Share-Based Compensation

6 Months Ended

Jun. 30, 2011

Share-Based Compensation

Share-Based Compensation

3. Share-Based Compensation

Overview

As of June 30, 2011, the Company has two active equity compensation plans. 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 interests of key associates to those of the Company's shareholders 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.

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,
	2011			2010			2011			2010
Numerator:
Pre-tax expense	$	6,707		$	3,545		$	10,414		$	6,811
Tax effect		(2,535	)		(1,340	)		(3,936	)		(2,575	)
After tax expense		4,172			2,205			6,478			4,236
Denominator:
Denominator for basic shares -
weighted average shares		45,051			48,042			45,218			48,136
Denominator for diluted shares -
Adjusted weighted average shares and the effect of dilutive securities		46,340			49,272			46,470			49,446
Net expense per share:
Net expense per share - basic	$	0.09		$	0.05		$	0.14		$	0.09
Net expense per share - diluted	$	0.09		$	0.04		$	0.14		$	0.09

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

Intrinsic Value of Options

(in thousands of dollars)

	Outstanding		Exercisable
As of June 30, 2011	$	19,784	$	19,784
As of June 30, 2010		14,455		14,438

Intrinsic Value of Options Exercised

(in thousands of dollars)

	For the Three Months Ended		For the Six Months Ended
June 30, 2011	$	1,951	$	7,923
June 30, 2010		4,786		13,855

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

Intrinsic Value of Restricted Shares Outstanding 

(in thousands of dollars)

As of June 30, 2011	$	53,643
As of June 30, 2010		40,323

Intrinsic Value of Restricted Shares Vested

(in thousands of dollars)

	For the Three Months Ended		For the Six Months Ended
June 30, 2011	$	119	$	7,035
June 30, 2010		416		3,855

As of June 30, 2011, there was $22.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted. This cost is expected to be recognized over a weighted-average period of 1.3 years.

Accounting guidance on share-based payments requires that cash flows resulting from the tax benefits from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) be classified as financing cash flows. For the six months ended June 30, 2011, the $2.6 million excess tax benefits classified as financing cash inflows on the Condensed 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, 2010 this amount was $3.5 million.

Stock Options

There were no stock options granted during the first six months of 2011 or 2010. As of June 30, 2011, there was no unrecognized compensation cost related to stock option awards granted.

The fair value of option awards and modifications to option awards is estimated on the date of grant or modification 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. Historically, stock options vested 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.

The following table summarizes the transactions, excluding restricted stock, under the Company's equity compensation plans for the six months ended June 30, 2011:

Stock Options Only	Shares			Weighted Average Exercise Price		Weighted Average Exercise Contractual Life		Aggregate Intrinsic Value ($000)
Options outstanding - December 31, 2010		2,563,708		$	24.18
Granted		—			—
Exercised		(745,428	)		23.26
Canceled		—			—
Options outstanding - June 30, 2011		1,818,280		$	24.55		4.63	$	19,784
Number of options exercisable		1,818,280		$	24.55		4.63	$	19,784

Restricted Stock and Restricted Stock Units

The Company granted 4,832 shares of restricted stock and 201,670 restricted stock units ("RSUs") during the first six months of 2011. During the first six months of 2010, the Company granted 24,208 shares of restricted stock and 207,248 RSUs. 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 2011 and 2010 vest in three annual installments based on the terms of the agreements, to the extent earned based on the Company's cumulative economic profit performance against target economic profit goals. A summary of the status of the Company's restricted stock and RSU grants and changes during the six months ended June 30, 2011, 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, 2010		1,562,626		$	20.13
Granted		206,502			33.11
Vested		(214,704	)		21.98
Canceled		(40,366	)		22.28
Outstanding - June 30, 2011		1,514,058		$	21.58		1.31	$	53,643