,613		5,146
Capitalized financing costs	1,741		2,069
Long-term prepaid expenses	1,154		1,154
Other	47		63
Total other long-term assets, net	$	16,097	$	12,371

Other Long-Term Liabilities:
Accrued pension benefits liability	$	26,252	$	33,707
Deferred rent	17,623		18,067
Accrued postretirement benefits liability	—		4,132
Deferred directors compensation	3,707		3,939
Restructuring and exit costs reserves	696		887
Interest rate swap liability	29,090		26,070
Long-term income tax liability	5,741		5,380
Other	5,210		1,520
Total other long-term liabilities	$	88,319	$	93,702

12. Accounting for Uncertainty in Income Taxes

For each of the periods ended June 30, 2010 and December 31, 2009, the Company had $5.1 and $5.0 million, respectively, in gross unrecognized tax benefits. The entire amount of these gross unrecognized tax benefits would, if recognized, decrease the Company’s effective tax rate.

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 quarter ended June 30, 2010, was not material. The Condensed Consolidated Balance Sheets for each of the periods ended June 30, 2010 and December 31, 2009, include $1.2 and $1.1 million, respectively, accrued for the potential payment of interest and penalties.

As of June 30, 2010, the Company’s U.S. Federal income tax returns for 2006 and subsequent years remained subject to examination by tax authorities. In addition, the Company’s state income tax returns for 2001 and subsequent years remain subject to examination 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 $2.6 million. These unrecognized tax benefits are currently accrued for in the Condensed Consolidated Balance Sheets.

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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.

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 has 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.

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

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings (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. These swaps reduce 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 like the two counterparties above. The market risk is the adverse effect on the value of a derivative financial instrument that results from a change in interest rates.

Approximately 96% ($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 June 30, 2010.

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The interest rate swap agreements accounted for as cash flow hedges that were outstanding and recorded at fair value on the statement of financial position as of June 30, 2010 were as follows (in thousands):

As of June 30, 2010	Notional Amount		Receive	Pay		Maturity Date	Fair Value Net Liability (1)

November 2007 Swap Transaction	$	135,000	Floating 3-month LIBOR	4.674	%	January 15, 2013	$	(12,156	)

December 2007 Swap Transaction	200,000		Floating 3-month LIBOR	4.075	%	June 21, 2012	(12,404		)

March 2008 Swap Transaction	100,000		Floating 3-month LIBOR	3.212	%	June 29, 2012	(4,530		)

(1)

These interest rate derivatives qualify for hedge accounting. Therefore, the fair value of each interest rate derivative is included in the Company’s Condensed Consolidated Balance Sheets as a component of “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.

The Company’s agreements with its derivative counterparties provide that if an event of default occurs on any Company debt of $25 million or more, the counterparties can terminate the swap agreements. If an event of default had occurred and the counterparties had exercised their early termination rights under the swap agreements as of June 30, 2010, the Company would have been required to pay the aggregate fair value net liability of $29.1 million plus accrued interest to the counterparties.

These interest rate swap agreements contain no ineffectiveness as of June 30, 2010; therefore, all gains or losses on these derivative instruments are reported as a component of other comprehensive income (“OCI”) and reclassified into earnings as “interest expense” in the same period or periods during which the hedged transaction affects earnings. The following table depicts the effect of these derivative instruments on the statement of income for the three- and six-month periods ended June 30, 2010.

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain (Loss)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	At December 31, 2009			At June 30, 2010			Reclassified from Accumulated OCI into Income (Effective Portion)	For the Three Months Ended June 30, 2010			For the Six Months Ended June 30, 2010
November 2007 Swap Transaction	$	(6,614	)	$	(7,534	)	Interest expense, net; income tax expense	$	(449	)	$	(920	)

December 2007 Swap Transaction	(7,230		)	(7,686		)	Interest expense, net; income tax expense	25			(456		)

March 2008 Swap Transaction	(2,306		)	(2,807		)	Interest expense, net; income tax expense	(141		)	(501		)

14. Fair Value Measurements

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

FASB accounting guidance on fair value 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.

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 June 30, 2010 (in thousands):

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	Fair Value Measurements as of June 30, 2010
			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
Liabilities
Interest rate swap liability	$	29,090	$	—	$	29,090	$	—

The carrying amount of accounts receivable at June 30, 2010, including $444.2 million of receivables sold under the New Receivables Securitization Program, approximates fair value because of the short-term nature of this item.

FASB accounting guidance requires separate disclosure of assets and liabilities measured at fair value on a recurring basis, as noted above, from those measured at fair value on a nonrecurring basis. As of June 30, 2010, no assets or liabilities are measured at fair value on a nonrecurring basis.

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, 2009.

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.

Overview and Recent Results

The Company is a leading wholesale distributor of business products, with net sales for the trailing 12 months of $4.8 billion. The Company sells its products through a national distribution network of 64 distribution centers to approximately 25,000 resellers, who in turn sell directly to end consumers.

As reported in the Company’s press release dated July 29, 2010, third quarter sales as of the date of the release were trending up about 4%. Sales initiatives are expected to continue to drive growth to offset lower flu-related product sales and the effects of continued uncertain economic conditions.

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.

· Modestly improving economic conditions and successful execution of the Company’s growth strategies helped drive positive second quarter sales performance. However, the Company remains cautious as white collar employment continues to be on a slow recovery path.

· Sales in the second quarter of 2010 increased by 5.3% to $1.22 billion, compared with last year’s $1.16 billion. Sales within the technology and office product categories grew 8.6% and 5.6%, respectively, versus the prior-year quarter. In addition, sales of industrial supplies showed significant growth in the quarter of 27.9% versus the prior-year quarter. Lower sales of flu-related products contributed to a 2.1% reduction in sales of janitorial/breakroom supplies. Furniture sales were down 2.1%, an improvement from the prior quarter’s decline.

· Gross margin in the second quarter of 2010 reached $179.2 million, compared with $163.4 million in the same period last year. Gross margin as a percent of sales for the second quarter of 2010 was 14.7%, compared with 14.1% in the prior-year quarter. The increase was due to higher inventory purchase-related supplier allowances, which added about 50 bps. In addition, higher product cost inflation increased the gross margin rate by 20 bps. Margins were also benefited by War on Waste (WOW) projects that targeted freight and occupancy costs. These items were partially offset by higher diesel fuel costs, competitive pricing pressures and a sales mix that is improving but that continues to be skewed towards lower-margin products.

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· Operating expenses for the latest quarter were $128.9 million, or 10.6% of sales, including a non-cash $2.8 million reversal of actuarially based liabilities resulting from the termination of a post-retirement benefit plan. Excluding this item, operating expenses were $131.7 million, or 10.8% of sales, compared with $122.2 million, or 10.5% of sales, in the same quarter last year. Second quarter 2010 expenses included the restoration of compensation-related costs that were temporarily cut in 2009, adding approximately $7.0 million to expenses in the quarter. Also contributing to the increase in operating expenses were expenses to support sales growth and spending on growth initiatives, including MBS Dev, furniture, public sector, and industrial footprint expansion. These cost increases were somewhat offset by lower bad debt costs, lower depreciation and continued success with War on Waste (WOW) efforts.

· Net income for the quarter was $27.0 million and diluted earnings per share were $1.10, benefited by the favorable adjustment related to the termination of the post-retirement medical plan. Excluding this item, net income was $25.3 million and diluted earnings per share were $1.03. This compares favorably to prior year net income of $21.2 million and diluted earnings per share of $0.88. The Company benefited from lower interest charges during the quarter as debt levels have declined from the prior year while the tax rate remained relatively flat compared to the prior year.

· Net cash provided by operating activities totaled $54.7 million for the six months ended June 30, 2010, versus $243.0 million a year ago. Cash flow used in investing activities totaled $26.2 million in 2010, up from $4.7 million in the first half of 2009. Included in 2010 investing activities is $15.5 million related to acquisitions and investments. Capital spending through the six months ended June 30, 2010 was $10.7 million and is expected to be approximately $30 million for 2010.

· The Company had approximately $850 million of total committed debt capacity with $453.4 million outstanding as of June 30, 2010, which was down slightly from $471.8 million at June 30, 2009. During that same period, debt-to-total capitalization declined to 39.0% from 43.2%. Through the first half of 2010, the Company repurchased 1.3 million shares for $74.7 million and received $25.9 million of net proceeds from the exercise of stock options.

· During the first quarter of 2010, the Company completed the acquisition of all of the capital stock of MBS Dev, a software solutions provider to business products resellers, which allows the Company to accelerate e-business development and enable customers and suppliers to leverage the internet. The purchase price included $12 million plus $3 million in deferred payments and an additional potential $3 million earn-out based upon the achievement of certain financial goals. The $3 million in deferred payments are to be paid to the former owners over the course of the next four years, the timing of which is based upon the achievement of certain financial goals. As a result of the acquisition, the Company recorded $14.0 million of goodwill, $3.7 million in intangible assets, and $4.1 million of liabilities, at fair value, to be paid for the deferred payments and the earn-out. Net of cash held by MBS Dev at closing, the initial cash outlay was $10.5 million. In addition, during the second quarter of 2010, the Company invested $5 million to acquire a minority interest in the capital stock of a managed print services and technology solution business.

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, 2009.

Stock Repurchase Program

Shares of USI common stock repurchased in the first half of 2010 totaled 1.3 million shares for $74.7 million which included 1.1 million shares for $63.0 million in the second quarter. No shares were repurchased in the first six months of 2009. As of June 30, 2010, the Company had $26.2 million remaining of existing share repurchase authorization from the Board of Directors.

Critical Accounting Policies, Judgments and Estimates

During the second quarter of 2010, 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, 2009.

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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				Six Months Ended
	June 30,				June 30,
	2010		2009		2010		2009

Net sales	100.00	%	100.00	%	100.00	%	100.00	%
Cost of goods sold	85.32		85.90		85.43		85.63
Gross margin	14.68		14.10		14.57		14.37

Operating expenses
Warehousing, marketing and administrative expenses	10.56		10.54		10.94		11.30

Operating income	4.12		3.56		3.63		3.07

Interest expense, net	0.53		0.60		0.54		0.62
Other expense, net	—		—		—		0.01

Income before income taxes	3.59		2.96		3.09		2.44

Income tax expense	1.38		1.13		1.19		0.92

Net income	2.21	%	1.83	%	1.90	%	1.52	%

Adjusted Operating Income, Net Income and Earnings Per Share

The following tables present Adjusted Operating Income, Net Income and Earnings Per Share for the three- and six-month periods ended June 30, 2010 and 2009 (in millions, except per share data). The tables show Adjusted Operating Income, Net Income and Earnings per Share excluding the effects of the termination of the post-retirement medical plan in the second quarter of 2010 and the effects of the first quarter 2009 severance charge. Generally Accepted Accounting Principles (GAAP) requires that the effect 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 June 30,
	2010					2009
				% to				% to
	Amount			Net Sales		Amount		Net Sales

Sales	$	1,220.8		100.00	%	$	1,159.2	100.00	%

Gross profit	$	179.2		14.68	%	$	163.4	14.10	%

Operating expenses	$	128.9		10.56	%	$	122.2	10.54	%
Post-retirement medical plan termination	2.8			0.23	%	—		—	%
Adjusted operating expenses	$	131.7		10.79	%	$	122.2	10.54	%

Operating income	$	50.3		4.12	%	$	41.2	3.56	%
Operating expense item noted above	(2.8		)	(0.23	)%	—		—	%
Adjusted operating income	$	47.5		3.89	%	$	41.2	3.56	%

Net income	$	27.0				$	21.2
Operating expense item noted above	(1.7		)			—
Adjusted net income	$	25.3				$	21.2

Net income per share - diluted	$	1.10				$	0.88
Per share operating expense item noted above	(0.07		)			—
Adjusted net income per share - diluted	$	1.03				$	0.88

Weighted average number of common shares - diluted	24.6					24.0

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	For the Six Months Ended June 30,
	2010					2009
				% to					% to
	Amount			Net Sales		Amount			Net Sales

Sales	$	2,375.1		100.00	%	$	2,280.5		100.00	%

Gross profit	$	346.1		14.57	%	$	327.7		14.37	%

Operating expenses	$	260.0		10.94	%	$	257.6		11.30	%
Post-retirement medical plan termination	2.8			0.12	%
Severance charge	—			—		(3.4		)	(0.15	)%
Adjusted operating expenses	$	262.8		11.06	%	$	254.2		11.15	%

Operating income	$	86.1		3.63	%	$	70.1		3.07	%
Operating expense item noted above	(2.8		)	(0.12	)%	3.4			0.15	%
Adjusted operating income	$	83.3		3.51	%	$	73.5		3.22	%

Net income	$	45.2				$	34.7
Operating expense item noted above	(1.7		)			2.1
Adjusted net income	$	43.5				$	36.8

Net income per share - diluted	$	1.83				$	1.45
Per share operating expense item noted above	(0.07		)			0.09
Adjusted net income per share - diluted	$	1.76				$	1.54

Weighted average number of common shares - diluted	24.7					23.8

Results of Operations—Three Months Ended June 30, 2010 Compared with the Three Months Ended June 30, 2009

Net Sales. Net sales for the second quarter of 2010 were $1.22 billion, an increase of 5.3% compared with sales of $1.16 billion for the prior-year quarter. The following table summarizes net sales by product category for the three-month periods ended June 30, 2010 and 2009 (in millions):

	Three Months Ended June 30,
	2010		2009 (1)
Technology products	$	439.0	$	404.3
Office products (including cut-sheet paper)	325.6		308.2
Janitorial and breakroom supplies	275.1		281.0
Office furniture	83.5		85.3
Industrial supplies	73.8		57.7
Freight revenue	20.6		19.6
Other	3.2		3.1
Total net sales	$	1,220.8	$	1,159.2

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

Sales in the technology products category increased in the second quarter of 2010 by approximately 8.6% versus the second quarter of 2009. This category, which continued to represent the largest percentage of the Company’s consolidated net sales, accounted for approximately 36.0% of net sales for the second quarter of 2010. Higher printer imaging purchases and solid growth in hardware drove this improvement. Private label brands contributed to sales growth in technology while the Company’s Azerty business has also benefited from improved channel focusing and marketing programs.

Sales of office products, including cut-sheet paper, increased in the second quarter of 2010 by approximately 5.6% versus the second quarter of 2009. Office products represented approximately 26.7% of the Company’s consolidated net sales for the second quarter of 2010. During the quarter, the Company’s product mix in this category showed positive trends, as discretionary products displayed some growth, including office machines, boards, and general office products. The Company’s private label brand also showed strong growth in this category.

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Sales in the janitorial and breakroom supplies product category decreased 2.1% in the second quarter of 2010 compared to the second quarter of 2009. This category accounted for approximately 22.5% of the Company’s second quarter of 2010 consolidated net sales. During the second quarter of 2010, sales were negatively affected by significantly lower H1N1 flu-related product sales, particularly impacting large national accounts. In addition, certain national accounts shifted some volume direct to the manufacturer, contributing to lower sales in the quarter. These reduced sales were partially offset by growth initiatives and share gains in the Company’s foodservice category and private brands.

Office furniture sales in the second quarter of 2010 decreased by approximately 2.1% compared to the same three-month period of 2009. Office furniture accounted for 6.8% of the Company’s second quarter of 2010 consolidated net sales. Since furniture products are often discretionary, this category continued to be negatively affected by the recession and the negative white collar employment trends. However, furniture sales showed sequential quarterly improvements despite these uncertain economic conditions. Also, the Company’s Alera brand furniture continued to experience double-digit growth.

Industrial sales in the second quarter of 2010 increased 27.9% compared to the same prior year period. Sales of industrial supplies accounted for 6.0% of the Company’s net sales for the second quarter of 2010. This increase is attributable to improved overall economic conditions, particularly in the manufacturing segment, as well as strategic initiatives.

The remaining 2.0% of the Company’s second quarter 2010 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the second quarter of 2010 was $179.2 million, compared to $163.4 million in the second quarter of 2009, while the Company’s gross margin rate of 14.7% was up from the prior year quarter’s 14.1%. The increase was due to higher inventory purchase-related supplier allowances, which added about 50 bps. In addition, higher product cost inflation increased the gross margin rate by 20 basis points (“bps”). Margins were also benefited by War on Waste (WOW) projects that targeted freight and occupancy costs. These items were partially offset by higher diesel fuel costs, competitive pricing pressures and a lower-margin product mix.

Operating Expenses. Operating expenses for the latest quarter were $128.9 million, or 10.6% of sales, including a $2.8 million favorable adjustment related to the termination of the post-retirement medical plan. Excluding this item, operating expenses were $131.7 million, or 10.8% of sales, compared with $122.2 million, or 10.5% of sales, in the same quarter last year. Second quarter 2010 expenses included the restoration of compensation-related costs that were temporarily cut in 2009, adding approximately $7.0 million to expenses in the quarter. Overall, employee related costs increased 40 bps versus the prior-year quarter. Also contributing to the increase in operating expenses were expenses to support sales growth and spending on growth initiatives, including MBS Dev, furniture, public sector, and industrial footprint expansion. These cost increases were somewhat offset by lower bad debt costs (10 bps), lower depreciation (10 bps) and continued success with War on Waste (WOW) efforts.

Interest and Other Expense, net. Interest and other expense for the second quarter of 2010 was $6.4 million, down from $6.9 million for the same period in 2009. The $0.5 million decrease was attributable to lower borrowings under the Company’s revolving credit facility.

Income Taxes. Income tax expense was $16.9 million for the second quarter of 2010, compared with $13.1 million for the same period in 2009. The Company’s effective tax rate was 38.5% for the second quarter of 2010 and 38.3% for the second quarter of 2009.

Net Income. Net income for the second quarter of 2010 totaled $27.0 million, or $1.10 per diluted share, compared with net income of $21.2 million, or $0.88 per diluted share for the same three-month period in 2009. Adjusted for the plan termination referenced above, second quarter 2010 net income was $25.3 million and diluted earnings per share were $1.03.

Results of Operations—Six Months Ended June 30, 2010 Compared with the Six Months Ended June 30, 2009

Net Sales. Net sales for the first six months of 2010 were $2.38 billion, up 4.1% per selling day compared with sales of $2.28 billion for the same six-month period of 2009. The following table summarizes net sales by product category for the six-month periods ended June 30, 2010 and 2009 (in millions):

	Six Months Ended June 30,
	2010		2009 (1)
Technology products	$	840.6	$	792.2
Office products (including cut-sheet paper)	650.1		624.1
Janitorial and breakroom supplies	537.4		530.7
Office furniture	163.5		174.2
Industrial supplies	136.2		115.2
Freight revenue	41.7		39.5
Other	5.6		4.6
Total net sales	$	2,375.1	$	2,280.5

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Sales in the technology products category increased in the first half of 2010 by 6.1% per selling day versus the first half of 2009. This category, which continued to represent the largest percentage of the Company’s consolidated net sales, accounted for approximately 35.4% of net sales for the first half of 2010. Higher printer imaging purchases and solid growth in hardware drove this improvement.

Sales of office products, including cut-sheet paper, increased in the first half of 2010 by 4.2% per selling day versus the first half of 2010. Office products represented approximately 27.4% of the Company’s consolidated net sales for the first half of 2010.

Sales in the janitorial and breakroom supplies product category increased 1.3% per selling day in the first half of 2010 compared to the first half of 2009. This category accounted for approximately 22.6% of the Company’s first half of 2010 consolidated net sales. Slowing sales due to lower H1N1 flu-related product sales and the shift of some volume direct to the manufacturer were more than offset by growth initiatives.

Office furniture sales in the first half of 2010 decreased by approximately 6.1% per selling day compared to the same six-month period of 2009. Office furniture accounted for 6.9% of the Company’s first half of 2010 consolidated net sales. Since furniture products are often discretionary, this category continued to be negatively affected by the recession and the negative white collar employment outlook. However, furniture sales showed sequential quarterly improvements despite these uncertain economic conditions. Furthermore, the Company’s private branded furniture continued to experience double-digit growth.

Industrial supplies sales in the first half of 2010 increased 18.2% per selling day compared to the same prior year period. Sales of industrial supplies accounted for 5.7% of the Company’s net sales for the first half of 2010. This increase was attributable to improving economic factors, particularly in the manufacturing segment, as well as strategic initiatives. Industrial supplies growth was also aided by category diversification opportunities and the growing understanding of the value of wholesale to customers in this area.

The remaining 2.0% of the Company’s first half 2010 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the first half of 2010 was $346.1 million, compared to $327.7 million in the first half of 2009, while the Company’s gross margin rate of 14.6% was 20 bps higher than the prior year. The increase was due to higher inventory purchase-related supplier allowances of 80 bps as well as improved leverage of occupancy costs and WOW savings in this area totaling 20 bps. These favorable items were partially offset by lower product cost inflation of 50 bps and competitive pricing pressures and a lower-margin product mix of 30 bps.

Operating Expenses. Operating expenses were $260.0 million or 10.9% of sales, including a $2.8 million favorable effect of terminating the Company’s post-retirement medical plan, compared with $257.6 million, or 11.3% of sales, last year, which included a severance charge of $3.4 million. Excluding these items, operating expenses were $262.8 million, or 11.1% of sales, compared with the prior year of $254.2 million or 11.2% of sales. The operating expense ratio declined slightly due to lower bad debt costs of 20 bps, lower depreciation expense of 15 bps and War on Waste savings partially offset by the reinstatement of several employee-related benefits and spending on growth initiatives which added 30 bps to employee-related costs.

Interest and Other Expense, net. Interest and other expense for the first half of 2010 was $12.7 million, down from $14.3 million for the same period in 2009. The $1.7 million decrease is attributable to strong cash flow performance that has led to reduced funding needs.

Income Taxes. Income tax expense was $28.2 million for the first half of 2010, compared with $21.1 million for the same period in 2009. The Company’s effective tax rate was 38.4% for the first half of 2010 and 37.8% for the first half of 2009.

Net Income. Net income for the first half of 2010 totaled $45.2 million, or $1.83 per diluted share, compared with net income of $34.7 million, or $1.45 per diluted share for the same six-month period in 2009. Adjusted for the plan termination referenced above, first half of 2010 net income was $43.5 million and diluted earnings per share were $1.76. Excluding the severance charge for 2009, net income in the prior year period was $36.8 million and diluted earnings per share were $1.54.

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Liquidity and Capital Resources

Debt

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

				As of
	As of June 30, 2010			December 31, 2009
2007 Credit Agreement - Revolving Credit Facility	$	111,600		$	100,000
2007 Credit Agreement - Term Loan	200,000			200,000
2007 Master 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	453,400			441,800
Stockholders’ equity	710,592			706,713
Total capitalization	$	1,163,992		$	1,148,513

Debt-to-total capitalization ratio	39.0		%	38.5		%

Total debt outstanding at June 30, 2010 increased by $11.6 million to $453.4 million from the balance at December 31, 2009. This resulted from an increase in borrowings under the Revolving Credit Facility of the 2007 Credit Agreement.

At June 30, 2010, the Company’s debt-to-total capitalization ratio was 39.0%, compared to 38.5% at December 31, 2009.

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 June 30, 2010, 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 Master Note Purchase Agreement	135.0
2009 Receivables Securitization Program (1)	100.0
Industrial Development Bond	6.8
Maximum financing available			$	866.8

Amounts utilized:
2007 Credit Agreement - Revolving Credit Facility	111.6
2007 Credit Agreement – Term Loan	200.0
2007 Master Note Purchase Agreement	135.0
2009 Receivables Securitization Program(1)	—
Outstanding letters of credit	17.9
Industrial Development Bond	6.8
Total financing utilized			471.3
Available financing, before restrictions			395.5
Restrictive covenant limitation			38.9
Available financing as of June 30, 2010			$	356.6

(1) The 2009 Receivables Securitization Program provides for maximum funding available of the lesser of $100 million or the total amount of eligible receivables less excess concentrations and applicable reserves.

The Credit Agreement, 2007 Note Purchase Agreement, and Transfer and Administration Agreement prohibit the Company from exceeding a Leverage Ratio of 3.25 to 1.00 and impose other restrictions on the Company’s ability to incur additional debt. These agreements also contain additional covenants, requirements and events of default that are customary for these types of agreements, including the failure to make any required payments when due. The 2007 Credit Agreement, 2007 Note Purchase Agreement, and the Transfer and Administration Agreement all contain cross-default provisions. As a result, if an event of default occurs under any of those agreements, the lenders under all of the agreements may cease to make additional loans, accelerate any loans then outstanding and/or terminate the agreements to which they are party.

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

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Contractual Obligations

During the six- month period ending June 30, 2010, the Company entered into several operating leases committing the Company to an additional $37.2 million in contractual obligations from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Credit Agreement and Other Debt

On March 3, 2009, USI entered into an accounts receivables securitization program (as amended to date, the “2009 Receivables Securitization Program” or the “2009 Program”) that replaced the securitization program that USI terminated on March 2, 2009 (the “Prior Receivables Securitization Program” or the “Prior Program”). The parties to the 2009 Program are USI, USSC, United Stationers Financial Services (“USFS”), and United Stationers Receivables, LLC (“USR”), and Bank of America, National Association (“Bank of America”) and Enterprise Funding Company LLC (“Enterprise” and, together with Bank of America and Enterprise, the “Investors”). The 2009 Program is governed by the following agreements:

· Transfer and Administration Agreement among USSC, USFS, USR and the Investors;

· Receivables Sale Agreement between USSC and USFS;

· Receivables Purchase Agreement between USFS and USR; and

· Performance Guaranty executed by USI in favor of USR.

Pursuant to the Receivables Sale Agreement, USSC sells to USFS, on an on-going basis, all the customer accounts receivable and related rights originated by USSC. Pursuant to the Receivables Purchase Agreement, USFS sells to USR, on an on-going basis, all the accounts receivable and related rights purchased from USSC, as well as the accounts receivable and related rights USFS acquired from its then subsidiary USS Receivables Company, Ltd. (“USSRC”), upon the termination of the Prior Program. Pursuant to the Transfer and Administration Agreement, USR then sells the receivables and related rights to Bank of America, as agent on behalf of Enterprise. The maximum investment to USR at any one time outstanding under the 2009 Program cannot exceed $100 million. USFS retains servicing responsibility over the receivables. USR is a wholly-owned, bankruptcy remote special purpose subsidiary of USFS. The assets of USR are not available to satisfy the creditors of any other person, including USFS, USSC or USI, until all amounts outstanding under the facility are repaid and the 2009 Program has been terminated. The maturity date of the 2009 Program is November 23, 2013, subject to the Investors’ renewing their commitments as liquidity providers supporting the 2009 Program, which expire on January 21, 2011.

The receivables sold to Bank of America will remain on USI’s Condensed Consolidated Balance Sheet, and amounts advanced to USR by Enterprise, Bank of America or any successor Investor will be recorded as debt on USI’s Condensed Consolidated Balance Sheet. The cost of such debt will be recorded as interest expense on USI’s income statement. As of June 30, 2010 and December 31, 2009, $444.2 million and $445.3 million of receivables have been sold and no amounts have been advanced to USR.

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 both the Revolving Credit Facility and the Term Loan is based on the three-month LIBOR plus an interest margin based upon the Company’s debt to EBITDA ratio (or “Leverage Ratio”, as defined in the 2007 Credit Agreement). 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 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.

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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 has 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 of $17.9 million as of both June 30, 2010 and December 31, 2009.

At June 30, 2010 funding levels (including amounts sold under the 2009 Receivables Securitization Program), a 50 basis point movement in interest rates would not result in a material increase or decrease in annualized interest expense on a pre-tax basis, nor upon cash flows from operations.

As of June 30, 2010, 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.

Refer to Note 9, “Long-Term Debt”, for further descriptions of the provisions of 2007 Credit Agreement and the 2007 Note Purchase Agreement.

Cash Flows

Cash flows for the Company for the six-month periods ended June 30, 2010 and 2009 are summarized below (in thousands):

	For the Six Months Ended
	June 30,
	2010			2009

Net cash provided by operating activities	$	54,708		$	242,952
Net cash used in investing activities	(26,173		)	(4,661		)
Net cash used in financing activities	(33,693		)	(190,979		)

Cash Flow From Operations

Net cash provided by operating activities totaled $54.7 million for the six months ended June 30, 2010, versus $243.0 million a year ago. Last year’s cash flow was positively affected by a significant reduction in inventory (source of cash - $161.7 million), compared with the current year’s re-investment to support sales growth (use of cash - $47.5 million). Partially offsetting this unfavorable cash change versus the prior year is a larger increase in accounts payable in 2010 (source of cash - $52.4 million) versus 2009 ($33.0 million).

Cash Flow From Investing Activities

Cash flow used in investing activities totaled $26.2 million in 2010, up from $4.7 million in the first half of 2009. Included in 2010 investing activities is $15.5 million related to acquisitions and investments. Capital spending through the six months ended June 30, 2010 was $10.7 million and is expected to be approximately $30 million for 2010.

Cash Flow From Financing Activities

Net cash used in financing activities for the six months ended June 30, 2010 totaled $33.7 million, compared with $191.0 million in the prior year period. Strong operating cash flows in the first half of 2009 led to repayment of debt of $191.3 million while $11.6 million was borrowed in the first half of 2010. An additional $25.9 million was received related to net proceeds from share-based compensation arrangements, including option exercises. These 2010 financing cash inflows were more than offset by $74.7 million of share repurchases.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates. There were no material changes to the Company’s exposures to market risk during the first six months of 2010 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

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 June 30, 2010, the Company’s Disclosure Controls were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes to the Company’s internal control over financial reporting during the quarter ended June 30, 2010, 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, 2009. There have been no material changes to the risk factors described in such Form 10-K.

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

Common Stock Purchase

ITEM 6. EXHIBITS

(a) Exhibits

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

Exhibit No.		Description
3.1		Second Restated Certificate of Incorporation of the Company, dated as of March 19, 2002 (Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, filed on April 1, 2002 (the “2001 Form 10-K”))

3.2		Amended and Restated Bylaws of the Company, dated as of July 16, 2009 (Exhibit 3.1 to the Form 10-Q filed on November 5, 2009)

4.1*†		Master Note Purchase Agreement, dated as of October 15, 2007, among the Company, United Stationers Supply Co. (“USSC”), and the note purchasers identified therein

10.1*		Pledge and Security Agreement, dated as of October 15, 2007, among the Company, USSC., Lagasse, Inc., United Stationers Technology Services LLC and United Stationers Financial Services LLC (“USFS”) and JPMorgan Chase Bank, N.A. as collateral agent

10.2*†		Second Amended and Restated Five-Year Revolving Credit Agreement, dated July 5, 2007, among USSC, as borrower, the Company, as a credit party, JPMorgan Chase Bank, National Association in its capacity as agent, and the financial institutions listed on the signature pages thereof (the “Revolving Credit Agreement”)

10.3*		Amendment No. 1, dated December 21, 2007, to the Revolving Credit Agreement

10.4*†		Transfer and Administration Agreement, dated as of March 3, 2009, by and among United Stationers Receivables, LLC, (“USR”), USSC, as Originator, USFS, as Seller and Servicer, Enterprise Funding Company LLC, as a Conduit Investor, Market Street Funding LLC, as a Conduit Investor, Bank of America, National Association, as Agent, as a Class Agent and as an Alternate Investor, PNC Bank, National Association, as a Class Agent and as an Alternate Investor, and the other alternate investors from time to time parties thereto

10.5*		Receivables Purchase Agreement, dated as of March 3, 2009, by and between USFS, as Seller, and USR, as Purchaser

10.6*		Indemnification Agreement entered into between United Stationers Inc. and Richard W. Gochanuer dated July 22, 2002 (Attachment A to the Executive Employment Agreement filed as Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)**

10.7*		Indemnification Agreement entered into between United Stationers Inc. and Stephen A. Schultz dated June 1, 2002 (Attachment A to the Executive Employment Agreement filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)**

10.8*		Indemnification Agreement entered into between United Stationers Inc. and P. Cody Phipps dated July 28, 2004 (Attachment A to the Executive Employment Agreement filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)**

10.9*		Indemnification Agreement entered into between United Stationers Inc. and Patrick T. Collins dated October 19, 2004 (Attachment A to the Executive Employment Agreement filed as Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)**

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		3

Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2010 and 2009		4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		29

Item 4. Controls and Procedures		29

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.		29

Item 1A. Risk Factors		29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30

Item 6. Exhibits		30

SIGNATURES		32

10.10*		Indemnification Agreement entered into between United Stationers Inc. and Victoria J. Reich dated June 11, 2007 (Attachment A to the Executive Employment Agreement filed as Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008)**

10.11*		Indemnification Agreement entered into between United Stationers Inc. and Eric A. Blanchard dated December 8, 2008 (Attachment A to the Executive Employment Agreement filed as Exhibit 10.3 to the Form 10-Q filed on May 6, 2010)**

31.1*		Certification of Chief Executive Officer, dated as of August 5, 2010, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer, dated as of August 5, 2010, 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 August 5, 2010, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*		The following financial information from United Stationers Inc.’s Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed with the SEC on August 5, 2010, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statement of Income for the three- and six-month periods ended June 30, 2010 and 2009, (ii) the Consolidated Balance Sheet at June 30, 2010 and December 31, 2009, (iii) the Consolidated Statement of Cash Flows for the six-month periods ended June 30, 2010 and 2009, and (iv) Notes to Consolidated Financial Statements.

*	-	Filed herewith

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

†	-	Confidential treatment has been requested for a portion of this document. Confidential portions have been omitted and filed separately with the Securities and Exchange Commission.

		UNITED STATIONERS INC.
		(Registrant)

		/s/ VICTORIA J. REICH
Date: August 5, 2010		Victoria J. Reich
		Senior Vice President and Chief Financial Officer (Duly authorized signatory and principal financial officer)