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, 2011

or

¨ 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 Incorporation or Organization)	(I.R.S. Employer Identification No.)

One Parkway North Boulevard

Suite 100

Deerfield, Illinois 60015-2559

(847) 627-7000

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

Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

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

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

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	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  ¨    No  x

On July 29, 2011, the registrant had outstanding 44,422,537 shares of common stock, par value $0.10 per share.

UNITED STATIONERS INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2011

TABLE OF CONTENTS

	Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		3
Condensed Consolidated Statements of Income for the Three Months and Six Months Ended June  30, 2011 and 2010		4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		31
Item 1A. Risk Factors		31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 6. Exhibits		32
SIGNATURES		33

2

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	(Unaudited)			(Audited)
	As of June 30, 2011			As of December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	18,772		$	21,301
Accounts receivable, less allowance for doubtful accounts of $27,687 in 2011 and $29,079 in 2010		669,545			628,119
Inventories		632,080			684,091
Other current assets		33,208			31,895
Total current assets		1,353,605			1,365,406
Property, plant and equipment, at cost		448,872			441,351
Less - accumulated depreciation and amortization		320,276			306,050
Net property, plant and equipment		128,596			135,301
Intangible assets, net		58,854			61,441
Goodwill		328,061			328,581
Other long-term assets		19,510			17,934
Total assets	$	1,888,626		$	1,908,663
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	443,480		$	421,566
Accrued liabilities		161,670			186,387
Short-term debt		6,800			6,800
Total current liabilities		611,950			614,753
Deferred income taxes		16,448			14,053
Long-term debt		435,000			435,000
Other long-term liabilities		72,480			85,259
Total liabilities		1,135,878			1,149,065
Stockholders’ equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2011 and 2010		7,444			7,444
Additional paid-in capital		411,137			400,910
Treasury stock, at cost - 29,659,783 shares in 2011 and 28,247,906 shares in 2010		(828,045	)		(772,698	)
Retained earnings		1,200,437			1,167,109
Accumulated other comprehensive loss		(38,225	)		(43,167	)
Total stockholders’ equity		752,748			759,598
Total liabilities and stockholders’ equity	$	1,888,626		$	1,908,663

See notes to condensed consolidated financial statements.

3

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,
	2011		2010		2011		2010
Net sales	$	1,256,628	$	1,220,759	$	2,494,081	$	2,375,068
Cost of goods sold		1,072,389		1,041,520		2,127,470		2,028,963
Gross profit		184,239		179,239		366,611		346,105
Operating expenses:
Warehousing, marketing and administrative expenses		136,439		128,918		278,800		259,986
Operating income		47,800		50,321		87,811		86,119
Interest expense, net		6,601		6,436		13,122		12,665
Other expense		100		—		310		—
Income before income taxes		41,099		43,885		74,379		73,454
Income tax expense		16,263		16,883		29,096		28,227
Net income	$	24,836	$	27,002	$	45,283	$	45,227
Net income per share - basic:
Net income per share - basic	$	0.55	$	0.56	$	1.00	$	0.94
Average number of common shares outstanding - basic		45,051		48,042		45,218		48,136
Net income per share - diluted:
Net income per share - diluted	$	0.54	$	0.55	$	0.97	$	0.91
Average number of common shares outstanding - diluted		46,340		49,272		46,470		49,446
Dividends declared per share	$	0.13	$	—	$	0.26	$	—

See notes to condensed consolidated financial statements.

4

UNITED STATIONERS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	For the Six Months Ended
	June 30,
	2011			2010
Cash Flows From Operating Activities:
Net income	$	45,283		$	45,227
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		17,458			18,441
Amortization of capitalized financing costs		397			366
Share-based compensation		10,414			6,811
Excess tax benefits related to share-based compensation		(2,591	)		(3,480	)
(Gain) loss on the disposition of property, plant and equipment		(11	)		4
Impairment of equity investment		1,635			—
Deferred income taxes		(948	)		(2,827	)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Increase in accounts receivable, net		(41,097	)		(815	)
Decrease (increase) in inventory		52,452			(47,528	)
(Increase) decrease in other assets		(4,794	)		5,450
Increase in accounts payable		71,481			104,284
Decrease in checks in-transit		(49,434	)		(51,872	)
Decrease in accrued liabilities		(20,677	)		(7,561	)
Decrease in other liabilities		(6,292	)		(11,792	)
Net cash provided by operating activities		73,276			54,708
Cash Flows From Investing Activities:
Capital expenditures		(16,223	)		(10,684	)
Acquisitions, net of cash acquired		—			(15,527	)
Proceeds from the disposition of property, plant and equipment		60			38
Net cash used in investing activities		(16,163	)		(26,173	)
Cash Flows From Financing Activities:
Borrowings under Revolving Credit Facility		—			11,600
Net proceeds from share-based compensation arrangements		13,767			25,941
Acquisition of treasury stock, at cost		(69,866	)		(74,675	)
Payment of cash dividends		(6,033	)		—
Excess tax benefits related to share-based compensation		2,591			3,480
Payment of debt fees and other		(111	)		(39	)
Net cash used in financing activities		(59,652	)		(33,693	)
Effect of exchange rate changes on cash and cash equivalents		10			(4	)
Net change in cash and cash equivalents		(2,529	)		(5,162	)
Cash and cash equivalents, beginning of period		21,301			18,555
Cash and cash equivalents, end of period	$	18,772		$	13,393
Other Cash Flow Information:
Income tax payments, net	$	30,159		$	31,411
Interest paid		12,943			12,837

See notes to condensed consolidated financial statements.

5

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 national wholesale distributor of business products, with net sales of approximately $4.8 billion for the year ended December 31, 2010. The Company stocks about 100,000 items from over 1,000 manufacturers. These items include a broad spectrum of technology products, traditional office 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 its over 25,000 reseller customers, 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, 2010, which was derived from the December 31, 2010 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, 2010 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 Investment

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. MBS Dev’s solutions allow the Company to accelerate e-business development and enable customers and suppliers to implement more effectively their e-marketing and e-merchandising programs, as well as enhance their back office operations. 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 by December 31, 2014.

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. During the first quarter of 2011, a non-deductible asset impairment charge of $1.6 million was taken based on an independent third-party valuation analysis with respect to the fair value of this investment. This charge and the Company’s share of the earnings and losses of this investment are included in the Operating Expenses section of the Condensed Consolidated Statements of Income.

Stock and Cash Dividends

On March 1, 2011, the Company’s Board of Directors approved a two-for-one stock split of the Company’s issued common shares, which was paid in the form of a 100% stock dividend. All stockholders received one additional share for each share owned at the close of business on the record date of May 16, 2011. The stock dividend was paid on May 31, 2011 and the ex-dividend date was June 1, 2011. This did not change the proportionate interest that a stockholder maintains in the Company. All shares and per share amounts have been adjusted for the two-for-one stock split throughout this report.

On March 1, 2011, the Company’s Board of Directors approved initiation of a quarterly cash dividend of $0.13 per share, which was paid on April 15, 2011 to stockholders of record on March 15, 2011.

On May 11, 2011, the Company’s Board of Directors declared a quarterly cash dividend of $0.13 per share, which was paid on July 15, 2011 to stockholders of record on June 15, 2011.

On July 15, 2011, the Company announced that its Board of Directors authorized the purchase of an additional $100.0 million of the Company’s common stock. Additionally, the Company’s Board of Directors declared a quarterly cash dividend of $0.13 per share payable on October 14, 2011 to stockholders of record at the close of business on September 15, 2011.

6

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

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 $84.5 million and $80.8 million as of June 30, 2011 and December 31, 2010, respectively. These receivables are included in “Accounts receivable” in the Consolidated Balance Sheets.

The majority of the Company’s annual supplier allowances and incentives are variable, based solely 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 Consolidated Financial Statements as a reduction to cost of goods sold, thereby reflecting the net inventory purchase cost. The remaining portion of the Company’s annual supplier allowances and incentives are fixed and are earned based primarily on supplier participation in specific Company advertising and marketing publications. Fixed allowances and incentives are taken to income through lower cost of goods sold as inventory is sold.

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 Consolidated Financial Statements as a reduction of sales. Accrued customer rebates of $43.5 million and $56.1 million as of June 30, 2011 and December 31, 2010, respectively, are included as a component of “Accrued liabilities” in the 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.

7

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 annual sales volume to the Company’s customers. Annual rebates earned by customers include growth components, volume hurdle components, and advertising allowances.

Shipping and handling costs billed to customers are treated as revenues and recognized at the time title to the product has transferred to the customer. Freight costs are included in the Company’s Consolidated 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.

Additional revenue is generated from the sale of software licenses, delivery of subscription services (including the right to use software and software maintenance services), and professional services. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fees are fixed and determinable, and collection is considered probable. If collection is not considered probable, the Company recognizes revenue when the fees are collected. If fees are not fixed and determinable, the Company recognizes revenues when the fees become due from the customer.

Accounts Receivable

In the normal course of business, the Company extends credit to customers that satisfy pre-defined credit criteria. Accounts receivable, as shown on the Consolidated Balance Sheets, include such trade accounts receivable and are net of allowances for doubtful accounts and anticipated discounts. The Company makes judgments as to the collectability of trade 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 trade accounts receivable aging. Uncollectible trade receivable balances are written off against the allowance for doubtful accounts when it is determined that the trade receivable balance is uncollectible.

Insured Loss Liability Estimates

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

Leases

The Company leases real estate and personal property under operating leases. Certain operating leases include incentives from landlords including, landlord “build-out” allowances, rent escalation clauses and rent holidays or periods in which rent is not payable for a certain amount of time. The Company accounts for landlord “build-out” allowances as deferred rent at the time of possession and amortizes this deferred rent on a straight-line basis over the term of the lease.

The Company also recognizes leasehold improvements associated with the “build-out” allowances and amortizes these improvements over the shorter of (1) the term of the lease or (2) the expected life of the respective improvements. The Company accounts for rent escalation and rent holidays as deferred rent at the time of possession and amortizes this deferred rent on a straight-line basis over the term of the lease. As of June 30, 2011, the Company is not a party to any capital leases.

8

Inventories

Approximately 77% and 79% of total inventory as of June 30, 2011 and December 31, 2010, has been valued under the last-in, first-out (“LIFO”) accounting method. LIFO results in a better matching of costs and revenues. The remaining inventory is valued under the first-in, first-out (“FIFO”) accounting method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost or market. If the Company had valued its entire inventory under the lower of FIFO cost or market, inventory would have been $90.9 million and $84.7 million higher than reported as of June 30, 2011 and December 31, 2010, respectively. The change in the LIFO reserve since December 31, 2010, resulted in a $6.2 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 $30.3 million and $29.8 million remaining in inventory as of June 30, 2011 and December 31, 2010, respectively.

Cash Equivalents

An unfunded check balance (payments in-transit) exists for the Company’s primary disbursement accounts. Under the Company’s cash management system, the Company utilizes available borrowings, on an as-needed basis, to fund the clearing of checks as they are presented for payment. As of June 30, 2011 and December 31, 2010, outstanding checks totaling $33.8 million and $83.3 million, respectively, were included in “Accounts payable” in the Consolidated Balance Sheets.

All highly liquid debt instruments with an original maturity 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, 2011		As of December 31, 2010
Cash	$	10,372	$	14,301
Short-term investments		8,400		7,000
Total cash and short-term investments	$	18,772	$	21,301

Property, Plant and Equipment

Property, plant and equipment is 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 ten years; the estimated useful life assigned to buildings does not exceed forty years; leasehold improvements are amortized over the lesser of their useful lives or the term of the applicable lease. Repair 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 ten years. Capitalized software is included in “Property, plant and equipment, at cost” on the Consolidated Balance Sheet. The total costs are as follows (in thousands):

	As of June 30, 2011			As of December 31, 2010
Capitalized software development costs	$	68,020		$	66,108
Accumulated amortization		(50,351	)		(47,770	)
Net capitalized software development costs	$	17,669		$	18,338

9

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 its 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 long-term 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 and hedging activities as they are hedging a forecasted transaction or the variability of cash flow to be paid by the Company. Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in other comprehensive income, net of tax, until earnings are affected by the forecasted transaction or the variability of cash flow, and then are reported in current earnings.

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

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 flow of hedged items. When it is determined that a derivative is not highly effective as a hedge then hedge accounting is discontinued prospectively in accordance with 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 12, “Derivative Financial Instruments”, for further detail.

Income Taxes

The Company accounts for income taxes using the liability method in accordance with the accounting guidance for income taxes. The Company estimates actual current tax expense and assesses temporary differences that exist due to differing treatments of items 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 October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable Revenue Arrangements”. ASU 2009-13 establishes the accounting and reporting guidance for arrangements that include multiple revenue-generating activities, and provides amendments to the criteria for separating deliverables, and measuring and allocating arrangement consideration to one or more units of accounting. The amendments in ASU 2009-13 also establish a hierarchy for determining the selling price of a deliverable. Enhanced disclosures are also required to provide information about a vendor’s multiple-deliverable revenue arrangements, including information about the nature and terms of the arrangement, significant deliverables, and the vendor’s performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in ASU 2009-13 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-13 did not have a material impact on the Company’s financial position or results of operations.

10

In January 2010, the FASB issued Accounting Standards Codification (“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 13, “Fair Value Measurements”, for information and related disclosures regarding the Company’s fair value measurements.

In December 2010, the FASB issued ASU 2010-29, “Business Combinations” (Topic 805). This ASU specifies that if a company presents comparative financial statements, the company should disclose revenue and earnings of the combined entity as though the business combination that occurred during the year had occurred as of the beginning of the comparable prior annual reporting period only. The ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the pro forma revenue and earnings. This ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of ASU 2010-29 did not have a material impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income” (Topic 220). This ASU will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011. This amendment will change the manner in which the Company presents comprehensive income.

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.

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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

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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

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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

4. Goodwill and Intangible Assets

Accounting guidance 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, 2010. The Company does not believe any triggering event occurred during the six-month period ended June 30, 2011 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 six-month period ended June 30, 2011.

As of June 30, 2011 and December 31, 2010, the Company’s Condensed Consolidated Balance Sheets reflected $328.1 million and $328.6 million of goodwill, $58.9 million and $61.4 million in net intangible assets, respectively.

Net intangible assets consist primarily of customer lists, trademarks, 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 2011. Amortization of intangible assets purchased totaled $2.6 million, for each of the first six months of 2011 and 2010. Accumulated amortization of intangible assets as of June 30, 2011 and December 31, 2010 totaled $24.1 million and $21.5 million, respectively.

5. Severance and Restructuring Charges

On December 31, 2010, the Company approved an early retirement program for eligible employees and a focused workforce realignment to support strategic initiatives. The Company recorded a pre-tax charge of $9.1 million in the fourth quarter of 2010 for estimated severance pay, benefits and outplacement costs related to these actions. This charge was included in the Operating expenses on the Statements of Income for the quarter ending December 31, 2010. Cash outlays associated with this severance charge in the six months ended June 30, 2011 were $2.2 million. During the second quarter of 2011, the Company had a reversal of a portion of these severance charges of $0.2 million. As of June 30, 2011 and December 31, 2010, the Company had accrued liabilities for these actions of $6.7 million and $9.1 million, respectively.

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)	2011		2010			2011		2010
Net income	$	24,836	$	27,002		$	45,283	$	45,227
Unrealized foreign currency translation adjustment		304		(764	)		1,042		129
Unrealized (loss) gain - interest rate swaps, net of tax		1,664		(565	)		3,900		(1,877	)
Post-retirement medical plan termination, net of tax		—		(834	)		—		(834	)
Total comprehensive income	$	26,804	$	24,839		$	50,225	$	42,645

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7. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options, restricted stock and deferred stock units are considered dilutive securities. For the three- and six-month periods ending June 30, 2011, no stock options were excluded 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. For the three- and six-month period ending June 30, 2010, 0.4 million shares of common stock were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Numerator:
Net income	$	24,836	$	27,002	$	45,283	$	45,227
Denominator:
Denominator for basic earnings per share -
weighted average shares		45,051		48,042		45,218		48,136
Effect of dilutive securities:
Employee stock options and restricted units		1,289		1,230		1,252		1,310
Denominator for diluted earnings per share -
Adjusted weighted average shares and the effect of dilutive securities		46,340		49,272		46,470		49,446
Net income per share:
Net income per share - basic	$	0.55	$	0.56	$	1.00	$	0.94
Net income per share - diluted	$	0.54	$	0.55	$	0.97	$	0.91

Common Stock Repurchases

As of June 30, 2011, the Company had remaining Board authorization to repurchase $17.8 million of USI common stock. During the three-month periods ended June 30, 2011 and 2010, the Company repurchased 1,305,079 and 2,171,494 shares of USI’s common stock at an aggregate cost of $45.3 million and $63.0 million, respectively. During the six-month periods ended June 30, 2011 and 2010, the Company repurchased 2,050,755 and 2,567,642 shares of USI’s common stock at an aggregate cost of $69.9 million and $74.7 million, respectively. On July 15, 2011, the Company announced that its Board of Directors authorized the purchase of an additional $100.0 million of the Company’s common stock. 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 2011 and 2010, the Company reissued 689,659 and 1,398,796 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

8. Long-Term Debt

USI is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its direct operating subsidiary, USSC, and from borrowings by USSC. The 2007 Credit Agreement (as defined below), the 2007 Master Note Purchase Agreement (as defined below) and the Current Receivables Securitization Program (as defined below) contain restrictions on the ability of USSC to transfer cash to USI.

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

	As of June 30, 2011		As of December 31, 2010
2007 Credit Agreement - Revolving Credit Facility	$	100,000	$	100,000
2007 Credit Agreement - Term Loan		200,000		200,000
2007 Master Note Purchase Agreement (Private Placement)		135,000		135,000
Total	$	435,000	$	435,000

In addition to long-term debt, as of June 30, 2011 and December 31, 2010 the Company had an industrial development bond outstanding with a balance of $6.8 million. This bond is scheduled to mature in December 2011 and carries market-based interest rates.

As of June 30, 2011, 100% of the Company’s outstanding debt is priced at variable interest rates based primarily on the applicable bank prime rate or London InterBank Offered Rate (“LIBOR”). While the Company had primarily all of its outstanding debt based on LIBOR at June 30, 2011, the Company had hedged $435 million of this debt with three separate interest rate swaps further discussed in Note 2, “Summary of Significant Accounting Policies”, and Note 12, “Derivative Financial Instruments”, to the Consolidated Financial Statements. As of June 30, 2011, the overall weighted average effective borrowing rate of the Company’s debt was 5%. At June 30, 2011 funding levels based on $6.8 million, 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.

Receivables Securitization Program

On March 3, 2009, USI entered into an accounts receivables securitization program (as amended to date, the “Receivables Securitization Program” or the “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 Program are USI, USSC, United Stationers Financial Services (“USFS”), United Stationers Receivables, LLC (“USR”), and Bank of America, National Association (the “Investor”). The Current Program is governed by the following agreements:

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

• The Receivables Sale Agreement between USSC and USFS;

• The Receivables Purchase Agreement between USFS and USR; and

• The 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 the Investor. The maximum investment to USR at any one time outstanding under the Current 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 Program has been terminated. The maturity date of the Program is November 23, 2013, subject to the extension of the commitments of the Investors under the Current Program, which expire on January 20, 2012.

The receivables sold to the Investor will remain on USI’s Condensed Consolidated Balance Sheet, and amounts advanced to USR by the Investor 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, 2011 and December 31, 2010, $429.5 million and $405.5 million, respectively, of receivables had been sold to the agent. However, no amounts had been borrowed by USR as of those periods.

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.

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Credit Agreement and Other Debt

On July 5, 2007, USI and USSC entered into a Second Amended and Restated Five-Year Revolving Credit Agreement with PNC Bank, National Association and U.S. Bank National Association, as Syndication Agents, KeyBank National Association and LaSalle Bank, National Association, as Documentation Agents, and JPMorgan Chase Bank, National Association, as Agent (as amended on December 21, 2007, the “2007 Credit Agreement”). The 2007 Credit Agreement provides a Revolving Credit Facility with a committed principal amount of $425 million and a Term Loan in the principal amount of $200 million. Interest on 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. The Company has begun the process of negotiating a credit agreement to replace the 2007 Credit Agreement.

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 12, “Derivative Financial Instruments”, for further details on these swap transactions and their accounting treatment.

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

The Company had outstanding letters of credit under the 2007 Credit Agreement of $18.6 million as of June 30, 2011 and December 31, 2010, respectively. Approximately $7.0 million of these letters of credit were used to guarantee the industrial development bond.

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.

9. Pension and Post-Retirement Health Care Benefit Plans

The Company maintains pension plans covering a majority of its employees. In addition, the Company had a post-retirement health care benefit plan (the “Retiree Medical Plan”) covering substantially all retired employees and their dependents, which terminated effective December 31, 2010. 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, 2010. A summary of net periodic benefit cost related to the Company’s pension plans and Retiree Medical Plan for the three and six months ended June 30, 2011 and 2010 is as follows (dollars in thousands):

	Pension Benefits
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
Service cost - benefit earned during the period	$	193		$	217		$	385		$	434
Interest cost on projected benefit obligation		2,120			2,055			4,240			4,110
Expected return on plan assets		(2,338	)		(2,159	)		(4,860	)		(4,318	)
Amortization of prior service cost		34			34			68			68
Amortization of actuarial loss		485			475			970			951
Net periodic pension cost	$	494		$	622		$	803		$	1,245

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The Company made cash contributions of $8.5 million and $8.7 million to its pension plans during the first six months ended June 30, 2011 and 2010, respectively. The Company does not expect to make any additional contributions to its pension plans during the remaining six months of 2011.

	Post-retirement Healthcare
	For the Three Months Ended June 30, 2010			For the Six Months Ended June 30, 2010
Service cost - benefit earned during the period	$	58		$	116
Interest cost on projected benefit obligation		65			130
Amortization of actuarial gain		(85	)		(170	)
Net periodic post-retirement healthcare benefit cost	$	38		$	76

On April 15, 2010, the Company notified the participants that it would terminate the Retiree Medical Plan effective December 31, 2010 and account for this as a negative plan amendment. The termination of the Retiree Medical Plan eliminated any future obligation of the Company to provide cost sharing benefits to current or future retirees. As such, there were no costs associated with the Retiree Medical Plan in the three and six months ended June 30, 2011.

Defined Contribution Plan

The Company has defined contribution plans covering certain salaried associates and non-union hourly paid associates (the “Plan”). The Plan permits associates to defer a portion of their pre-tax and after-tax salary as contributions to the Plan. The Plan also provides for discretionary Company contributions and Company contributions matching associates’ salary deferral contributions, at the discretion of the Board of Directors. The Company recorded expense of $1.3 million and $2.6 million for the Company match of employee contributions to the Plan for the three and six months ended June 30, 2011. During the same periods last year, the Company recorded $0.8 million and $1.6 million for the same match.

10. Other Assets and Liabilities

Other assets and liabilities as of June 30, 2011 and December 31, 2010 were as follows (in thousands):

	As of June 30, 2011		As of December 31, 2010
Other Long-Term Assets, net:
Investment in deferred compensation	$	5,014	$	4,448
Long-term prepaid costs		10,971		7,674
Capitalized financing costs		1,146		1,432
Other		2,379		4,380
Total other long-term assets	$	19,510	$	17,934
Other Long-Term Liabilities:
Accrued pension obligation	$	19,692	$	27,389
Deferred rent		18,911		18,535
Deferred directors compensation		5,027		4,455
Long-term swap liability		18,949		25,215
Long-term income tax liability		4,629		4,857
Other		5,272		4,808
Total other long-term liabilities	$	72,480	$	85,259

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11. Accounting for Uncertainty in Income Taxes

For each of the periods ended June 30, 2011 and December 31, 2010, the Company had $3.8 million and $4.5 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 Condensed Consolidated Statement of Income for the quarter ended June 30, 2011, was not material. The Condensed Consolidated Balance Sheets for each of the periods ended June 30, 2011 and December 31, 2010, include $0.8 million and $1.0 million, respectively, accrued for the potential payment of interest and penalties.

As of June 30, 2011, the Company’s U.S. Federal income tax returns for 2007 and subsequent years remain subject to examination by tax authorities. In addition, the Company’s state income tax returns for the 2003 and subsequent tax years remain subject to examinations by state and local income tax authorities. Although the Company is not currently under examination by the IRS, a number of state and local examinations are currently ongoing. 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 $1.7 million.

12. Derivative Financial Instruments

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

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

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

• 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.

• 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.

Approximately 98% ($435 million) of the Company’s debt had its interest payments designated as the hedged forecasted transactions to interest rate swap agreements at June 30, 2011. 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, 2011 were as follows (in thousands):

As of June 30, 2011	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	$	(8,785	)
December 2007 Swap Transaction		200,000	Floating 3-month LIBOR		4.075	%	June 21, 2012		(7,299	)
March 2008 Swap Transaction		100,000	Floating 3-month LIBOR		3.212	%	June 29, 2012		(2,865	)

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

Under the terms of these swap transactions, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on the notional amounts noted in the table above at a fixed rate also noted in the table above, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount.

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

For derivative instruments that are designated and qualify as a cash flow hedge (for example, hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings (for example, in “interest expense” when the hedged transactions are interest cash flows associated with floating-rate debt).

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

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, 2011, the Company would have been required to pay the aggregate fair value net liability of $18.9 million plus accrued interest to the counterparties.

These interest rate swap agreements contain no ineffectiveness; 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 period ended June 30, 2011.

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	At December 31, 2010			At June 30, 2011				For the Three Months Ended June 30, 2011		For the Six Months Ended June 30, 2011
November 2007 Swap Transaction	$	(6,681	)	$	(5,434	)	Interest expense, net; income tax expense	$	411	$	1,247
December 2007 Swap Transaction		(6,470	)		(4,515	)	Interest expense, net; income tax expense		931		1,955
March 2008 Swap Transaction		(2,470	)		(1,772	)	Interest expense, net; income tax expense		322		698

13. 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 12, “Derivative Financial Instruments”, for more information on these interest rate swaps).

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

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

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

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

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Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The following table summarizes the financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2011 (in thousands):

	Fair Value Measurements as of June 30, 2011
			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	$	18,949	$	—	$	18,949	$	—

The carrying amount of accounts receivable at June 30, 2011, including $429.5 million of receivables sold under the Current Receivables Securitization Program, approximates fair value because of the short-term nature of this item.

Accounting guidance on fair value measurements requires separate disclosure of assets and liabilities measured at fair value on a recurring basis, as noted above, from those measured at fair value on a nonrecurring basis. As of June 30, 2011, 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, 2010.

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 2010 net sales of approximately $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.

Third quarter sales to-date, through July 29, 2011, are showing a continuation of recent trends. The Company anticipates ongoing strength and solid growth in the industrial and janitorial/breakroom product categories fueled by strategic initiatives, tempered by the outlook for growth in core office products categories and channels.

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.

• Economic conditions remain challenging with high unemployment and weak business confidence levels negatively impacting sales growth. Despite these market pressures, the Company is focused on continued investment in strategic growth initiatives that are not entirely dependent on the economy.

• Sales for the second quarter rose $36 million or 2.9% to $1.26 billion. Sales benefited 20.5% from the Company’s strategic growth initiatives and continued favorable trends in the industrial sector. While janitorial/breakroom sales grew 11.5% and office products achieved 4.4% growth, a 5.8% decline in the technology category and a 3.9% decline in the furniture category reflected the impact of macroeconomic headwinds during the quarter, some timing shifts, as well as difficult comparisons to the prior year second quarter sales.

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• The gross margin for the quarter was $184.2 million, or 14.7% of sales, compared with $179.2 million, or 14.7% of sales in the prior-year quarter. Gross margin remained flat with the help of supplier allowances and various “War on Waste” initiatives that offset competitive pricing pressures, lower margin mix in some segments, as well as higher diesel fuel costs.

• Second quarter operating expenses were $136.4 million, or 10.9% of sales, compared with $128.9 million, or 10.6% of sales, in the second quarter of 2010. Excluding a non-cash pre-tax equity compensation charge taken with respect to a transition agreement with the company’s former chief executive officer in the second quarter of 2011 and the termination of the Company’s post-retirement medical plan in the second quarter of 2010, adjusted operating expenses were $132.0 million, or 10.5% of sales in the second quarter of 2011, compared to $131.7 million, or 10.8% of sales in the same prior year period. Operating expenses reflected continued investments in the Company’s strategic growth initiatives and capability development offset by savings from War on Waste (“WOW”) initiatives and lower variable compensation costs.

• Operating income for the quarter ended June 30, 2011 was $47.8 million, or 3.8% of sales, versus $50.3 million, or 4.1% of sales, in the second quarter of 2010. Excluding the items noted above, adjusted operating margin was up 9.8% to $52.2 million or 4.2% of sales.

• Diluted earnings per share for the latest quarter were $0.54, compared with $0.55 in the prior-year period. Excluding the items noted above, adjusted earnings per share were $0.59 or up 16% versus an adjusted $0.51 in the prior-year quarter. Earnings per share in the 2011 quarter were unfavorably affected by a higher quarterly tax rate due to the timing of discrete tax items in the quarter.

• Net cash provided by operating activities for the first six months of 2011 was $73.3 million. The operating cash flow results were aided by strong earnings and a reduction in inventory. Cash flow used in investing activities totaled $16.2 million in first half of 2011, compared with $26.2 million in the same period last year. 2010 included net cash outflows of $10.5 million related to the acquisition of MBS Dev, Inc. and a $5.0 million minority investment in the capital stock of a managed print services and technology solution business.

• The Company has approximately $850 million of total committed debt capacity with $441.8 million outstanding at June 30, 2011. Debt-to-total capitalization declined to 37% from 39% at June 30, 2010. The Company’s 2007 Credit Agreement expires on July 5, 2012. The Company has begun the process of negotiating a credit agreement to replace the 2007 Credit Agreement.

• On July 15, 2011, the Company announced that its Board of Directors authorized the purchase of an additional $100.0 million of the Company’s common stock. Additionally, the Company’s Board of Directors declared a quarterly cash dividend of $0.13 per share payable on October 14, 2011 to stockholders of record at the close of business on September 15, 2011.

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, 2010.

Stock Repurchase Program

During the six-month period ended June 30, 2011 and 2010, the Company repurchased 2,050,755 and 2,567,642 shares of USI’s common stock at an aggregate cost of $69.9 million and $74.7 million, respectively. On July 15, 2011, the Company announced that its Board of Directors authorized the purchase of an additional $100.0 million of the Company’s common stock. Through July 29, 2011, the Company repurchased 2.6 million shares year-to-date for $87.7 million. As of that date, the Company had approximately $100 million remaining of existing share repurchase authorization from the Board of Directors.

Critical Accounting Policies, Judgments and Estimates

During the first six months of 2011, 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, 2010.

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Results of Operations

The following table presents operating income as a percentage of net sales:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Net sales		100.00	%		100.00	%		100.00	%		100.00	%
Cost of goods sold		85.34			85.32			85.30			85.43
Gross margin		14.66			14.68			14.70			14.57
Operating expenses
Warehousing, marketing and administrative expenses		10.86			10.56			11.18			10.94
Operating income		3.80			4.12			3.52			3.63

Adjusted Operating Income, Net Income and Earnings Per Share

The following table presents Adjusted Operating Expenses, Operating Income, Net Income and Earnings Per Share for the three- and six-month period ended June 30, 2011 and 2010 (in millions, except per share data). The tables show Adjusted Operating Income, Net Income and Earnings per Share excluding the effects of a non-cash pre-tax equity compensation charge taken with respect to a transition agreement with the company’s former chief executive officer in second quarter of 2011 and a non-cash non-deductible asset impairment charge in the first quarter of 2011. Additionally, the tables show Adjusted Operating Income, Net Income and Earnings per Share exclude the termination of the post-retirement medical plan in the second quarter of 2010. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income. Management believes that excluding these items is an appropriate comparison of its ongoing operating results to last year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.

	For the Three Months Ended June 30,
	2011						2010
				% to						% to
	Amount			Net Sales			Amount			Net Sales
Net Sales	$	1,256.6			100.00	%	$	1,220.8			100.00	%
Gross profit	$	184.2			14.66	%	$	179.2			14.68	%
Operating expenses	$	136.4			10.86	%	$	128.9			10.56	%
Equity compensation - CEO transition		(4.4	)		(0.35	)%		—			—	%
Post-retirement medical plan termination		—			—	%		2.8			0.23	%
Adjusted operating expenses	$	132.0			10.51	%	$	131.7			10.79	%
Operating income	$	47.8			3.80	%	$	50.3			4.12	%
Operating expense item noted above		4.4			0.35	%		(2.8	)		(0.23	)%
Adjusted operating income	$	52.2			4.15	%	$	47.5			3.89	%
Net income	$	24.8					$	27.0
Operating expense item noted above		2.7						(1.7	)
Adjusted net income	$	27.5					$	25.3
Diluted earnings per share	$	0.54					$	0.55
Per share operating expense item noted above		0.05						(0.04	)
Adjusted diluted earnings per share	$	0.59					$	0.51
Adjusted diluted earnings per share - growth rate over the prior year period		16	%
Weighted average number of common shares - diluted		46.3						49.3

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	For the Six Months Ended June 30,
	2011						2010
				% to						% to
	Amount			Net Sales			Amount			Net Sales
Net Sales	$	2,494.1			100.00	%	$	2,375.1			100.00	%
Gross profit	$	366.6			14.70	%	$	346.1			14.57	%
Operating expenses	$	278.8			11.18	%	$	260.0			10.94	%
Equity compensation - CEO transition		(4.4	)		(0.17	)%		—			—	%
Asset impairment charge		(1.6	)		(0.07	)%		—			—	%
Post-retirement medical plan termination		—			—	%		2.8			0.12	%
Adjusted operating expenses	$	272.8			10.94	%	$	262.8			11.06	%
Operating income	$	87.8			3.52	%	$	86.1			3.63	%
Operating expense item noted above		6.0			0.24	%		(2.8	)		(0.12	)%
Adjusted operating income	$	93.8			3.76	%	$	83.3			3.51	%
Net income	$	45.3					$	45.2
Operating expense item noted above		4.4						(1.7	)
Adjusted net income	$	49.7					$	43.5
Diluted earnings per share	$	0.97					$	0.91
Per share operating expense item noted above		0.10						(0.03	)
Adjusted diluted earnings per share	$	1.07					$	0.88
Adjusted diluted earnings per share - growth rate over the prior year period		22	%
Weighted average number of common shares - diluted		46.5						49.4

Results of Operations—Three Months Ended June 30, 2011 Compared with the Three Months Ended June 30, 2010

Net Sales. Net sales for the second quarter of 2011 were $1.26 billion, up 2.9% compared with sales of $1.22 billion for the same three-month period of 2010. The following table summarizes net sales by product category for the three-month periods ended June 30, 2011 and 2010 (in millions):

	Three Months Ended June 30,
	2011		2010
Technology products	$	411.8	$	437.3
Traditional office products (including cut-sheet paper)		339.6		325.3
Janitorial and breakroom supplies		306.6		275.1
Office furniture		80.2		83.5
Industrial supplies		88.9		73.7
Freight revenue		22.3		20.6
Services, Advertising and Other		7.2		5.3
Total net sales	$	1,256.6	$	1,220.8

(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.

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Sales in the technology products category decreased in the second quarter of 2011 by 5.8% versus the second quarter of 2010. This category, which continues to represent the largest percentage of the Company’s consolidated net sales, accounted for 32.8% of net sales for the second quarter of 2011. This decline was driven by a decrease in printer imaging supplies, timing shifts with sales moving to earlier this year due to supply chain disruptions and solid prior year quarter results that led to difficult comparisons.

Sales of traditional office supplies grew in the second quarter of 2011 by 4.4% versus the second quarter of 2010. Traditional office supplies represented 27.0% of the Company’s consolidated net sales for the second quarter of 2011. Within this category, cut-sheet paper sales and private brands penetration drove growth.

Sales in the janitorial and breakroom supplies product category increased 11.5% in the second quarter of 2011 compared to the second quarter of 2010. This category accounted for 24.4% of the Company’s second quarter of 2011 consolidated net sales. Sales reflected execution of growth initiatives that helped offset the shift of some national account business that went direct to manufacturers in 2010.

Office furniture sales in the second quarter of 2011 were down 3.9% compared to the second quarter of 2010. Office furniture accounted for 6.4% of the Company’s second quarter of 2011 consolidated net sales. This quarterly decline reflects a challenging transactional market and a shift of some national account business to direct purchases from manufacturers.

Industrial sales in the second quarter of 2011 increased 20.5% compared to the same prior-year period. Sales of industrial supplies accounted for 7.1% of the Company’s net sales for the second quarter of 2011. Industrial sales growth reflects growth from strategic investments and some modest support from favorable economic conditions in this category.

The remaining 2.3% of the Company’s second quarter 2011 net sales were composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the second quarter of 2011 was $184.2 million, compared to $179.2 million in the second quarter of 2010. The gross margin rate of 14.7% was flat to the prior-year quarter. Margins benefited from higher inventory purchase-related supplier allowances which added about 70 basis points for the quarter. These items were offset by a lower-margin mix and continued competitive pricing pressures that lowered margins by approximately 70 basis points. Rising fuel costs versus the prior-year quarter continued to have a negative effect on gross margins but were offset by savings from WOW initiatives.

Operating Expenses. Operating expenses for the second quarter of 2011 totaled $136.4 million, or 10.9% of net sales, compared with $128.9 million, or 10.6% of net sales in the second quarter of 2010. Excluding a non-cash pre-tax equity compensation charge taken with respect to a transition agreement with the company’s former chief executive officer in the second quarter of 2011 and the termination of the Company’s post-retirement medical plan in the second quarter of 2010, adjusted operating expenses were $132.0 million, or 10.5% of sales in the second quarter of 2011, compared to $131.7 million, or 10.8% of sales in same prior year period. Operating expenses reflected continued investments in the Company’s strategic growth initiatives offset by lower variable compensation expense and savings from WOW initiatives.

Interest Expense, net. Interest expense for the second quarter of 2011 was $6.6 million, up by $0.2 million for the same period in 2010, as a result of slightly higher debt levels throughout the quarter.

Other expense, net. Other expense included $0.1 million for an accounting charge to bring prior acquisition earn-out liabilities to fair value.

Income Taxes. Income tax expense was $16.3 million for the second quarter of 2011, compared with $16.9 million for the same period in 2010. The Company’s effective tax rate was 39.6% for the current-year quarter and 38.5% for the same period in 2010.

Net Income. Net income for the second quarter of 2011 totaled $24.8 million, or $0.54 per diluted share, compared with net income of $27.0 million, or $0.55 per diluted share for the same three-month period in 2010. Adjusted for the impact of the equity compensation charge in the second quarter of 2011 and the termination of post-retirement medical plan, net income was $27.5 million, or $0.59 per diluted share compared to net income of $25.3 million, or $0.51 per diluted share.

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Results of Operations—Six Months Ended June 30, 2011 Compared with the Six Months Ended June 30, 2010

Net Sales. Net sales for the first six months of 2011 were $2.49 billion, up 5.0% compared with sales of $2.38 billion for the same six-month period of 2010. After adjusting for one additional workday in the first quarter of 2011, sales were up 4.2%. The following table summarizes net sales by product category for the six-month periods ended June 30, 2011 and 2010 (in millions):

	Six Months Ended June 30,
	2011		2010
Technology products	$	832.1	$	836.7
Traditional office products (including cut-sheet paper)		680.4		649.6
Janitorial and breakroom supplies		593.2		537.4
Office furniture		160.8		163.5
Industrial supplies		168.9		136.3
Freight revenue		43.8		41.7
Services, Advertising and Other		14.9		9.9
Total net sales	$	2,494.1	$	2,375.1

(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 decreased in the first half of 2011 by 1.3% versus the first half of 2010, after adjusting for one additional workday in the current year. This category accounted for 33.4% of net sales for the first half of 2011. This decline was driven by a decrease in printer imaging supplies offset by growth in hardware.

Sales of traditional office supplies grew in the first six months of 2011 by 3.9% versus the first six months of 2010, after adjusting for one additional workday. Traditional office supplies represented 27.3% of the Company’s consolidated net sales for the first half of 2011. Within this category, cut-sheet paper sales drove growth along with gains from strategic growth initiatives and strong supplier and buying group alliances that have led to new business.

Sales in the janitorial and breakroom supplies product category increased 9.5% in the first half of 2011 compared to the first half of 2010, after adjusting for one additional workday. This category accounted for 23.8% of the Company’s first six months of 2011 consolidated net sales. Sales reflected execution of growth initiatives that helped offset the shift of some national account business that went direct to manufacturers in 2010.

Office furniture sales in the first six months of 2011 were down 2.4% compared to the first half of 2010, after adjusting for one additional workday. Office furniture accounted for 6.5% of the Company’s first six months of 2011 consolidated net sales. This decline represents a challenging transactional market and continued weak economic conditions in this category, partially offset by end-user demand for value products and growth with furniture-focused dealers.

Industrial sales in the first half of 2011 increased 23.0% compared to the same prior-year period, after adjusting for one additional workday. Sales of industrial supplies accounted for 6.8% of the Company’s net sales for the first half of 2011. Industrial sales growth reflect a positive economic environment in this category, growth from strategic investments, and execution of sales initiatives fueled by the continued addition of sales resources.

The remaining 2.2% of the Company’s first six months of 2011 net sales were composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit (gross margin dollars) for the first six months of 2011 was $366.6 million, compared to $346.1 million in the second quarter of 2010. The gross margin rate of 14.7% was about 10 basis points higher than the rate for the first six months of the prior year. Margins benefited from higher inventory purchase-related supplier allowances which added about 40 basis points for the year-to-date period. Inventory-related inflation margin components also added approximately 40 basis points to the margin rate. These items were partially offset by an unfavorable margin mix and continued competitive pricing pressures that lowered margins by approximately 70 basis points. Rising fuel costs versus the prior year had a negative effect on gross margins but were offset by savings from War on Waste (“WOW”) initiatives.

Operating Expenses. Operating expenses for the first half of 2011 totaled $278.8 million, or 11.2% of net sales, compared with $260.0 million, or 10.9% of net sales in the first half of 2010. Excluding the equity compensation charge, the asset impairment charge related to an equity investment in the first half of 2011, and the termination of post-retirement medical plan in first half of 2010, adjusted operating expenses were $272.8 million, or 10.9% of sales in 2011, compared with $262.8 million, or 11.1% of sales in 2010. Operating expenses reflected continued investments in the Company’s strategic growth initiatives offset by lower variable compensation costs and savings from War on Waste initiatives.

Interest Expense, net. Interest expense for the first six months of 2011 was $13.1 million, up by $0.5 million for the same period in 2010, as a result of slightly higher debt levels throughout the quarter.

Other expense, net. Other expense included $0.3 million for an accounting charge to bring prior acquisition earn-out liabilities to fair value.

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Income Taxes. Income tax expense was $29.1 million for the first half of 2011, compared with $28.2 million for the same period in 2010. The Company’s effective tax rate was 39.1% for the first six months of 2011 and 38.4% for the same period in 2010.

Net Income. Net income for the first six months of 2011 totaled $45.3 million, or $0.97 per diluted share, compared with net income of $45.2 million, or $0.91 per diluted share for the same six-month period in 2010. Adjusted for the impact of the equity compensation charge, the non-deductible asset impairment charge related to an equity investment in the first half of 2011 and the termination of the Company’s post-retirement medical plan in the first half of 2010, net income was $49.7 million, or $1.07 per diluted share, compared with net income of $43.5 million, or $0.88 per diluted share.

Liquidity and Capital Resources

Debt

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

	As of			As of
	June 30, 2011			December 31, 2010
2007 Credit Agreement - Revolving Credit Facility	$	100,000		$	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		441,800			441,800
Stockholders’ equity		752,748			759,598
Total capitalization	$	1,194,548		$	1,201,398
Adjusted debt-to-total capitalization ratio		37.0	%		36.8	%

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, 2011, 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		100.0
2007 Credit Agreement - Term Loan		200.0
2007 Master Note Purchase Agreement		135.0
2009 Receivables Securitization Program(1)		—
Outstanding letters of credit		18.6
Industrial Development Bond		6.8
Total financing utilized				460.4
Available financing, before restrictions				406.4
Restrictive covenant limitation				24.1
Available financing as of June 30, 2011			$	382.3

(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.

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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.

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

Contractual Obligations

During the six-month period ending June 30, 2011, there were no significant changes to the Company’s contractual obligations from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Credit Agreement and Other Debt

On March 3, 2009, USI entered into an accounts receivables securitization program (as amended to date, the “Receivables Securitization Program” or the “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”), United Stationers Receivables, LLC (“USR”), and Bank of America, National Association (the “Investor”). The 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, USSRC, upon the termination of the Prior Program. Pursuant to the Transfer and Administration Agreement, USR then sells the receivables and related rights to the Investor. The maximum investment to USR at any one time outstanding under the Current 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 Program has been terminated. The maturity date of the Program is November 23, 2013, subject to the extension of the commitments of the Investors under the Current Program, which expire on January 20, 2012.

The receivables sold to the Investor will remain on USI’s Condensed Consolidated Balance Sheet, and amounts advanced to USR by the Investor 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, 2011 and December 31, 2010, $429.5 million and $405.5 million, respectively, 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. The Company has begun the process of negotiating a credit agreement to replace the 2007 Credit Agreement.

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

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

• 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.

• 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.

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, 2011 were as follows (in thousands):

As of June 30, 2011	Notional Amount		Receive	Pay			Effective Date		Termination (Maturity) Date
November 2007 Swap Transaction	$	135,000	Floating 3-month LIBOR		4.674	%		January 15, 2008		January 15, 2013
December 2007 Swap Transaction		200,000	Floating 3-month LIBOR		4.075	%		December 21, 2007		June 21, 2012
March 2008 Swap Transaction		100,000	Floating 3-month LIBOR		3.212	%		March 31, 2008		June 29, 2012

Under the terms of these swap transactions, USSC is required to make quarterly fixed rate payments to the counterparty calculated based on the notional amounts noted in the table above at a fixed rate also noted in the table above, while the counterparty is obligated to make quarterly floating rate payments to USSC based on the three-month LIBOR on the same referenced notional amount. Furthermore, each swap transaction has an effective date and termination date as noted in the table above. Notwithstanding the terms of the each swap transaction, USSC is ultimately obligated for all amounts due and payable under its credit agreements.

The Company had outstanding letters of credit under the 2007 Credit Agreement of $18.6 million as of June 30, 2011 and December 31, 2010, respectively.

At June 30, 2011 funding levels based on the Company’s unhedged debt, 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, 2011, 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 8, “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, 2011 and 2010 are summarized below (in thousands):

	For the Six Months Ended
	June 30,
	2011			2010
Net cash provided by operating activities	$	73,276		$	54,708
Net cash used in investing activities		(16,163	)		(26,173	)
Net cash used in financing activities		(59,652	)		(33,693	)

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Cash Flow From Operations

Net cash provided by operating activities for the six months ended June 30, 2011 totaled $73.3 million, compared with $54.7 million in the same six-month period of 2010.

Operating cash flows for the first six months of 2011 were aided by strong earnings and lower working capital requirements in the current year.

Cash Flow From Investing Activities

Net cash used in investing activities for the first six months of 2011 was $16.2 million, compared to net cash used in investing activities of $26.2 million for the six months ended June 30, 2010. The decrease primarily relates to the acquisition of MBS Dev for approximately $10.5 million, net of cash acquired in the first quarter of 2010, and a $5.0 million minority investment in the capital stock of a managed print services and technology solution business in the second quarter of 2010. Gross capital spending also increased in the first six months of 2011 to $16.2 million from $10.7 million in the same period in 2010. For the full year of 2011, the Company expects gross capital expenditures to be approximately $35 million.

Cash Flow From Financing Activities

Net cash used in financing activities for the six months ended June 30, 2011 totaled $59.7 million, compared with net cash used $33.7 million in the prior-year period. Debt remained constant at $441.8 million from year end 2010 to June 30, 2011. Second quarter of 2011 cash used in financing activities included $69.9 million in share repurchases and payments of $6.0 million in cash dividends, partially offset by $13.8 million in net proceeds from share-based compensation arrangements, primarily stock option exercises.

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 2011 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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.

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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, 2011, the Company’s Disclosure Controls were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

The Company successfully implemented a new company-wide Human Resources Information System on January 3, 2011 and a new Tax Provision System on March 31, 2011. As a result, the Company’s internal control over financial reporting changed during the first quarter of 2011. Post- implementation monitoring has been ongoing and management believes internal controls are being maintained or enhanced by the systems. The implementations were undertaken to replace the Company’s legacy payroll, compensation and benefits system and tax provision process with more advanced technology. The new systems have undergone rigorous pre-implementation review and testing, and associates have been trained. As the systems are new, management has not yet completed documenting and testing operating effectiveness of key controls. Management will complete its documentation and evaluation of the operating effectiveness of related key controls during subsequent periods.

There were no changes to the Company’s internal control over financial reporting during the quarter ended June 30, 2011, 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, 2010. There have been no material changes to the risk factors described in such Form 10-K.

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

Common Stock Purchase

During the six-month period ended June 30, 2011 and 2010, the Company repurchased 2,050,755 and 2,567,642 shares of USI’s common stock at an aggregate cost of $69.9 million and $74.7 million, respectively. On July 15, 2011, the Company announced that its Board of Directors authorized the purchase of an additional $100.0 million of the Company’s common stock. Through July 29, 2011, the Company repurchased an additional 2.6 million shares for $87.7 million. As of that date, the Company had approximately $100 million remaining of existing share repurchase authorization from the Board of Directors.

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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
2.1	Agreement for Purchase and Sale of Stock of MBS Dev, Inc., dated as of February 26, 2010, among the Stockholders of MBS Dev, Inc. and United Stationers Supply Co. (“USSC”) (Exhibit 2.1 to the Company’s Form 10-Q for the quarter ended March 31, 2010, filed on May 6, 2010)
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)
3.2	Amended and Restated Bylaws of the Company, dated as of July 16, 2009 (Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended September 30, 2009, filed on November 5, 2009)
4.1	Master Note Purchase Agreement, dated as of October 15, 2007, among United Stationers Inc. (“USI”), USSC, and the note Purchasers identified therein (Exhibit 4.1 to the Company’s Form 10-Q for the quarter ended June 30, 2010, filed on August 6, 2010)
4.2	Parent Guaranty, dated as of October 15, 2007, by USI in favor of holders of the promissory notes identified therein (Exhibit 4.4 to the Company’s Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007)
4.3	Subsidiary Guaranty, dated as of October 15, 2007, by Lagasse, Inc., United Stationers Technology Services LLC (“USTS”) and United Stationers Financial Services LLC (“USFS”) in favor of the holders of the promissory notes identified therein (Exhibit 4.5 to the Company’s Form 10-Q for the quarter ended September 30, 2007, filed on November 7, 2007)
31.1*	Certification of Chief Executive Officer, dated as of August 4, 2011, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer, dated as of August 4, 2011, 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 4, 2011, 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, 2011, filed with the SEC on August 4, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statement of Income for the three- and six-month periods ended June 30, 2011 and 2010, (ii) the Consolidated Balance Sheet at June 30, 2011 and December 31, 2010, (iii) the Consolidated Statement of Cash Flows for the six-month periods ended June 30, 2011 and 2010, and (iv) Notes to Consolidated Financial Statements.

* - Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNITED STATIONERS INC.
	(Registrant)
Date: August 4, 2011	/s/ Fareed A. Khan
	Fareed A. Khan
	Senior Vice President and Chief Financial Officer (Duly authorized signatory and principal financial officer)

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