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 ~~September 30, 2015~~March 31, 2016

¨	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

ESSENDANT 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 x No ¨

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 ~~October 19, 2015,~~April 18, 2016, the registrant had outstanding ~~37,391,273~~37,153,988 shares of common stock, par value $0.10 per share.

ESSENDANT INC.

FORM 10-Q

For the Quarterly Period Ended ~~September 30, 2015~~March 31, 2016

TABLE OF CONTENTS

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015		3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2016 and ~~Nine Months Ended September 30,~~ 2015 ~~and 2014~~		4
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and ~~Nine Months Ended September 30,~~ 2015 ~~and 2014~~		5
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2116
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2924
Item 4. Controls and Procedures		2924
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		2924
Item 1A. Risk Factors		2924
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3025
Item 6. Exhibits		3126
SIGNATURES		3227

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	(Unaudited)			(Unaudited)			(Unaudited)
	As of September 30,			As of December 31,			As of March 31,			As of December 31,
	2015			2014 (Revised)			2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	28,047		$	20,812		$	35,430		$	29,983
Accounts receivable, less allowance for doubtful accounts of $18,079 in 2015 and $19,725 in 2014		737,979			702,527
Accounts receivable, less allowance for doubtful accounts of $17,686 in 2016 and $17,810 in 2015								741,625			716,537
Inventories		860,355			906,430			894,350			922,162
Other current assets		31,946			30,713			35,153			27,310
Total current assets		1,658,327			1,660,482			1,706,558			1,695,992
Property, plant and equipment, net		129,744			138,217			132,452			133,751
Goodwill		413,178			398,042			299,147			299,355
Intangible assets, net		102,760			111,958			93,657			96,413
Other long-term assets		36,282			38,669			54,004			37,348
Total assets	$	2,340,291		$	2,347,368		$	2,285,818		$	2,262,859
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	540,949		$	485,241		$	521,132		$	531,949
Accrued liabilities		186,826			185,535			178,858			177,472
Current maturities of long-term debt		43			851			48			51
Total current liabilities		727,818			671,627			700,038			709,472
Deferred income taxes		15,119			17,763			7,508			11,901
Long-term debt		666,142			709,917			753,854			716,264
Other long-term liabilities		98,621			104,394			89,904			101,488
Total liabilities		1,507,700		��	1,503,701			1,551,304			1,539,125
Stockholders’ equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2015 and 2014		7,444			7,444
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2016 and 2015								7,444			7,444
Additional paid-in capital		408,475			412,291			411,485			410,927
Treasury stock, at cost – 36,874,672 shares in 2015 and 35,719,041 shares in 2014		(1,090,624	)		(1,042,501	)
Treasury stock, at cost – 37,312,864 shares in 2016 and 37,178,394 shares in 2015								(1,105,119	)		(1,100,867	)
Retained earnings		1,564,816			1,529,224			1,475,216			1,463,821
Accumulated other comprehensive loss		(57,520	)		(62,791	)		(54,512	)		(57,591	)
Total stockholders’ equity		832,591			843,667			734,514			723,734
Total liabilities and stockholders’ equity	$	2,340,291		$	2,347,368		$	2,285,818		$	2,262,859

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014 (Revised)		2015		2014 (Revised)		2016		2015 (Revised)*
Net sales	$	1,391,545	$	1,419,947	$	4,065,719	$	3,994,123	$	1,352,296	$	1,332,375
Cost of goods sold		1,166,402		1,203,246		3,430,062		3,400,992		1,152,214		1,131,980
Gross profit		225,143		216,701		635,657		593,131		200,082		200,395
Operating expenses:
Warehousing, marketing and administrative expenses		172,159		148,831		526,653		438,538		167,678		197,581
Operating income		52,984		67,870		109,004		154,593		32,404		2,814
Interest expense, net		5,300		3,992		14,918		11,199		5,897		4,839
Income before income taxes		47,684		63,878		94,086		143,394
Income (loss) before income taxes										26,507		(2,025	)
Income tax expense		20,017		23,647		42,594		53,349		9,977		3,982
Net income	$	27,667	$	40,231	$	51,492	$	90,045
Net income per share - basic:	$	0.74	$	1.05	$	1.36	$	2.32
Net income (loss)									$	16,530	$	(6,007	)
Net income (loss) per share - basic:									$	0.45	$	(0.16	)
Average number of common shares outstanding - basic		37,300		38,450		37,724		38,817		36,593		38,115
Net income per share - diluted:	$	0.74	$	1.03	$	1.35	$	2.29
Net income (loss) per share - diluted:									$	0.45	$	(0.16	)
Average number of common shares outstanding - diluted		37,608		38,884		38,109		39,244		36,875		38,115
Dividends declared per share	$	0.14	$	0.14	$	0.42	$	0.42	$	0.14	$	0.14

* During the third quarter of 2015, the Company elected a change in accounting principle for the valuation method of certain inventories to the last-in, first-out (“LIFO”) method from the first-in, first out method (“FIFO”). This change required retrospective application. As such, the financial statements presented for prior periods are titled “Revised”.

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2015

2014 (Revised)

2015

2014 (Revised)

Net income
$
27,667

$
40,231

$
51,492

$
90,045

Other comprehensive income, net of tax

      Translation adjustments

7,497

(1,395
)

3,076

(1,378
)
       Minimum pension liability adjustments

967

606

2,831

1,767

       Cash flow hedge adjustments

(208
)

446

(636
)

(339
)
Total other comprehensive gain (loss), net of tax

8,256

(343
)

5,271

50

Comprehensive income
$
35,923

$
39,888

$
56,763

$
90,095

	For the Three Months Ended
	March 31,
	2016			2015 (Revised)*
Net income (loss)	$	16,530		$	(6,007	)
Other comprehensive income (loss), net of tax
Translation adjustments		2,691			(4,630	)
Minimum pension liability adjustments		915			932
Cash flow hedge adjustments		(527	)		(476	)
Total other comprehensive income (loss), net of tax		3,079			(4,174	)
Comprehensive income (loss)	$	19,609		$	(10,181	)

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	For the Nine Months Ended						For the Three Months Ended
	September 30,						March 31,
	2015			2014 (Revised)			2016			2015 (Revised)*
Cash Flows From Operating Activities:
Net income	$	51,492		$	90,045
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	16,530		$	(6,007	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		36,344			29,699			11,731			12,223
Share-based compensation		6,447			5,935			2,911			2,640
Loss on the disposition of property, plant and equipment		1,562			97
Gain on the disposition of property, plant and equipment								(167	)		(15	)
Amortization of capitalized financing costs		659			657			166			272
Excess tax benefits related to share-based compensation		(402	)		(1,166	)
Excess tax cost (benefit) related to share-based compensation								133			(262	)
Asset impairment charges		34,893			-			-			23,610
Loss on sale of equity investment		33			-
Deferred income taxes		(15,285	)		(9,134	)		(1,881	)		(1,469	)
Changes in operating assets and liabilities (net of acquisitions):
Increase in accounts receivable, net		(31,288	)		(104,540	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net								(24,819	)		26,217
Decrease in inventory		54,354			51,974			28,018			46,023
(Increase) decrease in other assets		(8,720	)		10,000
Increase in other assets								(24,774	)		(10,751	)
Increase in accounts payable		8,972			24,663			9,571			645
Increase (decrease) in checks in-transit		41,440			(2,679	)
Increase in accrued liabilities		6,500			2,883
Decrease in other liabilities		(3,342	)		(4,768	)
Net cash provided by operating activities		183,659			93,666
Decrease in checks in-transit								(20,294	)		(13,613	)
Increase (decrease) in accrued liabilities								1,997			(17,534	)
(Decrease) increase in other liabilities								(9,943	)		743
Net cash (used in) provided by operating activities								(10,821	)		62,722
Cash Flows From Investing Activities:
Capital expenditures		(18,133	)		(15,431	)		(9,877	)		(5,490	)
Proceeds from the disposition of property, plant and equipment		184			872			281			18
Acquisitions, net of cash acquired		(40,471	)		(26,725	)
Proceeds from sale of equity investment		612			-
Net cash used in investing activities		(57,808	)		(41,284	)		(9,596	)		(5,472	)

Cash Flows From Financing Activities:
Net repayments under revolving credit facility		(45,309	)		(12,094	)
Borrowings under Receivables Securitization Program		-			9,300
Repayment of debt		-			(135,000	)
Proceeds from the issuance of debt		-			150,000
Net disbursements from share-based compensation arrangements		(1,507	)		(3,142	)
Net borrowing (repayments) under revolving credit facility								37,388			(29,630	)
Net proceeds (disbursements) from share-based compensation arrangements								339			(875	)
Acquisition of treasury stock, at cost		(55,677	)		(43,037	)		(6,839	)		(16,028	)
Payment of cash dividends		(15,976	)		(16,407	)		(5,160	)		(5,396	)
Excess tax benefits related to share-based compensation		402			1,166
Excess tax (cost) benefit related to share-based compensation								(133	)		262
Payment of debt issuance costs		(36	)		(623	)		-			(36	)
Net cash used in financing activities		(118,103	)		(49,837	)
Net cash provided by (used in) financing activities								25,595			(51,703	)
Effect of exchange rate changes on cash and cash equivalents		(513	)		(33	)		269			(1,758	)
Transfer of cash to held for sale								-			(970	)
Net change in cash and cash equivalents		7,235			2,512			5,447			2,819
Cash and cash equivalents, beginning of period		20,812			22,326			29,983			20,812
Cash and cash equivalents, end of period	$	28,047		$	24,838		$	35,430		$	23,631
Other Cash Flow Information:
Income tax payments, net	$	53,704		$	55,867		$	1,027		$	3,183
Interest paid		16,032			9,838			7,292			6,213

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying Condensed Consolidated Financial Statements represent Essendant Inc. (“ESND”) ~~(formerly known as United Stationers Inc.)~~ with its wholly owned subsidiary Essendant Co. ~~(formerly known as United Stationers Supply Co.~~(“ECO”), and ~~Essendant Co.’s~~ECO’s subsidiaries (collectively, “Essendant” or the “Company”). The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of ESND and its subsidiaries. All intercompany transactions and balances have been eliminated. The Company operates in a single reportable segment as a leading distributor of workplace essentials.

The accompanying Condensed Consolidated Financial Statements are unaudited. The Condensed Consolidated Balance Sheet as of December 31, ~~2014,~~2015, was derived from the December 31, ~~2014~~2015 audited financial ~~statements with certain line items being restated for changes in accounting principles. See Note 2, “Change in Accounting Principles,” for additional details.~~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, ~~2014~~2015 for further information.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Essendant at ~~September 30, 2015~~March 31, 2016 and the results of operations and cash flows for the ~~nine months~~three-month periods ended ~~September 30, 2015~~March 31, 2016 and ~~2014.~~2015. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2015~~March 31, 2016 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year.

New Accounting Pronouncements

In ~~September 2015,~~May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2015-16, “Simplifying the Accounting for Measurement-Period Adjustments (Topic 805): Business Combinations,~~” which replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively with a requirement that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. For public business entities, ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance, and earlier application is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

~~In April 2015, the FASB issued ASU No. 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement”~~, that provides guidance to customers about whether a cloud computing arrangement includes a software license. If such an arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for it as a service contract. This standard will be effective for annual periods beginning after December 15, 2015, and early application is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

~~In April 2015, the FASB issued ASU No. 2015-03,~~ ~~Interest- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs~~, that simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. This standard is effective for fiscal years beginning after December 15, 2015. Early application is permitted. The Company elected to early adopt this new guidance as of September 30, 2015. See Note 2 for the impact on the Company’s consolidated financial statements.

~~In May 2014, the FASB issued ASU No.~~ 2014-09, Revenue from Contracts with Customers,, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers, which deferred the effective date of ASU No. 2014-09. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting ~~period,~~period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

In May 2015, he FASB issued ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Under the standard, investments for which fair value is measured at net asset value ("NAV") per share (or its equivalent) using the practical expedient will no longer be categorized in the fair value hierarchy. The Company adopted this standard on January 1, 2016, which had no impact on the quarterly financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), that requires lessees to recognize right-of-use assets and ~~early application is permitted~~lease liabilities for ~~fiscal years~~all leases other than those that meet the definition of short-term leases. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis. This standard will be effective for annual periods beginning after December 15, ~~2016,~~2018, including interim periods within that reporting ~~period.~~period, and early application is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting, the objective of which is to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. This standard will be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

Change in Accounting Principle

During the third quarter of 2015, the Company elected a change in accounting principle for the valuation method of certain inventories to the last-in, first-out (“LIFO”) method from the first-in, first out method (“FIFO”). This change required retrospective application. As such, the financial statements presented for prior periods are titled “Revised”. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for further information.

Inventory

Approximately ~~99%~~98.5% and ~~98%~~98.4% of total inventory as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively, has been valued under the ~~last-in, first-out (“LIFO”)~~LIFO method. An actual valuation of inventory under the LIFO method can be made only at the end of each fiscal year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs, and are subject to the final year-end LIFO inventory valuation. Inventory valued under the LIFO accounting method is recorded at the lower of cost or market. If the Company had valued its entire inventory under the lower of ~~first-in, first-out (“FIFO”)~~FIFO cost or market, inventory would have been ~~$147.5~~$148.6 million and ~~$139.6~~$147.8 million higher than reported as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively. During the third quarter of 2015, the Company elected a change in accounting principle to change the valuation method for certain inventories. See Note 2, “Change in Accounting Principles,” for further details.

~~2. Change in Accounting Principles~~

~~Change in Method of Accounting for Inventory Valuation~~

In the third quarter of 2015, the Company changed its method of inventory costing for certain inventory in its Business and Facility Essentials (formerly separately known as Supply and Lagasse) operating segment to the LIFO method from the FIFO accounting method. Prior to the change, the Business and Facility Essentials operating segment was comprised of two separate legal entities which each utilized different methods of inventory costing: LIFO for inventories related to Business Essentials which is comprised mainly of office product and breakroom categories and FIFO for inventories related to Facility Essentials which consists of the janitorial product category. The Company believes that the LIFO method is preferable because i) the Company is executing an initiative to combine the office products and janitorial categories onto a single information technology and operating platform, ii) it allows for consistency in financial reporting (all domestic inventories will now be on LIFO), and iii) it allows for better matching of costs and revenues as historical inflationary inventory acquisition prices are expected to continue in the future and the LIFO method uses the current acquisition cost to value cost of goods sold as inventory is sold. The change has been reported through retrospective application of the new accounting policy to all periods presented. The impact of the change in the method of inventory costing for certain inventory to the third quarter 2015 was a $4.2 million decrease to cost of goods sold, $2.3 million increase to net income, and $0.06 increase in basic and diluted EPS.

~~Change in Method of Accounting for Debt Issuance Costs~~

~~In April 2015, the FASB issued ASU 2015-03~~ ~~Simplifying the Presentation of Debt Issuance Costs~~ ~~which amends the FASB Accounting Standards Codification (ASC) subtopic 835-30~~ ~~Interest-Imputation of Interest~~. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. The Company has elected to early adopt the guidance as of September 30, 2015 and has retrospectively applied the changes to all periods presented for the third quarter 2015.

~~The impact of all adjustments made to the consolidated financial statements presented is summarized in the following tables (in thousands, except per share data):~~

Years Ended December 31,

2014

2013

2012

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Consolidated Statement of Income

Cost of goods sold^(A)

$
4,516,704

$
4,524,676

$
7,972

$
4,295,715

$
4,297,952

$
2,237

$
4,305,502

$
4,303,778

$
(1,724
)
Gross profit^(A)

810,501

802,529

(7,972
)

789,578

787,341

(2,237
)

774,604

776,328

1,724

Warehousing, marketing, and administrative expenses^(A)

592,050

595,673

3,623

580,428

580,141

(287
)

573,693

573,645

(48
)
Income before income taxes^(A)

194,483

182,888

(11,595
)

197,510

195,560

(1,950
)

177,635

179,407

1,772

Income tax expense^(A)

75,285

70,773

(4,512
)

74,340

73,507

(833
)

65,805

66,526

721

Net income^(A)

119,198

112,115

(7,083
)

123,170

122,053

(1,117
)

111,830

112,881

1,051

Net income per share^(A)

Basic^(A)

$
3.08

$
2.90

$
(0.18
)

$
3.11

$
3.08

$
(0.03
)

$
2.77

$
2.80

$
0.03

Diluted^(A)

$
3.05

$
2.87

$
(0.18
)

$
3.06

$
3.03

$
(0.03
)

$
2.73

$
2.75

$
0.02

Consolidated Statement of Comprehensive Income

Net income^(A)

$
119,198

$
112,115

$
(7,083
)

$
123,170

$
122,053

$
(1,117
)

$
111,830

$
112,881

$
1,051

Comprehensive income^(A)

96,295

89,212

(7,083
)

137,047

135,930

(1,117
)

114,471

115,522

1,051

Consolidated Statement of Financial Position

Inventories^(A)

$
926,809

$
906,430

$
(20,379
)

$
830,295

$
821,511

$
(8,784
)

$
767,206

$
760,372

$
(6,834
)
Other current assets^(A)

30,042

30,713

671

29,255

29,255

-

30,118

30,118

-

Other long-term assets^(B)

41,810

38,669

(3,141
)

25,576

22,185

(3,391
)

20,260

17,737

(2,523
)
Accrued liabilities^(A)

192,792

185,535

(7,257
)

191,531

188,115

(3,416
)

205,228

202,645

(2,583
)
Long-term debt^(B)

713,058

709,917

(3,141
)

533,324

529,933

(3,391
)

524,376

521,853

(2,523
)
Retained earnings^(A)

1,541,675

1,529,224

(12,451
)

1,444,238

1,438,870

(5,368
)

1,343,437

1,339,186

(4,251
)

Consolidated Statement of Cash Flows

Net income^(A)

$
119,198

$
112,115

$
(7,083
)

$
123,170

$
122,053

$
(1,117
)

$
111,830

$
112,881

$
1,051

Deferred income taxes^(A)

(6,367
)

(10,879
)

(4,512
)

(3,921
)

(4,754
)

(833
)

(6,713
)

(5,992
)

721

Inventories^(A)

(30,319
)

(18,724
)

11,595

(66,627
)

(64,677
)

1,950

10,374

8,602

(1,772
)
Cash provided by operating activities^(A)

77,133

77,133

-

74,737

74,737

-

189,814

189,814

-

Consolidated Statement of Shareholders’ Equity

Retained earnings at beginning of year^(A)

$
1,444,238

$
1,438,870

$
(5,368
)

$
1,343,437

$
1,339,186

$
(4,251
)

$
1,253,118

$
1,247,816

$
(5,302
)
Retained earnings at end of year^(A)

1,541,675

1,529,224

(12,451
)

1,444,238

1,438,870

(5,368
)

1,343,437

1,339,186

(4,251
)

(A) Change related to Inventory Valuation

(B) Change related to Debt Issuance Costs

As of and for the Three Months Ended
June 30, 2015

As of and for the Three Months Ended
March 31, 2015

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Consolidated Statement of Income

Cost of goods sold^(A)

$
1,129,737

$
1,131,680

$
1,943

$
1,127,925

$
1,131,980

$
4,055

Gross profit^(A)

212,062

210,119

(1,943
)

204,450

200,395

(4,055
)

Warehousing, marketing, and administrative expenses^(A)

158,159

156,912

(1,247
)

198,372

197,581

(791
)

Income before income taxes^(A)

49,125

48,429

(696
)

1,239

(2,025
)

(3,264
)

Income tax expense^(A)

18,864

18,595

(269
)

5,231

3,982

(1,249
)

Net income (loss)^(A)

30,261

29,834

(427
)

(3,992
)

(6,007
)

(2,015
)

Net income (loss) per share^(A)

Basic^(A)

$
0.80

$
0.79

$
(0.01
)

$
(0.10
)
$
(0.16
)
$
(0.06
)

Diluted^(A)

$
0.79

$
0.78

$
(0.01
)

$
(0.10
)
$
(0.16
)
$
(0.06
)

Consolidated Statement of Comprehensive Income

Net income (loss)^(A)

$
30,261

$
29,834

$
(427
)

$
(3,992
)
$
(6,007
)
$
(2,015
)

Comprehensive income (loss) ^(A)

31,450

31,023

(427
)

(8,166
)

(10,181
)

(2,015
)

Consolidated Statement of Financial Position

Inventories^(A)

$
875,465

$
851,126

$
(24,339
)

$
871,310

$
847,667

$
(23,643
)

Other current assets^(A)

29,595

30,344

749

31,226

31,977

751

Other long-term assets^(B)

48,439

45,779

(2,660
)

49,440

46,535

(2,905
)

Accrued liabilities^(A)

190,257

181,560

(8,697
)

175,770

167,344

(8,426
)

Long-term debt^(B)

661,143

658,483

(2,660
)

684,238

681,333

(2,905
)

Retained earnings^(A)

1,557,281

1,542,388

(14,893
)

1,532,325

1,517,859

(14,466
)

For the Six Months Ended
June 30, 2015

For the Three Months Ended
March 31, 2015

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Consolidated Statement of Cash Flows

Net income (loss)^(A)

$
26,269

$
23,827

$
(2,442
)

$
(3,992
)
$
(6,007
)
$
(2,015
)

Deferred income taxes^(A)

(8,365
)

(8,294
)

71

(1,858
)

(1,469
)

389

Inventories^(A)

44,984

48,944

3,960

42,759

46,023

3,264

Other assets^(A)

(10,173
)

(10,250
)

(77
)

(10,126
)

(10,751
)

(625
)

Accrued liabilities^(A)

4,794

3,282

(1,512
)

(16,521
)

(17,534
)

(1,013
)

Cash provided by operating activities^(A)

120,848

120,848

-

62,722

62,722

-

(A) Change related to Inventory Valuation

(B) Change related to Debt Issuance Costs

As of and for the Three Months Ended
September 30, 2014

As of and for the Three Months Ended
June 30, 2014

As of and for the Three Months Ended
March 31, 2014

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Consolidated Statement of Income

Cost of goods sold^(A)

$
1,208,919

$
1,203,246

$
(5,673
)

$
1,120,577

$
1,124,485

$
3,908

$
1,067,056

$
1,073,261

$
6,205

Gross profit^(A)

211,028

216,701

5,673

199,460

195,552

(3,908
)

187,083

180,878

(6,205
)
Warehousing, marketing, and administrative expenses^(A)

146,560

148,831

2,271

142,186

142,870

684

148,849

146,837

(2,012
)
Income before income taxes^(A)

60,476

63,878

3,402

53,441

48,849

(4,592
)

34,860

30,667

(4,193
)
Income tax expense^(A)

22,307

23,647

1,340

20,110

18,327

(1,783
)

13,003

11,375

(1,628
)
Net income^(A)

38,169

40,231

2,062

33,331

30,522

(2,809
)

21,857

19,292

(2,565
)
Net income per share^(A)

Basic^(A)

$
0.99

$
1.05

$
0.06

$
0.86

$
0.79

$
(0.07
)

$
0.56

$
0.49

$
(0.07
)
Diluted^(A)

$
0.98

$
1.03

$
0.05

$
0.85

$
0.78

$
(0.07
)

$
0.55

$
0.49

$
(0.06
)

Consolidated Statement of Comprehensive Income

Net income^(A)

$
38,169

$
40,231

$
2,062

$
33,331

$
30,522

$
(2,809
)

$
21,857

$
19,292

$
(2,565
)
Comprehensive income^(A)

37,826

39,888

2,062

33,847

31,038

(2,809
)

21,734

19,169

(2,565
)

Consolidated Statement of Financial Position

Inventories^(A)

$
796,325

$
782,158

$
(14,167
)

$
804,395

$
786,826

$
(17,569
)

$
748,499

$
735,522

$
(12,977
)
Other long-term assets^(B)

24,372

21,197

(3,175
)

26,059

22,662

(3,397
)

27,170

23,459

(3,711
)
Accrued liabilities^(A)

189,224

183,737

(5,487
)

187,414

180,587

(6,827
)

177,251

172,207

(5,044
)
Long-term debt^(B)

545,009

541,834

(3,175
)

542,410

539,013

(3,397
)

561,511

557,800

(3,711
)
Retained earnings^(A)

1,521,230

1,512,550

(8,680
)

1,488,469

1,477,727

(10,742
)

1,460,582

1,452,649

(7,933
)

For the Nine Months Ended
September 30, 2014

For the Six Months Ended
June 30, 2014

For the Three Months Ended
March 31, 2014

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Previous Method

As Reported

Effect of Change

Consolidated Statement of Cash Flows

Net income^(A)

$
93,357

$
90,045

$
(3,312
)

$
55,188

$
49,814

$
(5,374
)

$
21,857

$
19,292

$
(2,565
)
Deferred income taxes^(A)

(7,618
)

(9,134
)

(1,516
)

(5,317
)

(6,381
)

(1,064
)

(2,450
)

(2,437
)

13

Inventories^(A)

46,591

51,974

5,383

39,290

48,075

8,785

81,714

85,907

4,193

Accrued liabilities^(A)

3,438

2,883

(555
)

(1,106
)

(3,453
)

(2,347
)

(13,654
)

(15,295
)

(1,641
)
Cash provided by operating activities^(A)

93,666

93,666

-

78,889

78,889

-

1,490

1,490

-

(A) Change related to Inventory Valuation

(B) Change related to Debt Issuance Costs

3.2. Acquisitions ~~and Dispositions~~

~~Acquisitions~~

~~CPO Commerce, Inc.~~

On May 30, 2014, Essendant Co. completed the acquisition of CPO Commerce, Inc. (“CPO”), a leading online retailer of brand name power tools and equipment. The acquisition of CPO significantly expanded the Company’s digital resources and capabilities to support resellers as they transition to an increasingly online environment. CPO’s expertise will strengthen Essendant’s ability to offer features like improved product content, real-time access to inventory and pricing, digital marketing and merchandising, and an enhanced digital platform to our resellers and manufacturing partners.

The purchase price was $37.8 million, including $5.5 million related to the estimated fair value of contingent consideration. The contingent consideration ultimately paid will be determined based on CPO’s sales during a three-year period immediately following the acquisition date. The final payments related to the contingent consideration will be determined by actual achievement in the earn-out periods and will be between zero and $10 million. The Company financed the 100% stock acquisition with borrowings under the Company’s available committed bank facilities. Purchase accounting for this transaction was completed as of May 30, 2015.

~~MEDCO~~

On October 31, 2014, Essendant Co. completed the acquisition of 100% of the capital stock of Liberty Bell Equipment Corp., a United States wholesaler of automotive aftermarket tools and equipment, and its affiliates (collectively, MEDCO) including G2S Equipement de Fabrication et d’Entretien, a Canadian wholesaler. MEDCO advances a key pillar of the Company’s strategy, which is to diversify into channels and categories that leverage our common platform. It also brings expanded categories and services to customers.

The purchase price was $150.4 million, including $4.7 million related to the estimated fair value of contingent consideration. The contingent consideration ultimately paid will be determined based on MEDCO’s sales and EBITDA during a three-year period immediately following the acquisition date. Additionally, $6.0 million was reserved as a payable upon completion of an eighteen month indemnification period. The final payments related to the contingent consideration will be determined by actual achievement in the earn-out periods and will be between zero and $10 million. Any changes to the estimated fair value of contingent consideration after the original purchase accounting is completed will be recorded in “warehousing, marketing and administrative expenses” in the period in which a change occurs. This acquisition was funded through a combination of cash on hand and cash available under the Company’s committed bank facilities.

Nestor Sales LLC

On July 31, 2015, Essendant Co. completed the acquisition of 100% of the capital stock of Nestor Sales LLC (“Nestor”), a leading wholesaler and distributor of tools, equipment and supplies to the transportation industry. This acquisition accelerates the Company’s growth in the automotive aftermarket, complements the Company’s existing industrial offerings while providing access to new customer segments, and advances a key strategic pillar to diversify into channels and categories that leverage our common platform.

The purchase price was $41.8 million. This acquisition was funded through a combination of cash on hand and cash available under the Company’s revolving credit facility.

The Company has developed preliminary estimates of the fair values of assets acquired and liabilities assumed ~~from the MEDCO and Nestor acquisitions~~ for purposes of allocating the purchase ~~prices.~~price. The estimates are subject to change as the valuation activities are completed. The fair values of the assets and liabilities ~~acquired in the MEDCO and Nestor acquisitions~~ were estimated using various valuation methods including estimated selling prices, market approach, and discounted cash flows using both an income and cost approach. ~~The same methods were used for determining the fair values of the assets and liabilities acquired for the CPO acquisition.~~

Any changes to the preliminary allocations of the purchase ~~prices,~~price, some of which may be material, will be allocated to residual goodwill.

At ~~September 30, 2015,~~March 31, 2016, the ~~allocations~~preliminary allocation of the purchase ~~prices were~~price was as follows (amounts in thousands):

Purchase price, net of cash acquired	$	39,983

Accounts receivable		9,230
Inventories		10,542
Other current assets		338
Property, plant and equipment, net		1,251
Other assets		752
Intangible assets		17,580
Total assets acquired		39,693

Accounts payable		4,992
Accrued liabilities		1,943
Deferred income taxes		3,175
Other long-term liabilities		76
Total liabilities assumed		10,186
Goodwill	$	10,476

CPO

MEDCO

Nestor

(Final)

(Preliminary)

(Preliminary)

Purchase price, net of cash acquired
$
32,225

$
145,873

$
39,939

Accounts receivable

(2,956
)

(44,815
)

(9,230
)
Inventories

(13,051
)

(55,491
)

(10,442
)
Other current assets

(269
)

(1,299
)

(339
)
Property, plant and equipment, net

(488
)

(4,408
)

(1,251
)
Other assets

-

(650
)

(752
)
Intangible assets

(12,800
)

(40,000
)

(17,670
)
Total assets acquired

(29,564
)

(146,663
)

(39,684
)

Accounts payable

16,911

32,383

4,992

Accrued liabilities

2,580

5,542

1,912

Deferred income taxes

3,453

2,716

3,875

Other long-term liabilities

90

52

76

Total liabilities assumed

23,034

40,693

10,855

Goodwill
$
25,695

$
39,903

$
11,110

The purchased identifiable intangible assets were as follows (amounts in thousands):

	CPO (Final)			MEDCO (Preliminary)			Nestor (Preliminary)
	Total		Estimated Life	Total		Estimated Life	Total		Estimated Life	Total		Estimated Life
Customer relationships	$	5,200	3 years	$	37,590	3-15 years	$	16,890	13 years	$	16,220	13 years
Trademark		7,600	15 years		2,410	1.5-15 years		780	2.5-15 years		1,360	2.5-15 years
Total	$	12,800		$	40,000		$	17,670		$	17,580

~~Disposition of Azerty de Mexico~~Agreement with Staples, Inc.

On ~~September 18, 2015,~~February 16, 2016, the Company ~~completed the 100% stock-sale of its subsidiary, Azerty de Mexico,~~announced an agreement to purchase from Staples, Inc. contracts and related assets representing more than $550 million in annual sales to minority and woman-owned office supply resellers and their large corporate and other enterprise customers. The transaction is subject to the local general manager. The sale price was a combination of cash and a seller’s note, totaling $8.7 million. The seller’s note matures in 180 days and requires periodic repayments. When the decision to sell the subsidiary was approved, in accordance with Accounting Standards Codification (ASC) 360-10-45-9 ~~Property, Plant, and Equipment, Azerty de Mexico met all~~successful completion of the ~~criteria~~proposed merger of Staples and Office Depot, as well as other regulatory and customary closing conditions. A court ruling on the preliminary injunction action brought by the Federal Trade Commission to ~~be classified as a held-for-sale asset disposal group. In accordance with ASC 350-20-40,~~ ~~Intangibles – Goodwill and Other~~,block the ~~Company allocated a proportionate share~~proposed merger is expected during the second quarter of 2016. Under the terms of the goodwill balance from the office product and janitorial and breakroom supply reporting unit based on the subsidiary’s relative fair value to the reporting unit and performed an impairment test for the allocated goodwill utilizing the cost approach to value the subsidiary. Based upon the impairment test, the $3.3 million of goodwill allocated to the subsidiary was determined to be fully impaired. Additionally, in conjunction with classifying the subsidiary as a held-for-sale asset disposal group, the Company revalued the subsidiary to fair value using the cost-approach method less the estimated cost to sell. The carrying value of the disposal group, including a $10.1 million cumulative foreign currency translation adjustment, was then compared to the fair value less the estimated cost to sell, resulting in a pre-tax impairment loss of $10.1agreement, Essendant will pay Staples approximately $22.5 million. The goodwill impairment of $3.3 million, the held-for-sale impairment of $10.1 million and the $0.1 million estimated cost to sell were recorded in the first quarter of 2015 within “warehousing, marketing and administrative expenses.” During the second and third quarters, the Company recorded an additional $1.4 million and $2.1 million, respectively, within “warehousing, marketing and administrative expenses.” This includes a $1.5 million loss on sale. The pre-tax loss, excluding the foreign currency translation adjustment noted above, attributable to Azerty de Mexico for the three months ended September 30, 2015 and 2014 was $0.9 million and $0.2 million, respectively. The pre-tax loss attributable to this subsidiary for the nine months ended September 30, 2015 was $5.2 million and none for the nine months ended September 30, 2014.

4.3. Share-Based Compensation

As of ~~September 30, 2015,~~March 31, 2016, the Company has two active equity compensation plans. ~~On May 20,~~Under the 2015 ~~the Company’s stockholders approved certain amendments to the Amended and Restated 2004~~ Long-Term Incentive Plan ~~(“LTIP) which included the renaming of the LTIP to the “2015 Long-Term Incentive Plan”~~ (as amended and ~~restated, the “2015 Plan”). Under the 2015 Plan,~~restated), award ~~vehicles~~instruments include, but are not limited to, stock options, restricted stock awards, restricted stock units (“RSUs”), and performance-based awards. Associates and non-employee directors of the Company are eligible to become participants in the plan. The Nonemployee Directors’ Deferred Stock Compensation Plan allows non-employee directors to elect to defer receipt of all or a portion of their annual retainer ~~and meeting fees.~~in deferred stock units.

The Company granted ~~440,948~~120,376 shares of restricted stock and ~~162,092~~247,510 RSUs during the first ~~nine~~three months of ~~2015. No stock options were granted during the first nine months of 2015. During the first nine months of 2014, the Company granted 229,477~~2016, compared to 46,229 shares of restricted stock ~~176,717~~and 145,552 RSUs ~~and 5,538 stock options.~~during the first three months of 2015.

4. Severance and Restructuring Charges

~~The~~

Commencing in the first quarter of 2015, the Company began certain restructuring actions ~~in 2015~~ which included workforce reductions and facility consolidations. For the three months and nine months ended September 30, 2015, the Company recorded $0.2 million and $1.5 million pre-tax expense relating to facility consolidations, respectively. Duringclosures. In the first quarter of 2015, the Company recorded a $6.0 million of pre-tax ~~charge~~expense relating to a workforce ~~reduction.~~reductions. During the first quarter of 2016 and 2015, the Company recorded $0.3 million and $0.4 million, respectively, of pre-tax expense relating to facility consolidations. These charges were included in “warehousing, marketing and administrative expenses.” Cash ~~outflows~~outlays for these actions ~~will occur~~occurred primarily in 2015 and were approximately ~~$3.0~~$0.7 million inand $0.5 million, respectively, for the ~~nine~~three months ended ~~September 30,~~March 31, 2016 and 2015. As of ~~September 30, 2015,~~March 31, 2016, the Company has accrued liabilities for these actions of ~~$3.1~~$1.8 million. ~~The Company estimated an additional $1.5 million will be incurred~~

Commencing in the ~~remainder~~fourth quarter of 2015, ~~due~~the Company executed actions to ~~facility closures related~~reduce costs through management delayering in order to achieve broader functional alignment of the organization. In the fourth quarter of 2015, the Company recorded an $11.9 million pre-tax charge relating to this ~~action,~~workforce reduction included in “warehousing, marketing and administrative expenses.” Cash outlays associated with these charges were approximately $3.1 million in the three months ended March 31, 2016. As of March 31, 2016, the Company has accrued liabilities for ~~a total 2015 expense~~these actions of ~~approximately $9.0~~$7.9 million.

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are noted in the following table (in thousands):

Goodwill, balance as of December 31, 2014
$
398,042

Impairment

(3,319
)
Purchase accounting adjustments

9,977

Acquisition

11,110

Currency translation adjustments

(2,632
)
Goodwill, balance as of September 30, 2015
$
413,178

Goodwill, balance as of December 31, 2015	$	299,355
Purchase accounting adjustments		(1,095	)
Currency translation adjustments		887
Goodwill, balance as of March 31, 2016	$	299,147

The following table summarizes the intangible assets of the Company by major class of intangible assets and the cost, accumulated amortization, net carrying amount, and weighted average life, if applicable (in thousands):

	September 30, 2015								December 31, 2014								March 31, 2016								December 31, 2015
								Weighted								Weighted								Weighted								Weighted
								Average								Average								Average								Average
	Gross					Net		Useful	Gross					Net		Useful	Gross					Net		Useful	Gross					Net		Useful
	Carrying		Accumulated			Carrying		Life	Carrying		Accumulated			Carrying		Life	Carrying		Accumulated			Carrying		Life	Carrying		Accumulated			Carrying		Life
	Amount		Amortization			Amount		(years)	Amount		Amortization			Amount		(years)	Amount		Amortization			Amount		(years)	Amount		Amortization			Amount		(years)
Intangible assets subject to amortization
Customer relationships and other intangibles	$	138,864	$	(48,659	)	$	90,205	16	$	125,761	$	(41,123	)	$	84,638	16	$	138,422	$	(54,140	)	$	84,282	16	$	137,938	$	(51,357	)	$	86,581	16
Non-compete agreements		4,650		(3,260	)		1,390	4		4,672		(2,364	)		2,308	4		4,654		(4,260	)		394	4		4,644		(4,260	)		384	4
Trademarks		12,833		(3,268	)		9,565	14		14,428		(1,716	)		12,712	13		13,734		(4,753	)		8,981	14		13,688		(4,240	)		9,448	14
Total	$	156,347	$	(55,187	)	$	101,160		$	144,861	$	(45,203	)	$	99,658		$	156,810	$	(63,153	)	$	93,657		$	156,270	$	(59,857	)	$	96,413
Intangible assets not subject to amortization
Trademarks		1,600		-			1,600	n/a		12,300		-			12,300	n/a
Total	$	157,947	$	(55,187	)	$	102,760		$	157,161	$	(45,203	)	$	111,958

In the first quarter of 2015, the Company recorded a pre-tax non-cash impairment charge of $10.2 million to write-down the trademarks of ORS Nasco and certain OKI brands to their fair value related to the corporate name change that was approved in February 2015 and effective June 1, 2015. This impairment charge was recorded in “warehousing, marketing and administrative expenses.” The Company utilized the discounted cash flow method to determine the fair value of these trademarks based upon management’s current forecasted future revenues from the trademarks. The trademarks ~~had a total value~~were fully amortized as of ~~$0.5 million at September 30,~~December 31, 2015.

The following table summarizes the amortization expense to be incurred in ~~2015 and over the next four years~~2016 through 2020 on intangible assets (in thousands):

Year	Amount		Amount
2015	$	15,156
2016		13,113	$	12,314
2017		10,956		10,855
2018		8,088		8,111
2019		6,953		6,993
2020				6,990

7.6. Accumulated Other Comprehensive Income (Loss)

The change in Accumulated Other Comprehensive Income (Loss) (“AOCI”) by component, net of tax, for the period ended ~~September 30, 2015~~March 31, 2016 was as follows (amounts in thousands):

	Foreign Currency Translation			Cash Flow Hedges			Defined Benefit Pension Plans			Total			Foreign Currency Translation			Cash Flow Hedges			Defined Benefit Pension Plans			Total
AOCI, balance as of December 31, 2014	$	(11,923	)	$	274		$	(51,142	)	$	(62,791	)
AOCI, balance as of December 31, 2015													$	(9,866	)	$	146		$	(47,871	)	$	(57,591	)
Other comprehensive (loss) income before reclassifications		(8,056	)		(1,291	)		-			(9,347	)		2,691			(753	)		-			1,938
Amounts reclassified from AOCI		11,132			655			2,831			14,618			-			226			915			1,141
Net other comprehensive (loss) income		3,076			(636	)		2,831			5,271			2,691			(527	)		915			3,079
AOCI, balance as of September 30, 2015	$	(8,847	)	$	(362	)	$	(48,311	)	$	(57,520	)
AOCI, balance as of March 31, 2016													$	(7,175	)	$	(381	)	$	(46,956	)	$	(54,512	)

The following table details the amounts reclassified out of AOCI into the income statement during the three-month ~~and nine-month periods~~period ending ~~September 30, 2015, respectively~~March 31, 2016 (in thousands):

Amount Reclassified From AOCI

For the Three

For the Nine

Months Ended

Months Ended

September 30,

September 30,

Affected Line Item In The Statement
Details About AOCI Components

2015

2015

Where Net Income is Presented
Realized and unrealized gains (losses) on cash flow hedges

Gain (loss) on interest rate swap, before tax

$
349

$
1,052

Interest expense, net
Gain on foreign exchange hedge, before tax

4

4

Cost of goods sold

(134
)

(401
)

Tax provision

$
219

$
655

Net of tax

Foreign currency translation adjustments

Disposition of Azerty de Mexico

$
11,132

$
11,132

Warehousing, marketing and administrative expenses

Defined benefit pension plan items

Amortization of prior service cost and unrecognized loss

$
1,573

$
4,623

Warehousing, marketing and administrative expenses

(610
)

(1,792
)

Tax provision

963

2,831

Net of tax
Total reclassifications for the period, net of tax

$
12,314

$
14,618

1510

	Amount
	Reclassified
	From AOCI
	For the Three
	Months Ended
	March 31,			Affected Line Item In The Statement
Details About AOCI Components	2016			Where Net Income is Presented
Realized and unrealized gains (losses) on cash flow hedges
Gain on interest rate swap, before tax	$	275		Interest expense, net
Gain on foreign exchange hedges, before tax		89		Cost of goods sold
		(138	)	Tax provision
	$	226		Net of tax

Defined benefit pension plan items
Amortization of prior service cost and unrecognized loss	$	1,493		Warehousing, marketing and administrative expenses
		(578	)	Tax provision
		915		Net of tax
Total reclassifications for the period, net of tax	$	1,141

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, restricted stock units and deferred stock units are considered dilutive securities. For the three-month ~~period ending September 30,~~periods ended March 31, 2016 and 2015, 0.3 million and 0.4 million shares of such securities, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. ~~For the nine-month period ending September 30, 2015, no~~An additional 0.4 million shares of ~~securities~~common stock outstanding at March 31, 2015 were excluded from the ~~computation. For~~computation of diluted earnings per share due to the ~~three-month and nine-month periods ending September 30, 2014, 0.5 million shares of such securities, were not included because the effect would be antidilutive.~~net loss. 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 Nine Months Ended				For the Three Months Ended
	September 30,				September 30,				March 31,
	2015		2014		2015		2014		2016		2015
Numerator:
Net income	$	27,667	$	40,231	$	51,492	$	90,045
Net income (loss)									$	16,530	$	(6,007	)
Denominator:
Denominator for basic earnings per share -
weighted average shares		37,300		38,450		37,724		38,817		36,593		38,115
Effect of dilutive securities:
Employee stock options and restricted stock		308		434		385		427		282		-
Denominator for diluted earnings per share -
Adjusted weighted average shares and the effect of dilutive securities		37,608		38,884		38,109		39,244		36,875		38,115
Net income per share:
Net income per share - basic	$	0.74	$	1.05	$	1.36	$	2.32
Net income per share - diluted	$	0.74	$	1.03	$	1.35	$	2.29

Net income (loss) per share:
Net income (loss) per share - basic									$	0.45	$	(0.16	)
Net income (loss) per share - diluted⁽¹⁾									$	0.45	$	(0.16	)

(1)

Diluted earnings per share for the first quarter of 2015 under GAAP equals basic earnings per share due to net loss.

Common Stock Repurchases

As of ~~December~~March 31, ~~2014,~~2016 , the Company had Board authorization to repurchase ~~$42.4 million of common stock. In February 2015, the Board of Directors authorized the Company to purchase an additional $100.0~~$68.2 million of common stock. During the three-month periods ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ the Company repurchased ~~744,081~~241,270 and ~~283,283~~402,679 shares of the Company’s common stock at an aggregate cost of ~~$25.9~~$6.8 million and $11.4 million, respectively. During the nine-month periods ended September 30, 2015 and 2014, the Company repurchased 1,525,222 and 1,074,574 shares of the Company’s common stock at an aggregate cost of $57.4 million and $43.0$16.3 million, respectively. 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 ~~nine~~three months of ~~2015~~2016 and ~~2014,~~2015, the Company reissued ~~369,591~~106,800 and ~~225,783~~31,745 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

8. Debt

ESND is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its direct operating subsidiary, ~~Essendant Co.,~~ECO, and from borrowings by ~~Essendant Co.~~ECO. The 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program (each as defined in Note 911 of the Company’s Form 10-K for the year ended December 31, ~~2014) restrict Essendant Co.’s ability to transfer~~2015) contain restrictions on the use of cash transferred from ECO to ESND.

Debt consisted of the following amounts (in millions):

	As of			As of			As of			As of
	September 30, 2015			December 31, 2014			March 31, 2016			December 31, 2015

2013 Credit Agreement	$	318.5		$	363.0		$	405.8		$	368.4
2013 Note Purchase Agreement		150.0			150.0			150.0			150.0
Receivables Securitization Program		200.0			200.0			200.0			200.0
Mortgage & Capital Lease		0.1			0.9			0.1			0.1
Transaction Costs		(2.4	)		(3.1	)		(2.0	)		(2.2	)
Total	$	666.2		$	710.8		$	753.9		$	716.3

As of ~~September 30, 2015, 77.6%~~March 31, 2016, 80.2% of the Company’s outstanding debt, excluding capital leases and transaction costs, was priced at variable interest rates based primarily on the applicable bank prime rate or London InterBank Offered Rate (“LIBOR”).

The Company had outstanding letters of credit of ~~$11.1~~$11.6 million under the 2013 Credit Agreement as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015.

Borrowings under the 2013 Credit Agreement bear interest at LIBOR for specified interest periods or at the Alternate Base Rate (as defined in the 2013 Credit Agreement), plus, in each case, a margin determined based on the Company’s permitted debt to EBITDA ratio calculated as provided in Section 6.20 of the 2013 Credit Agreement (the “Leverage Ratio”). Depending on the Company’s Leverage Ratio, the margin on LIBOR-based loans ranges from 1.00% to 2.00% and on Alternate Base Rate loans ranges from 0%0.00% to 1.00%. As of ~~September 30, 2015,~~March 31, 2016, the applicable margin for LIBOR-based loans was ~~1.375%~~1.50% and for Alternate Base Rate loans was ~~0.375%~~0.50%. ~~Essendant Co.~~Effective in April 2016, the applicable margin for LIBOR-based loans was 1.75% and for Alternate Base Rate loans was 0.75%. ECO is required to pay the lenders a fee on the unutilized portion of the commitments under the 2013 Credit Agreement at a rate per annum between 0.15% and 0.35%, depending on the Company’s Leverage Ratio.

On June 26, 2015, the Company and its subsidiaries Essendant Co., Essendant Financial Services LLC (“EFS") and Essendant Receivables LLC ("ESR") entered into a Third Omnibus Amendment to Transaction Documents (the “Omnibus Amendment”) with The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch ("BTMU") and PNC Bank, National Association (“PNC Bank”). The Omnibus Agreement amended the transaction documents of the Receivable Securitization Program to reflect rebranded legal entity names. On June 29, 2015, Lagasse, LLC, a subsidiary of Essendant Co. merged into Essendant Co. All accounts receivable originated by Lagasse prior to the merger are excluded from the Program. The Omnibus Agreement amended the Transaction Documents to also exclude “Excluded Receivables” from the Receivables Securitization Program, which are defined as “any receivable which, at the time of such Receivable’s origination, was processed on the [enterprise resource planning system previously used by Lagasse, LLC].”

As of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014, $414.2~~2015, $524.1 million and ~~$360.3~~$448.6 million, respectively, of receivables had been sold to the Investors (as defined in Note 911 of the Company’s Form 10-K for the year ended December 31, ~~2014)~~2015). ESR had $200.0 million outstanding under the Receivables Securitization Program as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014.~~2015.

For additional information about the 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program, see Note 911 of the Company’s Form 10-K for the year ended December 31, ~~2014.~~2015.

~~10.~~9. Pension and Post-Retirement Benefit Plans

The Company maintains pension plans covering union and certain non-union employees. For more information on the Company’s retirement plans, see Note 1113 to the Company’s Consolidated Financial Statements in the Form 10-K for the year ended December 31, ~~2014.~~2015. A summary of net periodic pension cost related to the Company’s pension plans for the ~~three~~three-month periods ended March 31, 2016 and ~~nine months ended September 30,~~ 2015 ~~and 2014~~ was as follows (dollars in thousands):

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended March 31,
	2015			2014			2015			2014			2016			2015
Service cost - benefit earned during the period	$	321		$	147		$	1,121		$	802		$	317		$	400
Interest cost on projected benefit obligation		2,208			2,235			6,748			6,720			2,343			2,270
Expected return on plan assets		(2,803	)		(2,599	)		(8,413	)		(7,714	)		(2,718	)		(2,805	)
Amortization of prior service cost		72			47			222			137			74			75
Amortization of actuarial loss		1,501			945			4,401			2,755			1,419			1,450
Net periodic pension cost	$	1,299		$	775		$	4,079		$	2,700		$	1,435		$	1,390

The Company made cash contributions of $10.0 million and $2.0 million to its pension plans during ~~each of~~ the ~~nine month~~three-month periods ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014.~~respectively. Additional contributions, if any, for ~~2015~~2016 have not yet been determined. As of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively, the Company had accrued ~~$47.8~~$38.4 million and ~~$50.3~~$48.4 million of pension liability within “Other long-term liabilities” on the Condensed Consolidated Balance Sheets.

In February 2016, as a result of an amendment to the Essendant Pension Plan, the Company announced a limited-time voluntary lump-sum pension offering to eligible, terminated, vested plan participants. The lump-sum settlement payments will be made on May 16, 2016, using assets from the Essendant Pension Plan.

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 Company-funded discretionary contributions as well as matching associates’ salary deferral contributions, at the discretion of the Board of Directors. The Company recorded expense of ~~$1.5~~$1.8 million and ~~$4.4~~$1.4 million, respectively, for the Company match of employee contributions to the Plan for the ~~three~~three-month periods ended March 31, 2016 and ~~nine months ended September 30,~~ 2015. ~~During the same periods last year, the Company recorded expense of $1.4 million and $4.2 million to match employee contributions.~~

~~11.~~10. Derivative Financial Instruments

The Company selectively uses derivative financial instruments to reduce its exposure to changes in interest rates and foreign currency exchange rates. Under Company policy, the Company does not enter into derivative financial instruments for trading or speculative purposes. A description of each type of derivative utilized by the Company to manage risk is included in the following paragraphs.

The Company selectively uses interest rate swaps to reduce market risk associated with changes in interest rates for its debt arrangements. In July 2012, the Company entered into an interest rate swap to convert a portion of the Company’s floating-rate debt to a fixed-rate basis. The fair value is determined by using quoted market forward rates (level 2 inputs) and ~~reflect~~reflects the present value of the amount that the Company would pay for contracts involving the same notional ~~amounts~~amount and maturity ~~dates.~~date. The changes in fair value of this instrument is reported in AOCI and reclassified into earnings in ~~the same financial statement line item and~~interest expense in the same periods during which the related interest payments on the hedged debt affect earnings. This swap matures in July 2017. As of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, the fair value of the Company's interest rate swap included in the Company’s Condensed Consolidated Balance Sheet as a component of “Other long-term liabilities” was ~~$1.3~~$0.9 million and ~~$0.3~~$0.5 million respectively.

~~During the third quarter of 2015, the~~

The Company ~~implemented~~maintains a foreign currency cash flow hedge program in order to manage the volatility in exchange rates and the related impacts on the operations of its Canadian functional currency subsidiaries. The Company uses foreign currency exchange contracts to hedge certain of its foreign exchange rate exposures related to inventory purchases. The Company has currently hedged approximately 50%, or ~~$5.6~~$8.1 million, of its Canadian subsidiaries’ US dollar denominated inventory purchases for the next two quarters. The fair value of the foreign currency cash flow hedge is determined by using quoted market spot rates (level 2 inputs). The changes in fair value of ASC 815 designated hedges are reported in AOCI and reclassified into earnings in ~~the same financial statement line item and~~cost of goods sold in the same periods during which the related inventory is sold and affects earnings. As of ~~September 30,~~March 31, 2016, the fair value of these cash flow hedges were included in the Company’s Condensed Consolidated Balance Sheet as a component of “Accrued liabilities” totaling $0.3 million. As of December 31, 2015, the fair value of these cash flow hedges were included in the Company’s Condensed Consolidated Balance Sheet as a component of “Other current assets” totaling $0.1 million.

The following table depicts the effect of these derivative instruments on the statements of income and comprehensive income for the ~~three~~three-month periods ended March 31, 2016 and ~~nine months ended September 30,~~ 2015 ~~and September 30, 2014~~ (in thousands).

	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)				Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)							Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Derivatives in ASC 815 Cash Flow Hedging Relationships	For the Three Months Ended September 30, 2015		For the Nine Months Ended September 30, 2015			Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	For the Three Months Ended September 30, 2015		For the Nine Months Ended September 30, 2015		For the Three Months Ended March 31, 2016			For the Three Months Ended March 31, 2015			Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	For the Three Months Ended March 31, 2016		For the Three Months Ended March 31, 2015
Interest Rate Swap	$	86	$	361		Interest expense, net	$	329	$	991	$	(121	)	$	(124	)	Interest expense, net	$	242	$	331
Foreign Exchange Hedges		55		55		Cost of goods sold		4		4		(195	)		-		Cost of goods sold		89		-

Derivatives in ASC 815 Cash Flow Hedging Relationships	For the Three Months Ended September 30, 2014		For the Nine Months Ended September 30, 2014			Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	For the Three Months Ended September 30, 2014		For the Nine Months Ended September 30, 2014
Interest Rate Swap	$	748	$	(1	)	Interest expense, net	$	281	$	281

~~12.~~

11. Fair Value Measurements

The Company measures certain financial assets and liabilities, including interest rate swap and foreign currency derivatives, at fair value on a recurring basis, based on market rates of the Company’s positions and other observable interest rates (see Note 1110 “Derivative Financial Instruments”, for more information on these interest rate swaps and foreign currency derivatives).

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.

Determining which level to apply to an asset or liability 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 ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014~~2015 (in thousands):

									Fair Value Measurements as of March 31, 2016
											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									$	832	$	-	$	832	$	-
Foreign exchange hedges									$	288	$	-	$	288	$	-


	Fair Value Measurements as of September 30, 2015								Fair Value Measurements as of December 31, 2015
			Quoted Market Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs				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		Total		Level 1		Level 2		Level 3
Assets
Foreign exchange hedge	$	50	$	-	$	50	$	-
Foreign exchange hedges									$	91	$	-	$	91	$	-

Liabilities
Interest rate swap liability	$	1,260	$	-	$	1,260	$	-

	Fair Value Measurements as of December 31, 2014
			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	$	253	$	-	$	253	$	-
Interest rate swap									$	469	$	-	$	469	$	-

The carrying amount of accounts receivable at ~~September 30, 2015,~~March 31, 2016, including ~~$414.2~~$524.1 million of receivables sold under the Receivables Securitization Program, approximates fair value because of the short-term nature of this item.

No assets or liabilities were measured at fair value on a nonrecurring basis.

~~13.~~12. Other Assets and Liabilities

Receivables related to supplier allowances totaling ~~$102.4~~$92.1 million and ~~$124.4~~$111.0 million were included in “Accounts receivable” in the Condensed Consolidated Balance Sheets as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively.

Accrued customer rebates of ~~$60.9~~$47.2 million and ~~$63.2~~$63.6 million as of ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, respectively, were included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

In December 2014, the Company sold its software solutions subsidiary in exchange for a combination of cash and convertible and non-convertible notes (the “Notes”). Based upon a financial analysis that included information available through the end of the third quarter, the Company determined it was probable, within the scope of ~~ASC 450-20-25-2(a) Contingencies~~, that the Company will not be able to collect any of the amounts due according to the contractual terms of the Notes or the other receivables from the acquirer. The loss was estimable at the book value of the Notes and other receivables as of September 30, 2015. As such, the Company fully impaired the assets and recorded a loss of $10.7 million in the third quarter of 2015 within “Warehousing, marketing and administrative expenses” in the Condensed Consolidated Statements of Income. As of December 31, 2014, the value of the Notes and other receivables totaled $10.6 million.

1914

~~14.~~13. Income Taxes

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016, the Company recorded income tax expense of $10.0 million on pre-tax income of $26.5 million, for an effective tax rate of 37.6%. For the three months ended March 31, 2015, the Company recorded income tax expense of ~~$20.0 million and $42.6~~$4.0 million on pre-tax ~~income~~loss of ~~$47.7 million and $94.1~~$2.0 million, for an effective tax rate of 42.0% and 45.3%, respectively. For the three months and nine months ended September 30, 2014, the Company recorded income tax expense of $23.6 million and $53.3 million on pre-tax income of $63.9 million and $143.4 million, respectively, for an effective tax rate of 37.0% and 37.2%, respectively.(196.6)%.

The ~~Company's~~Company’s U.S. statutory rate is 35.0%. ~~The most~~There were no significant ~~factors~~discrete items impacting the effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2016. The most significant factor impacting the effective tax rate for the three months ended March 31, 2015 ~~were~~was the discrete ~~tax impacts~~impact of the impairment charges ~~and the establishment of a valuation allowance on a capital loss asset~~ for financial reporting purposes related to ~~selling~~placing a non-strategic business for sale in the ~~third~~ quarter. ~~There were no significant discrete items for the three and nine months ended September 30, 2014.~~

~~15.~~14. Legal Matters

The Company has been named as a defendant in ~~an action filed before the United States District Court for the Central District of California on May 1, 2015. The complaint alleges~~two lawsuits alleging that the Company sent unsolicited fax advertisements to ~~two~~the named plaintiffs, as well as ~~thousands of~~ other persons and entities, in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 ("TCPA"). ~~After filing~~One lawsuit was initially filed in the ~~complaint,~~United States District Court for the ~~plaintiff~~Central District of California on May 1, 2015 and has been refiled in an Illinois state court, subject to a motion to dismiss the California case without prejudice. The other lawsuit was filed in the United States District Court for the Northern District of Illinois on January 14, 2016. In both lawsuits the plaintiffs filed a motion asking the Court to certify a class of plaintiffs comprised of persons and entities who allegedly received fax advertisements from the Company. Under the TCPA, recipients of unsolicited fax advertisements can seek damages of $500 per fax for inadvertent violations and up to $1,500 per fax for knowing and willful violations. Other reported TCPA lawsuits have resulted in a broad range of outcomes, with each case being dependent on its own unique set of facts and circumstances. ~~The~~In each lawsuit, the Company is vigorously contesting class certification and ~~liability.~~denies that any violations occurred. Litigation of this kind, however, is likely to lead to settlement negotiations, including negotiations prompted by pre-trial civil court procedures. Regardless of whether the ~~litigation is~~lawsuits are resolved at trial or through settlement, the Company believes that a loss associated with resolution of pending claims is probable. However, the amount of any such loss, which could be material, cannot be reasonably estimated because the Company is continuing to evaluate its defenses based on its internal review and investigation of prior events, new information and future circumstances.

The Company is also involved in other legal proceedings arising in the ordinary course of or incidental to its business. The Company has established reserves, which are not material, for potential losses that are probable and reasonably estimable that may result from those proceedings. In many cases, however, it is difficult to determine whether a loss is probable or even possible or to estimate the amount or range of potential loss, particularly where proceedings may be in relatively early stages or where plaintiffs are seeking substantial or indeterminate damages. Matters frequently need to be more developed before a loss or range of loss can reasonably be estimated. The Company believes that such ordinary course legal proceedings will be resolved with no material adverse effect upon its financial condition or results of operations.

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, ~~2014.~~2015.

Readers should not place undue reliance on forward-looking statements contained in this Quarterly Report on Form 10-Q. The forward-looking information herein is given as of this date only, and the Company undertakes no obligation to revise or update it.

Company Overview

Essendant Inc. ~~(formerly known as United Stationers Inc.)~~ is a leading supplier of workplace essentials, with ~~2014~~2015 net sales of approximately ~~$5.3~~$5.4 billion. Essendant Inc. stocks over ~~160,000~~180,000 items ~~from over 1,600 manufacturers.~~and is a leading national wholesale distributor of workplace items including traditional office products and office furniture, janitorial, sanitation and breakroom supplies, technology products, industrial supplies, and automotive aftermarket tools and equipment. These items include a broad spectrum of manufacturer-branded and private branded ~~technology products, traditional office products, office furniture, janitorial and breakroom supplies, and industrial supplies.~~products. Essendant sells through a network of 7974 distribution centers to approximately 30,000 reseller customers, who in turn sell directly to end consumers. The Company also operates CPO Commerce which sells tools and do-it-yourself equipment online to the consumer market.

Our strategy is comprised of three key ~~elements:~~strategic pillars:

Grow share in core office products and janitorial and breakroom businesses;

Win the shift to online; and

Transition the business to the Company’s common operating platform.

~~1) Strengthen our core office, janitorial, and breakroom business;~~

~~2) Win online by growing our business-to-business (B2B) sales with major e-commerce players and by enabling~~Essendant will focus on the ~~online success of our resellers by providing digital capabilities and tools to support them; and~~

~~3) Expand and diversify our business into channels and categories that leverage our common platform which includes~~following five key objectives over the ~~IT systems, distribution network, data infrastructure, digital expertise and functional capabilities in merchandising, sales and operations.~~next two years:

Generate profitable sales growth through alignment with customers who are taking share in each channel they serve.

Move businesses onto a common operating, technology and digital platform, which began with the office products and janitorial and breakroom product categories in 2015 and will continue with the direct online and automotive businesses.

Simplify the business and continue to control costs, which will gain operating leverage and reduce overhead, by fully integrating recently acquired businesses.

Pursue merchandising excellence to optimize assortment and create additional value for customers.

Refine the industrial channel value proposition to diversify and lessen its dependence on the oilfield and energy sectors.

Execution on these priorities will help us achieve our goal of becoming the fastest and most convenient solution for workplace essentials.

Key Trends and Recent Results

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

~~Third~~First Quarter Results

~~Third~~Diluted earnings per share for the first quarter ~~sales~~of 2016 were ~~$1.39 billion, down 2.0% from~~$0.45 compared to a net loss per share of $0.16 in the prior year quarter. Adjusted diluted earnings per share were $0.45 compared with $0.46 in the prior-year ~~quarter. Acquisitions~~period. Refer to the Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share table included later in the last 12 months contributed $81.2 million of incremental sales in the industrial supplies category. Excluding these acquisitions, sales in the industrial supply category declined 12.6% due to energy sector impacts. Sales in the janitorial and breakroom and office products categories declined 1.8% and 9.5% respectively. We expect low-to-mid single digit sales growth across our categories starting in the second half of 2016.this section for more detail.

·	~~The gross margin rate in the third~~First quarter ~~of 2015 was 16.2%~~net sales increased 1.5%, ~~compared to~~from the prior-year quarter ~~gross~~to $1.4 billion.

Gross margin ~~rate~~as a percent of ~~15.3%.~~net sales in the first quarter of 2016 was 14.8% versus 15.0% in the prior-year quarter. Gross profit for the ~~third~~first quarter of ~~2015~~2016 was ~~$225.1~~$200.1 million, compared to ~~$216.7~~$200.4 million in the ~~third~~first quarter of ~~2014.~~2015.

Operating expenses in the ~~third~~first quarter of ~~2015~~2016 were ~~$172.2~~$167.7 million or 12.4% of net sales, compared with ~~$148.8~~$197.6 million or ~~10.5%~~14.8% of net sales in the prior-year quarter, including impacts of the Repositioning Actions discussed below. Adjusted operating expenses in the first quarter of 2016 were $167.4 million or 12.4% of net sales compared to $167.1 million or 12.5% of net sales in the prior-year quarter. Excluding the impacts of the $0.5 million pre-tax charge for accelerated amortization related to intangible assets impaired in the first quarter of 2015, $0.2 million pretax charge related to facility consolidations, $2.1 million pre-tax charge related to exiting our non-strategic business in Mexico, and $10.7 million impairment of seller notes receivable relating to the company’s prior year sale of its software service subsidiary (“third quarter charges”), adjusted operating expenses were $158.6 million or 11.4% of sales.

Operating income for the quarter ended ~~September 30, 2015~~March 31, 2016 was ~~$53.0~~$32.4 million or ~~3.8%~~2.4% of net sales, ~~including $13.5~~compared with $2.8 million or 0.2% of ~~expense related to~~net sales in the ~~third quarter charges. Adjusted~~prior year quarter. Excluding the Repositioning Actions, adjusted operating income in the first quarter of 2016 was $32.7 million or 2.4% of net sales, versus $33.3 million or 2.5% of net sales in the first quarter of 2015.

Cash flows used in operating activities for the first quarter of 2016 were $10.8 million versus operating cash flows provided by operating activities of $62.7 million in 2015. The $73.5 million decrease over the prior year was primarily driven by a $24.8 million increase in accounts receivable in the current year versus a $26.2 million decrease in accounts receivable in the prior year. Also, inventory decreased $28.0 million in the first quarter of 2016, compared with a decrease of $46.0 million in the prior year quarter. Cash flow used in investing activities for capital expenditures totaled $9.9 million in 2016 compared with $5.5 million in 2015.

Implementation of our initiative to combine the office products and janitorial businesses on a common operating platform began in the third quarter of 2015 ~~was $66.5 million or 4.8%~~and facility conversions were completed in April of ~~sales, versus $67.9 million or 4.8% of sales in the third quarter of 2014.~~

Diluted earnings per share for the third quarter of 2015 was $0.74, including $0.26 of expense related to third quarter charges. Adjusted diluted earnings per share were $1.00 compared with diluted earnings per share of $1.03 in the prior-year period. We expect to deliver flat to low-single digit adjusted diluted EPS growth for the full year 2015 compared to the prior year, and return the company to high single-digit EPS growth, starting in 2016.

On July 31, 2015, we acquired 100% ifof the capital stock of Nestor Sales LLC (“Nestor”), a leading wholesaler and distributor of tools, equipment and supplies to the transportation industry. The purchase price was $41.8 million. Nestor’s annual sales are approximately $70.0 million. Nestor accelerates our growth in the automotive aftermarket and complements our existing industrial offerings while providing access to new customer segments. It also advances a key pillar of our strategy, diversification into channels and categories that leverage our common platform. This acquisition ~~was funded through a combination~~contributed $16.9 million of ~~cash on hand and cash available under our revolving credit facility. The transaction is expected to be slightly dilutive in 2015 and $0.04 to $0.05 accretive to earnings in 2016.~~

~~Repositioning for Sustained Success~~

~~As previously announced, we are taking decisive actions to reposition our business, provide enhanced customer service, and generate sustained long-term success. These actions are as follows:~~

Our initiative to combine the office products and janitorial operating platforms is intended to help us become the fastest, most convenient solution for workplace essentials. We will deliver this through our nationwide distribution network and logistics capabilities, order efficiency with enhanced ecommerce capabilities, broad product portfolio, superior product category knowledge and commercial expertise. Physical implementation began in September 2015 as we converted two facilities and will cascade into the first half of 2016. As the physical inventories for these platforms are combined beginning in the third quarter, a change in the method of accounting for inventory valuation was also effected for consistency as described in Note 2 “Change in Accounting Principles.” This change required a retrospective restatement of financial results for the periods presented. In the first nine months of 2015, expenses related to this initiative were $8.2 million inclusive of the impact of changing the inventory accounting method for consistency, and are expected to total approximately $13.0 million in 2015. Upon completion, we expect total cost savings through this network consolidation and reduced expenses of $5.0 to $10.0 million in the second half of 2016, and $15.0 to $20.0 million on an annual basis thereafter.

Restructuring actions are being taken in 2015 to improve our operational utilization, labor spend and inventory performance. This includes workforce reductions and facility consolidations over five quarters beginningnet sales in the first quarter of 2015. In the first nine months of 2015, we recorded pre-tax expenses of $6.0 million relating to initial workforce reductions and $1.5 million relating to facility consolidations. We are currently estimating additional charges of approximately $1.5 million later in 2015 related to facility closures for a total of approximately $9.0 million for the full year of 2015. We expect these actions will produce cost savings of approximately $6.0 million, for a net cost of $3.0 million, in 2015 and approximately $10.0 million annually, beginning in 2016.

~~We will exit certain non-strategic channels~~On February 16, 2016, we announced an agreement to purchase from Staples, Inc. contracts and ~~categories~~related assets representing more than $550 million in annual sales to minority and woman-owned office supply resellers and their large corporate and other enterprise customers. The transaction is subject to the successful completion of the proposed merger of Staples and Office Depot, as well as other regulatory and customary closing conditions. A court ruling on the preliminary injunction action brought by the Federal Trade Commission to block the proposed merger is expected during ~~2015 to further align our portfolio of product categories and channels with our strategies. During~~ the ~~third~~second quarter of ~~2015, we sold 100%~~2016. Under the terms of the capital stock of Azerty de Mexico, a non-strategic subsidiary with operations in Mexico. Azerty de Mexico had been classified as held for sale since the first quarter of 2015. Related to this classification and the sale, we have recorded $17.0 million of charges in the first nine months of 2015. This subsidiary had sales of $50.1 million in the first nine months of 2015 compared to $77.2 million in the same period of last year.agreement, Essendant will pay Staples approximately $22.5 million.

Repositioning Actions

On June 1, 2015 we officially rebranded the Company to Essendant Inc. ~~in order to communicate more accurately our purpose and vision.~~ When we announced in the first quarter of 2015 our decision to rebrand the company, the ORS Nasco trademark and certain OKI brands were ~~tested for impairment. Upon completion of the impairment test of these intangible assets, management~~ determined ~~the trademarks were impaired and recorded a pre-tax,~~to be impaired. Pre-tax, non-cash, impairment ~~charge~~charges and accelerated amortization totaling ~~$11.5~~$10.5 million were recorded in the first quarter of 2015.

In 2015 we exited non-strategic channels, including the sale of Azerty de Mexico, our operations in Mexico. The total charges in the first quarter of 2015 related to the disposition of this subsidiary were $13.6 million. In the first quarter of 2015, this subsidiary had net sales of $23.2 million and a $0.4 million operating income, excluding the charges previously mentioned.

Restructuring actions were taken in 2015 to improve our operational utilization, labor spend, inventory performance and functional alignment of the organization. This included workforce reductions and facility consolidations with an expense impact of $0.3 million in the first ~~nine months~~quarter of ~~2015. It was also determined that~~2016 and $6.4 million in the ~~useful lives do not extend past 2015. The remaining value~~first quarter of ~~these intangibles was $0.5 million at September 30,~~ 2015.

~~Fourth Quarter Cost Initiative~~Guidance

~~We remain committed to our strategy~~The Company reaffirms its previously announced outlook regarding 2016, and ~~have executed well on our priorities. However, additional steps must be taken to reduce cost through management de-layering in order to achieve broader functional alignment~~currently expects the following:

·	+1% to +5% revenue growth compared to prior year, or total company revenue in the range of $5.4 billion to $5.6 billion;

·	+4% to +10% adjusted earnings per share growth compared to prior year, or adjusted EPS in the range of $3.20 to $3.40;

·	Annual free cash flow equal to or better than net income.

The guidance above excludes the impact of ~~the organization and to counteract headwinds~~assets acquired in the ~~industrial~~proposed Staples transaction, any new acquisitions and ~~energy markets. In the fourth quarter we plan to implement new workforce reductions~~any unusual charges, such as ~~we transition to a channel-based organization more closely aligned with~~impacts from our customers, and re-invest a portion of the expected savings to fund bringing additional businesses onto the common platform. These actions are critical to driving our goal of achieving high-single digit EPS growth beginningpension lump-sum offer described in ~~2016.~~Note 9.

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 Trends and Recent Results” 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, ~~2014.~~2015.

Critical Accounting Policies, Judgments and Estimates

~~Change in Method of Accounting for Inventory Valuation~~

In the ~~third~~first quarter of ~~2015, the Company changed its method of inventory costing for certain inventory in its Business and Facility Essentials (formerly separately known as Supply and Lagasse) operating segment~~2016, there were no significant changes to the ~~last-in-first-out (“LIFO”) method~~Company’s critical accounting policies, judgments or estimates from ~~the first-in-first-out (“FIFO”) accounting method. For further discussion of~~those disclosed in the Company’s ~~change in~~Annual Report on Form 10-K for the ~~method of inventory costing, refer to Note 2, “Change in Accounting Principles.”~~year ended December 31, 2015

Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share

The following ~~tables~~table presents Adjusted Operating Expenses, Adjusted Operating Income, Adjusted Net Income, and Adjusted Diluted Earnings Per Share for the ~~three and nine-month~~three-month periods ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~ (in thousands, except per share data), excluding the effects of the pre-tax charges related to workforce reduction and facility consolidations in the first three months of 2016, and workforce reductions and facility consolidations, intangible asset impairment charge and accelerated amortization related to rebranding ~~efforts, an~~and asset held for sale impairment in the first three months of ~~seller notes receivable related to the company’s prior year sale of its software service provider, and a loss on sale and related costs of our Mexican subsidiary.~~2015. 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 and to the results of 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 September 30,

2015

2014 (Revised)

% to

% to

Amount

Net Sales

Amount

Net Sales

Net Sales
$
1,391,545

100.0
%

$
1,419,947

100.0
%
Gross profit
$
225,143

16.2
%

$
216,701

15.3
%
Operating expenses
$
172,159

12.4
%

$
148,831

10.5
%
Workforce reduction and facility consolidation charge

(200
)

-

-

-

Rebranding - intangible asset amortization

(511
)

-

-

-

Notes receivable impairment

(10,738
)

(0.8
%)

Loss on sale of business and related costs

(2,072
)

(0.1
%)

-

-

Adjusted operating expenses
$
158,638

11.4
%

$
148,831

10.5
%
Operating income
$
52,984

3.8
%

$
67,870

4.8
%
Operating expense items noted above

13,521

1.0
%

-

-

Adjusted operating income
$
66,505

4.8
%

$
67,870

4.8
%
Net income
$
27,667

$
40,231

Operating expense items noted above, net of tax

10,017

-

Adjusted net income
$
37,684

$
40,231

Diluted earnings per share
$
0.74

$
1.03

Per share operating expense items noted above

0.26

-

Adjusted diluted earnings per share
$
1.00

$
1.03

Adjusted diluted earnings per share - change over the prior year period

(2.9
%)

Weighted average number of common shares - diluted

37,608

38,884

	For the Three Months Ended March 31,
	2016			2015 (Revised)

Operating expenses	$	167,678		$	197,581
Workforce reduction and facility closure charge		(254	)		(6,433	)
Intangible asset impairment charge and accelerated amortization related to rebranding		-			(10,462	)
Asset held for sale impairment		-			(13,566	)
Adjusted operating expenses	$	167,424		$	167,120

Operating income	$	32,404		$	2,814
Operating expense items noted above		254			30,461
Adjusted operating income	$	32,658		$	33,275
Depreciation and amortization	$	10,489		$	10,711
Equity compensation		2,911			2,640
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)	$	46,058		$	46,626

Net income (loss)	$	16,530		$	(6,007	)
Operating expense items noted above, net of tax		155			23,896
Adjusted net income	$	16,685		$	17,889

Diluted net income (loss) per share⁽¹⁾	$	0.45		$	(0.16	)
Per share operating expense items noted above		0.00			0.62
Adjusted diluted net income per share	$	0.45		$	0.46

(1)

Diluted net income (loss) per share for the first quarter of 2015 under GAAP equals basic earnings per share due to the net loss. The diluted earnings per share shown here does not reflect this adjustment.

For the Nine Months Ended September 30,

2015

2014 (Revised)

% to

% to

Amount

Net Sales

Amount

Net Sales

Net Sales
$
4,065,719

100.0
%

$
3,994,123

100.0
%
Gross profit
$
635,657

15.6
%

$
593,131

14.9
%
Operating expenses
$
526,653

13.0
%

$
438,538

11.0
%
Workforce reduction and facility consolidation charge

(6,495
)

(0.2
%)

-

-

Rebranding - intangible asset impairment and amortization

(11,485
)

(0.3
%)

-

-

Notes receivable impairment

(10,738
)

(0.3
%)

Loss on sale of business and related costs

(16,999
)

(0.4
%)

-

-

Adjusted operating expenses
$
480,936

11.8
%

$
438,538

11.0
%
Operating income
$
109,004

2.7
%

$
154,593

3.9
%
Operating expense items noted above

45,717

1.1
%

-

-

Adjusted operating income
$
154,721

3.8
%

$
154,593

3.9
%
Net income
$
51,492

$
90,045

Operating expense items noted above, net of tax

34,854

-

Adjusted net income
$
86,346

$
90,045

Diluted earnings per share
$
1.35

$
2.29

Per share operating expense items noted above

0.91

-

Adjusted diluted earnings per share
$
2.26

$
2.29

Adjusted diluted earnings per share - change over the prior year period

(1.3
%)

Weighted average number of common shares - diluted

38,109

39,244

Results of Operations—Three Months Ended ~~September 30, 2015~~March 31, 2016 Compared with the Three Months Ended ~~September 30, 2014~~March 31, 2015

Net Sales. Net sales for the ~~third~~first quarter of ~~2015~~2016 were ~~$1.39~~$1.35 billion. The following table summarizes net sales by product category for the three-month periods ended ~~September 30,~~March 31, 2016 and 2015 ~~and 2014~~ (in thousands):

	Three Months Ended September 30,				Three Months Ended March 31,
	2015		2014⁽¹⁾		2016		2015⁽¹⁾
Janitorial and breakroom supplies	$	375,454	$	382,308
Janitorial and breakroom supplies (JanSan)					$	362,387	$	358,677
Technology products		343,891		384,591		351,113		353,047
Traditional office products (including cut-sheet paper)		320,736		360,848		308,055		296,177
Industrial supplies		223,510		162,813		139,764		149,074
Automotive						79,408		60,240
Office furniture		87,409		85,090		74,158		78,053
Freight revenue		33,264		33,302		33,201		31,959
Services, Advertising and Other		7,281		10,995		4,210		5,148
Total net sales	$	1,391,545	$	1,419,947	$	1,352,296	$	1,332,375

(1)

Certain prior period amounts have been reclassified to conform to the current presentation. Such ~~reclassifications~~changes include ~~changes~~reclassification of specific products to ~~shift to a single operational item hierarchy. These changes~~different product categories and did not impact the Condensed Consolidated Statements of Income. All percentage presentations described below are based on the reclassified amounts.

~~Sales~~Net sales in the janitorial and breakroom supplies (JanSan) product category ~~decreased 1.8%~~increased 1.0% in the ~~third~~first quarter of ~~2015~~2016 compared to the ~~third~~first quarter of ~~2014.~~2015. This category accounted for ~~27.0%~~26.8% of the Company’s ~~third~~first quarter ~~2015~~2016 consolidated net sales. ~~Sales~~Net sales increased ~~from being named the primary supplier for Office Depot’s janitorial business and~~due to new e-tail growth, ~~but was more than~~partially offset by a decline in sales to the independent dealer channel.

~~Sales~~Net sales in the technology products category (primarily ink and toner) decreased ~~10.6%~~0.5% from the ~~third~~first quarter of ~~2014.~~2015. This category accounted for ~~24.7%~~26.0% of net sales for the ~~third~~first quarter of ~~2015. This decline is primarily attributable to the loss of business with large national customers, lower sales to the independent dealer channel, and lower sales at~~2016. Excluding our Mexican subsidiary, which was sold in the third ~~quarter. These were partially offset~~quarter of 2015, net sales in this category increased 4.8% compared to the prior year quarter, which was driven by ~~growth in e-tail~~sales to new customers.

~~Sales~~Net sales of traditional office products ~~decreased~~increased in the ~~third~~first quarter of ~~2015~~2016 by ~~11.1%~~4.0% versus the ~~third~~first quarter of ~~2014.~~2015. Traditional office supplies represented ~~23.0%~~22.8% of the Company’s consolidated net sales for the ~~third~~first quarter of ~~2015. This~~2016. The sales increase was driven by ~~a decline~~increases in cut-sheet paper sales ~~loss of business with Office Depot~~ and ~~reduced demand in our independent channel. These declines were partially offset by continued growth in e-tailers and a~~ higher government spending.

Industrial supplies net sales in the ~~third~~first quarter of ~~2015 increased~~2016 decreased by ~~37.3%~~6.2% compared to the same prior-year period. ~~Sales~~Net sales of industrial supplies accounted for ~~16.1%~~10.3% of the Company’s net sales for the ~~third~~first quarter of ~~2015 and reflected solid~~2016. The decline in industrial supplies net sales ~~momentum from our acquisitions~~was primarily due to challenges in the ~~last 12 months,~~oilfield sector and macro-economic environment. This decline was partially offset by growth in retail channel sales.

Automotive net sales in the first quarter of 2016 increased 31.8% compared to the first quarter of 2015. Automotive net sales represented 5.9% of the Company’s first quarter of 2016 net sales. This increase was primarily due to the acquisition of Nestor which contributed ~~$81.2~~$16.9 million in ~~incremental~~net sales. Without the acquisitions, industrial sales declined 12.6% over the prior-year quarter. Approximately 25% of our organic industrial business is exposed to energy sector resellers which have been impacted by the decline in oil prices resulting in sales declines in our general industrial and energy channels. We expect this impact to continue throughout the year.

Office furniture net sales in the ~~third~~first quarter of ~~2015 increased 2.7%~~2016 decreased 5.0% compared to the ~~third~~first quarter of ~~2014.~~2015. Office furniture accounted for ~~6.3%~~5.5% of the Company’s ~~third~~first quarter of ~~2015~~2016 consolidated net sales. ~~Within this category, the loss of~~This decline was due to declines in sales ~~at Office Depot was mostly offset by growth~~ in ~~other large customers~~national accounts and ~~e-tailers.~~independent dealer channels.

The remainder of the Company’s ~~third~~first quarter ~~2015~~2016 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit for the ~~third~~first quarter of ~~2015~~2016 was ~~$225.1~~$200.1 million, compared to ~~$216.7~~$200.4 million in the ~~third~~first quarter of ~~2014.~~2015. The gross margin rate of ~~16.2%~~14.8% was ~~up 92~~down 20 basis points (bps) from the prior-year quarter gross margin rate of ~~15.3%~~15.0%. Our ~~acquisitions in the last 12 months added an incremental 17 basis points to our~~ gross margin ~~rate in the quarter. Excluding the impact of our acquisitions, our gross margin rate benefited from a favorable product margin driven~~was impacted by ~~a favorable product mix (20 bps), a decline in freight expenses (31~~lower inflation (22 bps) and ~~favorable inflation related inventory adjustments (48~~higher freight (22 bps)., partially offset by increased sales.

Operating Expenses. Operating expenses for the ~~third~~first quarter of 2016 were ~~$172.2~~$167.7 million or 12.4% of net sales, compared to $197.6 million in the prior year, including ~~$13.5~~$30.5 million related to the ~~third~~first quarter ~~charges.~~of 2015 Repositioning Actions. Adjusted operating expenses were ~~$158.6~~$167.4 million or ~~11.4%~~12.4% of net sales compared with ~~$148.8~~$167.1 million or ~~10.5%~~12.5% of net sales in the same period last year. The ~~$9.8~~$0.3 million increase was driven by ~~$11.5 million of~~ incremental ~~expenses from acquisitions, partially offset by benefits from our first quarter restructuring actions and expense control.~~costs related to the common platform project (22 bps).

Interest Expense, net. Interest expense, net for the ~~third~~first quarter of ~~2015~~2016 was ~~$5.3~~$5.9 million compared to ~~$4.0~~$4.8 million in the ~~third~~first quarter of ~~2014.~~2015. This was driven by higher debt outstanding related to our acquisitions in the past year. Interest expense is expected to be higher in ~~2015~~2016 than in the prior year.

Income Taxes. Income tax expense was ~~$20.0~~$10.0 million for the ~~third~~first quarter of ~~2015,~~2016, compared with ~~$23.6~~$4.0 million for the same period in ~~2014.~~2015. The Company’s effective tax rate was ~~42.0%~~37.6% for the current-year quarter and ~~37.0%~~(196.6)% for the same period in ~~2014~~2015, driven by unfavorable discrete tax impacts of placing a non-strategic business for sale in the ~~capital loss on the sale~~first quarter of ~~Azerty de Mexico which cannot be recognized at this time and carries a full valuation allowance.~~2015.

Net ~~Income.~~Income (Loss). Net income for the ~~third~~first quarter of ~~2015~~2016 totaled ~~$27.7~~$16.5 million or ~~$0.74~~$0.45 per diluted share, ~~including $10.0~~compared to $(6.0) million in the prior year, which included $23.9 million after-tax, or ~~$0.26~~$0.62 per diluted share, of costs related to the ~~third~~first quarter charges. Adjusted net income was ~~$37.7~~$16.7 million, or ~~$1.00~~$0.45 per diluted share, compared with adjusted net income of ~~$40.2~~$17.9 million or ~~$1.03~~$0.46 per diluted share for the same three-month period in ~~2014.~~2015.

~~Results~~Pension Settlement

In February 2016, as a result of ~~Operations—Nine Months Ended September 30, 2015 Compared with~~plan amendment, the ~~Nine Months Ended September 30, 2014~~

~~Net Sales.~~ ~~Net sales for~~Company announced a limited-time voluntary lump-sum pension offering to eligible, terminated, vested plan participants of the ~~first nine months~~Essendant Pension Plan. The Company estimates approximately 1,400 plan participants took this offering during the election period which terminated on April 12, 2016. The lump-sum settlement payments will be made on May 16, 2016, using assets from the Essendant Pension Plan. The settlement payments will result in a remeasurement of ~~2015 were $4.07 billion. The following table summarizes net sales by product category for~~ the ~~nine-month periods ended September 30, 2015~~Essendant Pension Plan’s assets and ~~2014 (in thousands):~~

Nine Months Ended September 30,

2015⁽¹⁾

2014⁽¹⁾

Janitorial and breakroom supplies
$
1,100,646

$
1,068,766

Technology products

1,047,558

1,109,974

Traditional office products (including cut-sheet paper)

911,532

1,015,838

Industrial supplies

647,689

440,751

Office furniture

244,177

238,867

Freight revenue

95,522

92,120

Services, Advertising and Other

18,595

27,807

Total net sales
$
4,065,719

$
3,994,123

~~(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 Condensed Consolidated Statements of Income.

~~Sales~~obligations in the ~~janitorial and breakroom supplies product category increased 3.0%~~second quarter of 2016. The remeasurement will result in a non-cash settlement charge in the ~~first nine months~~second quarter of ~~2015 compared~~2016 and will reduce net income and retained earnings, with a partial offset to ~~the first nine months of 2014. This category accounted for 27.1%~~accumulated other comprehensive income in shareholders’ equity. The amount of the ~~Company’s first nine months~~remeasurement will depend on a variety of ~~2015 consolidated net sales. Sales growth in this category was driven by being named~~factors, including plan assets values and discount rates at the ~~primary supplier for Office Depot’s janitorial business and growth in e-tail, partially offset by reduced demand in our independent dealer customers.~~

~~Sales in the technology products category (primarily ink and toner) decreased in the first nine months~~date of 2015 by 5.6% versus the first nine months of 2014. This category accounted for 25.8% of net sales for the first nine months of 2015. Sales declined due to the loss of business with Office Depot, lower sales at our Mexican subsidiary and reduced demand in our independent dealer channel. The sales decline was partially offset by growth in e-tailers.

Sales of traditional office products decreased in the first nine months of 2015 by 10.3% versus the first nine months of 2014. Traditional office supplies represented 22.4% of the Company’s consolidated net sales for the first nine months of 2015. The decline in this category was primarily driven by the decline of cut-sheet paper and the loss of first call supplier status with Office Depot.

Industrial supplies sales in the first nine months of 2015 increased by 47.0% compared to the same prior-year period and accounted for 15.9% of the Company’s net sales for the first nine months of 2015. Our acquisitions contributed $258.1 million in incremental sales. Excluding sales from acquisitions, industrial supplies sales declined 11.6% over the same period last year, due to declines in our general industrial and energy channels. We expect this impact to continue throughout the year.

Office furniture sales in the first nine months of 2015 increased 2.2% compared to the first nine months of 2014. Office furniture accounted for 6.0% of the Company’s first nine months of 2015 consolidated net sales. Improved sales with a large national customer and growth in e-tail and independent resellers more than offset lost sales to Office Depot.

~~The remainder of the Company’s first nine months of 2015 net sales was composed of freight and other revenues.~~

~~Gross Profit and Gross Margin Rate.~~ Gross profit for the first nine months of 2015 was $635.7 million, compared to $593.1 million in the first nine months of 2014. The gross margin rate of 15.6% was up 78 basis points (bps) from the prior-year period gross margin rate of 14.9%. This increase was due to acquisitions (30 bps) and a favorable product margin driven by favorable product mix and purchase driven inventory allowances.

~~Operating Expenses.~~ Operating expenses for the first nine months of 2015 were $526.7 million or 13.0% of sales, compared with $438.5 million or 11.0% of sales in the same period last year. This included the impacts of a $10.7 million impairment of seller notes, $6.5 million related to workforce reduction and facility consolidations, $11.5 million charge for accelerated amortization related to intangible assets impaired in the first quarter of 2015, and $17.0 million charge related to exiting our non-strategic business in Mexico (together the “2015 charges”). Adjusted operating expenses were $480.9 million or 11.8% of sales. Current period operating expenses were affected by acquisitions which added an incremental $40.9 million in operating expenses. The Company incurred approximately $4.2 million in the first nine months of 2015 of operating expense related to the initiative to combine the Company’s office product and janitorial platforms.

~~Interest Expense, net.~~ ~~Interest expense, net for the first nine months of 2015 was $14.9 million compared to $11.2 million in the first nine months of 2014.~~

~~Income Taxes.~~ Income tax expense was $42.6 million for the first nine months of 2015, compared with $53.3 million for the same period in 2014. The Company’s effective tax rate was 45.3% for the current-year period and 37.2% for the same period in 2014 driven by discrete tax impacts of the impairment charges and a capital loss on the sale of Azerty de Mexico which cannot be recognized at this time and carries a full valuation allowance.

~~Net Income.~~ Net income for the first nine months of 2015 totaled $51.5 million or $1.35 per diluted share, including $34.9 million after-tax, or $0.91 per diluted share, of costs related to 2015 charges. Adjusted net income was $86.3 million, or $2.26 per diluted share, compared with net income of $90.0 million or $2.29 per diluted share for the same nine-month period in 2014.valuation.

Cash Flows

The following discussion focuses on information included in the accompanying Condensed Consolidated Statements of Cash Flows.

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2016 totaled $10.8 million, compared with $62.7 million cash provided by operating activities ~~for~~in the ~~nine~~three months ended ~~September 30, 2015 totaled $183.7~~March 31, 2015. The $73.5 million ~~compared with $93.7 million in the same nine-month period of 2014. The 96.1% improvement~~decrease over the prior year ~~demonstrates market factors and our commitment to effectively manage working capital.~~was primarily driven by a $24.8 million increase in accounts receivable in the current year versus a $26.2 million decrease in accounts receivable in the prior year. Also, inventory decreased $28.0 million in the first quarter of 2016, compared with a decrease of $46.0 million in the prior year quarter.

Investing Activities

Net cash used in investing activities for the first ~~nine~~three months of ~~2015~~2016 was ~~$57.8~~$9.6 million, compared with ~~$41.3~~$5.5 million for the ~~nine~~three months ended ~~September 30, 2014. For the full year 2015, the Company expects capital spending, excluding acquisitions, to be approximately $30.0 million to $35.0 million.~~March 31, 2015.

Financing Activities

Net cash ~~used in~~provided by financing activities for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 totaled ~~$118.1~~$25.6 million, compared with ~~$49.8~~$51.7 million cash used in financing activities in the prior-year period. Net cash ~~used in~~provided by financing activities during the first ~~nine~~three months of ~~2015~~2016 was impacted by ~~$45.3~~$37.0 million in net ~~repayments~~borrowing under ~~debt arrangements, $55.7~~our revolving credit facility, $6.8 million in share repurchases and ~~$16.0~~$5.2 million in payments of cash dividends.

On ~~October 6, 2015,~~February 10, 2016, the ~~Company’s~~ Board of Directors approved ~~the payment~~a dividend of a $0.14 ~~per share dividend payable~~which was paid on April 15, 2016 to ~~stockholders~~shareholders of record as of ~~December 15, 2015 to be paid on January~~March 15, 2016.

In the first quarter of 2016, the Company had a Leverage Ratio, as defined in its 2013 Credit Agreement, 2013 Note Purchase Agreement and the Amended and Restated Transfer and Administration Agreement, that exceeds the 3.00 to 1.00 maximum per the agreements and, therefore, is currently limited in its ability to repurchase its stock.

Liquidity and Capital Resources

Essendant’s growth has historically been funded by a combination of cash provided by operating activities and debt financing. We believe that our cash from operations and collections of receivables, coupled with our sources of borrowings and available cash on hand, are sufficient to fund currently anticipated requirements. These requirements include payments of interest and dividends, scheduled debt repayments, capital expenditures, working capital needs, restructuring activities, the funding of pension plans, and funding for additional share repurchases and acquisitions, if any. Due to our credit profile over the years, external funds have been available at an acceptable cost. We believe that current credit arrangements are sound and that the strength of our balance sheet affords us the financial flexibility to respond to both internal growth opportunities and those available through acquisitions.

Financing available from debt and the sale of accounts receivable as of ~~September 30, 2015,~~March 31, 2016, is summarized below (in millions):

Availability

Maximum financing available under:
2013 Credit Agreement	$	700.0			$	700.0
2013 Note Purchase Agreement		150.0				150.0
Receivables Securitization Program ⁽¹⁾		200.0				200.0
Maximum financing available			$	1,050.0			$	1,050.0
Amounts utilized:
2013 Credit Agreement		318.5				405.8
2013 Note Purchase Agreement		150.0				150.0
Receivables Securitization Program ⁽¹⁾		200.0				200.0
Outstanding letters of credit		11.1				11.6
Total financing utilized				679.6				767.4
Available financing, before restrictions				370.4				282.6
Restrictive covenant limitation				-				94.3
Available financing as of September 30, 2015			$	370.4
Available financing as of March 31, 2016							$	188.3

(1)	The Receivables Securitization Program provides for maximum funding available of the lesser of $200.0 million or the total amount of eligible receivables less excess concentrations and applicable reserves.

The Company’s ~~outstanding debt~~total capitalization consisted of the following amounts (in millions):

	As of			As of			As of			As of
	September 30,			December 31,			March 31,			December 31,
	2015			2014			2016			2015
2013 Credit Agreement	$	318.5		$	363.0		$	405.8		$	368.4
2013 Note Purchase Agreement		150.0			150.0			150.0			150.0
Receivables Securitization Program		200.0			200.0			200.0			200.0
Mortgage & Capital Lease		0.1			0.9			0.1			-
Debt		668.6			713.9			755.9			718.4
Stockholders’ equity		832.6			843.7			734.5			723.7
Total capitalization	$	1,501.2		$	1,557.6		$	1,490.4		$	1,442.1

Debt-to-total capitalization ratio		44.5	%		45.8	%		50.7	%		49.8	%

We believe that our operating cash flow and financing capacity, as described, provide adequate liquidity for operating the business for the foreseeable future. Refer to Note 9,8, “Debt”, for further descriptions of the provisions of our financing facilities as well as Note 911 “Debt” in our Annual Report on Form 10-K for the year-ended December 31, ~~2014.~~

~~Contractual Obligations~~

During the nine-month period ended September 30, 2015, contractual obligations have increased $90.0 million from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014, driven by the renewed corporate office building lease and other facility lease renewals.2015.

2823

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 ~~nine~~three months of ~~2015~~2016 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act is made known to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended ~~September 30, 2015,~~March 31, 2016, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

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, ~~2014.~~2015. There have been no material changes to the risk factors described in such Form 10-K.

2924

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

Not applicable.

(b)

Not applicable.

(c)

Common Stock Purchases.

During the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ the Company repurchased ~~1,525,222~~241,270 and ~~1,074,574~~402,679 shares of common stock at an aggregate cost of ~~$57.4~~$6.8 million and ~~$43.0~~$16.3 million, respectively. ~~On February 11, 2015, the Board of Directors authorized the Company to purchase an additional $100.0 million of common stock.~~ The Company ~~repurchased 1,737,850~~did not repurchase any additional shares ~~for $64.5 million year-to-date~~ through ~~October 19, 2015.~~April 18, 2016. As of that date, the Company had approximately ~~$77.9~~$68.2 million remaining of existing share repurchase authorization from the Board of Directors.

2015 Fiscal Month

Total Number
of Shares
Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased as
Part of a Publicly
Announced Program

Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under
the Program

July 1, 2015 to July 31, 2015

179,757

$
37.88

179,757

$
104,169,515

August 1, 2015 to August 31, 2015

215,011

35.35

215,011

96,569,656

September 1, 2015 to September 30, 2015

349,313

32.89

349,313

85,082,091

Total Third Quarter

744,081

$
35.37

744,081

$
85,082,091

2016 Fiscal Month	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
January 1, 2016 to January 31, 2016		-	$	-		-	$	75,000,020
February 1, 2016 to February 29, 2016		178,278		27.80		178,278		70,044,065
March 1, 2016 to March 31, 2016		62,992		29.90		62,992		68,160,702
Total Third Quarter		241,270	$	28.85		241,270	$	68,160,702

3025

ITEM 6.

EXHIBITS

(a)

Exhibits

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

Exhibit No.		Description
3.1		Third Restated Certificate of Incorporation of Essendant Inc. (“ESND” or the ~~Company,~~“Company”), dated as of June 1, 2015 (Exhibit 3.1 to the ~~Company’s~~ Form 10-Q, ~~for the quarter ended June 30, 2015,~~ filed on July ~~23, 2015)~~23,2015)

3.2		Amended and Restated Bylaws of ~~the Company,~~Essendant Inc., dated as of June 1, 2015 (Exhibit 3.2 to the ~~Company’s~~ Form 10-Q, ~~for the quarter ended June 30, 2015,~~ filed on July 23, 2015)

4.1		Note Purchase Agreement, dated as of November 25, 2013, among ~~USI, USSC,~~ESND, Essendant Co. (“ECO”), and the note purchasers identified therein (the “2013 Note Purchase Agreement”) (Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed on February 19, 2014 (the “2013 Form 10-K”))

~~4.2~~4.2*		Amendment No. 1 to Note Purchase Agreement, dated as of January 27, 2016, among ECO, ESND and the holders of Notes issued by the Company that are parties thereto.

4.3		Parent Guaranty, dated as of November 25, 2013, by ~~USI~~ESND in favor of the holders of the promissory notes identified therein (Exhibit 4.5 to the 2013 Form 10-K)

~~4.3~~4.4		Subsidiary Guaranty, dated as of November 25, 2013, by all of the domestic subsidiaries of ~~USSC~~ECO (Exhibit 4.6 to the 2013 Form 10-K)

10.1*		~~Executive Employment Agreement, effective as of July 22, 2015, by and among~~ Essendant Inc., Essendant Co., and Essendant Management Services LLC and Robert B. Aiken, Jr. 2016 Annual Cash Incentive Award Plan For Section 16 Officers

~~10.2~~10.2*		~~Letter~~Form of Performance Based Restricted Stock Unit Award Agreement ~~dated June 4,~~Under the 2015 among Essendant Inc., Essendant Co. and Robert B. Aiken, Jr. (Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 9, 2015)Long-Term Incentive Plan*

18.110.3		Form of 2016 Restricted Stock Award Agreement with EPS Minimum Under the 2015 Long-Term Incentive Plan**

10.4*		Amendment No. 1 to Fourth Amended and Restated Five-Year Revolving Credit Agreement, dated as of January 27, 2016, among ECO, ESND, the financial institutions that are parties theret,o and JPMorgan Chase Bank, National Association, as agent

10.5*		Fifth Amendment to Amended and Restated Transfer and Administration Agreement, dated as of March 30, 2016 among Essendant Receivables LLC, ECO, Essendant Financial Services LLC, PNC Bank, National Association and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch

10.6*		Amendment to the Amended and Restated Transfer and Administration Agreement, dated as of January 22, 2016

18.1		Preferability Letter on Change in Accounting Principle

31.1*		Certification of Chief Executive Officer, dated as of ~~October 21, 2015,~~April 20, 2016, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer, dated as of ~~October 21, 2015,~~April 20, 2016, 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 ~~October 21, 2015,~~April 20, 2016, 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 Essendant Inc.’s Quarterly Report on Form 10-Q for the period ended ~~September 30, 2015,~~March 31, 2016, filed with the SEC on ~~October 21, 2015,~~April 20, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statement of Income for the three-month ~~and nine-month~~ periods ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ (ii) the Condensed Consolidated Balance Sheet at ~~September 30, 2015~~March 31, 2016 and December 31, ~~2014,~~2015, (iii) the Condensed Consolidated Statement of Cash Flows for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2016 and 2015, ~~and 2014,~~ and (iv) Notes to Condensed Consolidated Financial Statements.

*	- Filed herewith

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

3126

~~SIGNATURES~~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.

			ESSENDANT INC.
			(Registrant)

Date: ~~October 21, 2015~~April 20, 2016			/s/ ~~Todd A. Shelton~~Earl C. Shanks
			~~Todd A. Shelton~~Earl C. Shanks
			Senior Vice President and Chief Financial Officer

3227

	Years Ended December 31,
	2014									2013									2012
	Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change
Consolidated Statement of Income
Cost of goods sold^(A)	$	4,516,704		$	4,524,676		$	7,972		$	4,295,715		$	4,297,952		$	2,237		$	4,305,502		$	4,303,778		$	(1,724	)
Gross profit^(A)		810,501			802,529			(7,972	)		789,578			787,341			(2,237	)		774,604			776,328			1,724
Warehousing, marketing, and administrative expenses^(A)		592,050			595,673			3,623			580,428			580,141			(287	)		573,693			573,645			(48	)
Income before income taxes^(A)		194,483			182,888			(11,595	)		197,510			195,560			(1,950	)		177,635			179,407			1,772
Income tax expense^(A)		75,285			70,773			(4,512	)		74,340			73,507			(833	)		65,805			66,526			721
Net income^(A)		119,198			112,115			(7,083	)		123,170			122,053			(1,117	)		111,830			112,881			1,051
Net income per share^(A)
Basic^(A)	$	3.08		$	2.90		$	(0.18	)	$	3.11		$	3.08		$	(0.03	)	$	2.77		$	2.80		$	0.03
Diluted^(A)	$	3.05		$	2.87		$	(0.18	)	$	3.06		$	3.03		$	(0.03	)	$	2.73		$	2.75		$	0.02

Consolidated Statement of Comprehensive Income
Net income^(A)	$	119,198		$	112,115		$	(7,083	)	$	123,170		$	122,053		$	(1,117	)	$	111,830		$	112,881		$	1,051
Comprehensive income^(A)		96,295			89,212			(7,083	)		137,047			135,930			(1,117	)		114,471			115,522			1,051

Consolidated Statement of Financial Position
Inventories^(A)	$	926,809		$	906,430		$	(20,379	)	$	830,295		$	821,511		$	(8,784	)	$	767,206		$	760,372		$	(6,834	)
Other current assets^(A)		30,042			30,713			671			29,255			29,255			-			30,118			30,118			-
Other long-term assets^(B)		41,810			38,669			(3,141	)		25,576			22,185			(3,391	)		20,260			17,737			(2,523	)
Accrued liabilities^(A)		192,792			185,535			(7,257	)		191,531			188,115			(3,416	)		205,228			202,645			(2,583	)
Long-term debt^(B)		713,058			709,917			(3,141	)		533,324			529,933			(3,391	)		524,376			521,853			(2,523	)
Retained earnings^(A)		1,541,675			1,529,224			(12,451	)		1,444,238			1,438,870			(5,368	)		1,343,437			1,339,186			(4,251	)

Consolidated Statement of Cash Flows
Net income^(A)	$	119,198		$	112,115		$	(7,083	)	$	123,170		$	122,053		$	(1,117	)	$	111,830		$	112,881		$	1,051
Deferred income taxes^(A)		(6,367	)		(10,879	)		(4,512	)		(3,921	)		(4,754	)		(833	)		(6,713	)		(5,992	)		721
Inventories^(A)		(30,319	)		(18,724	)		11,595			(66,627	)		(64,677	)		1,950			10,374			8,602			(1,772	)
Cash provided by operating activities^(A)		77,133			77,133			-			74,737			74,737			-			189,814			189,814			-

Consolidated Statement of Shareholders’ Equity
Retained earnings at beginning of year^(A)	$	1,444,238		$	1,438,870		$	(5,368	)	$	1,343,437		$	1,339,186		$	(4,251	)	$	1,253,118		$	1,247,816		$	(5,302	)
Retained earnings at end of year^(A)		1,541,675			1,529,224			(12,451	)		1,444,238			1,438,870			(5,368	)		1,343,437			1,339,186			(4,251	)

(A) Change related to Inventory Valuation
(B) Change related to Debt Issuance Costs

	As of and for the Three Months Ended June 30, 2015									As of and for the Three Months Ended March 31, 2015
	Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change
Consolidated Statement of Income
Cost of goods sold^(A)	$	1,129,737		$	1,131,680		$	1,943		$	1,127,925		$	1,131,980		$	4,055
Gross profit^(A)		212,062			210,119			(1,943	)		204,450			200,395			(4,055	)
Warehousing, marketing, and administrative expenses^(A)		158,159			156,912			(1,247	)		198,372			197,581			(791	)
Income before income taxes^(A)		49,125			48,429			(696	)		1,239			(2,025	)		(3,264	)
Income tax expense^(A)		18,864			18,595			(269	)		5,231			3,982			(1,249	)
Net income (loss)^(A)		30,261			29,834			(427	)		(3,992	)		(6,007	)		(2,015	)
Net income (loss) per share^(A)
Basic^(A)	$	0.80		$	0.79		$	(0.01	)	$	(0.10	)	$	(0.16	)	$	(0.06	)
Diluted^(A)	$	0.79		$	0.78		$	(0.01	)	$	(0.10	)	$	(0.16	)	$	(0.06	)

Consolidated Statement of Comprehensive Income
Net income (loss)^(A)	$	30,261		$	29,834		$	(427	)	$	(3,992	)	$	(6,007	)	$	(2,015	)
Comprehensive income (loss) ^(A)		31,450			31,023			(427	)		(8,166	)		(10,181	)		(2,015	)

Consolidated Statement of Financial Position
Inventories^(A)	$	875,465		$	851,126		$	(24,339	)	$	871,310		$	847,667		$	(23,643	)
Other current assets^(A)		29,595			30,344			749			31,226			31,977			751
Other long-term assets^(B)		48,439			45,779			(2,660	)		49,440			46,535			(2,905	)
Accrued liabilities^(A)		190,257			181,560			(8,697	)		175,770			167,344			(8,426	)
Long-term debt^(B)		661,143			658,483			(2,660	)		684,238			681,333			(2,905	)
Retained earnings^(A)		1,557,281			1,542,388			(14,893	)		1,532,325			1,517,859			(14,466	)



	For the Six Months Ended June 30, 2015									For the Three Months Ended March 31, 2015
	Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change
Consolidated Statement of Cash Flows
Net income (loss)^(A)	$	26,269		$	23,827		$	(2,442	)	$	(3,992	)	$	(6,007	)	$	(2,015	)
Deferred income taxes^(A)		(8,365	)		(8,294	)		71			(1,858	)		(1,469	)		389
Inventories^(A)		44,984			48,944			3,960			42,759			46,023			3,264
Other assets^(A)		(10,173	)		(10,250	)		(77	)		(10,126	)		(10,751	)		(625	)
Accrued liabilities^(A)		4,794			3,282			(1,512	)		(16,521	)		(17,534	)		(1,013	)
Cash provided by operating activities^(A)		120,848			120,848			-			62,722			62,722			-

(A) Change related to Inventory Valuation
(B) Change related to Debt Issuance Costs

	CPO			MEDCO			Nestor
	(Final)			(Preliminary)			(Preliminary)
Purchase price, net of cash acquired	$	32,225		$	145,873		$	39,939

Accounts receivable		(2,956	)		(44,815	)		(9,230	)
Inventories		(13,051	)		(55,491	)		(10,442	)
Other current assets		(269	)		(1,299	)		(339	)
Property, plant and equipment, net		(488	)		(4,408	)		(1,251	)
Other assets		-			(650	)		(752	)
Intangible assets		(12,800	)		(40,000	)		(17,670	)
Total assets acquired		(29,564	)		(146,663	)		(39,684	)

Accounts payable		16,911			32,383			4,992
Accrued liabilities		2,580			5,542			1,912
Deferred income taxes		3,453			2,716			3,875
Other long-term liabilities		90			52			76
Total liabilities assumed		23,034			40,693			10,855
Goodwill	$	25,695		$	39,903		$	11,110

Goodwill, balance as of December 31, 2014	$	398,042
Impairment		(3,319	)
Purchase accounting adjustments		9,977
Acquisition		11,110
Currency translation adjustments		(2,632	)
Goodwill, balance as of September 30, 2015	$	413,178

	Amount Reclassified From AOCI
	For the Three			For the Nine
	Months Ended			Months Ended
	September 30,			September 30,			Affected Line Item In The Statement
Details About AOCI Components	2015			2015			Where Net Income is Presented
Realized and unrealized gains (losses) on cash flow hedges
Gain (loss) on interest rate swap, before tax	$	349		$	1,052		Interest expense, net
Gain on foreign exchange hedge, before tax		4			4		Cost of goods sold
		(134	)		(401	)	Tax provision
	$	219		$	655		Net of tax

Foreign currency translation adjustments
Disposition of Azerty de Mexico	$	11,132		$	11,132		Warehousing, marketing and administrative expenses

Defined benefit pension plan items
Amortization of prior service cost and unrecognized loss	$	1,573		$	4,623		Warehousing, marketing and administrative expenses
		(610	)		(1,792	)	Tax provision
		963			2,831		Net of tax
Total reclassifications for the period, net of tax	$	12,314		$	14,618

	Nine Months Ended September 30,
	2015⁽¹⁾		2014⁽¹⁾
Janitorial and breakroom supplies	$	1,100,646	$	1,068,766
Technology products		1,047,558		1,109,974
Traditional office products (including cut-sheet paper)		911,532		1,015,838
Industrial supplies		647,689		440,751
Office furniture		244,177		238,867
Freight revenue		95,522		92,120
Services, Advertising and Other		18,595		27,807
Total net sales	$	4,065,719	$	3,994,123

2015 Fiscal Month	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
July 1, 2015 to July 31, 2015		179,757	$	37.88		179,757	$	104,169,515
August 1, 2015 to August 31, 2015		215,011		35.35		215,011		96,569,656
September 1, 2015 to September 30, 2015		349,313		32.89		349,313		85,082,091
Total Third Quarter		744,081	$	35.37		744,081	$	85,082,091