(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):

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 ~~April 18,~~October 24, 2016, the registrant had outstanding ~~37,153,988~~36,968,408 shares of common stock, par value $0.10 per share.

* 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”.

The accompanying Condensed Consolidated Financial Statements represent Essendant Inc. (“ESND”) with its wholly owned subsidiary Essendant Co. (“ECO”), and 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, 2015, was derived from the December 31, 2015 audited financial statements. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”) 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 ~~March 31,~~September 30, 2016 and the results of operations and cash flows for the ~~three-month periods~~nine months ended ~~March 31,~~September 30, 2016 and 2015. The results of operations for the three and nine months ended ~~March 31,~~September 30, 2016 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. 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 lease liabilities for 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, 2018, including interim periods within that reporting 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,. Under the ~~objective~~new guidance, when awards vest or are settled, companies are required to record excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement instead of in additional paid-in capital (APIC). This guidance will be applied prospectively. Furthermore, companies will present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity, which companies can elect to apply retrospectively or prospectively. Under the new guidance, companies will elect whether to account for forfeitures of share-based payments by recognizing forfeitures of awards as they occur or estimate the number of awards expected to be forfeited, as is currently required. This guidance will be applied using a modified retrospective transition method, with a cumulative adjustment 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. Thisretained earnings. The standard will be effective for annual periods beginning after December 15, 2016, ~~and~~including interim periods within ~~those annual periods,~~that reporting period, and early ~~adoption~~application is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

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.

Approximately ~~98.5% and~~ 98.4% of total inventory as of ~~March 31,~~September 30, 2016 and December 31, 2015, respectively, has been valued under the 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 FIFO cost or market, inventory values would have been ~~$148.6~~$147.2 million and $147.8 million higher than reported as of ~~March 31,~~September 30, 2016 and December 31, 2015, respectively.

The change in the LIFO reserve in the third quarter of 2016 included a LIFO liquidation relating to decrements in five of the Company’s thirteen LIFO pools. These decrements resulted in liquidation of LIFO inventory quantities carried at lower costs in prior years as compared with the cost of current year purchases. This liquidation resulted in LIFO income of $2.3 million which was partially offset by LIFO expense of $2.1 million related to current inflation for an overall net decrease in cost of sales of $0.2 million for the three months ended September 30, 2016. For the three months ended September 30, 2015, the change in the method of inventory costing resulted in LIFO income of $3.5 million which was partially offset by LIFO expense of $0.8 million related to inflation for an overall net decrease in cost of sales of $2.7 million. For the nine months ended September 30, 2016, the LIFO income of $2.3 million related to the liquidation was more than offset by LIFO expense of $3.2 million related to current inflation for an overall net increase in cost of sales of $0.9 million.

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.~~segments.

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~~Purchase accounting for this transaction was completed as of the fair values of assets acquired and liabilities assumed for purposes of allocating the purchase price. The estimates are subject to change as the valuation activities are completed. The fair values of the assets and liabilities were estimated using various valuation methods including estimated selling prices, market approach, and discounted cash flows using both an income and cost approach.

~~Any changes to the preliminary allocations of the purchase price, some of which may be material, will be allocated to residual goodwill.~~June 30, 2016.

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

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

3. Sale-Leaseback On ~~February 16,~~September 23, 2016, the Company ~~announced~~entered into an agreement tofor the sale and leaseback of its facility in City of Industry, CA. The agreement provided for the sale of the facility for a purchase ~~from Staples, Inc. contracts~~price of $31.7 million and ~~related assets representing more than $550~~the subsequent leaseback for a two year period. The lease is classified as an operating lease. As a result, the Company recorded a gain of $20.5 million in ~~annual sales to minority~~“warehousing, marketing and ~~woman-owned office supply resellers and their large corporate and other enterprise customers. The transaction is subject to~~administrative expenses.” A deferred gain of approximately $2.8 million that will be amortized into income over the ~~successful completion~~term of the ~~proposed merger~~lease was also recorded. As 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 the second quarter of 2016. Under the termsSeptember 30, 2016, $1.4 million of the ~~agreement, Essendant will~~deferred gain is reflected in the accompanying Consolidated Balance Sheet under “other long-term liabilities”, with the remainder included as a component of “other current liabilities”. The cash proceeds from the sale were used primarily to pay ~~Staples approximately $22.5 million.~~down long-term debt.

As of ~~March 31,~~September 30, 2016, the Company has two active equity compensation plans. Under the 2015 Long-Term Incentive Plan (as amended and restated), award 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 in deferred stock units.

The Company granted ~~120,376~~526,697 shares of restricted stock and ~~247,510~~290,725 RSUs during the first ~~three~~nine months of 2016, compared to ~~46,229~~440,948 shares of restricted stock and ~~145,552~~162,092 RSUs during the first ~~three~~nine months of 2015.

Commencing in the first quarter of 2015, the Company began certain restructuring actions which included workforce reductions and facility closures. In the first quarter of 2015, the Company recorded $6.0 million of pre-tax expense relating to workforce 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 outlays for these actions occurred primarily in 2015 and were approximately $0.7 million and $0.5 million, respectively, for the three months ended March 31, 2016 and 2015. As of March 31, 2016, the Company has accrued liabilities for these actions of $1.8 million.

Commencing in the fourth quarter of 2015, the Company executed actions to 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 workforce reduction~~The charges associated with these actions were included in “warehousing, marketing and administrative expenses.” ~~Cash outlays~~

The expenses, cash flows, and accrued liabilities associated with ~~these charges were approximately $3.1 million~~the restructuring actions described above are noted in the ~~three months ended March 31, 2016. As of March 31, 2016, the Company has accrued liabilities for these actions of $7.9 million.~~following table (in thousands):

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

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):

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 were fully amortized as of December 31, 2015.

The following table summarizes the amortization expense to be incurred in 2016 through 2020 on intangible assets (in thousands):

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

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

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 ~~periods ended March 31,~~period ending September 30, 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. ~~An additional 0.4~~For the nine-month period ending September 30, 2016, 0.3 million shares of ~~common stock outstanding at March 31, 2015~~securities were excluded from the ~~computation~~computation. For the nine-month period September 30, 2015, no shares of ~~diluted earnings per share due to~~securities were excluded from the ~~net loss.~~computation. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

As of ~~March 31,~~September 30, 2016 , the Company had Board authorization to repurchase $68.2 million of common stock. During the ~~three-month periods~~three months ended ~~March 31,~~September 30, 2016, the Company did not repurchase any shares of its common stock. For the same period in the prior year, the Company repurchased 744,081 shares at an aggregate cost of $25.9 million. During the nine months ended September 30, 2016 and 2015, the Company repurchased 241,270 and ~~402,679~~1,525,222 shares of the Company’s common stock at an aggregate cost of $6.8 million and ~~$16.3~~$57.4 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 ~~three~~nine months of 2016 and 2015, the Company reissued ~~106,800~~452,286 and ~~31,745~~369,591 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

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, ECO, and from borrowings by ECO. The 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program (each as defined in Note 11 of the ~~Company’s~~2015 Form ~~10-K for the year ended December 31, 2015)~~10-K) (each a “Lending Agreement”) contain restrictions on the use of cash transferred from ECO to ESND. Each of the Lending Agreements also prohibits the Company from exceeding a Leverage Ratio (as defined in the 2013 Credit Agreement and the 2013 Note Purchase Agreement). The maximum Leverage Ratio is 3.50 to 1.00 but increases to up to 4.00 to 1.00 for the first four fiscal quarters (the “Adjusted Leverage Period”) following certain acquisitions. Following the 2015 acquisition of Nestor Sales, an Adjusted Leverage period was applicable through the quarter ended June 30, 2016. On August 30, 2016, the Lending Agreements were amended to extend the Adjusted Leverage Period for two additional quarters. As a result, the maximum permitted Leverage Ratio remains at 4.00 to 1.00 but will revert to 3.50 to 1.00 for the quarter ending March 31, 2017.

As of ~~March 31,~~September 30, 2016, ~~80.2%~~75.9% 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 $11.2 million and $11.6 million under the 2013 Credit Agreement as of ~~March 31,~~September 30, 2016 and December 31, ~~2015.~~2015, respectively.

~~Borrowings~~As of September 30, 2016, the applicable margin 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% towas 2.00% ~~and on Alternate Base Rate loans ranges from 0.00% to 1.00%. As of March 31, 2016, the applicable margin~~ for LIBOR-based loans and was ~~1.50% and~~1.00% for Alternate Base Rate loans was 0.50%. 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 commitmentsloans. Interest under the 2013 ~~Credit~~Note Purchase Agreement is payable semi-annually at a rate per annum ~~between 0.15% and 0.35%~~equal to 3.75% (3.66% after the effect of terminating an interest rate swap), ~~depending on~~except the annual rate increases by 0.625% if the Company’s Leverage ~~Ratio.~~Ratio is between 3.50 to 1.00 and 3.75 to 1.00, and increases by 0.75% if the Leverage Ratio is between 3.75 to 1.00 and 4.00 to 1.00. The Company’s Leverage Ratio was 3.51 to 1.00 as of June 30, 2016 and was 2.77 to 1.00 as of September 30, 2016.

As of ~~March 31,~~September 30, 2016 and December 31, 2015, ~~$524.1~~$552.9 million and $448.6 million, respectively, of receivables had been sold to the Investors (as defined in Note 11 ofto the Company’s Consolidated Financial Statements in the 2015 Form ~~10-K for the year ended December 31, 2015)~~10-K). ~~ESR~~Essendant Receivables LLC had $200.0 million outstanding under the Receivables Securitization Program as of ~~March 31,~~September 30, 2016 and December 31, 2015.

For additional information about the 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program, see Note 11 of the ~~Company’s~~2015 Form ~~10-K for the year ended December 31, 2015.~~10-K.

The Company maintains pension plans covering union and certain non-union employees. For more information on the Company’s retirement plans, see Note 13 to the Company’s Consolidated Financial ~~Statements~~Statement in the 2015 Form ~~10-K for the year ended December 31, 2015.~~10-K. A summary of net periodic pension cost related to the Company’s pension plans for the ~~three-month periods~~three and nine months ended ~~March 31,~~September 30, 2016 and 2015 was as follows (dollars in thousands):

The Company made cash contributions of $10.0 million and $2.0 million to its pension plans during the ~~three-month periods~~nine months ended ~~March 31,~~September 30, 2016 and 2015, respectively. Additional contributions, if any, for 2016 have not yet been determined. As of ~~March 31,~~September 30, 2016 and December 31, 2015, respectively, the Company had accrued ~~$38.4~~$44.7 million and $48.4 million of pension liability within “Other long-term liabilities” on the Condensed Consolidated Balance Sheets.

During 2016, ~~as a result~~the Company has taken several actions to mitigate the interest rate, mortality and investment risks of ~~an amendment to~~ the Essendant Pension ~~Plan, the Company announced~~ Plan. These actions include a limited-time voluntary lump-sum pension offering to eligible, terminated, vested plan ~~participants. The lump-sum~~participants that was completed during the second quarter.

As a result of the lump sum offer, a settlement ~~payments will be made on May 16, 2016, using assets from~~and remeasurement of the Essendant Pension ~~Plan.~~

Plan was performed. The remeasurement and activity in the first nine months of 2016 had no cash impact to the Company since the payments were made by the Essendant Pension Trust, and resulted in a $1.5 million improvement to the net funded status of the plan, therefore reducing other long-term liabilities. However, the settlement caused a loss of $12.2 million, which was partially offset by the $8.4 million reduction in Accumulated Other Comprehensive Income related to the unrecognized actuarial loss, for a net impact on shareholders’ equity of $3.8 million as of September 30, 2016 when compared to December 31, 2015. This offer also reduces future pension expense recognized by the Company and volatility related to future obligations of the 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 $1.8 million and ~~$1.4~~$5.5 million, respectively, for the Company match of employee contributions to the Plan for the ~~three-month periods~~three and nine months ended ~~March 31, 2016 and 2015.~~

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 reflects the present value of the amount that the Company would pay for contracts involving the same notional amount and maturity date. The changes in fair value of this instrument is reported in AOCI and reclassified into earnings in interest expense inSeptember 30, 2016. During the same periods ~~during which~~last year, the ~~related interest payments on the hedged debt affect earnings. This swap matures in July 2017.~~AsCompany recorded expense of March 31, 2016 and December 31, 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 $0.9$1.5 million and ~~$0.5~~$4.4 million ~~respectively.~~to match employee contributions.

The Company 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 $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 cost of goods sold in the same periods during which the related inventory is sold and affects earnings. As of 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-month periods ended March 31, 2016 and 2015 (in thousands).~~

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 10 “Derivative Financial Instruments”, for more information on these~~rates. The fair value of the interest rate swaps is determined by using quoted market forward rates (level 2 inputs) and reflects the present value of the amount the Company would pay for contracts involving the same notional amount and maturity date. The fair value of the foreign currency ~~derivatives)~~cash flow hedge is determined by using quoted market spot rates (level 2 inputs).

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:

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 ~~March 31,~~September 30, 2016 and December 31, 2015 (in thousands):

The carrying amount of accounts receivable at ~~March 31,~~September 30, 2016, including ~~$524.1~~$552.9 million of receivables sold under the Receivables Securitization Program, approximates fair value because of the short-term nature of this item.

Receivables related to supplier allowances totaling ~~$92.1~~$93.4 million and $111.0 million were included in “Accounts receivable” in the Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2016 and December 31, 2015, respectively.

Accrued customer rebates of ~~$47.2~~$64.3 million and $63.6 million as of ~~March 31,~~September 30, 2016 and December 31, 2015, respectively, were included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

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 ~~March 31,~~September 30, 2016, the Company recorded income tax expense of ~~$10.0~~$17.1 million and $34.9 million on pre-tax income of ~~$26.5~~$53.8 million and $101.1 million, for an effective tax rate of ~~37.6%.~~31.8% and 34.5%, respectively. For the three and nine months ended ~~March 31,~~September 30, 2015, the Company recorded income tax expense of ~~$4.0~~$20.0 million and $42.6 million on pre-tax ~~loss~~income of ~~$2.0~~$47.7 million and $94.1 million, for an effective tax rate of ~~(196.6)%.~~42.0% and 45.3%, respectively.

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

The Company has been named as a defendant in two lawsuits alleging that the Company sent unsolicited fax advertisements to the named plaintiffs, as well as 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"). One lawsuit was initially filed in the United States District Court for the Central District of California on May 1, 2015 and has been dismissed without prejudice and refiled in ~~an Illinois state court, subject to a motion to dismiss~~ the ~~California case without prejudice.~~United States District Court for the Northern District of Illinois. 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. In each lawsuit, the Company is vigorously contesting class certification and 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 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.

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~~Item 1A. ~~Risk~~“Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, ~~2015.~~2015 (the “2015 Form 10-K”) and in Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.

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.

Essendant Inc. is a leading supplier of workplace essentials, with 2015 net sales of approximately $5.4 billion. Essendant Inc. stocks over 180,000 items 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 products. Essendant sells through a network of 7471 distribution centers to approximately 30,000 reseller customers, who in turn sell directly to end consumers. The Company also operates CPO Commerce which sells power tools and ~~do-it-yourself~~outdoor equipment online to the consumer ~~market.~~market and construction professionals.

~~Our strategy is comprised~~We have begun implementing the first phase of ~~three key strategic pillars:~~a comprehensive multi-year transformation program to improve the value of our business, which includes:

~~Essendant will focus on the following five key objectives over the next two years:~~

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

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

~~Diluted earnings per share for the first quarter of 2016 were $0.45 compared to a net loss per share of $0.16 in the prior year~~

Third quarter net sales increased 1.1%, from the prior-year quarter to $1.4 billion.

Gross profit as a percent of net sales in the third quarter of 2016 was 14.1% versus 16.2% in the prior-year quarter. Gross profit for the third quarter of 2016 was $198.9 million, compared to $225.1 million in the third quarter of 2015.

Operating expenses in the third quarter of 2016 were $138.5 million or 9.8% of net sales, compared with $172.2 million or 12.4% of net sales in the prior-year quarter, including impacts of the Company’s Actions impacting comparability of results (collectively, the “Actions”) discussed below. Adjusted operating expenses in the third quarter of 2016 were $158.6 million or 11.3% of net sales compared to $158.6 million or 11.4% of net sales in the prior-year quarter. ~~Adjusted diluted earnings per share were $0.45 compared with $0.46 in the prior-year period.~~ Refer to the Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income, ~~and~~ Adjusted Earnings Per Share and Free Cash Flow table (the “Non-GAAP table”) included later in this section for more detail.

Operating income for the quarter ended September 30, 2016 was $60.3 million or 4.3% of net sales, compared with $53.0 million or 3.8% of net sales in the prior year quarter, including impacts of the Actions discussed below. Excluding the Actions, adjusted operating income in the third quarter of 2016 was $40.2 million or 2.9% of net sales, versus $66.5 million or 4.8% of net sales in the third quarter of 2015.

Diluted earnings per share for the third quarter of 2016 increased to $0.99 from $0.74 in the prior year quarter, including the impacts of the Actions discussed below. Adjusted diluted earnings per share were $0.57 compared with $1.00 in the prior-year period.

Cash flows provided by operating activities for the nine months ended September 30, 2016 were $106.0 million versus $183.7 million in the prior year quarter.

Inventory decreased $73.7 million compared to a decrease of $54.4 million in the prior year.

~~First quarter net sales~~o

Accounts payable increased ~~1.5%, from~~$8.9 million compared to an increase of $50.4 million in the ~~prior-year quarter to $1.4 billion.~~prior year.

~~Gross margin as a percent of net sales in the first quarter of 2016 was 14.8% versus 15.0% in the prior-year quarter. Gross profit for the first quarter of 2016 was $200.1~~o

Dealer rebate prepayments increased $34.5 million compared to ~~$200.4 million in the first quarter~~an increase of ~~2015.~~

Operating expenses in the first quarter of 2016 were $167.7 million or 12.4% of net sales, compared with $197.6 million or 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.

Operating income for the quarter ended March 31, 2016 was $32.4 million or 2.4% of net sales, compared with $2.8 million or 0.2% of net sales in the 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.~~year.

Cash flow provided by investing activities improved $63.5 million compared to the prior year due to proceeds of $31.0 million from the 2016 sale of our City of Industry facility. In addition, there were no acquisitions in 2016 compared to acquisitions totaling $40.5 million in the prior year.

Implementation of our initiative to combine the office products and janitorial businesses on a common operating platform began in the third quarter of 2015 and facility conversions were completed in April of 2016.

·	On July 31, 2015, we acquired 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 contributed $16.9 million of net sales in the first quarter of 2016.

On February 16, 2016, we 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 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 the second quarter of 2016. Under the terms of the agreement, Essendant will pay Staples approximately $22.5 million.

Actions impacting comparability of results (the “Actions”)

In the third quarter of 2016, the Company entered into a two-year operating lease agreement in connection with the disposition of its City of Industry facility. The sale of the facility resulted in a $20.5 million gain. Refer to Note 3 for further details of this transaction.

In the third quarter of 2016, the Company incurred charges of $1.2 million related to severance costs for two members of the Company’s operating leadership team.

A voluntary lump-sum pension offering was completed in the second quarter of 2016 and resulted in a significant reduction of interest rate, mortality and investment risk of the Essendant Pension Plan. Due to this offer, a settlement and remeasurement of the Essendant Pension Plan was required as of August 31, 2016 and May 31, 2016, resulting in a defined benefit plan settlement loss of $0.4 million and $12.2 million, respectively, for the three and nine months ended September 30, 2016. Refer to Note 10 “Pension and Post-Retirement Benefit Plans”, for further information on the remeasurement and voluntary lump sum program.

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 unfavorable impact of $0.2 million in the three months ended September 30, 2015 and an unfavorable $6.5 million in the first nine months of 2015. In the three months and nine months ended September 30, 2016, the impact of these actions totaled a favorable $1.2 million and $1.0 million, respectively, due to the release of severance accruals.

On June 1, 2015, we officially rebranded the Company to Essendant Inc. to communicate the Company’s strategy in a consistent manner. When we announced in the first quarter of 2015 our decision to rebrand the company, the ORS Nasco trademark and certain OKI brands were determined to be impaired. Pre-tax, non-cash, impairment charges and accelerated amortization totaling $11.5 million were recorded in the first nine months of 2015.

In the third quarter of 2015, seller notes receivable of $10.7 million related to the 2014 sale of the Company’s software service provider were impaired.

In 2015 we exited non-strategic channels to further align our product categories and channels with our strategies, including the sale of Azerty de Mexico, our operations in Mexico. The total charges in the first nine months of 2015 related to the disposition of this subsidiary were $17.0 million. In the first nine months of 2015, this subsidiary had net sales of $50.1 million and operating loss of $0.8 million, excluding the charges previously mentioned.

~~Repositioning Actions~~Guidance

On June 1, 2015 we officially rebranded the Company to Essendant Inc. When we announced in the first quarter of 2015 our decision to rebrand the company, the ORS Nasco trademark and certain OKI brands were determined to be impaired. Pre-tax, non-cash, impairment charges and accelerated amortization totaling $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.

~~Guidance~~

The Company ~~reaffirms~~revised its ~~previously announced outlook~~guidance regarding 2016, and 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;~~

Total company net sales in the range of $5.325 billion to $5.375 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;~~

Adjusted diluted earnings per share in the range of $1.75 to $1.90

Free cash flow greater than $150 million in the second half of 2016

Adjusted diluted earnings per share and free cash flow are non-GAAP measures. A quantitative reconciliation of our non-GAAP guidance to the corresponding GAAP information is not available because the non-GAAP guidance excludes certain GAAP information that is uncertain and difficult to predict.

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

The adjusted diluted earnings per share guidance ~~above~~ excludes income in the ~~impact~~first nine months of 2016 of $0.22 per share related to a settlement charge for the defined benefit plan, gain on sale of City of Industry facility, severance costs for operating leadership, restructuring charges, and non-GAAP tax provision. Actual amounts for these measures for the three and nine months ended September 30, 2016 appear in the Non-GAAP table included later in this section. For the remainder of the year, the factors that will be excluded are currently unknown due to the level of unpredictability and uncertainty associated with these items, but may include actions such as gain or loss on future sales of assets ~~acquired in the proposed Staples transaction, any new~~or businesses, future restructuring charges, non-GAAP tax adjustments, cash flow impacts of acquisitions, and ~~any unusual charges, such as impacts from our pension lump-sum offer described in Note 9.~~ other actions.

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~~2015 Form ~~10-K for the year-ended December 31, 2015.~~10-K.

Critical Accounting Policies, Judgments and Estimates

In the ~~first~~third quarter of 2016, there were no significant changes to the Company’s critical accounting policies, judgments or estimates from those disclosed in the ~~Company’s Annual Report on~~2015 Form ~~10-K for the year ended December 31, 2015~~10-K.

Adjusted Operating Expenses, Adjusted Operating Income, Adjusted ~~EBITDA, Adjusted~~ Net Income, ~~and~~ Adjusted Diluted Earnings Per Share, Adjusted EBITDA and Free Cash Flow (the “Non-GAAP table”)

The ~~following~~Non-GAAP table below presents Adjusted Operating Expenses, Adjusted Operating Income, Adjusted Net Income, ~~and~~ Adjusted Diluted Earnings ~~Per~~per Share, Adjusted EBITDA and Free Cash Flow for the ~~three-month periods~~three and nine months ended ~~March 31,~~September 30, 2016 and 2015 (in thousands, except per share data). These non-GAAP measures exclude certain non-recurring items and exclude other items that do not reflect the Company’s ongoing operations and are included to provide investors with useful information about the financial performance of our business. The presented non-GAAP financial measures should not be considered in isolation or as substitutes for the comparable GAAP financial measures. The non-GAAP financial measures do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures.

In order to calculate the non-GAAP measures, management excludes the following items to facilitate the comparison of current and prior year results and ongoing operations, as management believes these items do not reflect the underlying cost structure of our business. These items can vary significantly in amount and frequency.

Restructuring charges. Workforce reduction and facility closure charges such as employee termination costs, facility closure and consolidation costs, and other costs directly associated with shifting business strategies or business conditions that are part of a restructuring program.

The Company commenced two such restructuring programs during 2015 (refer to Note 5).

Gain or loss on sale of assets or businesses. Sales of assets, such as buildings or equipment, and businesses can cause gains or losses. These transactions occur as the Company is repositioning its business and reviewing its cost structure.

The Company recognized a gain on the sale of its City of Industry facility in the third quarter of 2016 (refer to Note 3), a loss on the sale and related impairment of intangible assets of the operations in Mexico in 2015, and a loss on the sale and related impairment of intangible assets of its software subsidiary in 2014, recording an impairment of the seller notes in the third quarter of 2015.

Due to the sale of the City of Industry facility, the Company was able to utilize its capital loss carryforwards. This utilization resulted in the release of the valuation allowance previously established against the deferred tax asset. The $5.0 million tax benefit from the release of the valuation allowance reduced the effective tax rate for the three and nine months ended September 30, 2016, by 9.2% and 4.9%, respectively.

Severance costs for operating leadership. Employee termination costs related to members of the Company’s operating leadership team are excluded as they are based upon individual agreements.

Two operating leaders were severed from the Company in the third quarter of 2016, which were not part of a restructuring program.

Asset impairments. Changes in strategy or macroeconomic events may cause asset impairments.

The Company recorded impairment and accelerated amortization of its trademarks upon the announcement of its rebranding effort in 2015.

Other actions. Actions, which may be non-recurring events, that result from the changing strategies and needs of the Company and do not reflect the underlying expense of the on-going business. These charges include items such as settlement charges related to the defined benefit plan settlement in 2016 (refer to Note 10) and the tax impact of the dividend from a foreign subsidiary (refer to Note 13).

Adjusted operating expenses and adjusted operating income. Adjusted operating expenses and adjusted operating income provide management and our investors with an understanding of the results from the primary operations of our business by excluding the effects of items described above that do not reflect the ~~pre-tax charges related~~ordinary expenses and earnings of our operations. Adjusted operating expenses and adjusted operating income are used to ~~workforce reduction~~evaluate our period-over-period operating performance as they are more comparable measures of our continuing business. These measures may be useful to an investor in evaluating the underlying operating performance of our business.

Adjusted net income and ~~facility consolidations~~adjusted diluted earnings per share. Adjusted net income and adjusted diluted earnings per share provide a more comparable view of our Company’s underlying performance and trends than the comparable GAAP measures. Net income and diluted earnings per share are adjusted for the effect of items described above that do not reflect the ordinary earnings of our operations.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Adjusted EBITDA is helpful in evaluating our operating performance and is used by management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting. Net income is adjusted for the ~~first three months~~effect of ~~2016,~~interest, taxes, depreciation and ~~workforce reductions~~amortization and facility consolidations, intangible asset impairment charge and accelerated amortization related to rebranding and asset held for sale impairment in the first three months of 2015. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income.stock-based compensation expense. Management believes that ~~excluding these items~~adjusted EBITDA is ~~an appropriate comparison~~also commonly used by investors to evaluate operating performance between competitors because it helps reduce variability caused by differences in capital structures, income taxes, stock-based compensation accounting policies, and depreciation and amortization policies.

Free cash flow. Free cash flow is useful to management and our investors as it is a measure of ~~its ongoing~~the Company’s liquidity. It provides a more complete understanding of factors and trends affecting our cash flows than the comparable GAAP measure. Net cash provided by (used in) operating ~~results~~activities and net cash provided by (used in) investing activities are aggregated and adjusted to exclude the ~~results~~non-cash impact 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.acquisitions and divestitures.

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

	For the Three Months Ended September 30,
	2016			2015

Operating expenses	$	138,526		$	172,159
Settlement charge related to the defined benefit plan (Note 10)		(419	)		-
Gain on sale of City of Industry facility (Note 3)		20,541			-
Severance costs for operating leadership		(1,245	)		-
Restructuring charges (Note 5)		1,210			(200	)
Impairment of assets and accelerated amortization related to rebranding		-			(511	)
Impairment of seller notes		-			(10,738	)
Loss on sale of Mexico business and related costs		-			(2,072	)
Adjusted operating expenses	$	158,613		$	158,638

Operating income	$	60,328		$	52,984
Operating expense adjustments noted above		(20,087	)		13,521
Adjusted operating income	$	40,241		$	66,505

Net income	$	36,742		$	27,667
Operating expense adjustments noted above		(20,087	)		13,521
Non-GAAP tax provision on adjustments
Settlement charge related to the defined benefit plan (Note 10)		(158	)		-
Gain on sale of City of Industry facility (Note 3)		2,789			-
Severance costs for operating leadership		(469	)		-
Restructuring charges (Note 5)		456			(76	)
Dividend from a foreign subsidiary (Note 13)		1,666			-
Impairment of assets and accelerated amortization related to rebranding		-			(194	)
Impairment of seller notes		-			(4,080	)
Loss on sale of Mexico business and related costs		-			846
Adjusted net income	$	20,939		$	37,684

Diluted earnings per share	$	0.99		$	0.74
Operating expense adjustments noted above		(0.54	)		0.36
Non-GAAP tax provision on adjustments		0.12			(0.10	)
Adjusted diluted earnings per share	$	0.57		$	1.00

Net income	$	36,742		$	27,667
Provision for income taxes		17,102			20,017
Interest expense, net		6,484			5,300
Depreciation and amortization		10,046			10,424
Equity compensation expense		1,355			3,179
Operating expense adjustments noted above		(20,087	)		13,521
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)	$	51,642		$	80,108

Net cash provided by operating activities	$	121,952		$	62,811
Net cash provided by (used in) investing activities		22,280			(45,363	)
Less: Acquisition, net of cash acquired		-			39,939
Add: Sale of equity investment		-			(612	)
Free cash flow	$	144,232		$	56,775

	For the Nine Months Ended September 30,
	2016			2015

Operating expenses	$	475,573		$	526,653
Settlement charge related to the defined benefit plan (Note 10)		(12,163	)		-
Gain on sale of City of Industry facility (Note 3)		20,541			-
Severance costs for operating leadership		(1,245	)		-
Restructuring charges (Note 5)		956			(6,495	)
Impairment of assets and accelerated amortization related to rebranding		-			(11,485	)
Impairment of seller notes		-			(10,738	)
Loss on sale of Mexico business and related costs		-			(16,999	)
Adjusted operating expenses	$	483,662		$	480,936

Operating income	$	119,186		$	109,004
Operating expense adjustments noted above		(8,089	)		45,717
Adjusted operating income	$	111,097		$	154,721

Net income	$	66,205		$	51,492
Operating expense adjustments noted above		(8,089	)		45,717
Non-GAAP tax provision on adjustments
Settlement charge related to the defined benefit plan (Note 10)		(4,574	)		-
Gain on sale of City of Industry facility (Note 3)		2,789			-
Severance costs for operating leadership		(469	)		-
Restructuring charges (Note 5)		357			(2,468	)
Dividend from a foreign subsidiary (Note 13)		1,666			-
Impairment of assets and accelerated amortization related to rebranding		-			(4,364	)
Impairment of seller notes		-			(4,080	)
Loss on sale of Mexico business and related costs		-			49
Adjusted net income	$	57,885		$	86,346

Diluted earnings per share	$	1.79		$	1.35
Operating expense adjustments noted above		(0.22	)		1.20
Non-GAAP tax provision on adjustments		-			(0.29	)
Adjusted diluted net income per share	$	1.57		$	2.26

Net income	$	66,205		$	51,492
Provision for income taxes		34,923			42,594
Interest expense, net		18,058			14,918
Depreciation and amortization		30,500			31,356
Equity compensation expense		7,044			6,447
Operating expense adjustments noted above		(8,089	)		45,717
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)	$	148,641		$	192,524

Net cash provided by operating activities	$	105,968		$	183,659
Net cash provided by (used in) investing activities		5,723			(57,808	)
Less: Acquisitions, net of cash acquired		-			(40,471	)
Add: Sale of equity investment		-			612
Free cash flow	$	111,691		$	85,992

~~(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.

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

Net Sales. Net sales for the ~~first~~third quarter of 2016 were ~~$1.35~~$1.4 billion. The following table summarizes net sales by product category for the three-month periods ended ~~March 31,~~September 30, 2016 and 2015 (in thousands):

	Three Months Ended March 31,				For the Three Months Ended September 30,
	2016		2015⁽¹⁾		2016		2015⁽¹⁾
Janitorial and breakroom supplies (JanSan)	$	362,387	$	358,677	$	372,880	$	377,763
Technology products		351,113		353,047		345,649		343,303
Traditional office products (including cut-sheet paper)		308,055		296,177
Traditional office products						239,964		236,258
Industrial supplies		139,764		149,074		139,822		146,769
Cut sheet paper						106,589		83,543
Automotive		79,408		60,240		78,618		75,633
Office furniture		74,158		78,053		82,216		87,731
Freight revenue		33,201		31,959		34,731		33,264
Services, Advertising and Other		4,210		5,148		7,035		7,281
Total net sales	$	1,352,296	$	1,332,375	$	1,407,504	$	1,391,545

(1)

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

Net sales in the janitorial and breakroom supplies (JanSan) product category ~~increased 1.0%~~decreased 1.3% in the ~~first~~third quarter of 2016 compared to the ~~first~~third quarter of 2015. This category accounted for ~~26.8%~~26.5% of the Company’s ~~first~~second quarter 2016 consolidated net sales. ~~Net sales increased~~Sales in this category declined due to ~~new e-tail growth, partially offset by a decline~~lower volumes in ~~sales to the~~ independent ~~dealer channel.~~distributor channels.

Net sales in the technology products category (primarily ink and toner) ~~decreased 0.5%~~increased 0.7% from the ~~first~~third quarter of 2015. This category accounted for ~~26.0%~~24.6% of net sales for the ~~first~~third quarter of 2016. Excluding our Mexican subsidiary, which was sold in the third quarter of 2015, net sales in this category increased ~~4.8%~~3.2% compared to the prior year quarter, which was driven by sales to new customers.

Net sales of traditional office products increased in the ~~first~~third quarter of 2016 by ~~4.0%~~1.6% versus the ~~first~~third quarter of 2015. Traditional office supplies represented ~~22.8%~~17.0% of the Company’s consolidated net sales for the ~~first~~third quarter of 2016. The sales increase was driven by ~~increases~~an increase in ~~cut-sheet paper~~ sales ~~and higher government spending.~~in independent dealer channels as we have increased our share in this channel with new key customer acquisitions.

Industrial supplies net sales in the ~~first~~third quarter of 2016 decreased by ~~6.2%~~4.7% compared to the same prior-year period. Net sales of industrial supplies accounted for ~~10.3%~~9.9% of the Company’s net sales for the ~~first~~third quarter of 2016. ~~The~~Growth in retail channel sales partially offset the decline in industrial supplies net sales ~~was primarily due to~~driven by challenges in the oilfield and welding sector and macro-economic environment. ~~This decline~~

Net sales in the cut sheet paper category increased in the third quarter of 2016 by 27.6% compared to the third quarter of 2015. Cut sheet paper net sales accounted for 7.6% of the Company’s net sales for the third quarter of 2016. The increase in this category was ~~partially offset~~driven by ~~growth~~increased sales in ~~retail channel sales.~~the independent dealer channels.

Automotive net sales in the ~~first~~third quarter of 2016 increased ~~31.8%~~3.9% compared to the ~~first~~third quarter of 2015. Automotive net sales represented ~~5.9%~~5.6% of the Company’s ~~first~~third quarter of 2016 net sales. This increase was ~~primarily~~ due to the acquisition of Nestor which contributed ~~$16.9~~an additional $3.8 million in net ~~sales.~~sales in the third quarter of 2016.

Office furniture net sales in the ~~first~~third quarter of 2016 decreased ~~5.0%~~6.3% compared to the ~~first~~third quarter of 2015. Office furniture accounted for ~~5.5%~~5.8% of the Company’s ~~first~~third quarter of 2016 consolidated net sales. This decline was due to declines in sales in national accounts and independent dealer channels.

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

Gross Profit and Gross Margin Rate. Gross profit for the ~~first~~third quarter of 2016 was ~~$200.1~~$198.9 million, compared to ~~$200.4~~$225.1 million in the ~~first~~third quarter of 2015. The gross margin rate of ~~14.8%~~14.1% was down 20210 basis points (bps) from the prior-year quarter gross margin rate of ~~15.0%~~16.2%. Our gross margin ~~was impacted by lower inflation (22 bps)~~declined primarily due to reduced supplier allowances related to inventory reductions and customer and product mix. We also experienced higher freight ~~(22 bps), partially offset by increased sales.~~cost due to new sales and growth of larger customers, and inventory expense increase due to the 2015 favorability related to a LIFO conversion. Our sales to larger resellers are generally at lower margins than sales to our smaller resellers. Sales to new customers tend to be lower margin but mature over time. Lower margin categories of sales include cut-sheet paper and technology, while JanSan office products, furniture and industrial are higher margin categories.

Operating Expenses. Operating expenses for the ~~first~~third quarter of 2016 were ~~$167.7~~$138.5 million or 9.8% of net sales, compared to $172.2 million or 12.4% of net sales ~~compared to $197.6 million~~ in the prior ~~year, including $30.5~~year. The $33.7 million ~~related~~decline was driven by the gain on sale of the City of Industry facility (refer to Note 3) as well as the ~~first quarter~~impairment of ~~2015 Repositioning Actions.~~seller notes in 2015. Adjusted operating expenses were ~~$167.4~~$158.6 million or ~~12.4%~~11.3% of net sales compared with ~~$167.1~~$158.6 million or ~~12.5%~~11.4% of net sales in the same period last ~~year. The $0.3 million increase was driven by incremental~~year, reflecting the recognition of previously capitalized costs related to inventory reduction and incremental variable labor costs, offset by actions to reduce salary expense, discretionary spend and lower incentive compensation. We expect to realize future savings through continued rationalization of our distribution center network, realization of process improvements in our distribution centers and our infrastructure, and optimization of our fleet and delivery structure to match the ~~common platform project (22 bps).~~changing business that we are supporting.

Interest Expense, net. Interest expense, net for the ~~first~~third quarter of 2016 was ~~$5.9~~$6.5 million compared to ~~$4.8~~$5.3 million in the ~~first~~third quarter of 2015. This was driven by higher debt outstanding related to our acquisitions in the past year. Interest expense is expected to be higher in 2016 than in the prior year.

Income Taxes. Income tax expense was ~~$10.0~~$17.1 million for the ~~first~~third quarter of 2016, compared with ~~$4.0~~$20.0 million for the same period in 2015. The Company’s effective tax rate was ~~37.6%~~31.8% for the current-year quarter and ~~(196.6)%~~42.0% for the same period in ~~2015, driven by unfavorable discrete tax impacts of placing a non-strategic business for sale in the first quarter of~~ 2015.

Net ~~Income (Loss).~~Income. Net income for the ~~first~~third quarter of 2016 ~~totaled $16.5~~increased to $36.7 million or ~~$0.45~~$0.99 per diluted share, compared to ~~$(6.0)~~$27.7 million or $0.74 per diluted share in the prior ~~year, which included $23.9 million after-tax, or $0.62 per diluted share, of costs related to the first quarter charges.~~year. Adjusted net income was ~~$16.7~~$20.9 million, or ~~$0.45~~$0.57 per diluted share, compared with adjusted net income of ~~$17.9~~$37.7 million or ~~$0.46~~$1.00 per diluted share for the same three-month period in 2015.

Results of Operations— Nine Months Ended September 30, 2016 Compared with the Nine Months Ended September 30, 2015

21Net Sales. Net sales for the nine-month period ended September 30, 2016 were $4.1 billion. The following table summarizes net sales by product category for the nine months ended September 30, 2016 and 2015 (in thousands):

	For the Nine Months Ended September 30,
	2016		2015⁽¹⁾
Janitorial and breakroom supplies	$	1,102,909	$	1,107,574
Technology products		1,038,194		1,045,577
Traditional office products		669,290		654,669
Industrial supplies		422,142		444,413
Cut sheet paper		294,804		254,395
Automotive		238,576		199,870
Office furniture		231,370		245,104
Freight revenue		100,293		95,522
Services, Advertising and Other		16,745		18,595
Total net sales	$	4,114,323	$	4,065,719

(1)

Sales in the janitorial and breakroom supplies product category in the first nine months of 2016 were comparable to the first nine months of 2015. This category accounted for 26.8% of the Company’s first nine months of 2016 consolidated net sales. Sales in this category declined due to lower volumes in independent distributor channels.

Sales in the technology products category (primarily ink and toner) decreased in the first nine months of 2016 by 0.7% versus the first nine months of 2015. This category accounted for 25.2% of net sales for the first nine months of 2016. Excluding our Mexican subsidiary, which was sold in the third quarter of 2015, net sales in this category increased 4.3% compared to the prior year quarter, driven by sales to new e-tailers and technology customers.

~~Pension Settlement~~

~~In February~~Sales of traditional office products increased in the first nine months of 2016 ~~as a result~~by 2.2% versus the first nine months of ~~plan amendment, the Company announced a limited-time voluntary lump-sum pension offering to eligible, terminated, vested plan participants~~2015. Traditional office supplies represented 16.3% of the ~~Essendant Pension Plan. The Company estimates approximately 1,400 plan participants took this offering during~~Company’s consolidated net sales for 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 the Essendant Pension Plan’s assets and obligations in the second quarterfirst nine months of 2016. The ~~remeasurement will result~~improvement in ~~a non-cash settlement charge~~this category was primarily driven by increased sales in independent dealer channels as we have increased our share in this channel with new key customer acquisitions.

Industrial supplies sales in the ~~second quarter~~first nine months of 2016 decreased by 5.0% compared to the same prior-year period and accounted for 10.3% of the Company’s net sales for the first nine months of 2016. Industrial supplies sales declined due to impacts of our general industrial and energy channels. We expect this impact to continue throughout the year.

Net sales in the cut sheet paper category increased in the first nine months of 2016 by 15.9% compared to the first nine months of 2015. Cut sheet paper net sales accounted for 7.2% of the Company’s net sales for the first nine months of 2016. The increase in this category was driven by increased sales in the independent dealer channels.

Automotive net sales in the first nine months of 2016 increased 19.4% compared to the same prior-year period. Automotive net sales represented 5.8% of the Company’s net sales for the first nine months of 2016. This increase was primarily due to the acquisition of Nestor which contributed an additional $38.9 million in net sales.

Office furniture sales in the first nine months of 2016 decreased 5.6% compared to the first nine months of 2015. Office furniture accounted for 5.6% of the Company’s first nine months of 2016 consolidated net sales. The decline in this category was primarily driven by national account and independent dealer channels sales decreases.

The remainder of the Company’s first nine months of 2016 net sales was composed of freight and other revenues.

Gross Profit and Gross Margin Rate. Gross profit for the first nine months of 2016 was $594.8 million, compared to $635.7 million in the first nine months of 2015. The gross margin rate of 14.5% was down 110 bps from the prior-year period gross margin rate of 15.6%. This decrease was primarily due to product margin, driven by customer and product mix, and higher freight expenses.

Operating Expenses. Operating expenses for the first nine months of 2016 were $475.6 million or 11.6% of sales, compared with $526.7 million or 13.0% of sales in the same period last year. The improvement was due to the gain on sale of City of Industry facility (see Note 3) as well as the impairment of seller notes in 2015. Adjusted operating expenses were $483.7 million or 11.8% of net sales and $480.9 million or 11.8% of net sales in the first nine months of 2016 and ~~will reduce~~2015, respectively.

Interest Expense, net. Interest expense, net for the first nine months of 2016 was $18.1 million compared to $14.9 million in the first nine months of 2015. This was driven by higher debt outstanding related to our acquisitions in the past year. Interest expense is expected to be higher in 2016 than in the prior year.

Income Taxes. Income tax expense was $34.9 million for the first nine months of 2016, compared with $42.6 million for the same period in 2015. The Company’s effective tax rate was 34.5% for the current-year period and 45.3% for the same period in 2015.

Net Income. Net income for the first nine months of 2016 totaled $66.2 million or $1.79 per diluted share, including $8.3 million after-tax, or $0.22 per diluted share, of income related to the Actions. For the same period in the prior year, net income was $51.5 million or $1.35 per diluted share. Adjusted net income for the first nine months of 2016 was $57.9 million, or $1.57 per diluted share, compared with adjusted net income of $86.3 million or $2.26 per diluted share for the same nine-month period in 2015.

Pension Settlement

Defined benefit plan settlement loss of $0.4 million and ~~retained earnings, with a partial offset~~$12.2 million for the three and nine months ended September 30, 2016, respectively, resulted from the voluntary lump sum program announced in February 2016. Refer to ~~accumulated other comprehensive income in shareholders’ equity. The amount of~~Note 10 “Pension and Post-Retirement Benefit Plans”, for further information on the remeasurement ~~will depend on a variety of factors, including plan assets values~~ and ~~discount rates at the date of valuation.~~voluntary lump sum program.

Cash Flows

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

Operating Activities

Net cash ~~used in~~provided by operating activities for the ~~three months~~nine-month period ended ~~March 31,~~September 30, 2016 totaled ~~$10.8~~$106.0 million, compared with $62.7 million cash provided by operating activities in the three months ended March 31, 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$183.7 million in the ~~first quarter~~nine-month period ended September 30, 2015. A decrease in inventory of ~~2016,~~$73.7 million compared ~~with~~to a decrease of ~~$46.0~~$54.4 million in the prior year, ~~quarter.~~ an increase in accounts payable of $8.9 million compared to an increase of $50.4 million in the prior year, and an increase in dealer prepayments of $34.5 million compared to an increase of $10.8 million in the prior year were the primary drivers of the $77.7 million decrease.

Investing Activities

Net cash provided by investing activities for the first nine months of 2016 was $5.7 million, compared with $57.8 million used in investing activities for the ~~first three months~~nine-month period ended September 30, 2015. The $63.5 million change was primarily driven by $31.0 million proceeds from the sale of our City of Industry facility in 2016 ~~was $9.6 million,~~ compared with ~~$5.5~~$40.5 million ~~for the three months ended March 31,~~cash used in our acquisition activity in 2015.

Financing Activities

Net cash ~~provided by~~used in financing activities for the ~~three months~~nine-month period ended ~~March 31,~~September 30, 2016 totaled ~~$25.6~~$119.3 million, compared with ~~$51.7~~$118.1 million in the same prior-year period. Net cash used in financing activities ~~in the prior-year period. Net cash provided by financing activities~~ during the first ~~three~~nine months of 2016 was impacted by ~~$37.0~~$96.6 million in net ~~borrowing~~repayments under our revolving credit facility compared to $45.3 million in the prior year, and $6.8 million in share repurchases, ~~and $5.2~~compared to $55.7 million in ~~payments of cash dividends.~~the prior year.

On ~~February 10,~~July 14, 2016, the Board of Directors approved a dividend of $0.14 which was paid on ~~April 15,~~October 14, 2016 to shareholders of record as of ~~March~~September 15, 2016.

~~In the first quarter of~~ On September 28, 2016, the ~~Company had~~Company’s Board of Directors approved payment of a $0.14 per share dividend to shareholders of record as of December 15, 2016 to be paid on January 13, 2017.

The 2013 Credit Agreement and the 2013 Note Purchase Agreement (each as defined in Note 11 “Debt” in the Notes to the Consolidated Financial Statements in the 2015 Form 10-K) limit the Company’s ability to repurchase its stock when the Company’s Leverage Ratio, as defined in ~~its~~the 2013 Credit Agreement and the 2013 Note Purchase Agreement and ~~the Amended and Restated Transfer and Administration Agreement, that~~as reported to its lenders, exceeds ~~the~~ 3.00 to ~~1.00 maximum per~~1.00. As of September 30, 2016, the ~~agreements and, therefore, is currently limited in its ability~~Company’s Leverage Ratio was 2.77 to ~~repurchase its stock.~~ 1.00.

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 ~~March 31,~~September 30, 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		405.8				271.8
2013 Note Purchase Agreement		150.0				150.0
Receivables Securitization Program ⁽¹⁾		200.0				200.0
Outstanding letters of credit		11.6				11.2
Total financing utilized				767.4				633.0
Available financing, before restrictions				282.6				417.0
Restrictive covenant limitation(2)				94.3				140.4
Available financing as of March 31, 2016			$	188.3
Available financing as of September 30, 2016							$	276.6

(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.

(2)	For a description of the restrictive covenants limiting the indebtedness the Company can incur, refer to Note 9 to the Condensed Consolidated Financial Statements included herein.

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

	As of			As of			As of			As of
	March 31,			December 31,			September 30,			December 31,
	2016			2015			2016			2015
2013 Credit Agreement	$	405.8		$	368.4		$	271.8		$	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			-
Debt		755.9			718.4			621.8			718.4
Stockholders’ equity		734.5			723.7			782.6			723.7
Total capitalization	$	1,490.4		$	1,442.1		$	1,404.4		$	1,442.1

Debt-to-total capitalization ratio		50.7	%		49.8	%		44.3	%		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 8,9, “Debt”, for further descriptions of the provisions of our financing facilities as well as Note 11 “Debt” in our 2015 Form 10-K.

Contractual Obligations

During the nine-month period ended September 30, 2016, contractual obligations increased by $73.8 million from those disclosed in our Annual Report on Form 10-K for the ~~year-ended~~year ended December 31, ~~2015.~~2015, driven by new facility leases, facility lease renewals and new multi-year technology contracts.

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 ~~three~~nine months of 2016 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 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 ~~March 31,~~September 30, 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.

The Company has been named as a defendant in two lawsuits alleging that the Company sent unsolicited fax advertisements to the named plaintiffs, as well as 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"). One lawsuit was initially filed in the United States District Court for the 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 JanuaryFor information regarding legal proceedings, see Note 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. In each lawsuit, the Company is vigorously contesting class certification and 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 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. “Legal Matters.”

ITEM 1A.

RISK FACTORS.

For information regarding risk factors, see “Risk Factors” in Item 1A of Part I of the ~~Company’s~~2015 Form ~~10-K for the year ended December 31, 2015.~~10-K. There have been no material changes to the risk factors described in such Form ~~10-K.~~10-K, except for the following two revised risk factors.

Price transparency, customer consolidation, and changes in product sales mix may result in lower margins.

The Company faces price and margin pressure due to a number of factors, including:

Increased price transparency, driven by online resellers

Customer consolidation resulting in some customers increasing their buying power and seeking economic

concessions from the Company

Shift in customer mix from higher to lower margin channels and vertical markets

Secular decline in office products categories leading to unfavorable product mix

Vendor consolidation.

If Essendant is unable to reduce expenses, grow sales to existing and new customers, and increase sales of higher margin products as a percentage of total sales, the Company’s results of operations and financial condition may be adversely affected.

For example, during the second and third quarters of 2016, despite the Company’s success at converting customers, profitability was adversely affected by margin pressure resulting from a shift in customer mix to lower margin customers and in product category mix to lower margin products. The transparency of pricing online also caused margin pressure.

Essendant’s reliance on supplier allowances and promotional incentives could impact profitability.

Supplier allowances and promotional incentives that are often based on the volume of Company product purchases contribute significantly to Essendant’s profitability. If Essendant does not comply with suppliers’ terms and conditions, or does not make requisite purchases to achieve certain volume hurdles, Essendant may not earn certain allowances and promotional incentives. Additionally, suppliers may reduce the allowances they pay Essendant if they conclude the value Essendant creates does not justify the allowances. If Essendant’s suppliers reduce or otherwise alter their allowances or promotional incentives, Essendant’s profit margin for the sale of the products it purchases from those suppliers may decline. The loss or diminution of supplier allowances and promotional support could have an adverse effect on the Company’s results of operations.

For example, in the second quarter of 2016, lower supplier allowances and promotional incentives contributed to the unfavorable margin impact of the product category mix shift, and as the Company executed its strategy to improve cash flow in part through lower inventory balances in the third quarter of 2016, a reduction in purchases from suppliers resulted in lower supplier allowances, which contributed to the unfavorable gross margin changes.

I~~TEM~~ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

Not applicable.

(b)

Not applicable.

(c)

Common Stock Purchases.

During the ~~three-month periods~~nine months ended ~~March 31,~~September 30, 2016 and 2015, the Company repurchased 241,270 and ~~402,679~~1,525,222 shares of common stock at an aggregate cost of $6.8 million and ~~$16.3~~$57.4 million, respectively. The Company did not repurchase any additional shares through ~~April 18,~~October 24, 2016. As of that date, the Company had approximately $68.2 million remaining of existing share repurchase authorization from the Board of Directors.

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

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
July 1, 2016 to July 31, 2016		-		-		-		68,160,702
August 1, 2016 to August 31, 2016		-		-		-		68,160,702
September 1, 2016 to September 30, 2016		-		-		-		68,160,702
Total Third Quarter		-	$	-		-	$	68,160,702

2530

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”), dated as of June 1, 2015 (Exhibit 3.1 to the Form 10-Q, filed on July 23,2015)

3.2		Amended and Restated Bylaws of Essendant Inc., dated as of June 1, 2015 (Exhibit 3.2 to the Form 10-Q, filed on July 23, 2015)

4.1		Note Purchase Agreement, dated as of November 25, 2013, among 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.~~
	thereto (Exhibit 4.2 to the Form 10-Q, filed on April 20, 2016)
4.3		Parent Guaranty, dated as of November 25, 2013, by ESND in favor of the holders of the promissory notes identified therein (Exhibit 4.5 to the 2013 Form 10-K)

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

10.1*10.1		Essendant, Inc. Amended and Restated Executive Severance Plan (Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 18, 2016)**
10.2*†		2016 ~~Annual~~ Cash Incentive Award Plan For Section 16 OfficersAgreement with EPS Minimum dated as of July 18, 2016, by and between ESND and Richard D. Phillips*
10.3*		Amended and Restated Executive Employment Agreement, dated as of July 22, 2016, by and among ESND, ECO, Essendant Management Services (“EMS”) and Robert B. Aiken, Jr.**
10.210.4		Form of ~~Performance Based Restricted Stock Unit Award~~Amended and Restated Executive Employment Agreement, Under the 2015 Long-Term Incentive Planeffective as of January 1, 2017*

10.310.5		Form of 2016 Restricted Stock Award Agreement with EPS Minimum ~~Under~~under the 2015 Long-Term Incentive Plan**
10.6*		Form of Performance Based Restricted Stock Unit Award Agreement under the 2015 Long-Term Incentive Plan**
10.410.7		Amendment No. 12 to Note Purchase Agreement, dated as of August 30, 2016, between ESND, ECO, and the noteholders identified therein
10.8*		Amendment No. 2 to the Fourth Amended and Restated ~~Five-Year~~Five Year Revolving Credit Agreement, dated as of ~~January 27,~~August 29, 2016, ~~among~~between ESND, ECO, ~~ESND, the financial institutions that are parties theret,o and~~ JPMorgan Chase Bank, ~~National Association,~~N.A., as agent, and the other financial institutions identified therein
10.9*
10.5*		~~Fifth Amendment to Amended and Restated Transfer and Administration Agreement, dated as of March~~August 30, 2016 ~~among Essendant Receivables LLC, ECO, Essendant Financial Services LLC, PNC Bank, National Association and The Bank~~Consent of ~~Tokyo-Mitsubishi UFJ, Ltd., New York Branch~~

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

~~18.1~~		~~Preferability Letter on Change in Accounting Principle~~
		18, 2013 to amendment to the amendment of the Fourth Amended and Restated Five Year Revolving Credit Agreement, dated as of July 8, 2013
31.1*		Certification of Chief Executive Officer, dated as of ~~April 20,~~October 26, 2016, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer, dated as of ~~April 20,~~October 26, 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 ~~April 20,~~October 26, 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 ~~March 31,~~September 30, 2016, filed with the SEC on ~~April 20,~~October 26, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statement of Income for the three-month and nine-month periods ended ~~March 31,~~September 30, 2016 and 2015 , (ii) the Condensed Consolidated Balance Sheet at ~~March 31,~~September 30, 2016 and December 31, 2015, (iii) the Condensed Consolidated Statement of Cash Flows for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2016 and 2015, and (iv) Notes to Condensed Consolidated Financial Statements.

- Filed herewith

**		- Represents a management contract or compensatory plan or arrangement
†		- Confidential treatment has been requested for a portion of this document. Confidential portions have been omitted and filed separately with the Securities and Exchange Commission.

2631

S~~IGNATURES~~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: ~~April 20,~~October 26, 2016			/s/ Earl C. Shanks
			Earl C. Shanks
			Senior Vice President and Chief Financial Officer

Large accelerated filer	x☒	Accelerated filer	¨☐

Non-accelerated filer	¨☐ (Do not check if a smaller reporting company)	Smaller reporting company	¨☐

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2016 and December 31, 2015		3
Condensed Consolidated Statements of Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2016 and 2015		4
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2016 and 2015		5
Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2016 and 2015		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2428
Item 4. Controls and Procedures		2428
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		2429
Item 1A. Risk Factors		2429
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		2530
Item 6. Exhibits		2631
SIGNATURES		2732

	(Unaudited)						(Unaudited)			(Audited)
	As of March 31,			As of December 31,			As of September 30,			As of December 31,
	2016			2015			2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	35,430		$	29,983		$	22,647		$	29,983
Accounts receivable, less allowance for doubtful accounts of $17,686 in 2016 and $17,810 in 2015		741,625			716,537
Accounts receivable, less allowance for doubtful accounts of $16,696 in 2016 and $17,810 in 2015								752,260			716,537
Inventories		894,350			922,162			850,463			922,162
Other current assets		35,153			27,310			44,771			27,310
Total current assets		1,706,558			1,695,992			1,670,141			1,695,992
Property, plant and equipment, net		132,452			133,751			126,334			133,751
Goodwill		299,147			299,355			298,242			299,355
Intangible assets, net		93,657			96,413			86,886			96,413
Other long-term assets		54,004			37,348			55,059			37,348
Total assets	$	2,285,818		$	2,262,859		$	2,236,662		$	2,262,859
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	521,132		$	531,949		$	540,743		$	531,949
Accrued liabilities		178,858			177,472			192,189			177,472
Current maturities of long-term debt		48			51			35			51
Total current liabilities		700,038			709,472			732,967			709,472
Deferred income taxes		7,508			11,901			8,372			11,901
Long-term debt		753,854			716,264			620,155			716,264
Other long-term liabilities		89,904			101,488			92,535			101,488
Total liabilities		1,551,304			1,539,125			1,454,029			1,539,125
Stockholders’ equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2016 and 2015		7,444			7,444			7,444			7,444
Additional paid-in capital		411,485			410,927			406,964			410,927
Treasury stock, at cost – 37,312,864 shares in 2016 and 37,178,394 shares in 2015		(1,105,119	)		(1,100,867	)
Treasury stock, at cost – 36,967,378 shares in 2016 and 37,178,394 shares in 2015								(1,097,094	)		(1,100,867	)
Retained earnings		1,475,216			1,463,821			1,514,573			1,463,821
Accumulated other comprehensive loss		(54,512	)		(57,591	)		(49,254	)		(57,591	)
Total stockholders’ equity		734,514			723,734			782,633			723,734
Total liabilities and stockholders’ equity	$	2,285,818		$	2,262,859		$	2,236,662		$	2,262,859

	For the Three Months Ended						For the Three Months Ended						For the Nine Months Ended
	March 31,						September 30,						September 30,
	2016			2015 (Revised)*			2016			2015			2016			2015
Net income (loss)	$	16,530		$	(6,007	)
Net income							$	36,742		$	27,667		$	66,205		$	51,492
Other comprehensive income (loss), net of tax
Translation adjustments		2,691			(4,630	)		(692	)		7,497			2,441			3,076
Minimum pension liability adjustments		915			932			(2,298	)		967			6,035			2,831
Cash flow hedge adjustments		(527	)		(476	)		288			(208	)		(139	)		(636	)
Total other comprehensive income (loss), net of tax		3,079			(4,174	)		(2,702	)		8,256			8,337			5,271
Comprehensive income (loss)	$	19,609		$	(10,181	)
Comprehensive income							$	34,040		$	35,923		$	74,542		$	56,763

	For the Three Months Ended						For the Nine Months Ended
	March 31,						September 30,
	2016			2015 (Revised)*			2016			2015
Cash Flows From Operating Activities:
Net income (loss)	$	16,530		$	(6,007	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Net income							$	66,205		$	51,492
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,731			12,223			34,199			36,344
Share-based compensation		2,911			2,640			6,903			6,447
Gain on the disposition of property, plant and equipment		(167	)		(15	)
(Gain) loss on the disposition of property, plant and equipment								(21,027	)		1,562
Amortization of capitalized financing costs		166			272			502			659
Excess tax cost (benefit) related to share-based compensation		133			(262	)		960			(402	)
Asset impairment charges		-			23,610			-			34,893
Loss on sale of equity investment								-			33
Deferred income taxes		(1,881	)		(1,469	)		(6,970	)		(15,285	)
Pension settlement charge								12,163			-
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net		(24,819	)		26,217
Increase in accounts receivable, net								(35,457	)		(31,288	)
Decrease in inventory		28,018			46,023			73,735			54,354
Increase in other assets		(24,774	)		(10,751	)		(35,221	)		(8,720	)
Increase in accounts payable		9,571			645			8,902			50,412
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
Increase in accrued liabilities								13,659			6,500
Decrease in other liabilities								(12,585	)		(3,342	)
Net cash provided by operating activities								105,968			183,659
Cash Flows From Investing Activities:
Capital expenditures		(9,877	)		(5,490	)		(28,167	)		(18,133	)
Proceeds from the disposition of property, plant and equipment		281			18			33,890			184
Net cash used in investing activities		(9,596	)		(5,472	)
Acquisition, net of cash acquired								-			(40,471	)
Proceeds from sale of equity investment								-			612
Net cash provided by (used in) investing activities								5,723			(57,808	)
Cash Flows From Financing Activities:
Net borrowing (repayments) under revolving credit facility		37,388			(29,630	)
Net repayments under revolving credit facility								(96,640	)		(45,309	)
Net proceeds (disbursements) from share-based compensation arrangements		339			(875	)		621			(1,507	)
Acquisition of treasury stock, at cost		(6,839	)		(16,028	)		(6,839	)		(55,677	)
Payment of cash dividends		(5,160	)		(5,396	)		(15,355	)		(15,976	)
Excess tax (cost) benefit related to share-based compensation		(133	)		262			(960	)		402
Payment of debt issuance costs		-			(36	)		(86	)		(36	)
Net cash provided by (used in) financing activities		25,595			(51,703	)
Net cash used in financing activities								(119,259	)		(118,103	)
Effect of exchange rate changes on cash and cash equivalents		269			(1,758	)		232			(513	)
Transfer of cash to held for sale		-			(970	)
Net change in cash and cash equivalents		5,447			2,819			(7,336	)		7,235
Cash and cash equivalents, beginning of period		29,983			20,812			29,983			20,812
Cash and cash equivalents, end of period	$	35,430		$	23,631		$	22,647		$	28,047
Other Cash Flow Information:
Income tax payments, net	$	1,027		$	3,183		$	27,821		$	53,704
Interest paid		7,292			6,213			19,607			16,032

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

	Total		Estimated Life	Total		Estimated Life
Customer relationships	$	16,220	13 years	$	15,570	13 years
Trademark		1,360	2.5-15 years		1,360	2-15 years
Total	$	17,580		$	16,930

	Expenses										Cash flow				Accrued Liabilities
	For the three months ended September 30,					For the nine months ended September 30,					For the nine months ended September 30,				As of September 30,
	2016			2015		2016			2015		2016		2015		2016
First quarter 2015 Actions
Workforce reduction	$	(0.5	)	$	-	$	(0.5	)	$	6.0
Facility closure	$	-			0.2	$	0.3			0.5
Total	$	(0.5	)		0.2	$	(0.2	)	$	6.5	$	1.2	$	3.0	$	0.8

Fourth Quarter 2015 Action
Workforce reduction	$	(0.7	)	N/A		$	(0.7	)	N/A		$	8.0	N/A		$	2.1

Goodwill, balance as of December 31, 2015	$	299,355		$	299,355
Purchase accounting adjustments		(1,095	)		(1,858	)
Currency translation adjustments		887			745
Goodwill, balance as of March 31, 2016	$	299,147
Goodwill, balance as of September 30, 2016				$	298,242

	March 31, 2016								December 31, 2015								September 30, 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	$	138,422	$	(54,140	)	$	84,282	16	$	137,938	$	(51,357	)	$	86,581	16	$	137,678	$	(59,545	)	$	78,133	16	$	137,938	$	(51,357	)	$	86,581	16
Non-compete agreements		4,654		(4,260	)		394	4		4,644		(4,260	)		384	4		4,651		(4,260	)		391	4		4,644		(4,260	)		384	4
Trademarks		13,734		(4,753	)		8,981	14		13,688		(4,240	)		9,448	14		13,725		(5,363	)		8,362	14		13,688		(4,240	)		9,448	14
Total	$	156,810	$	(63,153	)	$	93,657		$	156,270	$	(59,857	)	$	96,413		$	156,054	$	(69,168	)	$	86,886		$	156,270	$	(59,857	)	$	96,413

Year	Amount		Amount
2016	$	12,314	$	12,242
2017		10,855		10,797
2018		8,111		8,054
2019		6,993		6,937
2020		6,990		6,934

	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, 2015	$	(9,866	)	$	146		$	(47,871	)	$	(57,591	)	$	(9,866	)	$	146		$	(47,871	)	$	(57,591	)
Other comprehensive (loss) income before reclassifications		2,691			(753	)		-			1,938			2,441			(579	)		(3,946	)		(2,084	)
Settlement loss reclassified from AOCI														-			-			7,453			7,453
Amounts reclassified from AOCI		-			226			915			1,141			-			440			2,528			2,968
Net other comprehensive (loss) income		2,691			(527	)		915			3,079			2,441			(139	)		6,035			8,337
AOCI, balance as of March 31, 2016	$	(7,175	)	$	(381	)	$	(46,956	)	$	(54,512	)
AOCI, balance as of September 30, 2016													$	(7,425	)	$	7		$	(41,836	)	$	(49,254	)

	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	2016			2016			Where Net Income is Presented
Realized and unrealized gains (losses) on cash flow hedges
Gain on interest rate swap, before tax	$	249		$	789		Interest expense, net
Loss on foreign exchange hedges, before tax		-			(70	)	Cost of goods sold
		(96	)		(279	)	Tax provision
	$	153		$	440		Net of tax

Defined benefit pension plan items
Amortization of prior service cost and unrecognized loss	$	1,237		$	4,125		Warehousing, marketing and administrative expenses
Settlement loss		419			12,163		Defined benefit plan settlement loss
		(641	)		(6,307	)	Tax provision
		1,015			9,981		Net of tax
Total reclassifications for the period, net of tax	$	1,168		$	10,421

	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

	For the Three Months Ended March 31,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2015			2016			2015			2016			2015
Service cost - benefit earned during the period	$	317		$	400		$	318		$	321		$	952		$	1,121
Interest cost on projected benefit obligation		2,343			2,270			1,806			2,208			6,322			6,748
Expected return on plan assets		(2,718	)		(2,805	)		(2,219	)		(2,803	)		(7,484	)		(8,413	)
Amortization of prior service cost		74			75			74			72			222			222
Amortization of actuarial loss		1,419			1,450			1,163			1,501			3,903			4,401
Settlement loss								419			-			12,163			-
Net periodic pension cost	$	1,435		$	1,390		$	1,561		$	1,299		$	16,078		$	4,079

	Fair Value Measurements as of March 31, 2016								Fair Value Measurements as of September 30, 2016
			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
Assets
Foreign exchange hedges									$	95	$	-	$	95	$	-
	Total		Level 1		Level 2		Level 3
Liabilities
Interest rate swap	$	832	$	-	$	832	$	-	$	501	$	-	$	501	$	-
Foreign exchange hedges	$	288	$	-	$	288	$	-		30		-		30		-
									$	531	$	-	$	531	$	-

	Fair Value Measurements as of December 31, 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 hedges	$	91	$	-	$	91	$	-	$	91	$	-	$	91	$	-

Liabilities
Interest rate swap	$	469	$	-	$	469	$	-	$	469	$	-	$	469	$	-

	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 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	$	(121	)	$	(124	)	Interest expense, net	$	242	$	331
Foreign Exchange Hedges		(195	)		-		Cost of goods sold		89		-