See notes to condensed consolidated financial statements.

4

See notes to condensed consolidated financial statements.

5

See notes to condensed consolidated financial statements.

6

UNITED STATIONERS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.               Basis of Presentation

The accompanying Condensed Consolidated Financial Statements are unaudited, except for the Condensed Consolidated Balance Sheet as of December 31, 2006, which was derived from the December 31, 2006 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, 2006 for further information.

In the opinion of the management of the Company (as hereafter defined), the Condensed Consolidated Financial Statements for the interim periods presented include all adjustments necessary to fairly present the Company’s results for such interim periods and its financial position as of the end of said periods. Certain interim estimates of a normal, recurring nature are recognized throughout the year, relating to accounts receivable, supplier allowances, inventory, customer rebates, price changes and product mix. The Company evaluates these estimates periodically and makes adjustments where facts and circumstances dictate.

The accompanying Condensed Consolidated Financial Statements represent United Stationers Inc. (“USI”) with its wholly owned subsidiary United Stationers Supply Co. (“USSC”), and USSC’s subsidiaries (collectively, “United” or the “Company”). The Company is the largest broad line wholesale distributor of business products in North America, with net sales for the trailing 12 months of $4.6 billion. The Company operates in a single reportable segment as a national wholesale distributor of business products. The Company offers more than 46,000 stockkeeping units (“SKUs”) from over 550 manufacturers. These items include a broad spectrum of technology products, traditional business products, office furniture, janitorial and breakroom supplies products, and foodservice consumables. The Company primarily serves commercial and contract office products dealers. The Company sells its products through a national distribution network of 62 distribution centers to approximately 20,000 resellers, who in turn sell directly to end-consumers.

Canadian Division — Discontinued Operations

During the first quarter of 2006, the Company announced its intention to sell its Azerty United Canada operations (the “Canadian Division”) and therefore began reporting it as discontinued operations at that time. All prior-periods have been reclassified to conform to this presentation.

On June 9, 2006, the Company completed the sale of certain net assets of its Canadian Division to SYNNEX Canada Limited (the “Buyer”), a subsidiary of SYNNEX Corporation, for approximately $14.3 million. The purchase price was subject to certain post-closing adjustments, including an adjustment for the value of any inventory and accounts receivable included in the sale that was not subsequently sold or collected within 180 days from the date of sale. During 2006, the Company received cash payments from the Buyer of $13.3 million. An additional $1.3 million was received during the first quarter of 2007 to finalize this transaction. In addition, the Company had three leased facilities associated with the Canadian Division that have been vacated and are subject to required lease obligations over the next four years. As of December 31, 2006, obligations for two of the three facilities have been settled or are being sublet. Total accrued exit costs associated with the Canadian facilities is $0.1 million at September 30, 2007.

Income (losses) associated with the discontinued operations of the Canadian Division for the three and nine-month periods ended September 30, 2006 were as follows (in thousands):

7

Common Stock Repurchase

As of September 30, 2007, the Company had $150.1 million remaining of Board authorizations to repurchase USI common stock. Effective July 5, 2007, the Company entered into a Second Amended and Restated Five Year Revolving Credit Agreement, that among other things, eliminates restrictions on the Company’s ability to repurchase stock when its debt to EBITDA ratio is less than or equal to 2.75 to 1.00. Refer to Note 8 “Long-Term Debt” for further descriptions of the provisions of the Second Amended and Restated Five-Year Revolving Credit Agreement.

During the nine-month period ended September 30, 2007, the Company repurchased 5,135,970 shares of common stock at a cost of $301.7 million. During the same nine-month period in 2006, the Company repurchased 1,898,350 shares of common stock at a cost of $89.9 million. A summary of total shares repurchased under the Company’s share repurchase authorizations is as follows (dollars in millions, except share data):

Acquired shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data. During the nine months ended September 30, 2007 and 2006, the Company reissued 784,784 and 491,518 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

2.               Summary of Significant Accounting Policies

Principles of Consolidation

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

Use of Estimates

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

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

8

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.

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

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

Fixed supplier allowances traditionally represented 40% to 45% of the Company’s total annual supplier allowances, compared to the 16% referenced above. This ratio declined as the Company elected to replace the fixed component with variable allowances. The Company transitioned to a calendar year program in its 2006 Supplier Allowance Program for product content syndication. This altered the Company’s timing for recognizing related income and costs, and resulted in a significant one-time positive impact on earnings during 2006. During the three and nine-month periods ended September 30, 2006, the Company recorded incremental income of $15.8 million and $38.4 million, respectively, related to this new program.

Customer Rebates

Customer rebates and discounts are common practice in the business products industry and have a significant impact on the Company’s overall sales and gross margin. Such rebates are reported in the Condensed Consolidated Financial Statements as a reduction of sales.

Customer rebates 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 on 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.

During 2006, the Company changed certain marketing programs, which favorably impacted gross margin by $5.8 million and $11.0 million in the third quarter of 2006 and the nine months ended September 30, 2006, respectively.

Revenue Recognition

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

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

9

Valuation of Accounts Receivable

The Company makes judgments as to the collectability of accounts receivable based on historical trends and future expectations. Management estimates an allowance for doubtful accounts, which addresses the collectability of trade accounts receivable. This allowance adjusts gross trade accounts receivable downward to its estimated collectible, or net realizable value. To determine the allowance for sales returns, management uses historical trends to estimate future period product returns. To determine the allowance for doubtful accounts, management reviews specific customer risks and the Company’s accounts receivable aging.

Insured Loss Liability Estimates

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

Leases

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

The Company accounts for rent escalation and rent holidays as deferred rent at the time of possession and amortizes this deferred rent on a straight-line basis over the term of the lease. As of September 30, 2007, the Company is not a party to any capital leases.

Inventories

Inventory constituting approximately 79% of total inventory at September 30, 2007 and 82% of total inventory at December 31, 2006, has been valued under the last-in, first-out (“LIFO”) accounting method. The remaining inventory is valued under the first-in, first-out (“FIFO”) accounting method. Inventory valued under the FIFO and LIFO accounting methods is recorded at the lower of cost or market. If the Company had valued its entire inventory under the lower of FIFO cost or market, inventory would have been $58.4 million and $52.2 million higher than reported as of September 30, 2007 and December 31, 2006, respectively. The Company also records adjustments to inventory for shrinkage. Inventory that is obsolete, damaged, defective or slow moving is recorded to the lower of cost or market. These adjustments are determined using historical trends and are adjusted, if necessary, as new information becomes available.

Cash and Cash Equivalents

An unfunded check balance (payments in-transit) exists for the Company’s primary disbursement accounts. Under the Company’s cash management system, the Company utilizes available borrowings, on an as-needed basis, to fund the clearing of checks as they are presented for payment. As of September 30, 2007 and December 31, 2006, outstanding checks totaling $74.5 million and $98.1 million, respectively, were included in “Accounts payable” in the Consolidated Balance Sheets. All highly liquid investment instruments with an original maturity of three months or less are considered cash equivalents. Cash equivalents are stated at cost, which approximates market value.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation and amortization are determined by using the straight-line method over the estimated useful lives of the assets. The estimated useful life assigned to fixtures and equipment is from two to 10 years; the estimated useful life assigned to buildings does not exceed 40 years; leasehold improvements are amortized over the lesser of their useful lives or the term of the applicable lease. As of September 30, 2007, the Company has one facility and associated assets with a total net book value of $5.5 million classified as “held for sale” within “Other long-term assets” on the

10

Condensed Consolidated Balance Sheets. During the nine months ended September 30, 2007, the Company recognized an impairment loss of $0.6 million on certain Information Technology (IT) hardware “held for sale.”

Software Capitalization

The Company capitalizes internal use software development costs in accordance with the American Institute of Certified Public Accountants’ Statement of Position No. 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use. Amortization is recorded on a straight-line basis over the estimated useful life of the software, generally not to exceed seven years. Capitalized software is included in “Property, plant and equipment, at cost” on the Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006. The total costs are as follows (in thousands):

During the first quarter of 2006, the Company wrote off $6.5 million of capitalized software development costs related to an internal systems initiative. As of September 30, 2007 and December 31, 2006, net capitalized software development costs included $9.5 million and $11.0 million, respectively, related to the Company’s Reseller Technology Solution (“RTS”) investment.

Income Taxes

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

Foreign Currency Translation

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

New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN No. 48”) , which clarifies the accounting for uncertainty in tax positions. This Interpretation provides that the tax effects from an uncertain tax position can be recognized in the financial statements, only if it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The provisions of FIN No. 48 were effective as of the beginning of fiscal 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. For additional information regarding FIN No. 48, see Note 12 “Accounting for Uncertainty in Income Taxes”.

In September 2006, the FASB issued Statement of Financial Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”) , which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures regarding fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS No. 157 to have a material impact on its financial position and/or results of operations.

In September 2006, the FASB issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS No. 158”). SFAS No. 158 requires employers to recognize the funded status of a defined benefit postretirement plan as an asset or liability in its

11

statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur. The funded status of a defined benefit pension plan is measured as the difference between plan assets at fair value and the plan’s projected benefit obligation. Under SFAS No. 158, employers are required to measure plan assets and benefit obligations at the date of their fiscal year-end statement of financial position. The Company adopted the required provisions of SFAS No. 158 as of December 31, 2006, while the requirement to measure a plan’s assets and obligations as of the balance sheet date is effective for fiscal years ending after December 15, 2008.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), which permits all entities to choose to measure eligible financial instruments at fair value at specific election dates. SFAS No. 159 requires companies to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 applies to fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting this Statement on its financial position and/or results of operations.

3.               Share-Based Compensation

As of September 30, 2007, the Company had two active equity compensation plans. A description of these plans is as follows:

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

In March 2004, the Company’s Board of Directors adopted the LTIP to, among other things, attract and retain managerial talent, further align the interest of key associates to those of the Company’s shareholders and provide competitive compensation to key associates. Awards 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.

Non-employee Directors’ Deferred Stock Compensation Plan

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

Accounting For Stock-Based Compensation

Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”).

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), using the modified-prospective-transition method. The Company’s adoption of SFAS No. 123(R) did not result in any cumulative effect of an accounting change. Under this modified-prospective transition method, compensation cost recognized in the nine-month period ended September 30, 2007 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). Results for prior periods have not been restated. The Company recorded a pre-tax charge of $2.6 million ($1.6 million after-tax), or $0.06 per diluted share for share-based compensation during the third quarter of 2007. During the nine months ended September 30, 2007, the Company recorded a pre-tax charge of $6.6 million ($4.0 million after-tax), or $0.14 per diluted share for share-based compensation. During the three months ended September 30, 2006, the Company recorded a pre-tax charge of $1.8 million ($1.1 million after-tax), or $0.04 per diluted share for share-based compensation. During the nine months ended September 30, 2006, the Company recorded a pre-tax charge of $5.9 million ($3.6 million after-tax), or $0.11 per diluted share for share-based compensation. Total intrinsic value of options exercised for the three and nine months

12

ended September 30, 2007 totaled $0.6 million and $16.6 million, respectively. During the same comparable three and nine-month periods in 2006, total intrinsic value of options exercised were $3.2 million and $9.9 million, respectively. Total intrinsic value of restricted stock vested for the nine-month periods ended September 30, 2007 and September 30, 2006 totaled $0.3 million and $1.0 million, respectively.  As of September 30, 2007, there was $20.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted. This cost is expected to be recognized over a weighted-average period of 2.4 years.

Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options and vesting of restricted stock as operating cash flows in the Company’s Statement of Cash Flows. SFAS No. 123(R) requires that cash flows resulting from the tax benefits from tax deductions in excess of the compensation cost recognized for share-based compensation (excess tax benefits) be classified as financing cash flows. The $5.5 million excess tax benefit classified as a financing cash inflow on the Consolidated Statement of Cash Flows would have been classified as an operating cash inflow if the Company had not adopted SFAS No. 123(R).

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

Stock Options

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. Stock options generally vest in annual increments over three years and have a term of 10 years. Compensation costs for all stock options are recognized, net of estimated forfeitures, on a straight-line basis as a single award typically over the vesting period. The Company estimates expected volatility based on historical volatility of the price of its common stock. The Company estimates the expected term of share-based awards by using historical data relating to option exercises and employee terminations to estimate the period of time that options granted are expected to be outstanding. The interest rate for periods during the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company granted 449,175 and 450,298 stock options during the three and nine-month periods ended September 30, 2007.  As of September 30, 2007, there was $13.4 million of total unrecognized compensation cost related to non-vested stock option awards granted. Fair values for stock options granted during the three and nine-month periods ended September 30, 2007 and 2006 were estimated using the following weighted-average assumptions:

13

The following table summarizes the transactions, excluding restricted stock, under the Company’s equity compensation plans for the nine months ended September 30, 2007:

Restricted Stock

The Company granted 112,179 and 119,679 shares of restricted stock for the three and nine-month periods ended September 30, 2007.  Included in the third quarter grant were 60,196 shares granted to non-executive officer employees and 6,189 shares granted to non-employee Directors.  These awards generally vest in annual increments over three years.  There were also 45,794 shares granted to executive officers that vest with respect to each officer in annual increments over three years provided that the following conditions are satisfied: (1) the officer is still employed as of the anniversary date of the grant; and (2) the Company’s cumulative diluted earnings per share for the four calendar quarters immediately preceding the vesting date exceed $1.00 per diluted share as defined in the officers’ restricted stock award agreement.  As of September 30, 2007, there was $7.1 million of total unrecognized compensation cost related to non-vested restricted stock awards granted. A summary of the status of the Company’s restricted stock grants and changes during the nine months ended September 30, 2007 is as follows:

4. Goodwill and Intangible Assets

As of September 30, 2007 and December 31, 2006, the Company’s Consolidated Balance Sheet reflects $225.8 million of goodwill and $24.8 million and $26.8 million in net intangible assets for the same respective periods. Net intangible assets as of September 30, 2007 consist primarily of customer relationship and non-compete intangible assets. Amortization of intangible assets totaled $0.6 million and $1.9 million for three and nine-month periods ended September 30, 2007, respectively. During the same three and nine-month periods ended September 30, 2006, amortization of intangible assets totaled $0.6 million and $1.9 million, respectively. Accumulated amortization of intangible assets as of September 30, 2007 and December 31, 2006 totaled $5.9 million and $4.0 million, respectively.  The weighted average useful life of the intangible assets is expected to be approximately 13 years.

Sale of Canadian Division

As part of the sale of the Company’s Canadian Division (see “Canadian Division — Discontinued Operations” above), $15.1 million of goodwill was written-off and included in the $6.7 million pre-tax loss from discontinued operations for the year ended December 31, 2006.

14

5. Restructuring and Other Charges

2006 Workforce Reduction Program

On October 17, 2006, the Company announced a restructuring plan to eliminate staff positions through both voluntary and involuntary separation plans (the “Workforce Reduction Program”).  The Workforce Reduction Program included workforce reductions of 110 associates and as of December 31, 2006, the measures were substantially complete.  The Company recorded a pre-tax charge of $6.0 million in the fourth quarter of 2006 for severance pay and benefits, prorated bonuses, and outplacement costs to be paid primarily during 2007.  Cash outlays associated with the Workforce Reduction Program during the three and nine-month periods ended September 30, 2007 totaled $1.2 million and $5.8 million, respectively. During the fourth quarter of 2006, cash outlays associated with Workforce Reduction Program totaled $0.4 million.  As of September 30, 2007 and December 31, 2006, the Company had accrued liabilities for the Workforce Reduction Program of $1.4 million and $5.6 million, respectively.  The Company recorded an additional charge of $1.6 million related to this action for the nine-month period ended September 30, 2007.

2002 Restructuring Plan

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

During the first quarter of 2006, the Company began using previously unused space in its Memphis distribution center for operations related to the Company’s global sourcing initiative and to expand Lagasse’s distribution capability for janitorial and breakroom supplies including foodservice consumables products.  During the first and fourth quarters of 2006, respectively, the Company reversed $3.5 million and $0.6 million in restructuring and other charges as a result of events impacting estimates for future obligations associated with the 2002 Restructuring Plan.

2001 Restructuring Plan

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

The Company had accrued restructuring costs on its balance sheet of approximately $1.8 million as of September 30, 2007 and $2.4 million as of December 31, 2006, for the remaining exit costs related to the 2002 and 2001 Restructuring Plans. Net cash payments related to the 2002 and 2001 Restructuring Plans for the three-month period ended September 30, 2007 were minimal.  Payments for the nine-month periods ended September 30, 2007 totaled approximately $0.2 million, respectively. Net cash payments related to the 2002 and 2001 Restructuring Plans for the three and nine-month period ended September 30, 2006 totaled $0.2 million and $0.9 million, respectively. During the second quarter of 2007, the Company reversed $0.4 million in restructuring and other charges as a result of events impacting estimates for future lease obligations.

15

6.  Comprehensive Income

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

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 or otherwise converted into common stock. Stock options and deferred stock units are considered dilutive securities. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

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) and the 2007 Note Purchase Agreement (as defined below) contain restrictions on the ability of USSC to transfer cash to USI.

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

As of September 30, 2007 and December 31, 2006, 100% of the Company’s outstanding debt was priced at variable interest rates, based primarily on the applicable bank prime rate or the one-month or three-month London InterBank Offered Rate (“LIBOR”).

Credit Agreement and Other Debt

On October 15, 2007, the Company and its wholly owned subsidiary, United Stationers Supply Co. (“USSC”), entered into a Master Note Purchase Agreement (the “2007 Note Purchase Agreement”) with several purchasers.  The 2007 Note Purchase

16

Agreement allows USSC to issue up to $1 billion of senior secured notes.  Pursuant to this 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 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 (defined below).  On November 6, 2007, the Company entered into an interest rate hedge agreement covering $135 million to effectively swap the floating rate component of these notes for a fixed rate.

On November 10, 2006, the Company and USSC entered into Amendment No. 1 to the Amended and Restated Five-Year Revolving Credit Agreement (the “Amendment”) with certain financial institutions listed therein and J.P. Morgan Chase Bank, National Association, as Agent.   The Amendment modified the Amended and Restated Five-Year Revolving Credit Agreement originally entered into on October 12, 2005 (the “2005 Credit Agreement”).  The 2005 Credit Agreement, as amended by the Amendment, is referred to as the “2006 Credit Agreement.”  On July 5, 2007, USI and USSC entered into a Second Amended and Restated Five-Year Revolving Credit Agreement (the “2007 Credit Agreement”) which amends and restates the 2006 Credit Agreement.

As of September 30, 2007, the Company had $143.9 million outstanding under the 2007 Credit Agreement and as of December 31, 2006, the Company had $110.5 million outstanding under the 2006 Credit Agreement. In addition, as of both September 30, 2007 and December 31, 2006, 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.

The 2007 Credit Agreement provides for an aggregate committed principal amount of $425 million, an increase of $100 million from the 2006 Credit Agreement, and extends the final maturity to July 5, 2012.  It also reduces the interest rate margin applicable to loans outstanding under the facility, reduces the fee applicable to unutilized commitments and permits greater financial flexibility.

The 2007 Credit Agreement permits the Company to seek additional commitments to increase the aggregate committed principal amount to $625 million, an increase of $200 million.  It also permits the Company to incur up to $200 million of senior indebtedness in addition to borrowings under the agreement; the sale of the Series 2007-A Notes utilized $135 million of the permitted $200 million.  Both the 2007 Credit Agreement and the 2007 Note Purchase Agreement permit the Company to attain a maximum permitted debt to EBITDA ratio, as defined in those agreements, of 3.25 to 1.00.  The 2007 Credit Agreement and the 2007 Note Purchase Agreement also allow the Company to repurchase stock or pay dividends without restriction so long as the EBITDA ratio is less than or equal to 2.75 to 1.00 and the Company is in compliance with the other terms and conditions of those agreements.

The 2007 Credit Agreement also provides for the issuance of letters of credit in an aggregate amount of up to a sublimit of $90 million and provides a sublimit for swingline loans in an aggregate outstanding principal amount not to exceed $30 million at any one time. These amounts, as sublimits, do not increase the maximum aggregate principal amount, and any undrawn issued letters of credit and all outstanding swingline loans under the facility reduce the remaining availability under the 2007 Credit Agreement. As of September 30, 2007 and December 31, 2006, the Company had outstanding letters of credit under the facility of $16.5 million and $17.3 million, respectively.

At September 30, 2007 funding levels (including amounts sold under the Receivables Securitization Program), a 50 basis point movement in interest rates would result in an annualized increase or decrease of approximately $2.0 million in interest expense and loss on the sale of certain accounts receivable, and ultimately upon cash flows from operations.

9.               Receivables Securitization Program

General

On March 28, 2003, USSC entered into a third-party receivables securitization program with JP Morgan Chase Bank, as trustee (the “Receivables Securitization Program” or the “Program”). On November 10, 2006, the Company entered into an amendment to its Revolving Credit Facility (the “2006 Credit Agreement”) which, among other things, increased the permitted size of the Receivables Securitization Program to $350 million, a $75 million increase from the $275 million limit under the 2005 Credit Agreement.  During the first quarter of 2007, the Company increased its commitments for third party purchases of accounts receivable, and the maximum funding available under the Program is now $250 million.  Under the Program,

17

USSC sells, on a revolving basis, its eligible trade accounts receivable (except for certain excluded accounts receivable, which initially includes all accounts receivable of Lagasse, Inc. and foreign operations) to USS Receivables Company, Ltd. (the “Receivables Company”). The Receivables Company, in turn, ultimately transfers the eligible trade accounts receivable to a trust. The trust then sells investment certificates, which represent an undivided interest in the pool of accounts receivable owned by the trust, to third-party investors. Affiliates of J.P. Morgan Chase Bank, PNC Bank and (as of March 26, 2004) Fifth Third Bank act as funding agents. The funding agents, or their affiliates, provide standby liquidity funding to support the sale of the accounts receivable by the Receivables Company under 364-day liquidity facilities. The Receivables Securitization Program provides for the possibility of other liquidity facilities that may be provided by other commercial banks rated at least A-1/P-1.

The Company utilizes the Program to fund its cash requirements more cost effectively than under the 2007 Credit Agreement. Standby liquidity funding is committed for 364 days and must be renewed before maturity in order for the Program to continue. The Program liquidity was renewed on March 23, 2007. The Program contains certain covenants and requirements, including criteria relating to the quality of receivables within the pool of receivables. If the covenants or requirements were compromised, funding from the Program could be restricted or suspended, or its costs could increase. In such a circumstance, or if the standby liquidity funding were not renewed, the Company could require replacement liquidity.

As discussed above, the 2007 Credit Agreement is an existing alternate liquidity source. The Company believes that, if so required, it also could access other liquidity sources to replace funding from the program.

Financial Statement Presentation

The Receivables Securitization Program is accounted for as a sale in accordance with FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Trade accounts receivable sold under this program are excluded from accounts receivable in the Consolidated Financial Statements. As of September 30, 2007, the Company sold $240 million of interests in trade accounts receivable, compared with $225 million as of December 31, 2006. Accordingly, trade accounts receivable of $240 million as of September 30, 2007 and $225 million as of December 31, 2006 are excluded from the Consolidated Financial Statements. As discussed below, the Company retains an interest in the trust based on funding levels determined by the Receivables Company. The Company’s retained interest in the trust is included in the Consolidated Financial Statements under the caption, “Retained interest in accounts receivable sold, net.” For further information on the Company’s retained interest in the trust, see the caption “Retained Interest” below.

The Company recognizes certain costs and/or losses related to the Receivables Securitization Program. Costs related to the Program vary on a daily basis and generally are related to certain short-term interest rates. The annual interest rate on the certificates issued under the Receivables Securitization Program for the first nine months of 2007 ranged between 5.77% and 6.55%.  In addition to the interest on the certificates, the Company pays certain bank fees related to the program. The Company has accrued losses on the sale of accounts receivable, which represent the interest and bank fees that are the financial cost of funding under the Program, totaling $3.7 million and $10.6 million for the three and nine-month periods ended September 30, 2007, respectively.  These losses on the sale of accounts receivable were $3.4 million and $9.4 million for the three and nine-month periods ended September 30, 2006, respectively. Proceeds from the collections under the Program for the first nine months ended September 30, 2007 and 2006 totaled $2.8 billion and $2.9 billion, respectively. All costs and/or losses related to the Receivables Securitization Program are included in the Consolidated Financial Statements of Income under the caption “Other Expense, net.”

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

Retained Interest

The Receivables Company determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount. It retains a residual interest in the eligible receivables transferred to the trust, such that amounts payable in respect of such residual interest will be distributed to the Receivables Company upon payment in full of all amounts owed by the Receivables Company to the trust (and by the trust to its investors). The Company’s net retained interest on $387.6 million and $332.1 million of trade receivables in the trust as of September 30, 2007 and December 31, 2006 was $147.6 million and $107.1 million, respectively. The Company’s retained interest in the trust is included in the Consolidated Financial Statements under the caption, “Retained interest in accounts receivable sold, net.”

The Company measures the fair value of its retained interest throughout the term of the Receivables Securitization Program using a present value model incorporating the following two key economic assumptions: (1) an average collection cycle of approximately 40 days; and (2) an assumed discount rate of 5% per annum. In addition, the Company estimates and records

18

an allowance for doubtful accounts related to the Company’s retained interest. Considering the above noted economic factors and estimates of doubtful accounts, the book value of the Company’s retained interest approximates fair value. A 10% or 20% adverse change in the assumed discount rate or average collection cycle would not have a material impact on the Company’s financial position or results of operations. Accounts receivable sold to the trust and written off during the third quarter of 2007 were not material.

10.        Retirement Plans

Pension and Postretirement Health Care Benefit Plans

The Company maintains pension plans covering a majority of its employees. In addition, the Company has a postretirement health care benefit plan covering substantially all retired non-union employees and their dependents. For more information on the Company’s retirement plans, see Notes 12 and 13 to the Company’s Consolidated Financial Statements for the year ended December 31, 2006. A summary of net periodic benefit cost related to the Company’s pension and postretirement health care benefit plans for the three and nine months ended September 30, 2007 and 2006 is as follows (dollars in thousands):

The Company did not make cash contributions to its pension plans during the third quarter of 2007 and 2006. During the nine-month period ended September 30, 2007, the Company made cash contributions to its pension plans of $14.1 million. During the same period of 2006, the Company made cash contributions to its pension plans of $7.1 million.

Defined Contribution Plan

The Company has a defined contribution plan covering certain salaried employees and non-union hourly paid employees (the “Plan”). The Plan permits employees to defer a portion of their pre-tax and after-tax salary as contributions to the Plan.  The Plan also provides for discretionary Company contributions and Company contributions matching employees’ salary deferral contributions, at the discretion of the Board of Directors. The Company recorded an expense of $1.2 million and $3.4 million for the Company match of employee contributions to the Plan during the three and nine-month periods ended September 30, 2007. During the same periods last year, the Company recorded $0.9 million and $3.2 million for the same match.

19

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

Other long-term assets and long-term liabilities as of September 30, 2007 and December 31, 2006 were as follows (in thousands):

12.   Accounting for Uncertainty in Income Taxes

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”) , on January 1, 2007.  As a result of the implementation of FIN No. 48, the Company recognized a net decrease of $1.8 million in the liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007 balance of retained earnings.

At January 1, 2007, the Company had $5.8 million in gross unrecognized tax benefits.  At September 30, 2007, the gross unrecognized tax benefits increased to $9.1 million as a result of tax positions taken during the nine months ended September 30, 2007.  At September 30, 2007 and January 1, 2007, $4.4 million and $0.8 million, respectively, of these gross unrecognized tax benefits would, if recognized, decrease the Company’s effective tax rate, with the remainder, if recognized, impacting “Goodwill” and “Other Current Assets”.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. At September 30, 2007 and January 1, 2007, the Company had a gross amount of $1.7 million and $1.3 million, respectively, accrued for the potential payment of interest and penalties of which a net $1.0 million and $0.7 million would, if recognized, decrease the Company’s effective tax rate.

The net changes in the gross unrecognized tax benefits, accrued interest and penalties were not significant to the Company’s consolidated financial statements.

As of January 1, 2007, the Company’s U.S. Federal income tax returns for 2004 and subsequent years remain subject to examination by tax authorities.  In addition, the Company’s state income tax returns for the tax years 2001 through 2006 remain subject to examinations by state and local income tax authorities.

While it is expected that the amount of unrecognized tax positions will change in the next 12 months, the Company believes that such changes will not have a significant impact on the overall results of operations or financial position.

“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, 2006.

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 North America’s largest broad line wholesale distributor of business products, with 2006 net sales of $4.5 billion. The Company sells its products through a national distribution network of 62 distribution centers to approximately 20,000 resellers, who in turn sell directly for end consumers.

Net sales per workday for the fourth quarter through October are trending flat compared with the same period last year.  The Company has chosen not to pursue some low margin technology business which will impact the top line with minimal impact on earnings.

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.

•                  The Company believes that during the third quarter of 2007, the economy experienced continued softening which has led to slowing sales growth in the office products industry.  While employment has improved slightly, weak employment trends remain a concern.  However, the Company has a number of initiatives to deliver profitable sales growth in the fourth quarter.

•                  Sales for the third quarter of 2007 grew 1.5% to $1.2 billion compared to the same period last year.  Sales for the nine-month period ending September 30, 2007 increased 2.7% to $3.5 billion compared to the same period last year.  Strong growth was achieved on a year-to-date basis in janitorial and breakroom supplies and cut sheet paper with modest growth in traditional office products and office furniture.  The technology category has experienced a decline for the same periods due to the decision not to pursue low margin business.  Sales in the third quarter were positively impacted by sales promotions late in the quarter.  The Company typically experiences fluctuations in sales as a result of the variability of marketing and promotional activity.

•                  Gross margin as a percent of sales for the third quarter of 2007 was 14.8%, compared to 16.4% in the third quarter of 2006. Gross margin in 2006 benefited from $21.6 million, or $0.43 per share, of one-time gains related to the Company’s product content syndication program and certain marketing program changes. Excluding these one-time items, gross margin for 2006 was 14.5%.  Year-to-date gross margin for 2007 was 14.9% compared to 16.2% in the prior year.  Year-to-date 2006 gross margin benefited from $49.4 million of these one-time items; the gross margin excluding this benefit was 14.8%.  Gross margin is up only slightly compared to the prior year due to competitive pricing pressures in a softer sales environment, product mix shifts, and lower inflation profits.  This has been offset by continued cost management and supplier allowance enhancements.

•                  Total operating expenses, excluding restructuring charges and reversals, as a percent of sales for the third quarter of 2007 were 10.4%, compared to 10.5% for the same quarter of the prior year.  Year-to-date operating expenses were 10.7% compared to 11.0% in the prior year.  The Company is realizing the benefits of its 2006 Workforce Reduction Program in lower payroll and payroll related costs.  In addition, the Company continues to make progress on process improvements and cost containment efforts as part of its War on Waste initiatives.

•                  During 2006, the Company invested in improvements to its pricing management capabilities and in July of 2006 introduced a new end-consumer pricing program for the Company’s customers. This effort has proven successful as pricing margin (invoice price less standard cost, including customer rebates) has stabilized.  However, the

21

                       competitive pricing pressures noted above and the passage of the pricing program anniversary in July 2007 has mitigated the positive impact of these efforts on margin in the quarter.

•                  The Sweet Paper acquisition in May 2005 was important to the Company’s strategy for building a national distribution platform for foodservice consumables.  From an operational perspective, the Company has significantly improved its delivery and service proposition.  As a result, third quarter and year-to-date sales have increased from the prior year primarily in foodservice consumables and paper products.

•                  Operating cash flow for the nine months ended September 30, 2007 was $243.3 million.  Excluding the effects of accounts receivable sold, operating cash flow for the same period in 2007 was a source of $228.3 million versus a use of $17.0 million in the prior year. The increase is a result of a reduction in working capital particularly as a result of impressive inventory management efforts and SKU rationalization which have led to these very strong cash flows.

•                  The Board of Directors approved three share repurchase authorizations in 2007 totaling $400 million.  Through October 25, 2007, 5.7 million shares have been repurchased this year.  Through October 30, 2007, the Company has $102.8 million remaining under the August 2007 $200 million Board authorization and as of this date has 25.0 million shares outstanding.

•                     On October 15, 2007, the Company entered into the 2007 Note Purchase Agreement which allows USSC to issue up to $1 billion of senior secured notes.  Pursuant to that agreement, USSC issued and sold $135 million of floating rate senior secured notes due October 15, 2014 at par in a private placement (the “Series 2007-A Notes”).  Interest on the Series 2007-A Notes is payable quarterly in arrears at a rate per annum equal to three-month LIBOR plus 1.30%, beginning January 15, 2008.  USSC may issue additional series of senior secured notes from time to time under the 2007 Note Purchase Agreement but has no specific plans to do so at this time.  USSC used the proceeds from the sale of these notes to repay borrowings under the 2007 Credit Agreement.  On November 6, 2007, the Company entered into an interest rate hedge agreement covering $135 million to effectively swap the floating rate component of these notes for a fixed rate.  The 2007 Credit Agreement provides an aggregate committed principal amount of $425 million, an increase of $100 million; extends the final maturity to July 5, 2012, compared to October 12, 2010 before the amendment and restatement; reduces the interest rate margin applicable to loans outstanding under the facility; reduces the fee applicable to unutilized commitments; and permits greater financial flexibility.  The 2007 Credit Agreement permits the Company to seek additional commitments to increase the aggregate committed principal amount to $625 million, an increase of $200 million.  It also permits the Company to incur up to $200 million of senior indebtedness in addition to borrowings under the 2007 Credit Agreement; the sale of the Series 2007-A Notes utilized $135 million of the permitted $200 million.  Both the 2007 Credit Agreement and the 2007 Note Purchase Agreement establishes a maximum permitted debt to EBITDA ratio that the Company can attain, as defined in those agreements, of 3.25 to 1.00.  The 2007 Credit Agreement and the 2007 Note Purchase Agreement also allow the Company to repurchase stock or pay dividends without restriction so long as the EBITDA ratio is less than or equal to 2.75 to 1.00 and the Company is in compliance with the other terms and conditions of those agreements.  Refer to Note 8 “Long-Term Debt” for further descriptions of the provisions of the 2007 Credit Agreement.

•                  Under a joint marketing agreement between the Company and SAP America, SAP is creating a solution aimed at providing independent dealers with an enhanced back office system to effectively run their businesses (the Reseller Technology Solution or “RTS”) and a front-end e-commerce platform that will improve the shopping experience for their customers.  SAP is continuing to work on the functionality and capabilities of the system.  As new functionality is tested with dealers, an updated

22

                       roll-out schedule is being prepared.  This timing has put the project significantly behind its original plan.  As a result, SAP has increased its resources working on the system.

•                   Historically, the majority of the Company’s share-based compensation awards have been stock options with service-type conditions. Stock options generally vest in annual increments over three years and have a term of 10 years.  In September 2007, the Company utilized both stock options and restricted stock in its annual award grant.  Included in this grant were restricted stock for executive officers that vests with respect to each officer in annual increments over three years provided that the following conditions are satisfied: (1) the officer is still employed as of the anniversary date of the grant; and (2) the Company’s cumulative diluted earnings per share for the four calendar quarters immediately preceding the vesting date exceed $1.00 per diluted share as defined in the officers’ restricted stock award agreement.

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, 2006.

Stock Repurchase Program

During the third quarter of 2007, the Company repurchased 2,473,085 shares at an aggregate cost of $150.0 million. For the nine months ended September 30, 2007, share repurchases totaled 5,135,970 at an aggregate cost of $301.7 million.  At September 30, 2007, the Company had $150.1 million available under share repurchase authorizations from its Board of Directors.  The May 9, 2007 Board share repurchase authorization for $100 million was completed as of August 27, 2007.

On August 15, 2007, the Company announced that its Board of Directors authorized the purchase of an additional $200 million of the Company’s Common Stock.  Under this program, purchases may be made from time to time in the open market or in privately negotiated transactions.  Depending on market and business conditions and other factors, these purchases may be commenced or suspended at any time without notice.

Effective July 5, 2007, the Company entered into the 2007 Credit Agreement which, among other things, provides increased flexibility to the Company to repurchase its common stock.

Critical Accounting Policies, Judgments and Estimates

During the third quarter of 2007, 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, 2006.